The following discussion should be read in conjunction with the audited consolidated financial statements and notes thereto that appear in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2008 and with the condensed consolidated financial statements that appear elsewhere in this report. This report contains certain statements that may be deemed "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Section 27A of the Securities Act of 1933, as amended (the "Securities Act"). All statements, other than statements of historical fact, that address activities, events or developments that the Company's management intends, expects, projects, believes or anticipates will or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. The forward-looking statements included in this report are also subject to a number of material risks and uncertainties, including but not limited to economic, competitive, governmental and technological factors affecting our operations, markets, products, services and prices, Such forward-looking statements are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by such forward-looking statements. Actual results and the timing of events may differ significantly from those projected in such forward-looking statements due to a number of factors, including those set forth in the section entitled "Risk Factors" in Item 1A of the Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

Mueller Water Products, Inc., a Delaware corporation, together with its consolidated subsidiaries operates in three business segments: Mueller Co., U.S. Pipe and Anvil. Mueller Co. manufactures and sells fire hydrants and various valves and related products used in residential water and gas systems. U.S. Pipe manufactures and sells a broad line of ductile iron pressure pipe, restrained joint products, fittings and other products. Anvil manufactures and sells a variety of pipe fittings, couplings, pipe hangers, pipe nipples and related products.

The "Company," "we," "us" or "our" refers to Mueller Water Products, Inc. and 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.

Except as otherwise noted, all financial and operating data has been presented on a fiscal year and fiscal quarter basis. Our fiscal year ends on September 30, and our fiscal quarters end on December 31, March 31 and June 30.

Business Developments and Trends

The impact of the overall weakness of the U.S. economy on our end markets continues to affect our operations adversely. Net sales have decreased significantly from fiscal 2008 levels. Our manufacturing operations include significant fixed costs. As shipment volumes decline, these fixed costs represent a relatively higher percentage of total costs to manufacture our products and our profitability is reduced. Reduced profitability consumes our available capital, weakens our financial position and adversely affects compliance with the financial covenants contained in our credit agreements. See "Liquidity and Capital Resources" for a detailed description of these financial covenants.

We are dependent upon the residential and non-residential construction industries, which are seasonal due to the impact of cold and wet weather conditions. Net sales and operating results have historically been lowest in the three month periods ending December 31 and March 31 when the northern United States and all of Canada generally experience weather that significantly restricts construction activity.

A significant portion of our net sales is directly related to residential construction, municipal water infrastructure and non-residential construction activity in the United States. Various external sources forecast annualized housing starts will drop 35% to 40% in calendar 2009 compared to 2008. We expect residential construction to remain at historically low levels for the near term. In addition, we expect municipal water infrastructure spending in the near term to be influenced by the relatively recent uncertainties related to (a) cost of credit, (b) federal economic stimulus activities and (c) the municipalities' individual fiscal conditions. We also expect non-residential construction to decrease as a result of a slowdown in general economic activity.

In addition to reduced demand in water infrastructure markets, we also believe our distributors have reduced their inventory levels in response to current economic conditions. This will further reduce demand in the markets we serve as our distributors may only be ordering items for existing projects that they cannot provide from goods already on hand. We do not expect our distributors to maintain higher inventory levels until their confidence in an economic recovery improves.

At December 31, 2008, we reported estimated goodwill impairment charges of $59.5 million for U.S. Pipe, completely impairing its goodwill, and $340.5 million against Mueller Co.'s prior goodwill balance of $718.4 million, subject to additional fair value analysis. Any additional impairment charge was not expected to exceed $200 million. During the three months ended March 31, 2009, however, our common stock began trading at prices significantly lower than prior periods, especially since early February. Our lower market capitalization prompted us to perform a second interim impairment assessment at March 31, 2009. This testing led to the conclusion that all of our remaining goodwill was fully impaired. During the three months ended March 31, 2009, we recorded additional goodwill impairment charges of $376.8 million for Mueller Co. and $92.7 million for Anvil.

In conjunction with the testing of goodwill for impairment, we also compared the estimated fair values of our identified other intangible assets to their respective carrying values and determined that the carrying amount of trade names at Mueller Co. had been impaired. At March 31, 2009, we recorded an impairment charge against these assets of $101.4 million. Mueller Co.'s trade names have a remaining carrying value of $263.0 million at March 31, 2009.

The impairment charges recorded during the three months ended March 31, 2009 reflect our best estimates, subject to finalizing the analysis of fair values during the three months ending June 30, 2009. We do not expect significant changes to impairment amounts already recorded.

A significant portion of our pension plan assets are invested in equity securities. The deterioration of U.S. and international equity markets since September 30, 2008 has caused the fair market value of these assets to decline. If equity markets continue to perform poorly, we will reduce our estimated long-term rate of return on these assets, which will cause pension expense to increase and require higher levels of Company contributions to these plans. Changes in pension expense and contribution requirements may be spread over many years. Our estimated long-term rate of return on pension plan assets is based on historical data over many years, forward looking information and the investment allocations of the pension plan assets. The total market values of our U.S, pension plan assets were $211.6 million, $234.1 million and $270.9 million at March 31, 2009, December 31, 2008 and September 30, 2008, respectively. During the three months ended March 31, 2009 and December 31, 2008, the investment net loss of these assets was $16.2 million and $33.4 million, respectively.

Results of Operations

Three Months Ended March 31, 2009 Compared to the Three Months Ended March 31,
2008



                                                             Three months ended March 31, 2009
                                      Mueller Co.       U.S. Pipe          Anvil          Corporate          Total
                                                                       (in millions)
Net sales                             $      114.8     $       93.2     $      114.2     $         -      $      322.2


Gross profit (loss)                   $       22.3     $       (2.8 )   $       35.4     $         -      $       54.9

Operating expenses:
Selling, general and administrative           19.7              8.1             23.3              8.9             60.0
Impairment                                   478.2               -              92.7               -             570.9
Restructuring                                  0.7             40.1              1.2              0.2             42.2

Total operating expenses                     498.6             48.2            117.2              9.1            673.1

Loss from operations                  $     (476.3 )   $      (51.0 )   $      (81.8 )   $       (9.1 )         (618.2 )


Interest expense, net                                                                                             16.6


Loss before income taxes                                                                                        (634.8 )
Income tax benefit                                                                                               (68.0 )


Net loss                                                                                                  $     (566.8 )


                                                             Three months ended March 31, 2008
                                      Mueller Co.       U.S. Pipe          Anvil          Corporate          Total
                                                                       (in millions)
Net sales                             $      168.9     $      114.2     $      138.5     $         -      $      421.6


Gross profit                          $       49.9     $        9.3     $       39.6     $         -      $       98.8

Operating expenses:
Selling, general and administrative           22.5             10.6             26.7              9.5             69.3
Restructuring                                   -               1.5               -                -               1.5

Total operating expenses                      22.5             12.1             26.7              9.5             70.8

Income (loss) from operations         $       27.4     $       (2.8 )   $       12.9     $       (9.5 )           28.0


Interest expense, net                                                                                             18.1


Income before income taxes                                                                                         9.9
Income tax expense                                                                                                 4.2


Net income                                                                                                $        5.7

Consolidated Analysis

Net sales for the three months ended March 31, 2009 were $322.2 million compared to $421.6 million in the prior year period. Net sales decreased primarily due to $124.4 million of lower shipment volumes and $8.0 million due to unfavorable changes in Canadian currency exchange rates. Higher sales prices from price increases implemented during fiscal 2008 of $33.0 million partially offset this decline.

Gross profit for the three months ended March 31, 2009 was $54.9 million compared to $98.8 million in the prior year period. Lower shipment volumes reduced gross profit by $39.3 million. Gross profit also decreased due

Selling, general and administrative expenses for the three months ended March 31, 2009 and 2008 were $60.0 million and $69.3 million, respectively. Selling, general and administrative expenses declined primarily due to lower shipment volumes and cost saving actions.

During the three months ended March 31, 2009, we recorded impairment and restructuring charges of $613.1 million related to Mueller Co. and Anvil goodwill, Mueller Co. trade names, U.S. Pipe property, plant, equipment and related assets, and severance costs across the organization.

We reported an estimated goodwill impairment charge of $400 million at December 31, 2008 subject to additional fair value analysis. Any additional impairment charge was not expected to exceed $200 million. During the three months ended March 31, 2009, however, our common stock began trading at prices significantly lower than prior quarters, especially since early February. This lower market capitalization prompted us to perform a second interim impairment assessment at March 31, 2009. Our additional goodwill impairment testing led to the conclusion that all of the remaining goodwill was fully impaired and other indefinite lived intangible assets at Mueller Co. were partially impaired. During the three months ended March 31, 2009, we recorded additional goodwill impairment charges of $376.8 million for Mueller Co. and $92.7 million for Anvil. The impairment charge for the other indefinite lived intangible assets at Mueller Co. was $101.4 million, and the remaining carrying value for these assets was $263.0 million at March 31, 2009.

The impairment charges recorded during the three months ended March 31, 2009 reflect our best estimates, subject to finalizing the analysis of fair values during the three months ending June 30, 2009. We do not expect significant changes to impairment amounts already recorded.

During the three months ended March 31, 2009, we suspended production throughout the Company for varying time periods in response to reduced demand for our products, implemented temporary wage reductions, furloughs and reduced work weeks for certain employees and reduced headcount by approximately 600 people. Severance expense incurred related to these headcount reductions during the three months ended March 31, 2009 was $3.5 million. Restructuring actions at U.S. Pipe's North Birmingham facility lowered fixed costs, reduced capacity and resulted in a $38.5 million non-cash restructuring charge, primarily for impairment of property, plant and equipment. Other restructuring charges were related to the closure of manufacturing operations in Burlington, New Jersey during fiscal 2008. Charges related to the Burlington, New Jersey, plant were $0.2 million and $1.5 million during the three months ended March 31, 2009 and 2008, respectively.

These impairment charges are non-cash items and therefore will not result in any cash expenditures and will not affect our cash position, tax payments, cash flows from operating activities, free cash flow, liquidity position or availability under our credit facilities. Furthermore, these charges are excluded from all of our financial results in evaluating compliance with financial covenants under our debt agreements.

Interest expense, net of interest income of $0.3 million, was $16.6 million during the three months ended March 31, 2009 compared to interest expense, net of interest income of $1.0 million, of $18.1 million during the three months ended March 31, 2008. Interest declined as a result of lower interest rates and lower average debt outstanding.

The income tax benefit of $68.0 million recorded during the three months ended March 31, 2009 represented an effective income tax rate of 10.7%. There was very limited tax benefit associated with the goodwill impairment. Excluding the goodwill impairment, the effective tax rate for the three months ended March 31, 2009 would have been approximately 38% compared to the federal statutory rate of 35%. The effective tax rate for the three months ended March 31, 2008 was approximately 42%.

Mueller Co.

Net sales for the three months ended March 31, 2009 were $114.8 million compared to $168.9 million in the prior year period. Lower shipment volumes of $62.2 million were partially offset by higher sales prices of $9.6 million. Lower shipment volumes occurred for iron gate valves, fire hydrants and brass service products.

Gross profit for the three months ended March 31, 2009 was $22.3 million compared to $49.9 million in the prior year period. Gross profit decreased $23.2 million due to lower shipment volumes, $15.4 million due to higher per-unit overhead costs due to lower production and $4.1 million due to higher raw material costs, partially offset by higher sales prices and manufacturing cost saving actions of $5.6 million. Gross margin was 19.4 percentage points for the three months ended March 31, 2009 compared to 29.5 percentage points in the prior year period. Gross margin decreased approximately 8.2 percentage points due primarily to higher per-unit overhead costs, decreased approximately 4.2% due to product mix and increased approximately 2.3 percentage points due to sales price increases exceeding higher raw material costs.

During the three months ended March 31, 2009, we recorded impairment and restructuring charges of $478.9 million.

Excluding the impairment and restructuring charges, income from operations during the three months ended March 31, 2009 was $2.6 million compared to $27.4 million in the prior year period. This decline was primarily due to decreased gross profit. Selling, general and administrative expenses were $2.8 million lower in the three months ended March 31, 2009 compared to the prior year period primarily due to cost saving actions and lower shipment volumes.

U.S. Pipe

Net sales for the three months ended March 31, 2009 were $93.2 million compared to $114.2 million in the prior year period. Net sales decreased $31.9 million due to lower shipment volumes but increased $10.9 million due to higher sales prices.

Gross loss for the three months ended March 31, 2009 was $2.8 million compared to gross profit of $9.3 million in the prior year period. Gross profit decreased $12.8 million due to higher per-unit overhead costs due to lower production, $7.9 million due to lower shipment volumes and $3.0 million due to higher raw material costs. These factors were partially offset primarily by $10.9 million of higher sales prices and $2.1 million of manufacturing cost saving actions. Gross margin was (3.0) % for the three months ended March 31, 2009 compared to 8.1% in the prior year period. Gross margin decreased approximately 12.9 percentage points primarily due to higher per-unit overhead costs and decreased approximately 5.7 percentage points due to product mix. Gross margin increased approximately 7.5 percentage points due to sales price increases exceeding higher raw material costs.

During the three months ended March 31, 2009, we restructured manufacturing operations at our North Birmingham facility to lower fixed costs and reduce capacity. In addition, headcount was reduced across all locations. We recorded total restructuring charges of $40.1 million, including $38.5 million of non-cash charges primarily for impairment of property, plant and equipment.

Excluding the restructuring charges, the loss from operations increased $9.6 million during the three months ended March 31, 2009 compared to the prior year period. This increase was due to $12.1 million of lower gross profit partially offset by $2.5 million of lower selling, general and administrative expenses due to cost saving actions and lower shipment volumes.

Net sales for the three months ended March 31, 2009 were $114.2 million compared to $138.5 million during the prior year period. Net sales decreased $30.3 million due to lower shipment volumes and $6.5 million due to unfavorable changes in Canadian currency exchange rates. These factors were partially offset by $12.5 million of higher sales prices.

Gross profit for the three months ended March 31, 2009 was $35.4 million compared to $39.6 million in the prior year period. Gross profit decreased due to $8.2 million of lower shipment volumes, $6.2 million of higher per-unit overhead costs due to lower production and $3.4 million of higher raw material costs, partially offset primarily by $12.5 million of higher sales prices. Gross margin was 31.0% in the three months ended March 31, 2009 compared to 28.6% in the prior year period. Gross margin increased approximately 4.8 percentage points due to sales price increases exceeding higher raw material costs, partially offset by primarily higher per-unit overhead costs.

During the three months ended March 31, 2009, we recorded impairment and restructuring charges of $93.9 million.

Excluding the goodwill impairment and restructuring charges, income from operations for the three months ended March 31, 2009 was $12.1 million compared to $12.9 million in the prior year period. This decrease was due to $4.2 million of lower gross profit, partially offset by $3.4 million of lower selling, general and administrative expenses due to cost saving actions and lower shipment volumes.

Corporate

Corporate expenses were $9.1 million during the three months ended March 31, 2009 compared to $9.5 million during the prior year period. Lower corporate expenses reflect temporary salary reductions implemented in February 2009 and other cost saving actions.

Six Months Ended March 31, 2009 Compared to the Six Months Ended March 31, 2008



                                                        Six months ended March 31, 2009
                               Mueller Co.       U.S. Pipe          Anvil          Corporate           Total
                                                                 (in millions)
Net sales                      $      234.4     $      208.9     $      246.6     $         -      $       689.9


Gross profit (loss)            $       53.5     $       (0.3 )   $       76.7     $         -      $       129.9

Operating expenses:
Selling, general and
administrative                         42.4             17.1             43.3             19.5             122.3
Impairment                            818.7             59.5             92.7               -              970.9
Restructuring                           0.7             39.9              1.2              0.2              42.0

Total operating expenses              861.8            116.5            137.2             19.7           1,135.2

Loss from operations           $     (808.3 )   $     (116.8 )   $      (60.5 )   $      (19.7 )        (1,005.3 )


Interest expense, net                                                                                       33.9
Gain on repurchase of debt                                                                                  (1.5 )


Loss before income taxes                                                                                (1,037.7 )
Income tax benefit                                                                                         (70.9 )


Net loss                                                                                           $      (966.8 )

--------------------------------------------------------------------------------
                                                          Six months ended March 31, 2008
                                      Mueller Co.     U.S. Pipe         Anvil       Corporate         Total
                                                                   (in millions)
Net sales                             $      330.5   $     224.9     $     278.5   $        -      $     833.9


Gross profit                          $       95.4   $      19.9     $      77.3   $       0.6     $     193.2

Operating expenses:
Selling, general and administrative           43.2          20.3            48.5          19.1           131.1
Restructuring                                   -           17.7              -             -             17.7

Total operating expenses                      43.2          38.0            48.5          19.1           148.8

Income (loss) from operations         $       52.2   $     (18.1 )   $      28.8   $     (18.5 )          44.4


Interest expense, net                                                                                     37.3


Income before income taxes                                                                                 7.1
Income tax expense                                                                                         3.0


Net income                                                                                         $       4.1

Consolidated Analysis

Net sales for the six months ended March 31, 2009 were $689.9 million compared to $833.9 million in the prior year period. Net sales decreased primarily due to $204.4 million of lower shipment volumes and $16.4 million due to unfavorable changes in Canadian currency exchange rates partially offset by $76.8 million of higher sales prices.

Gross profit for the six months ended March 31, 2009 was $129.9 million compared to $193.2 million in the prior year period. Gross profit decreased $67.2 million due to lower shipment volumes and $42.0 million due to higher per-unit overhead costs due to lower production. These decreases were partially offset by $18.8 million of manufacturing cost saving actions and $26.3 million of sales price increases exceeding higher raw material costs. Gross margin decreased approximately 2.9 percentage points due to lower shipments of relatively high margin products and higher per-unit overhead costs at Mueller Co. and decreased approximately 2.4 percentage points primarily due to higher per-unit overhead costs at U.S. Pipe. Gross margin increased approximately 1.0 percentage points primarily due to higher sales prices at Anvil.

Selling, general and administrative expenses for the six months ended March 31, 2009 and 2008 were $122.3 million and $131.1 million, respectively. Anvil recognized a $3.5 million gain from the sale of a building during the six months ended March 31, 2009. Non-recurring professional fees of $1.2 million were recognized during the six months ended March 31, 2009 related to the conversion of Series B common stock into Series A common stock. Selling, general and . . .