UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x                              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2012

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

Commission File Number 001-32892

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MUELLER WATER PRODUCTS, INC.

(Exact name of registrant as specified in its charter)

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

 

1200 Abernathy Road N.E.

Suite 1200

Atlanta, GA 30328

(Address of principal executive offices)

(770) 206-4200

(Registrant's telephone number, including area code)

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. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer     x             Accelerated filer         o  

Non-accelerated filer      o            Smaller reporting company     o 

(Do not check if a smaller reporting company)

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

There were 156,671,616 shares of Series A common stock of the registrant outstanding at April 30, 2012.

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PART I FINANCIAL INFORMATION

Item 1.	Financial Statements

MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31,				September 30,
	2012				2011
	(in millions)
Assets:
Cash and cash equivalents	$	34.3			$	61.0
Receivables, net	151.0				147.4
Inventories	190.8				175.9
Deferred income taxes	20.0				28.7
Other current assets	46.5				43.8
Current assets held for sale	156.6				142.0
Total current assets	599.2				598.8
Property, plant and equipment, net	141.3				145.7
Identifiable intangible assets	587.8				602.4
Other noncurrent assets	26.9				30.4
Noncurrent assets held for sale	—				107.7
Total assets	$	1,355.2			$	1,485.0
Liabilities and stockholders’ equity:
Current portion of long-term debt	$	0.9			$	0.9
Accounts payable	73.4				59.1
Other current liabilities	77.9				77.9
Current liabilities held for sale	45.1				56.9
Total current liabilities	197.3				194.8
Long-term debt	691.6				677.4
Deferred income taxes	136.9				154.2
Other noncurrent liabilities	70.2				79.6
Total liabilities	1,096.0				1,106.0
Commitments and contingencies (Note 12)
Common stock:
Series A common stock: 600,000,000 shares authorized;156,668,730 and 155,793,612 shares outstanding at March 31, 2012 and September 30, 2011, respectively	1.6				1.6
Additional paid-in capital	1,590.6				1,593.2
Accumulated deficit	(1,283.3		)		(1,161.6		)
Accumulated other comprehensive income (loss)	(49.7		)		(54.2		)
Total stockholders’ equity	259.2				379.0
Total liabilities and stockholders’ equity	$	1,355.2			$	1,485.0

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three months ended								Six months ended
	March 31,								March 31,
	2012				2011				2012				2011
	(in millions, except per share amounts)
Net sales	$	251.5			$	235.5			$	466.9			$	448.7
Cost of sales	189.4				177.4				352.0				338.6
Gross profit	62.1				58.1				114.9				110.1
Operating expenses:
Selling, general and administrative	50.6				47.2				97.1				92.2
Restructuring	0.9				1.1				1.3				2.1
Total operating expenses	51.5				48.3				98.4				94.3
Operating income	10.6				9.8				16.5				15.8
Interest expense, net	15.6				16.3				31.2				32.2
Income (loss) before income taxes	(5.0		)		(6.5		)		(14.7		)		(16.4		)
Income tax expense (benefit)	3.9				(1.1		)		0.7				(5.3		)
Income (loss) from continuing operations	(8.9		)		(5.4		)		(15.4		)		(11.1		)
Income (loss) from discontinued operations, net of tax	(100.9		)		(8.3		)		(106.3		)		(14.7		)
Net income (loss)	(109.8		)		(13.7		)		(121.7		)		(25.8		)
Other comprehensive income (loss):
Natural gas hedges	—				—				(0.3		)		—
Income tax effects	—				—				0.1				—
Interest rate swap contracts	1.6				2.0				3.0				3.9
Income tax effects	(0.7		)		(0.8		)		(1.2		)		(1.5		)
Foreign currency translation	1.4				1.5				2.0				3.2
Minimum pension liability	0.6				33.3				1.3				34.4
Income tax effects	(0.2		)		(13.0		)		(0.4		)		(13.4		)
Other	—				—				—				(0.3		)
	2.7				23.0				4.5				26.3
Comprehensive income (loss)	$	(107.1	)		$	9.3			$	(117.2	)		$	0.5
Net income (loss) per basic share:
Continuing operations	$	(0.06	)		(0.04		)		$	(0.10	)		$	(0.07	)
Discontinued operations	(0.64		)		(0.05		)		(0.68		)		(0.10		)
Net income (loss) per basic share	$	(0.70	)		$	(0.09	)		$	(0.78	)		$	(0.17	)
Net income (loss) per diluted share:
Continuing operations	$	(0.06	)		$	(0.04	)		$	(0.10	)		(0.07		)
Discontinued operations	(0.64		)		(0.05		)		(0.68		)		(0.10		)
Net income (loss) per diluted share	$	(0.70	)		$	(0.09	)		$	(0.78	)		$	(0.17	)
Weighted average shares outstanding:
Basic	156.5				155.4				156.2				155.1
Diluted	156.5				155.4				156.2				155.1
Dividends declared per share	$	0.0175			$	0.0175			$	0.0350			$	0.0350

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six months ended
	March 31,
	2012				2011
	(in millions)
Operating activities:
Net income (loss)	$	(121.7	)		$	(25.8	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Loss (income) from discontinued operations, net of tax	106.3				14.7
Income (loss) from continuing operations	(15.4		)		(11.1		)
Depreciation	15.5				17.0
Amortization	14.7				14.5
Stock-based compensation	2.6				3.6
Deferred income taxes	11.4				(7.2		)
Retirement plans	1.8				2.5
Interest rate swap contracts	3.0				3.9
Other, net	1.5				0.2
Changes in assets and liabilities, net of acquisitions:
Receivables	(3.3		)		(4.6		)
Inventories	(14.5		)		1.6
Other assets	1.7				0.7
Liabilities	1.5				(34.5		)
Net cash provided by (used in) operating activities from continuing operations	20.5				(13.4		)
Investing activities:
Capital expenditures	(12.1		)		(10.0		)
Acquisitions	0.5				(7.9		)
Proceeds from sales of assets	3.1				0.9
Net cash provided by (used in) investing activities from continuing operations	(8.5		)		(17.0		)
Financing activities:
Debt borrowings	14.0				0.1
Common stock issued	0.1				0.3
Deferred financing fees paid	—				(0.3		)
Dividends paid	(5.5		)		(5.4		)
Other	(0.4		)		0.2
Net cash provided by (used in) financing activities from continuing operations	8.2				(5.1		)
Net cash flows from discontinued operations:
Operating activities	(44.8		)		(1.8		)
Investing activities	(3.1		)		(4.2		)
Net cash provided by (used in) discontinued operations	(47.9		)		(6.0		)
Effect of currency exchange rate changes on cash	1.0				1.3
Net change in cash and cash equivalents	(26.7		)		(40.2		)
Cash and cash equivalents at beginning of period	61.0				84.0
Cash and cash equivalents at end of period	$	34.3			$	43.8

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED MARCH 31, 2012

(UNAUDITED) 

	Common   stock				Additional paid-in capital				Accumulated deficit				Accumulated other comprehensive income (loss)				Total
	(in millions)
Balance at September 30, 2011	$	1.6			$	1,593.2			$	(1,161.6	)		$	(54.2	)		$	379.0
Net income (loss)	—				—				(121.7		)		—				(121.7		)
Dividends declared	—				(5.5		)		—				—				(5.5		)
Stock-based compensation	—				2.8				—				—				2.8
Stock issued under stock compensation plans	—				0.1				—				—				0.1
Derivative instruments	—				—				—				1.6				1.6
Foreign currency translation	—				—				—				2.0				2.0
Minimum pension liability	—				—				—				0.9				0.9
Balance at March 31, 2012	$	1.6			$	1,590.6			$	(1,283.3	)		$	(49.7	)		$	259.2

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

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MUELLER WATER PRODUCTS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1.	Organization

Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries, operates in two business segments: Mueller Co. and Anvil. Mueller Co. manufactures valves for water and gas systems, including butterfly, iron gate, tapping, check, plug and ball valves, as well as dry-barrel and wet-barrel fire hydrants and a broad range of metering, leak detection and pipe condition assessment products for the water infrastructure industry. Anvil manufactures and sources a broad range of products, including a variety of fittings, couplings, hangers, nipples and related products. The “Company,” “we,” “us” or “our” refer to Mueller Water Products, Inc. and its subsidiaries or their management. With regard to the Company's segments, “we,” “us” or “our” may also refer to the segment being discussed or its management.

On March 7, 2012, we entered into an agreement to sell our U.S Pipe business for a purchase price of $89.8 million in cash, subject to adjustments, and the agreement by the purchaser to reimburse us for expenditures to settle certain previously-existing liabilities estimated at $10.2 million at March 31, 2012. The sale closed April 1, 2012. U.S. Pipe's results of operations have been reclassified as discontinued operations, and its assets and liabilities reclassified as held for sale, for all periods presented.

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which require us to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, sales and expenses and the disclosure of contingent assets and liabilities for the reporting periods. Actual results could differ from those estimates. All significant intercompany balances and transactions have been eliminated. In our opinion, all normal and recurring adjustments that we consider necessary for a fair financial statement presentation have been made. Certain reclassifications have been made to previously reported amounts to conform to the current presentation. The condensed consolidated balance sheet data at September 30, 2011 was derived from audited financial statements, but does not include all disclosures required by GAAP.

Unless the context indicates otherwise, whenever we refer to a particular year, we mean the fiscal year ended or ending September 30 in that particular calendar year.

Note 2.	Acquisition

On December 14, 2010, we acquired Echologics Engineering Inc., a leak detection and pipe condition assessment company headquartered in Toronto, Canada, for $7.9 million in cash, which included $1.5 million placed in escrow related primarily to sale contingencies scheduled to be settled by July 2012. During the quarter ended December 31, 2011, we resolved one of these contingencies in our favor and reduced the purchase price by $0.5 million, which reduced the associated goodwill balance to zero. During the quarter ended March 31, 2012, we released $0.5 million from escrow to the sellers. We have included the operating results of this business in Mueller Co.'s results effective December 14, 2010. The final allocation of the purchase price of the related assets and liabilities is presented below, in millions.

Assets:
Receivables		$	0.3
Inventories		0.1
Other current assets		0.2
Property, plant and equipment		0.1
Identifiable intangible assets		7.3
Liabilities:
Accounts payable and other current liabilities		(0.2		)
Deferred income taxes		(0.4		)
		$	7.4

Identifiable intangible assets consist of trade names and trademarks of $0.6 million that have indefinite useful lives and technology of $6.7 million that has an estimated useful life of 15 years.

Goodwill of $0.5 million was included in other noncurrent assets at September 30, 2011.

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Note 3.	Discontinued Operations and Assets Held for Sale

On March 7, 2012, we entered into an agreement to sell our U.S. Pipe business for a purchase price of $89.8 million in cash, subject to adjustments, and the agreement by the purchaser to reimburse us for expenditures to settle certain previously-existing liabilities estimated at $10.2 million at March 31, 2012. The sale closed April 1, 2012 with cash proceeds of $94.0 million, which is subject to additional adjustments. We concluded that the fair value of noncurrent assets held for sale was zero and recorded an impairment of all noncurrent assets held for sale as part of the loss on the sale of U.S. Pipe.  The loss recognized on the sale of U.S. Pipe is based on the amount of proceeds received from the sale of U.S. Pipe.

The table below presents the components of the balance sheet accounts classified as assets and liabilities held for sale.
	March 31,				September 30,
	2012				2011
	(in millions)
Assets:
Cash	$	—			$	0.2
Receivables, net	82.6				73.4
Inventories	67.4				61.8
Other current assets	6.6				6.6
Total current assets held for sale	$	156.6			$	142.0
Property, plant and equipment, net	$	—			$	98.1
Identifiable intangible assets	—				8.5
Other noncurrent assets	—				1.1
Total noncurrent assets held for sale	$	—			$	107.7
Liabilities:
Accounts payable	$	38.9			$	48.5
Other current liabilities	6.2				8.4
Total current liabilities held for sale	$	45.1			$	56.9

The table below represents a summary of the operating results for the U.S. Pipe discontinued operations. These operating results do not reflect what they would have been had U.S. Pipe not been classified as a discontinued operation.

	Three months ended								Six months ended
	March 31,								March 31,
	2012				2011				2012				2011
	(in millions)
Net sales	$	100.9			$	75.8			$	197.0			$	150.2
Cost of sales	100.8				83.9				197.9				160.7
Gross profit (loss)	0.1				(8.1		)		(0.9		)		(10.5		)
Operating expenses	2.9				8.6				10.7				16.5
Operating income (loss)	(2.8		)		(16.7		)		(11.6		)		(27.0		)
Interest expense	0.2				—				0.3				—
Loss (gain) on sale of discontinued operations	116.5				—				116.5				—
Income tax expense (benefit)	(18.6		)		(8.4		)		(22.1		)		(12.3		)
Income (loss) from discontinued operations, net of tax	$	(100.9	)		$	(8.3	)		$	(106.3	)		$	(14.7	)

Note 4.	Income Taxes

After including the tax effect of the loss on the sale of U.S. Pipe, our net deferred tax credits are insufficient to fully support our deferred tax assets, which include net operating loss carryforwards.  Accordingly, we recorded income tax expense to establish valuation allowances related to deferred tax assets during the quarter ended March 31, 2012. GAAP requires us to allocate a portion of the valuation allowance charge relating to deferred tax assets at September 30, 2011 to continuing operations.  Our net operating loss carryforwards remain available to offset future taxable earnings.

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The components of income tax expense (benefit) are provided below.
	Three months ended												Six months ended
	March 31, 2012												March 31, 2012
	Continuing operations				Discontinued operations				Total				Continuing operations				Discontinued operations				Total
	(in millions)
Benefit from operations	$	(2.0	)		$	(47.1	)		$	(49.1	)		$	(6.2	)		$	(50.6	)		$	(56.8	)
Valuation allowance-related expense	5.9				28.5				34.4				5.9				28.5				34.4
Other discrete items	—				—				—				1.0				—				1.0
Income tax expense (benefit)	$	3.9			$	(18.6	)		$	(14.7	)		$	0.7			$	(22.1	)		$	(21.4	)

At March 31, 2012 and September 30, 2011, the gross liabilities for unrecognized income tax benefits were $5.6 million and $7.8 million, respectively.

We recognize interest related to uncertain income tax positions as interest expense and would recognize any penalties that may be incurred as selling, general and administrative expense. At March 31, 2012 and September 30, 2011, we had $1.3 million and $1.8 million, respectively, of accrued interest expense related to uncertain tax positions.

Generally, our state income tax returns are closed for years prior to 2007 and our Canadian income tax returns are closed for years prior to 2004. We are under audit by the Internal Revenue Service (the "IRS") for the years 2007 through 2010. We are also under audit by several states at various levels of completion. We do not have any material unpaid assessments.

Note 5.	Borrowing Arrangements

The components of long-term debt are presented below.

	March 31,				September 30,
	2012				2011
	(in millions)
ABL Agreement	$	48.0			$	34.0
8.75% Senior Unsecured Notes	221.9				221.7
7.375% Senior Subordinated Notes	420.0				420.0
Other	2.6				2.6
	692.5				678.3
Less current portion	(0.9		)		(0.9		)
Long-term debt	$	691.6			$	677.4

ABL Agreement. At March 31, 2012, our asset based lending agreement (the “ABL Agreement”) consisted of a revolving credit facility for up to $275 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement also permits us to increase the size of the credit facility by an additional $150 million in certain circumstances subject to adequate borrowing base availability. We may borrow up to $25 million through swing line loans and may have up to $60 million of letters of credit outstanding. We estimate the fair value of the borrowings under the ABL Agreement approximates the carrying value.

Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR plus a margin ranging from 275 to 325 basis points, or a base rate, as defined in the ABL Agreement, plus a margin ranging from 175 to 225 basis points. At March 31, 2012, the applicable rates were LIBOR plus 300 basis points and the base rate plus 200 basis points, and the weighted average interest rate was 3.83%, including the margin.

The ABL Agreement terminates in August 2015. We pay a commitment fee of 50 basis points for any unused borrowing capacity and our obligations are secured by a first-priority perfected lien on all of our U.S. receivables and inventories, certain cash and other supporting obligations. Borrowings are not subject to any financial maintenance covenants unless excess availability is less than the greater of $34 million and 12.5% of the aggregate commitments under the ABL Agreement. As measured using March 31, 2012 data, excess availability as reduced by outstanding borrowings, outstanding letters of credit and accrued fees and expenses of $87.1 million was $89.1 million and our additional borrowing capacity was $89.1 million.

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8.75% Senior Unsecured Notes. The 8.75% Senior Unsecured Notes (the “Senior Unsecured Notes”) mature in September 2020 and bear interest at 8.75%, paid semi-annually. Based on quoted market prices, the outstanding Senior Unsecured Notes had a fair value of $254.3 million at March 31, 2012.

We may redeem up to $22.5 million aggregate principal amount of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest once in each year ending September 1, 2012 and 2013. On April 18, 2012, we delivered notice to redeem $22.5 million aggregate principal amount on May 18, 2012. We may also redeem up to $78.8 million aggregate principle amount of the Senior Unsecured Notes at a redemption price of 108.75%, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings prior to September 2013, provided that at least $146.2 million aggregate principle amount remains outstanding immediately after such redemption. After August 2015, we may redeem the Senior Unsecured Notes at specified redemption prices plus accrued and unpaid interest. Upon a Change of Control (as defined in the indenture securing the Senior Unsecured Notes), we are required to offer to purchase the outstanding Senior Unsecured Notes at a purchase price of 101% plus accrued and unpaid interest. The Senior Unsecured Notes are subordinate to borrowings under the ABL Agreement.

The indenture securing the Senior Unsecured Notes contains customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. Substantially all of our U.S. subsidiaries guarantee the Senior Unsecured Notes. We believe we were compliant with these covenants at March 31, 2012 and expect to remain in compliance through March 31, 2013.

7.375% Senior Subordinated Notes. The 7.375% Senior Subordinated Notes (the “Senior Subordinated Notes”) mature in June 2017 and bear interest at 7.375%, paid semi-annually. Based on quoted market prices, the outstanding Senior Subordinated Notes had a fair value of $412.7 million at March 31, 2012.

After May 2012, we may redeem any portion of the Senior Subordinated Notes at specified redemption prices plus accrued and unpaid interest. Upon a Change of Control (as defined in the indenture securing the Senior Subordinated Notes), we are required to offer to purchase the outstanding Senior Subordinated Notes at a purchase price of 101%, plus accrued and unpaid interest. The Senior Subordinated Notes are subordinate to the borrowings under the ABL Agreement and the Senior Unsecured Notes.

The indenture securing the Senior Subordinated Notes contains customary covenants and events of default, including covenants that limit our ability to incur debt, pay dividends and make investments. Substantially all of our U.S. subsidiaries guarantee the Senior Subordinated Notes. We believe we were compliant with these covenants at March 31, 2012 and expect to remain in compliance through March 31, 2013.

Note 6.	Derivative Financial Instruments

Our business operations expose us to commodity price risk, which we managed to some extent using derivative instruments. We entered into natural gas swap contracts to manage the price risk associated with future purchases of natural gas used in certain of U.S. Pipe's manufacturing processes. We have used interest rate swap contracts to manage interest rate risk associated with our variable-rate borrowings in the past, but no such contracts have been outstanding since prior to September 30, 2010.

We designated our natural gas swap contracts and interest rate swap contracts as cash flow hedges of our purchases of natural gas and future interest payments, respectively. As a result, to the extent the hedges are effective, the changes in the fair value of these contracts prior to settlement are reported as a component of other comprehensive loss and reclassified into earnings in the periods during which the hedged transactions affect earnings. Gains and losses on those contracts representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings as they occur.

Our derivative contracts were recorded at fair value using publicly observable data such as market natural gas prices and market interest rates. The fair value of our derivative contract is presented below.

			Fair value
	Balance sheet location		March 31, 2012				September 30, 2011
			(in millions)
Liability derivatives:
Derivatives designated as hedging instruments:
Natural gas swap contracts	Other current liabilities		$	(0.3	)		$	—

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Natural Gas Swap Contracts. Our outstanding natural gas swap contracts at March 31, 2012 and September 30, 2011 are presented below. We terminated these swap contracts in April 2012.

		March 31,			September 30,
Rate benchmark		2012			2011
		(MMBtu)
NYMEX natural gas		191,000			406,000

The effects of our natural gas swap contracts on the consolidated statements of operations are presented below, net of tax.

	Three months ended								Six months ended
	March 31,								March 31,
	2012				2011				2012				2011
	(in millions)
Gain (loss) recognized in other comprehensive income (loss)	$	(0.2	)		$	(0.1	)		$	(0.5	)		$	(0.1	)
Gain reclassified from accumulated other comprehensive income (loss) into income	0.2				0.1				0.2				0.1
Ineffectiveness gain (loss) recognized in income	—				(0.1		)		—				(0.1		)

Interest Rate Swap Contracts. In the quarters ended March 31, 2012 and 2011, we reclassified $1.6 million and $2.0 million, respectively, related to previously terminated interest rate swap contracts to interest expense from accumulated other comprehensive income (loss). In the six months ended March 31, 2012 and 2011, we reclassified $3.0 million and $3.9 million, respectively, related to previously terminated interest rate swap contracts to interest expense from accumulated other comprehensive income (loss). The unamortized portion remaining in accumulated other comprehensive income (loss) was $1.2 million, net of tax, at March 31, 2012, and the pre-tax component is scheduled to be amortized to interest expense through September 30, 2012.

Note 7.	Retirement Plans

The components of net periodic benefit cost (gain) allocated to continuing operations for defined benefit pension plans are as follows.

	Three months ended								Six months ended
	March 31,								March 31,
	2012				2011				2012				2011
	(in millions)
Service cost	$	0.3			$	0.1			$	0.6			$	0.5
Interest cost	2.6				3.8				5.2				5.3
Expected return on plan assets	(2.9		)		(4.2		)		(5.8		)		(5.8		)
Amortization of prior service cost (gain)	0.1				0.1				0.2				0.2
Amortization of net loss (gain)	0.8				0.7				1.6				1.6
Loss due to settlement or curtailment	—				0.7				—				0.7
Net periodic benefit cost (gain)	$	0.9			$	1.2			$	1.8			$	2.5

The amortization of unrecognized prior service cost and of actuarial net losses, net of tax, are recorded as components of accumulated other comprehensive income (loss).

During the six months ended March 31, 2012, we contributed $8.0 million to our defined benefit pension plans. We expect to contribute a total of $20 million to $22 million to our pension plans during 2012.

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The assets of the defined benefit pension plans at March 31, 2012 and September 30, 2011, by level within the fair value hierarchy, are presented below.

	March 31, 2012
	Level 1				Level 2				Level 3				Total
	(in millions)
Equity:
International	$	—			$	11.6			$	—			$	11.6
Large cap growth funds	—				8.4				—				8.4
Large cap value funds	—				38.8				—				38.8
Midcap index funds	—				5.1				—				5.1
Smallcap index funds	—				26.4				—				26.4
Mutual funds	135.8				—								135.8
Total equity	135.8				90.3				—				226.1
Bond funds	—				140.2				—				140.2
Cash	0.2				2.7				—				2.9
Other	—				—				1.5				1.5
Total	$	136.0			$	233.2			$	1.5			$	370.7

	September 30, 2011
	Level 1				Level 2				Level 3				Total
	(in millions)
Equity:
Large cap growth funds	$	—			$	7.5			$	—			$	7.5
Large cap value funds	—				7.3				—				7.3
Midcap index funds	—				2.2				—				2.2
Mutual funds	137.1				—				—				137.1
Total equity	137.1				17.0				—				154.1
Bond funds	—				172.7				—				172.7
Cash	0.2				3.3				—				3.5
Other	—				—				1.5				1.5
Total	$	137.3			$	193.0			$	1.5			$	331.8

Note 8.	Stock-based Compensation Plans

During the quarter ended December 31, 2011, the Company adopted the Mueller Water Products, Inc. Phantom Plan (the "Phantom Plan"). Phantom Plan awards entitle a recipient to a cash payment equal to the number of awards vesting multiplied by the closing price per share of our common stock on the vesting date. Awards generally vest in thirds on successive anniversaries of the grant date. Compensation expense for Phantom Plan awards is charged against income over the vesting period, based on the closing stock price at each balance sheet date until vested. Outstanding Phantom Plan awards had a fair value of $3.33 per instrument and a total fair value of $1.3 million at March 31, 2012.

We recorded stock-based compensation expense of $1.5 million and $2.9 million during the three and six months ended March 31, 2012. At March 31, 2012, there was approximately $5.3 million of unrecognized compensation expense related to stock-based awards.

We recorded net losses in the three and six months ended March 31, 2012 and 2011. Because the effect of including normally dilutive securities in the earnings per share calculation would have been antidilutive, we excluded all stock-based compensation instruments from the calculations of diluted net income (loss) per share.

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We granted equity awards under our Mueller Water Products, Inc. Amended and Restated 2006 Stock Incentive Plan, Mueller Water Products, Inc. 2006 Employee Stock Purchase Plan and Phantom Plan during the six months ended March 31, 2012 as follows.    

	Number of instruments			Weighted average grant date fair value per instrument				Total grant date fair value
	(in millions, except per instrument value)
Quarter ended December 31, 2011:
Restricted stock units	1.2			$	2.04			$	2.4
Non-qualified stock options	0.6			1.23				0.7
Employee stock purchase plan instruments	0.1			1.95				0.3
Phantom Plan awards	0.4			2.03				0.7
Quarter ended March 31, 2012
Restricted stock units	0.1			2.79				0.4
Non-qualified stock options	0.1			1.67				0.1
Employee stock purchase plan instruments	0.1			2.14				0.2
								$	4.8

Note 9.	Accumulated Other Comprehensive Loss

Accumulated other comprehensive income (loss) is presented below.

	March 31,				September 30,
	2012				2011
	(in millions)
Net unrecognized loss on derivatives	$	(1.4	)		$	(3.0	)
Foreign currency translation	8.3				6.3
Minimum pension liability	(56.6		)		(57.5		)
	$	(49.7	)		$	(54.2	)

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Note 10.	Supplemental Balance Sheet Information

Selected supplemental balance sheet information is presented below.

	March 31,				September 30,
	2012				2011
	(in millions)
Inventories:
Raw materials and purchased parts	$	72.1			$	56.2
Work in process	28.3				34.9
Finished goods	90.4				84.8
	$	190.8			$	175.9
Other current assets:
Prepaid income taxes	$	16.1			$	12.6
Maintenance and repair tooling	23.9				24.2
Other	6.5				7.0
	$	46.5			$	43.8
Property, plant and equipment:
Land	$	12.3			$	13.5
Buildings	68.8				70.2
Machinery and equipment	279.6				273.1
Construction in progress	13.7				10.4
	374.4				367.2
Accumulated depreciation and amortization	(233.1		)		(221.5		)
	$	141.3			$	145.7
Other current liabilities:
Compensation and benefits	$	30.1			$	31.6
Customer rebates	10.1				13.2
Interest	12.9				13.0
Taxes other than income taxes	4.3				3.5
Warranty	1.7				2.0
Severance	1.1				1.5
Income taxes	1.8				1.9
Restructuring	1.2				1.4
Environmental	0.6				0.3
Other	14.1				9.5
	$	77.9			$	77.9

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Note 11.	Segment Information

Segment assets consist primarily of receivables, inventories, property, plant and equipment and identifiable intangible assets of continuing operations. Summarized financial information for our segments is presented below.

	Three months ended								Six months ended
	March 31,								March 31,
	2012				2011				2012				2011
	(in millions)								(in millions)
Net sales, excluding intersegment sales:
Mueller Co.	$	154.5			$	148.9			$	282.6			$	278.7
Anvil	97.0				86.6				184.3				170.0
	$	251.5			$	235.5			$	466.9			$	448.7
Intersegment sales:
Mueller Co.	$	2.1			$	2.5			$	3.8			$	4.6
Anvil	—				0.1				—				0.1
	$	2.1			$	2.6			$	3.8			$	4.7
Operating income (loss):
Mueller Co.	$	8.2			$	9.9			$	12.9			$	18.3
Anvil	9.9				6.4				17.6				12.3
Corporate	(7.5		)		(6.5		)		(14.0		)		(14.8		)
	$	10.6			$	9.8			$	16.5			$	15.8
Depreciation and amortization:
Mueller Co.	$	11.6			$	12.2			$	22.8			$	23.9
Anvil	3.5				3.5				7.1				7.2
Corporate	0.1				0.2				0.3				0.4
	$	15.2			$	15.9			$	30.2			$	31.5
Restructuring:
Mueller Co.	$	0.8			$	0.6			$	1.2			$	1.0
Anvil	0.1				0.5				0.2				1.1
Corporate	—				—				(0.1		)		—
	$	0.9			$	1.1			$	1.3			$	2.1
Capital expenditures:
Mueller Co.	$	3.8			$	3.7			$	7.2			$	6.9
Anvil	3.0				1.2				4.9				2.6
Corporate	—				0.1				—				0.5
	$	6.8			$	5.0			$	12.1			$	10.0

Note 12.Commitments and Contingencies

We are involved in various legal proceedings that have arisen in the normal course of operations, including the proceedings summarized below. The effect of the outcome of these matters on our future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. Other than the litigation described below, we do not believe that any of our outstanding litigation would have a material adverse effect on our businesses, operations or prospects.

Environmental. We are subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the operations at many of our properties and with respect to remediating environmental conditions that may exist at our own or other properties. We strive to comply with federal, state and local environmental laws and regulations. We accrue for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and reasonably estimable.

In September 1987, U.S. Pipe implemented an Administrative Consent Order (“ACO”) for its Burlington, New Jersey property, which was required under the New Jersey Environmental Cleanup Responsibility Act (now known as the Industrial Site Recovery Act). We retained this property and did not sell it to the buyer of our U.S. Pipe business when it was sold on

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April 1, 2012 (see Note 3. Discontinued Operations and Assets Held for Sale). The ACO required soil and ground-water cleanup, and U.S. Pipe completed, and received final approval on, the soil cleanup required by the ACO. We expect ground-water issues as well as issues associated with the demolition of former manufacturing facilities at this site will continue and remediation by us could be required. Long-term ground-water monitoring may also be required, but we do not know how long such monitoring would be required and do not believe monitoring or further remediation costs, if any, will have a material adverse effect on our financial condition or results of operations.

On July 13, 2010, Rohcan Investments Limited (“Rohcan”), the former owner of property leased by Mueller Canada Ltd. and located in Milton, Ontario, filed suit against Mueller Canada Ltd. and its directors seeking C$10 million in damages arising from the defendants' alleged environmental contamination of the property and breach of lease. Mueller Canada Ltd. leased the property from 1988 through 2008. We are pursuing indemnification from a former owner for certain potential liabilities that are alleged in this lawsuit, and we have accrued for other liabilities not covered by indemnification.  On December 7, 2011, the Court denied the plaintiff's motion for summary judgment.

In the acquisition agreement pursuant to which a predecessor to Tyco sold our Mueller Co. and Anvil businesses to the prior owners of these businesses in August 1999, Tyco agreed to indemnify us and our affiliates, among other things, for all “Excluded Liabilities.” Excluded Liabilities include, among other things, substantially all liabilities relating to the time prior to August 1999, including environmental liabilities. The indemnity survives indefinitely. Tyco's indemnity does not cover liabilities to the extent caused by us or the operation of our businesses after August 1999, nor does it cover liabilities arising with respect to businesses or sites acquired after August 1999. In June 2007, Tyco was separated into three separate publicly traded companies. In September 2011, Tyco International Ltd., one of the companies that was separated in the June 2007 split, announced it would split into three separate companies. Should Tyco's successors become financially unable or fail to comply with the terms of the indemnity, we may be responsible for such obligations or liabilities.

Walter Energy-related Income Taxes. Each member of a consolidated group for federal income tax purposes is severally liable for the federal income tax liability of each other member of the consolidated group for any year in which it is a member of the group at any time during such year. Each member of the Walter Energy consolidated group, which included us and U.S. Pipe through December 14, 2006, is also jointly and severally liable for pension and benefit funding and termination liabilities of other group members, as well as certain benefit plan taxes. Accordingly, we could be liable under such provisions in the event any such liability is incurred, and not discharged, by any other member of the Walter Energy consolidated group for any period during which we were included in the Walter Energy consolidated group.     The sale of our U.S. Pipe business does not affect our exposure to Walter Energy-related income taxes, and we have no right of indemnification from U.S. Pipe.

A dispute exists with regard to federal income taxes for 1980 through 1994 allegedly owed by the Walter Energy consolidated group, which included U.S. Pipe during these periods. According to Walter Energy's last available public filing on the matter, Walter Energy's management estimated that the amount of tax claimed by the IRS was approximately $34.0 million for issues currently in dispute in bankruptcy court for matters unrelated to us. This amount is subject to interest and penalties. Of the $34.0 million in claimed tax, $21.0 million represents issues in which the IRS is not challenging the deductibility of the particular expense but only whether such expense is deductible in a particular year. Walter Energy's management believes that Walter Energy's financial exposure should be limited to interest and possible penalties and the amount of any tax claimed will be offset by favorable adjustments in other years.

In addition, the IRS previously issued a Notice of Proposed Deficiency assessing additional tax of $82.2 million for the fiscal years ended May 31, 2000 through December 31, 2005. Walter Energy filed a formal protest with the IRS, but had not reached a final resolution with the Appeals Division at March 31, 2012. The unresolved issues relate primarily to Walter Energy's method of recognizing revenue on the sale of homes and related interest on the installment notes receivable. The items at issue relate primarily to the timing of revenue recognition and consequently, should the IRS prevail on its positions, Walter Energy's financial exposure should be limited to interest and penalties. As a matter of law, we are jointly and severally liable for any final tax determination for any year in which any of our subsidiaries were members of the Walter Energy consolidated group, which means that we would be liable in the event Walter Energy is unable to pay any amounts owed. Walter Energy has disclosed that it believes its filing positions have substantial merit and that it intends to defend vigorously any claims asserted.

Walter Energy effectively controlled all of our tax decisions for periods during which we were a member of the Walter Energy consolidated group for federal income tax purposes and certain combined, consolidated or unitary state and local income tax groups. Under the terms of the income tax allocation agreement between us and Walter Energy dated May 26, 2006, we generally compute our tax liability on a stand-alone basis, but Walter Energy has sole authority to respond to and conduct all tax proceedings (including tax audits) relating to our federal income and combined state returns, to file all such returns on our behalf and to determine the amount of our liability to (or entitlement to payment from) Walter Energy for such previous periods. This arrangement may result in conflicts between Walter Energy and us.

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The separation of the Company from Walter Energy on December 14, 2006 was intended to qualify as a tax-free spin-off under Section 355 of the Internal Revenue Code of 1986, as amended. In addition, the tax allocation agreement provides that if the spin-off is determined not to be tax-free pursuant to Section 355, we generally will be responsible for any taxes incurred by Walter Energy or its shareholders if such taxes result from certain of our actions or omissions and for a percentage of any such taxes that are not a result of our actions or omissions or Walter Energy's actions or omissions or taxes based upon our market value relative to Walter Energy's market value. Additionally, to the extent that Walter Energy was unable to pay taxes, if any, attributable to the spin-off and for which it is responsible under the tax allocation agreement, we could be liable for those taxes as a result of being a member of the Walter Energy consolidated group for the year in which the spin-off occurred.

In accordance with the income tax allocation agreement, Walter Energy used certain tax assets of a predecessor to the Company in its calendar 2006 tax return for which payment to us is required. The income tax allocation agreement only requires Walter Energy to make the payment upon realization of the tax benefit by receiving a refund or otherwise offsetting taxes due. Walter Energy currently owes us $10.9 million that is payable pending completion of an IRS audit of Walter Energy's 2006 tax year and the related refund of tax from that year. We recorded this receivable in other noncurrent assets.

Indemnifications. We are a party to contracts in which it is common for us to agree to indemnify third parties for certain liabilities that arise out of or relate to the subject matter of the contract. In some cases, this indemnity extends to related liabilities arising from the negligence of the indemnified parties, but usually excludes any liabilities caused by gross negligence or willful misconduct. We cannot estimate the potential amount of future payments under these indemnities until events arise that would trigger a liability under the indemnities.

Additionally, in connection with the sale of assets and the divestiture of businesses, such as the divestiture of our U.S. Pipe business (see Note 3. Discontinued Operations and Assets Held for Sale), we may agree to indemnify buyers and related parties for certain losses or liabilities incurred by these parties with respect to: (i) the representations and warranties made by us to these parties in connection with the sale and (ii) liabilities related to the pre-closing operations of the assets or business sold. Indemnities related to pre-closing operations generally include certain environmental and tax liabilities and other liabilities not assumed by these parties in the transaction.

Indemnities related to the pre-closing operations of sold assets or businesses normally do not represent additional liabilities to us, but simply serve to protect these parties from potential liability associated with our obligations existing at the time of the sale. As with any liability, we have accrued for those pre-closing obligations that are considered probable and reasonably estimable. Should circumstances change, increasing the likelihood of payments related to a specific indemnity, we will accrue a liability when future payment is probable and the amount is reasonably estimable.

Other Matters. We are party to a number of other lawsuits arising in the ordinary course of our businesses, including product liability cases for products manufactured by us or third parties. We provide for costs relating to these matters when a loss is probable and the amount is reasonably estimable. Administrative costs related to these matters are expensed as incurred. The effect of the outcome of these matters on our future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. While the results of litigation cannot be predicted with certainty, we believe that the final outcome of such other litigation is not likely to have a materially adverse effect on our consolidated financial statements.

Note 13.	Subsequent Events

Effective April 1, 2012, we completed the sale of our U.S. Pipe business. We received cash proceeds of $94.0 million, which is subject to additional adjustments, and we recorded a receivable from the buyer of $10.2 million.

Effective April 1, 2012, we changed certain provisions of our pension and postretirement benefit plans affecting U.S. Pipe participants in these plans. These changes vested all accumulated pension benefits and then froze the plan such that no additional pension benefits would accumulate. Postretirement medical benefits will substantially cease on December 31, 2012. The net effect of these changes will be a reduction of future expenses principally due to the accelerated amortization of deferred gains. We expect pre-tax expenses in the six months ending September 30, 2012 to benefit by $11.4 million as a result of these changes.

On April 18, 2012, we delivered notice to redeem 10% aggregate principal amount, or $22.5 million, of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest on May 18, 2012. We expect to record a loss on early extinguishment of debt of $1.5 million on that date.

On April 25, 2012, our board of directors declared a dividend of $0.0175 per share on our Series A common stock, payable on May 21, 2012 to stockholders of record at the close of business on May 10, 2012.

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Note 14.	Consolidating Guarantor and Non-Guarantor Financial Information

The following information is included as a result of the guarantee by certain of our wholly-owned U.S. subsidiaries (“Guarantor Companies”) of the Senior Unsecured Notes and the Senior Subordinated Notes. None of our other subsidiaries guarantee the Senior Unsecured Notes and the Senior Subordinated Notes. Each of the guarantees is joint and several and full and unconditional. Fast Fabricators, LLC and United States Pipe and Foundry Company, LLC were released as Guarantor Companies in connection with closing the sale of U.S. Pipe and related balances are included with the Issuer financial information in the following tables. Guarantor Companies are listed below.

Name		State of incorporation or organization
Anvil 1, LLC		Delaware
Anvil 2, LLC		Delaware
Anvil International Holdings, LLC		Delaware
Anvil International, LLC		Delaware
AnvilStar, LLC		Delaware
Echologics, LLC		Delaware
Henry Pratt Company, LLC		Delaware
Henry Pratt International, LLC		Delaware
Hunt Industries, LLC		Delaware
Hydro Gate, LLC		Delaware
J.B. Smith Mfg. Co., LLC		Delaware
James Jones Company, LLC		Delaware
MCO 1, LLC		Alabama
MCO 2, LLC		Alabama
Milliken Valve, LLC		Delaware
Mueller Co. International Holdings, LLC		Delaware
Mueller Co. LLC		Delaware
Mueller Financial Services, LLC		Delaware
Mueller Group Co-Issuer, Inc.		Delaware
Mueller Group, LLC		Delaware
Mueller International, LLC		Delaware
Mueller Service California, Inc.		Delaware
Mueller Service Co., LLC		Delaware
Mueller Systems, LLC		Delaware
U.S. Pipe Valve & Hydrant, LLC		Delaware

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Mueller Water Products, Inc. and Subsidiaries

Consolidating Balance Sheet

March 31, 2012

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Assets:
Cash and cash equivalents	$	10.9			$	(3.1	)		$	26.5			$	—			$	34.3
Receivables, net	—				136.6				14.4				—				151.0
Inventories	—				174.9				15.9				—				190.8
Deferred income taxes	19.4				—				0.6				—				20.0
Other current assets	18.3				26.9				1.3				—				46.5
Current assets held for sale	156.6				—				—				—				156.6
Total current assets	205.2				335.3				58.7				—				599.2
Property, plant and equipment, net	2.5				130.0				8.8				—				141.3
Identifiable intangible assets	—				586.3				1.5				—				587.8
Other noncurrent assets	24.6				0.9				1.4				—				26.9
Investment in subsidiaries	(36.2		)		37.2				—				(1.0		)		—
Total assets	$	196.1			$	1,089.7			$	70.4			$	(1.0	)		$	1,355.2
Liabilities and stockholders' equity:
Current portion of long-term debt	$	—			$	0.9			$	—			$	—			$	0.9
Accounts payable	7.5				61.5				4.4				—				73.4
Other current liabilities	37.2				38.5				2.2				—				77.9
Current liabilities held for sale	45.1				—				—				—				45.1
Total current liabilities	89.8				100.9				6.6				—				197.3
Long-term debt	690.2				1.4				—				—				691.6
Deferred income taxes	136.5				—				0.4				—				136.9
Other noncurrent liabilities	61.2				8.3				0.7				—				70.2
Intercompany accounts	(1,040.8		)		1,015.3				25.5				—				—
Total liabilities	(63.1		)		1,125.9				33.2				—				1,096.0
Stockholders' equity	259.2				(36.2		)		37.2				(1.0		)		259.2
Total liabilities and stockholders' equity	$	196.1			$	1,089.7			$	70.4			$	(1.0	)		$	1,355.2

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Mueller Water Products, Inc. and Subsidiaries

Consolidating Balance Sheet

September 30, 2011

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Assets:
Cash and cash equivalents	$	36.2			$	(3.8	)		$	28.6			$	—			$	61.0
Receivables, net	—				131.8				15.6				—				147.4
Inventories	—				163.4				12.5				—				175.9
Deferred income taxes	28.1				—				0.6				—				28.7
Other current assets	15.4				27.3				1.1				—				43.8
Current assets held for sale	142.0				—				—				—				142.0
Total current assets	221.7				318.7				58.4				—				598.8
Property, plant and equipment, net	3.9				132.7				9.1				—				145.7
Identifiable intangible assets	—				600.9				1.5				—				602.4
Other noncurrent assets	27.6				0.9				1.9				—				30.4
Noncurrent assets held for sale	107.7				—				—				—				107.7
Investment in subsidiaries	(23.9		)		23.8				—				0.1				—
Total assets	$	337.0			$	1,077.0			$	70.9			$	0.1			$	1,485.0
Liabilities and stockholders' equity:
Current portion of long-term debt	$	—			$	0.9			$	—			$	—			$	0.9
Accounts payable	6.1				49.3				3.7				—				59.1
Other current liabilities	30.1				44.9				2.9				—				77.9
Current liabilities held for sale	56.9				—				—				—				56.9
Total current liabilities	93.1				95.1				6.6				—				194.8
Long-term debt	676.0				1.4				—				—				677.4
Deferred income taxes	153.8				—				0.4				—				154.2
Other noncurrent liabilities	71.0				7.9				0.7				—				79.6
Intercompany accounts	(1,035.9		)		996.5				39.4				—				—
Total liabilities	(42.0		)		1,100.9				47.1				—				1,106.0
Stockholders' equity	379.0				(23.9		)		23.8				0.1				379.0
Total liabilities and stockholders' equity	$	337.0			$	1,077.0			$	70.9			$	0.1			$	1,485.0

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Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Operations

Three Months Ended March 31, 2012

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Net sales	$	—			$	227.8			$	23.7			$	—			$	251.5
Cost of sales	—				170.3				19.1				—				189.4
Gross profit	—				57.5				4.6				—				62.1
Operating expenses:
Selling, general and administrative	7.3				39.5				3.8				—				50.6
Restructuring	—				0.9				—				—				0.9
Total operating expenses	7.3				40.4				3.8				—				51.5
Operating income (loss)	(7.3		)		17.1				0.8				—				10.6
Interest expense, net	15.7				—				(0.1		)		—				15.6
Income (loss) from before income taxes	(23.0		)		17.1				0.9				—				(5.0		)
Income tax expense (benefit)	3.5				—				0.4				—				3.9
Equity in income (loss) of subsidiaries	17.6				0.5				—				(18.1		)		—
Income (loss) from continuing operations	(8.9		)		17.6				0.5				(18.1		)		(8.9		)
Income (loss) from discontinued operations, net of tax	(100.9		)		—				—				—				(100.9		)
Net income (loss)	(109.8		)		17.6				0.5				(18.1		)		(109.8		)
Other comprehensive income (loss):
Natural gas hedges, net of tax	—				—				—				—				—
Interest rate swap contracts, net of tax	0.9				—				—				—				0.9
Foreign currency translation	—				—				1.4				—				1.4
Minimum pension liability, net of tax	0.4				—				—				—				0.4
	1.3				—				1.4				—				2.7
Comprehensive income (loss)	$	(108.5	)		$	17.6			$	1.9			$	(18.1	)		$	(107.1	)

19

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Index to Financial Statements

Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Operations

Three Months Ended March 31, 2011

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Net sales	$	—			$	209.2			$	26.3			$	—			$	235.5
Cost of sales	—				154.2				23.2				—				177.4
Gross profit	—				55.0				3.1				—				58.1
Operating expenses:
Selling, general and administrative	6.7				37.4				3.1				—				47.2
Restructuring	—				0.9				0.2				—				1.1
Total operating expenses	6.7				38.3				3.3				—				48.3
Operating income (loss)	(6.7		)		16.7				(0.2		)		—				9.8
Interest expense, net	16.3				—				—				—				16.3
Income (loss) before income taxes	(23.0		)		16.7				(0.2		)		—				(6.5		)
Income tax expense (benefit)	(5.2		)		4.3				(0.2		)		—				(1.1		)
Equity in income (loss) of subsidiaries	12.4				—				—				(12.4		)		—
Income (loss) from continuing operations	(5.4		)		12.4				—				(12.4		)		(5.4		)
Income (loss) from discontinued operations, net of tax	(8.3		)		—				—				$	—			(8.3		)
Net income (loss)	(13.7		)		12.4				—				(12.4		)		(13.7		)
Other comprehensive income (loss):
Natural gas hedges, net of tax	—				—				—				—				—
Interest rate swap contracts, net of tax	1.2				—				—				—				1.2
Foreign currency translation	—				—				1.5				—				1.5
Minimum pension liability, net of tax	20.3				—				—				—				20.3
	21.5				—				1.5				—				23.0
Comprehensive income (loss)	$	7.8			$	12.4			$	1.5			$	(12.4	)		$	9.3

20

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Index to Financial Statements

Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Operations

Six Months Ended March 31, 2012

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Net sales	$	—			$	422.1			$	44.8			$	—			$	466.9
Cost of sales	—				315.4				36.6				—				352.0
Gross profit	—				106.7				8.2				—				114.9
Operating expenses:
Selling, general and administrative	13.7				76.8				6.6				—				97.1
Restructuring	(0.1		)		1.4				—				—				1.3
Total operating expenses	13.6				78.2				6.6				—				98.4
Operating income (loss)	(13.6		)		28.5				1.6				—				16.5
Interest expense, net	31.3				0.1				(0.2		)		—				31.2
Income (loss) before income taxes	(44.9		)		28.4				1.8				—				(14.7		)
Income tax expense (benefit)	(9.8		)		9.9				0.6				—				0.7
Equity in income (loss) of subsidiaries	19.7				1.2				—				(20.9		)		—
Income (loss) from continuing operations	(15.4		)		19.7				1.2				(20.9		)		(15.4		)
Income (loss) from discontinued operations, net of tax	(106.3		)		—				—				—				(106.3		)
Net income (loss)	(121.7		)		19.7				1.2				(20.9		)		(121.7		)
Other comprehensive income (loss):
Natural gas hedges, net of tax	(0.2		)		—				—				—				(0.2		)
Interest rate swap contracts, net of tax	1.8				—				—				—				1.8
Foreign currency translation	—				—				2.0				—				2.0
Minimum pension liability, net of tax	0.9				—				—				—				0.9
	2.5				—				2.0				—				4.5
Comprehensive income (loss)	$	(119.2	)		$	19.7			$	3.2			$	(20.9	)		$	(117.2	)

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Index to Financial Statements

Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Operations

Six Months Ended March 31, 2011

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Net sales	$	—			$	396.0			$	52.7			$	—			$	448.7
Cost of sales	(0.1		)		292.2				46.5				—				338.6
Gross profit	0.1				103.8				6.2				—				110.1
Operating expenses:
Selling, general and administrative	14.9				72.0				5.3				—				92.2
Restructuring	—				1.8				0.3				—				2.1
Total operating expenses	14.9				73.8				5.6				—				94.3
Operating income (loss)	(14.8		)		30.0				0.6				—				15.8
Interest expense, net	32.2				0.1				(0.1		)		—				32.2
Income (loss) before income taxes	(47.0		)		29.9				0.7				—				(16.4		)
Income tax expense (benefit)	(15.1		)		9.6				0.2				—				(5.3		)
Equity in income (loss) of subsidiaries	20.8				0.5				—				(21.3		)		—
Income (loss) from continuing operations	(11.1		)		20.8				0.5				(21.3		)		(11.1		)
Income (loss) from discontinued operations, net of tax	(14.7		)		$	—			$	—			$	—			(14.7		)
Net income (loss)	(25.8		)		20.8				0.5				(21.3		)		(25.8		)
Other comprehensive income (loss):
Natural gas hedges, net of tax	—				—				—				—				—
Interest rate swap contracts, net of tax	2.4				—				—				—				2.4
Foreign currency translation	—				—				3.2				—				3.2
Minimum pension liability, net of tax	20.7				—				—				—				20.7
	23.1				—				3.2				—				26.3
Comprehensive income (loss)	$	(2.7	)		$	20.8			$	3.7			$	(21.3	)		$	0.5

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Index to Financial Statements

Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Cash Flows

Six Months Ended March 31, 2012 

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Operating activities:
Net cash provided by (used in) operating activities from continuing operations	$	14.0			$	9.5			$	(3.0	)		$	—			$	20.5
Investing activities:
Capital expenditures	—				(11.5		)		(0.6		)		—				(12.1		)
Acquisitions	—				—				0.5				—				0.5
Proceeds from sales of assets	—				3.1				—				—				3.1
Net cash provided by (used in) investing activities from continuing operations	—				(8.4		)		(0.1		)		—				(8.5		)
Financing activities:
Debt borrowings	14.0								—				—				14.0
Common stock issued	0.1				—				—				—				0.1
Dividends paid	(5.5		)		—				—				—				(5.5		)
Other	—				(0.4		)		—				—				(0.4		)
Net cash provided by (used in) financing activities from continuing operations	8.6				(0.4		)		—				—				8.2
Net cash flows from discontinued operations:
Operating activities	(44.8		)		—				—				—				(44.8		)
Investing activities	(3.1		)		—				—				—				(3.1		)
Net cash provided by (used in) discontinued operations	(47.9		)		—				—				—				(47.9		)
Effect of currency exchange rate changes on cash	—				—				1.0				—				1.0
Net change in cash and cash equivalents	(25.3		)		0.7				(2.1		)		—				(26.7		)
Cash and cash equivalents at beginning of period	36.2				(3.8		)		28.6				—				61.0
Cash and cash equivalents at end of period	$	10.9			$	(3.1	)		$	26.5			$	—			$	34.3

23

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Index to Financial Statements

Mueller Water Products, Inc. and Subsidiaries

Consolidating Statement of Cash Flows

Six Months Ended March 31, 2011

	Issuer				Guarantor  companies				Non- guarantor  companies				Eliminations				Total
									(in millions)
Operating activities:
Net cash provided by (used in) operating activities from continuing operations	$	(6.8	)		$	7.9			$	(14.5	)		$	—			$	(13.4	)
Investing activities:
Capital expenditures	(0.5		)		(9.3		)		(0.2		)		—				(10.0		)
Acquisitions	—								(7.9		)						(7.9		)
Proceeds from sales of assets	—				0.9				—				—				0.9
Net cash provided by (used in) investing activities from continuing operations	(0.5		)		(8.4		)		(8.1		)		—				(17.0		)
Financing activities:
Debt borrowings	—				0.1				—				—				0.1
Common stock issued	0.3				—				—				—				0.3
Deferred financing fees paid	(0.3		)		—				—				—				(0.3		)
Dividends paid	(5.4		)		—				—				—				(5.4		)
Other	—				0.2				—				—				0.2
Net cash provided by (used in) financing activities from continuing operations	(5.4		)		0.3				—				—				(5.1		)
Net cash flows from discontinued operations:
Operating activities	(1.8		)		—				—				—				(1.8		)
Investing activities	(4.2		)		—				—				—				(4.2		)
Net cash provided by (used in) discontinued operations	(6.0		)		—				—				—				(6.0		)
Effect of currency exchange rate changes on cash	—				—				1.3				—				1.3
Net change in cash and cash equivalents	(18.7		)		(0.2		)		(21.3		)		—				(40.2		)
Cash and cash equivalents at beginning of period	51.3				(2.1		)		34.8				—				84.0
Cash and cash equivalents at end of period	$	32.6			$	(2.3	)		$	13.5			$	—			$	43.8

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Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto that appear elsewhere in this report. This report contains certain statements that may be deemed “forward-looking statements” within the meaning the Private Securities Litigation Reform Act of 1995. All statements that address activities, events or developments that the Company's management intends, expects, plans, projects, believes or anticipates will or may occur in the future are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements we make regarding general trends in residential housing construction, spending by municipalities on water infrastructure, raw material costs and our sales pricing. Forward-looking statements are based on certain assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions and expected future developments. Actual results and the timing of events may differ materially from those contemplated by the forward-looking statements due to a number of factors, including regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

•	the spending level for water and wastewater infrastructure;

•	the level of manufacturing and construction activity;

•	our ability to service our debt obligations; and

•	the other factors that are described in the section entitled “RISK FACTORS” in Item 1A. of annual report on Form 10-K for the year ended September 30, 2011 ("Annual Report") .

Undue reliance should not be placed on any forward-looking statements. The Company does not have any intention or obligation to update forward-looking statements, except as required by law.

Overview

Organization

On October 3, 2005, Walter Energy acquired all outstanding shares of capital stock representing the Mueller Co. and Anvil businesses and contributed them to its U.S. Pipe business to form the Company. In June 2006, we completed an initial public offering of 28,750,000 shares of Series A common stock and in December 2006, Walter Energy distributed to its shareholders all of its equity interests in the Company, consisting of all of the Company's outstanding shares of Series B common stock. On January 28, 2009, each share of Series B common stock was converted into one share of Series A common stock.

On March 7, 2012, we entered into an agreement to sell our U.S Pipe business for a purchase price of $89.8 million in cash, subject to adjustments, and the agreement by the purchaser to reimburse us for expenditures to settle certain previously-existing liabilities estimated at $10.2 million at March 31, 2012. The sale closed April 1, 2012 with cash proceeds of $94.0 million, which is subject to additional adjustments. U.S. Pipe's results of operations have been reclassified as discontinued operations, and its assets and liabilities have been reclassified as held for sale, for all periods presented. In the three and six months ended March 31, 2012, loss from discontinued operations includes a $116.5 million loss on the sale of U.S. Pipe.

Unless the context indicates otherwise, whenever we refer to a particular year, we mean the fiscal year ended or ending September 30 in that particular calendar year. We manage our businesses and report operations through two business segments, Mueller Co. and Anvil, based largely on the products sold and the customers served.

Business

Consolidated net sales for the quarter ended March 31, 2012 of $251.5 million increased $16.0 million, or 6.8%, from the prior year period net sales of $235.5 million. Net sales increased due to higher shipment volumes and prices at both Mueller Co. and Anvil.

Most of the net sales of Mueller Co. are for water infrastructure related directly to municipal spending and residential construction activity in the United States.

Spending on water infrastructure by municipalities is based on the condition of their infrastructure systems and their access to funding. Funding generally comes from their overall fiscal condition, the availability of additional capital from the issuance of debt, higher tax rates or increased water rates. Municipalities may find it challenging to increase tax or water rates. We believe the general municipal spending environment continues to improve although budget pressures and economic uncertainty persist. According to U.S. Census Bureau data at March 31, 2012, state and local tax receipts grew at over 4% year-over-year for the third consecutive quarter. While both are showing improving trends, local tax receipt improvement is much weaker than state.

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We believe residential construction activity indicators indicate the housing market may be stabilizing. U.S. Census Bureau data for housing starts, on a seasonally adjusted annualized basis, indicates that housing starts in March 2012 represented the seventh consecutive month of greater than 600,000 units and the first time there have been five consecutive months of higher than 650,000 starts since November 2008. Furthermore, March 2012 single family starts were above 450,000 units for the fourth consecutive month. February and March 2012 housing permit activity was the highest since October 2008. We believe an improving housing market would also bolster municipalities' fiscal condition, since local governments benefit from increased property taxes as well as connection and other ancillary fees associated with residential construction.

Although these municipal funding and residential housing data points are the most positive we have seen in the last couple of years, we believe it is premature to conclude that we are going to experience meaningful near-term growth in our related end markets.

We believe that our operating results benefited from a warmer winter in 2012 than 2011 in many of our markets, but we are uncertain of the extent to which this increased activity was solely due to an earlier start to the construction season.

Most of Anvil's net sales are driven by commercial construction. Anvil has experienced growth in its oil & gas market since the quarter ended March 31, 2011, and we believe its other markets are relatively stable. We expect these markets to remain stable in the third quarter, but we do not expect the oil & gas market to continue to grow as much as it has in the first half of 2012.

Generally, raw material costs for both segments continue to be relatively stable year-over-year, and we expect this will remain the case for the quarter ending June 30, 2012 as well.

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Results of Operations

Three months ended March 31, 2012 compared to three months ended March 31, 2011

	2012
	Mueller Co.				Anvil				Corporate				Total
	(in millions)
Net sales	$	154.5			$	97.0			$	—			$	251.5
Gross profit	$	33.6			$	28.5			$	—			$	62.1
Operating expenses:
Selling, general and administrative	24.6				18.5				7.5				50.6
Restructuring	0.8				0.1				—				0.9
Total operating expenses	25.4				18.6				7.5				51.5
Operating income (loss)	$	8.2			$	9.9			$	(7.5	)		10.6
Interest expense, net													15.6
Income (loss) before income taxes													(5.0		)
Income tax expense (benefit)													3.9
Income (loss) from continuing operations													(8.9		)
Income (loss) from discontinued operations, net of tax													(100.9		)
Net income (loss)													$	(109.8	)
	2011
	Mueller Co.				Anvil				Corporate				Total
	(in millions)
Net sales	$	148.9			$	86.6			$	—			$	235.5
Gross profit	$	33.8			$	24.4			$	(0.1	)		$	58.1
Operating expenses:
Selling, general and administrative	23.3				17.5				6.4				47.2
Restructuring	0.6				0.5				—				1.1
Total operating expenses	23.9				18.0				6.4				48.3
Operating income (loss)	$	9.9			$	6.4			$	(6.5	)		9.8
Interest expense, net													16.3
Income (loss) before income taxes													(6.5		)
Income tax expense (benefit)													(1.1		)
Income (loss) from continuing operations													(5.4		)
Income (loss) from discontinued operations, net of tax													(8.3		)
Net income (loss)													$	(13.7	)

Consolidated Analysis

Net sales for the quarter ended March 31, 2012 increased to $251.5 million from $235.5 million in the prior year period. Net sales increased due to higher pricing and shipment volumes.

Gross profit for the quarter ended March 31, 2012 increased to $62.1 million from $58.1 million in the prior year period. Gross margin was 24.7% in the quarters ended March 31, 2012 and 2011.

Selling, general and administrative expenses ("SG&A") in the quarter ended March 31, 2012 increased to $50.6 million from $47.2 million in the prior year period. SG&A as a percentage of net sales was essentially the same in both periods.

Interest expense, net was $15.6 million, including $1.6 million of interest rate swap contract expense, in the quarter ended March 31, 2012 compared to $16.3 million, including $2.0 million of interest rate swap contract expense, in the prior year period. Interest rate swap contract expense represents the amortization of unrecognized expense related to interest rate swap contracts, all of which were terminated prior to 2011. Excluding these expenses, net interest expense declined $0.3 million in the quarter ended March 31, 2012 compared to the prior year period.

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The components of interest expense, net are detailed below.
	Three months ended
	March 31,
	2012				2011
	(in millions)
7.375% Senior Subordinated Notes	$	7.8			$	7.8
8.75% Senior Unsecured Notes	5.0				5.0
Interest rate swap contracts	1.6				2.0
ABL Agreement borrowings	0.5				0.4
Deferred financing fees amortization	0.6				0.6
Other interest expense	0.2				0.5
	15.7				16.3
Interest income	(0.1		)		—
	$	15.6			$	16.3

After including the tax effect of the loss on the disposal of U.S. Pipe, our net deferred tax credits are insufficient to fully support our deferred tax assets, which include net operating loss carryforwards.  Accordingly, we recorded income tax expense to establish valuation allowances related to deferred tax assets during the quarter ended March 31, 2012. GAAP requires us to allocate a portion of the valuation allowance charge relating to deferred tax assets at September 30, 2011 to continuing operations. Our net operating loss carryforwards remain available to offset future taxable earnings.

The components of income tax expense (benefit) are provided below.
	Three months ended
	March 31, 2012
	Continuing operations				Discontinued operations				Total
	(in millions)
Benefit from operations	$	(2.0	)		$	(47.1	)		$	(49.1	)
Valuation allowance-related expense	5.9				28.5				34.4
Income tax expense (benefit)	$	3.9			$	(18.6	)		$	(14.7	)

Segment Analysis

Mueller Co.

Net sales in the quarter ended March 31, 2012 increased to $154.5 million from $148.9 million in the prior year period. Net sales increased primarily due to higher shipment volumes and pricing. Unit shipments of domestic iron gate valves increased 3.5% and unit shipments of domestic hydrants increased 2.1% in the quarter ended March 31, 2012 over the prior year period. Also, net sales grew 22.3% at Mueller Systems and Echologics in the quarter ended March 31, 2012 compared to the prior year period, which we believe reflects growing customer awareness and acceptance of their products.

These positive factors were partially offset by a 12% decline in net sales between the same periods at our Henry Pratt business, which primarily manufactures valves used in water treatment plants. We believe the market demand for these products generally lags the demand for Mueller Co.'s other products. Net sales in Canada were also down approximately 12% in the quarter ended March 31, 2012 from the prior year period. We attribute the higher net sales in Canada in the prior year period to its government's stimulus program, which was completed in the summer of calendar 2011.

Gross margin for the quarter ended March 31, 2012 fell to 21.7% from 22.7% in the prior year period, driven by a higher level of low-margin sales at Mueller Systems and Echologics as these businesses expand their capabilities.

SG&A in the quarter ended March 31, 2012 increased to $24.6 million compared to $23.3 million in the prior year period primarily related to ongoing investment in our Mueller Systems and Echologics businesses.

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Anvil

Net sales in the quarter ended March 31, 2012 increased 12% to $97.0 million from $86.6 million in the prior year period as net sales increased at all of Anvil's businesses, especially oil & gas, which was approximately 20% of Anvil's net sales in the quarter ended March 31, 2012, and fire protection. Net sales increased due to higher pricing and shipment volumes.

Gross profit in the quarter ended March 31, 2012 increased to $28.5 million from $24.4 million in the prior year period. Gross margin improved to 29.4% in the quarter ended March 31, 2012 compared to 28.2% in the prior year period, driven primarily by improved pricing.

SG&A as a percentage of net sales fell to 19.1% in the quarter ended March 31, 2012 compared to 20.2% in the prior year period, reflecting improved leverage of fixed costs.

Corporate

SG&A increased to $7.5 million in the quarter ended March 31, 2012 from $6.4 million in the prior year period primarily due to higher professional fees in 2012.

Six months ended March 31, 2012 compared to six months ended March 31, 2011

	2012
	Mueller Co.				Anvil				Corporate				Total
	(in millions)
Net sales	$	282.6			$	184.3			$	—			$	466.9
Gross profit	$	62.1			$	52.8			$	—			$	114.9
Operating expenses:
Selling, general and administrative	48.0				35.0				14.1				97.1
Restructuring	1.2				0.2				(0.1		)		1.3
Total operating expenses	49.2				35.2				14.0				98.4
Operating income (loss)	$	12.9			$	17.6			$	(14.0	)		16.5
Interest expense, net													31.2
Income (loss) before income taxes													(14.7		)
Income tax expense (benefit)													0.7
Income (loss) from continuing operations													(15.4		)
Income (loss) from discontinued operations, net of tax													(106.3		)
Net income (loss)													$	(121.7	)
	2011
	Mueller Co.				Anvil				Corporate				Total
	(in millions)
Net sales	$	278.7			$	170.0			$	—			$	448.7
Gross profit	$	63.0			$	46.8			$	0.3			$	110.1
Operating expenses:
Selling, general and administrative	43.7				33.4				15.1				92.2
Restructuring	1.0				1.1				—				2.1
Total operating expenses	44.7				34.5				15.1				94.3
Operating income (loss)	$	18.3			$	12.3			$	(14.8	)		15.8
Interest expense, net													32.2
Income (loss) before income taxes													(16.4		)
Income tax expense (benefit)													(5.3		)
Income (loss) from continuing operations													(11.1		)
Income (loss) from discontinued operations, net of tax													(14.7		)
Net income (loss)													$	(25.8	)

Consolidated Analysis

Net sales for the six months ended March 31, 2012 increased to $466.9 million from $448.7 million in the prior year period. Net sales increased primarily due to higher pricing across both business segments.

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Gross profit for the six months ended March 31, 2012 increased to $114.9 million from $110.1 million in the prior year period. Gross margin was 24.7% in the six months ended March 31, 2012 and 24.5% in the prior year period.

SG&A in the six months ended March 31, 2012 increased to $97.1 million from $92.2 million in the prior year period. SG&A as a percentage of net sales was comparable between periods.

Interest expense, net was $31.2 million, including $3.0 million of interest rate swap contract expense, in the six months ended March 31, 2012 compared to $32.2 million, including $3.9 million of interest rate swap contract expense, in the prior year period. Interest rate swap contract expense represents the amortization of unrecognized expense related to interest rate swap contracts, all of which were terminated prior to 2011. Excluding these expenses, net interest expense declined $0.1 million in the six months ended March 31, 2012 compared to the prior year period.

The components of interest expense, net are detailed below.
	Six months ended
	March 31,
	2012				2011
	(in millions)
7.375% Senior Subordinated Notes	$	15.5			$	15.5
8.75% Senior Unsecured Notes	10.0				10.0
Interest rate swap contracts	3.0				3.9
ABL Agreement borrowings	0.9				0.8
Deferred financing fees amortization	1.2				1.2
Other interest expense	0.8				0.9
	31.4				32.3
Interest income	(0.2		)		(0.1		)
	$	31.2			$	32.2

After including the tax effect of the loss on the disposal of U.S. Pipe, our net deferred tax credits are insufficient to fully support our deferred tax assets, which include net operating loss carryforwards.  Accordingly, we recorded income tax expense to establish valuation allowances related to deferred tax assets during the quarter ended March 31, 2012. GAAP requires us to allocate a portion of the valuation allowance charge relating to deferred tax assets at September 30, 2011 to continuing operations. Our net operating loss carryforwards remain available to offset future taxable earnings.

The components of income tax expense (benefit) are provided below.
	Six months ended
	March 31, 2012
	Continuing operations				Discontinued operations				Total
	(in millions)
Benefit from operations	$	(6.2	)		$	(50.6	)		$	(56.8	)
Valuation allowance-related expense	5.9				28.5				34.4
Other discrete items	1.0				—				1.0
Income tax expense (benefit)	$	0.7			$	(22.1	)		$	(21.4	)

Segment Analysis

Mueller Co.

Net sales in the six months ended March 31, 2012 increased to $282.6 million from $278.7 million in the prior year period. Net sales increased due to higher pricing.

Gross profit in the six months ended March 31, 2012 decreased to $62.1 million from $63.0 million in the prior year period. Gross margin decreased to 22.0% in the six months ended March 31, 2012 compared to 22.6% in the prior year period, driven by a higher level of low-margin sales at Mueller Systems and Echologics as these businesses expand their capabilities.

SG&A in the six months ended March 31, 2012 increased to $48.0 million compared to $43.7 million in the prior year period. The majority of this increase related to ongoing investment in Echologics, which was acquired in December 2010, and

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Mueller Systems. SG&A was 17.0% of net sales in the six months ended March 31, 2012 compared to 15.7% of net sales in the prior year period.

Anvil

Net sales in the six months ended March 31, 2012 increased to $184.3 million from $170.0 million in the prior year period. Net sales increased primarily due to higher pricing.

Gross profit in the six months ended March 31, 2012 increased to $52.8 million from $46.8 million in the prior year period. Gross margin was 28.6% in the six months ended ended March 31, 2012 compared to 27.5% in the prior year period, driven primarily by improved pricing.

Corporate

SG&A decreased to $14.1 million in the six months ended March 31, 2012 from $15.1 million in the prior year period primarily due to lower employee-related costs.

Liquidity and Capital Resources

We had cash and cash equivalents of $34.3 million at March 31, 2012. We also had $89.1 million of additional borrowing capacity under our asset based lending agreement (the “ABL Agreement”) using March 31, 2012 data. In April 2012, we received $94.0 million in cash, subject to additional adjustments, from the sale of U.S. Pipe.

Subsequent to March 31, 2012, we repaid the outstanding balance of $48.0 million on the ABL Agreement and delivered notice to redeem 10% aggregate principal amount, or $22.5 million, of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest on May 18, 2012. We expect to record a loss on early extinguishment of debt of $1.5 million on that date.

Cash flows from operating activities from continuing operations are categorized below.

		Six months ended
		March 31,
		2012				2011
		(in millions)
Collections from customers		$	463.7			$	443.0
Disbursements other than interest and income taxes		(423.8		)		(424.9		)
Interest payments, net		(27.1		)		(27.3		)
Income tax refunds (payments), net		7.7				(4.2		)
Cash provided by (used in) operating activities from continuing operations		$	20.5			$	(13.4	)

Collections of receivables were higher during the six months ended March 31, 2012 compared to the prior year period primarily related to the increased net sales in 2012.

Decreased disbursements other than interest and income taxes during the six months ended March 31, 2012 reflect general timing differences of disbursements related to the purchase of material, labor and overhead, partially offset by higher purchasing activity associated with higher net sales. Also, we contributed $8.0 million to our pension plans in the six months ended March 31, 2012 compared to $15.3 million in the prior year period.

Capital expenditures were $12.1 million during the six months ended March 31, 2012 compared to $10.0 million in the prior year period. In December 2010, Mueller Co. acquired Echologics, a leak detection and pipe condition and diagnostic assessment company, for a final purchase price of $7.4 million. 2012 capital expenditures are estimated to be between $26 million and $30 million.

Our U.S. pension plan was 83.4% funded at January 1, 2012 (the most recent date this analysis has been performed) under the provisions of the Pension Protection Act. A significant portion of the assets invested in our defined benefit pension plans is invested in equity securities. If we lower our estimated rate of return on these assets, pension expense and our required contributions to these plans may increase. We currently estimate contributing between $20 million and $22 million to our pension plans during 2012.

We anticipate that our existing cash, cash equivalents and borrowing capacity combined with our expected operating cash flows will be sufficient to meet our anticipated operating expenses, capital expenditures, pension contributions and debt service

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obligations as they become due through March 31, 2013. However, our ability to make these payments will depend partly upon our future operating performance, which will be affected by general economic, financial, competitive, legislative, regulatory, business and other factors beyond our control.

ABL Agreement

The ABL Agreement consists of a revolving credit facility of up to $275 million of revolving credit borrowings, swing line loans and letters of credit. The ABL Agreement also permits us to increase the size of the credit facility by an additional $150 million. We may borrow up to $25 million through swing line loans and have up to $60 million of letters of credit outstanding.

Borrowings under the ABL Agreement bear interest at a floating rate equal to LIBOR plus a margin ranging from 275 to 325 basis points, or a base rate as defined in the ABL Agreement plus a margin ranging from 175 to 225 basis points. At March 31, 2012, the applicable rates were LIBOR plus 300 basis points and the base rate plus 200 basis points.

The ABL Agreement terminates in August 2015 and had outstanding borrowings of $48.0 million at March 31, 2012. We pay a commitment fee of 50 basis points for any unused borrowing capacity under the ABL Agreement. The borrowing capacity under the ABL Agreement is not subject to any financial maintenance covenants unless excess availability is less than the greater of $34 million and 12.5% of the aggregate commitments under the ABL Agreement. If excess availability is below this threshold, we must maintain a fixed charge coverage ratio greater than 1.1. As measured using March 31, 2012 data, excess availability as reduced by outstanding borrowings, outstanding letters of credit and accrued fees and expenses of $87.1 million was $89.1 million and our additional borrowing capacity was $89.1 million.

The ABL Agreement is subject to mandatory prepayments if total outstanding borrowings under the ABL Agreement are greater than the aggregate commitments under the revolving credit facility or if we dispose of overdue accounts receivable in certain circumstances. The borrowing base under the ABL Agreement is equal to the sum of (a) 85% of the value of eligible accounts receivable and (b) the lesser of (i) 65% of the value of eligible inventory or (ii) 85% of the net orderly liquidation value of the value of eligible inventory, less certain reserves. Prepayments can be made at any time with no penalty.

Substantially all of our U.S. subsidiaries are borrowers under the ABL Agreement and are jointly and severally liable for any outstanding borrowings. Our obligations under the ABL Agreement are secured by a first-priority perfected lien on all of our U.S. inventory, accounts receivable, certain cash and other supporting obligations.

The ABL Agreement contains customary negative covenants and restrictions on our ability to engage in specified activities, such as:

•	limitations on other debt, liens, investments and guarantees;

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

•	restrictions on mergers and acquisition, sales of assets and transaction with affiliates.

8.75% Senior Unsecured Notes

We owed $225 million aggregate principal amount of 8.75% Senior Unsecured Notes at March 31, 2012. Interest on the Senior Unsecured Notes is paid semi-annually and the principal is due September 2020. We may redeem up to $22.5 million aggregate principal amount of the Senior Unsecured Notes at a redemption price of 103% plus accrued and unpaid interest once each year ending September 1, 2012 and 2013. On April 18, 2012, we delivered notice to redeem $22.5 million aggregate principal amount on May 18, 2012. We may also redeem up to $78.8 million aggregate principal amount of the Senior Unsecured Notes at a redemption price of 108.75%, plus accrued and unpaid interest, with the net cash proceeds from certain equity offerings prior to September 2013, provided that at least $146.2 million aggregate principal amount remains outstanding immediately after such redemption. After August 2015, the Senior Unsecured Notes may be redeemed at specified redemption prices plus accrued and unpaid interest. Upon a “Change of Control” (as defined in the indenture securing the Senior Unsecured Notes), we are required to offer to purchase the outstanding Senior Unsecured Notes at a purchase price of 101%, plus accrued and unpaid interest. The Senior Unsecured Notes are essentially guaranteed by all of our U.S. subsidiaries, but are subordinate to borrowings under the ABL Agreement.

7.375% Senior Subordinated Notes

We also owed $420 million of principal of 7.375% Senior Subordinated Notes (“Senior Subordinated Notes”) at March 31, 2012. Interest on the Senior Subordinated Notes is payable semi-annually and the principal is due June 2017. After May 2012, we may redeem any portion of the Senior Subordinated Notes at specified redemption prices plus accrued and unpaid interest. Upon a “Change of Control” (as defined in the indenture securing the Senior Subordinated Notes), we are required to offer to

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purchase the outstanding Senior Subordinated Notes at 101%, plus accrued and unpaid interest. The Senior Subordinated Notes are secured by the guarantees of essentially all of our U.S. subsidiaries, but are subordinate to the borrowings under the ABL Agreement and the Senior Unsecured Notes.

Our corporate credit rating and the credit rating for our debt are presented below.
	Moody’s				Standard & Poor's
	March 31, 2012		September 30, 2011		March 31, 2012		September 30, 2011
Corporate credit rating	B3		B3		B		B
ABL Agreement	Not rated		Not rated		Not rated		Not rated
8.75% Senior Unsecured Notes	B2		B2		B+		B+
7.375% Senior Subordinated Notes	Caa2		Caa2		CCC+		CCC+
Outlook	Stable		Stable		Stable		Stable

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 could have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not have any undisclosed borrowings or debt, any derivative contracts other than those described in our Annual Report “Item 7A. Qualitative and Quantitative Disclosure About Market Risk” or synthetic leases. Therefore, we are not exposed to any financing, liquidity, market or credit risk that could have arisen if we had engaged in such relationships.

We use letters of credit and surety bonds in the ordinary course of business to ensure the performance of contractual obligations. At March 31, 2012, we had $38.6 million of letters of credit and $45.4 million of surety bonds outstanding.

Seasonality

Our business is dependent upon the construction industry, which is seasonal due to the impact of cold weather conditions. Net sales and operating income have historically been lowest in the quarterly periods ending December 31 and March 31 when the northern United States and all of Canada generally face weather conditions that restrict significant construction activity.

Item 4.	Controls and Procedures

(a) Material Weakness in Internal Control Over Financial Reporting

As described in Item 9A of our Annual Report, our management evaluated the effectiveness of our internal control over financial reporting as of September 30, 2011 and, based on this evaluation, identified a material weakness in our internal control over financial reporting related to our period-end consolidating process for reconciling certain health and welfare accrued liability accounts. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements would not be prevented or detected on a timely basis.

This material weakness did not result in any material misstatement of any issued financial statements. During the quarter ended December 31, 2011, we implemented additional controls and remediated this material weakness.

(b)    Changes in Internal Control over Financial Reporting

During the quarter ended March 31, 2012, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(c)    Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.

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Our Chief Executive Officer and our Chief Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, that the material weakness described above has been remediated, and such disclosure controls and procedures were effective as of the end of the period covered by this report.

(d)     Limitations on Effectiveness of Controls

Our management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls can prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. There are inherent limitations in all control systems, including the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of one or more persons. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and, while our disclosure controls and procedures are designed to be effective under circumstances where they should reasonably be expected to operate effectively, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in any control system, misstatements due to error or fraud may occur and not be detected.

PART II OTHER INFORMATION

Item 1.	Legal Proceedings

Refer to the information provided in Note 12 to the notes to the condensed consolidated financial statements presented in Item 1 of Part I of this report.

Item 1A.	Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report, each of which could materially affect our business, financial condition or operating results. These described risks are not the only risks facing us. Additional risks and uncertainties not known to us or that we deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended March 31, 2012, we repurchased shares of our common stock as follows.    

Period		Total number of shares purchased (1)			Average price paid per share				Total number of shares purchased as part of publically announced plans or programs			Maximum number of shares that may yet be purchased under the plans or programs
January 1-31, 2012		2,643			$	2.77			—			—
February 1-29, 2012		2,641			3.02				—			—
March 1-31, 2012		14,309			3.33				—			—
Total		19,593			$	3.04			—			—

______________________

(1)  The total number of shares purchased consists of shares surrendered to us to pay the tax withholding obligations of participants in connection with the lapsing of restrictions on restricted stock units.

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Item 6.	Exhibits

(a)Exhibits

Exhibit No.		Document
2.3		Purchase Agreement, dated March 7, 2012, among Mueller Water Products, Inc., Mueller Group, LLC and USP Holdings Inc. Incorporated by reference to Exhibit 2.3 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on March 8, 2012.
10.11.5*		Fourth Amendment to Employment Agreement, dated March 1, 2012, between Mueller Water Products, Inc. and Gregory E. Hyland.
10.14.2*		Third Amendment to Employment Agreement, dated March 1, 2012, between Mueller Water Products, Inc. and Evan L. Hart.
10.15.3*		Amendment to Employment Agreement, dated March 1, 2012, between Mueller Water Products, Inc. and Thomas E. Fish.
10.31.3*		Assignment and Assumption Agreement, dated April 2, 2012, between Mueller Water Products, Inc. and United States Pipe and Foundry Company, LLC.  Incorporated by reference to Exhibit 10.21.3 to Mueller Water Products, Inc. Form 8-K (File no. 001-32892) filed on April 4, 2012.
10.24.3*		Second Amendment to Employment Agreement, dated March 1, 2012, between Mueller Water Products, Inc. and Gregory S. Rogowski.
31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*		The following financial information from the Quarterly Report on Form 10-Q for the quarter ended December 31, 2011, formatted in XBRL (Extensible Business Reporting Language), (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Stockholders' Equity, (iv) the Condensed Consolidated Statements of Cash Flows, and (v) the Notes to Condensed Consolidated Financial Statements.
*		Filed with this quarterly report

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		MUELLER WATER PRODUCTS, INC.
Date:	May 10, 2012	By:	/s/ Evan L. Hart
			Evan L. Hart
			Chief Financial Officer

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