MUELLER WATER PRODUCTS, INC. (NYSE: MWA) 12-18 Month Price Target ~$7 Stress Case ~$2.

50
Stock (7/18/12) Shares Outs (MM; 4/30/12) MARKET CAP (MM) CAPITAL STRUCTURE Pro Forma $3.75 156.7 587.6 Dilution 6.9 Est 9/30/13 $3.75 163.6 613.5 VALUATION & PRICE TARGET FY14 EBITDA EBITDA Mueller Co 192.9 Anvil 67.5 Corporate (33.0) MAS Adj EBITDA (MM) 227.3 - Net Claims @ 2013-E Equity Value (MM) / FD Shares (MM) Per Share Norm US $8.01 (15%) (10%) (5%) 0% 5% 10% 15% 20% (x) 8.0x 6.0x 6.0x EV 1,543.2 404.8 (198.2) 1,749.8 (440.1) 1,309.7 163.5 $8.01

+ Total Funded Debt - Cash at 3/31/12 - US Pipe Net Cash (4/1/12) + Post QE ABL Repaid + 8-3/4's 22.5 Par @ 103 (5/18/12) + C2Q12:3Q12-E Cash Burn / - Flow + FY2013-E Cash Burn / - Flow PRO FORMA NET DEBT (MM) ENTERPRISE VALUE (MM) DEBT STACK ABL ($275MM Revolver) 8-3/4 Senior Unsecured of 2020 7-3/8 Senior Subs of 2017 Other TOTAL FUNDED DEBT (MM)

625.1 (34.3) (94.0) 48.0 23.2 568.0 1,155.6

Cash (Sources) (28.0) (99.9)

625.1 (34.3) (94.0) 48.0 23.2 (28.0) (99.9) 440.1 1,053.6 Maturity Unused Aug-15 275.0 Sep-20 Jun-17 -

PF Par Redeem Par Adj 3/31/12 0.0 (48.0) 48.0 202.5 (22.5) 3.1 221.9 420.0 420.0 2.6 2.6 625.1 (70.5) 3.1 692.5

Housing (000) Starts VS Public Spending 2013/2014 % Y/Y 800 1,000 1,200 1,400 1,600 1,800 $1.98 $2.55 $3.11 $3.68 $4.25 $4.82 $3.06 $3.65 $4.25 $4.85 $5.45 $6.05 $4.19 $4.82 $5.45 $6.08 $6.71 $7.34 $5.38 $6.04 $6.70 $7.36 $8.02 $8.68 $6.62 $7.32 $8.01 $8.70 $9.39 $10.08 $7.93 $8.65 $9.37 $10.09 $10.82 $11.54 $9.28 $10.04 $10.79 $11.54 $12.30 $13.05 $10.70 $11.48 $12.26 $13.05 $13.83 $14.62 FY14 FREE CASH FLOW

Free Cash Flow (MM) Per Share (x) Per Share FY14 EPS GAAP Adj EPS (All-in 37.5% Tax) (x) Per Share

96.5 $0.59 12.0x $7.08

$0.39 15.0x $5.80

Investment Thesis:
At $3.75, we believe MWA provides a unique risk/reward situation with limited downside (~$2.50) and substantial upside (~$7). Although we do not have a strong view Q/Q on financial performance due to the timing of municipal capital spending, MWA benefits from both cyclical and secular tailwinds of residential/commercial construction and repair/replace water infrastructure, respectively. MWAs core Mueller Co franchise is remarkably stable with an installed base of >50K municipalities cultivated over 150 years with high switching costs and barriers to entry. There could be further upside potential with better visibility into new residential construction and/or demonstrated organic growth at Valves/Hydrants or Mueller Systems/Echologics. Limited Downside, Estimated ~$2.50 Per Share: MWA traded to ~$2/share in Mar 2009 and Aug/Nov/Dec 2011. Since then, MWA has sold US Pipe (70MM EBITDA losses in last 3 years) for 94MM Net Cash ($0.60/share) and improved estimated trough EBITDA and Free Cash Flow (EBITDA Cash Interest Maintenance Capex) to 120MM and 30MM ($0.20/share). 12x trough Free Cash Flow of $0.20/share implies $2.40/share downside. There are no near term debt maturities (7-3/8 in 2017) and ABL availability is currently 275MM. Recent Divestiture of Underperforming US Pipe / Restructure Core / Invest in Growth: now in the 4 year of their Lean / Six Sigma and having completed the divesture of US Pipe, investors can now focus on earnings power and margin expansion at Mueller Co without US Pipe cash burn overhang. From growth in core product lines to new market opportunities in smart metering and pipe condition (which management estimates to be ~20% CAGR business on ~150MM base), MWA can further demonstrate the strength of their in-place franchise and ability to seize new markets.
th

Business Overview:
MWA is a leading North American manufacturer and marketer of products and services used in the transmission, distribution, and measurement of drinking water, in water treatment facilities, and residential and commercial construction. MWA estimates ~75% of sales are from #1 market positions in their leading brands with an installed base of 11MM Iron Gate Valves and 3MM Fire Hydrants, and are specified for use in the 100 largest metropolitan areas in the US. Capacity utilization is currently ~50% and there have been no changes to facilities and capacity since peak earnings in FY06 (aside from US Pipe restructurings and divesture).
MWA Net Sales % Composition R&R Muni Water Distribution & Treatment Non-Residential Construction Residential Construction USA Canada FY06 30% 30% 40% 88% 12% FY11 70% 25% 5% 89% 11%

Mueller Co: primarily Valves (65%, of which ~40% of this is related to Mueller Systems and Echologics) and Fire Hydrants (23%), with the remainder consisting of Brass, Henry Pratt (larger custom Valves), and Canada. Mueller Co sells through waterworks distributors and end markets are mainly municipalities and water/wastewater utilities. Established in 1857, MWA commands a #1 position in Valves and Hydrants with an installed base of >50K municipalities. This fragmented customer base has high switching

costs and their dedicated sales force of 109 sales reps and 104 inside marketing professionals have cultivated a distribution network and relationships not easily replicated. Over the past 12-18 months, Mueller Co has embarked on a new growth platform into smart metering and pipe condition assessment, which increases efficiency by changing from visual to direct meter reading (improving accuracy for billing) and increasing labor productivity. Management expects this to be a 20% CAGR market opportunity from a 150MM base, and LTM investments in SG&A (sales, engineers, service) have been a ~20MM negative drag on Mueller Co earnings. Management expects this to turn profitable in FY12, which should be a positive 20MM run-rate tailwind comp into FY13. Anvil: primarily Fittings & Couplings (join two pieces of pipe together), with the remainder consisting of Hangers (rigid support for fire protection and HVAC) and Nipples (expand or compress flow between different diameters). Anvil sells to distributors and end markets include commercial and industrial construction, as well as energy drilling applications. Anvil is a top 3 manufacturer with ~17% market share and the competitive advantage is their breadth of product lines (>15K SKUs) as one-stop provider, whereas competitors focus on more specific subsets of overall SKUs.
MWA HISTORICAL FINANCIALS ($MM) Net Sales Mueller Co US Pipe Anvil MWA Net Sales PF MWA Net Sales, Excl US Pipe % Y/Y Mueller Co US Pipe Anvil MWA % Y/Y PF MWA % Y/Y, Excl US Pipe Adj EBITDA Mueller Co US Pipe Anvil Corporate MWA Adj EBITDA PF MWA Adj EBITDA, Excl US Pipe % Margin Mueller Co US Pipe Anvil MWA % Margin PF MWA % Margin, Excl US Pipe PF2003 536 465 387 1,388 923 PF2004 618 578 431 1,628 1,049 PF2005 664 598 485 1,747 1,149 F2006 804 595 535 1,933 1,339 F2007 757 537 556 1,850 1,313 F2008 718 546 595 1,859 1,313 F2009 547 411 470 1,428 1,017 F2010 613 378 347 1,338 960 F2011 606 375 359 1,339 965

15.3% 24.3% 11.4% 17.2% 13.7%

7.4% 3.4% 12.5% 7.3% 9.5%

21.1% (0.6%) 10.2% 10.7% 16.5%

(5.9%) (9.7%) 4.0% (4.3%) (2.0%)

(5.1%) 1.7% 7.1% 0.5% 0.1%

(23.8%) (24.7%) (21.1%) (23.2%) (22.6%)

12.0% (8.1%) (26.2%) (6.3%) (5.6%)

(1.2%) (0.8%) 3.5% 0.1% 0.5%

139 26 38 (16) 187 161

167 33 47 (41) 206 173

190 44 62 (38) 258 214

249 63 73 (38) 346 283

207 59 78 (36) 308 249

179 24 94 (38) 258 234

101 (17) 57 (33) 109 126

131 (34) 34 (33) 97 132

104 (24) 48 (30) 98 122

25.9% 5.6% 9.8% 13.5% 17.5%

27.0% 5.8% 10.9% 12.7% 16.5%

28.6% 7.4% 12.8% 14.8% 18.6%

30.9% 10.6% 13.6% 17.9% 21.1%

27.3% 11.0% 14.1% 16.7% 19.0%

24.9% 4.3% 15.8% 13.8% 17.8%

18.5% (4.1%) 12.2% 7.6% 12.4%

21.3% (9.1%) 9.7% 7.3% 13.7%

17.2% (6.3%) 13.4% 7.3% 12.6%

Catalysts & Opportunities:

Mueller Systems & Water Tech Investments Break-even / Profitable: we expect management to execute on their business plan and turn this sub-segment profitable in 2H12 due to their in-place distribution and relationships. MWA is the #5 player in this market and both Badger Meter (NYSE: BMI) and Itron (NYSE: ITRI) have communicated that municipalities are ramping up their spending on water metering from the 2011 drop-off around the US debt downgrades and municipal budgets. We estimate ~20MM was spent in FY11 on SG&A investments, which should be a positive tailwind of 20MM as MWA comps into FY13, if successful. Water Infrastructures Repair & Replace Opportunity + Stronger EPA Regulations + Infrastructure Stimulus: to summarize from MWA presentations citing various sources, there is an accelerating need to repair and replace aging water infrastructure. Specific data points include: drinking water graded D-, 15-30% of potable water lost in leaky pipes, 36 states with projected water th shortage, US Infrastructure ranked 16 globally, and average life of 75-100 year old pipe converging with Valves/Hydrants generally replaced as well. Further Bifurcation of Water & Sewage Revenue Bonds and Revenue Bonds Versus General Obligation (GO) Bonds: Investors are rightfully skeptical of municipal budgets and access to capital markets given headlines around San Bernardino, Stockton, Jefferson County, and Harrisburg, among others. Although we do not have specific default data on Revenue Bonds, what matters is that these Revenue Bonds are secured by tolls, rents, and charges supported by real assets and not the full faith and credit supported by taxing power. Water & Sewage and Revenue Bonds trade tighter than GO Bonds and have continually proven their ability to access the capital markets. To our knowledge, there have been no instances of municipalities successfully plundering funds designated for Revenue Bonds. Note the 2011 Y/Y declines were primarily attributed to pull-forward effects in 2010 from Build America Bonds.

Historical Issuance ($MM; Barclays: 6/4/12) 350 300 250 200 150 100 50 0 1996 1997 1998 1999 2000 2001 2002 2003 GO 2004 2005 Revenue 2006 2007 2008 2009 2010 2011 YTD 12

280 260 240 220 200 180 160 140 120 100 Jun-11 Jul-11 Aug-11

LTM Option Adjusted Spreads (bps; Barclays: 6/4/12)

Sep-11

Oct-11 GO

Nov-11 Dec-11 Jan-12 Feb-12 Revenue Water & Sewer

Mar-12

Apr-12

May-12

Normalized US Housing Starts & Non-Residential Construction: without re-creating data sets and charts on the case for housing starts and commercial construction, we believe normalized (FY14 in Financial Projections) housing starts of 1.2MM and non-residential construction of 650B is reasonable. US Pipe Divesture & De-Leveraging (COMPLETE): on 4/2/12 MWA completed the sale of US Pipe for 94MM Net Cash, which MWA intends for debt repayment on the ABL and 22.5MM Par of the 8-3/4s (another 22.5MM Callable in Oct 2013) and the 7-3/8s callable at 104% beginning June 2012. Pro Forma LTM Leverage of 4.5x (568MM PF Net Debt / 125MM Adj EBITDA excluding US Pipe) greatly improves MWAs credit profile and more importantly, eliminates cash burn on this segment that produced over 70MM EBITDA losses over the last 3 years. Initially through 2009-2010, management was adamant to keep US Pipe as core and wait for the US housing turn, and we believe this divesture to be best strategic decision to maximize shareholder value.

Risks:
Macro & Recession: Residential and Non-Residential Construction Slowdown; Municipal Bond Market Liquidity & Stress Deferred Maintenance & No Sources of Capital; Municipal Bankruptcies Stigma & Buyers Strike on All Municipal Bonds; Stressed Consumer Push-Back on Rising Water Utility Rates Poor Execution on Mueller Systems & Echologics Investments: while not core to the MWA investment thesis, it would tarnish managements credibility if they are not successful in new product development given their relationships and core competencies in water infrastructure. We would lower the Price Target by ~$1.00 under such scenario (14MM EBITDA contribution in FY14 x 8 Multiple / 164MM shares plus 30-40MM cash burn). Oil & Gas Drilling Slowdown Due to Lower Priced Commodities: in FY11 Anvil benefitted from increased oil & gas drilling activity in North America and now accounts for ~20% of Net Sales from an insignificant amount in FY10. Management has indicated demand remains strong, though the rate of growth is slowing from easy comps in 2010.

Valuation Method:
EV / EBITDA: we believe MWA should trade at 8x mid-cycle EBITDA on Mueller Co and 6x mid-cycle EBITDA on Anvil. Water Infrastructure related names generally trade ~7-9x EBITDA (IEX, ITRI, WTS, BMI, FLS, XYL), and a return to normalized municipal spending plus growth initiatives will focus investor attention back to the historical stability of Mueller Co. Note that Mueller Co has been successful in passing through pricing increases in 19 of the last 20 years, with the exception being 2010 with Brass/Copper +25% Y/Y and Scrap Steel +15%. Free Cash Flow, P/E: multiples of 12x Free Cash Flow (8% Yield) and 15x EPS are generally within market multiples and MWA historical multiples.

Financial Projections:
MWA Assumptions:
CONTROL PANEL Incremental Gross Margins: MUELLER CO Incremental Gross Margins: ANVIL 2013 % Y/Y Public Spending: Water, Sewage, Waste 2014 % Y/Y Public Spending: Water, Sewage, Waste 2013 US Housing Starts (Assume Completions Same; 000's) 2014 US Housing Starts (Assume Completions Same; 000's) Base Input 40.0% 30.0% 2014-Norm Adj EBIT Peak 17.4% 21.5% 12.2% 12.5% 100 bps EBITDA 1.8 0.6

5.0% Per IR, No Historical Correlation 5.0% Per IR, No Historical Correlation 850 1,200

5.2

0.8

Macro Assumptions:
MACRO ASSUMPTIONS RESIDENTIAL (SAAR): US Housing Starts (000's; SAAR) US Housing Completions (000's; SAAR) COMMERCIAL ($B; NON-SAAR): Public Spend - Water Works ($B) Public Spend - Sewage & Waste Disposal ($B) US Total Water, Sewage, Waste ($B) US Private Non-Resi Spend ($B; Non-SAAR) US Public Non-Resi Spend ($B; Non-SAAR) US Total Non-Resi Spend ($B; Non-SAAR) F2006 2,301 2,007 F2007 1,763 2,028 F2008 1,396 1,445 F2009 655 1,066 F2010 611 860 F2011 473 579 F2012-E 677 626 F2013-E 850 850 F2014-E 1,200 1,200

14.3 22.5 36.8 281.0 243.8 524.8

14.6 22.7 37.4 333.5 274.1 607.6

15.7 24.2 39.9 404.3 294.5 698.8

15.6 24.5 40.1 369.0 308.9 677.9

14.7 25.4 40.1 275.9 294.4 570.2

14.0 23.2 37.2 252.1 280.6 532.7

13.5 23.5 37.0 291.6 274.1 565.6

14.2 24.6 38.9 320.7 280.9 601.6

14.9 25.9 40.8 352.8 294.9 647.8

Projections:
NET SALES ($MM) Mueller Co Anvil MWA Net Sales % Y/Y Mueller Co Anvil MWA % Y/Y ADJ EBITDA ($MM) Mueller Co US Pipe Anvil Corporate Adj EBITDA % Adj EBITDA Margin: Mueller Co US Pipe Anvil Corporate Adj EBITDA F2006 804 535 1,339 F2007 757 556 1,313 F2008 718 595 1,313 F2009 547 470 1,017 F2010 613 347 960 F2011 606 359 965 F2012-E 643 382 1,026 F2013-E 719 407 1,125 F2014-E 826 438 1,264

21.1% 10.2% 10.7% F2006 248.7 63.3 72.5 (38.3) 346.2

(5.9%) 4.0% (4.3%) F2007 206.5 59.0 78.4 (35.5) 308.4

(5.1%) 7.1% 0.5% F2008 178.5 23.6 93.8 (38.4) 257.5

(23.8%) (21.1%) (23.2%) F2009 101.0 (17.0) 57.4 (32.5) 108.9

12.0% (26.2%) (6.3%) F2010 130.8 (34.3) 33.6 (32.8) 97.3

(1.2%) 3.5% 0.1%

6.2% 6.5% 6.3%

11.7% 6.4% 9.7%

14.9% 7.7% 12.3%

F2011 F2012-E F2013-E F2014-E 104.0 86.2 139.9 192.9 (23.6) 48.0 54.4 61.6 67.5 (30.1) (28.8) (30.0) (33.0) 98.3 111.8 171.5 227.3

30.9% 10.6% 13.6% 17.9%

27.3% 11.0% 14.1% 16.7%

24.9% 4.3% 15.8% 13.8%

18.5% (4.1%) 12.2% 7.6%

21.3% (9.1%) 9.7% 7.3%

17.2% (6.3%) 13.4% 7.3%

13.4% 14.2% 10.9%

19.5% 15.1% 15.2%

23.4% 15.4% 18.0%

FREE CASH FLOW ($MM) F2006 F2007 F2008 F2009 F2010 F2011 F2012-E F2013-E F2014-E Adj EBITDA 346.2 308.4 257.5 108.9 97.3 98.3 111.8 171.5 227.3 - Cash Interest Paid (116.7) (69.4) (70.5) (74.8) (77.5) (61.2) (48.8) (48.8) (48.8) - Cash Tax Paid (0 if Refund; See Note A) (49.2) (45.0) (7.7) (12.3) (38.0) A - Total Capex Mueller Co (32.2) (21.7) (17.9) (16.2) (15.6) (14.2) (15.9) (16.0) (30.0) - Total Capex US Pipe (22.8) (47.5) (58.5) (11.2) (11.0) (9.3) (2.9) - Total Capex Anvil (32.2) (16.1) (15.0) (11.9) (6.0) (7.5) (8.3) (6.8) (14.0) - Total Capex Corporate (4.1) (0.2) (0.4) (0.2) (0.7) - Pension Funding (20-22 Expensed thru SGA) +/- Placeholder MWA Free Cash Flow 93.1 104.6 87.7 (17.9) (13.0) 5.4 35.8 99.9 96.5 Per Share $0.98 $0.91 $0.76 ($0.15) ($0.08) $0.03 $0.22 $0.61 $0.59 A) Cash Tax Paid: 13 State NOL and 40 Federal NOL w/ ~150 Pre-Tax Income Shielded; F14-E indicative of Normalized Cash Taxes payable NORM EPS ($MM) Operating Income - Restructuring/Impairment +/- Placeholder Adj EBIT % Margin - Net Interest Expense Adj Pre-Tax Earnings - Tax @ 37.5% (0 if Loss) NORM NET INCOME NORM EPS F2006 129.0 28.6 157.6 8.2% (107.4) 50.2 (18.8) 31.4 $0.33 F2007 210.0 0.0 210.0 11.4% (86.8) 123.2 (46.2) 77.0 $0.67 F2008 146.1 18.3 164.4 8.8% (72.4) 92.0 (34.5) 57.5 $0.50 F2009 (1,000.9) 1,018.7 17.8 1.2% (78.3) (60.5) 0.0 (60.5) ($0.52) F2010 4.0 13.1 17.1 1.3% (68.0) (50.9) 0.0 (50.9) ($0.33) F2011 9.2 7.5 16.7 1.2% (61.2) (44.5) 0.0 (44.5) ($0.29) F2012-E 60.7 1.3 62.0 6.0% (48.8) 13.1 (4.9) 8.2 $0.05 F2013-E 101.2 101.2 9.0% (48.8) 52.4 (19.7) 32.8 $0.20 F2014-E 150.1 150.1 11.9% (48.8) 101.3 (38.0) 63.3 $0.39