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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission file number: 333-116590

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

500 West Eldorado Street
Decatur, IL 62522-1808

(Address of Principal Executive Offices)

Registrant's telephone number: (217) 423-4471

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

o Yes    ý No

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

o Yes    ý No

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

        Aggregate market value of Registrant's voting stock held by non-affiliates at March 27, 2004 cannot be determined as there is no market in the Registrant's shares. As of March 25, 2005, Mueller Water Products, Inc. had 131,208,998 shares of Class A common stock and 89,343,699 shares of Class B common stock outstanding.

* Formerly Mueller Holdings (N.A.), Inc.

MUELLER WATER PRODUCTS, INC.
TABLE OF CONTENTS TO FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2004

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Introductory Note

        In this report, "Mueller Water," the "Company," "we," "us" or "our" refer to Mueller Water Products, Inc. and its subsidiaries, except where the context makes clear that the reference is only to Mueller Water Products, Inc. itself and is not inclusive of its subsidiaries.

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

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

Special Note Regarding Forward-Looking Statements

        The information contained in this annual report includes some forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 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," "will," "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:

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



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



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



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liability and other claims asserted against our company;



•

changes in operating strategy or development plans;



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the ability to attract and retain qualified personnel;



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our significant indebtedness;



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changes in our acquisition and capital expenditure plans;



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our ability to timely implement improvements to our internal controls;



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technology shifts away from our technological strengths;



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unforeseen interruptions with our largest customers; and



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other factors we refer to in this annual report, including in the Risk Factors under Item 1.

        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 annual report 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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Industry and Market Data

        In this annual report, 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 and the U.S. Census Bureau. We believe that these sources of information and estimates are reliable and accurate, but we have not independently verified them and cannot guarantee their accuracy or completeness.

        Although some of the companies that compete in our particular industry segments are publicly held as of the date of this annual report, many are not. Accordingly, other than certain market data with respect to fire hydrants 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 annual report with respect to other products are based on our management's belief, internal studies and our management's knowledge of industry trends. We cannot guarantee that this information is accurate or complete.

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PART I

Item 1.    Business

Overview

        Mueller Water Products, Inc. is a Delaware corporation that was incorporated in 1999 for the purpose of acquiring our business from Tyco International (U.S.) Inc. and its affiliates. In November 2004, we changed our name from Mueller Holdings (N.A.), Inc. to Mueller Water Products, Inc. Our operating subsidiaries are engaged primarily in the sourcing, manufacture and sale of flow control products, including fire hydrants, gate valves and piping components, in the United States and other countries. Our operations are divided into two reporting segments based largely on the end markets they serve: water infrastructure and piping systems.

        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 piping systems. We maintain a large installed base of products in the United States, including approximately three million fire hydrants and eight million iron gate valves. Our water infrastructure products include hydrants, valves and a variety of related products and our piping systems products include pipe fittings, pipe hangers and pipe nipples and a variety of related products. We believe we have the broadest product line of any of our competitors and enjoy strong market positions, leading brand recognition and a strong reputation for quality and service within the markets we serve.

        The following charts illustrate the balance and diversity of our revenue base by end market and product category and identify the approximate percentage of our revenues by product category:

Revenues By Product Category		Revenues By End Market Served

        Sales of our water infrastructure products, which comprised 59% of our sales in 2004, are driven principally by spending on water and wastewater infrastructure upgrade, repair and replacement and new water and wastewater infrastructure (which spending is driven primarily by new residential construction). Of our water infrastructure sales, we estimate that approximately 55% are for new infrastructure, with the remainder for upgrade, repair and replacement. Sales of our piping systems products, which comprised 41% of our sales in 2004, are driven principally by spending on non-residential construction projects.

        Our large installed base, broad product range and well known brands have led to our strong, long-standing relationships with all of the leading distributors in our industry. We believe that our network of over 5,000 independent flow control distributors is the largest such distribution network in the United States and Canada. Our sales force of approximately 350 field sales representatives and manufacturer's representatives works directly with municipalities and other end-users as well as with distributors, which market our products to end-users. For most of our water infrastructure products, which are sold through independent distributors, end-users choose the brand or establish product

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specifications. We believe our reputation for quality, extensive distributor relationships, installed base and our coordinated marketing approach have helped our water infrastructure products to be "specified" as an approved product for use in most major metropolitan areas throughout the United States. This specification dynamic and our relationships with end-users elevate the importance of our water and wastewater infrastructure products to our distributors.

        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 water infrastructure replacement, repair and upgrades, new water and wastewater infrastructure spending and non-residential construction. Our diverse end markets, extensive distributor and end-user relationships, acquisition strategy and market leading position have contributed to our strong operating margins and sales growth. We have grown our sales every year since 1999, except 2001. We have achieved this growth despite softness in the general economy and non-residential construction market in 2001, 2002 and 2003. In 2004, we experienced strong sales growth driven primarily by the beginning of a general economic recovery, which has resulted in increased spending by municipalities on water infrastructure replacement, repair and upgrades, increased activity in the non-residential construction market and continued strength in residential construction. For the fiscal year ended September 30, 2004, our net sales were $1,049.2 million, representing an increase of 13.7% over the fiscal year ended September 30, 2003.

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:

•

Capitalize on Attractive Water Infrastructure Industry.  Much of the water distribution infrastructure in the United States is aging and in need of replacement or updating. Our strategy is to capitalize on expected water infrastructure market growth by continuing to offer a broad range of leading water and wastewater products, maintaining our strong end-user and distributor relationships, and leveraging our specification position and large installed base.



•

Leverage Strong Distributor Channel.  Our strategy is to maximize and continue to form close relationships with the strongest and fastest growing distributors in the industries we serve and utilize our extensive distributor relationships to increase sales of our products.



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Continue to Focus on Operational Excellence.  We will continue to pursue superior product engineering, design and innovation through our technologically-advanced manufacturing processes. We employ highly efficient manufacturing methods, such as lost foam casting and automated Disamatic mold-making, to enhance product quality and reduce costs. We will also continue to seek opportunities to rationalize our manufacturing facilities and use our significant manufacturing expertise to further reduce our cost structure.



•

Selectively Pursue Strategic Acquisitions.  Certain segments of the industry in which we compete are fragmented, which provides attractive acquisition opportunities. We intend to pursue these opportunities to complement and expand our product lines, expand our market share, provide substantial synergy opportunities, and improve our presence in certain under-represented product categories and geographies.



•

Selectively Expand Internationally.  We are exploring sales opportunities for our products in selected international markets including Europe and China, although to date we have not generated significant revenues outside of North America.

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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 manufacture more than 72,000 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, water and gas valves, and a complete range of pipe fittings, couplings, hangers and nipples. Our products are designed, manufactured and tested in compliance with industry standards.

        We sell our products through two operating segments: water infrastructure, through which we sell our hydrants and valves and other water and wastewater infrastructure and gas distribution products described below under various brand names including Mueller, Henry Pratt, Hersey and James Jones; and piping systems, through which we sell our piping systems products under various brand names, including Anvil, Beck and Merit.

Water Infrastructure Products

        Fire Hydrants.    We believe we are one of the largest manufacturers of dry-barrel fire hydrants in the United States and Canada. New fire hydrant and fire hydrant part sales accounted for approximately $122.7 million, $125.0 million and $151.2 million of our total sales in 2002, 2003 and 2004, respectively. Fire hydrants are sold for new water infrastructure development as well as water infrastructure rehabilitation projects.

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

        Most municipalities have a limited number of hydrant brands that are approved for installation within their system due to the need to maintain inventories of spare parts for emergency repairs and the desire to ensure a uniform system. We believe that our large installed base of hydrants throughout the United States and Canada and our reputation for superior quality and performance, together with our incumbent specification position, have contributed to our leading market share. Our large installed base of approximately three million hydrants also leads to recurring revenue.

        Water and Gas Valves and Related Products.    We believe we have the broadest product line of valves for residential water and gas systems and that we are one of the largest manufacturers of butterfly valves and water gate valves in the United States and Canada. Water and gas valves and related products accounted for approximately $353.1 million, $381.3 million and $437.4 million of our sales in 2002, 2003, and 2004, respectively. Our significant industry-leading market position is the result of our strong brand recognition, superior quality and specification acceptance.

        All of our valve products are used to control transmission of potable water, non-potable water or gas. Our product line includes butterfly, gate, tapping, check, plug and ball valves. Water valve products range in size from ³/4 inch to 10 feet. The smaller iron gate-type valves are produced by our Chattanooga, Tennessee plant and the larger iron AWWA—butterfly valves are produced by our Henry Pratt subsidiary in Dixon, Illinois. Brass valves are produced in our Decatur, Illinois and El Monte, California plants. Most of these valves are used in water distribution.

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

        Other Water Infrastructure Products.    Our other water infrastructure products include: pipe repair products, such as repair clamps and couplings used to repair leaks in water and gas distribution systems; municipal castings, such as manhole covers and street drain grates; and patterns used by the foundry and automotive industries. We market these products under the Mueller, Mueller Canada, James Jones, and Viking Johnson brand names. These products accounted for $45.2 million, $45.2 million and $46.6 million of our sales in 2002, 2003 and 2004, respectively.

Piping Systems Products

        Pipe Fittings and Couplings.    We are one of the largest manufacturers of threaded and grooved pipe fittings and couplings in the United States and Canada. Pipe fittings and couplings join two pipes together. Listed below are the four primary categories of pipe fittings and couplings that we manufacture.

        Malleable Iron Fittings and Unions.    Malleable iron fittings and unions accounted for sales of $73.8 million, $68.9 million and $66.0 million in 2002, 2003, and 2004, respectively. Malleable iron is a cast iron that is heat-treated to make it stronger, which allows us to use a thinner wall and results in a lighter product. Malleable iron is primarily used to join pipe in various gas, plumbing and HVAC applications. We manufacture these products at our Columbia, Pennsylvania foundry.

        Cast Iron Fittings.    We believe we are one of the largest manufacturers of cast iron fittings in the United States. Cast iron fittings accounted for approximately $36.2 million, $31.8 million and $31.7 million of our sales in 2002, 2003, and 2004, respectively. Cast iron is the most economical threaded fittings material and is typically used in low pressure applications such as sprinkler systems and other fire protection systems. We manufacture cast iron fittings primarily in our Columbia, Pennsylvania foundry. We believe that the substantial majority of our cast iron product is used in the fire protection industry, with the remainder used in steam and other HVAC applications.

        Threaded Steel Pipe Couplings.    We believe we are one of the largest manufacturers of threaded steel pipe couplings in the United States and Canada. Threaded steel pipe couplings accounted for sales of $26.1 million, $24.5 million and $32.8 million in 2002, 2003 and 2004, respectively. Threaded steel pipe couplings are used in the plumbing and electrical markets to join pipe and conduit and by pipe mills as threaded end protectors. We manufacture steel couplings at our Waynesboro, Pennsylvania and Simcoe, Ontario facilities.

        Grooved Products.    We believe we are one of the largest manufacturers of grooved products in the United States and Canada. Sales of grooved products were approximately $47.4 million, $52.0 million and $56.1 million in 2002, 2003 and 2004, respectively. Unlike typical pipe connections, where pipes are connected by screwing them into a fitting or welding them together, grooved products use a threadless pipe-joining method that does not require welding. We manufacture our grooved couplings and fittings under the Gruvlok name in our Columbia, Pennsylvania foundry. In addition, we purchase privately labeled products to complement our grooved product offerings including grooved copper and stainless steel fittings. These additional purchased products complement our offering of grooved products and enable us to better serve our customers' project requirements. Purchased products accounted for $12.5 million, $15.1 million and $17.2 million of grooved product sales in 2002, 2003 and 2004, respectively.

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        In connection with our acquisition from Tyco in August 1999, we entered into a five-year agreement that granted Tyco the exclusive right to distribute our Gruvlok products in Europe, Asia and Latin America. That agreement expired in August 2004 and we are in the process of engaging new distributors for these products in Europe, which we view as a growth opportunity.

        Pipe Hangers.    We believe we are one of the largest manufacturers of pipe hangers in the United States and Canada. Our annual hanger sales were approximately $44.7 million, $42.3 million and $38.5 million in 2002, 2003 and 2004, respectively. Pipe hangers provide support for pipes and are used in sprinkler systems, HVAC applications and in power and petrochemical plants. We manufacture our standard pipe hangers in Henderson, Tennessee and Columbia, Pennsylvania and we produce special order, or engineered, pipe hangers in North Kingston, Rhode Island. We have retained a strong core engineering staff and believe that we are the leader in technical competency in this sector.

        Pipe Nipples.    We believe we are also one of the largest manufacturers of pipe nipples in the United States and Canada. Sales of pipe nipples were approximately $39.1 million, $46.1 million and $53.4 million in 2002, 2003 and 2004, respectively. The pipe nipple product line is a complementary product offering and is packaged (1) with cast iron for the fire protection market, (2) with malleable iron for the industrial market, (3) with our forged steel product line and (4) as a general plumbing market item.

        We increased our pipe nipple production by approximately 50% through the 2001 acquisition of Beck Manufacturing. We produce the majority of our pipe nipple products at Beck Manufacturing's facilities in Greencastle, Pennsylvania and Santa Fe Springs, California. Seamless pipe nipples are produced at our Longview, Texas facility. Pipe nipples for the Canadian market are manufactured at our Simcoe, Ontario facility.

        Other Piping Systems Products.    In addition to our key products that we have described above, we sell (1) products sourced outside the United States and Canada through our Star business, which we acquired in January 2004, (2) products that we purchase from third parties and (3) many other products that we manufacture, including (A) oilfield products, including forged steel pipe fittings, hammer unions, bull plugs and swage nipples which are used to connect pipes in oil and gas applications and (B) electrical products, including PVC conduit couplings and elbows used to carry wire and cable in electrical applications. Sales of purchased products by our piping systems products segment were approximately $85.3 million, $86.4 million and $117.5 million in 2002, 2003 and 2004, respectively, and sales of our other manufactured products were approximately $52.2 million, $53.8 million and $58.2 million in 2002, 2003 and 2004, respectively.

Sales, Marketing and Distribution

        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. Our products are usually purchased from us by our distributors; distributors then sell our products to contractors who have won a contract to construct, replace or upgrade a water, wastewater or gas system for an end-user or non-residential facility. In some cases, end-users, including municipalities and utilities, buy products directly from us, most often as part of a program to repair, replace or upgrade existing infrastructure. Sales of our water infrastructure products and our piping systems grooved products are heavily influenced by the specifications in those contracts. Our sales force of approximately 350 sales representatives calls on municipalities, water companies and other end-users to ensure that our products, or the corresponding quality standards, are specified. In addition, to ensure consistency, municipalities often require that contractors use the same products that have been historically used in that municipality. Sales of our piping systems products are generally influenced by the distributors, as customers will buy from a distributors' available offering based on price and quality.

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        Our large installed base, broad product range and well known brands have led to our strong, long-standing relationships with all of the leading distributors in our industry. For most of our water infrastructure products, which are sold through independent distributors, end-users choose the brand or establish product specifications. Our distribution network includes approximately 5,000 distributors that cover all of the major markets in the United States and Canada. We typically do not have long-term contracts with our distributors, although we have long-term relationships with most of our top distributors. Our three major distributors accounted, in the aggregate, for approximately 31% of our sales in 2004. The loss of any one of these distributors could have a material adverse effect on our business. See "—Risk Factors—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."

        We generally ship our water infrastructure products, including hydrants and water and gas valves, directly to distributors carrying these products from our plant. We generally ship our piping systems products, including pipe fittings, couplings, hangers and nipples, from our plants to four regional service centers that we operate in the United States and we ship products from these distribution centers to distributors carrying these products. Our regional service centers are strategically located to provide 24-hour delivery to the majority of our piping systems customers. In addition, we operate 24 smaller warehouses throughout the United States and Canada to support our piping systems operations. We have historically stocked some products manufactured by third parties in these distribution centers in order to provide a broader product offering. We reduced the scope of our offering of piping systems products purchased from third parties, which are lower margin, in the United States following our acquisition by our current equity owners. We continue to sell a broad range of purchased products in Canada.

Backlog

        Our backlog is not significant due to our ability to respond adequately to customer requests for product shipments. We generally manufacture our products from raw materials in stock and deliver them to customers within approximately two weeks from receipt of the order, depending upon customer delivery specifications.

Manufacturing

        We operate 29 highly automated manufacturing facilities in the United States, Canada and China. Our manufacturing operations include foundry, machining, fabrication, assembly, testing and painting operations. We believe that our existing manufacturing capacity is sufficient for our near-term requirements and we have no current plans to expand capacity.

        We use two primary casting techniques, green sand and lost foam. At present, we utilize the lost foam technology for hydrants in our Albertville, Alabama facility and for gate valve production in our Chattanooga, Tennessee facility. The lost foam process has several advantages over the green sand process for high-volume products, including the need for less manual finishing, lower scrap levels and the ability to reuse the sand.

        The selection of the appropriate casting method, pattern, core-making equipment, sand and other raw materials depends on the final product and its complexity, specifications, and function as well as intended production volumes. We will continue to use the green sand casting process for products when we believe it is the most appropriate process based on the above parameters.

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Raw Materials

        Our products are made from several basic raw materials, including sand, resin, brass ingot, steel pipe, and scrap steel and iron. These materials are readily available and are competitively priced. 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 and do not hedge our exposure to price changes. Our business could be adversely affected by increases in the cost of our raw materials, as we may not be able to fully pass these costs on to our customers. From March 2002 to December 2003, the United States imposed tariffs on imported steel and steel pipe, which are raw materials for pipe nipples and hangers, sales of which represent approximately 9% of our revenues. The tariffs along with a consolidation of capacity in the steel pipe manufacturing industry resulted in an approximate 17% increase in the price of steel pipe from a pre-tariff price of $552 per ton to $645 per ton, the price of steel pipe when the tariffs were removed. To offset this increase we raised the price of our products; however, our price increases lagged the increases in the price of steel which, in turn, adversely affected our results. Although the tariffs on imported steel were removed in December 2003, prices have not decreased to pre-tariff levels as foreign producers had shifted to customers outside the United States, causing supply shortages. We can give no assurances that tariffs will not be re-imposed or imposed on other materials that we use to produce our products or that steel prices will return to pre-tariff levels. In addition, increased worldwide demand for steel scrap, the raw material from which our threaded and grooved pipe fittings as well as all iron valves and hydrants are made, has increased the spot price of steel scrap from approximately $140 per ton in December 2002 to approximately $400 per ton in September 2004. Steel producers have also announced that they intend to further raise prices. Management estimates that raw materials and purchased components used in our manufacturing processes accounted for 10-15% of our cost of goods sold in 2001 through 2003 and currently account for approximately 15-17% of our cost of goods sold due to increasing raw material prices.

Research and Development

        We have a dedicated team of research and development ("R&D") professionals, who focus on the development of new products as well as on the support, modification and improvement of existing products. Presently, we employ 9 degreed engineers dedicated to R&D activities. Our R&D effort is operated out of our facility in Smithfield, Rhode Island.

        Ideas are generated by manufacturing, marketing or R&D personnel. In order for a project to move beyond the idea stage, all three disciplines must agree on the suitability of the product and determine an estimated payback. After the approval, it typically takes 6 to 12 months to tool, test and start production. The R&D team typically works on various products at one time. We spent approximately $5.5 million, $4.7 million and $4.4 million on R&D activities in 2002, 2003 and 2004, respectively.

Patents, Licenses and Trademarks

        We have a significant number of active patents and trademarks relating to the design of our products. Most of the patents for technology underlying our products have been in the public domain for many years, and existing third-party patents are not considered, either individually or in the aggregate, to be material to our business. However, the pool of proprietary information, consisting of know-how and trade secrets relating to the design, manufacture and operations of our products is considered particularly important and valuable. We generally own the rights to the products that we manufacture and sell and are not dependent in any material way upon any license or franchise to operate.

        In connection with the acquisition of Mueller by the DLJ Merchant Banking funds from Tyco in August 1999, we acquired a non-exclusive license to use the Mueller brand name for a period of two

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years, with an option to purchase it in September 2001 and to use the Grinnell name for three years. We exercised the option and purchased the Mueller intellectual property in September 2001, the Grinnell license expired in 2002, and we therefore no longer incur related royalty expense.

Seasonality

        See "Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations—Effect of Inflation; Seasonality."

Competition

        The domestic and international markets for flow control products are competitive, However, for most of our product offerings, there are only a few competitors. Although many of our competitors are well-established companies with strong brand recognition, we believe that we maintain a strong competitive position for each of our key product offerings. Management considers product quality, service, brand recognition, price, effectiveness of distribution and technical support to be primary competitive factors.

        Management believes the competitive environment for our water infrastructure products is mature and stable with limited movement in market share over time. While the competitive environment for piping products is also mature, it is less stable than the water infrastructure products market, is more price sensitive and vulnerable to the increased acceptance of foreign products.

        With regard to our piping products segment, our products have mechanical and industrial applications, such as HVAC systems, and fire protection applications, such as sprinkler systems. We estimate that 70% of our piping systems products are used in mechanical applications and the remainder in fire protection systems. While the mechanical market has generally resisted acceptance of foreign products, the fire protection market has broadly accepted foreign products as a substitute for domestic piping system products. Fire protection products are sold primarily on price and are sold at lower prices by foreign manufacturers.

        Over the past two years, we have successfully petitioned the International Trade Commission and the Department of Commerce to impose anti-dumping duties on certain malleable and non-malleable pipe fitting products imported from China. While we believe that these duties will favorably impact our business, which is very competitive, there is no assurance that the anti-dumping duties imposed will be sufficient to reverse or retard the imports from China.

        In January 2004, we acquired the assets of the building and construction division of Star Pipe, Inc., an established importer of threaded and grooved pipe fittings produced in China and India. Our acquisition of Star has allowed us to establish a significant presence in the market for lower cost, foreign produced fire protection products and grow our overall market share.

Environmental Matters

        In the Acquisition Agreement pursuant to which the DLJ Merchant Banking funds acquired Mueller in August 1999, Tyco agreed to indemnify us and our affiliates for all "Excluded Liabilities". Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to the closing of DLJMB's acquisition of Mueller. The indemnity survives indefinitely and is not subject to any deductibles or caps. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable to, or otherwise fails to comply with, the terms of the indemnity. In addition, Tyco's indemnity does not cover environmental liabilities to the extent caused by our company or the operation of our business after the acquisition or to the extent arising with respect to any business or site acquired by us after August 1999.

        We are subject to various laws and regulation relating to health, safety and the protection of the environment. These laws relate to, among other things, worker health and safety and the use, discharge

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and disposal of regulated substances and wastewater generated during our manufacturing processes. As a result, we are required to obtain and maintain air, storm water, wastewater and other permits at many of our facilities, and make certain regular reports to federal, state and local agencies regarding our operations. We cannot assure you that we will not incur material fines, penalties, costs or liabilities in connection with such requirements or a failure to comply with them. While we currently incur capital and other expenditures to comply with these environmental, health and safety laws, these laws may become more stringent and our processes may change. Therefore, the amount and timing of such expenditures in the future may vary substantially from those currently anticipated.

        Some environmental laws require investigation and cleanup of environmental contamination at properties we now or previously owned, leased or operated. Some of our operations (in particular, operations at our manufacturing facilities) have been conducted at their current locations for many years. The processes at these and our other facilities currently and historically have involved the storage and use of regulated substances on-site or in underground storage tanks and the related generation of solid and hazardous waste disposed of off-site or in on-site solid waste landfills. Remediation projects are being undertaken at a handful of our sites by third parties who have indemnified us. We may be required to conduct and pay for these or other remedial activities in the future, and also may be subject to claims for property damage, personal injury, natural resource damages or other issues as a result of such matters. See "—Legal Proceedings" for further details.

        In addition, we have received notices from third parties or governmental agencies of liability or potential liability in connection with our off-site disposal of solid and hazardous substances relating to our current and former operations. While we currently anticipate that expenditures relating to these sites will not be material, we may receive additional notices and the amount and timing of expenditures relating to known or unknown sites may vary substantially from those currently anticipated.

        On April 22, 2004, the EPA issued final National Emissions Standards for Hazardous Air Pollutants (NESHAP's) under the federal Clean Air Act for iron and steel foundries. The NESHAP for iron and steel foundries will require reductions in hazardous air pollutant emissions by the industry. In addition, other NESHAP's apply to painting operations at our foundries. While we are in the process of analyzing the impact these standards may have on us and our future financial results, we expect we will need to incur additional and possibly material costs to comply with the regulations with respect to our Albertville, Alabama and Chattanooga, Tennessee facilities and may need to incur additional and possibly material costs with respect to our Columbia, Pennsylvania facility. See "—Risk Factors—We may be adversely affected by environmental, health and safety laws and regulations or liabilities," "—Risk Factors—Our brass products contain lead, which may be replaced in the future" and "—Risk Factors—Certain of our products may not be in compliance with NSF standards, which could limit the ability of municipalities to buy our products".

Regulatory Matters

        The production and marketing of our products is subject to the rules and regulations of various federal, state and local agencies, including laws governing our relationships with distributors. Regulatory compliance has not had a material effect on our results to date. We are not aware of any pending legislation that is likely to have a material adverse effect on our operations. See "—Legal Proceedings," "—Risk Factors—Our brass products contain lead, which may be replaced in the future" and "—Risk Factors—Certain of our products may not be in compliance with NSF standards, which could limit the ability of municipalities to buy our products".

Employees

        We employ approximately 5,400 people, of whom approximately 85% work in the United States. The hourly employees at our principal United States manufacturing plants and foundries in Albertville, El Monte, Aurora, Decatur, Dixon, Columbia, Chattanooga and Henderson are represented by unions,

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as are the hourly employees at two of our four distribution centers. Our operations in Canada at St. Jerome and at Simcoe are also unionized. Also, in March 2005, workers at our Milton, Canada manufacturing facility voted to accept union representation, and a union contract will be negotiated over the course of the six months following the union vote.

        The contracts with our union employees at our four largest manufacturing facilities are timed to expire in different years: Columbia in April 2005 (although an agreement with a relatively small union at our Columbia facility expires in May 2007), Chattanooga in September 2006, Decatur in June 2007 and Albertville in September 2008. The contracts with our union employees in El Monte and Simcoe expire in July and November 2005, respectively, Dixon in March 2006, and Aurora and Henderson in August and December 2007, respectively.

        In addition, approximately 125 of our employees are represented by various unions at our British Columbia, Montreal, Bloomington, Bristol, Cincinnati, Taylor, Portland and University Park piping systems products facilities. In March 2005, we announced the closing of the Portland facility and the termination of the union agreement with the union represented there. This termination is not anticipated to have any material impact on our financial position or results of operations.

        We believe that relations with our employees, including those represented by unions, are good. The last major union strike was in October 1987.

Geographic Information

        See Note 3 to our Consolidated Financial Statements.

Risk Factors

        Investors in our Company should consider the following factors that could impact our Company's future results of operations and financial condition.

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 2004, approximately 38% of our sales were to our ten largest distributors, and approximately 31% of our sales were to our three largest distributors: Hughes Supply, Ferguson Enterprises and National Waterworks. Our business relationship with most of our major distributors branches may be terminated at the option of either party upon zero to 60 days' notice.

        Our reliance on these major distributors exposes us to:

•

the risk of changes in the business condition of our major distributors, and



•

the risk that the loss of a major distributor could adversely affect our results of operations.

        While our relationships with our ten largest distributors have been long-lasting, distributors in our industry have experienced significant consolidation in recent years, and we cannot assure you that our distributors will not be acquired by other distributors who buy products from our competitors. We also cannot assure you that, as consolidation among distributors continues, distributors will not be able to force us to lower our prices, which would have an adverse impact on our results of operations. Moreover, the loss of any of National Waterworks, Hughes Supply or Ferguson Enterprises as a distributor could have a material adverse effect on our results of operations.

Our business will be adversely affected by 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. Spending

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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. We cannot assure you that economic conditions will continue to improve or that if they do, that state and local governments will address deferred infrastructure needs. Although the residential building market has experienced growth in recent years, we cannot assure that this growth will 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. From 1987 to 1991, total housing starts declined 38.1% from peak to trough. The United States reached a record high in single family housing starts in 2004 and housing starts continue to remain strong. Non-residential construction has slowed since 2000, with a modest improvement in 2004, and we cannot predict whether conditions will continue to improve. Any significant decline in the residential or non-residential building markets or governmental spending on infrastructure could have a material adverse effect on our financial condition and results of operations.

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

        Our brass products, which constituted approximately 8.5% of our sales in 2004, 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. If Congress adopts such legislation or if similar issues are raised in Congress in the future or in other jurisdictions or if these or other advocacy groups file suit against us under Proposition 65, our results of operations and financial condition could be adversely affected.

Certain of our 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 2004, our sales of brass products were $92.6 million, or 8.5% of our sales. Approximately 3,400 of the water infrastructure products we currently produce are made of brass. Approximately 85% of these water infrastructure brass products have been certified; and these represent approximately 70% of our water infrastructure brass product sales. In the event that some of our water infrastructure brass 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 adversely affecting profitability. In addition, if our competitors develop a complete line of NSF 61 compliant brass products before we do, we may be placed at a competitive disadvantage which may, in turn, adversely affect profitability.

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Our industry is very competitive and some of our piping systems 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 9.0% of our sales in 2004, face competition from less expensive imports and our pipe nipple and hanger products and our pipe fittings and couplings products, which together comprised 25.5% of our sales in 2004, 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.

        In addition, the U.S. Department of Commerce has imposed anti-dumping duties on imported malleable and non-malleable iron fittings from China. We cannot assure you that these government agencies will continue the current duties on imported malleable and non-malleable iron fittings. If the duties for respondent companies, which range from 7.35% to 14.32% (111.36% for other producers/exporters) for malleable iron fittings and 6.34% to 7.08% (75.5% for other producers/exporters) for non-malleable iron fittings, are reduced or completely eliminated, we may be forced to reduce the prices of some of our products. An increase in foreign competition, a decrease in these duties or a strengthening in the U.S. dollar could have a material adverse effect on our financial condition and results of operations.

Our results have been, and may continue to be, adversely impacted by increases in raw material prices.

        Our products are made from several basic raw materials, including sand, resin, brass ingot, steel pipe and scrap steel and iron. We generally purchase raw materials at spot prices and do not hedge our exposure to price changes. Our business could be adversely affected by increases in the cost of our raw materials, as we may not be able to fully pass these costs on to our customers. Management estimates that raw materials and purchased components used in our manufacturing processes currently account for approximately 15%-17% of our cost of goods sold.

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

        Our growth strategy is built upon organic growth and on taking advantage of opportunities to acquire complementary businesses and services. This 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 or products. 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 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 cannot assure you that we will be able to meet these challenges in the future.

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

        We may be adversely affected if businesses we have recently acquired or acquire in the future do 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

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affect a business in a direct way and the cultural incompatibility of an acquired management team with us. Any of these factors could adversely affect our results of operations.

We have a significant amount of debt which could adversely affect our financial health.

        As of September 30, 2004, we had $1,039.4 million of indebtedness. 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



•

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. We cannot assure you that our business will generate sufficient cash flow from operations, that currently anticipated revenue growth and operating improvements will be realized or that future borrowings will 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. We cannot assure you that we will be able to accomplish those actions on satisfactory terms, if at all.

Restrictive covenants in our debt instruments may adversely affect us.

        Our debt instruments contain various covenants that limit our ability to engage in certain transactions. The senior credit facility and the indenture governing secured notes issued by our subsidiary, Mueller Group, 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. Our ability to satisfy those financial ratios, tests or covenants can be affected by events beyond our control, and we cannot assure you that we will meet those tests. A breach of any of these covenants could result in a default under our debt instruments. As previously announced, we have been delayed in filing with the SEC our (and Mueller Group's) annual report on Form 10-K for our fiscal year ended September 30, 2004 and our (and Mueller Group's) quarterly report on Form 10-Q for our fiscal quarter ended January 1, 2005. Although we obtained a waiver under the senior credit facility allowing us to file these reports by March 31, 2005 and with respect to our restatement of prior period financial statements, there can be no assurance that similar waivers will be available in the future. We have not received a similar waiver under the indentures. 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

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our senior discount notes and of Mueller Group's senior and senior subordinated notes would be able to declare these notes immediately due and payable and the lenders under Mueller Group's senior credit facility would be able to declare an event of default. Upon the occurrence of an event of default under our senior credit facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and 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 the senior credit facility and the secured notes. We have pledged substantially all of our assets, other than the assets of our foreign subsidiaries, as security under our senior credit facility and secured notes. If the lenders under the senior credit facility or noteholders of the notes accelerate the repayment of borrowings, we cannot assure you that we will have sufficient assets to repay our senior credit facility and our other indebtedness.

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 Mueller Group's secured notes and subordinated notes and the senior credit facility significantly restrict Mueller Group and its subsidiaries from paying dividends and otherwise transferring assets to us. Furthermore, our subsidiaries are permitted under the terms of the senior credit facility 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 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.

Our business may be adversely impacted 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 September 30, 2004, about 73% 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. Two of our union contracts, both of which expire in April 2005, are currently being negotiated and all of our significant labor agreements will expire at various times through March 2009, at which time they must be renegotiated. Work stoppages for an extended period of time could have a material adverse effect on 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 have a material adverse effect on our business. In addition, the freight companies who deliver our products to our distributors generally use unionized truck drivers, and we could also be adversely affected if our contractors face work stoppages or increased labor costs. For more information about our labor relations, see "—Employees."

We may be subject to product liability claims that could require us to make significant cash 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. We cannot assure you that we will not experience any material product liability losses in the future or that we will not incur significant costs to defend such claims. While we currently have product liability insurance, we cannot assure you that our product liability insurance coverage will be adequate for any liabilities that may ultimately be incurred or that it will continue to be available on terms acceptable to us. A successful claim brought against us in excess of our available insurance coverage or a requirement to participate in a product recall may have a materially adverse effect on our business.

        Under the terms of the August 1999 purchase agreement relating to the acquisition of our business from Tyco in August of 1999, we are indemnified by Tyco for all liabilities arising in connection with

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our business with respect to products manufactured or sold prior to the closing of that transaction. See "Item 3.—Legal Proceedings." The indemnity survives forever and is not subject to any dollar limits. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable to, or otherwise 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. For more information about our potential product liabilities, see "Item 3.—Legal Proceedings."

We may be adversely affected by environmental, health and safety laws and regulations or liabilities.

        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, we cannot assure you that these requirements, in particular as they change in the future, will not have a material adverse effect on our business, profitability and results of operations. In particular, 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 material. See "—Environmental Matters." In addition, 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.

        Under the terms of the August 1999 purchase agreement relating to the acquisition of our business from Tyco and our formation, we are indemnified by Tyco for all environmental liabilities arising in connection with our business and relating to actions occurring or conditions existing prior to the closing of that transaction, including certain asbestos litigation. See "Item 3.—Legal Proceedings." The indemnity survives forever and is not subject to any dollar limits. We however, may be responsible for these liabilities in the event that Tyco ever becomes financially unable to, or otherwise fails to comply with, the terms of the indemnity. In addition, Tyco's indemnity does not cover environmental liabilities to the extent caused by our company or the operation of our business after that transaction, nor does it cover environmental liabilities arising with respect to businesses or sites acquired after August 1999. For more information about our environmental compliance and potential environmental liabilities, see "—Environmental Matters" and "Item 3.—Legal Proceedings."

We depend on key personnel, many of whom do not have employment contracts.

        Our success depends to a significant extent on the continued services of our senior management and other members of management. We could be adversely affected if any of these persons were unwilling or unable to continue in our employ. While we have an employment agreement with Dale Smith, it expires in August 2005 (unless renewed), and, other than our employment agreements with George Bukuras and Darrell Jean, we do not have written employment agreements with other members of our senior management. See "Item 11.—Executive Compensation."

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

        Prior to August 2004, we were a private company that did not file reports with the SEC, and our internal accounting controls do not currently meet all standards applicable to companies with publicly-traded securities. See "Item 9A—Controls and Procedures."

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        We are currently taking additional steps to implement an internal control structure and procedures for financial reporting that would allow us to produce financial statements and related disclosure within the time periods and in the form required under the Exchange Act. In order to comply with these requirements, we have hired and plan to hire additional accounting and finance staff to implement new financial systems and procedures. We cannot assure you that we will be able to hire additional staff or implement appropriate procedures on a timely basis. Failure to hire such staff and implement such procedures could have an adverse effect on us.

Recently enacted and proposed changes in securities laws and regulations are likely to increase our costs.

        The Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the Securities and Exchange Commission and the Public Company Accounting Oversight Board, have required changes in the corporate governance and securities disclosure or compliance practices of public companies. We expect these new rules and regulations to further increase our legal and financial compliance costs and to make legal, accounting and administrative activities more time-consuming and costly. We also expect these new rules and regulations 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 cannot estimate the amount of additional costs we may incur or the timing of such costs.

We are controlled by principal stockholders whose interests may differ from your interests.

        Substantially all of the outstanding shares of our common stock are held by the DLJ Merchant Banking funds. As a result of their stock ownership and our stockholders agreement, the DLJ Merchant Banking funds control us and have the power to elect a majority of our directors, appoint new management and approve any action requiring the approval of the holders of common stock, including adopting amendments to our certificate of incorporation and approving acquisitions or sales of all or substantially all of our assets. The directors elected by the DLJ Merchant Banking funds have the ability to control decisions affecting our capital structure, including the issuance of additional capital stock, the implementation of stock repurchase programs and the declaration of dividends. The interests of our principal stockholders may conflict with your interests. The general partners of the DLJ Merchant Banking funds are affiliates or employees of Credit Suisse First Boston, acting through its Cayman Islands Branch, which is the arranger, administrative agent and a lender under our senior credit facility.

Available Information

        The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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

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Item 2.    Properties

        The following chart describes our principal properties.

Water infrastructure products

Piping systems products

        Our leased properties have terms that expire between November 2005 and February 2009.

        We also operate four leased regional distribution centers in the United States for our piping systems products. See "Item 1.—Business—Distribution." The United States centers are located in University Park, Illinois; Sparks, Nevada; Bristol, Pennsylvania and Grand Prairie, Texas and have lease terms that expire between January 2006 and December 2013. In addition, we operate 24 smaller warehouses throughout the United States and Canada to support our piping systems product operations.

        We consider our plants and equipment to be modern and well-maintained and believe our plants will have sufficient capacity to meet our present and future needs. All of our domestic facilities, leases and leasehold interests are encumbered by liens securing our obligations under the senior credit facility and the Mueller Group secured notes.

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Item 3.    Legal Proceedings

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

        In the Acquisition Agreement pursuant to which the DLJ Merchant Banking funds acquired Mueller in 1999, Tyco agreed to indemnify Mueller Water and its affiliates for all "Excluded Liabilities". Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to the closing of DLJMB's acquisition of Mueller. The indemnity survives indefinitely and is not subject to any deductibles or caps. However, we may be responsible for these liabilities in the event that Tyco ever becomes financially unable to, or otherwise fails to comply with, the terms of the indemnity. In addition, Tyco's indemnity does not cover environmental liabilities to the extent caused by our company or the operation of our business after the acquisition, nor does it cover environmental liabilities arising with respect to businesses or sites acquired after August 1999.

        Our Mueller Co. subsidiary and its subsidiary, James Jones Company, received notice in November 2002 that they may be named defendants in a case under Proposition 65, a California law that, among other things, requires companies doing business in California to avoid discharges of certain chemicals into drinking water. The law permits private parties to bring an action in the public interest against alleged violators, provided that plaintiffs must provide written notice to intended defendants at least 60 days prior to initiating litigation. Mueller Co. and James Jones Company have received the required statutory notice. The plaintiff alleges that the brass valves manufactured by the companies discharge lead into drinking water, in violation of Proposition 65. The plaintiff's current settlement demand would require the companies to cease manufacturing, marketing or distributing brass valves in California that discharge lead above certain threshold limits.

        The Company's subsidiary, James Jones Company, and its former parent company are defendants in a false claims lawsuit in which a former James Jones Company employee is suing on behalf of cities, water districts and municipalities. The employee alleges that the defendants sold allegedly non-conforming public water system parts to various government entities. The lawsuit seeks consequential damages, penalties and punitive damages. The Company's subsidiary, Mueller Co., which had also been named as a defendant, brought a summary judgment motion and was dismissed from this litigation in January 2004. On September 15, 2004, the trial court ruled against the intervention of approximately 30 municipalities that had failed to intervene within the time deadlines previously specified by the Court. The trial court also ruled that the majority of municipalities that had purchased James Jones products from contractors or distributors, were not in privity with the James Jones Company and were not entitled to punitive damages. Following the Court's ruling, the water districts and municipalities filed a new action against the James Jones Company, Mueller Co. and Watts (former parent company of James Jones Company), alleging fraud and intentional misrepresentation. This lawsuit is based on the same underlying facts as the false claims lawsuit. Any liability associated with these lawsuits is covered by the Tyco indemnity, and the defense is being paid for and conducted by Tyco.

        Four of our subsidiaries have been named as defendants in a small number of asbestos-related lawsuits. We do not believe these lawsuits, either individually or in the aggregate, are material to our financial position or results of operations. Any liability associated with these lawsuits is covered by the Tyco indemnity, and the defenses are currently being conducted by Tyco.

        On March 31, 2004, our Anvil International subsidiary entered into a consent order with the Georgia Department of Natural Resources regarding alleged hazardous waste violations at Anvil's former foundry facility in Statesboro, Georgia. Pursuant to the consent order, Anvil has agreed to pay a settlement amount of $100,000, comprised of a $50,000 monetary fine and $50,000 towards a

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supplemental environmental project. Anvil has also agreed to perform various investigatory and remedial actions at the foundry and its landfill. While the ultimate investigatory and remedial costs are currently unknown, based on currently available information the total costs are estimated to be between $0.8 million and $1.0 million.

        Mueller Co. and its wholly owned subsidiary, Mueller International, Inc. (together, "Mueller"), sued a competitor, U.S. Pipe & Foundry Co. ("U.S. Pipe"), for, among other claims, infringement and dilution of Mueller's federally registered and common-law trade dress for fire hydrants. U.S. Pipe responded with counterclaims including claims of intentional interference with its business relations. Mueller succeeded in obtaining a preliminary injunction against U.S. Pipe for infringement of Mueller's federally registered trade dress. The parties entered into a partial settlement whereby U.S. Pipe agreed not to produce the offending fire hydrant or anything confusingly similar, and to dismiss all counterclaims. Mueller, in turn, dismissed its common-law trade dress claims while reserving the right to seek leave to add claims to the case relating to misuse of the Mueller trademark and unfair competition in association with the promotion of U.S. Pipe's new fire hydrant. The trial court denied Mueller's motion to add these claims. Mueller has appealed.

        In November 2003, Beck Manufacturing, a division of Anvil International, closed its manufacturing facility in Kearny, New Jersey and withdrew from the Teamsters Local 11 Pension Fund ("Teamsters" or "Fund"). Anvil has established an accrual of $0.2 million for any withdrawal liability. On July 19, 2004, the Fund Trustees issued notice to Anvil that pursuant to ERISA Sections 4202 and 4219(b)(1), Anvil owed approximately $1.2 million in withdrawal liability to the Fund. On October 5, 2004, Anvil sent notice to the Teamsters contesting the amount of the withdrawal liability. In February 2005, the Teamsters gave notice of their plan to appeal and pursue arbitration under the guidelines set out in the Teamsters Trust Agreement. Anvil intends to vigorously defend its position that a substantially lower withdrawal liability is appropriate.

Item 4.    Submission of Matters to a Vote of Security Holders

        No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended September 30, 2004.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

        There is no established public trading market for the registrant's common equity.

Item 6.    Selected Financial Data

        The following table presents our selected historical and other consolidated financial data for each of the five fiscal years in the period ended September 30, 2004. The selected historical financial data for each of the three fiscal years in the period ended September 30, 2004 was derived from our audited consolidated financial statements appearing elsewhere in this annual report, as restated. The selected historical financial data for the fiscal years 2000 and 2001 were derived from our audited consolidated financial statements not included in this annual report, as restated. Our results of operations include the results for various acquired entities from the date of acquisition. The selected historical consolidated financial data should be read in conjunction with "Item 7.—Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto included elsewhere in this annual report.

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(1)

In connection with the acquisition of Mueller by the DLJ Merchant Banking funds from Tyco in August 1999, we acquired a non-exclusive license to use the Mueller brand name for 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 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 our acquisition from Tyco. We classify the acquired Mueller intellectual property as an indefinite-life asset and therefore record no related amortization expense.

(2)

Facility rationalization 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 and (C) the relocation of certain manufacturing lines to other facilities.

(3)

Interest expense and early repayment costs includes the write off of deferred financing fees of $1.6 million for 2002 and $7.0 million for 2004. 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 and early debt repayment costs also includes interest rate swap (gains)/losses of $23.5 million, ($3.7) million, $(13.3) million, and ($12.5) million for the years ended September 30, 2001, 2002, 2003, and 2004, respectively.

(4)

Working capital equals current assets less current liabilities (excluding restricted cash of $19.0 million, $32.8 million, $11.6 million, zero, and zero in each of the periods ending September 30, 2000, 2001, 2002, 2003 and 2004 and accrued royalties of $30.8 million, $29.1 million, $13.5 million, zero, and zero, in each of the periods ending September 30, 2000, 2001, 2002, 2003 and 2004. 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).

(5)

See Note 2 to our consolidated financial statements for discussion of the restatement for fiscal 2002 and 2003. Fiscal 2001 pre-tax earnings were reduced $1.7 million as a result of the inventory valuation adjustments described in Note 2 (approximately $1.0 million net of tax).

(6)

Cumulative effect of accounting changes, net of tax, include $(2.7) million related to adoption of SAB101 pertaining to revenue recognition and $(6.4) million related to accounting for interest rate swaps.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

        The following discussion should be read in conjunction with our consolidated financial statements, including the notes to those statements, included elsewhere in this annual report. This discussion contains forward-looking statements which involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause those differences include, but are not limited to, those discussed in "Item 1.—Business—Risk Factors."

Overview

        We are a leading North American manufacturer of a broad range of flow control products for use in water distribution, water and wastewater treatment facilities, gas distribution systems and piping systems and maintain a large installed base of products, including approximately three million fire hydrants and eight million iron gate valves in the United States. We were formed in 1999, by the DLJ Merchant Banking funds for the purpose of acquiring our business from Tyco International (U.S.) Inc. and its affiliates. We operate through two business segments: water infrastructure, a leading manufacturer of hydrants, valves and other products for use in water and gas distribution systems; and piping systems, a leading manufacturer of fittings, pipe hangers and other products for use in piping systems applications. Our fiscal year ends September 30.

        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 infrastructure replacement, repair and upgrades, spending on new water infrastructure (which is driven by spending on new residential construction) and non-residential construction. Even though our products are generally sold through distributors to contractors, for most of our water infrastructure products, it is the end-user who either chooses the brand to be used or specifies the qualities that the required product must have, including approvals from industry standard-setting bodies. We believe that, because of our reputation for quality and our large installed base of products, our products are specified more often than those made by our competitors, which provides us with a competitive advantage and helps ensure that our market share will remain strong.

        Since 1999, we have undertaken various cost saving initiatives, including a facility consolidation program and various capital investments in new manufacturing processes. We have recently completed our capital improvement plan. Under this plan, we spent $124.3 million from 2000 to 2002 to: (1) implement new low cost manufacturing technologies, including our lost foam casting process and (2) consolidate certain manufacturing facilities, including our Statesboro foundry. This has improved the efficiency of our manufacturing processes and the quality of many of our products.

        Our water infrastructure segment has benefited from the relatively stable residential construction market in the United States in recent years, as well as new product introductions and, to a lesser extent, acquisitions, partially offset by a slow down in state and local government spending to upgrade, repair and replace water and waste water distribution infrastructure due to budgetary constraints resulting from recent adverse economic conditions. In 2004, our water infrastructure segment experienced strong sales growth driven in part by increased spending by municipalities on water infrastructure replacement, repair and upgrades as a result of the beginning of a general economic recovery and, beginning in the second fiscal quarter of 2004, price increases across all water infrastructure product lines.

        Overall demand for our piping systems products is primarily driven by non-residential construction in the United States and Canada. Our piping systems segment competes in the market for piping component products which are principally used in mechanical applications, such as HVAC systems, and fire protection applications, such as sprinkler systems. We estimate that approximately 70% of our piping systems products are used in mechanical applications and the remainder in fire protection

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systems. Our domestically produced piping systems products have been adversely impacted by increased foreign competition with respect to fire protection products. These products compete primarily on price and are sold at lower prices by foreign manufacturers. Although imported products have been accepted in certain applications, many municipalities, end-users, and contractors require the use of domestically manufactured products in their projects. For example, Pennsylvania requires that all state-funded projects use domestically manufactured steel products. In January 2004, we acquired the business and assets of the construction division of Star Pipe, Inc. (see note 5 to our consolidated financial statements), an importer of threaded and grooved fittings produced in China and India. Our acquisition of Star has allowed us to become a significant participant in the market for lower cost, foreign-produced fire-protection products and grow our overall piping systems products market share. In 2004, our piping systems segment benefited from improvements in economic conditions that have had a positive impact on non-residential construction and from price increases that we began implementing in our second fiscal quarter of 2004. Finally, our piping systems product sales have benefited from acquisitions in recent years.

        In connection with the acquisition of Mueller by the DLJ Merchant Banking funds from Tyco in August 1999, we acquired a non-exclusive license to use the Mueller brand name for a period of two years, with an option to purchase it in September 2001 and to use the Grinnell name for three years. We exercised the option and purchased the Mueller intellectual property in September 2001 and the Grinnell license expired in 2002.

Restatements

        In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and certain questions concerning revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review principally concerning the excess and obsolete (E&O) inventory, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual of reserves for this project without identifying support for such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used. We have also identified some additional annual and interim items recorded in incorrect periods in the course of finalizing the 2004 financial statements. In addition, we determined that the value we assigned to stock compensation in connection with our April 2004 recapitalization should be restated. As a result of these findings, we have restated our financial statements in this annual report on Form 10-K. See Note 2 to our consolidated financial statements.

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Results of Operations

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

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(1)

Segment EBITDA is used to measure performance of our segments and the Company defines it as income (loss) plus income tax expense, interest expense and early debt repayment costs (not net of interest income), depreciation and amortization expense and royalty expenses. This performance measure may not be comparable to segment EBITDA as reported by other companies.

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

(2)

Percentages are by segment, if applicable.

(3)

See Note 2 to our consolidated financial statements for a discussion of the restatement.

        Net Sales.    Net sales for the fiscal year ended September 30, 2004 increased by $126.3 million, or 13.7%, from $922.9 million in 2003 to $1,049.2 million in 2004.

        Water infrastructure net sales for the fiscal year ended September 30, 2004 increased by $82.1 million, or 15.3% from $536.1 million in 2003 to $618.2 million in 2004. 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. The company implemented price increases in February and May of 2004. The Milliken Valve acquisition, completed in January 2003, contributed $3.6 million to the increase in net sales.

        Piping systems net sales for the fiscal year ended September 30, 2004 increased by $44.2 million, or 11.4%, from $386.8 million in 2003 to $431.0 million in 2004. The Star acquisition, completed in January 2004, accounted for $17.0 million of increased sales. The United States non-residential construction market experienced increased activity which has led to increased sales volume offset by softening of power plant construction. In addition, sales price increases contributed significantly to the revenue growth.

        Gross Profit.    Gross profit for the fiscal year ended September 30, 2004 increased $57.4 million, or 23.1%, from $248.4 million in 2003 to $305.8 million in 2004. Gross margin increased from 26.9% to 29.1%.

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        Water infrastructure gross profit for the fiscal year ended September 30, 2004 increased $38.5 million, or 23.4%, from $164.5 million in 2003 to $203.0 million in 2004. Gross margin increased from 30.7% in 2003 to 32.8% in 2004. 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. In addition, the acquisition of Milliken Valve (which contributed $1.2 million), focused efforts to reduce spending, and the strength of the Canadian dollar (relative to the United States dollar) also contributed to the increase in gross profit. This was partially offset by increased raw material costs.

        Piping systems gross profit for the fiscal year ended September 30, 2004 increased $18.9 million, or 22.5% from $83.9 million in 2003 to $102.8 million in 2004. Gross margin increased from 21.7% to 23.9%. The Star acquisition contributed $2.7 million. 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.

        Selling, General & Administrative Expense.    SG&A for the fiscal year ended September 30, 2004 increased $16.2 million, from $154.8 million in 2003 to $171.0 million in 2004. As a percentage of net sales, SG&A decreased to 16.3% in 2004 from 16.8% in 2003.

        Water infrastructure SG&A for the fiscal year ended September 30, 2004 was $60.6 million, or a 21.9% increase from $49.7 million for the fiscal year ended September 30, 2003. As a percentage of net sales, SG&A increased from 9.3% in 2003 to 9.8% in 2004. This increase in SG&A expense as a percentage of net sales was driven in part by the Milliken acquisition, which contributed $0.7 million of new expense. The SG&A expense increase was driven by a $1.9 million increase in amortization expense related to intangibles acquired in 2003 and 2004. Improved operating performance resulted in higher sales commission and other compensation costs, including incentive compensation. 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 also contributed to an increase in SG&A.

        Piping systems SG&A for the fiscal year ended September 30, 2004 increased $5.6 million, or 8.1%, from $69.4 million in 2003 to $75.0 million in 2004. As a percentage of net sales, SG&A decreased from 17.9 in 2003 to 17.4% in 2004. The Star acquisition added $4.0 million of new expense. The remaining increase was driven by increased compensation expense and sales and warehousing costs associated with higher sales. These increases were offset by continued cost reductions and facility rationalization related to our United States distribution network, and a decrease in severance costs paid as part of our facility rationalization.

        Corporate expenses for the fiscal year ended September 30, 2004 were $35.4 million as compared to $35.7 million in 2003, a decrease of $0.3 million as a result of fees that were incurred in 2003 related to potential acquisition and dispositions that were not completed. No similar costs were incurred in 2004.

        Stock Compensation Expense.    Corporate stock compensation expense for the fiscal year ended September 30, 2004 was $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.

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

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        Interest Expense and Early Debt Repayment Costs.    Interest expense and early debt repayment costs for the fiscal year ended September 30, 2004 were $64.1 million, or a 76.1% increase from $36.4 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 and early repayment costs for the fiscal year ending September 30, 2004 increased relative to the prior period due to a $7.0 million prepayment premium and a $0.4 million write-off of deferred financing fees, partially offset by a $6.2 million reduction in interest expense as a result of such redemption. Second, in April 2004, we refinanced our term debt and issued $415 million of new notes and $110 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 and early repayment costs 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 and early repayment costs due to lower interest rates.

        Income Tax Expense.    Income tax expense for the fiscal year ended September 30, 2004 was $16.0 million as compared to $22.9 million in 2003. The effective tax rate, excluding 2004 discrete items having a benefit totaling $4.6 million, was 42.0% in 2004, as compared to 41.1% in 2003. This increase was driven primarily by the nondeductible portion of the interest expense related to the senior discount notes issued in the third quarter. Discrete 2004 events which included the conclusion of the federal tax examination, the conclusion of certain state tax examinations and expiration of certain state statutes of limitation allowed the Company to adjust tax accruals by approximately $6.4 million. The additional financing related to the Company's April 2004 recapitalization is expected to inhibit the Company's ability to realize deferred tax assets related to Foreign Tax Credits. Accordingly, the Company took a $1.8 million write-off against these deferred tax assets.

        Segment EBITDA.    Water infrastructure EBITDA for the fiscal year ended September 30, 2004 was $166.4 million, a $28.3 million, or 20.5%, increase over the $138.1 million of EBITDA reported for the fiscal year ended September 30, 2003. This increase was primarily driven by increased sales volumes and selling prices, favorable leverage of fixed overhead costs due to higher production volumes, the strength of the Canadian dollar relative to the United States dollar and the acquisition of Milliken Valve (contributing $0.5 million). These increases were partially offset by higher raw material prices (brass ingot and steel scrap) and selling, general administrative expenses as described in the water infrastructure products segment SG&A section above.

        Piping systems EBITDA increased $13.8 million to $44.2 million for the fiscal year ended September 30, 2004. This is a 47.4% increase over the $30.4 million of EBITDA for 2003. This increase was primarily driven by increased selling prices beginning in the second quarter of fiscal 2004, the strength of the Canadian dollar relative to the United States dollar, and the acquisition of Star. These increases were partially offset by rising raw material prices.

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Fiscal Year Ended September 30, 2003 As Compared to Fiscal Year Ended September 30, 2002

(1)

Segment EBITDA is used to measure performance of our segments and the Company defines it as net income (loss) plus income tax expense, interest expense and early repayment costs (not net of interest income), depreciation and amortization expense and royalty expenses. This performance measure may not be comparable to segment EBITDA as reported by other companies.

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

(2)

Percentages are by segment, if applicable.

(3)

See Note 2 to our consolidated financial statements for a discussion of the restatement.

        Net Sales.    Net sales for the year ended September 30, 2003 increased by $21.0 million, or 2.3%, from $901.9 million in 2002 to $922.9 million in 2003.

        Water infrastructure net sales for the year ended September 30, 2003 increased by $26.7 million, or 5.2%, from $509.4 million in 2002 to $536.1 million in 2003. Excluding the impact of our acquisitions of Milliken (January 2003) and Hydro Gate (December 2001), which contributed an additional $7.1 million and $2.0 million, respectively, to water infrastructure net sales for the year ended September 30, 2003, water infrastructure net sales increased by $19.8 million or 3.9%. The market demand for water infrastructure products was primarily driven by sales volume growth, including an increase for water valve products and to a lesser extent, fire hydrants and iron body valves, reflecting the continued strength of the U.S. residential construction market and the construction of water and wastewater treatment facilities in the United States. This increase was partially offset by a decrease in net sales of castings (e.g., manhole covers) due, in part, to volume declines in the Canadian market as a result of our decision not to participate in market price cuts.

        Piping systems net sales for the year ended September 30, 2003 decreased by $5.7 million, or 1.5%, from $392.5 million in 2002 to $386.8 million in 2003. Decreases in piping systems net sales were primarily driven by weakness in the U.S. non-residential construction market. In addition, competition from foreign producers maintained price pressure on purchased products. The decline in net sales was partially offset by improved sales in Canada of $6.3 million due to the strength of the Canadian dollar relative to the U.S. dollar and the strength in the Canadian non-residential construction market and improved sales in Europe of $2.2 million as a result of an increase in sales of our Gruvlock products to Tyco.

        Gross Profit.    Gross profit for the year ended September 30, 2003 increased $18.6 million, from $229.8 million in 2002 to $248.4 million in 2003. Gross margin increased from 25.5% to 26.9%.

        Water infrastructure gross profit for the year ended September 30, 2003 increased $9.1 million, from $155.4 million in 2002 to $164.5 million in 2003. Gross margin increased slightly from 30.5% in 2002 to 30.7% in 2003. The increase in gross profit was driven, in part, by the acquisition of Milliken and a full year of ownership of Hydro Gate, which together contributed a total of $1.6 million to the increase in gross profit for the year ended September 30, 2003. Excluding the impact of the Milliken and Hydro Gate acquisitions, gross profit increased $8.1 million and was impacted by increased sales volumes and the effects of cost reductions related to the fully integrated "no-bake" casting line at our Chattanooga facility and improvements at our Hersey Meters facilities that improved production volumes efficiencies. The improvement in gross profit was partially offset by general inflationary pressures including a $3.5 million increase in pension and insurance costs.

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        Piping systems gross profit for the year ended September 30, 2003 increased $9.5 million, from $74.4 million in 2002 to $83.9 million in 2003. Gross margin increased 2.7% from 19% to 21.7%. The increase in our 2003 gross profit was primarily driven by a $13.5 million decrease in royalty payments due to the termination at the end of 2002 of the royalty payment obligation to Tyco for the Grinnell product name and cost reductions associated with certain facility rationalization projects, including plant closings and other restructuring events, which occurred in 2002. The impact of a stronger Canadian dollar and strength in the Canadian non-residential construction market also contributed to the increase. The increase in gross profit was partially offset by increased costs of steel scrap and pipe as a result of tariffs on imported steel and supplier consolidation which reduced capacity and increased worldwide steel demand, lower prices for piping systems products due to competitive pressures, including pressures from foreign producers, and sales volume decreases due to lower U.S. non-residential construction.

        Selling, General & Administrative Expense.    SG&A for the year ended September 30, 2003 increased $9.1 million, from $145.7 million in 2002 to $154.8 million in 2003. As a percentage of net sales, SG&A increased from 16.2% in 2002 to 16.8% in 2003.

        Water infrastructure SG&A for the year ended September 30, 2003 increased $2.7 million, from $47.0 million in 2002 to $49.7 million in 2003. As a percentage of net sales, SG&A increased from 9.2% in 2002 to 9.3% in 2003. This increase in SG&A expense as a percentage of net sales was driven in part by the Milliken and Hydro Gate acquisitions, which contributed $1.6 million and $0.3 million to SG&A, respectively, in 2003. Excluding the impact of the Milliken and Hydro Gate acquisitions, SG&A expense increased $1.8 million, primarily as result of an increase in legal, accounting and consulting fees and an increase in insurance premiums and employee benefit costs.

        Piping systems SG&A for the year ended September 30, 2003 increased $3.9 million, or 6.0%, from $65.5 million in 2002 to $69.4 million in 2003. As a percentage of net sales, SG&A increased from 16.7% in 2002 to 17.9% in 2003. This increase in SG&A expense was driven by a number of factors, including a $1.4 million fluctuation in bad debt expense as a result of a large bad debt recovery in 2002 and the bankruptcy of a customer in 2003, an increase in Canadian distribution costs as a result of fluctuations in the value of the Canadian dollar relative to the U.S. dollar, increased legal and consulting fees and increased insurance rates and employee benefits costs. These increases were offset, in part, by cost reductions in our piping systems U.S. distribution network.

        Corporate expenses for the year ended September 30, 2003 were $35.7 million as compared to $33.2 million in 2002, an increase of $2.5 million primarily due to fees incurred in connection with potential acquisitions and dispositions that were not completed.

        Facility Rationalization and Related Costs.    Water infrastructure facility rationalization costs decreased $0.5 million in 2003 as compared to 2002, reflecting lower asset impairment charges and the completion of its implementation of lost foam production technology. Piping systems facility rationalization costs also decreased $0.5 million in 2003 as compared to 2002, reflecting lower facility consolidation and cost reduction activity.

        Interest Expense and Early Debt Repayment Costs.    Interest expense and early debt repayment costs for 2003 was $36.4 million, or a 39.5% decrease from $60.2 million for 2002. During 2002, we refinanced $530.0 million of term loans under our senior credit facility. This resulted in a $12.2 million decrease in interest expense due to lower interest rates and a $1.6 million write off of deferred financing fees charged to interest expense and early debt repayment costs in 2002. There was a $9.6 million decline in interest expense and early debt repayment costs due to changes in the mark-to-market valuation of our interest rate swaps related to the term debt. Additionally, there was a $1.0 million decrease in interest expense and early debt repayment costs related to a decline in use of our revolving credit facility.

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        Income Tax Expense.    Income tax expense for the fiscal year ended September 30, 2003 was $22.9 million as compared to $10.1 million in 2002. The effective tax rate in 2003 was 41.1% as compared to 45.1% in 2002. This change was driven primarily by tax accrual adjustments recorded in 2002 upon finalization of the 2001 tax return filings.

        Segment EBITDA.    Water infrastructure EBITDA for the year ended September 30, 2003 was $138.1 million, a $12.2 million increase over the $125.9 million of EBITDA reported for the year ended September 30, 2002. Excluding the impact of the Milliken acquisition and ownership of Hydro Gate for a full year, EBITDA would have increased $11.1 million or 9.6%, while EBITDA margin would have remained constant. The increase in water infrastructure EBITDA was primarily driven by increased sales volumes due to the continued strength in the U.S. residential construction market and the construction of water and waste water treatment facilities in the United States.

        Piping systems EBITDA for the year ended September 30, 2003 was $30.4 million, a $6.8 million decrease from the $37.2 million of EBITDA reported for the year ended September 30, 2002. The decrease was primarily driven by volume decline, cost increases and increased SG&A expenses experienced by our piping systems products segment as described above.

Liquidity and Capital Resources

        We are a holding company and have no direct material operations. Our only material asset is our ownership of our operating entity, Mueller Group, Inc., and our only material liabilities are the senior discount notes described below, our guarantee of the senior credit facility and our potential obligation to repurchase Dale Smith's equity. See "Item 11.—Executive Compensation—Employee Agreements and Compensation Arrangements—Dale Smith" and note 9 to our Consolidated Financial Statements. Our principal source of liquidity has been and is expected to be dividends from Mueller Group and financings activities, and our principal use of cash will be for debt service beginning in 2009.

        The senior credit facility, secured notes and subordinated notes described below are obligations of Mueller Group and impose limitations on its ability to pay dividends to us. For example, the secured notes and subordinated notes limit the amount of "restricted payments," including dividends, that Mueller Group can make. Generally, under these notes Mueller Group can pay dividends only if its fixed charge coverage ratio (as defined) is 2.5 to 1 or better and only from an amount equal to 50% of its cumulative net income (as defined) since January 1, 2004. However, regardless of these restrictions, Mueller Group can pay dividends under these notes of up to $0.5 million per year to fund payments under the financial advisory agreement described in "Item 13.—Certain Relationships and Related Party Transactions", 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. The senior credit facility generally prohibits "restricted payments", including dividends, by Mueller Group, subject to specific exceptions, including payments for overhead expenses (including advisory fees to DLJ Merchant Banking II, Inc. under the financial advisory agreement), taxes, the repurchase or redemption of our capital stock held by employees of Mueller Group (subject to certain conditions and limitations), dividends to fund mandatory payments of interest under certain debt issued by us (so long as there is no default or event of default) and dividends to fund repurchases or repayments of debt (subject to certain limitations and there being no default or event of default). 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 instruments 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 senior credit facility. Its principal uses of cash will be debt service

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requirements as described below, capital expenditures, working capital requirements, dividends to us to finance our cash needs and possible acquisitions.

Debt Service

        As of September 30, 2004, we had: (a) total consolidated indebtedness of approximately $1,039.4 million; and (b) approximately $56.6 million of borrowings available under the revolving credit facility, subject to customary conditions. As of September 30, 2004, Mueller Group had obtained $23.4 million in letters of credit under the senior credit facility, 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. See "Item 1.—Business—Risk Factors." 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 September 30, 2004 related to a leverage ratio, as defined in the senior credit facility, which required approximately $149.9 million of EBITDA over the trailing twelve months, based on net debt outstanding at September 30, 2004. EBITDA, as defined in the senior credit facility, exceeded $200.0 million over the trailing twelve months.

        Senior Credit Facility.    The senior credit facility includes an amortizing term loan maturing April 23, 2011 in the initial aggregate principal amount of $545.0 million ($30.0 million of which has since been repaid) and a $80.0 million revolving credit facility that will terminate April 23, 2009. The revolving credit facility and/or the term loan facility is subject to a potential, although uncommitted, increase of up to an aggregate of $50.0 million at our request at any time prior to maturity. In addition, although uncommitted, a sub-facility may be made available to one or more of our restricted foreign subsidiaries in an aggregate principal amount of up to $30.0 million or the foreign currency equivalent thereof. This increase and the additional foreign currency sub-facility will only be available if one or more financial institutions agree to provide them.

        Borrowings under the senior credit facility bear interest based on a margin over, at Mueller Group's option, the base rate or the reserve-adjusted London-interbank offered rate, or LIBOR. The applicable margin is 2.75% over LIBOR and 1.50% over the base rate for term loans. The applicable margin under the revolving senior credit facility is a range of 2.25% to 3.25% over LIBOR and a range of 1.00% to 2.00% over the base rate, depending on our ratio of consolidated debt to EBITDA as defined in the senior credit facility. At September 30, 2004 the applicable margin on the revolving senior credit facility was 3.25% over LIBOR and 2.00% over the base rate. Mueller Group's obligations under the senior credit facility are guaranteed by us and all Mueller Group's existing and future domestic restricted subsidiaries and are secured by substantially all of the assets of Mueller Group and the subsidiary guarantors, including a pledge of the capital stock of all our existing and future domestic subsidiaries, a pledge of no more than 65.0% of the voting stock of any foreign subsidiary, a pledge of all intercompany indebtedness in favor of Mueller Group and Mueller Group's domestic restricted subsidiaries, and a pledge of Mueller Group's capital stock by us. The senior credit facility contains customary covenants, including covenants that limit Mueller Group's ability to incur debt and liens, pay dividends and make investments and capital expenditures, and events of default.

        Senior Discount Notes.    On April 29, 2004, we issued $223 million principal amount of 14³/4% senior discount notes that will mature in 2014 together with warrants to purchase 24,487,383 shares of our 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.

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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) is at least 2.1 to 1, and the maximum amount we may pay cannot exceed 50% of our cumulative net income (as defined) since January 1, 2004, subject to specified exceptions.

        Together with the issuance of the senior discount notes, we issued 223,000 warrants to purchase 24,487,383 shares of Class A common stock at $0.01 per share. Upon the exercise of the warrants, we will receive $0.2 million in cash. The exercise of all warrants would result in an 11% increase in the number of shares of outstanding common stock.

        Secured Notes.    On April 23, 2004, Mueller Group issued $100 million principal amount of second priority senior secured floating rate notes that will mature in 2011 and that are guaranteed by each of Mueller Group's existing domestic restricted subsidiaries and secured by second priority liens on the assets securing Mueller Group's senior credit facility (other than certain subsidiary stock). Interest on the secured notes is payable quarterly in cash at a rate equal to three-month LIBOR plus 4.75%. The secured notes contain customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments and also include a maintenance covenant limiting Mueller Group's senior total leverage as a multiple of EBITDA, as defined in the indenture.

        Subordinated Notes.    On April 23, 2004, Mueller Group also issued $315 million principal amount of 10% senior subordinated notes that will mature in 2012 and that are guaranteed by each of Mueller Group's existing domestic restricted subsidiaries. Interest on the subordinated notes is payable semi-annually in cash. The 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.

        The indenture governing our senior discount notes requires that we file our annual and quarterly reports with the SEC on a timely basis, and Mueller Group's credit facility and indentures impose similar requirements on it. As a result of the internal investigation and restatement described elsewhere in this annual report, this annual report and Mueller Group's annual report for the 2004 fiscal year are being filed on an untimely basis and our and Mueller Group's quarterly reports for the first quarter of fiscal 2005 are similarly being filed on an untimely basis. Such failure to file on a timely basis constitutes default under each of the indentures. If the defaults under the Company's and Mueller Group's indentures were not remedied after delivery of notice of default and a lapse of the relevant 60-day grace period, the holders of the Company's and Mueller Group's notes would be able to declare the notes immediately due and payable, and the lenders of Mueller Group's senior credit facility would be able to declare the loans immediately due. No notice of default has been delivered under the indentures. Mueller Group has obtained a waiver from the lenders under the credit facility permitting these annual and quarterly reports to be filed by March 31, 2005. Upon filing of this report and our 10-Q for the first quarter of fiscal 2005 and filing of similar reports by Mueller Group, we will have remedied the defaults under all these debt instruments.

Capital Expenditures

        We anticipate that we will invest approximately $20.0 million to $30.0 million on capital expenditures in 2005. The senior credit facility restricts capital expenditures. Based on current estimates, management believes that the amount of capital expenditures permitted to be made under the senior credit facility 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 totaled $378.0 million at September 30, 2004. Management believes that we will continue to require working capital consistent with past experience. Our working capital increased in

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2002, as we built inventory in anticipation of potential disruptions associated with the shutdown of our Statesboro foundry and has remained at such higher levels.

Sources of Funds

        We anticipate that our operating cash flow, together with borrowings under the senior credit facility, 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 "Item 1.—Business—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.

    Historical

        Historically, our financing requirements have been funded primarily through cash generated by operating activities and borrowings under our revolving credit facility. From time to time, we have also raised additional funds through term debt offerings.

        Cash flows from operating activities.    Net cash provided by operations was $84.2 million for 2004, an increase of $19.0 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. Net cash provided by operations was $65.2 million in 2003, an improvement of $17.6 million from 2002. This was primarily the result of an improvement in earnings before depreciation, amortization and non-cash charges.

        Cash flows used in investing activities.    In 2004 we had net cash used in investing activities of $40.7 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. Net cash used in investing activities declined $19.7 million to $19.6 million for 2003, from $39.3 million for 2002. This decline was principally due to decreased acquisition activity and a reduction in capital expenditures.

        Cash flows from financing activities.    Cash flows used in financing activities increased from $5.5 million in 2003 to $63.6 million in 2004. Excluding the effects of the aforementioned April 2004 recapitalization, this was primarily due to early payment of $50 million of subordinated notes due 2009 and $30.0 million of early payments on our senior credit facility term debt in August 2004. In 2003, we used $5.5 million in financing activities, primarily amortization of the term loan under our senior credit facility. In 2002, we used $12.5 million of net cash in financing activities, primarily in debt repayments and fees paid to the lenders in connection with the amendment of the senior credit facility in June 2002.

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

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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 "Item 7A.—Qualitative and Quantitative Disclosure About Market Risk—Interest Rate Risk and—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 contractual obligations. As of September 30, 2004, we had $23.4 million of letters of credit and $11.7 million of surety bonds outstanding.

Contractual Obligations

        Our contractual obligations as of September 30, 2004 are set forth below:

Payments Due by Period

(1)

Amount shown reflects face value of the debt, excluding unamortized bond discount. Accretion on the senior discount notes is included in interest on long-term debt.

(2)

Interest on Mueller Group's senior credit facility and secured notes is calculated using LIBOR of 1.84% and 1.69%, respectively, the rates applicable under these debt instruments as of September 30, 2004. Each increase or decrease in LIBOR of 0.125% would result in an increase or decrease in annual interest on the senior credit facility and secured notes of $0.8 million. Because the interest rate under the senior credit facility and secured notes will be variable, actual payments may differ. Interest does not include payments that could be required under Mueller Group's interest-rate swap agreements, which payments will depend upon movements in interest rates and could vary significantly. The payments due on the existing interest rate swaps expiring in May and July 2005 are estimated to be approximately $5.7 million.

(3)

Includes contractual obligations for purchases of raw materials, purchased components and capital expenditures.

(4)

Excludes the deferred payment portion of the purchase price for Star. 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 million, we estimate that the total deferred payment will be approximately $3.0 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. No deferred payment was earned for the year ended September 30, 2004.

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Effect of Inflation; Seasonality

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

        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.

Critical Accounting Policies

        Our significant accounting policies are described in note 4 to our consolidated financial statements included elsewhere in this annual report. 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 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. The liabilities and annual income or expense of our plans is determined using methodologies that involve several actuarial assumptions, the most significant of which are the discount rate and the long-term rate of asset return.

        In developing the expected long-term rate of return assumption for pension fund assets, we evaluated input from our actuaries, including their review of asset class return expectations as well as long-term inflation assumptions. Projected returns are based on historical returns of broad equity and bond indices. We also considered our historical 10-year compound returns. We anticipate that, as the economy recovers, our investment managers will continue to generate a weighted long-term average rate of return of 7.9%. Our expected long-term rate of return is based on a target asset allocation of 60% equities and 40% fixed-income.

        The discount rate that we utilize for determining future pension obligations is based on a review of long-term bonds that receive one of the two highest ratings given by a recognized rating agency. The discount rate determined on this basis as of September 30, 2004 is 5.8%, down from 6.0% as of September 30, 2003.

        Lowering the expected long-term rate of return by 0.5% (from 7.9% to 7.4%) would have increased our pension expense for the year ended September 30, 2004 by approximately $0.3 million. Lowering the discount rate assumptions by 0.5% would have increased our pension expense for the year ended September 30, 2004 by approximately $0.4 million.

    Revenue Recognition

        Revenue from the sale of products is recognized generally upon receipt of products by the customer and where there is persuasive evidence of a sales arrangement, selling prices are fixed and determinable and collectibility from the customer is reasonably assured. 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.

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        Our estimate for uncollectible accounts receivable is based upon an 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. We maintain a reserve for potential losses on the disposal of our obsolete and slow moving inventory based on regular analysis of our historical usage levels. If our evaluation is understated, we could be required to take larger reserves.

    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 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.

    Impairment of Long-Lived Assets

        We evaluate our long-lived assets, including intangible assets, for impairments whenever events or changes in circumstances indicate that the carrying amounts of these assets may not be recoverable, and, in any event, at least annually. We consider the carrying value of a long-lived asset to have been impaired if the anticipated undiscounted cash flows from such an asset is less than its carrying value. If our operating performance declines significantly, we may need to record impairment charges to reduce the carrying value of our long-lived assets. Effective October 1, 2001, we adopted SFAS No. 142, which requires that goodwill no longer be amortized, but instead be tested for impairment at least annually and also allows indefinite lived intangibles, such as tradenames, to no longer be amortized. SFAS No. 142 also requires recognized intangible assets to be amortized over their respective estimated useful lives and reviewed for impairment. Any recognized intangible asset determined to have an indefinite useful life will not be amortized, but instead tested for impairment in accordance with the standard until its life is determined to no longer be indefinite. Goodwill is tested for impairment at least annually, using both a discounted cash flow method and a market comparable method. As of October 1, 2001, September 30, 2002, 2003 and 2004, no impairment was indicated.

    Stock-Based Compensation

        Currently, we account for our stock-based compensation plan under Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting for Stock Issued to Employees," which requires recognizing compensation costs based upon the intrinsic value of the equity instrument at the grant date. The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based Compensation—Transition and Disclosure", which encourages companies to recognize compensation costs based upon the fair value of the equity

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instrument at the grant date. However, SFAS No. 123 allows companies to continue to apply the provisions of APB No. 25 and make pro forma disclosures assuming a hypothetical fair value application. We have adopted the pro forma disclosure provisions of SFAS No. 148.

        We recognize compensation cost for stock-based compensation arrangements equal to the difference, if any, between the fair value of the stock option and the exercise price at the date of the grant in accordance with the provisions of APB No. 25. All options granted under the Management Incentive Plan were issued at fair value at the date of grant. Fair value is determined by a committee of the board of Mueller Water (or the board of Mueller Water as a whole, if no committee is constituted), which will take into account as appropriate recent sales of shares of Mueller Water's 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 be) deems relevant or appropriate in its discretion.

        We intend to adopt SFAS No. 123(R), "Share-Based Payment" as of July 3, 2005. See "—Recently Issued Accounting Standards."

        Certain of our employees held options in Mueller Water shares. In connection with the April 2004 recapitalization, Mueller Water modified these stock option awards to accelerate vesting upon completion of the recapitalization. A portion of the dividend distribution to Mueller Water was used to make a payment to its employee optionholders of the excess of the per share dividend to Mueller Water's common stockholders over the exercise price of their options, or approximately $12.6 million in the aggregate, and shares were issued and the options were cancelled. The option cancellation resulted in an additional charge of approximately $18.9 million ($12.6 million cash charge and $6.3 million non-cash charge) in the third quarter of 2004. Additionally, Mueller Water recorded a non-cash compensation charge of approximately $2.3 million related to the loan portion of the shares purchased pursuant to the Mueller Water's Direct Investment Program. These charges total $21.2 million.

    Derivative Instruments and Hedging Activities

        We currently use interest rate swaps as required in our senior credit facility 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 and early debt repayment costs 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 SFAS No. 133. All gains or losses since the adoption of SFAS No. 133 associated with interest rate swaps have been included in earnings and not Accumulated Other Comprehensive Income (Loss).

        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 instruments 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 as to which we seek to hedge our 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. As of September 30, 2003, unrealized losses on outstanding forward contracts totaled $15,000, and as of September 30, 2004, there were no outstanding forward contracts, nor were there any unrealized gains or losses.

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Recently Issued Accounting Standards

        In April 2003, the Financial Accounting Standards Board (FASB) issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of this statement did not have any impact on the Company's financial condition or results of operations.

        On December 24, 2003, the FASB issued a revision to Staff Interpretation (FIN) No. 46 (revised 2003), which clarified some of the provisions of the original Interpretation No. 46 "Consolidation of Variable Interest Entities," and exempted certain entities from its requirements. The application of revised FIN 46 is required in financial statements of public entities that have interests in variable interest entities commonly referred to as special-purpose entities for periods ending after December 15, 2003. Application by public entities, other than small business entities, for all other types of entities is required in financial statements for periods ending March 15, 2004. At September 30, 2004 the Company did not have any entities that would be considered variable interest entities.

        On December 23, 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 retains the disclosures required by the original Statement No. 132, which standardized the disclosure requirements for pensions and other postretirement benefits to the extent practicable and required additional information on changes in the benefit obligations and fair values of plan assets. Additional disclosures have been added in response to concerns expressed by users of financial statements. Those disclosures include information describing the types of plan assets, investment strategy, measurement date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. This revised Statement is effective for financial statements with fiscal years ending after December 15, 2003. The Company has provided the additional required disclosure information.

        On December 17, 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 104 (SAB 104), Revenue Recognition, which supercedes SAB 101, Revenue Recognition in Financial Statements. SAB 104's primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superceded as a result of the issuance of Emerging Issues Task Force (EITF) 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's Revenue Recognition in Financial Statements Frequently Asked Questions and Answers issued with SAB 101 that had been codified in SEC Topic 13, Revenue Recognition. The adoption of this bulletin did not have an impact on the Company's financial condition or results of operations.

        In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments With Characteristics of Both Liabilities and Equity." SFAS 150 establishes standards for how a company classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that a company classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). As discussed in Note 10, Mueller Water issued 16% Senior Exchangeable Preferred Stock in connection with the formation of the Company which would be subject to SFAS 150 for the fiscal year beginning October 1, 2004. The preferred stock was redeemed by Mueller Water on April 23, 2004 (see Note 9). Therefore, the adoption of this statement will not have any impact on the Company's financial condition or result of operations.

        In December 2004, the Financial Accounting Standards Board issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) replaces SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees."

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SFAS No. 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. Public companies are required to adopt the new standard using a modified prospective method and may elect to restate prior periods using the modified retrospective method. Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. No change to prior periods presented is permitted under the modified prospective method. Under the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the exact pro forma amounts disclosed in the companies' footnotes. Also, in the period of adoption and after, companies record compensation based on the modified prospective method. SFAS No. 123(R) is effective for periods beginning after June 15, 2005. The Company plans to adopt SFAS No. 123(R) as of July 3, 2005, the beginning of its fourth fiscal quarter, and to use the modified prospective method. The adoption of SFAS 123(R) is not expected to have a material impact on the company's financial statements for the year ended September 30, 2005, since there are no options granted or outstanding on September 30, 2004.

        In November 2004, the Financial Accounting Standards Board issued SFAS No. 151, "Inventory Costs." SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify 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. SFAS No. 151 is effective for fiscal years beginning after June 15, 2005. The Company intends to adopt SFAS No. 151 on October 1, 2005, the beginning of its 2006 fiscal year. The adoption of SFAS No. 151 is not expected to have a material impact on the Company's financial statements.

        FASB Staff Position (FSP) No. FAS 109-1 and 109-2 were issued in December 2004, providing guidance on foreign earnings repatriation and qualified production activities of the American Jobs Creation Act (AJCA) that was enacted on October 22, 2004. The AJCA created a temporary incentive for United States multinationals to repatriate accumulated earnings outside the United States by providing an 85 percent dividends received deduction for certain qualifying earnings repatriations in either fiscal 2005 or in fiscal 2006. As of September 30, 2004, the Company has not provided deferred taxes on foreign earnings because any taxes on dividends would be substantially offset by foreign tax credits or because the Company intends to reinvest those earnings indefinitely. Due to the complexity of the repatriation provision, the Company is still evaluating the effects of this provision on its plan for repatriation of foreign earnings and does not expect to be able to complete this evaluation until after Congress or the Treasury Department provides additional guidance clarifying key elements of the provision.

Part 7A.    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 September 30, 2004, we had fixed rate debt of $424.4 million and variable rate debt of $615.0 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 $6.2 million per year.

        We have entered into interest rate swap agreements with a notional principal amount of $100.0 million in order to reduce interest rate risks and manage interest expense. The swap agreements, which mature at various times through July 2005, effectively convert floating rate debt under our senior credit facility into fixed-rate debt and carry an average fixed interest rate of 7.52% at September 30, 2004. We plan to retain these interest rate swaps and intend to replace them upon maturity and 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 senior credit facility requires that at least half of our total long term, non-revolving, debt be fixed for a period beginning no later than January 22, 2005 and ending April 23, 2007. This requirement can be met with any combination of fixed rate debt and rate protection agreements. The Company 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' equity will fluctuate depending upon the weakening or strengthening of the United States dollar against the respective foreign currency.

        Our strategy for management of currency risk relies primarily on conducting our operations in a country's respective currency and may, from time to time, involve currency derivatives, primarily forward foreign exchange contracts, to reduce our exposure to currency fluctuations. As of September 30, 2004, we had no foreign exchange contracts outstanding.

    Raw Materials Risk

        Our products are made from several basic raw materials, including sand, resin, brass ingot, steel pipe, and scrap steel and iron, whose prices fluctuate as market supply and demand change. Accordingly, product margins and the level of profitability can fluctuate if we are not able to pass raw material costs on to our customers. Management estimates that raw materials accounted for 10-15% of our cost of goods sold in 2002 through 2003 and accounted for approximately 15-17% of our cost of goods sold due to increasing raw material prices in 2004. See "Item 1.—Business—Raw Materials" and "Item 1.—Risk Factors—Our results have been, and may continue to be, adversely impacted by increases in raw materials prices." Historically, we have been able to obtain an adequate supply of raw

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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. As of September 30, 2004, we had no open contracts to hedge our exposure to price changes of raw materials.

Item 8.    Financial Statements and Supplementary Data

        The consolidated financial statements and supplementary data of Mueller Water Products, Inc. are filed as part of this annual report beginning on page F-1 and incorporated by reference in this Item 8.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

        None

Item 9A.    Controls and Procedures

        We became subject to the requirements of the Exchange Act and the rules promulgated thereunder on August 10, 2004. Prior to that time, we were a private company. In August 2004, as a result of our becoming subject to SEC reporting requirements, we initiated several steps designed to improve our internal control structure and procedures for financial reporting, including the launch of a new global compliance program under the direction of George Bukuras, our General Counsel, who assumed the position of Chief Compliance Officer, reporting to the Audit Committee, and the creation of a new internal audit function under the direction of a new Director of Internal Audit.

        In August 2004, our management advised our Audit Committee that a deficiency in internal controls had been noted related to unauthorized journal entries found at one of our Anvil facilities totaling $1.1 million made in fiscal 2003 and 2004. Additionally, in August 2004, management advised the Audit Committee of a revision of interim financial statements provided to our note holders under our indenture prior to the filing of our Form 10-Q for the third quarter. We conducted an in-depth investigation of the circumstances underlying the unauthorized journal entries and took appropriate remedial actions.

        In November 2004, our Audit Committee was notified of alleged potential accounting improprieties concerning our accounting for inventory reserves and certain questions concerning revenue recognition. The Audit Committee appointed an independent law firm to investigate the allegations. The report identified several areas requiring financial review by the Company principally concerning the excess and obsolete (E&O) inventory reserve matters discussed below, the capitalization of costs relating to a project that should have been expensed in prior periods, the accrual of reserves for this project without identifying support for such accruals and the timing of recognition of revenue with regard to full truckload shipments that were not immediately dispatched to customers by certain freight carriers used by the Company. The Company also has identified some additional annual and interim out-of-period items in the course of finalizing the 2004 financial statements. In addition, the Company determined that the value it assigned to stock compensation in connection with the April 2004 recapitalization and the $1.1 million of unauthorized journal entries identified in the third quarter of 2004 should be revised. As a result of these findings, the Company has restated its previously issued annual financial statements for 2002 and 2003, as well as for interim periods in 2003 and the nine-months ended June 26, 2004, included in this annual report on Form 10-K.

        The investigation report did not identify any fraud or intentional misconduct by the Company or any of its employees. However, the report identified: deficiencies in the Company's internal controls; a failure to establish, document or properly train personnel with respect to certain accounting policies; a lack of understanding and proper application of certain accounting policies by Company personnel; a lack of sufficient technical expertise and understanding of SEC and accounting rules by financial reporting personnel; an approach by personnel at the Company's Henry Pratt Company subsidiary to

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establishing E&O inventory reserves that was at least negligent; and a failure by the Company's senior financial management to exercise proper diligence over and supervise the Henry Pratt E&O matters, including a lack of appreciation of the impact of such issues on management certifications and management representation letters (or the significance of such certifications and letters) or the need to promptly inform the Company's independent registered public accounting firm of such issues. In connection with the audit of our fiscal 2004 results and as a result of the investigation, we have concluded that the aforementioned matters represent reportable conditions (as defined in AU 325, "Communication of Internal Control Related Matters Noted In An Audit", of the AICPA professional standards) that collectively constitute a material weakness in our internal control over financial reporting. These reportable conditions include:

•

lack of personnel with experience in reporting and control procedures for SEC registrants;



•

lack of sufficient controls in place to prevent or detect on a timely basis unauthorized journal entries;



•

need for improvement of controls over information technology data conversion and program changes;



•

need for improvement over the development and communication of income tax provisions;



•

need to establish more effective controls surrounding "whistleblower" hotline complaints and internal certifications so that issues are communicated on a more timely basis by management to the audit committee and the independent registered public accounting firm;



•

need for improvement of controls relating to revenue recognition associated with full truckload shipments not immediately dispatched by freight carriers; and



•

need to establish more formal controls and procedures regarding assessment of financial exposures and transactions, including consideration of accounting implications and GAAP treatment.

        Our board adopted recommendations set forth in the investigative report and, at this time, we are continuing to take steps to improve our disclosure controls and procedures, including our internal control structure and procedures for financial reporting to enhance our ability to produce SEC reports within the time periods and in the form required under the Exchange Act. In order to comply with these requirements, we:

•

reassigned our Chief Financial Officer, appointed an Interim Chief Financial Officer and are in the process of hiring additional accounting and finance staff;



•

have introduced increased training for our existing financial and accounting and other staff;



•

have retained third party consultants with significant SEC financial reporting experience to provide assistance in complying with SEC reporting requirements;



•

have formed a disclosure committee to supervise the preparation of our Exchange Act Reports and other public communications;



•

are in the process of improving our controls over, and developing written policies and procedures that will cover, all of our significant accounting processes, including the making of journal entries, the development and communication of income tax provisions, information data conversion issues and program changes, revenue recognition and assessing financial exposures;



•

intend to improve and centralize our control over our information technology; and



•

continue to implement global compliance initiatives under the direction of our Chief Compliance Officer.

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        In light of the deficiencies identified above, our chief executive officer and interim chief financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended) at September 30, 2004 were not effective. Nonetheless, our chief executive officer and interim chief financial officer believe that the subsequent procedures we performed in connection with our preparation of this annual report, including, in particular, increased review and analysis of transactions, account balances and journal entries in the areas where weaknesses were identified, provide reasonable assurance that the identified deficiencies did not lead to material misstatements in our consolidated financial statements presented in this annual report.

        Except for the matters and the efforts taken and underway as described above, there were no significant changes in our internal controls over financial reporting or other factors that have materially affected or are reasonably likely to materially affect these internal controls over financial reporting as of the end of the period covered by this report.

Item 9B.    Other Information

        None

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PART III

Item 10.    Directors and Executive Officers of the Registrant

        The following table sets forth the name, age and position of each of our executive officers and directors.