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As filed with the Securities and Exchange Commission on May 12, 2006

Registration No. 333-131536



SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Amendment No. 3
to

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933


MUELLER WATER PRODUCTS, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
  3491
(Primary Standard Industrial
Classification Code Number)
  20-3547095
(I.R.S. Employer
Identification Number)

4211 W. Boy Scout Blvd.
Tampa, FL 33607
(813) 871-4811
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices)

Victor P. Patrick, Esq.
Vice President, Secretary
4211 W. Boy Scout Blvd.
Tampa, FL 33607
(813) 871-4811
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)



Copies to:
Vincent Pagano, Jr., Esq.
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
  Andrew R. Schleider, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
(212) 848-4000

Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

        If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

        If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

        If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o


CALCULATION OF REGISTRATION FEE


Title of Each Class of Securities to be Registered
  Amount to be Registered(1)
  Proposed Maximum Offering Price Per Share
  Proposed Maximum Aggregate
Offering Price(1)(2)

  Amount Of
Registration Fee(2)(3)


Series A Common Stock, par value 0.01 per share   27,058,823 shares   $18.00   $487,058,814   $52,116

(1)
Includes the underwriters' option to purchase additional 3,529,411 shares.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.

(3)
Includes $49,220 previously paid.


        The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.




The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 12, 2006

23,529,412 Shares

GRAPHIC

Series A Common Stock


        We are selling 23,529,412 shares of Series A common stock. Prior to this offering there has been no public market for our Series A common stock. The initial public offering price of the Series A common stock is expected to be between $16.00 and $18.00 per share. We intend to list our Series A common stock on The New York Stock Exchange under the symbol "MWA."

        We are a wholly-owned subsidiary of Walter Industries, Inc. We have two series of authorized common stock—Series A common stock and Series B common stock. Walter Industries owns all of the outstanding shares of our Series B common stock. Except in certain circumstances, holders of our Series A common stock are entitled to one vote per share and the holders of our Series B common stock are entitled to eight votes per share on all matters to be voted on by shareholders. Following the offering, the outstanding shares of Series A common stock will represent 3.3% of the combined voting power of all series of voting stock and 21.2% of the economic interest (or rights of holders of common equity to participate in distributions in respect of the common equity) in us (3.7% and 23.7%, respectively, if the underwriters' option to purchase additional shares is exercised in full). The remainder of the voting power and economic interest in us will be beneficially held by Walter Industries.

        Investing in our Series A common stock involves a high degree of risk. See "Risk Factors" beginning on page 21.


 
  Price to Public
  Underwriting
Discounts and
Commissions

  Proceeds to us

Per Share   $   $   $

Total   $   $   $

        We have granted the underwriters the right to purchase up to 3,529,411 additional shares of Series A common stock on the same terms and conditions as set forth above if the underwriters sell more than 23,529,412 shares of Series A common stock in this offering. The underwriters can exercise their right at any time and from time to time, in whole or in part, within 30 days after the offering.

        Delivery of the shares of Series A common stock will be made on or about            , 2006.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.


Banc of America Securities LLC   Morgan Stanley   Lehman Brothers

  SunTrust Robinson Humphrey  
  Goldman, Sachs & Co.  
  Avondale Partners  
  Calyon Securities (USA) Inc.  

The date of this prospectus is                        , 2006


LOGO




TABLE OF CONTENTS

 
  PAGE
SUMMARY   1
RISK FACTORS   21
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   35
USE OF PROCEEDS   36
DIVIDEND POLICY   38
CAPITALIZATION   39
DILUTION   41
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS   42
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA   51
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   60
BUSINESS   96
MANAGEMENT   117

 

 

 
PRINCIPAL STOCKHOLDERS   134
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS   135
DESCRIPTION OF CAPITAL STOCK   139
DESCRIPTION OF CERTAIN INDEBTEDNESS   146
CERTAIN UNITED STATES FEDERAL INCOME AND ESTATE TAX CONSEQUENCES TO NON-U.S. HOLDERS   151
SHARES ELIGIBLE FOR FUTURE SALE   154
UNDERWRITING   156
VALIDITY OF COMMON STOCK   163
EXPERTS   163
WHERE YOU CAN FIND MORE INFORMATION   163
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS   F-1

        You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.

        Through and including            , 2006 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.



BASIS OF PRESENTATION

        In this prospectus, unless the context otherwise requires, (1) "Mueller Water," the "Company," "we," "us" or "our" refer to Mueller Water Products, Inc. and its subsidiaries, including U.S. Pipe; (2) the "Issuer" refers to Mueller Water Products, Inc. and not to its subsidiaries; (3) "Predecessor Mueller" refers to Mueller Water prior to the Acquisition (as defined below); (4) "Walter Industries" refers to Walter Industries, Inc. and its subsidiaries (other than us); and (5) "U.S. Pipe" refers to United States Pipe and Foundry Company, LLC, our subsidiary.

        On October 3, 2005, Walter Industries, through a wholly-owned subsidiary, acquired all outstanding shares of capital stock of Predecessor Mueller and contributed U.S. Pipe (which Walter Industries owned since 1969) to Predecessor Mueller through a series of transactions (the "Acquisition"). For accounting and financial statement presentation purposes, in accordance with the accounting principles generally accepted in the United States of America ("GAAP"), U.S. Pipe is treated as the accounting acquiror of Predecessor Mueller. Accordingly, effective October 3, 2005, U.S. Pipe's historical financial information is used for the Company, and all historical financial data of the Company prior to October 3, 2005 included in this prospectus is that of U.S. Pipe. Historical financial statements for Predecessor Mueller for the periods preceding the Acquisition are also included in this prospectus.

        As of the date of this prospectus, we have one class of common stock, all of which is held by Walter Industries. Shortly before completion of this offering, we intend to complete a recapitalization in which we will create two series of common stock. The recapitalization, which may occur through the filing of a restated certificate of incorporation or by other means, will result in the creation of Series A common stock and Series B common stock. The shares sold in the initial public offering of our common stock will be our Series A common stock. Immediately following the offering, Walter Industries will own all of the outstanding shares of our Series B common stock, which will have eight votes per share and will be a series of common stock separate from the Series A common stock offered hereby (which has one vote per share). In general, our Series A common stock and Series B common stock will vote as a single class. The Series B common stock may be converted into Series A common stock at any time at the option of the holder prior to any tax-free spin-off of the Company and will automatically convert into Series A common stock upon certain transfers to third parties. Shares of Series A common stock and shares of Series B common stock will generally have identical rights in all material respects, except for certain voting, conversion and other rights described in this prospectus. See "Description of Capital Stock" for more information. As used in this prospectus, the term "common stock," when used in reference to our capital structure before completion of this offering, means our existing single class of common stock, and when used in reference to our capital structure following completion of this offering, means, collectively, the Series A common stock and the Series B common stock, unless otherwise specified.

        Unless we specifically state otherwise, references to "pro forma" give effect, in the manner described under "Unaudited Pro Forma Condensed Combined Financial Statements," to (1) the Acquisition and related transactions, including borrowings under our $1,195.0 million credit agreement ("2005 Mueller Credit Agreement") and the use of proceeds therefrom to repay old credit facilities and to redeem second priority senior secured floating rate notes of Predecessor Mueller (collectively with the Acquisition, the "Transactions") and (2) the sale by us of shares of Series A common stock in this offering and the application of the proceeds therefrom as described in "Use of Proceeds" (the "Offering").

        Unless the context indicates otherwise, whenever we refer in this prospectus to a particular fiscal year, we mean the fiscal year ending in that particular calendar year. Effective December 30, 2005, U.S. Pipe changed its fiscal year to September 30, which coincides with Predecessor Mueller's fiscal year end. Therefore, on a prospective basis, our fiscal year will end on September 30 of each year. Beginning with the three months ended December 31, 2005, we manage our business and report

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operations through three segments, based largely on the products they sell and the markets they serve. Our segments are named after the lead brand in each segment: Mueller®, U.S. Pipe® and Anvil®. Such segments are consistent with the historical reporting for both Predecessor Mueller and U.S. Pipe. Predecessor Mueller had three reporting segments, Mueller, Anvil and corporate, while U.S. Pipe operated within one segment.

        Certain of the titles and logos of our products referenced in this prospectus are our trademarks. Each trade name, trademark or servicemark of any other company appearing in this prospectus is the property of its holder.

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INDUSTRY AND MARKET DATA

        In this prospectus, we rely on and refer to information and statistics regarding economic conditions and trends, the flow control product market and our market share in the sectors of that market in which we compete. In particular, we have obtained general industry information and statistics from the Congressional Budget Office, the U.S. Census Bureau, Freddie Mac and Moody's. We believe that these sources of information and estimates are reliable and accurate, but we have not independently verified them.

        Although some of the companies that compete in our particular industry segments are publicly held as of the date of this prospectus, many are not. Accordingly, other than certain market data with respect to fire hydrants, ductile iron pipe and water valves, no current publicly available information is available with respect to the size of such markets or our relative market strength or competitive position. Our statements about our relative market strength and competitive position in this prospectus with respect to other products are based on our management's belief, internal studies and our management's knowledge of industry trends.

iii



SUMMARY

        This summary highlights the more detailed information in this prospectus and you should read the entire prospectus carefully, including the section entitled "Risk Factors" and the financial statements and the related notes included in this prospectus.


Our Company

        We are a leading North American manufacturer of a broad range of water infrastructure and flow control products for use in water distribution networks, water and wastewater treatment facilities, gas distribution systems and fire protection piping systems. We believe we have the most comprehensive water infrastructure and flow control product line in our industry and enjoy leading market positions based on the estimated market share of our key products, broad brand recognition and a strong reputation for quality and service within the markets we serve. We maintain one of the largest installed bases of products in the United States, including, as of March 31, 2006, approximately three million fire hydrants and approximately nine million iron gate valves. Our products are specified for use in all of the top fifty metropolitan areas in the United States.

        Our large installed base, broad product range and well known brands have led to long-standing relationships with the key distributors in our industry. Our diverse end markets, extensive distributor and end-user relationships, acquisition strategy and leading market position have contributed to strong operating margins and sales growth. Our pro forma net sales and pro forma operating income for the twelve months ended September 30, 2005 were $1,747.0 million and $173.9 million, respectively. Our net sales and pro forma operating income for the six months ended March 31, 2006 were $915.3 million and $58.2 million, respectively. Our net sales and pro forma operating income for the six months ended March 31, 2005 were $807.2 million and $60.7 million, respectively. Our operations generate significant cash flow, which will provide us with flexibility in our operating and financial strategy.

        We manage our business and report operations through three segments, based largely on the products they sell and the markets they serve: Mueller®, U.S. Pipe® and Anvil®. The table below illustrates each segment's net sales to external customers for the six months ended March 31, 2006, as well as each segment's major products, brand names, market positions and end use markets.

 
  Mueller
  U.S. Pipe
  Anvil
 
  (dollars in millions)


Net sales: for the six months ended March 31, 2006(a)

 

$373.5

 

$290.8

 

$260.2

Selected Product Lines (Market Position in the U.S. and Canada)(b)

 

•  Fire Hydrants (#1)
•  Gate Valves (#2)
•  Butterfly and Ball Valves (#1)
•  Plug Valves (#2)
•  Brass Water Products (#2)

 

•  Ductile Iron Pressure Pipe (#1)

 

•  Pipe Fittings and Couplings (#1)
•  Grooved Products (#2)
•  Pipe Hangers (#2)

Selected Brand Names

 

•  Mueller®
•  Pratt®
•  James Jones™

 

•  U.S. Pipe®
•  TYTON®
•  FIELD LOK®
•  MJ FIELD LOK®

 

•  Anvil®
•  Beck™
•  Gruvlok®

Primary End Markets

 

•  Water and Wastewater Infrastructure

 

•  Water and Wastewater Infrastructure

 

•  Fire Protection
•  Heating, Ventilation and Air Conditioning ("HVAC")

(a)
Includes intersegment sales of $9.2 million.

(b)
Market position information is based on management's estimates of the overall market size and of the market share of our principal competitors for the relevant product lines. Where available, the management estimates were based on data provided by third parties, including trade associations, distributors and customers. In other instances, the estimates were based upon internal analysis prepared by our employees and management based on their expertise and knowledge of the industry.

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        Our segments are named after our leading brands in each segment:

    Mueller.    Sales of our Mueller segment products are driven principally by spending on water and wastewater infrastructure upgrade, repair and replacement and new water and wastewater infrastructure. Mueller segment sales of hydrants and iron gate valves are estimated to be approximately 50% for new infrastructure, with the remainder for upgrade, repair and replacement.

    U.S. Pipe.    U.S. Pipe products are sold primarily to water works distributors, contractors, municipalities, private utilities and other governmental agencies. A substantial percentage of ductile iron pressure pipe orders result from contracts that are bid by contractors or directly issued by municipalities or private utilities.

    Anvil.    Anvil products are sold to a wide variety of end-users, which are primarily commercial construction contractors. These products are typically sold to our distributors through Anvil's four regional distribution centers located in Illinois, Nevada, Pennsylvania and Texas and through Anvil's Canadian distribution and sales division. A significant portion of Anvil products are used in the fire protection industry and in HVAC applications.

        We believe that our current network of independent flow control distributors is the largest such distribution network in the United States and Canada. We also have approximately 500 inside and outside sales and sale support personnel who work directly with end-users, including municipalities. Our products are sold to a wide variety of end-users, including municipalities, publicly and privately-owned water and wastewater utilities, gas utilities and construction contractors.


Industry Overview

        The North American water infrastructure and flow control industry consists of the manufacturers of valves, pipe, fittings, fixtures, pumps and seals. Growth in the sectors we serve is driven by the need to upgrade, repair and replace existing water and wastewater infrastructure, new residential construction activity and non-residential construction activity. Specifically, federal and state environmental regulations, such as the Clean Water Act and the Safe Drinking Water Act, are expected to drive growth in our industry over the next several years. We anticipate that sales related to water infrastructure upgrade, repairs and replacement may grow faster than the overall market for water infrastructure and flow control products as a result of the continued aging of municipal water systems in the United States and Canada, and the expanding base of water infrastructure and flow control installations. The ductile iron pipe business, however, is somewhat sensitive to economic cycles because of its partial dependence on the level of new construction activity and state, municipal and federal tax revenues to fund water projects.

    Water and Wastewater Infrastructure Upgrades, Repairs and Replacement.    Much of the water distribution infrastructure in the United States is considered to be aging or in need of updating. In a November 2002 study, the Congressional Budget Office estimated that the average annual spending necessary to upgrade, repair and replace existing water and wastewater infrastructure will be between $24.6 billion and $41.0 billion a year over the ensuing 15 years.

    New Water and Wastewater Infrastructure.    Growth in the new water and wastewater infrastructure sector is mainly driven by new housing starts. According to the U.S. Census Bureau, housing starts in 2005 were 5.7% higher than in 2004. According to Freddie Mac, U.S. housing starts are projected to reach 1.9 million units by the end of 2006, which would represent the third best year for single-family housing construction in the last 25 years.

    Non-Residential Construction.    Non-residential construction activity includes: (1) public works and utility construction; (2) institutional construction, including education, dormitory, health facility, public, religious and amusement construction; and (3) commercial and industrial construction. According to the U.S. Census Bureau, spending on U.S. private non-residential

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      building construction grew 5.0% in 2005 relative to 2004. According to Moody's, spending on non-residential construction is expected to increase 6.1% in 2006.


Competitive Strengths

        We believe that we enjoy a number of important competitive strengths that drive our success and differentiate us from our competitors and support our market leadership, including:

    Broad Range of Products and Leading Brands.    We believe that we have the most comprehensive water infrastructure and flow control product line in our industry and enjoy leading market positions based on the estimated market share of our key products, broad brand recognition and a strong reputation for quality and service within the markets we serve. For the fiscal year ended September 30, 2005 and the six months ended March 31, 2006, on a pro forma basis, approximately 74.1% and 73.9%, respectively, of our total sales were from products in which we believe we have the #1 or #2 market share in the United States and Canada.

    Complete Water Transmission Solutions.    The combination of Predecessor Mueller and U.S. Pipe created an industry leading company with significant scale in water infrastructure and delivery systems and positions us as one of the largest suppliers to the water products sector with a strong platform to facilitate potential expansion into higher growth areas. Our broad product portfolio of engineered valves, hydrants, ductile iron pipe and pipe fittings provides distributors and end users with a comprehensive source of supply and creates a significant competitive advantage for our company.

    Large and Growing Installed Base.    We maintain one of the largest installed bases of products in the United States, including, as of March 31, 2006, approximately three million fire hydrants and approximately nine million iron gate valves. Once our products are installed, it is difficult for an end-user to change to a competitive product due to the inventory of parts required to maintain multiple products and due to the life/safety nature of some of our products.

    Leading Specification Position.    Due to our strong brand name and our large installed base, our products are "specified" as an approved product for use in all of the top fifty metropolitan areas in the United States. The product specification approval process for a municipality generally takes a minimum of one year and there are approximately 55,000 municipal water systems in the United States. This strong specification position has contributed to long-standing relationships with all of the top distributors and creates a strong demand base for our products.

    Established and Extensive Distribution Channels.    We maintain strong, long-standing relationships with the leading distributors in our major markets throughout

    the United States and Canada. While we do not have long-term contracts with our distributors, we believe that our superior product quality and the technical support we provide allow us to enjoy long- term relationships with our network of over 5,000 independent distributor locations. The average relationship with our top ten distributors is over 20 years. Home Depot (formerly Hughes Supply, Inc. and National Waterworks), one of our largest distributors, accounted for over 23% and 24%, respectively, of our consolidated pro forma net sales for the twelve months ended September 30, 2005 and for the six months ended March 31, 2006, and for over 27% and 29%, respectively, of our U.S. Pipe segment's net sales in the twelve months ended September 30, 2005 and in the six months ended March 31, 2006.

    Advanced, Low-Cost Manufacturing Capabilities.    We believe our historical capital investment in manufacturing technologies helps us reduce the costs of producing our cast, malleable and ductile iron and brass water and gas flow control products. We believe that we are the only company in North America that uses the technologically-advanced lost foam casting process to manufacture fire hydrant and iron gate valve castings, which significantly reduces the manual

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      labor and machining time otherwise needed to finish cast products. We believe that this has made us less susceptible to the increase in the prices of raw material over the last three years.

    Highly Experienced, Proven Management Team.    We are led by an experienced management team with a long and successful track record, enabling us to recognize and capitalize upon attractive opportunities in our key markets. Our five most senior members of the management team have an average of over 20 years of experience in the flow control industry and have substantial experience in acquisition and integration of businesses, cost management rationalization and efficient manufacturing processes.


Business Strategy

        Our business strategy is focused on sustaining our market leadership and competitive differentiation, while growing revenues and enhancing profitability. Key elements of our strategy include:

    Capitalizing on Large, Attractive and Growing Water Infrastructure Industry.    We plan to capitalize on the expected water infrastructure market growth by leveraging our large and growing installed base, leading specification position, established and extensive distribution channels and a broad range of leading water infrastructure and flow control products.

    Achieving Ongoing Operating Synergies.    We continue to seek opportunities to rationalize our manufacturing facilities and use our significant manufacturing expertise to further reduce our cost structure. We have initiated a multi-pronged synergy plan designed to streamline our manufacturing operations, add incremental volume through combining sales efforts for complementary products and combine corporate-level functions to achieve operating efficiencies, which we expect will produce approximately $40-$50 million of ongoing incremental annual operating income by early fiscal 2008.

    Strengthening Relationship with Key Distributors.    We are focused on enhancing close relationships with the strongest and fastest growing distributors and on leveraging our extensive distributor network to increase sales of our existing products, introduce new products and rapidly expand sales of products of the businesses we acquire.

    Continuing to Focus on Operational Excellence.    We will continue to pursue superior product engineering, design and innovation through our technologically-advanced manufacturing processes such as lost foam casting and automated Disa® molding machinery. We will also continue to evaluate sourcing products and materials internationally to lower our costs.

    Focused Acquisition Strategy.    We will selectively pursue attractive acquisitions that enhance our existing product offering, enable us to enter new markets, expand our technological capabilities and provide synergy opportunities. Over the past five years, we have acquired and successfully integrated eight businesses within the water infrastructure and flow control markets.

    Selectively Expanding Internationally.    We intend to expand our current international presence in sourcing and manufacturing products as well as in the sale of our products. We believe we can further utilize our current manufacturing facility in China to produce additional products. We are leveraging our Anvil Star ("Star") operations, which we acquired in 2004 from Star Pipe, Inc., to establish a lead position in the United States for the import and sale of piping component products, including fittings and couplings manufactured in China, India and Malaysia.

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Corporate Structure

        The chart below summarizes the key entities of our current corporate structure. For further information regarding our indebtedness see "Description of Certain Indebtedness."

LOGO


        Mueller Water Products, Inc. is a Delaware corporation that was formed on September 22, 2005 under the name Mueller Holding Company, Inc. Our principal executive offices are located at 4211 W. Boy Scout Blvd., Tampa, FL 33607, and our main telephone number is (813) 871-4811.

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THE OFFERING

Series A common stock offered   23,529,412 shares

Common stock to be outstanding after the offering

 

 

 

 
 
Series A common stock

 

23,529,412 shares
 
Series B common stock

 

87,315,508 shares
   
Total common stock outstanding

 

110,844,920 shares

Option to purchase additional shares

 

Up to 3,529,411 shares of Series A common stock.

Use of proceeds

 

We estimate that the net proceeds from the sale of shares of our Series A common stock in this offering, after deducting underwriting discounts and estimated offering expenses, will be approximately $374.0 million ($430.4 million if the underwriters' option to purchase additional shares is exercised in full), assuming an offering price of $17.00 per share, which is the midpoint of the price range listed on the cover page of this prospectus. We intend to use the net proceeds from this offering, as well as any proceeds received from the exercise of the underwriters' option to purchase additional shares, to repay certain of our indebtedness, including a portion of the term loan under the 2005 Mueller Credit Agreement, and for general corporate purposes, as described under "Use of Proceeds." Because affiliates of some of the underwriters are lenders under that 2005 Mueller Credit Agreement, they will receive a portion of the proceeds from this offering. See "Underwriting."

Common stock

 

Shares of Series A common stock and shares of Series B common stock will generally have identical rights in all material respects, except for certain voting, conversion and other rights described in this prospectus. See "Description of Capital Stock" for more information.

Voting rights

 

Except in certain circumstances, holders of our Series A common stock are entitled to one vote per share and the holders of our Series B common stock are entitled to eight votes per share on all matters to be voted on by shareholders. The Series A common stock and the Series B common stock will generally vote as a single class.

 

 

Under certain circumstances, shares of our Series B common stock can be converted into an equivalent number of shares of our Series A common stock.

 

 

See "Description of Capital Stock—Common Stock—Voting Rights."

Controlling stockholder

 

As of the date of this prospectus, Walter Industries owns all outstanding shares of our common stock. Upon completion of this offering, Walter Industries will beneficially own all of our outstanding Series B common stock which will represent approximately 96.7% of the combined voting power of all of our outstanding common stock (or 96.3% if the underwriters' option to purchase additional shares is exercised in full).

 

 

Walter Industries will continue to control us after this offering.
         

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For information regarding the relationship between us and Walter Industries, see "Certain Relationships and Related Party Transactions—Relationship with Walter Industries."

Dividend policy

 

Our board of directors currently intends to declare an initial quarterly cash dividend on each share of our common stock at a rate of approximately $0.07 per share annually, payable beginning the first full fiscal quarter following the completion of this offering.

 

 

We expect our board to continue to declare regular quarterly dividends in the future. The board will determine the amount of any future dividends from time to time based on:

 

 


 

our results of operations and the amount of our surplus available to be distributed;

 

 


 

dividend availability and restrictions under our credit agreement and indentures;

 

 


 

the dividend rate being paid by comparable companies in our industry;

 

 


 

our liquidity needs and financial condition; and

 

 


 

other factors that our board of directors may deem relevant.

 

 

The board of directors may modify or revoke our dividend policy at any time.

 

 

The holders of our Series A common stock and Series B common stock generally will be entitled to share equally on a per share basis in all dividends and other distributions (except for certain stock dividends) declared by our board of directors. See "Description of Capital Stock—Common Stock—Dividend Rights."

Proposed New York Stock Exchange symbol

 

"MWA"

        The number of shares of common stock that will be outstanding after this offering is based on 87,315,508 shares of Series B common stock that we expect to be outstanding immediately prior to the consummation of this offering, and an additional 23,529,412 shares of Series A common stock sold in this offering and excludes 12,000,000 shares of Series A common stock authorized and reserved for issuance under our equity compensation plans.

        Unless otherwise indicated, all information in this prospectus assumes no exercise by the underwriters of their option to purchase up to an additional 3,529,411 shares of Series A common stock.


Risk Factors

        Investment in our Series A common stock involves substantial risks. See "Risk Factors" immediately following this summary for a discussion of certain risks relating to an investment in our Series A common stock.

7



Relationship with Walter Industries

        As of the date of this prospectus, Walter Industries owns all outstanding shares of our common stock. Upon completion of this offering, Walter Industries will beneficially own all of our outstanding Series B common stock which will represent approximately 96.7% of the combined voting power of all of our outstanding common stock (or 96.3% if the underwriters' option to purchase additional shares is exercised in full). For as long as Walter Industries continues to beneficially own (directly or indirectly) shares of common stock representing more than 50% of the combined voting power of our outstanding common stock, Walter Industries will be able to direct the election of all of the members of our board of directors and exercise a controlling influence over our business and affairs, including:

    any determinations with respect to mergers or other business combinations;

    the acquisition or disposition of assets;

    the incurrence of indebtedness;

    the issuance of any additional common stock or other equity securities;

    the repurchase or redemption of common stock or preferred stock; and

    the payment of dividends.

        Walter Industries will also have the power to:

    determine or significantly influence the outcome of matters submitted to a vote of our stockholders;

    prevent an acquisition or any other change in control of us; and

    take other actions that might be favorable to Walter Industries.

        See "Description of Capital Stock."

        Our restated certificate of incorporation renounces any interest or expectancy that we have in, or right to be offered an opportunity to participate in, specified business opportunities. Our restated certificate of incorporation provides that none of Walter Industries, certain transferees of our Series B common stock ("Series B Transferee") or their respective affiliates or any director who is not employed by us (including any non-employee director who serves as one of our officers in both his director and officer capacities) or his or her affiliates will have any duty to refrain from (i) engaging in a corporate opportunity in the same or similar activities or related lines of business in which we or our affiliates now engage or propose to engage or (ii) otherwise competing with us. In addition, in the event that Walter Industries or the Series B Transferee or any non-employee director acquires knowledge of a potential transaction or other business opportunity which may be a corporate opportunity for itself or himself or its or his affiliates and for us or our affiliates, Walter Industries, the Series B Transferee or such non-employee director will have no duty to communicate or offer such transaction or business opportunity to us and may take any such opportunity for themselves or offer it to another person or entity. See "Description of Capital Stock—Competition and Corporate Opportunities."

        Walter Industries has indicated to us that it intends, subject to market and other conditions, to completely divest its ownership in us through a tax-free spin-off following the expiration of, or release from, the 180-day lock-up agreement with the underwriters described below. Walter Industries is not subject to any obligation, contractual or otherwise, to retain or dispose of its controlling interest in us, except that we and Walter Industries, our directors, executive officers and certain other employees have agreed, subject to certain exceptions and limitations, not to offer, sell, contract to sell, pledge or otherwise dispose of or hedge any shares of common stock or securities convertible into or exchangeable for shares of common stock, or publicly announce the intention to do any of the foregoing, without the prior written consent of Banc of America Securities LLC and Morgan Stanley & Co. Incorporated for a period of 180 days from the date of this prospectus. See "Underwriting."

8


        Walter Industries may also purchase additional shares of Series B common stock to maintain its then-existing percentage of the total voting power and value of us. Additionally, with respect to shares of nonvoting capital stock that may be issued in the future, Walter Industries may purchase such additional shares so as to maintain ownership of 80% of each outstanding class of such nonvoting capital stock.

        See "Certain Relationships and Related Party Transactions" for additional information regarding our relationship with Walter Industries.

9



Summary Pro Forma and Historical Financial Data

        On October 3, 2005, Walter Industries acquired all outstanding shares of capital stock of Predecessor Mueller and contributed U.S. Pipe (which Walter Industries owned since 1969) to Predecessor Mueller through a series of transactions (the "Acquisition"). For accounting and financial statement presentation purposes, in accordance with GAAP, U.S. Pipe is treated as the accounting acquiror of Predecessor Mueller. Accordingly, effective October 3, 2005, U.S. Pipe's historical financial information is used for the Company and all historical financial data of the Company included in this prospectus prior to October 3, 2005 is that of U.S. Pipe. Historical financial statements for Predecessor Mueller for the periods preceding the acquisition are also included in this prospectus.

Summary Pro Forma Financial Data

        The summary unaudited pro forma statement of operations data for the twelve months ended September 30, 2005 is based on the historical financial statements of Predecessor Mueller and U.S. Pipe and has been restated to correct the classification of certain prior-period shipping and handling costs in accordance with Emerging Issues Task Force Consensus No. 00-10, "Accounting for Shipping and Handling Fees and Costs," ("EITF 00-10"). The unaudited pro forma statements of operations data for the six months ended March 31, 2005 are based on the historical financial statements of Predecessor Mueller and U.S. Pipe. The unaudited pro forma statements of operations data for the six months ended March 31, 2006 are based on the financial statements of Mueller Water Products, Inc. The unaudited pro forma statements of operations data for the year ended September 30, 2005 and the six months ended March 31, 2006 and March 31, 2005 are presented as if the Transactions and the Offering had taken place on October 1, 2004 and were carried forward through September 30, 2005 and through the six months ended March 31, 2006 and March 31, 2005, respectively. The unaudited pro forma financial data is not intended to represent or be indicative of the consolidated results of operations or financial position that would have been reported had the Transactions and the Offering been completed as of the dates presented, and should not be taken as representative of our future consolidated results of operations or financial position. The unaudited pro forma financial data does not reflect (a) any operating efficiencies or cost savings that we may achieve with respect to the combined companies or (b) any additional costs that we may incur as a stand-alone company. In addition, the unaudited pro forma financial data does not include the effects of restructuring certain activities of pre-acquisition operations that have occurred subsequent to March 31, 2006. The following summary pro forma financial data should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial Statements" and the consolidated historical

10



financial statements and notes thereto of Predecessor Mueller and U.S. Pipe included elsewhere in this prospectus.

 
  Pro Forma
For the twelve months ended
September 30, 2005

  Pro Forma
For the six months
ended March 31, 2006

  Pro Forma
For the six
months ended
March 31, 2005

 
 
  (dollars in millions except per share data)

 
Statement of Operations Data:                    
Net sales   $ 1,747.0   $ 915.3   $ 807.2  
Cost of sales     1,337.9     707.0     626.0  
   
 
 
 
    Gross profit     409.1     208.3     181.2  

Selling, general and administrative expenses

 

 

233.5

 

 

121.7

 

 

118.9

 
Facility rationalization and related costs     1.7     28.4     1.6  
   
 
 
 
    Operating income     173.9     58.2     60.7  

Interest expense and early repayment costs, net of interest income

 

 

114.7

 

 

45.2

 

 

59.2

 
   
 
 
 
   
Income (loss) before income taxes

 

 

59.2

 

 

13.0

 

 

1.5

 

Income tax expense (benefit)

 

 

28.2

 

 

5.5

 

 

5.6

 
   
 
 
 
    Net income (loss)   $ 31.0   $ 7.5   $ (4.1 )
   
 
 
 

Earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 
  Basic   $ 0.28   $ 0.07   $ (0.04 )
  Diluted   $ 0.28   $ 0.07   $ (0.04 )

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 
  Basic     110,844,920     111,145,253     110,844,920  
  Diluted     111,348,420     111,358,854     111,361,670  

11


Summary Historical Financial Data—Mueller Water Products, Inc.

        The following summary consolidated statement of operations data for the six months ended March 31, 2006 and 2005 and the summary consolidated balance sheet data as of March 31, 2006 and September 30, 2005 are derived from, and qualified by reference to, the unaudited consolidated financial statements of Mueller Water Products, Inc. included elsewhere in this prospectus and should be read in conjunction with those unaudited consolidated financial statements and notes thereto. The following summary consolidated financial and other data of Mueller Water Products, Inc. should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the unaudited consolidated financial statements and notes thereto included elsewhere in this prospectus. Summary financial data for the six months ended March 31, 2005 in the table below refers to U.S. Pipe prior to the Acquisition.

 
  For the six months ended March 31,
 
 
  2006
  2005
 
 
  (dollars in millions)

 
 
   
  As Restated

 
Statement of Operations Data:              
  Net sales   $ 915.3   $ 265.9  
  Cost of sales(a)     777.2     242.6  
   
 
 
    Gross profit     138.1     23.3  
  Selling, general and administrative expenses(b)     117.9     18.3  
  Related party corporate charges(c)     3.8     3.7  
  Facility rationalization, restructuring and related costs(d)     28.4      
   
 
 
    Loss from operations     (12.0 )   1.3  
  Interest expense arising from related party payable to Walter Industries(e)         (11.0 )
  Interest expense, net of interest income(f)     (62.3 )   (0.3 )
   
 
 
    Loss before income taxes     (74.3 )   (10.0 )
  Income tax expense (benefit)     (23.7 )   0.7  
   
 
 
    Net loss   $ (50.6 ) $ (10.7 )
   
 
 
  Loss per share(g)   $ (50.6 ) $ (10.7 )
   
 
 
Other Data:              
  EBITDA(h)   $ 38.5   $ 14.4  
  Depreciation and amortization     50.5     13.1  
  Capital expenditures     30.9     11.2  
 
  March 31,
2006

  September 30,
2005

 
 
  (dollars in millions)

 
Balance Sheet Data:              
  Working capital(i)   $ 627.8   $ 188.7  
  Property, plant and equipment, net     340.7     149.2  
  Total assets(j)     2,964.8     495.4  
  Total debt     1,549.3      
  Total stockholder's equity (net capital deficiency)     716.7     (155.2 )

(a)
Cost of sales includes:

$70.2 million of purchase accounting adjustments related to valuing inventory acquired in the Acquisition at fair value for the six months ended March 31, 2006;

$10.7 million of inventory obsolescence write-offs related to the shut-down of the U.S. Pipe Chattanooga plant during the six months ended March 31, 2006; and

12


    $7.6 million of facility expenses at the U.S. Pipe Chattanooga plant due to significantly lower than normal capacity resulting from the plant closure process during the six months ended March 31, 2006.

(b)
Selling, general and administrative expenses include:

$4.0 million related to environmental liabilities at the U.S. Pipe Anniston, Alabama site (shut down in 2003) for the six months ended March 31, 2005.

$5.1 million favorable insurance claims settlement for the six months ended March 31, 2005.

(c)
Related party corporate charges represents costs incurred by Walter Industries that have been allocated to U.S. Pipe. Walter Industries allocates certain costs to all of its subsidiaries based on a systematic and rational method. Upon the spin-off, these charges will no longer be allocated to U.S. Pipe. However, U.S. Pipe may incur costs in an amount less than or greater than these costs for similar services performed by an unaffiliated third party.

(d)
Facility rationalization and restructuring includes severance, other employee-related costs related to pension and other postretirement benefit obligations and exit cost charges and non-cash impairment charges due to the closure of the U.S. Pipe Chattanooga plant during the six months ended March 31, 2006.

(e)
Consists of interest expense allocated by Walter Industries to U.S. Pipe. Following the Acquisition on October 3, 2005, the allocation of the interest expense terminated because the intercompany indebtedness to Walter Industries was contributed to the capital of U.S. Pipe.

(f)
Interest expense, net of interest income, includes $2.5 million in commitment fees for a bridge loan which were expensed at the expiration of the bridge loan period during the six months ended March 31, 2006. Interest expense, net of interest income, also includes interest rate swap gains of $0.5 million for the six months ended March 31, 2006.

(g)
Loss per share for all periods presented was determined using one share, which is the capital structure of the reporting entity subsequent to the Acquisition.

(h)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.

    In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.

    EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

      EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

      EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

      EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

13


      although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

      other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

    EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

    EBITDA reconciliation to net loss:

 
  For the six months ended March 31,
 
 
  2006
  2005
 
 
  (dollars in millions)

 
EBITDA   $ 38.5   $ 14.4  
Adjustments:              
Depreciation and amortization     (50.5 )   (13.1 )
Interest expense arising from related party payable to Walter Industries         (11.0 )
Interest expense, net of interest income     (62.3 )   (0.3 )
Income tax (expense) benefit     23.7     (0.7 )
   
 
 
Net loss   $ (50.6 ) $ (10.7 )
   
 
 
(i)
Working capital equals current assets less current liabilities.

(j)
On the Mueller Water Products, Inc. Consolidated Balance Sheet as of September 30, 2005, prepaid pension cost of $19.3 million has been netted against accrued pension liability of $72.9 million and is presented as net accrued pension liability of $53.6 million. As a result of this reclassification, total assets at September 30, 2005, as presented in this table, are $495.4 or $19.3 million less than total assets of $514.7 million as presented in U.S. Pipe's historical balance sheet at September 30, 2005.

14


Summary Historical Financial Data—United States Pipe and Foundry Company, LLC (U.S. Pipe)

        The following summary statement of operations data for the nine months ended September 30, 2005 and for the years ended December 31, 2004 and 2003 and the summary balance sheet data as of September 30, 2005 and December 31, 2004 are derived from, and qualified by reference to, the audited financial statements of U.S. Pipe included elsewhere in this prospectus and should be read in conjunction with those financial statements and notes thereto. The summary statement of operations data for the nine months ended September 30, 2004 and the year ended December 31, 2002 and the summary balance sheet data as of September 30, 2004 and December 31, 2003 have been derived from unaudited financial statements of U.S. Pipe. The following summary financial and other data of U.S. Pipe should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial Statements" and the financial statements and notes thereto included elsewhere in this prospectus.

 
  For the nine months ended
September 30,

  For the years ended December 31,
 
 
  2005
  2004
  2004
  2003
  2002
 
 
  (dollars in millions)
As Restated(h)

 
Statement of Operations Data:                                
  Net sales   $ 456.9   $ 437.2   $ 578.4   $ 465.4   $ 491.8  
  Cost of sales(a)     402.2     402.9     531.4     427.4     429.8  
   
 
 
 
 
 
    Gross profit     54.7     34.3     47.0     38.0     62.0  
  Selling, general and administrative expenses(b)     25.9     25.0     38.2     43.5     36.1  
  Related party corporate charges(c)     5.4     5.7     7.7     4.8     6.4  
  Restructuring and impairment charges(d)         0.1     0.1     5.9      
   
 
 
 
 
 
    Operating income (loss)     23.4     3.5     1.0     (16.2 )   19.5  
  Interest expense—other     (0.3 )   (0.4 )   (0.5 )   (0.5 )   (0.1 )
  Interest expense arising from payable to parent, Walter Industries(e)     (15.2 )   (13.0 )   (18.9 )   (16.4 )   (9.4 )
   
 
 
 
 
 
    Income (loss) before income tax expense (benefit)     7.9     (9.9 )   (18.4 )   (33.1 )   10.0  
  Income tax expense (benefit)     2.8     (3.9 )   (2.9 )   (12.7 )   4.1  
   
 
 
 
 
 
    Income (loss) before cumulative effect of change in accounting principle     5.1     (6.0 )   (15.5 )   (20.4 )   5.9  
  Cumulative effect of change in accounting principle, net of tax                 (0.5 )    
   
 
 
 
 
 
    Net income (loss)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9  
   
 
 
 
 
 
  Basic income (loss) per share:                                
    Income (loss) before cumulative effect of change in accounting principle   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.4 ) $ 5.9  
    Cumulative effect of change in accounting principle, net of tax                 (0.5 )    
   
 
 
 
 
 
  Earnings (loss) per share(f)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9  
   
 
 
 
 
 
Other Data:                                
  EBITDA(g)   $ 42.8   $ 23.5   $ 27.5   $ 9.0   $ 43.5  
  Depreciation and amortization     19.4     20.0     26.5     25.2     24.0  
  Capital expenditures     16.5     12.4     20.4     15.7     26.2  

15


 
  As of September 30,
  As of December 31,
 
 
  2005
  2004
  2004
  2003
 
 
  (dollars in millions)

 
Balance Sheet Data:                          
  Cash and cash equivalents(i)   $   $ 0.1   $   $ 0.2  
  Working capital     188.7     176.6     163.5     157.0  
  Property, plant and equipment, net     149.2     152.2     152.9     160.1  
  Total assets     514.7     491.6     473.5     452.9  
  Intercompany indebtedness to Walter Industries     443.6     435.4     422.8     409.2  
  Total liabilities     669.9     626.7     618.6     581.9  
  Total stockholder's equity (net capital deficiency)     (155.2 )   (135.1 )   (145.1 )   (129.0 )

(a)
Cost of sales includes warranty cost of $2.3 million related to a construction project in Kansas City, Missouri during the nine months ended September 30, 2005.

(b)
Selling, general and administrative expenses include:

credits for environmental-related insurance settlement benefits of $5.1 million and $1.9 million for the nine months ended September 30, 2005 and the year ended December 31, 2004, respectively;

accrual of $4.0 million relating to environmental liabilities for the year ended December 31, 2004; and

settlement expenses for a commercial dispute of $1.7 million and settlement expenses for litigation matters of $6.5 million for the year ended December 31, 2003.

(c)
Related party corporate charges represents costs incurred by Walter Industries that have been allocated to U.S. Pipe. Walter Industries allocates certain costs to all of its subsidiaries based on a systematic and rational method. Upon the spin-off, these charges will no longer be allocated to U.S. Pipe. However, U.S. Pipe may incur costs in an amount less than or greater than these costs for similar services performed by an unaffiliated third party.

(d)
Restructuring and impairment charges for the year ended December 31, 2003 include $5.9 million to cease operations at the castings plant in Anniston, Alabama. These charges primarily included employee benefits costs and the write-off of fixed assets.

(e)
Consists of interest expense allocated by Walter Industries to U.S. Pipe. Following the Acquisition on October 3, 2005, the allocation of the interest expense terminated because the intercompany indebtedness to Walter Industries was contributed to the capital of U.S. Pipe.

(f)
Earnings (loss) per share for all periods presented was determined using one share, which is the capital structure of the reporting entity subsequent to the Acquisition.

(g)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.


In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.


EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

16


    although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

    other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.


EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.


EBITDA reconciliation to Net income (loss):

 
  For the nine months ended
September 30,

  For the years ended
December 31,

 
 
  2005
  2004
  2004
  2003
  2002
 
 
  (dollars in millions)

 
EBITDA   $ 42.8   $ 23.5   $ 27.5   $ 9.0   $ 43.5  
Adjustments:                                
  Depreciation and amortization     (19.4 )   (20.0 )   (26.5 )   (25.2 )   (24.0 )
  Interest expense-other     (0.3 )   (0.4 )   (0.5 )   (0.5 )   (0.1 )
  Interest expense arising from payable to parent, Walter Industries     (15.2 )   (13.0 )   (18.9 )   (16.4 )   (9.4 )
  Income tax (expense) benefit     (2.8 )   3.9     2.9     12.7     (4.1 )
  Cumulative effect of change in accounting principle, net of tax                 (0.5 )    
   
 
 
 
 
 
  Net income (loss)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9  
   
 
 
 
 
 
(h)
The information presented above should be read in conjunction with U.S. Pipe's financial statements and the notes thereto including Note 1 related to the restatement of net sales and costs of sales. As described further in Note 1, sales and cost of sales have been restated to correct the classification of certain prior-period shipping and handling costs in accordance with EITF 00-10.


In addition to the restatement information provided in Note 1, the following information is provided regarding the restatement:

 
  For the nine months ended
September 30, 2004

  For the year ended
December 31, 2002

 
  As Restated
  As Originally
Reported

  As Restated
  As Originally
Reported

 
  (dollars in millions)

Net sales   $ 437.2   $ 406.9   $ 491.8   $ 457.2
Cost of sales     402.9     372.6     429.8     395.2
(i)
Cash and cash equivalents, prior to the acquisition of Predecessor Mueller on October 3, 2005, were transferred daily to the Walter Industries cash management system, effectively reducing U.S. Pipe cash to virtually zero on a daily basis. Subsequent to October 3, 2005, all cash generated by U.S. Pipe is transferred to Mueller Group and is not transferred to Walter Industries.

17


Summary Historical and Financial Data—Mueller Water Products, Inc. (Predecessor Mueller)

        The following summary consolidated statement of operations data for the years ended September 30, 2005, 2004 and 2003 and the summary consolidated balance sheet data as of September 30, 2005, 2004 and 2003 are derived, and qualified by reference to, the audited consolidated financial statements of Mueller Water Products, Inc. and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated financial statements as of September 30, 2005 and 2004 and for each of the three years in the period ended September 30, 2005 are included elsewhere in this prospectus. The following summary consolidated financial and other data of Mueller Water Products, Inc. should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial Statements" and the consolidated financial statements and notes thereto included in this prospectus.

 
  For the years ended September 30,

 
 
  2005
  2004
  2003
 
 
   
  (as restated)(g)

  (as restated)(g)

 
 
  (dollars in millions except per share data)

 
Statement of Operations Data:                    
  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  
  Selling, general and administrative expenses(a)     172.1     185.1     148.2  
  Facility rationalization, restructuring and related costs(b)     1.7     0.9     1.7  
   
 
 
 
    Operating income     172.8     112.7     91.2  
  Interest expense, net of interest income(c)     (89.5 )   (63.5 )   (35.5 )
   
 
 
 
    Income before income tax expense     83.3     49.2     55.7  
  Income tax expense     33.7     16.0     22.9  
   
 
 
 
    Net income   $ 49.6   $ 33.2   $ 32.8  
   
 
 
 
 
Earnings per share(d):

 

 

 

 

 

 

 

 

 

 
    Basic   $ 0.22   $ 0.11   $ 0.09  
   
 
 
 
    Diluted   $ 0.20   $ 0.10   $ 0.09  
   
 
 
 
  Weighted average shares outstanding (in millions):                    
    Basic     220.6     212.3     205.6  
   
 
 
 
    Diluted     244.9     223.6     208.9  
   
 
 
 
Other Data:                    
  EBITDA(e)   $ 221.2   $ 177.0   $ 157.5  
  Depreciation and amortization     48.4     64.3     66.3  
  Capital expenditures     27.2     22.5     20.0  

18


 
  As of September 30,

 
  2005
  2004
  2003
 
  (dollars in millions)

Balance Sheet Data:                  
  Working capital(f)     $481.6     $390.8     $369.1
  Property, plant and equipment, net     168.0     186.8     208.0
  Total assets     1,086.8     989.2     957.4
  Total debt     1,055.7     1,039.4     575.7
  Total stockholder's equity (net capital deficiency)     (176.4 )   (232.4 )   106.8

(a)
Selling, general and administrative expenses include stock compensation charges of $21.2 million and $0.7 million for the years ended September 30, 2004 and 2003, respectively.

(b)
Facility rationalization and restructuring includes severance and exit cost charges and non-cash impairment charges due to the idling and obsolescence of certain assets related to (A) the implementation of lost foam technology at our Albertville, Alabama and Chattanooga, Tennessee facilities, (B) the closure of our Statesboro, Georgia manufacturing facility, (C) the relocation of certain manufacturing lines to other facilities, and (D) the shutdown of a Mueller segment plant in Colorado that ceased manufacturing operations.

(c)
Interest expense, net of interest income, includes the write off of deferred financing fees of $7.0 million for 2004. Interest expense and early debt repayments costs for 2004 also includes a $7.0 million prepayment associated with the redemption in November 2003 of our senior subordinated notes due 2009. Interest expense, net of interest income, also includes interest rate swap (gains)/losses of $(5.2) million, $(12.5) million and $(13.3) million for the years ended September 30, 2005, 2004 and 2003, respectively.

(d)
A reconciliation of the basic and diluted net income per share computations for the years ended September 30, 2005, 2004 and 2003 are as follows:

 
  For the years ended September 30,

 
  2005
  2004
  2003
 
  Basic
  Diluted
  Basic
  Diluted
  Basic
  Diluted
 
  (in millions, except per share data)

Numerator:                                    
  Net income   $ 49.6   $ 49.6   $ 33.2   $ 33.2   $ 32.8   $ 32.8
  Effect of dilutive securities:                                    
    Dividends related to redeemable preferred stock(1)             9.9     9.9     14.2     14.2
   
 
 
 
 
 
    $ 49.6   $ 49.6   $ 23.3   $ 23.3   $ 18.6   $ 18.6
   
 
 
 
 
 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Average number of common shares outstanding     220.6     220.6     212.3     212.3     205.6     205.6
  Effect of dilutive securities:                                    
    Stock options(2)                 1.2         3.3
    Warrants(3)         24.3         10.1        
   
 
 
 
 
 
      220.6     244.9     212.3     223.6     205.6     208.9
   
 
 
 
 
 
Net income per share   $ 0.22   $ 0.20   $ 0.11   $ 0.10   $ 0.09   $ 0.09

    (1)
    Represents dividends payable in cash related to the redeemable preferred stock which was redeemed on April 23, 2004.

    (2)
    Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such options. These purchases were assumed to have been made at the average market price for the period. On April 23, 2004, all options were exercised.

    (3)
    Represents the number of warrants issued with the 143/4% senior discount notes that were convertible into Predecessor Mueller's Class A common stock upon exercise. In connection with the acquisition of Predecessor Mueller by Walter Industries on October 3, 2005, all warrants were converted into a right to receive cash and are no longer outstanding.

(e)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle, and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other

19


    interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.


In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.


EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.


EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

EBITDA reconciliation to Net income:

 
  For the years ended September 30,

 
 
  2005
  2004
  2003
 
 
  (dollars in millions)

 
EBITDA   $ 221.2   $ 177.0   $ 157.5  
Adjustments:                    
  Depreciation and amortization     (48.4 )   (64.3 )   (66.3 )
  Interest expense, net of interest income     (89.5 )   (63.5 )   (35.5 )
  Income tax expense     (33.7 )   (16.0 )   (22.9 )
   
 
 
 
  Net income   $ 49.6   $ 33.2   $ 32.8  
   
 
 
 

(f)
Working capital equals current assets less current liabilities.

(g)
See Note 2 to the Predecessor Mueller consolidated financial statements for discussion of the restatement of total assets for fiscal 2004 and the reclassification of depreciation expense from selling, general and administrative to cost of sales for fiscal years 2004 and 2003.

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RISK FACTORS

        You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our Series A common stock. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could suffer. In that case, the price of our Series A common stock could decline and you could lose all or part of your investment.


Risks Relating to Our Business

Our business may suffer as a result of a downturn in government spending related to infrastructure upgrades, repairs and replacements, or in the cyclical residential or non-residential building markets.

        Our business is primarily dependent upon spending on water and wastewater infrastructure upgrades, repairs and replacement, new water and wastewater infrastructure spending (which is dependent upon residential construction) and spending on non-residential construction. We are also subject to general economic conditions, the need for construction projects, interest rates and government incentives provided for public work projects. In addition, a significant percentage of our products are ultimately used by municipalities or other governmental agencies in public water transmission and collection systems. As a result, our sales could decline as a result of declines in the number of projects planned by public water agencies, government spending cuts, general budgetary constraints, difficulty in obtaining necessary permits or the inability of government entities to issue debt. It is not unusual for water projects to be delayed and rescheduled for a number of reasons, including changes in project priorities and difficulties in complying with environmental and other government regulations. Spending growth in the infrastructure upgrades, repairs and replacement sector has slowed in recent years as state and local governments' budgets were negatively impacted by the downturn in the economy. Even if economic conditions were to continue to improve, state and local governments may choose not to address deferred infrastructure needs. Although the residential building market has experienced growth in recent years, this growth may not continue in the future. The residential and non-residential building markets are cyclical, and, historically, down cycles have typically lasted approximately four to six years. Any significant decline in the residential or non-residential building markets or governmental spending on infrastructure could lead to a significant decline in our sales, profitability and cash flows.

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

        The domestic and international markets for flow control products are competitive. While there are only a few competitors for most of our product offerings, many of them are well-established companies with strong brand recognition. In particular, our malleable iron and cast iron pipe fitting products, which together comprised 5% and 6% of our pro forma sales for the 2005 fiscal year, and for the six months ended March 31, 2006, respectively, face competition from less expensive imports and our pipe nipple and hanger products and our pipe fittings and couplings products, which together comprised 16% and 17% of our pro forma sales in 2005, and for the six months ended March 31, 2006, respectively, compete on the basis of price and are sold in fragmented markets with low barriers to entry, allowing less expensive domestic and foreign producers to gain market share and reduce our margins. Also, competition for ductile iron pressure pipe sold by our U.S. Pipe segment comes not only from ductile pipe produced by a concentrated number of domestic manufacturers, but also from pipe composed of other materials, such as polyvinylchloride (PVC), high density polyethylene (HDPE), concrete, fiberglass, reinforced plastic and steel.

Foreign competition is intense and could harm our sales, profitability and cash flows.

        In addition to domestic competition, we face intense foreign competition. The intensity of foreign competition is affected significantly by fluctuations in the value of the U.S. dollar against foreign

21



currencies, by the relative cost to ship competitive products into the North American markets and by the level of import duties imposed by the U.S. Department of Commerce on certain products. Foreign competition is likely to further increase and certain product prices will continue to face downward pressure as our domestic competitors shift their operations or outsource manufacturing requirements overseas or source supplies from foreign vendors in an effort to reduce expenses.

We depend on a group of major distributors for a significant portion of our sales; any loss of these distributors could reduce our sales and continuing consolidation could cause price pressure.

        In the fiscal year ended September 30, 2005 and the six months ended March 31, 2006, on a pro forma basis, approximately 37% and 40%, respectively, of our pro forma sales were to our ten largest distributors, and approximately 30% and 33%, respectively, of our pro forma sales were to our three largest distributors: Home Depot, Ferguson Enterprises and American Waterworks. Our business relationships with most of our major distributor branches may be terminated at the option of either party upon zero to 60 days' notice.

        While our relationships with our ten largest distributors have been long-lasting, distributors in our industry have experienced significant consolidation in recent years, and our distributors may be acquired by other distributors who buy products from our competitors. Our ability to retain these customers in the face of other competitors generally depends on a variety of factors, including the quality and price of our products and our ability to market these products effectively. As consolidation among distributors continues, pricing pressure may result, which could lead to a significant decline in our profitability. For example, Home Depot acquired National Waterworks in 2005 and announced in March 2006 that it has acquired Hughes Supply. As a result, two of our three previous largest distributors have been combined under common control. Moreover, the loss of either of Home Depot or Ferguson Enterprises as a distributor could significantly reduce our levels of sales and profitability.

Our brass valve products contain lead, which may be replaced in the future.

        Our brass valve products, which constituted approximately 6% and 6% of our pro forma sales in the twelve months ended September 30, 2005 and the six months ended March 31, 2006, respectively, contain approximately 5.0% lead. Environmental advocacy groups, relying on standards established by California's Proposition 65, are seeking to eliminate or reduce the content of lead in some of these products, including water meters and valves, and to limit their sale in California. Some of our business units have entered into settlement agreements with these environmental advocacy groups that have required them to either modify some of these products or offer substitutes for them with respect to products sold in California. Modifications of or substitutions for our products to meet or conform with regulatory requirements will require incremental capital spending of up to $8.0 million in the next 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 to substantially restrict lead content in water products has been introduced in the United States Congress. Congress may adopt legislation that would require us to reduce or eliminate lead in our brass products which could require us to incur substantial additional production expenses. In addition, advocacy groups or other parties may file suit against us under Proposition 65, which could result in additional costs in connection with marketing and selling our brass products in California.

Our business is subject to risk of price increases and fluctuations and delay in the delivery of raw materials and purchased components.

        Our business is subject to the risk of price increases and fluctuations and periodic delays in the delivery of raw materials and purchased components that are beyond our control. Our operations require substantial amounts of raw materials or purchased components, such as steel pipe and scrap steel and iron, brass ingot, sand, resin, and natural gas. Management estimates that scrap metal and ferrous alloys used in the U.S. Pipe manufacturing process account for approximately 40% of the U.S.

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Pipe cost to manufacture ductile iron pipe and raw materials and purchased components used in our manufacturing processes currently account for approximately 18% of the Mueller and Anvil cost of goods sold. Fluctuations in the price and delivery of these materials may be driven by the supply/demand relationship for a material and factors particular to that material. In addition, if any of our suppliers seeks bankruptcy relief or otherwise cannot continue its business as anticipated or we cannot renew our supply contracts on favorable terms, the availability of raw materials could be reduced or the price of raw materials could increase.

        The availability and price of certain raw materials or purchased components, such as steel scrap, brass ingot and natural gas are subject to market forces largely beyond our control, including North American and international demand, freight costs, speculation and foreign exchange rates. We generally purchase raw materials at spot prices and generally do not have the ability to hedge our exposure to price changes. We are not always able, and may not be able in the future, to pass on increases in the price of these raw materials to our customers. In particular, when raw material prices increase rapidly or to significantly higher than normal levels, we may not be able to pass price increases through to our customers on a timely basis, if at all, which could lead to significant reductions of our operating margins and cash flow. Any fluctuations in the price or availability of raw materials or purchased components could significantly reduce our levels of production and sales or impair our profitability.

Interruption of normal operations at our key manufacturing facilities may impair our production capabilities.

        Some of our key products, including hydrants, valves and ductile iron pipe, are manufactured at five of our largest manufacturing facilities. The operations at our major manufacturing facilities may be impaired by various operating risks, including, but not limited to:

    catastrophic events such as fires, explosions, floods, earthquakes or other similar occurrences;

    interruptions in raw materials and energy supply;

    adverse government regulation;

    breakdowns or equipment failures;

    violations of our permit requirements or revocation of permits;

    releases of pollutants and hazardous substances to air, soil, surface water or groundwater;

    shortages of equipment or spare parts; and

    labor disputes.

        To date, we have successfully managed non-material occurrences of the foregoing events, including a fire at the Columbia, PA facility of our Anvil segment and California's adoption of laws limiting the lead content of water infrastructure products, without significant disruption of our operations. More acute occurrences of these events could cause a decrease in, or the elimination of, the revenues generated by our key facilities or a substantial increase in the costs of operating such facilities that, in turn, could, impair our cash flows and results of operations.

We may be unsuccessful in identifying or integrating suitable acquisitions, which could impair our growth.

        A part of our growth strategy depends on the availability of acquisition candidates with businesses that can be successfully integrated into our existing business and that will provide us with complementary manufacturing capabilities, products or services. However, we may be unable to identify targets that will be suitable for acquisition. In addition, if we identify a suitable acquisition candidate, our ability to successfully implement the acquisition will depend on a variety of factors, including our ability to finance the acquisition. Our ability to finance our acquisitions is subject to a number of

23



factors, including the availability of adequate cash from operations or of acceptable financing terms and the terms of our debt instruments. In addition, there are many challenges to integrating acquired companies and businesses in our company, including eliminating redundant operations, facilities and systems, coordinating management and personnel, retaining key employees, managing different corporate cultures and achieving cost reductions and cross-selling opportunities. We may not be able to meet these challenges in the future.

Businesses we have acquired or will acquire may not perform as expected.

        Businesses we have recently acquired or may acquire in the future may not perform as expected. Acquired businesses may perform below expectations after the acquisition for various reasons, including legislative or regulatory changes that affect the areas in which a business specializes, the loss of key customers after the acquisition has closed, general economic factors that affect a business in a direct way and the cultural incompatibility of an acquired management team with us. Any of these factors could impair our results of operations.

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

        We have recorded a significant amount of goodwill and other identifiable intangible assets. As of March 31, 2006, goodwill and other net identifiable intangible assets were approximately $855.5 million and $849.0 million (or, collectively, approximately 57% of our total assets). Goodwill and net identifiable intangible assets of Mueller Water were recorded at fair value on the date of acquisition and goodwill of U.S. Pipe remains at historical cost. In accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets, are reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in our performance, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of or affect the products and services sold by our business, and a variety of other factors. The amount of any quantified impairment must be expensed immediately as a charge to results of operations. Depending on future circumstances, it is possible that we may never realize the full value of our intangible assets. Any future determination of impairment of a significant portion of goodwill or other identifiable intangible assets would result in a non-cash impairment charge.

We have a significant amount of debt.

        Following this offering, on a pro forma basis, as of March 31, 2006, our total debt would have been $1,190.9 million ($1,134.5 million if the underwriters' over-allotment option is exercised and all additional proceeds are used to reduce debt). Any decrease in the aggregate net proceeds raised in this offering will result in an increase of our pro forma total debt. See "Use of Proceeds" and "Capitalization" for additional information. We may incur significant additional indebtedness from time to time. The level of our indebtedness could have important consequences, including:

    making it more difficult for us to satisfy our obligations under our debt instruments;

    limiting cash flow available for general corporate purposes, including capital expenditures and acquisitions, because a substantial portion of our cash flow from operations must be dedicated to servicing our debt;

    limiting our ability to obtain additional debt financing in the future for working capital, capital expenditures or acquisitions;

    limiting our flexibility to react to competitive and other changes in our industry and economic conditions generally; and

24


    exposing us to risks inherent in interest rate fluctuations because a substantial portion of our borrowings is at variable rates of interest, which could result in higher interest expense in the event of increases in interest rates.

We will require a significant amount of cash to service our debt and our ability to generate cash depends on many factors beyond our control.

        Our ability to pay or to refinance 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. There is a risk that our business will not generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will not be realized or that future borrowings will not be available to us in an amount sufficient to enable us to pay our indebtedness, or to fund our other liquidity needs. If we are unable to meet our debt service obligations or fund our other liquidity needs, we could attempt to restructure or refinance our indebtedness or seek additional equity capital, but we may not be able to accomplish those actions on satisfactory terms, if at all.

Restrictive covenants in our debt instruments may limit our ability to engage in certain transactions and may diminish our ability to make payments on our indebtedness.

        Our debt instruments contain various covenants that limit our ability to engage in certain transactions. Our senior credit facilities also require the maintenance of specified financial ratios and the satisfaction of other financial condition tests. In addition, our debt instruments require us to provide regular financial information to our lenders and bondholders. Such requirements generally may be satisfied by our timely filing with the SEC of annual and quarterly reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Our ability to satisfy those financial ratios, tests or covenants can be affected by events beyond our control, and there is a risk that we will not meet those tests. A breach of any of these covenants could result in a default under our debt instruments. If an event of default is not remedied after the delivery of notice of default and lapse of any relevant grace period, the holders of our debt would be able to declare it immediately due and payable. Upon the occurrence of an event of default under our senior credit facilities, the lenders could also terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure the indebtedness under our senior credit facilities. We have pledged substantially all of our assets (including our intellectual property), other than the assets of our foreign subsidiaries, as security under our senior credit facilities. If the lenders under our senior credit facilities or noteholders of the notes accelerate the repayment of borrowings, we may not have sufficient assets to repay our senior credit facilities and our other indebtedness, which could negatively impact the value of our stock and our ability to operate as a going concern.

Certain of our brass valve products may not be in compliance with NSF standards, which could limit the ability of municipalities to buy our products.

        The National Sanitary Foundation ("NSF") is a non-profit entity that was contracted by the U.S. Environmental Protection Agency ("EPA") to promulgate standards for the water industry. NSF has issued NSF 61, which governs the leaching characteristics of valves and devices that are part of drinking water distribution networks, including certain of our products made from brass. In recent years, a growing majority of states have adopted, by statute or regulation, a requirement that water distribution systems utilize products that comply with NSF 61 and/or are certified as NSF 61 compliant. We, along with others in the industry, are engaged in the lengthy process of attempting to obtain certification of NSF 61 compliance for all of our relevant products. In fiscal 2005 and in the six months ended March 31, 2006, our sales of brass valve products were approximately 6% and 6%, respectively, of our total sales, on a pro forma basis. To date we have obtained certification of approximately 95% of our

25



brass valve and fitting products. Approximately 26% of our certified products use "low lead" brass to comply with current NSF 61 requirements. The NSF 61 certification process is ongoing with our goal to have all products requiring certification completed by January 1, 2007. In the event that some of our brass valve products are found not to be in compliance with NSF 61, those products may not be accepted by various municipalities or we may be forced to modify non-conforming products with substitute materials which may require increased cost, thereby impairing our profitability. In addition, if our competitors develop a complete line of NSF 61 compliant brass valve products before we do, we may be placed at a competitive disadvantage which may, in turn, impair our profitability.

Our business may be harmed by work stoppages and other labor relations matters.

        We are subject to a risk of work stoppages and other labor relations matters because our hourly workforce is highly unionized. As of March 31, 2006, on a pro forma basis, approximately 81% of our hourly workforce was represented by unions. These employees are represented by locals from approximately six different unions, including the Glass, Molders, Pottery, Plastics and Allied Workers International Union, which is our largest union. Our labor agreements will be negotiated as they expire at various times through March 2010. Work stoppages for an extended period of time could impair our business. Labor costs are a significant element of the total expenditures involved in our manufacturing process, and an increase in the costs of labor could therefore harm our business. In addition, the freight companies who deliver our products to our distributors generally use unionized truck drivers, and our business could suffer if our contractors face work stoppages or increased labor costs. For more information about our labor relations, see "Business—Employees."

Our revenues are influenced by weather conditions and the level of construction activity at different times of the year; we may not be able to generate revenues that are sufficient to cover our expenses during certain periods of the year.

        Some of our products, including ductile iron pipe, are moderately seasonal, with lower production capacity and lower sales in the winter months. This seasonality in demand has resulted in fluctuations in our revenues and operating results. Because much of our overhead and expenses are fixed payments, seasonal trends can cause reductions in our profit margin and financial condition, especially during our slower periods.

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

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

We rely on Tyco to indemnify us for certain liabilities and there is a risk that Tyco may become unable or fail to fulfill its obligations.

        Under the terms of the purchase agreement (the "Tyco Purchase Agreement") relating to the August 1999 sale by Tyco International Ltd. ("Tyco") of the Mueller and Anvil businesses to our prior owners, we are indemnified by Tyco for all liabilities arising in connection with the operation of these businesses prior to their sale by Tyco, including with respect to products manufactured or sold prior to the closing of that transaction. See "Business—Legal Proceedings." The indemnity survives forever and is not subject to any dollar limits. In the past, Tyco has made substantial payments and/or assumed

26



defense of claims pursuant to this indemnification provision. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable or fails to comply with, the terms of the indemnity. In addition, Tyco's indemnity does not cover product liabilities to the extent caused by our products manufactured after that transaction. On January 14, 2006, Tyco's board of directors announced that it approved a plan to separate Tyco into three separate, publicly traded companies. At this time, we do not know which of the new entities will assume the indemnity provided under the terms of the Tyco Purchase Agreement if this plan is implemented. Should the entity or entities that assume Tyco's obligations under the Tyco Purchase Agreement ever become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities. For more information about our potential product liabilities, see "Business—Legal Proceedings."

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

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

        In addition, we will be required to incur costs to comply with the EPA's National Emissions Standards for Hazardous Air Pollutants ("NESHAP") for iron and steel foundries and for our foundries' painting operations. These costs may be substantial. See "Business—Environmental Matters." We may be required to conduct investigations and perform remedial activities that could require us to incur material costs in the future. Our operations involve the use of hazardous substances and the disposal of hazardous wastes. We may incur costs to manage these substances and wastes and may be subject to claims for damage for personal injury, property damages or damage to natural resources.

        Our U.S. Pipe segment has been identified as a potentially responsible party liable under federal environmental laws for a portion of the clean-up costs with regard to two sites, one in Alabama and one in California, and is currently subject to an administrative consent order requiring certain monitoring and clean-up with regard to its Burlington, New Jersey facility. Such clean-up costs could be substantial and could have a negative effect on our profitability and cash flows in any given reporting period. As described in the immediately preceding risk factor, we rely on Tyco to indemnify us for certain liabilities and there is a risk that Tyco may become unable or fail to fulfill its obligation. For more information about our environmental compliance and potential environmental liabilities, see "Business—Environmental Matters" and "Business—Legal Proceedings."

We need to improve our disclosure controls and procedures and internal control over financial reporting to comply with SEC reporting requirements; public reporting obligations have put significant demands on our financial, operational and management resources.

        The Public Company Accounting Oversight Board ("PCAOB") defines a significant deficiency as a control deficiency, or a combination of control deficiencies, that adversely affects the company's ability to initiate, authorize, record, process, or report external financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the company's annual or interim financial statements that is more than inconsequential will not be prevented or detected. The PCAOB defines a material weakness as a single deficiency, or a

27



combination of deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

        As of September 30, 2005, we did not maintain effective controls over the preparation, review and presentation and disclosure of our consolidated financial statements due to a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants. Specifically, our controls failed to prevent or detect the incorrect presentation of the following items in our consolidated financial statements: (i) cash flows from the effect of exchange rate changes on cash balances; (ii) cash flows from the loss on disposal of property, plant and equipment; (iii) cash flows and balance sheet presentation of book overdrafts; (iv) the presentation of current and non-current deferred income tax assets in Predecessor Mueller's consolidated balance sheet; and (v) classification of certain depreciation expense as selling, general and administrative expense instead of cost of sales in the Predecessor Mueller consolidated statement of operations. Further, our controls failed to detect the incorrect presentation of shipping and handling costs in our unaudited consolidated statement of operations for the three months ended December 31, 2004 as initially reported for the three months ended December 31, 2005. These control deficiencies resulted in the restatement of Predecessor Mueller's annual consolidated financial statements for fiscal 2004 and 2003 and interim consolidated financial statements for the first three quarters of fiscal 2005, all interim periods of fiscal 2004, audit adjustments to the 2005 annual consolidated financial statements and the restatement of our consolidated statement of operations for the three months ended December 31, 2004. Additionally, control deficiencies could result in a misstatement of the presentation and disclosure of our consolidated financial statements that would result in a material misstatement in the annual or interim financial statements that would not be prevented or detected. Accordingly, management determined that these control deficiencies constituted a material weakness.

        As of September 30, 2004 and 2005, Predecessor Mueller reported the following control deficiencies that, in the aggregate, constituted a material weakness in internal control over preparation, review and presentation and disclosure of their consolidated financial statements. Specifically Predecessor Mueller's control deficiencies included: (i) a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants; (ii) a lack of sufficient controls to prevent or detect, on a timely basis, unauthorized journal entries; (iii) a lack of sufficient controls over information technology data conversion and program changes; (iv) a lack of sufficient controls over the development and communication of income tax provisions; (v) a lack of effective controls surrounding "whistleblower" hotline complaints and internal certifications to ensure that issues were communicated on a more timely basis by management to the audit committee and the independent registered public accounting firm; (vi) a lack of effective controls over revenue recognition associated with full truckload shipments not immediately dispatched by freight carriers; and (vii) a lack of formal controls and procedures regarding assessment of financial exposures and transactions, including consideration of accounting implications under GAAP. These control deficiencies resulted in audit adjustments to the consolidated financial statements for the year ended September 30, 2004. Additionally, these control deficiencies, in the aggregate, could result in a misstatement to accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. While item (i) above remains unremediated and is the only remaining item of the material weakness existing at March 31, 2006 described above, management has concluded that based on the remediation actions described below, items (ii) through (vii) of this material weakness did not exist at March 31, 2006.

        The material weakness and control deficiency will need to be addressed as part of the evaluation of our internal controls over financial reporting pursuant to the Sarbanes-Oxley Act of 2002 and may impair our ability to comply with Section 404 of the Act.

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        While we have taken numerous actions described under "Management's Discussion and Analysis of Financial Condition and Results of Operations—Previously Issued Consolidated Financial Statements" to address the material weakness, additional measures may be necessary and these actions may not be sufficient to address the issues identified by us or to ensure that our internal controls over financial reporting is effective. If we are unable to correct existing or future material weaknesses in internal controls over financial reporting in a timely manner, we may not be able to record, process, summarize and report financial information within the time periods specified in the rules and forms of the SEC. This failure could harm our business and the market value of our securities and affect our ability to access the capital markets. In addition, there could be a negative reaction in the financial markets due to a loss of confidence in reliability of future financial statements and SEC filings.

Compliance with internal control reporting requirements and securities laws and regulations is likely to increase our compliance costs.

        The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and the Public Company Accounting Oversight Board ("PCAOB"), have required changes in the corporate governance and securities disclosure or compliance practices of public companies over the last few years. We expect these new rules and regulations to continue to increase our legal and financial compliance costs, as well as our ongoing audit costs, and to make legal, accounting and administrative activities more time-consuming and costly. As a result of the Company being a consolidated subsidiary of Walter Industries, in 2006, we will need to comply with the internal control reporting requirements of the Sarbanes-Oxley Act, which will have a significant impact on our compliance cost in 2006. We expect to spend approximately $6 million on our compliance costs in our fiscal year ending September 30, 2006.

Compliance with the securities laws and regulations is likely to make it more difficult and expensive for us to obtain directors and officers liability insurance and to attract and retain qualified members of our board of directors.

        We expect the Sarbanes-Oxley Act and the rules and regulations subsequently implemented by the SEC and the PCAOB to make it more difficult and expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These new rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and executive officers.

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

        We are pursuing several initiatives designed to rationalize our manufacturing facilities and to use our manufacturing expertise to reduce our costs. In fiscal 2006, we expect to achieve integration synergies between our Mueller and U.S. Pipe segments by closing the U.S. Pipe Chattanooga, Tennessee production facility and integrating it into the Mueller Chattanooga and Albertville, Alabama production facilities. We have initiated the implementation of plant and distribution combination and production efficiency strategies within our Mueller and Anvil segments, which efforts will continue through fiscal years 2006, 2007 and the beginning of 2008. Our Mueller segment sales force has begun to integrate U.S. Pipe products as complementary product offerings as part of their sales efforts. We also have begun to use our combined purchasing leverage to reduce raw material and overall product costs. If we fail to implement our integration and rationalization plans, at the economic levels or within the time periods expected, we may not be able to achieve the projected levels of synergies and cost savings. In addition, we expect to incur substantial severance, environmental and impairment costs in connection with our integration and rationalization plans.

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

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

If we fail to protect our intellectual property, our business and ability to compete could suffer.

        Our business depends upon our technology and know-how, which is largely developed internally. While we believe that none of our operating units is substantially dependent on any single patent, trademark, copyright, or other form of intellectual property, we rely on a combination of patent protection, copyright and trademark laws, trade secrets protection, employee and third party confidentiality and nondisclosure agreements and technical measures to protect our intellectual property rights. There is a risk that the measures that we take to protect our intellectual property rights may not be adequate to deter infringement or misappropriation or independent third-party development of our technology or to prevent an unauthorized third party from obtaining or using information or intellectual property that we regard as proprietary or to keep others from using brand names similar to our own. The disclosure, misappropriation or infringement of our intellectual property could harm our ability to protect our rights and our competitive position In addition, our actions to enforce our rights may result in substantial costs and diversion of management and other resources. We may also be subject to intellectual property infringement claims from time to time, which may result in our incurring additional expenses and diverting company resources to respond to these claims.

If transportation for our ductile iron pipe products becomes unavailable or uneconomic for our customers, our ability to sell ductile iron pipe products would suffer.

        Transportation costs are a critical factor in a customer's purchasing decision. Increases in transportation costs could make our ductile iron pipe products less competitive with the same or alternative products from competitors with lower transportation costs.

        We typically depend upon rail, barge and trucking systems to deliver our products to customers. While our customers typically arrange and pay for transportation from our factory to the point of use, disruption of these transportation services because of weather-related problems, strikes, lock-outs or other events could temporarily impair our ability to supply our products to our customers thereby resulting in lost sales and reduced profitability.


Risks Relating to our Relationship with Walter Industries

Walter Industries controls us and may have conflicts of interest with us or you in the future.

        Immediately prior to this offering, Walter Industries will be our only stockholder. Upon completion of this offering, Walter Industries will beneficially own all of our outstanding Series B common stock (which Series B common stock is entitled to eight votes per share on any matter submitted to a vote of our stockholders). The common stock beneficially owned by Walter Industries upon completion of this offering will represent in the aggregate 96.7% of the combined voting power of all of our outstanding common stock (or 96.3% if the underwriters' option to purchase additional shares is exercised in full). For as long as Walter Industries continues to beneficially own shares of common stock representing

30



more than 50% of the combined voting power of our common stock, Walter Industries will be able to direct the election of all of the members of our board of directors and exercise a controlling influence over our business and affairs, including any determinations with respect to mergers or other business combinations, the acquisition or disposition of assets, the incurrence of indebtedness, the issuance of any additional common stock or other equity securities, the repurchase or redemption of common stock or preferred stock and the payment of dividends. Similarly, Walter Industries will have the power to determine or significantly influence the outcome of matters submitted to a vote of our stockholders, including the power to prevent an acquisition or any other change in control of us and could take other actions that might be favorable to Walter Industries. See "Description of Capital Stock" and "Certain Relationships and Related Party Transactions."

        Walter Industries will also have an option available to it to purchase additional shares of Series B common stock and/or any nonvoting capital stock to maintain its then-existing percentage of the total voting power and value of us. Additionally, with respect to shares of any nonvoting capital stock that may be issued in the future, Walter Industries will have an option to purchase such additional shares so as to maintain ownership of 80% of each outstanding class of such stock. Beneficial ownership of at least 80% of the total voting power and 80% of each class of any nonvoting capital stock is required in order to effect a tax-free spin-off of us (as discussed under "Description of Capital Stock—Common stock—Conversion Rights") or certain other tax-free transactions.

        For a description of certain provisions of the restated certificate of incorporation concerning the allocation of business opportunities that may be suitable for both us and Walter Industries, see "Description of Capital Stock—Competition and Corporate Opportunities."

We may have substantial additional liability for federal income tax allegedly owed by Walter Industries.

        Each member of a consolidated group for federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it is a member of the group at any time during such year. Each member of the Walter Industries controlled group, which currently includes Walter Industries, us and Walter Industries' other subsidiaries, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as well as certain benefit plan taxes. Accordingly, we could be liable under such provisions in the event any such liability is incurred, and not discharged, by any other member of the Walter Industries consolidated or controlled group for any period during which we were included in the Walter Industries consolidated or controlled group.

        Controversy exists with regard to federal income taxes allegedly owed by the Walter consolidated group, which includes the Company, for fiscal years 1980 through 1994 and 1999 through 2001. It is estimated that the amount of tax presently claimed by the IRS is approximately $34.0 million for issues currently in dispute in bankruptcy court and $80.4 million for the 1999 through 2001 period, each of which is for matters unrelated to the Company. These amounts are subject to interest and penalties. However, Walter Industries believes that their tax filing positions have substantial merit and intends to defend vigorously any claims asserted. Walter Industries believes that it has accruals sufficient to cover the estimated probable loss, including interest and penalties.

The tax allocation agreement between us and Walter Industries gives Walter Industries control over our pre-IPO taxes and allocates to us certain tax risks associated with a planned spin-off of our common stock.

        Walter Industries effectively controls all of our tax decisions for periods during which we are a member of the Walter Industries consolidated federal income tax group and certain combined, consolidated or unitary state and local income tax groups. Under the terms of a tax allocation agreement between Walter Industries and us, which will be entered into in connection with this

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offering, Walter Industries has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state returns, to file all such returns on behalf of us and to determine the amount of our liability to (or entitlement to payment from) Walter Industries for such periods. This arrangement may result in conflicts of interests between us and Walter Industries. See "Certain Relationships and Related Party Transactions—Relationship with Walter Industries—Tax Allocation Agreement." In addition, the tax allocation agreement will provide that in the event that Walter Industries effectuates a spin-off of our common stock that it owns and such spin-off is not tax-free pursuant to Section 355 of the Internal Revenue Code of 1986, as amended, or the "Code," we will generally be responsible for any taxes incurred by Walter Industries or its stockholders if such taxes result from certain of our actions or omissions and for a percentage of any such taxes that are not a result of our actions or omissions or Walter Industries' actions or omissions taxes based upon our market value relative to Walter Industries' market value.

Because we have limited experience operating as a stand-alone entity, our future business prospects are difficult to evaluate and our business could suffer as a result of the separation of our business from Walter Industries.

        Our company is a combination of the Predecessor Mueller business acquired by Walter Industries on October 3, 2005 and the U.S. Pipe business. As of the date of this prospectus, Walter Industries owns all outstanding shares of our common stock. Our operations as a stand-alone company may place significant demands on our management, operational, and technical resources. Our future performance will depend on our ability to function as a stand-alone company and on our ability to finance and manage expanding operations and to adapt our information systems to changes in its business. We rely on contractual arrangements that require Walter Industries and its affiliates to provide or procure certain critical transitional services and shared arrangements to us such as:

    certain tax and accounting services;

    certain human resources services, including benefit plan administration;

    communications systems;

    insurance; and

    supply arrangements.

        After the termination of these arrangements, we may not be able to replace these services and arrangements in a timely manner or on terms and conditions, including service levels and cost, as favorable as those we have received from Walter Industries and its affiliates. There is a risk that our separation from Walter Industries will not be successful, which could significantly impair our business, our results and our financial reporting ability.

        Furthermore, the financial information included in this prospectus may not necessarily reflect what the operating results and financial condition would have been had we been a separate, stand-alone entity during the periods presented or be indicative of our future operating results and financial condition.

Our governing documents and applicable laws include provisions that may discourage a takeover attempt.

        Provisions contained in our restated certificate of incorporation and by-laws and Delaware law could make it difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders. For example, stockholders who wish to nominate a director or present a matter for consideration at an annual meeting are required to give us notice of such proposal, which gives us time to respond. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our Series A common stock and may have the effect of delaying or preventing a change in control.

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Risks Relating to this Offering

Our Series A common stock has no prior public market and an active trading market may not develop.

        Prior to this offering, there has not been a market for our Series A common stock. Although we intend to list our Series A common stock on the New York Stock Exchange, an active trading market in our Series A common stock might not develop or be sustained after this offering. An investor purchasing shares of Series A common stock in this offering will pay a price that was not established in a competitive market, but instead was determined by negotiations with the representatives of the underwriters based upon an assessment of the valuation of our Series A common stock. The public market may not agree with or accept this valuation, in which case an investor may not be able to sell shares of our stock at or above the initial offering price.

The price of our Series A common stock may be volatile and may be affected by market conditions beyond our control.

        Our share price is likely to fluctuate in the future because of the volatility of the stock market in general and a variety of factors, many of which are beyond our control, including:

    general economic conditions that impact construction and infrastructure activity, including interest rate movements;

    quarterly variations in actual or anticipated results of our operations;

    speculation in the press or investment community;

    changes in financial estimates by securities analysts;

    actions or announcements by our competitors;

    actions by our principal stockholders;

    regulatory actions;

    litigation;

    U.S. and international economic, legal and regulatory factors unrelated to our performance;

    loss or gain of a major customer;

    additions or departures of key personnel; and

    future sales of our Series A common stock.

        Market fluctuations could result in extreme volatility in the price of shares of our Series A common stock, which could cause a decline in the value of your investment. You should also be aware that price volatility may be greater if the public float and trading volume of shares of our Series A common stock is low. In addition, if our operating results and net income fail to meet the expectations of stock analysts and investors, we may experience an immediate and significant decline in the trading price of our stock.

Sales of common stock may depress the stock price after the offering.

        After the completion of this offering, we will have 23,529,412 outstanding shares of Series A common stock (27,058,823 shares of Series A common stock if the underwriters exercise in full their option to purchase additional shares). This number is comprised of all the shares of our Series A common stock that we are selling in this offering, which may be resold immediately in the public market.

        In addition, Walter Industries owns 87,315,508 shares of our Series B common stock, which constitute all of our outstanding shares of Series B common stock. Our directors, executive officers and Walter Industries have agreed, with limited exceptions, that we and they will not directly or indirectly,

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without the prior written consent of the underwriters, offer to sell, sell or otherwise dispose of any of our common stock for a period of 180 days after the date of this prospectus. Subject to the selling restrictions described under "Shares Eligible for Future Sale" and "Underwriting," Walter Industries could, from time to time, convert its Series B common stock into Series A common stock on a one-for-one basis and sell any or all of those shares of Series A common stock. In addition, Walter Industries currently intends to undertake a spin-off of our capital stock to Walter Industries' shareholders. See "Certain Relationships and Related Party Transactions."

        Further, following the consummation of this offering, pursuant to the terms of the agreement ("Corporate Agreement") that we expect to enter into with Walter Industries, Walter Industries and its permitted transferees will have the right to require us to register their common stock under the Securities Act of 1933 ("the Securities Act"), for sale into the public markets. Upon the effectiveness of any such registration statement, all shares covered by the registration statement will be freely transferable. On or shortly following the date of this prospectus, we also intend to file a registration statement on Form S-8 under the Securities Act to register an aggregate of 12,000,000 shares of Series A common stock reserved for issuance under our stock incentive plan and our employee stock purchase plan. Subject to the exercise of issued and outstanding options, shares registered under the registration statement on Form S-8 will be available for sale into the public markets after the expiration of the 180-day lock-up agreements.

        We cannot predict what effect, if any, future sales of our common stock, or the availability of common stock for future sale, will have on the market price of our Series A common stock. Sales of substantial amounts of our common stock in the public market following our initial public offering, or the perception that such sales could occur, could lead to a decline in the market price of our Series A common stock and may make it more difficult for you to sell your Series A common stock at a time and price which you deem appropriate. The sale by Walter Industries of additional shares of Series A common stock in the public market, or the perception that such sales might occur, could reduce the price that our Series A common stock might otherwise obtain or could impair our ability to obtain capital through the sale of equity securities.

The book value of shares of common stock purchased in the offering will be immediately diluted.

        Investors who purchase common stock in the offering will suffer immediate dilution of $22.61 per share in the pro forma net tangible book value per share. See "Dilution."

Our ability to pay regular dividends to our stockholders is subject to the discretion of our board of directors and may be limited by our holding company structure, the covenants in our debt instruments and applicable provisions of Delaware law.

        After consummation of this offering, we intend to pay cash dividends on a quarterly basis. Our board of directors may, in its discretion, decrease the level of dividends or discontinue the payment of dividends entirely. In addition, as a holding company, we will be dependent upon the ability of our subsidiaries to generate earnings and cash flows and distribute them to us so that we may pay our obligations and expenses and pay dividends to our stockholders. Our ability to pay future dividends and the ability of our subsidiaries to make distributions to us will be subject to our and their respective operating results, cash requirements and financial condition, the applicable laws of the State of Delaware (which may limit the amount of funds available for distribution), compliance with covenants and financial ratios related to existing or future indebtedness and other agreements with third parties. If, as a consequence of these various limitations and restrictions, we are unable to generate sufficient distributions from our business, we may not be able to make, or may have to reduce or eliminate, the payment of dividends on our shares.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        The information contained in this prospectus includes some forward-looking statements that involve a number of risks and uncertainties. A forward-looking statement is usually identified by our use of certain terminology including "believes," "expects, "may," "should," "seeks," "anticipates" or "intends" or by discussions of strategy or intentions. A number of factors could cause our actual results, performance, achievements or industry results to be very different from the results, performance or achievements expressed or implied by those forward-looking statements. These factors include, but are not limited to:

    the competitive environment in our industry in general and in the sectors of the flow control product industry in which we compete;

    economic conditions in general and in the sectors of the flow control product industry in which we compete;

    changes in, or our failure to comply with, federal, state, local or foreign laws and government regulations;

    liability and other claims asserted against our company;

    changes in operating strategy or development plans;

    the ability to attract and retain qualified personnel;

    our significant indebtedness;

    changes in our acquisition and capital expenditure plans;

    our ability to achieve anticipated synergies;

    our ability to timely implement improvements to our internal controls;

    unforeseen interruptions with our largest customers; and

    other factors we refer to in this prospectus, including factors described in the "Risk Factors" section.

        In addition, forward-looking statements depend upon assumptions, estimates and dates that may not be correct or precise and involve known and unknown risks, uncertainties and other factors. Accordingly, a forward-looking statement in this prospectus is not a prediction of future events or circumstances and those future events or circumstances may not occur. Given these uncertainties, you are warned not to rely on the forward-looking statements. We are not undertaking any obligation to update these factors or to publicly announce the results of any changes to our forward-looking statements due to future events or developments.

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USE OF PROCEEDS

        We estimate that the net proceeds from the offering of our Series A common stock, after deducting approximately $26.0 million of estimated underwriting discounts and offering expenses, will be approximately $374.0 million. We intend to: (1) use approximately $60.2 million to redeem a portion of our 143/4% senior discount notes due 2014; (2) contribute approximately $123.1 million to our subsidiary, Mueller Group, LLC ("Mueller Group"), which will use such proceeds to redeem a portion of its 10% senior subordinated notes due 2012 and pay accrued interest; and (3) contribute approximately $190.7 million to Mueller Group, which will use such proceeds to optionally prepay a portion of the term loan outstanding under the 2005 Mueller Credit Agreement. We will use any remaining proceeds for general corporate and other purposes.

        Affiliates of Banc of America Securities LLC, Morgan Stanley & Co. Incorporated and Calyon Securities (USA) Inc., three of the underwriters in this offering, are lenders under the 2005 Mueller Credit Agreement. It is anticipated that affiliates of Banc of America Securities LLC and Calyon Securities (USA) Inc. will receive approximately $2.9 million and $1.8 million, respectively, of the proceeds from this offering through the partial repayment of the term loan outstanding under the 2005 Mueller Credit Agreement, based on the aggregate principal amount of the term loan outstanding as of the date of this prospectus. See "Underwriting."

        The expected sources and uses of funds in connection with the offering (assuming a May 31, 2006 completion of this offering unless otherwise specified) are set forth in the table below. The actual amounts may vary depending on the time of the completion of this offering.

Sources
  Uses
(dollars in millions)

Series A common stock   $ 400.0   Partial redemption of senior discount notes(1)   $ 60.2
          Partial redemption of senior subordinated notes(2)     123.1
          Partial repayment of the term loan(3)     190.7
          Estimated fees and expenses(4)     26.0
   
     
Total sources   $ 400.0   Total uses   $ 400.0
   
     

(1)
Represents redemption of approximately $52.5 million in accreted value of our 143/4% senior discount notes due 2014 and a payment of approximately $7.7 million of a contractual premium based on the amount required at the assumed redemption date. In addition, as a result of the early repayment, the Company will record a favorable adjustment to interest expense of approximately $8.5 million for adjustment for the difference between the carrying value and the contractual obligation.

(2)
Represents redemption of approximately $110.3 million of Mueller Group's 10% senior subordinated notes due 2012 and a payment of approximately $12.8 million of a contractual premium and accrued interest based on the amount required at the assumed redemption date. In addition, as a result of the early repayment, the Company will record a favorable adjustment to interest expense of approximately $5.8 million for adjustment for the difference between the carrying value and the contractual obligation.

(3)
Represents the optional prepayment of a portion of the $1,050.0 million term loan outstanding under the 2005 Mueller Credit Agreement. There is no prepayment premium or penalty associated with the term loan. The senior credit facilities under the 2005 Mueller Credit Agreement consist of: (1) an amortizing senior secured term loan facility in an initial aggregate principal amount of $1,050.0 million ($1,044.8 million of which is currently outstanding) and (2) a $145.0 million senior

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    secured revolving credit facility, which provides for loans and under which letters of credit may be issued. The revolving credit facility will terminate on October 4, 2010, and the term loans will mature on November 1, 2011 (or October 3, 2012, if the 10% senior subordinated notes due 2012 are paid in full or refinanced prior to such date). Loans under the senior credit facilities currently bear interest, at our option, at: (x) initially, the reserve adjusted LIBOR rate plus 250 basis points or the alternate base rate plus 150 basis points for borrowings under the revolving credit facility; and (y) the reserve adjusted LIBOR rate plus 225 basis points or the alternate base rate plus 125 basis points for term loans. The proceeds of the 2005 Mueller Credit Agreement were used to retire certain old debt of Predecessor Mueller and to finance the Acquisition.

(4)
Represents estimated underwriting discounts and fees and legal, accounting and other fees and expenses.

        We intend to contribute the net proceeds from any shares of our Series A common stock sold pursuant to the underwriters' option to purchase additional shares to Mueller Group, which intends to use such proceeds to optionally prepay an additional portion of the term loan outstanding under the 2005 Mueller Credit Agreement or for general corporate purposes.

        Any decrease in the aggregate amount of net proceeds raised in this offering (assuming net proceeds of at least $183.3 million are raised) will decrease the amount of debt under the 2005 Mueller Credit Agreement to be prepaid, but will not affect the amount of senior discount notes or senior subordinated notes to be redeemed. Any increase in the aggregate amount of net proceeds raised in this offering will be used to optionally prepay additional debt under the 2005 Mueller Credit Agreement or for general corporate purposes.

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DIVIDEND POLICY

        Our board of directors currently intends to declare an initial quarterly cash dividend on each share of our common stock at a rate of approximately $0.07 per share annually, payable beginning the first full fiscal quarter following the completion of this offering. We expect our board to continue to declare regular quarterly dividends in the future. The board will determine the amount of any future dividends from time to time based on

    our results of operations and the amount of our surplus available to be distributed;

    dividend availability and restrictions under our credit agreement and indentures and the applicable laws of the State of Delaware;

    the dividend rate being paid by comparable companies in our industry;

    our liquidity needs and financial condition; and

    other factors that our board of directors may deem relevant.

        The board of directors may modify or revoke our dividend policy at any time. The 2005 Mueller Credit Agreement and the indentures governing the senior subordinated notes and the senior discount notes limit but do not prohibit our ability to pay dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and "Description of Certain Indebtedness."

        Under Delaware law, our board of directors may declare dividends only to the extent of our "surplus" (which is defined as total assets at fair market value minus total liabilities, minus statutory capital), or if there is no surplus, out of our net profits for the then current and/or immediately preceding fiscal years. The value of a corporation's assets can be measured in a number of ways and may not necessarily equal their book value. The value of our capital may be adjusted from time to time by our board of directors but in no event will be less than the aggregate par value of our issued stock. Our board of directors may base this determination on our financial statements, a fair valuation of our assets or another reasonable method. Our board of directors will seek to assure itself that the statutory requirements will be met before actually declaring dividends. In future periods, our board of directors may seek opinions from outside valuation firms to the effect that our solvency or assets are sufficient to allow payment of dividends, and such opinions may not be forthcoming. If we sought and were not able to obtain such an opinion, we likely would not be able to pay dividends.

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CAPITALIZATION

        The following table presents our cash and cash equivalents and consolidated capitalization as of March 31, 2006: (1) on a historical basis and (2) as adjusted to reflect the expected recapitalization and the sale by us of shares of Series A common stock in this offering and the application of the proceeds as described in "Use of Proceeds." This table should be read in conjunction with our consolidated financial statements and the notes to those statements included elsewhere in this prospectus, "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Use of Proceeds."

 
  As of March 31, 2006
 
 
   
  Pro Forma
 
 
  Historical
  As
Adjusted for
Offering

 
 
  (dollars in millions)

 
Cash and cash equivalents   $ 41.1   $ 41.1  
   
 
 
Long-term debt, including current portion:              
  Senior credit facilities(1)              
    Revolver loans     0.0     0.0  
    Term loans(2)     1,044.8     854.8  
  Senior discount notes(3)     169.8     110.4  
  Senior subordinated notes(4)     332.4     216.1  
  Capital lease obligations     2.3     2.3  
  Payable to affiliates     7.3     7.3  
   
 
 
    Total debt   $ 1,556.6   $ 1,190.9  
Stockholders' equity:              
Common stock, par value $0.01 per share, 1,000 shares authorized, actual, 600,000,000 shares authorized as adjusted; 1 share issued and outstanding, actual, 23,529,412 shares of Series A common stock and 87,315,508 shares of Series B common stock issued and outstanding as adjusted         1.1  
Preferred stock, par value $0.01 per share, no shares authorized, actual, 60,000,000 shares authorized as adjusted; no shares issued and outstanding, actual and as adjusted          
Additional paid-in capital     988.3     1,361.2  
Accumulated deficit     (228.7 )   (235.0 )
Accumulated other comprehensive loss     (42.9 )   (42.9 )
   
 
 
Total stockholders' equity (deficit)     716.7     1,084.4  
   
 
 
  Total capitalization   $ 2,232.2   $ 2,234.2  
   
 
 

(1)
The senior credit facilities under the 2005 Mueller Credit Agreement consist of: (1) an amortizing senior secured term loan facility in an initial aggregate principal amount of $1,050.0 million ($1,044.8 million of which is currently outstanding) and (2) a $145.0 million senior secured revolving credit facility, which provides for loans and under which letters of credit may be issued. The revolving credit facility will terminate on October 4, 2010, and the term loans will mature on the earlier of October 3, 2012 or November 1, 2011, unless the 10% senior subordinated notes due 2012 are paid in full prior to such date. Loans under the senior credit facilities currently bear interest, at our option, at: (x) initially, the reserve adjusted LIBOR rate plus 250 basis points or the alternate base rate plus 150 basis points for borrowings under the revolving credit facility; and

39


    (y) the reserve adjusted LIBOR rate plus 225 basis points or the alternate base rate plus 125 basis points for term loans.

(2)
The pro forma repayment of the term loan of $190.7 million reflected in the Use of Proceeds table exceeds the term loan repayment of $190.0 million reflected in this table because the Capitalization table is pro forma as of March 31, 2006 and the Use of Proceeds table is as of the time of the offering. Although both tables reflect total estimated repayment of debt of $374.0 million, the allocation of the debt repayment varies between the March 31, 2006 pro forma period and the May 31, 2006 estimated completion date of this offering. We estimate that as of the time of the offering, prior to using the offering proceeds, the actual debt balances for the term loans, senior discount notes and senior subordinated notes will be $1,044.8 million, $174.2 million and $331.7 million, respectively.

(3)
The senior discount notes were adjusted to fair market value at the date of Acquisition. The carrying value exceeds the contractual obligation by $25.1 million at March 31, 2006, on a historical basis. After the partial redemption, the carrying value would exceed the contractual obligation by $16.3 million on a pro forma basis.

(4)
The senior subordinated notes were adjusted to fair market value at the date of Acquisition. The carrying value exceeds the contractual obligation by $17.4 million at March 31, 2006 on a historical basis. After the partial redemption, the carrying value would exceed the contractual obligation by $11.3 million on a pro forma basis.

40



DILUTION

        Our net tangible book deficit as of March 31, 2006 was approximately $987.8 million or $8.91 per share. Net tangible book deficit per share as of March 31, 2006 is equal to our total assets (excluding intangible assets) minus our total liabilities divided by the aggregate number of shares of Series B common stock that would have been held by Walter Industries had the recapitalization that we expect to effect prior to the consummation of this offering been made. After giving effect to this offering of Series A common stock at an assumed offering price of $17.00 per share (the midpoint of the range set forth on the cover page of the registration statement of which this prospectus is a part) and the recapitalization and after deducting applicable underwriting discounts and estimated offering expenses, our pro forma net tangible book deficit at March 31, 2006 would have been approximately $622.1 million or $5.61 per share. This represents an immediate increase in net tangible book value of $3.30 per share to our existing stockholder and an immediate dilution of $22.61 per share to new investors purchasing shares in this offering. Dilution is determined by subtracting net tangible book value per share after the offering from the amount of cash paid by a new investor for a share of Series A common stock. The following table illustrates the pro forma dilution to new investors:

Assumed initial public offering price per share   $ 17.00  
  Net tangible book value per share as of March 31, 2006 (after giving effect to the recapitalization)     (8.91 )
  Increase in net tangible book value per share attributable to new investors     3.30  
Pro forma net tangible book value per share after this offering     (5.61 )
   
 
Pro forma dilution per share to new investors   $ 22.61  
   
 

        Assuming this offering had occurred on March 31, 2006 (after giving effect to the recapitalization), the following table summarizes, on a pro forma basis, the differences between the number of shares of Series A common stock purchased from us, the total consideration paid and the average price per share paid by existing stockholder and by the new investors purchasing shares in this offering.

 
   
   
  Total
Consideration

   
 
  Shares Purchased
  Average
Price
Per
Share

 
  Number
  Percent
  Amount
  Percent
Existing stockholder   87,315,508   78.8 % $ 716,700,000   64 % $ 8.21
New investors   23,529,412   21.2     400,000,000   36     17.00
   
 
 
 
     
  Total   110,844,920   100 % $ 1,116,700,000   100 %    
   
 
 
 
     

        If the underwriters exercise in full their option to purchase additional shares:

    the net tangible book deficit per share of common stock as of March 31, 2006 would have been $8.64 per share, which would result in dilution to the new investors of $21.95 per share;

    the number of shares of common stock held by existing stockholder will decrease to approximately 76.3% of the total number of shares of our common stock outstanding after completion of this offering; and

    the number of shares of Series A common stock held by new investors will be approximately 23.7% of the total number of shares of our common stock outstanding after completion of this offering.

41



UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

        The following unaudited pro forma condensed combined financial statements are based on the historical financial statements of Mueller Water Products, Inc. ("Predecessor Mueller") and United States Pipe and Foundry Company, LLC ("U.S. Pipe") after giving effect to: (1) the Acquisition and related transactions, including borrowings under our $1,195.0 million credit agreement ("2005 Mueller Credit Agreement") and the use of proceeds therefrom to repay our old credit facility and to redeem the second priority senior secured floating rate notes of Predecessor Mueller (collectively with the Acquisition, the "Transactions"); (2) the sale by us of shares of Series A common stock in this offering and the application of the proceeds therefrom as described in "Use of Proceeds" (the "Offering"); and (3) the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial statements. For accounting and financial statement presentation purposes, U.S. Pipe is considered the accounting acquiror of Predecessor Mueller.

        Effective December 30, 2005, U.S. Pipe changed its fiscal year to September 30, which coincides with Predecessor Mueller's fiscal year end. For purposes of preparing the September 30, 2005 pro forma statement of operations, the U.S. Pipe operating information for the three months ended December 31, 2004 has been added to the operating financial results for the nine months ended September 30, 2005 in arriving at the twelve months ended September 30, 2005 operating financial information in the pro forma data presented hereinafter. As described further in Note 1 to the unaudited pro forma condensed combined financial statements included herein, pro forma sales and cost of sales have been restated for the twelve months ended September 30, 2005 to correct the classification of certain prior-period shipping and handling costs in accordance with EITF 00-10.

        The unaudited pro forma condensed combined statement of operations for the year ended September 30, 2005 is presented as if the Transactions and the Offering had taken place on October 1, 2004 and were carried forward through September 30, 2005. The unaudited pro forma condensed combined statement of operations for the six months ended March 31, 2006 and March 31, 2005 are presented as if the offering had taken place on October 1, 2004 and were carried forward through March 31, 2006.

        The unaudited pro forma condensed combined financial statements are not intended to represent or be indicative of the consolidated results of operations that would have been reported had the Transactions and the Offering been completed as of the dates presented, and should not be taken as representative of our future consolidated results of operations. The unaudited pro forma condensed combined financial statements do not reflect (a) any operating efficiencies or cost savings that we may achieve with respect to the combined companies or (b) any additional costs that we may incur as a stand-alone company. The unaudited pro forma condensed combined financial statements also do not include the effects of restructuring certain activities of pre-acquisition operations, which occurred subsequent to March 31, 2006. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical consolidated financial statements and accompanying notes of Predecessor Mueller and U.S. Pipe included elsewhere in this prospectus.

42



MUELLER WATER PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended March 31, 2006

 
  Historical
Mueller Water Products, Inc.
for the six months ended
March 31, 2006

  Pro Forma
Adjustments
for Transactions

  Pro Forma
Combined
for Transactions

  Pro Forma
Adjustments
for Offering

  Pro Forma
as Adjusted
for Offering

 
 
  (dollars in millions except per share data)

 
Statement of Operations Data:                                
Net Sales   $ 915.3       $ 915.3   $   $ 915.3  
Cost of sales     777.2     (70.2 )(f)   707.0           707.0  
   
 
 
 
 
 
Gross profit     138.1     70.2     208.3           208.3  
Selling, general and administrative expense     121.7         121.7         121.7  
Facility rationalization and related costs     28.4         28.4         28.4  
   
 
 
 
 
 
Operating income (loss)     (12.0 )   70.2     58.2           58.2  
Interest expense net of interest income     (62.3 )       (62.3 )   17.1  (e)   (45.2 )
   
 
 
 
 
 
Income (loss) before income taxes     (74.3 )   70.2     (4.1 )   17.1     13.0  
Income tax expense (benefit)     (23.7 )   28.1  (g)   4.4     1.1(g )   5.5  
   
 
 
 
 
 
Net income (loss)   $ (50.6 ) $ 42.1   $ (8.5 ) $ 16.0   $ 7.5  
   
 
 
 
 
 
Earnings (loss) per share:(h)                                
Earnings (loss) per share:                                
  Basic   $ (50,600,000 )                   $ 0.07  
  Diluted   $ (50,600,000 )                   $ 0.07  
Weighted average shares outstanding:                                
  Basic     1                       111,145,253  
  Diluted     1                       111,358,854  

See notes to unaudited pro forma condensed combined statement of operations.

43



MUELLER WATER PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the six months ended March 31, 2005

 
  Historical U.S.
Pipe for the
six months ended
March 31,
2005

  Predecessor
Mueller for the
six months ended
March 31,
2005

  Pro Forma
Adjustments
for Transactions

  Pro Forma
Combined
for Transactions

  Pro Forma
Adjustments
for Offering

  Pro Forma
as Adjusted
for Offering

 
 
  (dollars in millions except per share data)

   
 
Statement of Operations Data:                                      
Net Sales   $ 265.9   $ 541.3       $ 807.2   $   $ 807.2  
Cost of sales     242.7     380.9     2.4  (a)   626.0           626.0  
   
 
 
 
 
 
 
Gross profit     23.2     160.4     (2.4 )   181.2           181.2  
Selling, general and administrative expense     22.0     87.9     9.0  (b)   118.9         118.9  
Facility rationalization and related costs         1.6         1.6         1.6  
   
 
 
 
 
 
 
Operating income (loss)     1.2     70.9     (11.4 )   60.7           60.7  
Interest expense net of interest income     (11.3 )   (44.0 )   (12.9) (c)   (68.2 )   9.0 (e)   (59.2 )
   
 
 
 
 
 
 
Income (loss) before income taxes     (10.1 )   26.9     (24.3 )   (7.5 )   9.0     1.5  
Income tax expense (benefit)     0.6     11.0     (9.6) (d)   2.0     3.6 (d)   5.6  
   
 
 
 
 
 
 
Net income (loss)   $ (10.7 ) $ 15.9   $ (14.7 ) $ (9.5 ) $ 5.1   $ (4.1 )
   
 
 
 
 
 
 
Earnings (loss) per share(h):                                      
Earnings (loss) per share:                                      
  Basic   $ (10,700,000 ) $ 0.07                     $ (0.04 )
  Diluted   $ (10,700,000 ) $ 0.06                     $ (0.04 )
Weighted average shares outstanding:                                      
  Basic     1     220,552,697                       110,844,920  
  Diluted     1     244,907,546                       111,361,670  

See notes to unaudited pro forma condensed combined statement of operations.

44



MUELLER WATER PRODUCTS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
For the year ended September 30, 2005

 
  Historical U.S.
Pipe for the
year ended
September 30,
2005

  Predecessor
Mueller for the
year ended
September 30,
2005

  Pro Forma
Adjustments for
Transactions

  Pro Forma
Combined for
Transactions

  Pro Forma
Adjustments for
Offering

  Pro Forma as
Adjusted for
Transactions
and Offering

 
  As Restated

   
   
   
   
   
 
  (dollars in millions except per share data)

 
   
   
   
   
   
  As Restated

Statement of Operations Data:                                    
Net sales   $ 598.1   $ 1,148.9   $   $ 1,747.0       $ 1,747.0
Cost of sales     530.8     802.3     4.8   (a)   1,337.9         1,337.9
   
 
 
 
 
 
Gross profit     67.3     346.6     (4.8 )   409.1         409.1

Selling, general and administrative expenses

 

 

46.4

 

 

172.1

 

 

15.0

  (b)

 

233.5

 

 


 

 

233.5
Facility rationalization and related costs         1.7         1.7         1.7
   
 
 
 
 
 
Operating income (loss)     20.9     172.8     (19.8 )   173.9         173.9

Interest expense and early repayment costs net of interest income

 

 

(21.4

)

 

(89.5

)

 

(22.0

)(c)

 

(132.9

)

 

18.2

  (e)

 

114.7
   
 
 
 
 
 
Income (loss) before income taxes     (0.5 )   83.3     (41.8 )   41.0     18.2     59.2

Income tax expense

 

 

3.9

 

 

33.7

 

 

(16.7

)(d)

 

20.9

 

 

7.3

  (d)

 

28.2
   
 
 
 
 
 
Net income (loss)   $ (4.4 ) $ 49.6   $ (25.1 ) $ 20.1   $ 10.9   $ 31.0
   
 
 
 
 
 
Earnings (loss) per Share(h):                                    
Earnings (loss) per share:                                    
  Basic   $ (4,441,000 ) $ 0.22                     $ 0.28
  Diluted   $ (4,441,000 ) $ 0.20                     $ 0.28

Weighted average units/shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Basic     1     220,552,697                       110,844,920
  Diluted     1     244,907,546                       111,348,420

See notes to unaudited pro forma condensed combined statement of operations.

45


1.    RESTATEMENT

        The Company has restated its Unaudited Pro Forma Condensed Combined Statement of Operations to correct the classification of certain prior-period shipping and handling costs in accordance with Emerging Issues Task Force ("EITF") Consensus No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF 00-10 does not allow shipping and handling costs to be shown as a deduction from net sales.

        For the nine months ended September 30, 2005, and the years ended December 31, 2004 and 2003, the Company incorrectly included certain shipping and handling fees and costs as deductions against net sales when they should have been reported as cost of sales. The impact of the restatement was to increase net sales and cost of sales by $42.3 million for the twelve months ended September 30, 2005. The restatement had no impact on operating income or net income for any of the periods presented.

        The following table sets forth the effects of the restatement discussed above on the unaudited pro forma condensed combined Statement of Operations for the twelve months ended September 30, 2005.

Unaudited Pro Form Condensed Combined Statements of Operations

 
  For the
twelve months ended
September 30, 2005

 
  As
Reported

  As
Restated

 
  (dollars in millions)

Net sales   $ 1,704.7   $ 1,747.0
Cost of Sales   $ 1,295.6   $ 1,337.9

2.    ACQUISITION

        On October 3, 2005, pursuant to the agreement dated June 17, 2005, Walter Industries acquired all of the outstanding common stock of Predecessor Mueller for approximately $918.1 million. Transaction costs related to the acquisition were $14.8 million. In conjunction with the acquisition, U.S. Pipe, a wholly-owned subsidiary of Walter Industries, was contributed in a series of transactions to Predecessor Mueller's wholly-owned subsidiary, Mueller Group, LLC.

        Walter Industries' acquisition of Predecessor Mueller has been accounted for as a business combination. Assets acquired and liabilities assumed were recorded at their fair values as of October 3, 2005. The total purchase price is $932.9 million, including acquisition-related transaction costs, and is comprised of (dollars in millions):

Acquisition of the outstanding common stock of Predecessor Mueller   $ 918.1
Acquisition-related transaction costs     14.8
   
  Total purchase price   $ 932.9
   

        Acquisition-related transaction costs include investment banking, legal and accounting fees and other external costs directly related to the Acquisition.

        Under business combination accounting, the purchase price was allocated to Predecessor Mueller's net tangible and identifiable intangible assets based on their fair values as of October 3, 2005. The

46



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

Receivables, net   $ 177.4  
Inventory     373.2  
Property, plant and equipment     215.7  
Identifiable intangible assets     855.9  
Goodwill     790.4  
Net other assets     376.1  
Net deferred tax liabilities     (283.1 )
Debt     (1,572.7 )
   
 
  Total purchase price allocation   $ 932.9  
   
 

        The purchase price allocation is preliminary and is subject to future adjustments to goodwill for the execution of certain restructuring plans identified by Walter Industries prior to the acquisition date primarily related to the Predecessor Mueller facility rationalization actions. Costs related to these facility rationalization actions will be recorded to goodwill through October 3, 2006.

        Receivables are short-term trade receivables and their net book value approximates current fair value.

        Finished goods inventory is valued at estimated selling price less cost of disposal and a reasonable profit allowance for the selling effort. Work in process inventory is valued at estimated selling price of finished goods less costs to complete, cost of disposal and a reasonable profit allowance for the completing and selling effort. Raw materials are valued at book value, which approximates current replacement cost.

        Property, plant and equipment is valued at the current replacement cost as follows (dollars in millions):

 
   
  Depreciation
Period

Land   $ 14.1   Indefinite
Buildings     51.8   5 to 14 years
Machinery and equipment     136.6   3 to 5 years
Other     13.2   3 years
   
   
  Total property, plant and equipment   $ 215.7    
   
   

        Depreciation related to the property, plant and equipment adjustment is reflected in the pro forma condensed combined statement of operations.

        Identifiable intangible assets were as follows (dollars in millions):

 
   
  Amortization
Period

Trade name and trademark   $ 403.0   Indefinite
Technology     56.3   10 years
Customer relationships     396.6   19 years
   
   
  Total identifiable intangible assets   $ 855.9    
   
   

        Identifiable intangible assets acquired consist of trade name, trademark, technology and customer relationships and were valued at their current fair value. Trade name and trademark relate to

47



Mueller®, Anvil®, Hersey®, Henry Pratt™ and James Jones™ and Jones®. Technology represents processes related to the design and development of products. Customer relationships represents the recurring nature of sales to current distributors, municipalities, contractors and other end customers regardless of their contractual nature. The amortization related to the fair value adjustments of these definite-lived intangible assets is reflected in the pro forma condensed combined statements of operations.

        Goodwill represents the excess of the purchase price over the fair value of tangible and identifiable intangible assets acquired. Goodwill is not amortized, but rather is tested for impairment at least annually. In the event that we determine the book value of goodwill has become impaired, we will incur an accounting charge for the amount of impairment during the fiscal quarter in which such determination is made.

        Net other assets include cash, prepaid expenses, deferred financing fees, accounts payable, accrued expenses and accrued pension liability and were valued at their approximate current fair value. After the purchase price allocation and the contribution of U.S. Pipe, Predecessor Mueller paid a $444.5 million dividend to Mueller Holding Company, Inc., a subsidiary of Walter Industries, to fund the acquisition, $20.0 million for transaction expenses and $10.0 million in employee-related costs and such payments are reflected in the pro forma condensed combined financial statements. Transaction expenses were capitalized and employee-related costs were expensed.

        Net deferred tax liabilities include the tax effects of fair value adjustments related to identifiable intangible assets and net tangible assets.

        Debt is valued at fair market value as of October 3, 2005, which resulted in a $36.0 million and an $18.9 million fair value increase to the senior discount notes and the senior subordinated notes, respectively. The amortization of the premium on debt related to fair value adjustments is reflected in the pro forma condensed combined statement of operations as a credit to interest expense.

3.     CREDIT AGREEMENT

        On October 3, 2005, Mueller Group entered into the 2005 Mueller Credit Agreement consisting of a $145.0 million senior secured revolving credit facility terminating on October 4, 2010 and a $1,050.0 million senior secured term loan maturing in October 3, 2012 or November 1, 2011, unless the 10% senior subordinated notes due 2012 are paid in full prior to such date. Loans under the senior credit facilities currently bear interest, at our option, at: (x) initially, the reserve adjusted LIBOR rate plus 250 basis points or the alternate base rate plus 150 basis points for borrowings under the revolving credit facility; and (y) the reserve adjusted LIBOR rate plus 225 basis points or the alternate base rate plus 125 basis points for term loans. The 2005 Mueller Credit Agreement is a secured obligation of Mueller Group and substantially all of the wholly-owned domestic subsidiaries of Mueller Group, including U.S. Pipe. Proceeds from the 2005 Mueller Credit Agreement were approximately $1,053.4 million, net of approximately $21.6 million of underwriting fees and expenses, which will be amortized over the life of the loans. The proceeds were used to retire the previous Mueller Group senior credit facility of $512.8 million, the second priority senior secured floating rate notes of $100.0 million, and to finance the acquisition of Predecessor Mueller by Walter Industries. The term loan requires quarterly principal payments of $2.6 million through October 3, 2012, at which point in time the remaining principal outstanding is due. Presently, the commitment fee on the unused portion of the revolving credit facility is 0.50% and the interest rate is a floating rate of 250 basis points over LIBOR. The term loan presently carries a floating interest rate of 225 basis points over LIBOR.

48



4.     PRO FORMA ADJUSTMENTS

        The following pro forma adjustments are included in the unaudited pro forma condensed combined statement of operations:

    (a)
    Adjustment of $2.8 million and $5.6 million to increase amortization expense for technology intangible assets associated with the Acquisition, net of a $0.4 million and $0.8 million decrease in depreciation expense associated with acquired fixed assets depreciated over their remaining useful lives for the six months ended March 31, 2005 and the twelve months ended September 30, 2005, respectively. The decrease in depreciation expense in relation to the increase in basis for property, plant and equipment represents adjustments to the remaining lives of the assets to reflect their expected economic life.

    (b)
    Adjustment of $9.0 million and $18.1 million ($10.4 million and $20.9 million net of ($1.4 million and $2.8 million) of recorded amortization) to increase amortization expense for customer relationship intangible assets associated with the Acquisition, net of a zero and $3.1 million removal of seller transaction expenses incurred prior to September 30, 2005 for the six months ended March 31, 2005 and the twelve months ended September 30, 2005, respectively.

    (c)
    Net adjustment consists of a $14.4 million and a $27.5 million increase in interest expense for interest on the 2005 Mueller Credit Agreement along with a $2.3 million and a $2.1 million increase in amortization expense for new deferred financing fees, net of a decrease of $3.8 million and $7.6 million in interest expense resulting from the amortization of premium created by the fair value adjustment of Predecessor Mueller's existing public debt for the six months ended March 31, 2005 and the twelve months ended September 30, 2005, respectively. A change in interest rates of 1/8% would result in a change in interest expense of approximately $1.3 million.

    (d)
    Adjustment to reflect the tax effect of pro forma adjustments at a 40% statutory rate. The statutory tax rate of 40% is based on a 35% statutory federal tax rate plus an average statutory state tax rate of 5%. As more fully described in Note 9 to the financial statements of U.S. Pipe, income tax expense is calculated as if U.S. Pipe filed a tax return on a stand alone basis, with the exception that the tax sharing agreement in place with Walter Industries provides that U.S. Pipe receives an immediate benefit when its tax losses for Federal purposes are utilizable by the consolidated group. On a pro forma basis, U.S. Pipe's historical tax expense of $3.9 million would have been $12.0 million on a stand alone basis assuming U.S. Pipe's deferred tax assets were consistently evaluated for realization without regard to the utilization by Walter Industries of its tax losses for the twelve months ended September 30, 2005.

    (e)
    Adjustments of $17.1 million, $9.0 million and $18.2 million to decrease interest expense resulting from using the proceeds of this offering to repay debt for the six months ended March 31, 2006 and 2005 and for the year ended September 30, 2005 respectively.

    (f)
    Adjustment to eliminate amortization of inventory fair value adjustment.

    (g)
    Adjustment to reflect the tax effect of pro forma adjustments at a 40% statutory rate plus a tax benefit adjustment of $5.7 million to provide taxes, after giving effect for the transactions and offering, at an effective tax rate of 42.3%, the Company's estimated fiscal 2006 effective tax rate. Prior to initiating the offering, the Company had estimated its effective tax rate for fiscal 2006 to be 32% as a result of the fiscal 2006 forecasted loss. The effective tax rate of 32% is lower than the statutory rate primarily as a result of non-deductible interest expense.

49


    (h)
    Our pro forma basic and diluted net income per common share were calculated as follows (in millions except per share data):

 
  For the six months ended
March 31, 2006

  For the year ended
March 31, 2005

  For the year ended
September 30, 2005

 
  Basic
  Diluted
  Basic
  Diluted
  Basic
  Diluted
Numerator:                                    
  Pro forma net income   $ 7.5   $ 7.5   $ (4.1 ) $ (4.1 ) $ 31.0   $ 31.0

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Weighted average number of common shares     111.1     111.1     110.8     110.8     110.8     110.8
  Incremental common shares issuable for restricted stock units         0.2         0.5         0.5
   
 
 
 
 
 
      111.1     111.4     110.8     111.3     110.8     113.3

Net income (loss) per share

 

$

0.07

 

$

0.07

 

$

(0.04

)

$

(0.04

)

$

0.28

 

$

0.28
   
 
 
 
 
 

50



SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA

Selected Historical Financial Data—Mueller Water Products, Inc.

        The following selected consolidated statement of operations data for the six months ended March 31, 2006 and 2005 and the selected consolidated balance sheet data as of March 31, 2006 and September 30, 2005 are derived from, and qualified by reference to, the unaudited consolidated financial statements of Mueller Water Products, Inc. included elsewhere in this prospectus and should be read in conjunction with those unaudited consolidated financial statements and notes thereto. The following selected consolidated financial and other data of Mueller Water Products, Inc. should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the unaudited consolidated financial statements and notes thereto included elsewhere in this prospectus.

 
  For the six months ended
March 31,

 
 
  2006
  2005
 
 
  (dollars in millions)

 
 
   
  As Restated(j)

 
Statement of Operations Data:              
Net sales   $ 915.3   $ 265.9  
Cost of sales(a)     777.2     242.6  
   
 
 
Gross profit     138.1     23.3  
Selling, general and administrative expenses(b)     117.9     18.3  
Related party corporate charges(c)     3.8     3.7  
Facility rationalization, restructuring and related costs(d)     28.4      
   
 
 
Loss from operations     (12.0 )   (1.3 )
Interest expense arising from related party payable to Walter Industries(e)         (11.0 )
Interest expense, net of interest income(f)     (62.3 )   (0.3 )
   
 
 
Loss before income taxes     (74.3 )   (10.0 )
Income tax expense (benefit)     (23.7 )   0.7  
   
 
 
Net loss   $ (50.6 ) $ (10.7 )
   
 
 
Loss per share(g)   $ (50.6 ) $ (10.7 )
   
 
 
Other Data:              
EBITDA(h)   $ 38.5   $ 14.4  
Depreciation and amortization     50.5     13.1  
Capital expenditures     30.9     11.2  
 
  March 31,
2006

  September 30,
2005

 
 
  (dollars in millions)

 
Balance Sheet Data:              
Working capital(i)   $ 627.8   $ 188.6  
Property, plant and equipment, net     340.7     149.2  
Total assets     2,964.8     495.4  
Total debt     1,549.3      
Total stockholder's equity (net capital deficiency)     716.7     (155.2 )

(a)
Cost of sales includes:

$70.2 million of purchase accounting adjustments related to valuing inventory acquired in the Acquisition at fair value for the six months ended March 31, 2006;

51


    $10.7 million of inventory obsolescence write-offs related to the shut-down of the U.S. Pipe Chattanooga plant during the six months ended March 31, 2006; and

    $7.6 million of facility expenses at the U.S. Pipe Chattanooga plant due to significantly lower than normal capacity resulting from the plant closure process during the six months ended March 31, 2006.

(b)
Selling, general and administrative expenses include:

$4.0 million related to environmental liabilities at the U.S. Pipe Anniston, Alabama site (shut down in 2003) for the six months ended March 31, 2005.

$5.1 million favorable insurance claims settlement for the six month ended March 31, 2005.

(c)
Related party corporate charges represents costs incurred by Walter Industries that have been allocated to U.S. Pipe. Walter Industries allocates certain costs to all of its subsidiaries based on a systematic and rational method. Upon the spin-off, these charges will no longer be allocated to U.S. Pipe. However, U.S. Pipe may incur costs in an amount less than or greater than these costs for similar services performed by an unaffiliated third party.

(d)
Facility rationalization and restructuring includes severance, other employee-related costs related to pension and other post retirement benefit obligations, and exit cost charges and non-cash impairment charges due to the closure of the U.S. Pipe Chattanooga plant during the six months ended March 31, 2006.

(e)
Consists of interest expense allocated by Walter Industries to U.S. Pipe. Following the Acquisition on October 3, 2005, the allocation of the interest expense terminated because the intercompany indebtedness to Walter Industries was contributed to the capital of U.S. Pipe.

(f)
Interest expense, net of interest income, includes $2.5 million in commitment fees for a bridge loan which were expensed at the expiration of the bridge loan period during the six months ended March 31, 2006. Interest expense, net of interest income, also includes interest rate swap gains of $0.5 million for the six months ended March 31, 2006.

(g)
Loss per share for all periods presented was determined using one share, which is the capital structure of the reporting entity subsequent to the Acquisition.

(h)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.

    In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.

    EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

      EBITDA does not reflect our cash expenditures or future requirements for capital expenditures or contractual commitments;

      EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

      EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

52


      although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

      other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.

    EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.

    EBITDA reconciliation to Net loss:

 
  For the six months ended
March 31,

 
 
  2006
  2005
 
 
  (dollars in millions)

 
EBITDA   $ 38.5   $ 14.4  
Adjustments:              
Depreciation and amortization     (50.5 )   (13.1 )
Interest expense arising from related party payable to Walter Industries         (11.0 )
Interest expense, net of interest income     (62.3 )   (0.3 )
Income tax (expense) benefit     23.7     (0.7 )
   
 
 
Net loss   $ (50.6 ) $ (10.7 )
   
 
 
(i)
Working capital equals current assets less current liabilities.

(j)
The information presented above should be read in conjunction with Mueller Water Products, Inc.'s financial statements and the notes thereto, including Note 2 related to the restatement of net sales and cost of sales, for the three months ended December 31, 2004. As described further in Note 2, sales and cost of sales have been restated to correct the classification of certain prior-period shipping and handling costs in accordance with EITF 00-10.

53


United States Pipe and Foundry Company, LLC.

        The selected statement of operations data for the nine months ended September 30, 2005 and for the years ended December 31, 2004 and 2003 and the selected balance sheet data as of September 30, 2005 and December 31, 2004 are derived, and qualified by reference to, the audited financial statements of U.S. Pipe included elsewhere in this prospectus and should be read in conjunction with those financial statements and notes thereto. The selected statement of operations data for the nine months ended September 30, 2004 and the years ended December 31, 2002 and 2001 and the selected balance sheet data as of September 30, 2004 and December 31, 2003, 2002 and 2001 have been derived from unaudited financial statements of U.S. Pipe not included in this prospectus. The following selected financial and other data should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial Statements" and the financial statements and notes thereto included elsewhere in this prospectus.

 
  For the nine months ended
September 30,

  For the years ended December 31,
 
 
  2005
  2004
  2004
  2003
  2002
  2001
 
 
  (dollars in millions)
As Restated(i)

 
Statement of Operations Data:                                      
  Net sales   $ 456.9   $ 437.2   $ 578.4   $ 465.4   $ 491.8   $ 525.9  
  Cost of sales(a)     402.2     402.9     531.4     427.4     429.8     429.5  
   
 
 
 
 
 
 
    Gross profit     54.7     34.3     47.0     38.0     62.0     96.4  
  Selling, general and administrative expenses(b)     25.9     25.0     38.2     43.5     36.1     37.0  
  Related party corporate charges(c)     5.4     5.7     7.7     4.8     6.4     3.1  
  Restructuring and impairment charges(d)         0.1     0.1     5.9          
   
 
 
 
 
 
 
    Operating income (loss)     23.4     3.5     1.0     (16.2 )   19.5     56.3  
  Interest expense-other     (0.3 )   (0.4 )   (0.5 )   (0.5 )   (0.1 )   (0.1 )
  Interest expense arising from payable to parent, Walter Industries(e)     (15.2 )   (13.0 )   (18.9 )   (16.4 )   (9.4 )   (18.2 )
   
 
 
 
 
 
 
    Income (loss) before income tax expense (benefit)     7.9     (9.9 )   (18.4 )   (33.1 )   10.0     38.0  
  Income tax expense (benefit)     2.8     (3.9 )   (2.9 )   (12.7 )   4.1     15.1  
   
 
 
 
 
 
 
    Income (loss) before cumulative effect of change in accounting principle     5.1     (6.0 )   (15.5 )   (20.4 )   5.9     22.9  
  Cumulative effect of change in accounting principle, net of tax                 (0.5 )        
   
 
 
 
 
 
 
    Net income (loss)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9   $ 22.9  
   
 
 
 
 
 
 
 
Basic income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Income (loss) before cumulative effect of change in accounting principle   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.4 ) $ 5.9   $ 22.9  
  Cumulative effect of change in accounting principle, net of tax                 (0.5 )        
   
 
 
 
 
 
 
  Earnings (loss) per share(f)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9   $ 22.9  
   
 
 
 
 
 
 
Other Data:                                      
  EBITDA(g)   $ 42.8   $ 23.5   $ 27.5   $ 9.0   $ 43.5   $ 77.9  
  Depreciation and amortization     19.4     20.0     26.5     25.2     24.0     21.6  
  Capital expenditures     16.5     12.4     20.4     15.7     26.2     37.1  

54


 
  As of September 30,
  As of December 31,
 
 
  2005
  2004
  2004
  2003
  2002
  2001
 
 
  (dollars in millions)

 
Balance Sheet Data:                                      
Cash and cash equivalents(h)   $   $ 0.1   $   $ 0.2   $ 0.1   $ 0.1  
Working capital     188.7     176.6     163.5     157.0     139.0     138.3  
Property, plant and equipment, net     149.2     152.2     152.9     160.1     172.1     170.6  
Total assets     514.7     491.6     473.5     452.9     448.6     444.0  
Intercompany indebtedness to Walter Industries     443.6     435.4     422.8     409.2     385.2     400.8  
Total liabilities     669.9     626.7     618.6     581.9     555.3     528.4  
Total unit/stockholder's equity (net capital deficiency)     (155.2 )   (135.1 )   (145.1 )   (129.0 )   (106.7 )   (84.4 )

(a)
Cost of sales includes warranty cost of $2.3 million related to a construction project in Kansas City, Missouri during the nine months ended September 30, 2005.

(b)
Selling, general and administrative expenses include:

Credits for environmental-related insurance settlement benefits of $5.1 million and $1.9 million for the nine months ended September 30, 2005 and the year ended December 31, 2004, respectively;

Accrual of $4.0 million relating to environmental liabilities for the year ended December 31, 2004; and

Settlement expenses for a commercial dispute of $1.7 million and settlement expenses for litigation matters of $6.5 million for the year ended December 31, 2003.

(c)
Related party corporate charges represents costs incurred by Walter Industries that have been allocated to U.S. Pipe. Walter Industries allocates certain costs to all of its subsidiaries based on a systematic and rational method. Upon the spin-off, these charges will no longer be allocated to U.S. Pipe. However, U.S. Pipe may incur costs in an amount less than or greater than these costs for similar services performed by an unaffiliated third party.

(d)
Restructuring and impairment charges for the year ended December 31, 2003 include $5.9 million to cease operations at the castings plant in Anniston, Alabama. These charges primarily included employee benefits costs and the write-off of fixed assets.

(e)
Consists of interest expense allocated by Walter Industries to U.S. Pipe. Following the Acquisition on October 3, 2005, the allocation of the interest expense terminated because the intercompany indebtedness to Walter Industries was contributed to the capital of U.S. Pipe.

(f)
Earnings (loss) per share for all periods presented was determined using one share, which is the capital structure of the reporting entity subsequent to the Acquisition.

(g)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.


In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.


EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as comparative measures.

55



EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.


EBITDA reconciliation to Net income (loss):

 
  For the nine months
ended September 30,

  For the years ended
December 31,

 
 
  2005
  2004
  2004
  2003
  2002
  2001
 
 
  (dollars in millions)

 
EBITDA   $ 42.8   $ 23.5   $ 27.5   $ 9.0   $ 43.5   $ 77.9  
Adjustments:                                      
  Depreciation and amortization     (19.4 )   (20.0 )   (26.5 )   (25.2 )   (24.0 )   (21.6 )
  Interest expense—other     (0.3 )   (0.4 )   (0.5 )   (0.5 )   (0.1 )   (0.1 )
  Interest expense arising from payable to parent, Walter Industries     (15.2 )   (13.0 )   (18.9 )   (16.4 )   (9.4 )   (18.2 )
  Income tax (expense) benefit     (2.8 )   3.9     2.9     12.7     (4.1 )   (15.1 )
  Cumulative effect of change in accounting principle, net of tax                 (0.5 )        
   
 
 
 
 
 
 
  Net income (loss)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 ) $ 5.9   $ 22.9  
   
 
 
 
 
 
 
(h)
Cash and cash equivalents, prior to the acquisition of Predecessor Mueller on October 3, 2005, were transferred daily to the Walter Industries cash management system, effectively reducing U.S. Pipe cash to virtually zero on a daily basis. Subsequent to October 3, 2005, all cash generated by U.S. Pipe is maintained by U.S. Pipe and is not transferred to Walter Industries.

(i)
The information presented above should be read in conjunction with U.S. Pipe's financial statements and the notes thereto including Note 1 related to the restatement of net sales and cost of sales. As described further in Note 1, sales and cost of sales have been restated to correct the classification of certain prior-period shipping and handling costs in accordance with EITF 00-10.


In addition to the restatement information provided in Note 1, the following information is provided regarding the restatement:

 
  For the nine months ended
September 30, 2004

  For the year ended
December 31, 2002

 
  As Restated
  As Originally
Reported

  As Restated
  As Originally
Reported

 
  (dollars in millions)

Net sales   $ 437.2   $ 406.9   $ 491.8   $ 457.2
Cost of sales     402.9     372.6     429.8     395.2

56



MUELLER WATER PRODUCTS, INC. (PREDECESSOR MUELLER)

        The selected consolidated statement of operations data for the years ended September 30, 2005, 2004, 2003, 2002 and 2001 and the selected consolidated balance sheet data as of September 30, 2005, 2004, 2003, 2002 and 2001 are derived, and qualified by reference to, the audited consolidated financial statements of Predecessor Mueller and should be read in conjunction with those consolidated financial statements and notes thereto. The consolidated financial statements as of September 30, 2005 and 2004 and for each of the three years in the period ended September 30, 2005 are included elsewhere in this prospectus. The following selected consolidated financial and other data of Predecessor Mueller should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Financial Statements" and the consolidated financial statements and notes thereto not included in this prospectus.

 
  For the years ended September 30,

 
 
  2005
  2004
  2003
  2002
  2001
 
 
   
  (as restated)(i)
  (as restated)(i)
  (as restated)(i)
  (as restated)(i)
 
 
  (dollars in millions except per share data)

 
Statement of Operations 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(a)                 13.5     29.1  
   
 
 
 
 
 
    Gross profit     346.6     298.7     241.1     222.4     195.7  
  Selling, general and administrative expenses(b)     172.1     185.1     148.2     139.4     136.7  
  Facility rationalization, restructuring and related costs(c)     1.7     0.9     1.7     2.7     27.6  
   
 
 
 
 
 
    Operating income     172.8     112.7     91.2     80.3     31.4  
  Interest expense, net of interest income(d)     (89.5 )   (63.5 )   (35.5 )   (57.9 )   (86.7 )
   
 
 
 
 
 
    Income (loss) before income tax expense (benefit)     83.3     49.2     55.7     22.4     (55.3 )
  Income tax expense (benefit)     33.7     16.0     22.9     10.1     (20.6 )
   
 
 
 
 
 
    Income (loss) before cumulative effect of change in accounting principle     49.6     33.2     32.8     12.3     (34.7 )
  Cumulative effect of change in accounting principle, net of tax(e)                     (9.1 )
   
 
 
 
 
 
    Net income (loss)   $ 49.6   $ 33.2   $ 32.8   $ 12.3   $ (43.8 )
   
 
 
 
 
 

Earnings (loss) per Share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  Earnings (loss) per share(f):                                
    Basic   $ 0.22   $ 0.11   $ 0.09   $ 0.00   $ (0.26 )
    Diluted   $ 0.20   $ 0.10   $ 0.09   $ 0.00   $ (0.26 )
  Weighted average shares outstanding (in millions):                                
    Basic     220.6     212.3     205.6     205.3     205.3  
    Diluted     244.9     223.6     208.9     207.3     206.0  

Other Data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
  EBITDA(g)   $ 221.2   $ 177.0   $ 157.5   $ 143.1   $ 96.8  
  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  

57


 
  As of September 30,
 
  2005
  2004
  2003
  2002
  2001
 
  (dollars in millions)

Balance Sheet Data:                              
  Cash and cash equivalents   $ 112.8   $ 60.5   $ 73.0   $ 25.2   $ 25.3
  Working capital(h)     481.6     390.8     369.1     307.7     263.1
  Property, plant and equipment, net     168.0     186.8     208.0     231.9     227.9
  Total assets     1,086.8     989.2     957.4     933.9     933.3
  Total debt     1,055.7     1,039.4     575.7     581.0     587.1
  Total stockholder's equity (net capital deficiency)     (176.4 )   (232.4 )   106.8     78.6     87.4

    (a)
    In connection with the sale by Tyco of the Predecessor Mueller business to our prior owners (the "August 1999 Tyco Transaction"), we acquired a non-exclusive license to use the Mueller brand name for a period of two years, with an option to purchase it in September 2001 and to use the Grinnell brand name for three years. We exercised the option and purchased the Mueller intellectual property in September 2001. Payments under such license prior to the exercise of the purchase option are reflected as royalty expense in our statement of operations. These royalty expenses were funded out of restricted cash we placed into escrow in August 1999 in connection with the August 1999 Tyco Transaction. We classify the acquired Mueller intellectual property as an indefinite-life asset and therefore record no related amortization expense.

    (b)
    Selling, general and administrative expenses include stock compensation charges of $21.2 million, $0.7 million, $1.1 million and $0.5 million for the years ended September 30, 2004, 2003, 2002 and 2001, respectively.

    (c)
    Facility rationalization and restructuring includes severance and exit cost charges and non-cash impairment charges due to the idling and obsolescence of certain assets related to (A) the implementation of lost foam technology at our Albertville, Alabama and Chattanooga, Tennessee facilities, (B) the closure of our Statesboro, Georgia manufacturing facility, (C) the relocation of certain manufacturing lines to other facilities, and (D) the shutdown of a Mueller segment plant in Colorado that ceased manufacturing operations.

    (d)
    Interest expense, net of interest income, includes the write off of deferred financing fees of $7.0 million for 2004 and $1.6 million for 2002. Interest expense and early debt repayment costs for 2004 also includes a $7.0 million prepayment associated with the redemption in November 2003 of our senior subordinated notes due 2009. Interest expense, net of interest income, also includes interest rate swap (gains)/losses of $(5.2) million, $(12.5) million, $(13.3) million, $(3.7) million, and $23.5 million for the years ended September 30, 2005, 2004, 2003, 2002, and 2001, respectively.

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

    (f)
    A reconciliation of the basic and diluted net income (loss) per share computations for the years ended September 30, 2005, 2004, 2003, 2002 and 2001 are as follows:

 
  For the years ended September 30,

 
 
  2005
  2004
  2003
  2002
  2001
 
 
  Basic
  Diluted
  Basic
  Diluted
  Basic
  Diluted
  Basic
  Diluted
  Basic
  Diluted
 
 
  (in millions, except per share data)

 
Numerator:                                                              
  Net income (loss) before cumulative effect of change in accounting principle   $ 49.6   $ 49.6   $ 33.2   $ 33.2   $ 32.8   $ 32.8   $ 12.3   $ 12.3   $ (34.7 ) $ (34.7 )
  Effect of dilutive securities:                                                              
    Dividends related to redeemable preferred stock(1)             9.9     9.9     14.2     14.2     12.1     12.1     10.4     10.4  
  Net cumulative effect of change in accounting principle(4)                                     9.1     9.1  
   
 
 
 
 
 
 
 
 
 
 
    $ 49.6   $ 49.6   $ 23.3   $ 23.3   $ 18.6   $ 18.6   $ 0.2   $ 0.2   $ (54.2 ) $ (54.2 )
   
 
 
 
 
 
 
 
 
 
 
Denominator:                                                              
  Average number of common shares outstanding     220.6     220.6     212.3     212.3     205.6     205.6     205.3     205.3     205.3     205.3  
  Effect of dilutive securities:                                                              
    Stock options(2)                 1.2         3.3         2.0         0.7  
    Warrants(3)         24.3         10.1                          
   
 
 
 
 
 
 
 
 
 
 
      220.6     244.9     212.3     223.6     205.6     208.9     205.3     207.3     205.3     206.0  
   
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) per share

 

$

0.22

 

$

0.20

 

$

0.11

 

$

0.10

 

$

0.09

 

$

0.09

 

$

0.00

 

$

0.00

 

$

(0.26

)

$

(0.26

)

    (1)
    Represents dividends payable in cash related to the redeemable preferred stock which was redeemed on April 23, 2004.

    (2)
    Represents the number of shares of common stock issuable on the exercise of dilutive employee stock options less the number of shares of common stock which could have been purchased with the proceeds from the exercise of such

58


      options. These purchases were assumed to have been made at the average market price for the period. On April 23, 2004, as a part of a recapitalization, all options were exercised.

    (3)
    Represents the number of warrants issued with the 143/4% senior discount notes that were convertible into Predecessor Mueller's Class A common stock upon exercise. In connection with the acquisition of Predecessor Mueller by Walter Industries on October 3, 2005, all warrants were converted into a right to receive cash and are no longer outstanding.

    (4)
    Represents the cumulative effect of accounting changes, net of tax, include ($2.7 million) related to adoption of SAB 101 pertaining to revenue recognition and ($6.4 million) related to accounting for interest rate swaps with the adoption of SFAS 133.

(g)
EBITDA represents net income adjusted for interest expense, net of interest income, income taxes, cumulative effect of change in accounting principle, and depreciation and amortization. We present EBITDA because we consider it an important supplemental measure of our performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of companies in our industry, substantially all of which present EBITDA when reporting their results.


In addition, our credit agreement uses EBITDA (with additional adjustments) to measure our compliance with covenants, such as interest coverage and debt incurrence. EBITDA is also widely used by us and others in our industry to evaluate and price potential acquisition candidates.


EBITDA has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

EBITDA does not reflect changes in, or cash requirements for, our working capital needs;

EBITDA does not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA does not reflect any cash requirements for such replacements; and

other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.


EBITDA is a measure of our performance that is not required by, or presented in accordance with, GAAP. EBITDA is not a measurement of our financial performance under GAAP and should not be considered as an alternative to net income, operating income or any other performance measures derived in accordance with GAAP.


EBITDA reconciliation to Net income (loss):

 
  For the years ended September 30,
 
 
  2005
  2004
  2003
  2002
  2001
 
 
  (dollars in millions)

 
EBITDA   $ 221.2   $ 177.0   $ 157.5   $ 143.1   $ 96.8  
Adjustments:                                
  Depreciation and amortization     (48.4 )   (64.3 )   (66.3 )   (62.8 )   (65.4 )
  Interest expense, net of interest income     (89.5 )   (63.5 )   (35.5 )   (57.9 )   (86.7 )
  Income tax (expense) benefit     (33.7 )   (16.0 )   (22.9 )   (10.1 )   20.6  
  Cumulative effect of change in accounting principle, net of tax                     (9.1 )
   
 
 
 
 
 
  Net income (loss)   $ 49.6   $ 33.2   $ 32.8   $ 12.3   $ (43.8 )
   
 
 
 
 
 
(h)
Working capital equals current assets less current liabilities (excluding restricted cash of $0, $0, $0, $11.6 million, and $32.8 million in each of the periods ending September 30, 2005, 2004, 2003, 2002, and 2001 and accrued royalties of $0, $0, $0, $13.5 million, and $29.1 million, in each of the periods ending September 30, 2005, 2004, 2003, 2002, and 2001. Restricted cash was set aside for the purpose of making royalty payments to Tyco under the terms of agreements that were fully expired as of September 30, 2002. We have excluded these items from the calculation of working capital in order to reflect the availability of unrestricted-use net assets).

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

59



MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Mueller Water Products, Inc.

        The following discussion should be read in conjunction with the audited consolidated financial statements of United States Pipe and Foundry Company, LLC and Predecessor Mueller (formerly filed with the Securities and Exchange Commission as Mueller Water Products, Inc.) and notes thereto that appear elsewhere in this prospectus. This discussion contains forward-looking statements reflecting current expectations that involve risks and uncertainties. Actual results and the timing of events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in the section entitled "Risk Factors."

Overview

Business

        We are a leading North American manufacturer of a broad range of water infrastructure and flow control products for use in water distribution networks, water and wastewater treatment facilities, gas distribution and piping systems.

        We manage our business and report operations through three operating segments, based largely on the products they sell and the markets they serve. Our segments are named after lead brands in each segment:

    Mueller.    The Mueller segment produces and sells hydrants, valves and related products primarily to the water and wastewater infrastructure markets. Sales of our Mueller segment products are driven principally by spending on water and wastewater infrastructure upgrade, repair and replacement and new water and wastewater infrastructure. Subsequent to the Acquisition, effective January 1, 2006, U.S. Pipe transferred its valve and hydrant business to our Mueller segment. Mueller segment sales are estimated to be approximately 50% for new infrastructure, with the remainder for upgrade, repair and replacement. A significant portion of Mueller's sales are made through its broad distributor network. For most of our Mueller segment products, which are sold through independent distributors, end-users choose the brand or establish product specifications. We believe our reputation for quality, extensive distributor relationships, installed base and coordinated marketing approach have helped our Mueller segment products to be "specified" as an approved product for use in most major metropolitan areas throughout the United States.

    U.S. Pipe.    The U.S. Pipe segment produces and sells ductile iron pressure pipe, restraint joints and fittings and related products to the water infrastructure market. U.S. Pipe products are sold primarily to water works distributors, contractors, municipalities, private utilities and other governmental agencies. A substantial percentage of ductile iron pressure pipe orders result from contracts that are bid by contractors or directly issued by municipalities or private utilities. To support our customers' inventory and delivery requirements, U.S. Pipe utilizes numerous storage depots throughout the country.

    Anvil.    The Anvil segment produces, sources and sells pipe fittings, pipe hangers and pipe nipples and a variety of related products primarily to the commercial fire protection piping systems and HVAC applications market. Sales of our Anvil segment products are driven principally by spending on non-residential construction projects.

60


Developments and Trends

        The Acquisition of Predecessor Mueller on October 3, 2005, as well as other developments, trends and factors may impact our future results including the following:

    Recent price increases in brass ingot, which contains approximately 85% copper, have increased the overall cost of manufacturing certain Mueller segment products, including certain hydrant and valve components. The Mueller segment raised prices on certain brass products by 10%, effective May 1, 2006 and announced another 12% price increase on certain brass products effective June 5, 2006, as well as announcing an increase on certain hydrants and iron valves containing brass components, effective May 26, 2006, which will partially offset the increase in brass ingot costs. The cost of copper has continued to rise and we may need to implement further pricing actions to offset higher raw material costs.

    As presented herein, the operating results from the Acquisition of Predecessor Mueller were consolidated with those of U.S. Pipe's results from October 3, 2005, the date of Acquisition.

    In the quarter ended December 31, 2005, our wholly-owned subsidiary, Mueller Group, entered into the 2005 Mueller Credit Agreement. Proceeds of the 2005 Mueller Credit Agreement were approximately $1,053.4 million, net of approximately $21.6 million of underwriting fees and expenses which will be amortized over the life of the loans. The proceeds were used to refinance Predecessor Mueller's 2004 Credit Facility ("2004 Mueller Credit Facility"), redeem Predecessor Mueller's second priority senior secured floating rate notes, and finance the acquisition of Predecessor Mueller by Walter Industries. During the period subsequent to September 30, 2005, and prior to Walter Industries acquiring Predecessor Mueller on October 3, 2005, Predecessor Mueller expensed $18.4 million of deferred financing fees related to the 2004 Mueller Credit Facility and wrote off $2.4 million of deferred financing fees related to the second priority senior secured floating rate notes. These expenses are excluded from the results of operations for the periods presented.

    In the period subsequent to September 30, 2005 and prior to Walter Industries acquiring Predecessor Mueller on October 3, 2005, Predecessor Mueller expensed transaction fees of approximately $20.1 million and transaction bonuses of $10.0 million. These fees were contingent upon completion of the sale of Predecessor Mueller to Walter Industries. Non-contingent legal and other fees and expenses of approximately $3.1 million associated solely with the Acquisition were expensed by Predecessor Mueller during the fiscal year ended September 30, 2005. These expenses are excluded from the results of operations for the periods presented.

    We have initiated a synergy plan designed to streamline our manufacturing operations, add incremental volume through combining sales efforts for complementary products and create savings through a coordinated purchasing plan to reduce raw material and overall production costs. We expect that the full implementation of our synergy plan by early fiscal 2008 will produce approximately $40-$50 million of ongoing incremental annual operating income. These benefits could be higher if additional production, purchasing and sales improvements are realized.

    As part of the synergy plan, in October 2005, we announced and have initiated several plant closures and transferred production to existing facilities:

    Closure of the U.S. Pipe Chattanooga, Tennessee Plant. Effective January 1, 2006, we transferred the valve and hydrant production of the U.S. Pipe Chattanooga, Tennessee plant to Mueller segment's Chattanooga, Tennessee and Albertville, Alabama plants. The eventual closure of the U.S. Pipe Chattanooga, Tennessee plant will occur sometime in fiscal 2006. Total costs related to this plant closure are expected to be approximately $47.6 million, which will be expensed and included as a component of operating income in accordance with generally accepted accounting principles. Costs recorded as components of operating income for the six

61


      months ended March 31, 2006 were $18.3 million, charged to cost of sales related to inventory obsolescence and additional facility expenses, and $28.4 million of restructuring costs primarily related to fixed asset impairments, severance, net pension curtailment settlement and environmental costs.

    Closure of the Henry Pratt ("Pratt") Valve Manufacturing Facility in Dixon, Illinois. On January 26, 2006 we announced the closure of this facility by the end of fiscal 2006. The process of transferring the Dixon plant's operations to other Pratt facilities has begun. Severance costs associated with this plant closure of approximately $1.4 million will be allocated to goodwill. Costs associated with relocating equipment will be expensed as incurred. For the six months ended March 31, 2006, the Company has recorded $0.3 million in severance costs to goodwill.

    Closure of the Mueller Canada Milton, Ontario ("Milton") Valve and Hydrant Manufacturing Facility. On April 20, 2006, we announced the closure of this facility by the end of fiscal 2006. Production will be transferred to other Mueller facilities beginning in the third quarter of fiscal 2006. Severance costs associated with this plant closure will be charged to goodwill. Costs associated with relocating the Milton warehouse and equipment will be expensed as incurred. No costs have been incurred or charged to goodwill for the six months ended March 31, 2006. The Company has other plans that were formally identified prior to the Acquisition to rationalize facilities and substantial cash expenditures in the form of severance and new equipment may be required to implement these plans.

    Although certain expenditures related to future plant rationalizations are expected to qualify for purchase accounting treatment and are not expected to be charged to operations, all costs of future facility rationalizations may not qualify for purchase accounting treatment.

    Assuming the offering is completed during the quarter ending June 30, 2006, the Company expects to recognize a pre-tax charge of approximately $11.0 million associated with the early redemption of debt.

    On January 4, 2006, the Company acquired Hunt Industries, Inc. ("Hunt") for $6.8 million in cash. Hunt, based in Murfreesboro, Tennessee, is a manufacturer of meter pits and meter yokes, which are sold by the Company's Mueller segment.

    On January 27, 2006, the Company acquired the operating assets of CCNE, L.L.C., ("CCNE") a Connecticut-based manufacturer and seller of check valves to the water and wastewater treatment markets, for $8.8 million in cash.The Company acquired certain identifiable intangible assets in conjunction with the CCNE acquisition, resulting in additional annual amortization expense of approximately $1.5 million over the next four and a half years.

    The Company announced its intention to enter into a tax allocation agreement ("Tax Allocation Agreement") with Walter Industries in connection with this offering and the announced spin-off of the Company by Walter Industries. Pursuant to the Tax Allocation Agreement, the Company and Walter Industries will make payments to each other to compensate the payee for income taxes owed and paid by the payee, subject to certain adjustments that would not have been payable by that party had each party filed seperate federal, state and local income tax returns for those periods prior to the spin-off in which the Company filed combined, consolidated or unitary (as applicable) federal, state and local returns as a consolidated subsidiary of Walter Industries. With respect to our tax assets, our right to reimbursement from Walter Industries will be determined based on the usage of such tax assets by the Walter Industries consolidated federal income tax group or the combined, consolidated or unitary state or local income tax group. For all periods prior to the spin-off, Walter Industries will continue to have all the rights of a parent of a consolidated group, will be the sole and exclusive agent for us in any and all matters relating to the combined, consolidated or unitary federal, state and local income tax liabilities of us, will have sole and exclusive responsibility for the preparation and filing of consolidated federal income and consolidated or combined state and local tax returns (or

62


      amended returns), and will have the power, to contest or compromise any asserted tax adjustment or deficiency and to file, litigate or compromise any claim for refund on behalf of us related to any such combined, consolidated or unitary (as applicable) federal, state or local tax return.

    We announced our intention to adopt the Mueller Water Products, Inc. 2006 Stock Incentive Plan in order to promote the long-term growth of our business by providing stock-based incentives to our officers, directors and key employees. In connection with this offering, we intend to grant restricted stock unit awards to our officers and certain of our key employees and stock option awards to our non-employee directors, with each of these awards subject to the terms of the 2006 Stock Incentive Plan. Stock compensation expense, net of tax, resulting from the issuance of restricted stock in connection with this offering is estimated to be $1.1 million, $3.5 million, $3.5 million, and $2.4 million in fiscal 2006, 2007, 2008 and 2009, respectively. Total stock compensation expense is expected to be $1.7 million, net of tax, for fiscal 2006. Stock compensation expense resulting from the issuance of future stock-based awards in fiscal 2007 and beyond has not yet been determined.

    As of March 31, 2006, scrap metal costs for our U.S. Pipe segment declined nearly 20% from their peak in 2004. The average cost of scrap iron per ton produced during the six months ended March 31, 2006 improved approximately 8% compared to the average cost during the six months ended March 31, 2005. Recently scrap costs have increased: the average cost of scrap iron per ton produced during the month of April 2006 increased 3.5% over the average cost during the three months ended March 31, 2006.

    In the fiscal year ended September 30, 2005, on a pro forma basis, approximately 37% of our pro forma sales were to our ten largest distributors, and approximately 30% of our pro forma sales were to our three largest distributors: Hughes Supply, Ferguson Enterprises, and National Waterworks. While our relationships with our ten largest distributors have been long-lasting, distributors in our industry have experienced significant consolidation in recent years. As consolidation among distributors continues, pricing pressure may result, which could lead to a significant decline in our profitability. For example, Home Depot acquired National Waterworks in 2005 and announced in March 2006 that it had completed its acquisition of Hughes Supply. As a result, two of our three largest distributors have been combined under common control. Moreover, the loss of any of National Waterworks, Hughes Supply or Ferguson Enterprises as a distributor could significantly reduce our levels of sales and profitability.

Critical Accounting Policies

        Our significant accounting policies, which comprise those of U.S. Pipe and Predecessor Mueller, are described in Notes 2 and 3, respectively, in their consolidated financial statements included elsewhere in this prospectus. While all significant accounting policies are important to our consolidated financial statements, some of these policies may be viewed as being critical. Such policies are those that are both most important to the portrayal of our financial condition and require our most difficult, subjective and complex estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. These estimates are based upon our historical experience and on various other assumptions that we believe to be reasonable

63



under the circumstances. Our actual results may differ from these estimates under different assumptions or conditions. We believe our most critical accounting policies are as follows:

    Pensions

        We sponsor a number of defined benefit retirement plans. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions including the following:

        U.S. Pipe

 
  Pension Benefits
  Other Benefits
 
  September 30,
2005

  December 31,
2004

  September 30,
2005

  December 31,
2004

Weighted-average assumptions used to determine benefit obligations:                
Discount rate   5.0 % 6.0 % 5.0%   6.0%
Rate of compensation increase   3.5 % 3.5 %  

Weighted-average assumptions used to determine net periodic costs:

 

 

 

 

 

 

 

 
Discount rate   6.0 % 6.4 % 6.0%   6.4%
Expected return on plan assets   8.9 % 8.9 %  
Rate of compensation increase   3.5 % 3.5 %  

Assumed health care cost trend rates:

 

 

 

 

 

 

 

 
Health care cost trend rate assumed for next year       10.0%   10.0%
Rate to which cost trend rate is assumed to decline (the ultimate trend rate)       5.0%   5.0%
Year that the rate reaches the ultimate trend rate       2010   2009

        The discount rate used to determine pension expense was decreased to 6.0% for 2005 from 6.4% used in 2004. The discount rate is based on a proprietary bond defeasance model designed by the plans' investment consultant to create a portfolio of high quality corporate bonds which, if invested on the measurement date, would provide the necessary future cash flows to pay accumulated benefits when due. The premise of the model is that annual benefit obligations are funded from the cash flows generated from periodic bond coupon payments, principal maturities and the interest on excess cash flows, i.e. carry forward balances.

        The model uses a statistical program to determine the optimal mix of securities to offset benefit obligations. The model is populated with an array of Moody's Aa-rated corporate fixed income securities that actively traded in the bond market on the measurement date. None of the securities used in the model had embedded call, put or convertible features, and none were structured with par paydowns or deferred income streams. All of the securities in the model are considered appropriate for the analysis as they are diversified by maturity date and issuer and offer predictable cash flow streams. For diversification purposes, the model was constrained to purchasing no more than 20% of any outstanding issuance. Carry forward interest is credited at a rate determined by adding the appropriate implied forward Treasury yield to the Aa-rated credit spread as of the measurement date.

        The expected return on plan assets was based on U.S. Pipe's expectation of the long-term average rate of return on assets in the pension funds, which was modeled based on the current and projected asset mix of the funds and considering the historical returns earned on the type of assets in the funds. We will review our actuarial assumptions on an annual basis and makes modifications to the

64



assumptions based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of the modifications are amortized over future periods.

        Assumed health care cost trends, discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension plans and health care plans. A one-percentage-point change in the rate for each of these assumptions would have the following effects:

 
  1-Percentage
Point Increase

  1-Percentage
Point Decrease

 
 
  (dollars in thousands)

 
Discount rate:              
  Effect on pension service and interest cost components   $ (210 ) $ 203  
  Effect on pension benefit obligation     (24,479 )   29,826  
  Effect on current year pension expense     (1,480 )   1,755  
Expected return on plan assets:              
  Effect on current year pension expense     (1,187 )   1,187  
Rate of compensation increase:              
  Effect on pension service and interest cost components     340     (291 )
  Effect on pension benefit obligation     2,798     (2,432 )
  Effect on current year pension expense     567     (488 )

        Among the items affecting U.S. Pipe's net accrued retirement pension benefits were additional minimum pension liabilities recognized in 2005, which primarily resulted from a further decline in the average discount rate from 6.0% to 5.0%. As a result, the net accrued benefit was increased by $24.1 million and accumulated other comprehensive loss (a component of equity) was increased by a similar amount, net of a tax benefit of $8.2 million. Depending on future plan asset performances and interest rates, additional adjustments to our net accrued benefit and equity may be required.

        Predecessor Mueller

 
  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 expense was decreased to 5.8% for 2005 from 6.0% used in 2004. The rate of return on plan assets used to determine pension expense is 7.9% for both 2005 and 2004. The discount rate is based on a model portfolio of Aa-rated bonds with a maturity matched to the estimated payouts of future pension benefits. The expected return on plan assets is based on Predecessor Mueller's expectation of the long-term average rate of return on assets in the pension funds, which was modeled based on the current and projected asset mix of the funds and considering the historical returns earned on the type of assets in the funds. We will review the actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As required by U.S. GAAP, the effects of the modifications are amortized over future periods.

65



        Assumed discount rates, expected return on plan assets and salary increases have a significant effect on the amounts reported for the pension plans. A one-percentage-point change in the rate for each of these assumptions would have the following effects:

 
  1-Percentage
Point Increase

  1-Percentage
Point Decrease

 
 
  (dollars in millions)

 
Discount rate:              
  Effect on pension service and interest cost components   $ (0.1 ) $  
  Effect on pension benefit obligation     (12.4 )   14.0  
  Effect on current year pension expense     (1.2 )   1.2  
Expected return on plan assets:              
  Effect on current year pension expense     (0.8 )   0.8  
Rate of compensation increase:              
  Effect on pension service and interest cost components          
  Effect on pension benefit obligation     0.3     (0.3 )
  Effect on current year pension expense     0.1      

        Among the items affecting our net accrued retirement pension benefits were additional minimum pension liabilities recognized in 2005, which primarily resulted from a further decline in the average discount rate from 5.8% to 5.2%. As a result, the net accrued benefit was increased by $2.8 million and accumulated other comprehensive earnings (a component of equity) was reduced by a similar amount, net of a tax benefit of $1.1 million. Depending on future plan asset performance and interest rates, additional adjustments to our net accrued benefit and equity may be required.

    Workers' Compensation

        We are self-insured for workers' compensation benefits for work-related injuries. Liabilities, including those related to claims incurred but not reported, are recorded principally using annual valuations based on discounted future expected payments and using historical data or combined insurance industry data when historical data is limited. Pursuant to the terms of the Tyco Purchase Agreement, Predecessor Mueller is indemnified by Tyco for all liabilities that occurred prior to August 16, 1999. Workers' compensation liabilities were as follows:

        U.S. Pipe

 
  September 30,
2005

  December 31,
2004

 
 
  (dollars in millions)

 
Undiscounted aggregated estimated claims to be paid   $ 14.4   $ 15.0  
Workers' compensation liability recorded on a discounted basis   $ 11.9   $ 12.7  
Discount rate     4.6 %   4.3 %

        A one-percentage-point increase in the discount rate on the discounted claims liability would decrease the liability by $0.1 million, while a one-percentage-point decrease in the discount rate would increase the liability by $0.1 million.

        Predecessor Mueller

 
  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     5.0 %   5.0 %

66


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

    Litigation, Investigations and Claims

        We are involved in litigation, investigations, and claims arising out of the normal conduct of our business, including those relating to commercial transactions, as well as environmental, health and safety matters. We estimate and accrue liabilities resulting from such matters based on a variety of factors, including outstanding legal claims and proposed settlements; assessments by internal counsel of pending or threatened litigation; and assessments of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change that could cause the actual liability to exceed the estimates, or that may require adjustments to the recorded liability balances in the future.

    Revenue Recognition

        We recognize revenue based on the recognition criteria set forth in the Securities and Exchange Commission's Staff Accounting Bulletin 104 "Revenue Recognition in Financial Statements," which is when delivery of a product has occurred and there is persuasive evidence of a sales arrangement, sales prices are fixed and determinable, and collectibility from the customers is reasonably assured. Revenue from the sale of products is recognized when title passes upon delivery to the customer. Sales are recorded net of cash discounts and rebates.

    Receivables

        Receivables relate primarily to customers located in North America. To reduce credit risk, we perform credit investigations prior to accepting an order and, when necessary, require letters of credit to insure payment.

        Our estimate for uncollectible accounts receivable is based, in large part, upon judgments and estimates of expected losses and specific identification of problem trade accounts. Significantly weaker than anticipated industry or economic conditions could impact customers' ability to pay such that actual losses are greater than the amounts provided for in these allowances. Our periodic evaluation of the adequacy of our allowance is based on our analysis of our prior collection experience, specific customer creditworthiness and current economic trends within the industries we serve. In circumstances where we are aware of a specific customer's inability to meet its financial obligation to us (e.g., bankruptcy filings or substantial downgrading of credit ratings), we record a specific reserve to reduce the receivable to the amount we reasonably believe will be collected.

    Inventories

        Inventories are recorded at the lower of cost (first-in, first-out) or market value. Additionally, we evaluate our inventory in terms of excess and obsolete exposures. This evaluation includes such factors as anticipated usage, inventory turnover, inventory levels and ultimate product sales value. Inventory cost includes an overhead component that can be affected by levels of production and actual costs incurred. Management periodically evaluates the effects of production levels and actual costs incurred on the costs capitalized as part of inventory cost.

    Income Taxes

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

67


realized. If we were to reduce our estimates of future taxable income, we could be required to record a valuation allowance against our deferred tax assets.

        We have recorded provisions associated with income tax exposures. Such provisions require significant judgment and are adjusted when events or circumstances occur that would require a change in the estimated accrual.

    Accounting for the Impairment of Long-Lived Assets Including Goodwill and Other Intangibles

        Long-lived assets, including goodwill and intangible assets that have an indefinite life are tested for impairment annually (or more frequently if events or circumstances indicate possible impairments). Definite-lived intangible assets are amortized over their respective estimated useful lives and reviewed for impairment annually or more frequently if events or circumstances indicate possible impairment. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead tested for impairment. We use an estimate of future undiscounted net cash flows of the related asset or asset grouping over the remaining life in measuring whether long-lived assets other than goodwill and intangibles are impaired. If impaired, we may need to record impairment charges to reduce the carrying value of our long-lived assets.

    Stock-Based Compensation

        U.S. Pipe.    U.S. Pipe participated in the stock-based compensation plans of its parent company, Walter Industries. Historically, Walter Industries did not allocate any costs of this plan to U.S. Pipe. Predecessor Mueller had two stock-based employee compensation plans, which are more fully described in Note 13 to its historical financial statements included elsewhere herein. For the fiscal year beginning October 1, 2005, we will adopt SFAS No. 123(R), "Share-Based Payment," which requires that compensation costs related to share-based payment transactions be recognized in the financial statements over the period that an employee provides service in exchange for the award. We will use a modified prospective method, under which we will record compensation cost for new and modified awards over the related vesting period of such awards prospectively. No change to prior periods presented is permitted under the modified prospective method. U.S. Pipe had no stock options outstanding at March 31, 2006.

        Predecessor Mueller.    Predecessor Mueller previously had accounted for compensation cost for stock-based compensation arrangements under the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," which required recognizing compensation equal to the difference, if any, between the fair value of the stock option and the exercise price at the date of the grant. All options granted under Predecessor Mueller's management incentive plan were issued at fair value at the date of grant. Fair value was determined by a committee of the board of directors of Predecessor Mueller (or the board as a whole, if no committee was constituted), which took into account as appropriate recent sales of shares of common stock, recent valuations of such shares, any discount associated with the absence of a public market for such shares and such other factors as the committee (or the board, as the case may have been) deemed relevant or appropriate in its discretion.

    Derivative Instruments and Hedging Activities

        We currently use interest rate swaps as required in the 2005 Mueller Credit Agreement to reduce the risk of interest rate volatility. The amount to be paid or received from interest rate swaps is charged or credited to interest expense over the lives of the interest rate swap agreements. Changes in the fair value of derivatives are recorded each period in earnings or Accumulated Other Comprehensive Income (Loss), depending on whether a derivative is designated and effective as part of a hedge transaction and meets the applicable requirements associated with Statement of Financial Accounting Standards (SFAS) 133 (see Note 8). Since the adoption of SFAS No. 133 in 2001, all gains and losses associated with interest rate swaps have been included in earnings.

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        For a derivative to qualify as a hedge at inception and throughout the hedge period, we must formally document the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Any financial instrument qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

        Additionally, we utilize forward contracts to mitigate our exposure to changes in foreign currency exchange rates from third party and intercompany forecasted transactions. The primary currency to which we are exposed and to which we hedge the exposure is the Canadian dollar. The effective portion of unrealized gains and losses associated with forward contracts are deferred as a component of Accumulated Other Comprehensive Income (Loss) until the underlying hedged transactions are reported in our consolidated statement of earnings. The balance was not material at March 31, 2006.

Recently Issued Accounting Standards

        In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs" which clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. We intend to adopt SFAS No. 151 on October 1, 2005, the beginning of our 2006 fiscal year. The impact of the adoption of SFAS No. 151 on our financial statements may have a material impact on our operating income in the event actual production output is significantly higher or lower than normal capacity. In the event actual production is significantly different than normal capacity, the Company may be required to recognize certain amounts of facility expense, freight, handling costs or wasted materials as a current period expense.

        In March 2005, the FASB issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"), which is an interpretation of FASB No. 143, "Accounting for Asset Retirement Obligations" ("FAS 143"). This interpretation clarifies terminology within FAS 143 and requires companies to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability's fair value can be reasonably estimated. This interpretation does not have a material impact on our financial condition or results of operations.

        In June 2005, the FASB issued FASB No. 154, "Accounting Changes and Error Corrections" ("FAS 154"), which changes the requirements for accounting for and reporting of a change in accounting principle. FAS 154 requires retrospective application to prior periods' financial statements of a voluntary change in accounting principle unless it is impracticable. FAS 154 also requires that a change in method of depreciation, amortization or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. FAS 154 is effective for accounting changes made in fiscal years beginning after December 15, 2005. The adoption of FAS 154 is not expected to have a material impact on our financial condition or results of operations.

Qualitative and Quantitative Disclosure About Market Risk

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

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

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    Interest Rate Risk

        At March 31, 2006, we had fixed rate debt of $504.5 million and variable rate debt of $1,044.8 million. The pre-tax earnings and cash flows impact resulting from a 100 basis point increase in interest rates on variable rate debt, holding other variables constant and excluding the impact of the hedging agreements described below, would be approximately $10.4 million per year.

        On October 3, 2005, our wholly-owned subsidiary, Mueller Group, entered into the 2005 Mueller Credit Agreement and refinanced the 2004 Mueller Credit Facility. On October 27, 2005, Mueller Group entered into six interest rate hedge transactions with a cumulative notional value of $350.0 million. The swap terms are between one and seven years with five separate counter-parties. The objective of the hedges is to protect us against rising LIBOR interest rates that would have a negative effect on our cash flows due to changes in interest payments on the 2005 Mueller Term Loan. The structure of the hedges are a one-year 4.617% LIBOR swap of $25.0 million, a three-year 4.740% LIBOR swap of $50.0 million, a four-year 4.800% LIBOR swap of $50.0 million, a five-year 4.814% LIBOR swap of $100.0 million, a six-year 4.915% LIBOR swap of $50.0 million, and a seven year 4.960% LIBOR swap of $75.0 million. The swap agreements call for Mueller Group to make fixed rate payments over the term at each swap's stated fixed rate and to receive payments based on three month LIBOR from the counter-parties. These swaps will be settled upon maturity and will be accounted for as cash flow hedges. As such, changes in the fair value of these swaps that take place through the date of maturity will be recorded in accumulated other comprehensive income (loss).

        Mueller Group has two interest rate hedge agreements with a cumulative notional value amount of $100.0 million that existed as of October 3, 2005: a $50.0 million two-year 3.928% LIBOR swap that matures in May 2007 and a $50.0 million two-year 4.249% LIBOR swap that matures in April 2007. The changes in fair value of these two swaps were recorded immediately as interest expense in the Statements of Operations until achieving hedge effectiveness in October 2005 and November 2005, respectively, at which times such changes in fair value were recorded in accumulated other comprehensive income (loss).

        We recorded an unrealized gain from our interest rate swap contracts, net of tax, of $2.6 million at March 31, 2006 in accumulated other comprehensive income (loss).

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

        The 2005 Mueller Credit Agreement requires that at least 50% of the funded debt of Mueller Group and its restricted subsidiaries on a consolidated basis be fixed for a period beginning no later than January 1, 2006 and ending October 3, 2008. This requirement can be met with any combination of fixed rate debt and rate protection agreements. Mueller Group is currently in compliance with this requirement.

    Currency Risk

        Outside of the United States, we maintain assets and operations in Canada and, to a much lesser extent, China. The results of operations and financial position of our foreign operations are principally measured in their respective currency and translated into United States dollars. As a result, exposure to foreign currency gains and losses exists. The reported income of these subsidiaries will be higher or lower depending on a weakening or strengthening of the United States dollar against the respective foreign currency. Our subsidiaries and affiliates also purchase and sell products and services in various currencies. As a result, we may be exposed to cost increases relative to the local currencies in the markets in which we sell. Because a different percentage of our revenues is in foreign currency than our costs, a change in the relative value of the United States dollar could have a disproportionate impact on our revenues compared to our cost, which could impact our margins.

        A portion of our assets are based in our foreign locations and are translated into United States dollars at foreign currency exchange rates in effect as of the end of each period, with the effect of such translation reflected in other comprehensive income (loss). Accordingly, our consolidated stockholders'

70



equity will fluctuate depending upon the weakening or strengthening of the United States dollar against the respective foreign currency.

        We have entered into forward exchange contracts principally to hedge currency fluctuations in transactions (primarily an intercompany loan and anticipated inventory purchases) denominated in foreign currencies, thereby limiting the risk that would otherwise result from changes in exchange rates. The majority of the Company's exposure to currency movements is in Canada. Gains and losses on the forward contracts are expected to be offset by losses/gains in recognized net underlying foreign currency transactions. As of March 31, 2006, the Company had entered into forward contracts in a notional amount of $7.4 million to protect anticipated inventory purchases over the next six months by its Canadian operations. With these hedges, the Company purchases U.S. dollars and sells Canadian dollars at an average exchange rate of $0.870.

        The Company has also entered into hedges protecting intercompany loan payments to be made over the next three years by its Canadian subsidiary to a U.S. subsidiary totaling $37.3 million. With these hedges, the Company sells Canadian dollars for U.S. dollars at an exchange rate of $0.8681. Unrealized gains or losses on these hedges will be recorded in earnings over their lives. The unrealized loss on the hedges at March 31, 2006 was not material.

    Raw Materials Risk

        Our products are made from several basic raw materials, including steel pipe, scrap steel, iron, brass ingot, sand, resin and natural gas, whose prices fluctuate as market supply and demand change. Accordingly, product margins and the level of profitability can fluctuate if we are not able to pass raw material costs on to our customers. Historically, we have been successful in implementing product price increases to reflect raw materials pricing. However, because our U.S. Pipe segment generally experiences a lag between the effective times of raw materials price increases and U.S. Pipe product price increases, U.S. Pipe margins may be reduced by repeated spikes in raw materials pricing during a fiscal cycle. Management estimates for our Mueller and Anvil segments that raw material accounted for approximately 18% of our cost of goods sold due to increasing raw material prices in 2005. Management estimates U.S. Pipe's scrap metal and ferrous alloys used in the manufacturing process accounted for approximately 40% of the cost to manufacture ductile iron pipe for the nine months ended September 30, 2005. See "Business—Raw Materials" and "Risk Factors—Our business is subject to risk of price increases and fluctuations and delay in the delivery of raw materials and purchased components." Historically, we have been able to obtain an adequate supply 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 the price of raw materials.

Results of Operations—Mueller Water Products, Inc.

        In accordance with generally accepted accounting principles, for accounting and financial statement presentation purposes U.S. Pipe is treated as the accounting acquiror of Predecessor Mueller. Accordingly, effective October 3, 2005, U.S. Pipe's basis of accounting is used for the Company and all historical financial data of the Company prior to October 3, 2005 included herein is that of U.S. Pipe. The results of operations of Mueller Water are included beginning October 3, 2005.

        Consistent with generally accepted accounting principles, the discussion of the Company's results of operations for the six months ended March 31, 2006 includes the financial results of Mueller Water for all but the first two days of the period. The inclusion of these results, plus the continuing integration process, may render direct comparison with the results for prior periods less meaningful. Accordingly, the discussion below addresses, where appropriate, trends that we believe are significant, separate and apart from the impact of the Acquisition.

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        The following table sets forth the Company's net sales, gross profit, total expenses and net loss for the six months ended March 31, 2006 and 2005.

Six Months Ended March 31, 2006 As Compared to the Six Months Ended March 31, 2005

 
  Six months ended March 31,
   
   
 
 
  2006
  2005
  2006 vs. 2005
 
 
   
  Percentage
of net
sales(1)

   
  Percentage
of net
sales(1)

  Increase/
(decrease)

  Percentage
increase/
(decrease)

 
 
  (dollars in millions)

 
Net sales                                
  Mueller   $ 373.5   40.8 % $   % $ 373.5      
  U.S. Pipe     290.8   31.8     265.9   100.0     24.9   9.4 %
  Anvil     260.2   28.4           260.2      
  Consolidating eliminations     (9.2 ) (1.0 )         (9.2 )    
   
 
 
 
 
     
  Consolidated   $ 915.3   100.0   $ 265.9   100.0   $ 649.4      
   
 
 
 
 
     
Gross profit                                
  Mueller   $ 73.5   19.7   $     $ 73.5      
  U.S. Pipe     18.5   6.4     23.3   8.8     (4.8 ) (20.6 )
  Anvil     46.7   17.9           46.7      
  Consolidating eliminations     (0.6 ) (0.1 )         (0.6 )    
   
 
 
 
 
     
  Consolidated   $ 138.1   15.1   $ 23.3   8.8   $ 114.8      
   
 
 
 
 
     
Selling, general and administrative                                
  Mueller   $ 38.1   10.2   $     $ 38.1      
  U.S. Pipe     21.3   7.3     18.3   6.9     3.0   16.4  
  Anvil     43.2   16.6           43.2      
  Corporate     15.3   1.7           15.3      
   
 
 
 
 
     
  Consolidated   $ 117.9   12.9   $ 18.3   6.9   $ 99.6      
   
 
 
 
 
     
Related party corporate charges                                
  Mueller   $     $     $      
  U.S. Pipe     3.8   1.3     3.7   1.4     0.1   2.7  
  Anvil                      
   
 
 
 
 
     
  Consolidated   $ 3.8   0.4   $ 3.7   1.4   $ 0.1      
   
 
 
 
 
     
Facility rationalization, restructuring and related costs                                
  Mueller   $     $     $      
  U.S. Pipe     28.4   9.8           28.4      
  Anvil                      
   
 
 
 
 
     
  Consolidated   $ 28.4   3.1   $     $ 28.4      
   
 
 
 
 
     
Income (loss) from operations                                
  Mueller   $ 35.4   9.5   $     $ 35.4      
  U.S. Pipe     (35.0 ) (12.0 )   1.3   0.5     (36.3 )    
  Anvil     3.5   1.3           3.5      
  Corporate     (15.3 ) (1.7 )         (15.3 )    
  Consolidating eliminations     (0.6 ) (0.1 )         (0.6 )    
   
 
 
 
 
     
  Consolidated   $ (12.0 ) (1.3 ) $ 1.3   0.5   $ (13.3 )    
   
 
 
 
 
     
Interest expense arising from related party payable to Walter   $     $ (11.0 ) (4.1 ) $ 11.0      
Interest expense, net of interest income     (62.3 ) (6.8 )   (0.3 ) (0.1 )   (62.0 )    
   
 
 
 
 
     
Loss before income taxes     (74.3 ) (8.1 )   (10.0 ) (3.8 )   (64.3 )    
Income tax expense (benefit)     (23.7 ) (2.6 )   0.7   0.3     (24.4 )    
   
 
 
 
 
     
Net loss   $ (50.6 ) (5.5 ) $ (10.7 ) (4.0 ) $ (39.9 )    
   
 
 
 
 
     

(1)
Percentages are by segment, if applicable.

        Net Sales.    Consolidated net sales for the six months ended March 31, 2006 were $915.3 million, an increase of $649.4 million from $265.9 million in the prior year period. The increase was primarily related to the October 3, 2005 Acquisition of Predecessor Mueller, which accounted for $624.5 million or approximately 96% of the overall increase.

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        Mueller segment net sales for the six months ended March 31, 2006 were $373.5 million.

        U.S. Pipe segment net sales for the six months ended March 31, 2006 were $290.8 million, an increase of $24.9 million, or 9.4% from $265.9 million in the prior year period. This increase was driven primarily by increases in ductile iron pipe selling prices and shipments. Prices were higher than the prior year as the industry has been raising prices to mitigate rising scrap metal cost increases. Partially offsetting this increase was the transfer of $13.2 million of the U.S. Pipe segment valve and hydrant business to the Mueller segment.

        Anvil segment net sales for the six months ended March 31, 2006 were $260.2 million.

        Gross Profit.    Consolidated gross profit for the six months ended March 31, 2006 was $138.1 million, an increase of $114.8 million compared to $23.3 million in the prior year period. The Acquisition of Predecessor Mueller contributed $119.6 million of the increase. Included in cost of sales for the six months ended March 31, 2006 was $70.2 million of purchase accounting adjustments related to valuing inventory acquired in the Acquisition at fair value and $0.2 million of purchase accounting adjustments related to valuing inventory acquired in the CCNE acquisition at fair value.

        Mueller segment gross profit for the six months ended March 31, 2006 was $73.5 million. Included in cost of sales for the six months ended March 31, 2006 was $52.9 million of purchase accounting adjustments related to valuing inventory at fair value and $0.2 million of purchase accounting adjustments related to valuing inventory acquired in the CCNE acquisition at fair value.

        U.S. Pipe segment gross profit for the six months ended March 31, 2006 was $18.5 million, a decrease of $4.8 million, or 20.6%, compared to $23.3 million in the prior year period. Gross margin decreased to 6.4% in the current period compared to 8.8% in the prior year period. On October 26, 2005 the Company announced that the U.S. Pipe Chattanooga plant would be closed during fiscal 2006 and that production of the U.S. Pipe valves and hydrants would be transferred to the Mueller manufacturing facilities at Albertville, Alabama and Chattanooga, Tennessee. In addition to transferring production to Mueller facilities, the sales responsibility for U.S. Pipe valve and hydrant product sales was transferred to the Mueller segment. In conjunction with this transfer, it was determined that certain U.S. Pipe inventory would not ultimately be sold. As a result, inventory obsolescence write-offs of $10.7 million were recorded to cost of sales during the quarter ended December 31, 2005.

        In addition, because of the plant closure process, actual production capacity at the U.S. Pipe Chattanooga facility was significantly lower than normal capacity, resulting in year-to-date facility expenses of $7.6 million charged directly to cost of sales, of which $5.2 million was expensed in the quarter ended December 31, 2005.

        Excluding the charges for inventory write-offs of $10.7 million and facility expenses of $7.6 million, U.S. Pipe gross margins would have been $36.8 million, or 12.7% for the year-to-date period, compared to 8.8% in the prior year period. This increase is primarily due to higher ductile iron pipe selling prices.

        Anvil segment gross profit for the six months ended March 31, 2006 was $46.7 million. Included in cost of sales for the six months ended March 31, 2006 was $17.3 million of purchase accounting adjustments related to valuing inventory acquired in the Acquisition at fair value.

        Selling, General & Administrative.    Consolidated expenses for the six months ended March 31, 2006 were $117.9 million, an increase of $99.6 million, compared to $18.3 million in the prior year period. The prior year period included a favorable $5.1 million insurance claim settlement. The Acquisition of Predecessor Mueller accounted for $96.6 million of the increase. Expenses as a percentage of net sales increased to 12.9% in the current period compared to 6.9% in the prior year period. Excluding the $5.1 million favorable insurance settlement, prior year expenses were 8.8% as a percentage of net sales.

        Mueller segment expenses for the six months ended March 31, 2006 were $38.1 million.

        U.S. Pipe segment expenses for the six months ended March 31, 2006 were $21.3 million, compared to $18.3 million for the prior year period. As a percentage of net sales, expenses increased to 7.3% in the current period compared to 6.9% in the prior year period. The prior period expense was favorably impacted by a $5.1 million insurance claim settlement and unfavorably impacted by a

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$4.0 million environmental charge related to the Anniston, Alabama site (shut down in 2003). Current period costs include higher management incentive accruals and increased outside sales commissions.

        Anvil segment expenses for the current period were $43.2 million.

        Corporate segment expenses for the current period were $15.3 million.

        Related Party Corporate Charges.    Certain costs incurred by Walter such as insurance, executive salaries, professional service fees, human resources, transportation, and other centralized business functions are allocated to its subsidiaries. Costs incurred by Walter that cannot be directly attributed to its subsidiaries are allocated to its subsidiaries based on estimated annual revenues.

        Facility Rationalization, Restructuring and Related Costs.    The Company expensed $28.4 million of restructuring costs for the six months ended March 31, 2006, related to the closure of the U.S. Pipe Chattanooga, Tennessee plant. These costs are comprised of fixed asset impairments of $19.0 million, severance for terminated hourly and salaried employees of $3.4 million, pension and other post-employment benefit costs of $3.9 million, and environmental costs of $2.1 million, primarily related to landfill closure and required site clean-up costs.

        Interest Expense Arising from Related Party Payable to Walter.    Interest expense was allocated to the Company up to the date of the Acquisition based upon the outstanding balance of the intercompany note. The intercompany note to Walter of $443.6 million was forgiven by Walter prior to October 3, 2005. There was no intercompany interest expense for the six months ended March 31, 2006 and $11.0 million for the six months ended March 31, 2005.

        Interest Expense, Other, Net of Interest Income.    Interest expense, net of interest income, for the current period was $62.3 million and includes $58.6 million of interest expense on the $1,050.0 million senior secured term loan entered into on October 3, 2005, and the senior subordinated notes and the senior discount notes assumed by the Company as part of the October 3, 2005 Acquisition; $2.5 million in commitment fees for a bridge loan which were expensed at the expiration of the bridge loan period during the current period and $2.5 million of amortization of deferred financing fees, partially offset by $0.5 million of gains on interest rate swaps and $0.8 million of interest income earned on unrestricted cash balances for the current period.

        Income Tax Expense (Benefit).    The provision for income taxes for the current period was a benefit of $23.7 million as compared to an expense of $0.7 million in the prior year period. The effective tax rate for the first six months of 2006 was 32%. The effective tax rate for the first six months of 2005 was 7%. The estimated effective tax rate differs from the statutory rate primarily due to non-deductible interest and state income taxes. The effective tax rate for the six months ended March 31, 2005 was also impacted by the recording of a $3.6 million valuation allowance against state deferred tax assets at the U.S. Pipe segment.

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Results of Operations—United States Pipe and Foundry Company, LLC

        The following table sets forth U.S. Pipe's net revenues, total expenses and net income (loss) for the nine months ended September 30, 2005, the comparable nine month period ended September 30, 2004 and years ended December 31, 2004 and 2003:

 
  For the nine months ended
September 30,

  For the years ended
December 31,

 
 
  2005
  2004
  2004
  2003
 
 
  (dollars in millions)
As Restated

 
Net revenues   $ 456.9   $ 437.2   $ 578.4   $ 465.4  
Cost of sales     402.2     402.9     531.4     427.4  
   
 
 
 
 
  Gross profit     54.7     34.3     47.0     38.0  
Selling, general and administrative expenses     25.9     25.0     38.2     43.5  
Related party corporate charges     5.4     5.7     7.7     4.8  
Restructuring and impairment charges         0.1     0.1     5.9  
   
 
 
 
 
  Operating income (loss)     23.4     3.5     1.0     (16.2 )
Interest expense     (15.5 )   (13.4 )   (19.4 )   (16.9 )
   
 
 
 
 
  Income (loss) before income tax expense     7.9     (9.9 )   (18.4 )   (33.1 )
Income tax expense (benefit)     2.8     (3.9 )   (2.9 )   (12.7 )
   
 
 
 
 
  Income (loss) before cumulative effect of change in accounting principle     5.1     (6.0 )   (15.5 )   (20.4 )
Cumulative effect of change in accounting principle, net of tax                 (0.5 )
   
 
 
 
 
  Net income (loss)   $ 5.1   $ (6.0 ) $ (15.5 ) $ (20.9 )
   
 
 
 
 

Nine months ended September 30, 2005 versus the nine months ended September 30, 2004

        Net Revenues.    Net revenues were $456.9 million for the nine months ended September 30, 2005 compared to $437.2 million in the comparable prior year period. The increase was primarily due to a 20% increase in ductile iron pipe selling prices, partially offset by a 11% decrease in ductile iron pipe shipments mainly due to industry-wide delays in construction projects, some of which were due to weather-related problems. Prices were higher than the prior year as the industry has been increasing prices to offset higher scrap metal costs. Scrap metal costs increased from an average of $209 per ton in the nine months ended September 30, 2004 to an average of $223 per ton in the nine months ended September 30, 2005. Our pricing actions since September 2003 have offset scrap metal and other manufacturing cost increases.

        Gross Profit.    Gross margins increased to 12.0% for the nine months ended September 30, 2005 compared to 7.8% for the nine months ended September 30, 2004 as a result of higher ductile iron pipe selling prices, partially offset by higher scrap metal costs.

        Operating Income.    Operating income totaled $23.4 million for the nine months ended September 30, 2005 compared to $3.5 million in the comparable prior year period. The increase in operating income of $19.9 million was primarily due to higher pricing and an additional $3.2 million of insurance claim settlements, partially offset by lower volumes and higher scrap metal costs.

        Interest Expense.    Interest expense primarily relates to interest expense on the intercompany payable to Walter Industries.

        Income Tax Expense (Benefit).    As more fully described in Note 9 to the financial statements of U.S. Pipe, income tax expense is calculated as if U.S. Pipe filed on a stand alone basis, with the exception that the tax sharing agreement in place with Walter Industries provides for U.S. Pipe to receive an immediate benefit when its tax losses for Federal purposes are utilizable by the consolidated group. Under this historical tax policy, income tax expense was 36.2% of the pre-tax income for the nine months ended September 30, 2005 compared to an income tax benefit of 39.4% of the pre-tax loss for the nine months ended September 30, 2004. The decrease results from the recording of a valuation

75



allowance in the fourth quarter of 2004 for state income tax attributes. It is anticipated that U.S. Pipe will have a tax loss for calendar 2005 or will utilize net operating loss carryforwards, for which a valuation allowance has been established, against taxable income.

        On a pro forma basis, assuming U.S. Pipe's deferred tax assets were evaluated for realization without regard to utilization by Walter Industries, income tax expense would have been $1.6 million, or 20.3% of pre-tax income, for the nine months ended September 30, 2005 compared to a pro forma income tax expense of $7.2 million, or 72.7% of pre-tax loss for the nine months ended September 30, 2004. The change in the pro forma effective tax rate results from the utilization in 2005 of a pro forma net operating loss carryforward generated for the nine months ended September 30, 2004, for which a valuation allowance had been established during 2004.

Year ended December 31, 2004 versus year ended December 31, 2003

        Net Revenues.    Net revenues were $578.4 million for the year ended December 31, 2004, an increase of $113.0 million from $465.4 million for the year ended December 31, 2003. This increase was primarily due to higher sales prices and increased sales volumes, especially for ductile iron pipe which had a 22% increase in average selling price and an 8% increase in sales volume. Prices were lower in 2003 as a result of an industry price war that began in 2002.

        Gross Profit.    Gross margins were 8.1% for the year ended December 31, 2004 compared to 8.2% for the year ended December 31, 2003 as a result of higher ductile iron pipe selling prices, offset by higher costs for scrap metal and other materials and higher manufacturing and workers' compensation costs.

        Significant increases in the cost of scrap metal occurred in 2004. Scrap metal is a primary raw material used in the production of ductile iron pipe, accounting for up to 26% of the costs of producing pipe. Scrap metal costs increased from approximately $162 per ton in January 2004 to approximately $258 per ton by December 2004. Unparalleled scrap export volume, especially to China, has been the principal reason for the increased cost of scrap metal.

        Operating Income.    Operating income was $1.0 million in 2004, compared to a $16.2 million loss in 2003. The operating profit improvement in 2004 was primarily attributable to higher sales prices and slightly higher volumes and $1.9 million from an environmental-related insurance settlement. These improvements were partially offset by higher costs for scrap metal and ferrous alloys, higher costs for other commodities such as oil-based resins and natural gas used in the manufacturing process, higher environmental costs primarily due to a $4.0 million charge related to an EPA administrative consent order for the Anniston, Alabama facility which was closed in 2003 and higher costs related to workers' compensation, salaries and wages, legal expenses and depreciation. Operating loss for 2003 includes $5.9 million in charges related to restructuring costs to cease operations at the castings plant in Anniston, Alabama, a $6.5 million litigation settlement and a $1.7 million settlement of a commercial dispute.

        Income Tax Expense (Benefit).    Income tax benefit was 15.8% of the pre-tax loss for the year ended December 31 2004, compared to an income tax benefit of 38.2% of the pre-tax loss for the year ended December 31, 2003. The decrease in tax benefit results from the recognition of a valuation allowance in the fourth quarter of 2004 for state tax income tax attributes.

        On a pro forma basis, as described above, income tax expense for the year ended December 31, 2004 would have been $17.9 million, or 97.3% of pre-tax loss, compared to an income tax benefit of $13.3 million, or 40.2% of pre-tax loss for 2003. The change results from a pro forma valuation allowance of $20.8 million provided against the deferred tax assets in 2004.

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Consolidated Results of Operations—Predecessor Mueller

        The following table sets forth Predecessor Mueller's net sales, gross profit, total expenses and net income for the years ended September 30, 2005 and 2004:

Year ended September 30, 2005 versus the year ended September 30, 2004

 
  For the years ended
  2005 vs. 2004
 
 
  2005
  2004
   
   
 
 
   
  Percentage
of net
sales(1)

   
  Percentage
of net
sales(1)

  Increase/
(decrease)

  Percentage
increase/
(decrease)

 
 
  (dollars in millions)

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

(1)
Percentages are by Predecessor Mueller segment, if applicable.

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

        Mueller segment net sales for the fiscal year ended September 30, 2005 were $663.9 million, an increase of $45.7 million, or 7.4% from $618.2 million in 2004. This increase was driven primarily by price increases combined with the continued strong performance of the residential construction market. The Mueller segment implemented price increases in February 2004, May 2004 and January 2005 on iron products including dry-barrel fire hydrants, water gate valves and butterfly valves; in

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February 2004, March 2004 and February 2005 on brass service products including brass valves and fittings; and in February 2005 on machines and tools.

        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 acquisition of Star contributed a $13.5 million increase in 2005 sales compared to 2004. The strength of the Canadian dollar contributed another $9.1 million of additional sales, while the balance of the increase was driven primarily by price increases.

        Gross Profit.    Consolidated gross profit for the fiscal year ended September 30, 2005 was $346.6 million, an increase of $47.9 million, or 16%, from $298.7 million in 2004. Gross margin increased to 30.2% in 2005, compared to 28.5% in 2004, which includes certain depreciation expense not allocated to segments.

        Mueller segment 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 compared to 32.8% in 2004. The increase in gross profit was primarily driven by price increases and the continued strong performance of the residential construction market. Partially offsetting the higher prices were higher raw material costs (most notably brass ingot and scrap steel) due to worldwide supply and demand issues. We cannot provide assurances that any future increases in raw material costs can be passed to its 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 to 23.9% in 2004. The acquisition contributed an increase of $1.4 million, while the remaining increase was primarily driven by price increases implemented during fiscal year 2004. These increases were partially offset by increased raw material and other production costs.

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

        Mueller segment SG&A for the fiscal year ended September 30, 2005 was $60.9 million, compared to $60.6 million for the fiscal year ended September 30, 2004. As a percentage of net sales, SG&A improved to 9.2% in 2005 compared to 9.8% in 2004, as a result of increased sales. This improvement was partially offset by a 0.4% increase as a percentage of net sales in sales commission and incentive compensation costs.

        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 to 16.1% in 2005 compared to 17.4% in 2004. This improvement was a result of increased sales, a reduction in bad debt expense, and a favorable impact due to the strength of the Canadian dollar. These improvements were partially offset by a 0.8% increase as a percentage of net sales in sales commission and incentive compensation costs and a 0.2% increase as a percentage of net sales in supply chain management costs associated with greater sales of import products.

        Corporate expenses for the fiscal year ended September 30, 2005 were $33.3 million compared to $49.5 million in 2004, a decrease of $16.2 million. The decrease was primarily due to a $13.8 million reduction in amortization expense for 2005 as compared to 2004 as a result of an intangible asset becoming fully amortized during the fourth quarter of 2004 and a $21.2 million reduction in corporate stock compensation charges for 2005 as compared to 2004 primarily related to charges for employee optionholders made in connection with the recapitalization during the third quarter of 2004. All options were cancelled at that time. These items were partially offset in 2005 by: legal and audit fees of $3.0 million related to an internal accounting investigation which resulted in the restatement of some amounts in prior period financial statements prior to September 30, 2004, professional fees of $1.2 million related to exploring strategic alternatives, consulting fees of $3.1 million related to efforts

78



to become compliant with public company reporting and Sarbanes-Oxley internal control requirements, $1.4 million related to compensation payments to current employees and directors to offset additional taxes owed by them as a result of revaluation of stock compensation paid to them in 2004, $3.5 million of professional fees related to efforts to sell Predecessor Mueller, 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 million associated with being an SEC registrant for all of 2005 as compared to the last quarter of 2004, and increased salary, benefit, recruiting and relocation costs of $0.9 million associated with additional accounting and legal staffing. Corporate expenses consist primarily of corporate staff, benefits, legal and professional fees and facility costs.

        Facility Rationalization, Restructuring and Related Costs.    Restructuring costs for the fiscal year ended September 30, 2005 were $1.7 million, related primarily to severance payments and to the termination of operating leases for the building and machinery at a Mueller segment plant in Colorado that ceased manufacturing and began outsourcing a product line in February 2005.

        Facility rationalization costs for the fiscal year ended September 30, 2004 were $0.9 million, related primarily to future lease obligations at a closed Anvil facility in New Jersey and environmental issues at a closed Anvil plant in Georgia. On March 2004 Anvil entered into a consent order with the Georgia Department of Natural Resources regarding various alleged hazardous waste violations at the Statesboro, Georgia site formerly operated by Anvil. Anvil has also agreed to perform various investigatory and remedial actions at the site and its landfill.

        Interest Expense, Net of Interest Income.    Interest expense, net of interest income, for the fiscal year ended September 30, 2005 was $89.5 million, or a $26.0 million increase from $63.5 million for the fiscal year ended September 30, 2004. Interest expense, net of interest income, for the fiscal year ended September 30, 2005 includes $33.8 million of additional interest expense and amortization of deferred financing fees on $518.0 million of net additional debt resulting from recapitalization in April 2004. In the fiscal year ended September 30, 2004, interest expense included a $6.6 million write-off of term debt deferred financing fees related to the April 2004 recapitalization, and a $7.0 million early redemption penalty and a write-off of $0.4 million in deferred financing fees related to the early redemption of $50.0 million of senior subordinated debt in November 2003. Also, gains recorded in 2005 on interest rate swaps decreased $7.3 million compared to 2004 due to the expiration of swap agreements that were not renewed, and interest income increased $1.1 million compared to 2004 due to a higher average cash balance during 2005.

        Income Tax Expense.    Income tax expense for the fiscal year ended September 30, 2005 was $33.7 million as compared to $16.0 million in 2004. The effective tax rates for fiscal years 2005 and 2004 were 40.5% and 32.5%, respectively. The 2005 rate included the benefit recorded from U.S. export and manufacturing incentives. We expect a continuation of the U.S. export and manufacturing benefits received in 2005. The benefits include the extraterritorial income exclusion which is being phased out in 2005 and 2006, but is being replaced with the Internal Revenue Code Section 199 deduction for domestic production activities to be phased in from 2005 through 2009. We are eligible to claim both types of deductions and intend to do so to the extent allowable. Also, the 2004 rate included tax expense related to adjustments to permanent items that were not present in 2005. In 2005, net downward adjustments to tax accruals of approximately $0.3 million were recorded due to the expiration of statutes of limitation. Discrete 2004 events included the conclusion of the federal and certain state tax examinations and the expiration of certain state statutes of limitation which allowed adjustment of tax accruals downward by approximately $6.4 million. Partially offsetting these items in the third quarter of 2004 were $2.3 million of charges related to the deduction of foreign tax credits and the effects of other items, including changes in the effective rate on prior period deferred tax balances. Both years include non-deductible interest on high yield debt obligations.

79


        The following table sets forth Predecessor Mueller's net sales, gross profit, total expenses and net income for the years ended September 30, 2004 and 2003 (dollars in millions):

    Year ended September 30, 2004 versus the year ended September 30, 2003

 
  For the years ended September 30,
   
   
 
 
  2004
  2003
  2004 vs. 2003
 
 
   
  Percentage of net sales(1)
   
  Percentage of net sales(1)
  Increase/
(decrease)

  Percentage increase/ (decrease)
 
 
  (dollars in millions)

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

(1)
Percentages are by Predecessor Mueller segment, if applicable.

        Net Sales.    Consolidated net sales for the fiscal 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.

80


        Mueller segment net sales for the fiscal 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 in net sales was primarily driven by volume and pricing growth, particularly in iron fire hydrants, water valve and brass water products. Volume growth was driven by the continued strength in the residential construction market, favorable weather conditions in the spring of 2004 and improved general economic conditions. Mueller segment implemented price increases in February and May of 2004. Predecessor Mueller's acquisition of Milliken Valve Company in January 2003 (the "2003 Milliken Valve acquisition") contributed $3.6 million to the 2004 increase in net sales.

        Anvil net sales for the fiscal year ended September 30, 2004 were $431.0 million, an increase of $44.2 million, or 11.4%, from $386.8 million in 2003, primarily due to higher pricing on threaded steel pipe couplings and pipe nipples. The 2004 acquisition of Star accounted for $17.0 million of the 2004 increase in sales.

        Gross Profit.    Consolidated gross profit for the fiscal 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 margin increased to 28.5% in 2004 compared to 26.1% in 2003, which includes certain depreciation expense not allocated to segments.

        Mueller segment gross profit for the fiscal year ended September 30, 2004 was $203.0 million, an increase of $38.5 million, or 23.4%, from $164.5 million in 2003. Gross margin increased to 32.8% of net sales in 2004 from 30.7% of net sales in 2003. The increase in gross profit was primarily driven by increased selling prices and volumes on iron fire hydrants, 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 the strength of the Canadian dollar relative to the United States dollar further added to the increase in gross profits. These improvements were partially offset by increased raw material costs, representing an additional 1.2% of net sales in 2004 as compared to 2003.

        Anvil gross profit for the fiscal year ended September 30, 2004 was $102.8 million, an increase of $18.9 million, or 22.5% from $83.9 million in 2003. Gross margin increased to 23.9% of net sales in 2004 compared to 21.7% of net sales in 2003. The 2004 acquisition of Star contributed $2.7 million of gross margin in 2004. The remaining increase was primarily driven by price increases implemented during fiscal year 2004 and the strength of the Canadian dollar relative to the United States dollar. This was partially offset by increased raw material costs, representing an additional 2.3% of net sales in 2004 as compared to 2003.

        Selling, General & Administrative.    Consolidated SG&A for the fiscal year ended September 30, 2004 was $185.1 million, an increase of $36.9 million, from $148.2 million in 2003. As a percentage of net sales, SG&A increased to 17.6% in 2004 compared to 16.1% in 2003.

        Mueller segment SG&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 was driven 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 in 2003 and 2004. SG&A expenses in 2004 increased due to costs incurred as a result of higher sales which lead to higher sales commission and other compensation costs, including incentive compensation. Other increases in expense were caused by the addition of sales personnel and a new local sales office, increased provisions for doubtful accounts, increased product redesign costs, and higher year-over-year group medical costs due to an increase in claims activity.

        Anvil SG&A for the fiscal year ended September 30, 2004 was $75.0 million, an increase of $5.6 million, or 8.1%, from $69.4 million in 2003. As a percentage of net sales, SG&A decreased to

81



17.4% compared to 17.9% in 2003. The 2004 acquisition of Star added $4.0 million to 2004 expense. The remaining increase was driven by increased compensation expense and sales and warehousing costs associated with increased sales volume. These increases were partially offset by continued cost reductions related to Anvil's United States distribution network.

        Corporate expenses for the fiscal year ended September 30, 2004 were $49.5 million compared to $29.1 million in 2003. Stock compensation charges for the fiscal year ended September 30, 2004 were $21.2 million, an increase of $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 and cancellation of options held by employees and shares previously purchased with loans pursuant to the Direct Investment Program that were settled in connection with the April 2004 recapitalization. Other significant changes included a $1.6 million increase in incentive compensation in 2004, a $1.0 million increase in advisory fees paid to Donaldson, Lufkin & Jenrette in 2004, and $1.5 million of professional service fees 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 to potential acquisition and dispositions that were not completed and a $2.2 million reduction in amortization expense for 2004 as compared to 2003 as a result of an intangible asset becoming fully amortized during the fourth quarter of 2004.

        Facility Rationalization, Restructuring and Related Costs.    Facility rationalization costs decreased $0.9 million in 2004 compared to 2003, reflecting lower asset impairment charges. Anvil facility rationalization costs increased $0.1 million in 2004 compared to 2003, reflecting higher facility consolidation and cost reduction activity.

        Interest Expense, Net of Interest Income.    Interest expense, net of interest income, for the fiscal year ended September 30, 2004 was $63.5 million, compared to $35.5 million for 2003. This increase reflects early repayment costs, the write-off of deferred financing fees and additional debt resulting from the completion of a recapitalization of all outstanding debt. Specifically, in November 2003, $50.0 million of senior subordinated notes due 2009 were redeemed. As a result, interest expense, net of interest income, for the fiscal year ending September 30, 2004 increased relative to 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. Further, in April 2004, Predecessor Mueller refinanced its term debt and issued $415.0 million of new notes and $110.0 million of 14.75% discount notes. This resulted in an additional write-off of term debt deferred financing fees of $6.6 million, $16.8 million of interest expense on the new notes, $6.8 million of accretion on the discount notes and $0.9 million of increased amortization on a larger balance of deferred financing fees. Interest expense also 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 debt interest expense due to lower interest rates.

        Income Tax Expense.    Income tax expense for the fiscal year ended September 30, 2004 was $16.0 million compared to $22.9 million in 2003. The effective tax rates, for fiscal 2004 and 2003 were 32.5% and 41.1%, respectively. The non-deductible portion of interest expense related to the senior discount notes issued in the third quarter served to increase the 2004 rate. However, discrete 2004 events including the conclusion of the federal tax examination, the conclusion of certain state tax examinations and expiration of certain state statutes of limitation allowed adjustments to tax accruals of approximately $6.4 million. The additional financing related to the April 2004 recapitalization was expected to inhibit its ability to realize deferred tax assets related to foreign tax credits. Accordingly, a $1.8 million adjustment was recorded to write-off these deferred tax assets.

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Financial Condition

    Mueller Water Products, Inc.

        Cash and cash equivalents increased from zero at September 30, 2005 to $41.1 million at March 31, 2006, reflecting $63.1 million in cash flows provided by operations and $40.0 million in cash flows provided by financing activities, partially offset by $62.0 million of cash flows used in investing activities. At September 30, 2005, U.S. Pipe was a wholly-owned subsidiary of Walter Industries and all of its net cash activity was transferred into Walter Industries' concentrated cash management system on a daily basis.

        Net receivables, consisting principally of trade receivables, were $272.7 million at March 31, 2006, an increase of $154.2 million from September 30, 2005. The Acquisition accounted for an increase of $186.6 million, partially offset by a $32.4 million decrease for the U.S. Pipe segment, primarily due to lower U.S. Pipe sales levels for the quarter ended March 31, 2006 compared to the quarter ended September 30, 2005 due primarily to seasonality.

        Inventories were $460.3 million at March 31, 2006, an increase of $313.1 million from September 30, 2005. The Acquisition accounted for an increase of $334.7 million, partially offset by a $21.6 million decrease for the U.S. Pipe segment, primarily due to seasonal reductions in pipe, valve, and hydrant inventories and a $10.7 million inventory obsolescence write-down recorded during the six months ended March 31, 2006. The inventory obsolescence write-down was a result of the decision to close the U.S. Pipe Chattanooga, Tennessee plant and transfer the valve and hydrant production of the plant to Mueller's Chattanooga, Tennessee and Albertville, Alabama plants.

        Current deferred income taxes, net, were $58.1 million at March 31, 2006, an increase of $47.0 million from September 30, 2005. The Acquisition accounted for $25.9 million of the increase. The remainder of the increase was primarily due to increases in currently non-deductible accruals and reserves and a net operating loss carryforward from the three day period ending October 3, 2005.

        Prepaid expenses, consisting principally of maintenance supplies and tooling parts and prepaid insurance premiums, were $31.1 million at March 31, 2006, an increase of $29.6 million from September 30, 2005. The Acquisition accounted for $31.3 million of the increase. This was partially offset by $0.3 million of prepaid tooling depreciation expense.

        Property, plant and equipment was $340.7 million at March 31, 2006, an increase of $191.5 million from September 30, 2005, primarily due to assets acquired in the Acquisition of $215.7 million and capital expenditures of $30.9 million, partially offset by fixed assets impairments resulting from the U.S. Pipe Chattanooga plant closure of $17.8 million and fixed asset depreciation expense of $34.1 million.

        Deferred financing fees, net, were $30.7 million at March 31, 2006. There were no deferred financing fees at September 30, 2005. All fees are related to the 2005 Mueller Credit Agreement entered into in conjunction with the Acquisition and the existing senior subordinated notes and senior discount notes at Predecessor Mueller that were assumed as part of the Acquisition.

        Due from parent, Walter Industries was $20.0 million at March 31, 2006, representing a $20.0 million note receivable for cash loaned to Walter Industries by the Company subsequent to the Acquisition. There was no such amount at September 30, 2005.

        Identifiable intangibles, net, were $849.0 million at March 31, 2006. There were no such intangibles at September 30, 2005. Certain intangibles were identified during the allocation of the purchase of the Acquisition: (a) indefinite-lived intangible assets consisting of trade names and trademarks of $403.0 million; and (b) definite-lived intangible assets consisting of customer relationships of $396.6 million and technology of $56.3 million. An additional $6.7 million was booked for technology

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acquired in the purchase of CCNE during the quarter ended March 31, 2006. Amortization expense resulting from definite-lived intangible assets for the six months ended March 31, 2006 was $7.0 million.

        Goodwill was $855.5 million at March 31, 2006, an increase of $797.1 million from September 30, 2005. This increase represents goodwill identified during the allocation of the purchase price of the Acquisition of $790.3 million and $6.8 million related to the acquisition of Hunt Industries.

        Accounts payable were $110.3 million at March 31, 2006, an increase of $57.8 million from September 30, 2005 primarily as a result of the Acquisition.

        Accrued expenses and other liabilities were $109.3 million at March 31, 2006, an increase of $74.6 million compared to September 30, 2005 primarily as a result of the Acquisition.

        Long-term debt, including the current portion, was $1,549.3 million at March 31, 2006. There was no debt payable to non-affiliates at September 30, 2005. All debt amounts are related to the 2005 Mueller Credit Agreement entered into in conjunction with the Acquisition and existing notes and capital leases that were assumed as part of the Acquisition.

        Payable to parent, Walter Industries, was $2.9 million at March 31, 2006 compared to $443.6 million at September 30, 2005. In conjunction with the contribution of U.S. Pipe to Mueller Group at October 3, 2005, the intercompany balance was forgiven. The remaining payable represents certain costs incurred by Walter Industries which benefited the Company and are required to be settled in cash.

        Accrued pension liability increased $51.8 million to $105.4 million at March 31, 2006. The Acquisition accounted for an increase of $42.8 million. The remainder of the increase was primarily due to $3.7 million of normal provision for net periodic benefit cost and $5.0 million of costs related to the closure of the U.S. Pipe Chattanooga, Tennessee plant.

        Non-current deferred income taxes, net, were $294.6 million at March 31, 2006, an increase of $294.6 million compared to September 30, 2005 primarily as a result of the Acquisition.

    United States Pipe and Foundry Company, LLC

        Receivables, net, increased from $103.7 million at December 31, 2004 to $118.5 million at September 30, 2005. The increase was due to seasonally higher sales volume (21%) during the quarter ended September 30, 2005 compared to the quarter ended December 31, 2004, partially offset by improved cash collections which reduced days sales outstanding by 15%.

        Inventories increased to $147.2 million at September 30, 2005 compared to $127.2 million at December 31, 2004 due to seasonal inventory build-up of finished goods, partially offset by a decrease in raw material costs.

        Total deferred income tax assets increased to $20.6 million at September 30, 2005 compared to $8.9 million at December 31, 2004 due to increases in accrued expenses not yet deducted for income tax purposes.

        Accrued expenses increased to $29.1 million at September 30, 2005 compared to $23.4 million at December 31, 2004 primarily due to increased warranty costs ($3.0 million) and the timing of payroll payments ($2.0 million).

        Income taxes payable increased to $5.6 million at September 30, 2005 compared to $0.9 million at December 31, 2004 due to federal income taxes due to the parent company under the intercompany tax sharing agreement.

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        The intercompany payable to Walter Industries increased to $443.6 million at September 30, 2005 compared to $422.8 million at December 31, 2004 as a result of cash advanced by Walter Industries that exceeded cash provided by U.S. Pipe to Walter Industries.

        Accrued pension liability increased $24.1 million to $72.9 million at September 30, 2005 primarily due to a decline in the discount rate used to measure the obligation.

    Predecessor Mueller

        Cash and cash equivalents increased 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, $1.5 million in cash flows provided by financing activities, and a $2.0 million effect of foreign currency exchange rate changes on cash (primarily due to increased strength of the Canadian dollar versus the U.S. dollar), offset by $25.0 million of cash flows used in investing activities.

        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 increase was attributable to higher sales at both the Mueller and Anvil segments.

        Inventories were $303.0 million at September 30, 2005, an increase of $42.8 million from September 30, 2004. Mueller segment inventories increased $25.5 million during 2005. Significant contributing factors to the increase include higher 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 to better service current demand. Other contributing factors include $1.1 million of increased on-hand quantities of raw material due to larger volume purchases to achieve lower prices, $2.7 million of inventory costs associated with a large, highly-engineered project scheduled to ship in the first quarter of 2006, $2.2 million for a large order of butterfly valves scheduled to ship in the first quarter of 2006, and $1.5 million due to higher foreign currency rates used to translate Canadian-dollar valued inventory balances at September 30, 2005 compared to September 30, 2004. Anvil inventories increased $17.3 million in 2005. Of this increase, $12.8 million is related to ongoing efforts to make available a full line of foreign-sourced products to Anvil's North American customers. Another $3.0 million is related to the start up of European export efforts.

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

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

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

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

        Long-term debt was $1,051.9 million at September 30, 2005, an increase of $15.7 million compared to September 30, 2004. This increase was primarily due to non-cash accretion on the 143/4% senior discount notes.

        Accrued pension liability increased $8.5 million to $37.7 million at September 30, 2005. This is primarily the net result of the use of a lower discount rate and an updated mortality assumption as of

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September 30, 2005, partially offset by better than assumed investment performance during the year ending September 30, 2005.

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

Liquidity and Capital Resources

        We are a holding company and have no direct material operations. Our only material asset is our ownership of our wholly-owned subsidiary and operating entity, Mueller Group, and our only material liabilities are the senior discount notes described below and our guarantee of the 2005 Mueller Credit Agreement. See Note 6 to Consolidated Financial Statements of Predecessor Mueller. Our principal source of liquidity has been and is expected to be dividends from Mueller Group and financing activities, and our principal use of cash will be the payment of dividends, if any, on our Class A Common Stock and debt service with respect to our senior discount notes beginning in 2009.

        The 2005 Mueller Credit Agreement and senior subordinated notes described below are obligations of Mueller Group and impose limitations on its ability to pay dividends to us. For example, the senior subordinated notes limit the amount of "restricted payments," including dividends, that Mueller Group can make. Generally, under the terms of the senior subordinated notes, Mueller Group can pay dividends only if its fixed charge coverage ratio (as defined therein) is 2.5 to 1 or better and only from an amount equal to 50% of its cumulative net income (as defined therein) since January 1, 2004. However, regardless of these restrictions, Mueller Group can pay dividends under these notes of up to $2.0 million per year for holding company expenses and to fund payments in respect of taxes made pursuant to tax sharing agreements. Mueller Group's ability to generate net income will depend upon various factors that may be beyond our control. Accordingly, Mueller Group may not generate sufficient cash flow or be permitted by the terms of its debt to pay dividends or distributions to us in amounts sufficient to allow us to pay cash interest on our outstanding indebtedness or to satisfy our other cash needs. We would then be required to secure alternate financing, which may not be available on acceptable terms, or at all.

        Mueller Group's principal sources of liquidity have been and are expected to be cash flow from operations and borrowings under the 2005 Mueller Credit Agreement. Its principal uses of cash will be debt service requirements as described below, capital expenditures, working capital requirements, dividends to us to finance our cash needs and possible acquisitions.

Debt Service

        As of March 31, 2006, we had total consolidated indebtedness of approximately $1,549.3 million and approximately $113.6 million of borrowings available under the revolver portion of the 2005 Mueller Credit Agreement, subject to customary conditions. As of March 31, 2006, Mueller Group had $31.4 million in letters of credit outstanding under the 2005 Mueller Credit Agreement, which reduces availability for borrowings thereunder. The significant debt service obligations under the credit facility and indentures could have material consequences to our security holders. Our key financial covenants are dependent on attaining certain levels of EBITDA, as defined in the respective debt arrangements. The most restrictive covenant in effect at March 31, 2006 related to a leverage ratio, as defined in the 2005 Mueller Credit Agreement, which required approximately $241.0 million of EBITDA over the trailing twelve months, based on net debt outstanding at March 31, 2006. We were in compliance with this covenant at March 31, 2006.

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        2005 Mueller Credit Agreement.    On October 3, 2005, Mueller Group, entered into a credit agreement (the "2005 Mueller Credit Agreement"). The senior credit facilities provided under the 2005 Mueller Credit Agreement consist of (1) a $145.0 million senior secured revolving credit facility terminating on October 4, 2010 (the "2005 Mueller Revolving Credit Facility") and (2) a $1,050.0 million senior secured term loan (the "2005 Mueller Term Loan") maturing on November 1, 2011 (or October 3, 2012, if the 10% senior subordinated notes due 2012 are paid in full prior to such date). Loans under the senior credit facilities currently bear interest, at our option, at: (x) initially, the reserve adjusted LIBOR rate plus 250 basis points or the alternate base rate plus 150 basis points for borrowings under the revolving credit facility; and (y) the reserve adjusted LIBOR rate plus 225 basis points or the alternate base rate plus 125 basis points for term loans. The 2005 Mueller Credit Agreement is a secured obligation of Mueller Group and substantially all of the wholly-owned domestic subsidiaries of Mueller Group, including the subsidiaries included in each of our reporting segments: Mueller, U.S. Pipe and Anvil. The 2005 Mueller Term Loan requires quarterly principal payments of $2.6 million through October 3, 2012, at which point in time the remaining principal outstanding is due. The commitment fee on the unused portion of the 2005 Mueller Revolving Credit Facility is 0.50% and the interest rate is a floating rate 250 basis points over LIBOR. The 2005 Mueller Term Loan carries a floating interest rate of 225 basis points over LIBOR. As of March 31, 2006, the average interest rate for debt outstanding under the 2005 Mueller Credit Agreement was 7.0%.

        Proceeds from the 2005 Mueller Credit Agreement were approximately $1,053.4 million, net of approximately $21.6 million of underwriting fees and expenses which will be amortized over the life of the loans. The proceeds were used to retire the 2004 Mueller Credit Facility of $512.8 million, the second priority senior secured floating rate notes of $100.0 million, and finance the acquisition of Predecessor Mueller by Walter Industries.

        The 2005 Mueller Credit Agreement contains customary negative covenants and restrictions on our ability to engage in specified activities, including, but not limited to:

    limitations on other indebtedness, liens, investments and guarantees;

    restrictions on dividends and redemptions of our capital stock and prepayments and redemptions of debt;

    limitations on capital expenditures; and

    restrictions on mergers and acquisitions, sales of assets, sale and leaseback transactions and transactions with affiliates.

        The 2005 Mueller Credit Agreement also contains financial covenants requiring Mueller Group to maintain:

    an interest expense coverage ratio of at least 2.25 to 1.00 (increasing to 2.50 to 1.00 beginning with the four quarter period ending December 31, 2007);

    a consolidated leverage ratio of not more than 5.50 to 1.00 (decreasing in annual increments to 4.00 to 1.00 by the four quarter period ending December 31, 2008); and

    a consolidated senior secured leverage ratio of not more than 4.25 to 1.00 (decreasing in annual increments to 3.00 to 1.00 by the four quarter period ending December 31, 2008).

        Borrowings under the revolving credit facility are subject to significant conditions, including compliance with the financial ratios included in the senior credit facilities and the absence of any material adverse change.

        The 2005 Mueller Credit Agreement also contains certain customary events of default, including nonpayment of principal or interest, covenant defaults, inaccuracy of representations or warranties,

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bankruptcy and insolvency events, judgment defaults, cross defaults and a change of control, and certain customary affirmative covenants. So long as no default has occurred, Mueller Group is permitted to make cash dividends to us of up to $7.5 million in any fiscal year, or $15.0 million in aggregate over the life of the 2005 Mueller Credit Agreement and to distribute funds to make regularly scheduled payments when due of interest and principal on our senior discount notes described below. If an event of default under the agreement shall occur and be continuing, the commitments under the related credit agreement may be terminated and the principal amount, together with all accrued unpaid interest and other amounts owed thereunder may be declared immediately due and payable.

        On January 26, 2006, Mueller Group amended the 2005 Mueller Credit Agreement. The amendment removes the requirement that Mueller Group and its subsidiaries change their fiscal year end to December 31 and permits Mueller Group to pay up to $8.5 million in annual cash dividends to the Company (with any unused amount carrying forward to subsequent years) for further distribution to shareholders of the Company.

        We expect to repay, on an optional basis, a portion of the term loan provided more than $180.8 million is received in the offering. There is no prepayment premium or penalty associated with this term loan.

        Senior Discount Notes.    On April 29, 2004, Predecessor Mueller issued $223.0 million principal amount at maturity of 143/4% senior discount notes that will mature on April 15, 2014 together with warrants to purchase 24,487,383 shares of their Predecessor Mueller's Class A common stock. No cash interest will accrue on the notes prior to April 15, 2009. The notes had an initial accreted value of $493.596 per $1,000 principal amount at maturity of notes on April 29, 2004. The accreted value of each note will increase from the date of issuance until April 15, 2009, at a rate of 14.75% per annum compounded semi-annually such that the accreted value will equal the principal amount at maturity on April 15, 2009. Thereafter, cash interest on the notes will accrue and be payable semi-annually in arrears on April 15 and October 15 of each year, commencing on October 15, 2009 at a rate of 14.75% per annum. The notes contain customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. Generally, the notes only permit us to pay dividends if there is no default or event of default and our fixed charge coverage ratio (as defined in the indenture relating to the notes) is at least 2.1 to 1, and the maximum amount we may pay cannot exceed 50% of Predecessor Mueller's cumulative net income (as defined in the indenture relating to the notes) since January 1, 2004 plus 50% of Mueller Water net income since October 3, 2005, subject to specified exceptions. Mueller Group is permitted to make dividends or loans to Mueller Water of up to $2.0 million in any fiscal year for costs and expenses incurred by its parent in its capacity as a holding company for services rendered on behalf of Mueller Water. In connection with the acquisition of Predecessor Mueller by Walter Industries on October 3, 2005, all warrants were converted into a right to receive cash and are no longer outstanding.

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

        We expect to use a portion of the net proceeds of this offering to redeem a portion of the senior discount notes and to pay the contractual premium associated with such redemption as described under "Use of Proceeds."

        Senior Subordinated Notes.    On April 23, 2004, Mueller Group issued $315.0 million principal amount of 10% senior subordinated notes that will mature on May 1, 2012 and that are guaranteed by

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each of Mueller Group's existing domestic restricted subsidiaries. Interest on the senior subordinated notes is payable semi-annually in cash. The senior subordinated notes contain customary covenants and events of default, including covenants that limit Mueller Group's ability to incur debt, pay dividends and make investments. Generally, the notes only permit Mueller Group to pay dividends if there is no default or event of default and its fixed charge coverage ratio (as defined) is at least 2.5 to 1, and the maximum amount that may be paid cannot exceed 50% of cumulative net income (as defined) of Mueller Group since January 1, 2004, (which after October 3, 2005, includes U.S. Pipe) subject to specified exceptions. Mueller Group is permitted to make dividends or loans to Mueller Water of up to $2.0 million in any fiscal year for costs and expenses incurred by Mueller Water in its capacity as a holding company for services rendered on behalf of Mueller Group.

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

        We expect to use a portion of the net proceeds of this offering to redeem a portion of the senior subordinated notes and to pay accrued interest and the contractual premium associated with such redemptions as described under "Use of Proceeds."

Capital Expenditures

        We anticipate that we will invest approximately $55.0 million to $65.0 million on sustaining capital needs in 2006. We expect our total capital expenditures to be higher due to incremental requirements to implement our synergy and rationalization plan. The 2005 Mueller Credit Agreement restricts capital expenditures. Based on current estimates, management believes that the amount of capital expenditures permitted to be made under the senior credit facilities will be adequate to grow our business according to our business strategy and to maintain the properties and business of our continuing operations.

Working Capital

        Working capital of U.S. Pipe totaled $188.7 million at September 30, 2005. Working capital of Mueller Water at March 31, 2006 totaled $627.8 million. Management believes that we will continue to require working capital consistent with past experience.

Sources of Funds

        We anticipate that our operating cash flow, together with borrowings under the 2005 Mueller Credit Agreement, will be sufficient to meet our anticipated future operating expenses, capital expenditures and debt service obligations as they become due for at least the next twelve months. However, our ability to make scheduled payments of principal of, to pay interest on or to refinance our indebtedness and, to satisfy our other debt obligations 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. See "Risk Factors."

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

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Statement of Cash Flows

    Mueller Water Products, Inc.—Six months ended March 31, 2006 versus the six months ended March 31, 2005

        Cash flows from operating activities.    Net cash provided by operations was $63.1 million for the six months ended March 31, 2006, compared to net cash used of $7.0 million for the six months ended March 31, 2005. The difference was due primarily to the operations of Predecessor Mueller, acquired on October 3, 2005.

        Cash flows used in investing activities.    In the six months ended March 31, 2006 net cash used in investing activities was $62.0 million compared to $7.0 million of net cash provided in the six months ended March 31, 2005. The difference was primarily due to the operations of Predecessor Mueller, acquired on October 3, 2005.

        Cash flows from financing activities.    Net cash provided by financing activities was $40.0 million for the six months ended March 31, 2006, compared to net cash used in the six months ended March 31, 2005 of $0.1 million. This was primarily due to the operations of Predecessor Mueller, acquired on October 3, 2005, a transaction which included $76.3 million due to the Walter Industries contribution of Predecessor Mueller's cash.

    U.S. Pipe—Nine-month period ended September 30, 2005 versus the year ended December 31, 2004

        Cash flows from operating activities.    Net cash used for operating activities was $5.1 million for the nine months ended September 30, 2005, compared to net cash provided by operating activities of $5.8 million for the year ended December 31, 2004. The decrease in cash flows from 2004 was primarily due to the change in year end to September during 2005. A significant increase in inventory as of September 30, 2005 compared to December 31, 2004 was primarily due to the change in year end from December 31 to September 30. A higher level of inventory ($20.0 million) was due to the seasonality of the business, which requires higher levels of finished goods inventory on-hand during September than compared to levels required in December. Additionally, depreciation expense for 2005 was $7.1 million lower than 2004 due to the three fewer months in the 2005 year.

        Partially offsetting these decreases in cash flows were an increase in accrued expenses of $5.7 million in 2005 caused by the timing of payments of payroll and warranty claims and a $4.7 million increase in income taxes payable primarily due to an increase in pre-tax income.

        In the prior year, cash flows benefited from an $18.3 million increase in accounts payable compared to 2003, primarily due to the timing of payments.

        Cash flows used in investing activities.    Net cash used in investing activities was $16.5 million in the nine months ended September 30, 2005 compared to $20.4 million in the year ended December 31, 2004. Fixed asset expenditures for the 2005 period were $3.9 million less than the 2004 period primarily due to the change in year during 2005, resulting in nine months of activity in 2005 compared to twelve months of activity in 2004.

        Cash flows from financing activities.    Cash flows from financing activities were $21.5 million in the nine months ended September 30, 2005 compared to $14.3 million in the year ended December 31, 2004 primarily due to a period over period increase in amounts advanced by Walter Industries to U.S. Pipe.

    Predecessor Mueller—Year ended September 30, 2005 versus the year ended September 30, 2004

        Cash flows from operating activities.    Net cash provided by operating activities was $73.8 million for 2005, compared to net cash provided of $89.0 million for 2004. Significant changes in working capital

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balances in 2005 included a $38.8 million increase in inventories. Mueller segment inventories increased $25.5 million during 2005. Significant contributing factors to the increase include higher 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 to better service current demand. Other contributing factors include $1.1 million of increased on-hand quantities of raw material due to larger volume purchases to achieve lower prices, $2.7 million of inventory costs associated with a large, highly-engineered project scheduled to ship in the first quarter of 2006, $2.2 million for a large order of butterfly valves scheduled to ship in the first quarter of 2006, and $1.5 million due to higher foreign currency rates used to translate Canadian-dollar valued inventory balances at September 30, 2005 compared to September 30, 2004. Anvil segment inventories increased $17.3 million in 2005. Of this increase, $12.8 million is related to ongoing efforts to make available a full line of foreign-sourced products to our North American customers. Another $3.0 million is related to the start up of European export efforts.

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

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

        In 2004, net cash used in investing activities of $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 million in 2003 as the final royalty payment was made to Tyco. Also, cash paid for acquired companies increased from $11.2 million in 2003 to $19.8 million in 2004, and capital expenditures were $2.5 million higher in 2004.

        Cash flows from financing activities.    In 2005, $1.5 million of net cash provided by financing activities primarily represented a $4.8 million increase in book overdrafts, partially offset by $3.3 million of payments of the term loan under the 2004 Mueller Credit Facility.

        Cash flows used in financing activities increased from $8.2 million in 2003 to $60.3 million in 2004. Excluding the effects of the April 2004 recapitalization, this was primarily due to early payment of $50.0 million of subordinated notes due 2009 and $30.0 million of early payments on the 2004 Mueller Credit Facility term debt in August 2004. In 2003, $8.2 million was used in financing activities, primarily payments on the term loan under the prior credit facility.

Off-Balance Sheet Arrangements

        We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, and we have not entered into any derivative contracts (other than those described in "Management's Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosure About Market Risk—Interest Rate Risk" and "Management's Discussion and Analysis of Financial Condition and Results of Operations—Qualitative and Quantitative Disclosure About Market Risk—Currency Risk") or synthetic leases. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships. We utilize letters of credit and surety bonds in the ordinary course of business to ensure our performance of

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contractual obligations. At March 31, 2006, we had $31.4 million of letters of credit and $24.8 million of surety bonds outstanding.

Contractual Obligations

        Our contractual obligations as of March 31, 2006:


Payments Due by Period

Contractual Obligations

  Less
than 1
Year

  1-3
Years

  4-5
Years

  After 5
Years

  Total
 
  (dollars in millions)

Long-term debt                              
  Principal on long-term debt(1)   $ 10.5   $ 21.0   $ 21.0   $ 1,417.3   $ 1,469.8
  Interest on long-term debt(2)     108.2     213.9     275.1     356.4     953.6
Capital lease obligations     1.0     1.2     0.1         2.3
Operating leases     8.2     8.0     2.4     2.3     20.9
Unconditional purchase obligations(3)     22.9                 22.9
Other long-term obligations(4)                    
   
 
 
 
 
  Total contractual cash obligations   $ 150.8   $ 244.1   $ 298.6   $ 1,776.0   $ 2,469.5
   
 
 
 
 

(1)
The principal payments on long-term debt exclude $42.5 million of premium and $34.7 million of accreted interest on the senior discount notes, which is included in interest expense on long-term debt.

(2)
Interest on the senior credit facility is calculated using LIBOR of 5.0%, the rate in effect on March 31, 2006. Each increase or decrease in LIBOR of 0.125% would result in an increase or decrease in annual interest on the 2005 Mueller Credit Agreement of $1.3 million. Because the interest rate under the 2005 Mueller Credit Agreement will be variable, actual payments may differ. Interest does not include payments that could be required under our interest-rate swap agreements, which payments will depend upon movements in interest rates and could vary significantly. The payments to be received on the existing interest rate swaps are estimated to be approximately $3.1 million, net of LIBOR interest calculated at 5.00% received from counterparties.

(3)
Includes contractual obligations for purchases of raw materials and capital expenditures.

(4)
Excludes the deferred payment portion of the purchase price for Star, purchased by Predecessor Mueller on January 15, 2004. The Star purchase price is subject to adjustment to reflect, among other things, a deferred payment to be made by us to the extent that the gross profit of the business exceeds the target gross profit from February 1, 2004 to January 31, 2007. Although the maximum amount payable is $23.0 million, we estimate that the total deferred payment will be approximately $3.0 million to $6.0 million. This calculation of the potential Star purchase price adjustment is based on management's best estimate; however, the actual adjustment may be materially different.

Effect of Inflation; Seasonality

        We do not believe that inflation (except for the effect of inflation on the costs of scrap steel, brass ingot and steel pipe) has had a material impact on our financial position or results of operations.

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

Previously Issued Consolidated Financial Statements

    Evaluation of Disclosure Controls and Procedures.

        We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and that such information is accumulated and communicated to our management, including its principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

        As of March 31, 2006, the Company's management evaluated the effectiveness of the design and operation of disclosure controls and procedures pursuant to Rule 13a-15(b) of the Exchange Act. This evaluation was done under the supervision and with the participation of management, including Gregory E. Hyland, President and Chief Executive Officer, and Jeffery W. Sprick, Chief Financial Officer.

        Based on this evaluation and because of the material weakness described below, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2006. Notwithstanding this material weakness, management concluded that the financial statements included in this prospectus for the period ended March 31, 2006 fairly present in all material respects their financial position, results of operations and cash flows for the periods presented in conformity with GAAP.

    Material Weakness in Internal Control over Financial Reporting

        A material weakness is a control deficiency or a combination of control deficiencies that results in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected.

        As of September 30, 2005, the Company did not maintain effective controls over the preparation, review and presentation and disclosure of its consolidated financial statements due to a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants. Specifically, the Company's controls failed to prevent or detect the incorrect presentation of the following in the Predecessor Mueller consolidated financial statements: (i) cash flows from the effect of exchange rate changes on cash balances; (ii) cash flows from the loss on disposal of property, plant and equipment; (iii) cash flows and balance sheet presentation of book overdrafts; (iv) the presentation of current and non-current deferred income tax assets in Predecessor Mueller's consolidated balance sheet; and (v) classification of certain depreciation expense as selling, general and administrative expense instead of cost of sales in the Predecessor Mueller consolidated statement of operations. Further, the Company's controls failed to prevent or detect the incorrect presentation of shipping and handling costs in the Company's unaudited consolidated statement of operations for the three months ended December 31, 2004 as presented in the Form 10-Q for the three months ended December 31, 2005. The Company's control deficiency resulted in the restatement of Predecessor Mueller's annual consolidated financial statements for fiscal 2004 and 2003 and interim consolidated financial statements for the first three quarters of fiscal 2005, all interim periods of fiscal 2004, audit adjustments to the 2005 annual consolidated financial statements and the restatement of the Company's consolidated

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statement of operations for the three months ended December 31, 2004. Additionally, this control deficiency could result in a misstatement of the presentation and disclosure of the Company's consolidated financial statements that would result in a material misstatement in the annual or interim financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

        As of September 30, 2004 and 2005, Predecessor Mueller reported the following control deficiencies that, in the aggregate, constituted a material weakness in internal control over preparation, review and presentation and disclosure of their consolidated financial statements. Specifically Predecessor Mueller's control deficiencies included: (i) a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants; (ii) a lack of sufficient controls to prevent or detect, on a timely basis, unauthorized journal entries; (iii) a lack of sufficient controls over information technology data conversion and program changes; (iv) a lack of sufficient controls over the development and communication of income tax provisions; (v) a lack of effective controls surrounding "whistleblower" hotline complaints and internal certifications to ensure that issues were communicated on a more timely basis by management to the audit committee and the independent registered public accounting firm; (vi) a lack of effective controls over revenue recognition associated with full truckload shipments not immediately dispatched by freight carriers; and (vii) a lack of formal controls and procedures regarding assessment of financial exposures and transactions, including consideration of accounting implications under GAAP. These control deficiencies resulted in audit adjustments to the consolidated financial statements for the year ended September 30, 2004. Additionally, these control deficiencies, in the aggregate, could result in a misstatement to accounts and disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected. While item (i) above remains unremediated and has been added as a component of the material weakness existing at March 31, 2006 described above, management has concluded that based on the remediation actions described below, items (ii) through (vii) of this material weakness did not exist at March 31, 2006.

    Remediation of Material Weakness

        In order to remediate the material weakness first reported as of September 30, 2004, Predecessor Mueller: (i) reassigned its Chief Financial Officer, appointed an Interim Chief Financial Officer and hired additional accounting and finance staff; (ii) introduced increased training for their existing financial and accounting and other staff; (iii) retained third-party consultants with significant SEC financial reporting experience to provide assistance in complying with SEC reporting requirements; (iv) formed a disclosure committee to supervise the preparation of their Exchange Act Reports and other public communications; (v) improved their controls over, and began developing written policies and procedures that cover all significant accounting processes, including journal entries, the development and communication of income tax provisions, information data conversion issues and program changes, revenue recognition and assessing financial exposures; (vi) improved and centralized controls over information technology; and (vii) implemented global compliance initiatives under the direction of its Chief Compliance Officer including controls surrounding "whistleblower" hotline complaints and internal certifications. The Company continued these improvement efforts during the quarter ended March 31, 2006 and has concluded that it has remediated items (ii) through (vii) of this material weakness. However, as disclosed above, item (i), a lack of personnel with experience in financial reporting and control procedures necessary for SEC registrants, is the only remaining item of the continuing material weakness at March 31, 2006.

        During the quarter ended March 31, 2006, the Company took steps to remediate the material weakness that continued as of March 31, 2006. These steps included a thorough review, on a quarterly basis, of foreign currency translation cash flow statement effects, the dollar value of bank checks outstanding and transactions related to property, plant and equipment and an additional review, on a

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quarterly basis, of the classification requirements of each component line item and the individual elements that comprise each line item of the statement of cash flows, in accordance with Statement of Financial Accounting Standards, No. 95, "Statement of Cash Flows." Additionally, the classification of deferred income tax items in the balance sheet and cash flow statement, as well as depreciation in the statement of operations, will be evaluated quarterly, as will the proper classification of shipping and handling costs within our consolidated statement of operations.

        In addition, during the quarter ended December 31, 2005, the Company made the following changes in internal control over financial reporting:

    hired a full time Chief Financial Officer, Jeffery W. Sprick, and a Corporate Controller with SEC financial reporting experience;

    hired additional finance and accounting personnel for our Pratt and Chattanooga facilities;

    designated the Walter Industries audit committee, which is fully independent under New York Stock Exchange listing rules and the rules of the SEC, as our audit committee (in April 2006, the Company formed its own audit committee, which is fully independent under the New York Stock Exchange and SEC rules); and

    began to implement an internal quarterly review plan to review higher risk areas in financial reporting, such as revenue recognition, inventory valuation and cash flow reporting.

        The Company continues to upgrade the knowledge of its finance staff by implementing on-going United States generally accepted accounting principles training programs, consisting of providing appropriate technical resources to our finance team and training on the use of such resources, conducting a series of training sessions for plant controllers, periodically distributing summaries of changes in accounting and reporting standards, and issuing and updating our accounting policies. Additionally, the Company terminated the former Chief Compliance Officer of Predecessor Mueller and reassigned those duties to the Director of Internal Audit. While significant improvements have been implemented, management believes that additional remediation is needed and will require changes in personnel, processes and procedures to ensure timely and accurate financial reporting on a sustainable basis.

        The Company believes the additional control procedures as designed, when implemented, will fully remediate the above material weakness.

    Changes in Internal Control Over Financial Reporting

        Except as described above, there were no changes internal control over financial reporting during the quarter ended March 31, 2006, that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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BUSINESS

Overview

        We are a leading North American manufacturer of a broad range of water infrastructure and flow control products for use in water distribution networks, water and wastewater treatment facilities, gas distribution systems and fire protection piping systems. We believe we have the most comprehensive water infrastructure and flow control product line in our industry and enjoy leading market positions based on the estimated market share of our key products, broad brand recognition and a strong reputation for quality and service within the markets we serve. We maintain one of the largest installed bases of products in the United States, including, as of March 31, 2006, approximately three million fire hydrants and approximately nine million iron gate valves. Our products are specified for use in all of the top fifty metropolitan areas in the United States.

        Our large installed base, broad product range and well known brands have led to long-standing relationships with the key distributors in our industry. Our diverse end markets, extensive distributor and end-user relationships, acquisition strategy and leading market position have contributed to strong operating margins and sales growth. Our pro forma net sales and pro forma operating income for the twelve months ended September 30, 2005 were $1,747.0 million and $173.9 million, respectively. Our net sales and pro forma operating income for the six months ended March 31, 2006 were $915.3 million and $58.2 million, respectively. Our net sales and pro forma operating income for the six months ended March 31, 2005 were $807.2 million and $60.7 million, respectively. Our operations generate significant cash flow, which will provide us with flexibility in our operating and financial strategy.

        We manage our business and report operations through three segments, based largely on the products they sell and the markets they serve: Mueller®, U.S. Pipe® and Anvil®. The table below illustrates each segment's net sales to external customers for the six months ended March 31, 2006, as well as each segment's major products, brand names, market positions and end use markets.

 
  Mueller
  U.S. Pipe
  Anvil
 
   
   
   
  (dollars in millions)

   
   
Net sales for the six months ended March 31, 2006(a)   $373.5   $290.8   $260.2
 
  Mueller
  U.S. Pipe*
  Anvil
Selected Product Lines     Fire Hydrants (#1)     Ductile Iron Pressure     Pipe Fittings and
    (Market Position in     Gate Valves (#2)       Pipe (#1)       Couplings (#1)
    the U.S. and Canada)(b)     Butterfly and Ball Valves (#1)             Grooved Products (#2)
      Plug Valves (#2)             Pipe Hangers (#2)
      Brass Water Products (#2)                
Selected Brand Names     Mueller®     U.S. Pipe®     Anvil®
      Pratt®     TYTON®     Beck™
      James Jones™     FIELD LOK®     Gruvlok®
              MJ FIELD LOK®        
Primary End Markets     Water and Wastewater     Water and Wastewater     Fire Protection
        Infrastructure       Infrastructure     Heating, Ventilation
                        and Air Conditioning
                        ("HVAC")
(a)
Includes intersegment sales of $9.2 million.

(b)
Market position information is based on management's estimates of the overall market size and of the market share of our principal competitors for the relevant product lines. Where available, the management estimates were based on data provided by third parties, including trade associations, distributors and customers. In other

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    instances, the estimates were based upon internal analysis prepared by our employees and management based on their expertise and knowledge of the industry.

    Our segments are named after our leading brands in each segment:

    Mueller.    Sales of our Mueller segment products are driven principally by spending on water and wastewater infrastructure upgrade, repair and replacement and new water and wastewater infrastructure. Mueller segment sales of hydrants and iron gate valves are estimated to be approximately 50% for new infrastructure, with the remainder for upgrade, repair and replacement. A significant portion of Mueller's sales are made through its broad distributor network. For most of our Mueller segment products, which are sold through independent distributors, end-users (principally municipalities) choose the brand or establish product specifications. We believe our reputation for quality, extensive distributor relationships, installed base and coordinated marketing approach have helped our Mueller segment products to be "specified" as an approved product for use in most major metropolitan areas throughout the United States. This specification and our relationships with end-users elevate the importance of our water and wastewater infrastructure products to our distributors.

    U.S. Pipe.    U.S. Pipe products are sold primarily to water works distributors, contractors, municipalities, private utilities and other governmental agencies. A substantial percentage of ductile iron pressure pipe orders result from contracts that are bid by contractors or directly issued by municipalities or private utilities. To support our customers' inventory and delivery requirements, U.S. Pipe utilizes numerous storage depots throughout the country.

    Anvil.    Anvil products are sold to a wide variety of end-users, which are primarily commercial construction contractors. These products are typically sold to our distributors through Anvil's four regional distribution centers located in Illinois, Nevada, Pennsylvania and Texas and through Anvil's Canadian distribution and sales division. A significant portion of Anvil products are used in the fire protection industry and in HVAC applications.

        We believe that our current network of independent flow control distributors is the largest such distribution network in the United States and Canada. We also have approximately 500 inside and outside sales and sale support personnel who work directly with end-users, including municipalities. Our products are sold to a wide variety of end-users, including municipalities, publicly and privately-owned water and wastewater utilities, gas utilities and construction contractors. We believe that our sales are substantially driven by: (1) spending on water and wastewater infrastructure upgrade, repair and replacement due to aging and outdated water distribution systems in North America; (2) new water and wastewater infrastructure, driven primarily by new residential construction; and (3) non-residential construction.

Industry Overview

        The North American water infrastructure and flow control industry consists of the manufacturers of valves, pipe, fittings, fixtures, pumps and seals. Growth in the sectors we serve is driven by the need to upgrade, repair and replace existing water and wastewater infrastructure, new residential construction activity and non-residential construction activity. Specifically, federal and state environmental regulations, such as the Clean Water Act and the Safe Drinking Water Act, are expected to drive growth in our industry over the next several years. We anticipate that sales related to water infrastructure upgrade, repairs and replacement may grow faster than the overall market for water infrastructure and flow control products as a result of the continued aging of municipal water systems in the United States and Canada, and the expanding base of water infrastructure and flow control installations. The ductile iron pipe business, however, is somewhat sensitive to economic cycles because of its partial dependence on the level of new construction activity and state, municipal and federal tax revenues to fund water projects.

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    Water and Wastewater Infrastructure Upgrades, Repairs and Replacement.    Much of the water distribution infrastructure in the United States is considered to be aging or in need of updating. Growth in the water and wastewater infrastructure upgrades, repairs and replacement sector is driven primarily by: (1) the growing installed base, as new infrastructure is put in place, creating a continuously growing base to facilitate future recurring revenues; (2) the age of existing systems; (3) the operating cost of systems; (4) general use of systems; (5) governmental budgetary constraints; and (6) changes in federal and state environmental regulations, including, most recently, the Clean Water Act and the Safe Drinking Water Act. In a November 2002 study, the Congressional Budget Office estimated that the average annual spending necessary to upgrade, repair and replace existing water and wastewater infrastructure will be between $24.6 billion and $41.0 billion a year over the ensuing 15 years. Although spending in this sector has been constrained in recent years as a result of budget limitations on state and local governments and the weak economic environment, we believe that this sector has begun to benefit from an improvement in the overall economy as state and local governments are addressing deferred infrastructure needs.

    New Water and Wastewater Infrastructure.    Growth in the new water and wastewater infrastructure sector is mainly driven by new housing starts. According to the U.S. Census Bureau, housing starts in 2005 were 5.7% higher than in 2004. According to Freddie Mac, U.S. housing starts are projected to reach 1.9 million units by the end of 2006, which would represent the third best year for single-family housing construction in the last 25 years.

    Non-Residential Construction.    Non-residential construction activity includes: (1) public works and utility construction; (2) institutional construction, including education, dormitory, health facility, public, religious and amusement construction; and (3) commercial and industrial construction. According to the U.S. Census Bureau, spending on U.S. private non-residential building construction grew 5.0% in 2005 relative to 2004. According to Moody's, spending on non-residential construction is expected to increase 6.1% in 2006.

Competitive Strengths

        We believe that we enjoy a number of important competitive strengths that drive our success and differentiate us from our competitors and support our market leadership, including:

    Broad Range of Products and Leading Brands.    We believe that we have the most comprehensive water infrastructure and flow control product line in our industry and enjoy leading market positions based on the estimated market share of our key products, broad brand recognition and a strong reputation for quality and service within the markets we serve. For the fiscal year ended September 30, 2005 and the six months ended March 31, 2006, on a pro forma basis, approximately 74.1% and 73.9%, respectively, of our total sales were from products in which we believe we have the #1 or #2 market share in the United States and Canada. We believe we are one of the largest manufacturers of flow control products, including fire hydrants and gate valves, in the United States and Canada in the markets we serve. As of March 31, 2006, we were also one of the nation's largest producers of ductile iron pressure pipe based on industry shipping information provided by the Ductile Iron Pipe Research Association. Our brand names are highly recognized for quality and reliability.

    Complete Water Transmission Solutions.    The combination of Predecessor Mueller and U.S. Pipe created an industry leading company with significant scale in water infrastructure and delivery systems and positions us as one of the largest suppliers to the water products sector with a strong platform to facilitate potential expansion into higher growth areas. Our broad product portfolio of engineered valves, hydrants, ductile iron pipe and pipe fittings provides distributors

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      and end users with a comprehensive source of supply and creates a significant competitive advantage for our company.

    Large and Growing Installed Base.    We maintain one of the largest installed bases of products in the United States, including, as of March 31, 2006, approximately three million fire hydrants

    and approximately nine million iron gate valves. We believe our large installed base enhances our competitive position and increases our importance to our distributors and end-users. Once our products are installed, it is difficult for an end-user to change to a competitive product due to the inventory of parts required to maintain multiple products and due to the life/safety nature of some of our products. To ensure consistency, end-users of our water infrastructure products often require that contractors use the same products that have been historically used in a municipality, or products with similar specifications. In addition, as water and wastewater distribution and treatment infrastructure is improved and expanded, we believe that spending on systems upgrades will increase. We believe we are positioned to benefit from this spending as our large installed base of products leads to repeat purchases by end-users for system maintenance and enhances the sale of our new parts.

    Leading Specification Position.    Due to our strong brand name and our large installed base, our products are "specified" as an approved product for use in all of the top fifty metropolitan areas in the United States. The product specification approval process for a municipality generally takes a minimum of one year and there are approximately 55,000 municipal water systems in the United States. This strong specification position has contributed to long-standing relationships with all of the top distributors and creates a strong demand base for our products. For most of our water infrastructure products, including those which are sold through independent distributors, end-users choose the brand or establish product specifications, including required approvals from industry standard setting organizations. We leverage our strong brand reputation and installed base with a dedicated sales force that works directly with municipalities and other end-users to have our products specified by municipalities when awarding new construction contracts or major upgrade, repair or replacement projects. We believe that, because of this large installed base, as well as our brand recognition and reputation for quality, our products are specified more often than those made by our competitors.

    Established and Extensive Distribution Channels.    We maintain strong, long-standing relationships with the leading distributors in our major markets throughout the United States and Canada. While we do not have long-term contracts with our distributors, we believe that our superior product quality and the technical support we provide allow us to enjoy long-term relationships with our network of over 5,000 independent distributor locations. The average relationship with our top ten distributors is over 20 years. In addition, we believe the breadth of our product offering and our ability to provide products throughout the United States and Canada have enabled us to strengthen our relationships with the leading independent distributors as they seek to simplify their procurement process and broaden their geographic reach. Home Depot (formerly Hughes Supply, Inc. and National Waterworks), one of our largest distributors, accounted for over 23% and 24%, respectively, of our consolidated pro forma net sales for the twelve months ended September 30, 2005 and for the six months ended March 31, 2006, and for over 27% and 29%, respectively, of our U.S. Pipe segment's net sales in the twelve months ended September 30, 2005 and in the six months ended March 31, 2006. Our acquisition of the assets of Star, an importer of piping products produced in China, India and Malaysia in 2004, has allowed us to provide both domestic and foreign sourced-piping systems products to our distributors. We believe that this has made us less susceptible to the increase in the spot price of steel scrap, which has doubled between 2002 and 2005.

    Advanced, Low-Cost Manufacturing Capabilities.    We believe our historical capital investment in manufacturing technologies helps us reduce the costs of producing our cast, malleable and

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      ductile iron and brass water and gas flow control products. We believe that we are the only company in North America that uses the technologically-advanced lost foam casting process to manufacture fire hydrant and iron gate valve castings, which significantly reduces the manual labor and machining time otherwise needed to finish cast products. Based on our experience, we believe that our lost foam process is significantly less costly than the traditional method utilized by our competitors. We believe that this has made us less susceptible to the increase in the prices of raw material over the last three years. In 2002, we completed a capital improvement plan, pursuant to which we invested $124.3 million from 2000 to 2002 to (i) implement new low cost manufacturing technologies, including our lost foam casting process and (ii) consolidate certain manufacturing facilities, including our Statesboro, Georgia foundry. We believe that the completion of this capital improvement plan improved the efficiency of our manufacturing processes and the quality of many of our products.

    Highly Experienced, Proven Management Team.    We are led by an experienced management team with a long and successful track record, enabling us to recognize and capitalize upon attractive opportunities in our key markets. Our five most senior members of the management team have an average of over 20 years of experience in the flow control industry and have substantial experience in acquisition and integration of businesses, cost management rationalization and efficient manufacturing processes. The management team is led by Gregory E. Hyland, the Chairman, President and Chief Executive Officer, who has over 20 years of experience in the flow control industry.

Business Strategy

        Our business strategy is focused on sustaining our market leadership and competitive differentiation, while growing revenues and enhancing profitability. Key elements of our strategy include:

    Capitalizing on Large, Attractive and Growing Water Infrastructure Industry.    We plan to capitalize on the expected water infrastructure market growth by leveraging our large and growing installed base, leading specification position, established and extensive distribution channels and a broad range of leading water infrastructure and flow control products. Much of the water distribution infrastructure in the United States is aging and in need of replacement or updating. In a November 2002 study, the Congressional Budget Office estimated that the average annual spending necessary to upgrade, repair and replace existing water and wastewater infrastructure will be between $24.6 billion and $41.0 billion a year over the next 15 years.

    Achieving Ongoing Operating Synergies.    We continue to seek opportunities to rationalize our manufacturing facilities and use our significant manufacturing expertise to further reduce our cost structure. We have initiated a multi-pronged synergy plan designed to streamline our manufacturing operations, add incremental volume through combining sales efforts for complementary products and combine corporate-level functions to achieve operating efficiencies. In fiscal 2006, we expect to achieve integration synergies between our Mueller and U.S. Pipe segments by closing the U.S. Pipe Chattanooga, Tennessee production facility and integrating it into the Mueller Chattanooga and Albertville, Alabama production facilities. In addition, we have initiated the implementation of plant and distribution combination and production efficiency strategies within our Mueller and Anvil segments, and these efforts will continue through fiscal years 2006, 2007 and the beginning of 2008. Our Mueller segment sales force has begun to integrate U.S. Pipe products as complementary product offerings as part of their sales efforts. We also have begun to use the combined purchasing leverage of our Mueller, U.S. Pipe and Anvil segments to reduce raw material and overall product costs and to date, have entered into a steel scrap procurement agreement from our Mueller and U.S. Pipe segments. We expect

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      that the full implementation of our synergy and rationalization plan by early fiscal 2008 will produce approximately $40-$50 million of ongoing incremental annual operating income.

    Strengthening Relationship with Key Distributors.    We are focused on enhancing close relationships with the strongest and fastest growing distributors and on leveraging our extensive distributor network to increase sales of our existing products, introduce new products and rapidly expand sales of products of the businesses we acquire. The competitive environment for independent distributors has been and continues to be characterized by consolidation as distributors seek to broaden their geographical reach and achieve economies of scale. Our top distributors are growth oriented companies that have been among the leaders in this consolidation trend. By having strong relationships with distributors who are leading the consolidation, we believe we will benefit from their growth.

    Continuing to Focus on Operational Excellence.    We will continue to pursue superior product engineering, design and innovation through our technologically-advanced manufacturing processes. We will also continue to evaluate sourcing products and materials internationally to lower our costs. We employ highly efficient manufacturing methods, such as lost foam casting and automated Disa® molding machinery, which are designed to continue to solidify our position as a low cost domestic producer of water infrastructure and flow control products.

    Focused Acquisition Strategy.    Acquisitions are an important part of our growth strategy. Certain segments of the industry in which we compete are fragmented, providing for numerous acquisition opportunities. We will selectively pursue attractive acquisitions that enhance our existing product offering, enable us to enter new markets, expand our technological capabilities and provide synergy opportunities. Over the past five years, we have acquired and successfully integrated eight businesses within the water infrastructure and flow control markets. We intend to continue to selectively pursue acquisitions that will enhance our position as a complete water flow control and transmission solutions provider. Our recent acquisitions include Beck Manufacturing and Merit Manufacturing, each of which is a piping system components manufacturer (2001), Hydro Gate, a sluice gate valve manufacturer (2001), and Milliken Valve, a plug valve manufacturer (2003). In 2003, we acquired Jingmen Pratt, a machine shop in Hubei Province, China. In addition, we acquired Star in January 2004 to enter the market for lower-cost, foreign-produced products and to complement certain of our piping products produced in the United States and Canada. We have recently announced the acquisition of Hunt Industries, a manufacturer of water meter pits and water meter yokes, which further enhances our product offering.

    Selectively Expanding Internationally.    We intend to expand our current international presence in sourcing and manufacturing products as well as in the sale of our products. We believe we can further utilize our current manufacturing facility in China to produce additional products. We are leveraging our Star operations, which we acquired in 2004 from Star Pipe, Inc., to establish a lead position in the United States for the import and sale of piping component products, including fittings and couplings manufactured in China, India and Malaysia. In addition, we expect to increase our international sales volumes, primarily in Europe and China by capitalizing on our existing brand recognition and customer relationships. For example, in Europe, we added two distributors for our European products. In China, we acquired Jingmen Pratt in 2003 and established a Shanghai office in July 2004, which we intend to use as a platform to explore sales opportunities for our products in this fast growing market.

Product Segments

        We believe that we are the broadest full-line supplier of flow control products for water and wastewater infrastructure systems and piping component systems in the United States and Canada. We

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have the capability to manufacture flow control products for water and gas systems, ranging from fire hydrants to 1/8 inch pipe fittings that connect pipes together to 10-foot engineered valves. Our principal products are fire hydrants, ductile iron pipe, water and gas valves and a