The North American water infrastructure and flow control industry consists of the manufacturers of valves, pipe, fittings, fixtures, pumps and seals. Growth in the sectors is driven by the need to upgrade, repair and replace existing water and wastewater infrastructure, new residential construction activity and non-residential construction activity.

Much of the water distribution infrastructure in the United States is considered to be aging or in need of updating. Growth in the water and wastewater infrastructure upgrades, repairs and replacement sector is driven primarily by: the growing installed base, as new infrastructure is put in place, creating a continuously growing base to facilitate future recurring revenues; the age of existing systems; the operating cost of systems; general use of systems; governmental budgetary constraints; and changes in federal and state environmental regulations, including, most recently, the Clean Water Act and the Safe Drinking Water Act. In a November 2002 study, the Congressional Budget Office estimated that the average annual spending necessary to upgrade, repair and replace existing water and wastewater infrastructure will be between $24.6 billion and $41.0 billion a year over the ensuing 15 years.

Growth in the new water and wastewater infrastructure sector is mainly driven by new housing starts. U.S. housing starts have remained relatively stable from 2000 to 2004, with a low of 1.57 million units in 2000 and a high of 1.96 million units in 2004. Housing starts in the first 11 months of 2005 were 6.2% higher than the comparable period in 2004. According to Freddie Mac, U.S. housing starts are projected to reach 1.9 million units by the end of 2006, which would represent the third best year for single-family housing construction ever.

Mueller segment is one of the largest manufacturers of dry-barrel fire hydrants in the United States and Canada. The Company’s fire hydrants consist of an above-ground fire hydrant and a below-ground cast iron pipe that connects to a water main. Mueller segment has the broadest product line of valves for residential water and gas systems. All of the Company’s valve products are used to control transmission of potable water, non-potable water or gas. The Company’s product line includes butterfly, gate, tapping, check, plug and ball valves. Water valve products range in size from 3/4 inch to 10 feet. The smaller iron gate-type valves are produced by the Company’s Chattanooga, Tennessee plant and the larger iron butterfly valves are produced by the Company’s Henry Pratt subsidiary in Dixon, Illinois. Brass valves are produced in the Company’s Decatur, Illinois and El Monte, California plants. Most of these valves are used in water distribution.

Other Mueller segment products include: pipe repair products, such as repair clamps and couplings used to repair leaks in water and gas distribution systems; municipal castings, such as manhole covers and street drain grates; and patterns used by the foundry and automotive industries.

U.S. Pipe manufactures and sells a broad line of ductile iron pressure pipe, restraint joints, fittings and other cast iron products. Founded in 1899 and headquartered in Birmingham, Alabama, it is one of the nation\'s largest producers of ductile iron pressure pipe based on industry shipping information provided by the Ductile Iron Pipe Research Association.

U.S. Pipe manufactures and markets a complete line of ductile iron pipe ranging from 4\" to 64\" in diameter as well as various metric sizes, in lengths up to 20 feet. Ductile iron pressure pipe is used primarily for drinking (potable) water distribution systems, small water system grids, reinforcing distribution systems (including looping grids and supply lines) and is used for major water and wastewater transmission and collection systems.

The Company is one of the largest manufacturers of threaded and grooved pipe fittings and couplings in the United States and Canada. Pipe fittings and couplings join two pipes together.

Gross margins increased to 12.9% for the nine months ended September 30, 2005 compared to 8.4% for the nine months ended September 30, 2004 as a result of higher ductile iron pipe selling prices, partially offset by higher scrap metal costs.

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