Welcome, and thank you all for patiently holding. [Operator Instructions] It is now my pleasure to turn the call over to Ms. Martie Zakas. Ma'am, you may begin.

Very good. Thank you, Morrow, and good morning, everyone. Welcome to Mueller Water Products Fiscal 2012 First Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended December 31, 2011, yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Mueller Water Products had approximately 156.4 million shares outstanding at December 31, 2011. Discussing the first quarter's results this morning are Greg Hyland, our Chairman, President and CEO; and Evan Hart, our CFO. This morning's call is being recorded and webcast live on the Internet. We have also posted slides on our website, which are available to help illustrate the quarter's results as well as to address our Safe Harbor disclosure statement and our Non-GAAP disclosure requirement. At this time, please refer to Slide 2. This slide identifies certain non-GAAP financial measures that we reference in our press release, on our slides and on this call, and discloses the reasons why we believe these measures provide useful information to investors. As required by Regulation G, reconciliations between non-GAAP and GAAP financial measures are included in the supplemental information within our press release and on our website. Slide 3 is our Safe Harbor disclosure statement addressing forward-looking statements. This slide includes cautionary statements identifying important factors that could cause actual results to differ materially from those included in the forward-looking statements, as well as specific examples of forward-looking statements. Please take note of the disclaimers provided on Slides 2 and 3 in their entirety. During this call, all references to a specific year or quarter refer to our fiscal year, which ends on September 30, unless specified otherwise. The archived webcast and the corresponding slides will be available for at least 90 days in the Investor Relations section of our website. In addition, we will furnish a copy of our prepared remarks on Form 8-K later this morning. After the prepared remarks, we will open the call to questions from our dial-in participants. I'll now turn the call over to Greg.

Thank you, Martie, and good morning, everyone. We appreciate you joining us today as we discuss our results for the 2012 first quarter. I'll begin with a brief overview of the first quarter followed by Evan's detailed financial report, which covers key drivers affecting our businesses. After that, I will follow with additional comments on our recent results as well as our outlook for the second quarter. We will then open the call for questions. Mueller Co.'s domestic valve and hydrant volume grew slightly in the first quarter on a year-over-year basis. However, this growth was more than offset by reduced demand in Canada and a drop-off in shipments of valve to the water treatment market. We also saw net sales growth in the first quarter from Mueller Systems and Echologics, the leak detection business that we acquired in December 2010. Our investments in these businesses are negatively impacting Mueller Co.'s operating income in the short-term. However, we are bullish about their long-term potential with the traction, we believe, we are gaining in the marketplace. U.S. Pipe's net sales and volume both increase in the first quarter year-over-year, contributing to their improved operating performance. Once again, Anvil continued to deliver year-over-year growth with adjusted income from operations increasing 20% on a net sales increase of 4.7%. Adjusted income from operations benefited from higher sales pricing and productivity improvement. I'll now turn the call over to Evan, who will provide more details on the first quarter financial results.

Good morning, everyone. I'll first review the consolidated results and then discuss segment performance. Consolidated net sales for the 2012 first quarter of $311.5 million increased 8.3% compared to net sales for the 2011 first quarter of $287.6 million. Net sales increased due to higher prices of $16.2 million and higher shipment volumes of $7.9 million partially offset by $200,000 of unfavorable Canadian currency exchange rates. Consolidated gross profit of $51.8 million for the 2012 first quarter improved from gross profit of $49.6 million for the 2011 first quarter. Gross profit for the 2012 first quarter was positively impacted primarily by higher sales prices of $16.2 million and net manufacturing and other cost savings of $6.7 million. These items were partially offset by higher raw material costs of $14.2 million, higher per-unit overhead costs due to lower production of $3.8 million and lower shipment volumes of $1.3 million. Consolidated selling, general and administrative expenses of $53.4 million for the 2012 first quarter compared to $52 million for the 2011 first quarter. The year-over-year increase is due primarily to expenses associated with the further development of our Mueller Systems and leak detection businesses. Adjusted loss from operations for the 2012 first quarter improved to $1.6 million from an adjusted loss from operations for the 2011 first quarter of $2.4 million. Adjusted results for the quarter improved at both U.S. Pipe and Anvil. The results were positively impacted by higher sale prices of $16.2 million and net manufacturing and other cost savings of $6.7 million. These items were mostly offset by higher raw material costs of $14.2 million, higher per-unit overhead costs due to lower production of $3.8 million, higher selling, general and administrative expenses of $1.4 million, and lower shipment volumes of $1.3 million. Adjusted EBITDA margin for the 2012 first…

Thanks, Evan. I'll now elaborate a little more on our first quarter performance and then provide an outlook for our second quarter. I'll begin with Mueller Co. During our first quarter, Mueller Co.'s domestic markets appeared to be stabilizing. We saw an increase in bookings in the first quarter on a year-over-year basis for our valves and hydrants, though we are not sure this is entirely being driven by increased market demand. Timing of distributor orders could also be influencing the year-over-year growth. We also estimate that distributor inventories are down approximately 30% this year compared to the same time last year. Net sales in Canada were down approximately 28% or $4.5 million on a year-over-year basis. We believe spending is down because the Canadian stimulus program was completed in mid-2011 and residential construction in Canada continues to fall off. Both shipments and orders per valve used in water treatment facilities, which typically account for a little more than 10% of Mueller Co.'s net sales, were down year-over-year. We believe that municipalities are delaying major treatment plant overhauls and are only spending money for small upgrades and expansions. For example, the number of bids we submitted for water treatment facility projects increased 37% in the first quarter year-over-year. However, the value of these bids was down 30%. Pro forma net sales at Mueller Systems and Echologics grew 25% in the first quarter year-over-year, albeit off a small base. While we expect these businesses to be profitable in the second half of the year, they will lose money in the first half. In the first quarter, their results reduced Mueller Co.'s adjusted operating margin by approximately 400 basis points as we are still ramping up our investment in these businesses. Turning to U.S. Pipe. We believe the ductile iron pipe domestic…

[Operator Instructions] Our first question today comes from TongTong Xu, Goldman Sachs.

This is TongTong Xu from Goldman Sachs on behalf of Jerry Revich. Greg, can you give us an update on backlog or book to bill from Mueller Co. and U.S. Pipe? Also, can you comment on the volumes?

Sure. When we look at total backlog and dollars for Mueller, total Mueller, we're up as we ended the December month, year-over-year, we're up about 10% for total Mueller. But I think it's important to dig down a little deeper there, when you look at our Mueller valves and hydrants and our brass products, that backlog is up about 25%. But in order to put it in perspective, that we ship typically in 2 to 3 weeks, these products. So backlog is -- for those products is less than $25 million, but nonetheless, up 25% year-over-year. And if you look at our Mueller Systems business, our backlog is up about 80% on a year-over-year basis. So that all -- as I said, that all comes to about a 10% for total Mueller. Our water treatment, our backlog for our water treatment valves are down year-over-year, consistent with what we saw in the first quarter, but total Mueller is up about 10%. When I look at the backlog at U.S. Pipe and I think it's more appropriate to look at it in terms of tonnage, our backlog is up about 68%. And it's important to note that we have contributing to that, certainly is the export order, the large export order that we received in spring of 2011. And to date, we've shipped about 50% of that order. So the rest of it will ship in the second quarter. So at least looking at our backlogs at those 2 businesses, so we're seeing a positive trend. Though as I want to be quick to point out, when we look at the Mueller on valves and hydrants, that backlog is still slightly $125 million.

Okay. And you've got nice pricing ahead of material cost this quarter and gave us great detail in Q2 expectations. Can you stop to say whether you continue to expect positive contribution over the second half of the year, and could you touch on that by segment?

Yes. When we look at the -- I'm not sure if I can get right into the second half of the year yet, but when we look at the second quarter, we do think that on a consolidated basis, that price will more than exceed higher raw material costs, probably that we will see the most significant, I think, benefit in our U.S. Pipe business as we've commented throughout the -- our prepared comments, that we have seen continued price increases in our U.S. Pipe business and, I think, in the second quarter, we expect to see prices be much higher on a year-over-year basis in raw material costs. And on Mueller, I think it probably will be pretty even in the second quarter to raw material costs and Anvil, we expect to more than cover raw material costs. But we are, as I've said in our prepared remarks, as we look to the second half of the year, that we did announce a step per step price increase on our valves and hydrants that will be effective in February 9, and certainly that we think that this will contribute to the second half of the year and we would expect, unless we see some significant movement in raw material, that we will be able to continue to offset higher raw material costs as we have traditionally been able to do so at the Mueller business.

Okay. And then just one last quick one. Evan, can you say more about the restructuring charges you took this quarter and what's the payback period you expect and is there any additional restructuring actions that you're planning for this year?

You know these are primarily headcount related. And as we look to the balance of fiscal 2012, I think, we might see just some general restructuring activities like we've seen in the last few quarters. But nothing is planned of a significant nature.

Our next question comes from Matt Vittorioso from Barclays Capital.

Not to get too specific, but as it pertains to any potential asset sale, would Mueller Water be looking to pay down debt with those proceeds or might you look to reinvest some proceeds into some of your newer business lines?

Matt, as we've said that certainly bringing down debt always remains one of our priorities and we've said that we think our goal for our business is to have our leverage down below 3x. When I look at our -- the businesses that -- our newer technology businesses that we're investing in, I think, right now, that we're confident that out of the cash flow that we generate that, that should be sufficient, give us sufficient liquidity to make those investments.

Great. And then just leading into that, the free cash flow that you talked about for the full year, can you talk about your discussions with distributors? You talked about their inventories being down roughly 30%. Does that give you any concern over the course of the year that that may require you to carry more inventory, and does that put your free cash flow guidance at risk or are you pretty comfortable that you'll be able to continue to improve turns, et cetera?

Yes, that's a good question. If we look over the last 18 months and 24 months, we think that clearly, our distributors have been bringing down their level of inventory. But I think when we look at those levels today, that we don't believe that they can take those down much further. So I think that when we get more to the construction season, we'll expect to see those inventories come back up. And certainly, I think, compared to a couple of years ago, we're carrying more -- we are probably carrying more inventory to be able to sort to meet shorter lead time requirements than as I said we did 2 years ago. But I think, if we look to the rest of this year, I don't think it's going to be any different than what we've seen for the last 12 to 18 months.

Our next question comes from Yilma Abebe from JPMorgan.

My first question is in terms of debt paydown this year, and away from asset sale, but from free cash flow, any expectations or guidance on that?

We've not provided any specific guidance around debt paydowns. But as you can see, over the past several years, that has been a primary focus for us and we'll continue to look at lowering our leverage ratio as we go forward. So that's something that we always consider and always look at.

Okay. And then my final question is, in the financial policy, a big picture on with regards to leverage, you said that you want to be around 3x or below. Can you give us a sense for the bridge to that level? I ask that in the context of you have debt maturing in 5 years and I imagine you're going to have to start thinking about that the next 2, 3 years. How are you managing, I guess, refinancing risks as you look at the business and I know as you said, towards the 3x target?

Yes. I will say that right now that we don't believe that we have any refinancing risks. As you pointed out, that while our ABL will be due in 2015 but we think that, that should readily be able to be negotiable. When we look at 2017 and 2020 in fact, that we feel that we have a long runway here that we fully expect that our markets will rebounded before that period. If you look at -- we've said in the last 18 months that for instance on housing starts, that we believe when housing starts gets to 1.1 million to 1.2 million that we'll be able to -- we will be able to earn the same kind of margins we did in the 1.5 million and 1.6 million. So again, and today, the most of the analyst forecast that we have seen, and I know that the housing market has been a very difficult one to predict the last several years, but I'd say right now, there seems to be a consensus that by the time we get to 2015, that housing starts will be over 1.2 million, it could be in fact, approaching 1.5 million. So I think that we look at more in terms of that we are comfortable, that we have the runway before our maturities are due, that we will come off the, I would say an unprecedented bottom, that we've seen for the last 12 and 18 months in our businesses that will more than give us comfort with the EBITDA and the earnings that we expect the business will generate.

Our next question comes from Brent Thielman, DA Davidson.

Yes, Greg, I guess, just the lower the volumes in Anvil for the quarter, just as a little surprise as given market indicators seem to be perking up here, was there something isolated at the quarter there?

Yes. It was isolated. Just about maybe about 1 year ago, it was 1 year ago, we ended a relationship with one of our larger distributors of our products that go into fire protection. And so when we have a comparison on a year-over-year basis, we have some of that lost volume hit us this quarter. But over the last -- since that time period, we've added additional distributors and in fact, we think that it will go the other way from the comparison -- from a comparisons purposes in the second quarter. So yes, we do think it was isolated and I think it was the right move that we made a year ago and our Anvil sales team, I'd think, able to add the right distributors that in fact, we think that will turn on a year-over-year basis in the second quarter.

Okay. And then the lower volumes in Canada, when do you expect to see easier comparisons, I guess, with respect to their stimulus rolling off?

Yes. That's -- we'll start seeing that probably in the middle of our third quarter and our fourth quarter for sure. If you recall, we referenced that in our fourth quarter of our fiscal year, last year, that we start getting hit on the year-over-year comparisons on Canada. So we have, I think, at least one more quarter of those comparisons. It will ease somewhat in Q3, and then it will be behind us when we get to Q4.

Okay. And then lastly, I know you've said in the past this export order is sort of, I guess, special situation but obviously, it's a big help here. I'm just wondering if there's anything new on the international front that you may be pursuing there?

Matt, that is on a project-by-project basis. There's still, I think, what you would say, good activity in the Middle East. Certainly, that I believe that, I think, with this order that we have in the Middle East, that puts us in a good position to grow upon that. And so, nothing specific that I can say. But again, it's an active market there, and we're certainly investing the resources to pursue the opportunities there.

Okay. Just one more just on that order. I know you said in the past that, well, pricing or margin profile and this is a little bit below what you might have seen in your normal course of your business. Is that -- are you still able to cover your sort of raw material costs on that project, as we think about Q2 or is it a bit of [indiscernible]?

Yes. I think clearly, we're getting a variable contribution margin. We're covering all of our variable costs on that.

And that does conclude the Q&A session of today's conference.

Yes. Well, thank you for your interest and one area that we had some questions and we've -- about our Mueller Systems and I think it's important, I think, for us to point out that as we've said in our prepared remarks that we expect that business to be profitable in the second half of the year. We're in the ramp-up phase, adding some expenses for actually what we think will be a much bigger business. These are expenses related to the pursuit of orders that we expect to receive. They're expenses related to orders that we have received that have not shipped. As I've mentioned a little earlier, that we're entering the second quarter with our backlog at Mueller Systems up 80% on a year-over-year. We expect that most of this backlog will ship the second half of the year. We in fact, just received the largest AMI order that we had ever received now that we're 2 years in this business. We received an order in January from Charlotte County, Florida for about 50,000 units, and that's not in the backlog number I just gave you. So the orders that we are receiving are mostly project work, smaller percentage of our overall base business is distributor business. So on average, these are 3 to 4 months or a little bit longer for the time we receive it in shipments. So again, we're in a period where we are ramping up the business, needed to support the growth in our backlog as well as the growth in orders we expect to receive in the near future and while it's a negative impact on Mueller Co. margins this quarter and will be next quarter, we're confident that this is going to be a very good story for us. So with that, I want to again thank you for your interest and look forward to seeing you all soon.

Thank you, all, for joining today's call. That does conclude the presentation. You may now disconnect.