Good morning, and welcome. [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, Laurel. Good morning, everyone. Welcome to Mueller Water Products Fiscal 2012 Second Quarter Conference Call. We issued our press release reporting results of operations for the quarter ended March 31, 2012, yesterday afternoon. A copy of it is available on our website, muellerwaterproducts.com. Mueller Water Products had approximately 156.7 million shares outstanding at March 31, 2012. Discussing the second 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 were available to help illustrate the quarter's results, as well as to address our Safe Harbor disclosure statements and our Non-GAAP disclosure requirements. 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 that 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 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. As previously announced, we sold U.S. Pipe effective April 1, 2012. U.S. Pipe's operating results have been reclassified as discontinued operations and its assets and liabilities have been reclassified as held for sale for all periods presented. The operating results presented for U.S. Pipe do not reflect what they would have been had U.S. Pipe's not been classified as held for sale. The year-over-year comparisons of consolidated operating results discussed on this call represent our continuing operations. 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. I'll now turn the call over to Greg.

Thanks, Martie. We appreciate you joining us today as we discuss our results for the 2012 second quarter. I'll begin with a brief overview of the 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 third quarter. Since our last conference call, we have taken several significant steps to strengthen the company. We completed the sale of U.S. Pipe and reduced our total debt outstanding and net debt leverage. As we have mentioned before, the sale of U.S. Pipe enables us to focus on Mueller Co.'s higher margin base business, as well as our newer technology businesses: Mueller Systems and Echologics. Both net sales and adjusted operating income at Mueller Co.'s base business grew in the second quarter. Net sales grew 2.4% and adjusted operating income for the base business, which excludes Mueller Systems and Echologics, grew 10.7%, driven primarily by growth in domestic valve and hydrant units. Additionally, Mueller Systems and Echologics continue to gain traction in the marketplace with net sales growth of 22.3% year-over-year. We are still in the investment phase with these businesses, which as expected, negatively impacted Mueller Co.'s overall results in the quarter. I'll discuss these investments and the growth opportunities later on the call. Anvil again delivered solid year-over-year growth with net sales up 12% and adjusted operating income up 45%, driven primarily by our energy and fire protection businesses. This is Anvil's seventh consecutive quarter of increased operating income on a year-over-year basis. We believe the combination of the steps we have taken to strengthen the company and what appears to be improving end market dynamics position us well for future profitable growth. I will now turn the call over to Evan, who will provide more details on our second quarter financial results.

Thanks, Greg. Good morning, everyone. I'll first review the consolidated results and then discuss segment performance. Consolidated net sales for the 2012 second quarter of $251.5 million increased $16 million or 6.8% from the 2011 second quarter net sales of $235.5 million. Net sales increased due to higher shipment volumes and higher prices at both Mueller Co. and Anvil. Consolidated gross profit of $62.1 million for the 2012 second quarter improved from gross profit of $58.1 million for the 2011 second quarter. Gross profit for the 2012 second quarter was positively impacted primarily by higher shipment volumes and higher sales prices. Consolidated selling, general and administrative expenses of $50.6 million for the 2012 second quarter compared to $47.2 million for the 2011 second quarter. Selling, general and administrative expenses as a percentage of net sales were essentially flat year-over-year. Adjusted operating income for the 2012 second quarter of $11.5 million improved from $10.9 million for the 2011 second quarter, driven by the higher shipment volumes and higher sales prices. Adjusted EBITDA was essentially flat year-over-year. Interest expense, net for the 2012 second quarter, was $15.6 million, which included $1.6 million of non-cash costs for terminated interest rate swap contracts compared to $16.3 million for the 2011 second quarter, which included $2 million for such contracts. Although these contracts were terminated prior to 2011, the related costs are being amortized over the original term of the swap contracts. Interest expense, excluding the terminated swap contract costs, declined $300,000 year-over-year. During the 2012 second quarter, we recorded income tax expense of $3.9 million on the pretax loss from continuing operations. This expense consists principally of a tax benefit of $2 million or an effective tax benefit rate of 40%, which was more than offset by $5.9 million valuation allowance charge related to…

Thanks, Evan. I'll now elaborate a little more on our 2012 second quarter performance and end markets, and then provide an outlook for our third quarter. I'll begin with Mueller Co. We are pleased with the net sales growth in Mueller Co.'s base business, where both orders and shipments of domestic valves and hydrants were up year-over-year. Certainly, we believe that our results benefited from a warmer winter this year. We are uncertain of the extent to which the increased activity was simply due to an earlier start to the construction season. However, we saw a number of encouraging signs that could indicate our end markets are possibly improving. As you may remember, we increased prices on valves and hydrants effective in February. Distributors pulled forward orders ahead of the price increase as they did last year. However, this year, a number of distributors have been expediting delivery, while a year ago, they were asking us to delay shipments. We also believe the distributor inventories at the end of the second quarter were flat, and in some cases, down from the previous year. Our quotation activities in the second quarter for Mueller Co.'s base business was up more than 40% in the number of quotations and up more than 100% in dollars quoted year-over-year. We are also beginning to see order activity on some municipal projects that have been on hold for the last several years. Both shipments and orders at our Henry Pratt business, which primarily consists of valves used of in water treatment facilities, were down year-over-year as net sales declined 12%. As a reminder, this business typically accounts for a little more than 10% of Mueller Co.'s net sales. And market demand for the products generally lags the rest of Mueller Co.'s business by about a year.…

[Operator Instructions] Our first question today comes from Kevin Maczka.

BB&T Capital Markets. Greg, I guess you're not disclosing quite as much in terms of the breakdown by segment and price and volume. I was wondering if you could say a little bit more about the pricing environment generally. With the conditions improving and volumes increasing, you've been able to take price increases even prior to that, but are you seeing any change in competitive behavior and the pricing dynamic more recently?

Kevin, I don't think we've seen much of a change in both of our businesses. Our price increases more than offset higher raw material costs. In the Anvil business, I think we're probably even a little ahead of where I think raw materials -- we got price increases in the marketplace very early there and the higher raw material costs, in a sense, are starting to catch up. But we still, I think, in both businesses -- again, this quarter, we were able to achieve a higher pricing than the higher raw material costs. And I think that we feel confident that we'll be able to continue to maintain that relationship.

And then Greg, you're of course, talking more and more about Mueller Systems and Echologics as those become more important to you. Can you give us kind of an update in terms of sizing those businesses? Where they are today? And the margin drag that we have there, is that simply because these businesses are to scale yet and you're making the investments to grow them or are you having to -- since this is a competitive market, are you having the kind of buy your way into the business, if you will, to win some of this first big contracts that you've won?

Yes, when you look at our -- today, our -- from a sales standpoint, those businesses are less than 10% of Mueller Co.'s total sales. The majority of what we are seeing relative to the -- I would say, the drain on our performance is coming from investing in the business -- in the businesses. And I'll give you some examples, at Echologics, we have something like 25 pilots in process today. Well, that requires that we have the field service organization, we've been hiring our project managers for that business, we've been hiring -- continue to hire engineers on new product development. I don't think it's all reflective of a pricing to buy our way in. It's more, I think, we're in a leak detection side, in the very early stages of introducing a new technology. Acoustical leak detection has been around for a while. They're primarily used on distribution lines. We're using it on transmission lines where we think it has tremendous opportunity and our customers are telling it has tremendous opportunity. But it's a very conservative customer base and they're saying come in prove it to us. So in the Echologics business, we're a lot in that phase of come in and prove it to us and building the infrastructure to do that and then support it when we turn into order. When you look at Mueller Systems, I would not classify the drag as a pricing -- currently, but one -- a little bit of a mix. A year ago, we signed an agreement -- a little over a year ago, we signed an agreement with Landis+Gyr to provide -- to sort electric meters from Landis+Gyr. When we are going to those utilities that are buying both electric and water meters, we obviously get a much…

Got it. Just finally, the businesses today you said are less than 10% of total Mueller Co.

Yes.

Maybe hard to answer, I know this is evolving. But is there any way over the next couple of years you can kind of frame your expectations there? Should that become 20% or 30% or?

Kevin, we do think it can become 30%. We look in 3 or 4 years, if you look at our revenues, we expect to generate from this business. Maybe if you give us 4 or 5 years, that we think that we could add $150 million to $170 million in revenue from where we are today. And I'd say it may be more in the 4 or 5 years from now.

Next, we have Jerry Revich.

It's Goldman Sachs. Can you talk about the bookings activity in your oil & gas business? What was that like that quarter and in the early part of April? And also, just touch on what kind of end markets are we thinking about within oil & gas, so if you can help us understand gas versus oil or any more granularity there that'd be really helpful.

Yes, sure, Jerry. When we look at -- the comments that I made about tougher comparisons, when we look at our April -- I think April was up a little but just slightly on the oil & gas side. If you will please look at -- still in the quarter we just completed, I think we were still seeing a 15% increase on year-over-year in that range, year-over-year of order. We can -- our products can go in either oil & gas, and I will say that we're not getting a breakdown from our distributors, whether it's going to -- it is oil or the gas, but we manufacture the Ford [ph] steel couplings that hold the smaller diameter pieces of pipe together. So we are downstream of the wellhead and we have -- it can vary from quarter-to-quarter, but our products that we use in the oil patch of West Texas or it can be used in the frac-ing at the Marcellus Shale. But it's more -- it's agnostic as to either one, it goes into the couplings in the piping system.

And you've had excellent incremental margins in the segment over the past year. Should we look for the incremental margin profile to be different in the back half of the year as the oil & gas businesses slows, I guess, presumably that's a higher margin business for you, but I'm wondering if can you give us more context there?

Yes, and we just -- the growth of its -- we think the growth will slow, certainly not the business, the business itself. And I would say that really, our margins on this business are not significantly different than the other parts of our business. So we don't really think we'll see a margin impact.

And in terms of the Mueller Co. restructuring charge in the quarter, can you talk about what part of operation that's related to, the payback period, et cetera?

Sure. Evan, I'll let you take that.

That's just some realignment. That's some very smaller facilities and some headcount reduction that we had. And those costs were in the quarter for activities that occurred in the quarter and we think that'll be a very quick payback, but it's just primarily related to headcount reductions.

Okay. And are you open to talking about your material costs in the quarter by business as you were in the past or are you trying to move away from that level of disclosure?

Sure. I think, Jerry, that we'll -- when -- will vary by quarter-over-quarter when it truly has a significant impact. We'll certainly point that out. But if we look in both businesses on a year-over-year basis, for instance, if you look at our scrap costs, it went through cost of goods sold in Mueller. It was less than -- less than 2% difference from what we were paying on a year-over-year basis. Brass actually was down slightly a couple of percentage points and the same was true at Anvil. So it was not a particularly -- did not have a particularly relevant impact on the operations that -- we look at this quarter. But certainly, I think when we see some very big movement and had a big impact year-over-year, we'll certainly, I think, continue to point that out.

Next, we have Anix Vyas.

Gabelli & Company. Just -- I wanted to follow up with the question I was asked earlier about the margins in Mueller Co. I think I got the answer, but I just wanted to flesh it out a little bit. So when I look at the margins, specifically the gross margin profile, it's significantly lower, and it seems like, Greg, you mentioned that it's potentially due to the pass-through of the electric meters. But I just wanted to ask the question again in light of the gross margins. And maybe you can comment on expectations going forward for the gross margin profile?

Yes, sure. And it was -- one of the [indiscernible] electric margins. The electric meters certainly, I think has an impact on our Mueller Systems business. But when we look at total Mueller Systems and Echologics, our newer technology businesses combined, they -- as we pointed out, reduced our margins, operating income margins at Mueller by 440 basis points. We also pointed out that while I think that these businesses will continue to be a drag, we think it will be less of a drag in the third and fourth quarter of this year because we expect to see some improvements as the volume increases in that business. So when we look at our Mueller Co. base business, our margins -- and we call it base business, everything excluding Mueller Systems and Echologics, our margins in that business were up year-over-year. And as we said, we expect overall improvement in operating income, a slight improvement in operating income year-over-year in this business in the third quarter, which would also support an improvement of margins in the third quarter also.

Next, we have Seth Weber.

It's RBC. I just wanted to see if we can get a little bit more color on the push out of the profitability for the emerging segments? Was that a function of the customer was pushing back or the product isn't ready? I'm just trying to understand where the dislocation came from this quarter.

Seth, it's more of -- it's -- we believe, for instance, we were going to receive the order in March and now we think we'll get the order in May. It's more of a -- in one case, a large order that's just going through the system at our end user and in another case, the city council. We were informed that they were going to be awarded the contract, and the city council delayed their meeting for 3 weeks. So that was being the bigger impact on us right now. It's not a -- it's not that we're losing orders that we expect to receive. I think it's just the timing of those orders going -- working through the process at our customers and then we're actually getting the reward -- awarded the order. So I think it's more of a timing on our customers' part, our outlook hasn't changed relative to the orders we think we'll receive.

Changing gears a little bit. Another player -- not a competitor, but another participant in the water infrastructure market recently talked about some issues with lead in some of their products and they're starting to see more pushback. I know you guys have about this historically, but I just was wondering if you're seeing any kind of increase in attention on that and if you're taking any actions there?

Yes. We have, as you know, we have a brass product line under the Mueller brand name. And we've made some pretty significant investments, probably about -- started that process about 4 years ago to now where we manufacture low lead brass for those products that meet all of the lead requirements. So that's certainly, that was a capital investment for us several years ago. And that adds some cost and, of course, we're trying to pass that along to the customer, I think, as our competitors are doing also. Probably one of the most aggressive areas that was focused on here and one that gives us, I think, that we feel pretty bullish, is several years ago, we took a lead on the meter side of developing a composite meter, and we took that one step further because I think the objection from the marketplace was their concern on cross threading of putting metal threads into plastic threads or composite threads on the meter. So we did some intellectual property work and we think we have a pretty good patent on connecting metal threads to the composite body meter, which gives us, we think, somewhat of an advantage in the marketplace and some of the orders that I've referenced that we think that they will be coming and start shipping the second half of the year will be for the composite meters. So to answer your question, yes, that I think that we got out ahead of it in several years ago in our brass products under the Mueller brand name. And again, just to remind people, those are the -- those are some of the small valves, that actually are shut-off valves at the end of the property for individual house where the water company can automatically shut off flow. Those are brass products. We manufacture those now in low-lead brass. And on the meter side, as I've said, that we think in the future, a much greater percentage of our revenues and sales will be for our composite meters.

And I guess, just one last one for Evan. Can you maybe talk about capital allocation now that the pipe business has been divested and you have some runway there on the balance sheet?

Sure. As you saw subsequent to the quarter, we repaid $48 million under our ABL and also announced the redemption of 10% of the par value of our 8 3/4% notes. And going forward, debt reduction continues to be a priority for us. And we have an additional 10% redemption option that we can put in play after September 1 of this year. And as well, we have a $65 million general basket available for purchase of notes. And beginning on June 1, 2012, we can redeem the subordinated notes at just a little over 103. So looking out certainly, debt reduction continues to be a focus, but we're still in the valuation phase as we move forward.

Yilma Abebe.

JPMorgan. My question is on free cash flow. For the first half, can I confirm that I heard free cash flow for 2012 higher than $30 million? Did I hear that right?

We indicated that free cash flow for 2012, our projection is higher than the preliminary reclassified financial statement that we had last year, which I was around $30 million. So it would be higher than that mark, yes. And that's continuing ops -- free cash flow from continuing operations.

Yes. And can you perhaps remind us on the seasonality of the free cash flow pro forma for the divestiture of U.S. Pipe? Is there any difference or the historical trends are still relevant?

I would say, overall, our first and second quarters -- the non-construction season, and that's typically when we have lower free cash flow, second quarter in particular on an overall basis, but it can vary. But with the pipe divestiture, I would say that general trends will still be in place because Q3 and Q4 are the construction season and that's when we typically have higher sales and activity in our Mueller Co. business.

And then finally, it looked like this quarter in the free cash flow front there were some favorable timing later this year. How should we think about these timing issues in I guess in this quarter and the following quarter?

This quarter, we did receive, in free cash flow from continuing operations, we received an income tax refund of -- and also last year in the same quarter, we had an additional amount of pension contributions that we made. So those can vary -- the timing of that can vary from quarter-to-quarter. And so it does benefit the quarter, both of those I would say in and around $15 million. And that can just be choppy as we go out depending upon either refunds of taxes or pension contributions. But those were 2 items that did benefit us this year in the second quarter in free cash flow.

Next, we have Todd Vencil.

Greg, talking around what you said about the valve and hydrant volumes this spring, what you said about distributor inventories. What are your distributors sort of telling you about their outlook? I mean, I made some positive comments. But on the residential construction side, I mean, what are those guys saying or hearing from their customers?

Yes, I think overall, our distributors are more bullish now than they were a year ago. And I think there are sections, I would not say many, but a few sections of the country where our distributors are actually reporting that they're generating some valve and hydrant business from new housing developments. Certainly, we're not projecting that this will be a significant uptick for us in 2012. But our distributors are telling us they're seeing some of the -- they're seeing in some locations some opportunities. And as I've said earlier, that they're reporting that we're getting some quotation activity and starting seeing projects that have been hold for the last 2 or 3 years. The last 2 or 3 years, we're seeing some activities on those. So all in all, our distributors are a lot more positive than they were a year ago. And I think that their hypotheses for what we're hearing is that a year ago, they thought that municipalities -- because under the doom and gloom, we got so conservative and cut so deeply that I think that their belief is they just can't continue at that low of a rate and maybe what we're seeing is that they're back to at least -- there's less panic than there was a year ago they're back in spending at least maybe, a little closer, to their normalized -- what they need to do. But anecdotally, I would say that our distributors right now are more positive on the outlook for this year, second half of the year, going into construction season than they were a year ago.

And just out of curiosity, can you -- are you at liberty to sort of talk about what sort of specific geographies you're seeing, the uptick in community development or is it just sort of scattered?

I think it's scattered, but I would say is it's a little more in our Central region, which encompasses Texas and all. And again, I would think it's our Midwest, but down in the Southwest there for sure.

And then sort of the same question on the Anvil side, I mean, you had some great comments about oil & gas. Outside oil & gas in the non-residential building side, what are you hearing there?

I would say it's moving slowly in the right direction. But we've seen a number of forecasts that are calling maybe for 4% or 5% growth in non-res construction spending this year. I would say that we have not yet seen those kind of growth rates, but I think that we would see it pretty flat, but again, I think our distributors are a little more bullish and we could see some -- just some building of inventory there as the year moves along. So certainly, I would say that the oil & gas market has been a much stronger market in the nonresidential construction. I don't think we have a concern of seeing a potential fall-off in non-res construction. I think it's going to move slowly in the right direction.

Our final question today comes from Brent Thielman.

It's a D.A. Davidson. Greg, I apologize. You provided some metrics for Mueller's base business in terms of quotation activity. Could you give me the numbers again?

Yes, I you look on and on a year-over-year basis, our number of quotations were up 40% and dollar volume was up slightly over 100%.

And presumably, that's up from the first quarter as well?

Yes, it would be for sure just because of that of seasonality of the business. If you look at sequentially on the number of quotes, we're up over 70% in this quarter versus our first quarter of our fiscal year.

Got you. And then can you remind me, is the majority of that municipal repair, replacement or sort of new set of divisions?

Yes. Most of it was repair, replacement for municipalities. And as I said, we may have had a smattering of some new housing developments, but I would still say that that's just crawling along for at least better than it has been, and most of it has been, I guess, I would say, several of them are projects that are on the books for a while that are finally coming to fruition.

And then switching to Anvil. I guess, as you begin to see sort of more activity in markets outside of industrial oil & gas, and presumably, that's more non-residential buildings I'm talking about. But will that have an effect on the margin from a mix perspective when this commercial cycle picks up?

Brent, I don't believe so. I think when you look at the margins that we get in our standard products versus the margins that we get on the oil & gas, they're pretty close to being in the same range. And I think where we will see a benefit as that business picks up will increase our capacity utilization, which should help to -- should help the overall performance of the business as we get the incremental margins flow through.

Seth Weber.

Just a quick follow up. Sorry if you said this already. What was the tax refund in the quarter that benefit free cash flow?

The tax refund was around $8 million.

Okay and perfect, and that's factored into your $30 million plus for the year?

That is correct.

And that does conclude the question-and-answer segment of our call. I'll now turn the call back over to our speakers.

Well, again, everyone, thank you very much for your continued interest in Mueller Water Products. And hopefully, we'll get a chance to see a number of you soon.

That does concludes today's presentation. Thank you all for joining. You may now disconnect.