UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March~~June 2524, 2005


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 333-102430

National Waterworks, Inc.

(Exact name of registrant as specified in its charter)

Delaware		05-0532711
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)


Delaware (State or other jurisdiction of incorporation or organization)		05-0532711 (I.R.S. Employer Identification No.)

200 West Highway 6
Suite 620
Waco, Texas 76712
(Address of principal executive offices)

(254) 772-5355
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes No o No

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

o Yes No þ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock		Outstanding as of ~~April~~July 2629, 2005
$.01 Par Value			100

NationalTable Waterworks,of Inc. Form 10-Q Index Contents

		Page(s)
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Balance Sheets as of March 25, 2005 (unaudited) and December 31, 2004		3
	Statements of Operations for the Three Months Ended March 25, 2005 and March 26, 2004 (unaudited)		4
	Statements of Cash Flows for the Three Months Ended March 25, 2005 and March 26, 2004 (unaudited)		5
	Notes to Financial Statements (unaudited)		6-8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		9-14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		15
Item 4.	Controls and Procedures		16
PART II. OTHER INFORMATION
Item 6.	Exhibits		17
SIGNATURES			18
CERTIFICATIONS			19-21
EX-31.1 CERTIFICATION
EX-31.2 CERTIFICATION
EX-32.1 CERTIFICATION

National Waterworks, Inc.

Form 10-Q
Index


		Page(s)
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Balance Sheets as of June 24, 2005 (unaudited) and December 31, 2004	3

	Statements of Operations for the Three Months and Six Months Ended June 24, 2005 and June 25, 2004 (unaudited)	4

	Statements of Cash Flows for the Six Months Ended June 24, 2005 and June 25, 2004 (unaudited)	5

	Notes to Financial Statements (unaudited)	6-8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9-16

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17

Item 4.	Controls and Procedures	18

PART II. OTHER INFORMATION

Item 6.	Exhibits	19

SIGNATURES		20

CERTIFICATIONS		21-23
EX-31.1: CERTIFICATION
EX-31.2: CERTIFICATION
EX-32.1: CERTIFICATION

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

National Waterworks, Inc.

Balance Sheets

(in thousands except per share information)

	March 25,		December 31,
	June 24,		December 31,
	2005		2004
Assets
Current assets:
Cash and cash equivalents	$	2816,~~836~~085	$	15,940
Trade accounts receivable, net		~~235~~297,~~844~~925		227,780
Inventories		~~149~~136,~~407~~597		126,866
Deferred income taxes		12,~~754~~070		1,398
Other current assets		2,~~369~~329		2,668
Total current assets		~~418~~455,~~210~~006		374,652
Property and equipment, net		1819,~~929~~719		19,269
Goodwill		457,221		457,221
Deferred financing fees, net		1918,~~671~~778		20,565
Other assets		3,~~556~~765		2,961
	$	~~917~~954,~~587~~489	$	874,668
Liabilities and Stockholder’s Equity
Current liabilities:
Trade accounts payable	$	~~213~~223,~~754~~884	$	172,214
Current installments of long-term debt		1516,~~000~~250		15,000
Accrued compensation and benefits		16,964		33,795
Borrowings under revolving credit facility		5,000		—
Other accrued expenses		23,849		12,564
Accrued compensation and benefits		24,773		33,795
Total current liabilities		269,567		233,573
Other accrued expenses		28,221		12,564
Long-term debt, excluding current installments		395,000		395,000
Total current liabilities		298,128		233,573
Deferred income taxes		25,050		23,163
Long-term debt, excluding current installments		390,000		395,000
Other long-term liabilities		3,732		3,132
Deferred income taxes		28,065		23,163
Total liabilities		693,349		654,868
Other long-term liabilities		4,065		3,132
Total liabilities		720,258		654,868
Commitments and contingencies (note 3)
Stockholder’s Equity:
Common stock - $0.01 par value; 100 shares authorized, issued and outstanding		—
Common stock — $0.01 par value; 100 shares authorized, issued and outstanding		—		—
Additional paid-in capital		199,~~710~~806		199,614
Retained earnings		2434,~~528~~425		20,186
Total stockholder’s equity		~~224~~234,~~238~~231		219,800
	$	~~917~~954,~~587~~489	$	874,668

The accompanying notes are an integral part of these financial statements.

National Waterworks, Inc.

Statements of Operations

(in thousands)

	Three Months Ended						Six Months Ended
	March 25,			March 26,
	June 24,			June 25,			June 24,			June 25,
	2005			2004			2005			2004
Net sales	$	~~339~~462,~~448~~489		$	~~280~~417,~~022~~220		$	801,937		$	697,242
Cost of goods sold		~~269~~369,~~599~~934			~~223~~334,~~572~~169			639,533			557,741
Gross profit		6992,~~849~~555			5683,~~450~~051			162,404			139,501
Operating expenses:
Selling, general and administrative		4452,~~899~~081			3847,~~075~~113			96,980			85,188
Income before depreciation and amortization		24,950			18,375
Depreciation and amortization		524			522			1,286			1,079
Depreciation and amortization		762			557
Operating income		39,950			35,416			64,138			53,234
Operating income		24,188			17,818
Other income (expense):
Other income (expense):
Interest expense, net		(9,160	)		(8,514	)		(17,610	)		(16,763	)
Interest expense, net		(8,450	)		(8,249	)
Other		40			102			(39	)		165
Other		(79	)		63
Income before income taxes		30,830			27,004			46,489			36,636
Income before income taxes		15,659			9,632
Income tax expense		12,434			10,811			18,751			14,750
Income tax expense		6,317			3,939
Net income	$	18,396		$	16,193		$	27,738		$	21,886
Net income	$	9,342		$	5,693

The accompanying notes are an integral part of these financial statements.

~~The~~National ~~accompanying~~Waterworks, ~~notes are an integral part of these financial statements~~Inc.

~~National~~Statements ~~Waterworks,~~of ~~Inc.~~ Cash Flows

~~Statements~~(in ~~of Cash Flows~~thousands)

(in thousands)


	Six Months Ended
	June 24,			June 25,
	2005			2004
Cash flows from operating activities:
Net income	$	27,738		$	21,886
Adjustments to reconcile net income to net cash from operating activities:
Deferred income taxes		4,230			6,332
Amortization of deferred financing fees		1,787			1,788
Non-cash stock compensation expense		192			—
Depreciation and amortization		1,286			1,079
Gain on disposal of equipment		(17	)		(221	)
Provision for doubtful accounts		754			1,010
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable		(70,899	)		(76,747	)
Inventories		(9,731	)		(41,304	)
Other current assets		339			448
Other assets		(804	)		(713	)
Trade accounts payable and other accrued expenses		58,305			101,337
Other long-term liabilities		933			841

Net cash from operating activities		14,113			15,736

Cash flows from investing activities:
Capital expenditures		(1,763	)		(549	)
Business acquisitions, net of cash		—			(1,992	)
Proceeds from sales of property and equipment		45			536

Net cash from investing activities		(1,718	)		(2,005	)

Cash flows from financing activities:
Principal payments on long-term debt		(3,750	)		(3,750	)
Borrowings under revolving credit facility		5,000			—
Dividend distribution		(13,500	)		(10,888	)

Net cash from financing activities		(12,250	)		(14,638	)


Net increase in cash and cash equivalents		145			(907	)
Cash and cash equivalents at beginning of period		15,940			18,702

Cash and cash equivalents at end of period	$	16,085		$	17,795


Cash paid for interest	$	13,323		$	13,001
Cash paid for income taxes	$	3,830		$	3,316

	Three Months Ended
	March 25,			March 26,
	2005			2004
Cash flows from operating activities:
Net income	$	9,342		$	5,693
Adjustments to reconcile net income to net cash from operating activities:
Deferred income taxes		1,531			3,294
Amortization of deferred financing fees		894			894
Non-cash stock compensation expense		96			—
Depreciation and amortization		762			557
Loss (gain) on disposal of equipment		2			(87	)
Provision for doubtful accounts		197			236
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable		(8,261	)		(13,060	)
Inventories		(22,541	)		(26,056	)
Other current assets		299			552
Other assets		(595	)		(563	)
Trade accounts payable and other accrued expenses		35,994			55,254
Other long term liabilities		600			570
Net cash from operating activities		18,320			27,284
Cash flows from investing activities:
Capital expenditures		(442	)		(239	)
Business acquisitions, net of cash		—			(1,992	)
Proceeds from sales of property and equipment		18			157
Net cash from investing activities		(424	)		(2,074	)
Cash flows from financing activities:
Dividend distribution		(5,000	)		(6,114	)
Net cash from financing activities		(5,000	)		(6,114	)
Net increase in cash and cash equivalents		12,896			19,096
Cash and cash equivalents at beginning of period		15,940			18,702
Cash and cash equivalents at end of period	$	28,836		$	37,798
Cash paid for interest	$	62		$	1
Cash paid for income taxes	$	1,810		$	3,125

The accompanying notes are an integral part of these financial statements.

~~The accompanying notes are an integral part of these financial statements.~~5

5 Table of Contents

~~Table~~National ofWaterworks, ~~Contents~~Inc.

~~National~~Notes ~~Waterworks,~~to ~~Inc.~~ Financial Statements (unaudited)

~~Notes~~Note to1. ~~Financial~~Basis ~~Statements~~of ~~(unaudited)~~Presentation

~~Note~~National 1Waterworks, Inc. ~~Basis~~(“NWW”) is a wholly owned subsidiary of ~~Presentation~~National Waterworks Holdings, Inc. (“Holdings”). NWW is a distributor of water and wastewater (sewer) transmission products, including pipe, fittings, valves, meters, fire hydrants, service and repair products and other components that are used to transport clean water and wastewater between reservoirs and treatment plants and residential and commercial locations. Principal customers served are in the contractor and municipal markets in the United States.

~~National~~The ~~Waterworks,~~accompanying ~~Inc.~~unaudited financial statements include all adjustments (~~“NWW”~~consisting only of normal recurring adjustments) iswhich, in the opinion of management, are necessary for a ~~wholly~~fair ~~owned~~presentation. Accounting ~~subsidiary~~measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of ~~National~~operations ~~Waterworks~~for ~~Holdings,~~the interim periods presented are not necessarily ~~Inc~~indicative of the results to be expected for the entire year. ~~(“Holdings”)~~Certain prior year amounts have been reclassified to conform to the 2005 presentation.

The ~~accompanying~~information ~~unaudited~~contained ~~financial statements include all adjustments (consisting only of normal recurring adjustments) which,~~ in the ~~opinion~~accompanying ofnotes ~~management,~~to ~~are~~the ~~necessary~~financial ~~for~~statements ais ~~fair~~condensed ~~presentation.~~from ~~Accounting~~that ~~measurements~~which atwould ~~interim~~appear ~~dates~~in ~~inherently~~the ~~involve~~annual ~~greater~~financial ~~reliance~~statements; onaccordingly, ~~estimates~~the ~~than~~financial atstatements ~~year~~included ~~end.~~herein ~~The~~should ~~results~~be ofreviewed ~~operations~~in ~~for~~conjunction with the ~~interim~~financial ~~periods~~statements ~~presented~~and ~~are~~related ~~not necessarily~~notes ~~indicative~~thereto, ofincluded ~~the~~in ~~results~~NWW’s toannual bereport ~~expected~~on Form 10-K for the ~~entire~~ year. ~~Certain~~ended ~~prior~~December 31, ~~year amounts have been reclassified to conform to the 2005 presentation~~2004.

~~The~~Fiscal ~~information contained in the accompanying notes to the financial statements is condensed from~~Year that which would appear in the annual financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto, included in NWW’s annual report on Form 10-K for the year ended December 31, 2004.

~~Fiscal~~NWW’s ~~Year~~calendar year begins on January 1 of the year stated and ends on December 31 of that same year. NWW reports results using the fiscal quarter method; each quarter is reported as of the last Friday of the period. The results for the three months ended June 24, 2005 and June 25, 2004 include 13 weeks. The results for the six months ended June 24, 2005 include 25 weeks. The results for the six months ended June 25, 2004 include 25 weeks and 2 days.

~~NWW’s~~Recent ~~calendar~~Accounting ~~year begins on January 1 of the year stated and ends on December 31 of that same~~Pronouncements year. NWW reports results using the fiscal quarter method; each quarter is reported as of the last Friday of the period. The results for the quarter ended March 25, 2005 include twelve weeks. The results for the quarter ended March 26, 2004 include twelve weeks and two days.

~~Recent~~In ~~Accounting~~December 2004, ~~Pronouncements~~the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment: an Amendment of FASB Statements No. 123 and 95 (SFAS No. 123R). SFAS No. 123R requires the recognition in the income statement of the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS No. 123R is effective for most public companies’ annual periods beginning after June 15, 2005. NWW plans to adopt SFAS No. 123R prospectively on January 1, 2006. The adoption of SFAS No. 123R is not expected to have a significant impact on NWW’s financial statements.

~~In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Share-Based Payment: an Amendment of~~6 FASB Statements No. 123 and 95 (SFAS No. 123R). SFAS No. 123R requires the recognition in the income statement of the grant-date fair value of stock options and other equity-based compensation issued to employees. SFAS No. 123R is effective for most public companies’ annual periods beginning after June 15, 2005. NWW plans to adopt SFAS No. 123R prospectively on January 1, 2006. The adoption of SFAS No. 123R is not expected to have a significant impact on NWW’s financial statements.

6 Table of Contents

~~Table~~Note 2. Segments of ~~Contents~~an Enterprise and Related Information

~~Note~~Management 2has implemented the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 131, Disclosure about Segments of an Enterprise and Related Information. NWW has determined that the six geographic regions, to which substantially all income and expenses are allocated for purposes of allocating resources by the chief operating decision maker, meet all of the aggregation criteria of SFAS No. 131, including similar economic characteristics. Accordingly, there is one reportable segment.

~~Management~~Products ~~has~~include ~~implemented~~pipe, ~~the~~fittings, ~~provisions~~valves, ofmeters, ~~Statement~~fire ~~of Financial Accounting Standards (“SFAS”) No. 131~~hydrants, ~~Disclosure~~service ~~about Segments of an Enterprise~~ and ~~Related~~repair ~~Information.~~products ~~NWW has~~and ~~determined~~other ~~that~~complementary ~~the~~products ~~six~~for ~~geographic~~waterworks ~~regions,~~construction ~~to which substantially all income~~ and ~~expenses~~maintenance/repair. ~~are~~The following ~~allocated~~table ~~for~~sets ~~purposes~~forth ofnet ~~allocating~~sales ~~resources~~ by ~~the~~product ~~chief~~category ~~operating~~(in ~~decision maker, meet all~~thousands): ~~of the aggregation criteria of SFAS No. 131, including similar economic characteristics. Accordingly, there is one reportable segment.~~

Products include pipe, fittings, valves, meters, fire hydrants, service and repair products and other complementary products for waterworks construction and maintenance/repair. The following table sets forth net sales by product category (in thousands):


	Three Months Ended				Six Months Ended
	June 24,		June 25,		June 24,		June 25,
Product Category	2005		2004		2005		2004
Pipe	$	206,877	$	186,830	$	357,604	$	303,745
Fittings		70,891		60,886		121,943		103,322
Valves		52,102		48,292		90,430		81,669
Meters		34,466		29,584		62,580		54,357
Fire hydrants		27,064		24,007		45,243		40,633
Service and repair products		26,248		24,428		47,032		41,713
Other		44,841		43,193		77,105		71,803

	$	462,489	$	417,220	$	801,937	$	697,242

	Three Months Ended
	March 25,		March 26,
Product Category	2005		2004
Pipe	$	150,727	$	116,825
Fittings		51,052		42,479
Valves		38,328		33,379
Meters		28,114		25,118
Fire hydrants		18,179		16,633
Service and repair products		20,784		17,277
Other		32,264		28,311
	$	339,448	$	280,022

All revenues are derived from customers domiciled in the United States and there are no long-lived assets located outside of the United States, and no single customer, as defined in SFAS No. 131, represents ten percent or more of revenues for any period presented.

~~All~~Note ~~revenues~~3. ~~are~~Commitments ~~derived from customers domiciled in the United States~~ and ~~there are no long-lived~~Contingencies ~~assets located outside of the United States, and no single customer, as defined in SFAS No. 131, represents ten percent or more of revenues for any period presented.~~

~~Note~~On 3November 22, 2002, NWW acquired substantially all of the assets and certain liabilities of U.S. Filter ~~Commitments~~Distribution Group, Inc. (“USFDG”), a wholly owned subsidiary of United States Filter Corporation (“USFC”), which is an indirect-wholly owned subsidiary of Veolia Environnement (“Veolia”, formerly Vivendi Environnement S.A.). Certain of USFDG’s predecessors distributed or may have distributed cement pipe containing asbestos. Except for one predecessor, the cement pipe distributed was primarily used in water and ~~Contingencies~~sewage application where the pipe was typically buried underground. Management believes that the nature of the asbestos-containing pipe distributed by the predecessors and the uses of such pipe makes it unlikely that a large number of plaintiffs would be exposed to friable asbestos emanating from the pipe. Management is not aware of any predecessor manufacturing or fabricating asbestos containing products of any type or assuming any product liability for such products.

OnThe November ~~22,~~ 2002, ~~NWW~~acquisition ~~acquired~~was ~~substantially~~structured ~~all~~as ofan ~~the~~asset ~~assets~~purchase and ~~certain~~NWW ~~liabilities~~did ofnot ~~U.S.~~assume any ~~Filter~~existing ~~Distribution~~or ~~Group,~~future ~~Inc~~asbestos-related liabilities relating to USFC or its predecessors. (“USFC and USFDG~~”),~~ aretained ~~wholly~~these ~~owned~~liabilities ~~subsidiary~~and ofjointly ~~United~~and ~~States~~severally ~~Filter~~agreed to indemnify and defend NWW from ~~Corporation~~and ~~(“USFC”),~~against ~~which~~these isliabilities on an ~~indirect-wholly~~unlimited ~~owned~~basis ~~subsidiary~~with ofno ~~Veolia~~termination ~~Environnement~~date. USFC and USFDG also ~~(“Veolia”~~agreed that, ~~formerly~~until ~~Vivendi~~November 22, ~~Environnement~~2012, ~~S.A.).~~USFC ~~Certain~~will ofcause USFDG to maintain USFDG’s ~~predecessors~~corporate ~~distributed or~~existence ~~may~~and ~~have~~ensure ~~distributed~~that ~~cement~~USFDG ~~pipe~~has ~~containing~~sufficient ~~asbestos.~~funds ~~Except~~to ~~for~~pay ~~one~~any ~~predecessor,~~and ~~the~~all ~~cement~~of ~~pipe distributed~~its ~~was~~debts ~~primarily~~and ~~used~~other inobligations, including ~~water~~liabilities ~~and~~retained ~~sewage~~by ~~application~~USFDG ~~where~~and ~~the~~its ~~pipe~~indemnification ~~was~~obligations, ~~typically~~as ~~buried~~and when they ~~underground~~become due. ~~Management~~In ~~believes~~addition, ~~that~~Veolia ~~the~~has ~~nature~~guaranteed all obligations of ~~the~~USFC ~~asbestos-containing~~and ~~pipe~~USFDG ~~distributed~~under bythe asset purchase agreement, including the indemnity discussed above, up to an aggregate of $50.0 million ~~predecessors~~through ~~and~~the period ending November 22, 2017. Historically, courts have not held the ~~uses~~acquirer of ~~such~~an entity’s ~~pipe~~assets ~~makes~~liable itfor ~~unlikely~~liabilities that aare ~~large~~not ~~number~~assumed as part of ~~plaintiffs~~the ~~would~~transaction beunless the ~~exposed~~asset buyer is found to ~~friable~~be ~~asbestos~~a ~~emanating~~“successor” ~~from~~to the ~~pipe~~asset seller. ~~Management~~Accordingly, NWW could become subject to asbestos liabilities in the future to the extent it is ~~not~~found ~~aware~~to ofbe ~~any~~a ~~predecessor~~successor to USFDG and to ~~manufacturing~~the orextent ~~fabricating~~USFDG, USFC and Veolia are unable to fulfill their contractual obligations. As the asbestos ~~containing~~claims ~~products~~were retained by USFDG and USFC and in view of ~~any~~the ~~type~~indemnity orby ~~assuming~~USFDG ~~any~~and ~~product~~USFC with respect to retained liabilities and the Veolia guarantee, discussed above, management of NWW believes that it has no liability ~~for~~related ~~such~~to ~~products~~asbestos claims at June 24, 2005.

~~The November 2002 acquisition was structured as an asset purchase and NWW did not assume any~~7 existing or future asbestos-related liabilities relating to USFC or its predecessors. USFC and USFDG retained these liabilities and jointly and severally agreed to indemnify and defend NWW from and against these liabilities on an unlimited basis with no termination date. USFC and USFDG also agreed that, until November 22, 2012, USFC will cause USFDG to maintain USFDG’s corporate existence and ensure that USFDG has sufficient funds to pay any and all of its debts and other obligations, including liabilities retained by USFDG and its indemnification obligations, as and when they become due. In addition, Veolia has guaranteed all obligations of USFC and USFDG under the asset purchase agreement, including the indemnity discussed above, up to an aggregate of $50.0 million through the period ending November 22, 2017. Historically, courts have not held the acquirer of an entity’s assets liable for liabilities that are not assumed as part of the transaction unless the asset buyer is found to be a “successor” to the asset seller. Accordingly, NWW could become subject to asbestos liabilities in the future to the extent it is found to be a successor to USFDG and to the extent USFDG, USFC and Veolia are unable to fulfill their contractual obligations. As the asbestos claims were retained by USFDG and USFC and in view of the indemnity by USFDG and USFC with respect to retained liabilities and the Veolia guarantee, discussed above, management of NWW believes that it has no liability related to asbestos claims at March 25, 2005.

7 Table of Contents

~~Table~~NWW is involved in various other claims and legal actions arising in the ordinary course of business. ~~Contents~~In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on NWW’s financial position or results of operations.

~~USFDG~~Note ~~and its predecessor companies have been named as defendants in 1,180 asbestos related lawsuits, of which 976 have been dismissed, 144 have been settled and 60 remain open at March 25, 2005~~4. ~~The~~Related ~~majority~~Party ~~of these suits have related to one location and have either been dismissed or~~Transactions settled for nominal amounts. USFDG’s insurers have paid the majority of the settlement and defense costs related to these suits. As of March 25, 2005, USFDG has made aggregate settlement payments of $0.1 million and paid aggregate defense costs of $0.6 million related to settled claims.

In November 2002, NWW isentered ~~involved~~into ina ~~various~~management ~~other~~agreement ~~claims~~with J.P. Morgan Partners, LLC and ~~legal~~Thomas H. ~~actions~~Lee ~~arising~~Partners, inL.P. (collectively, the ~~ordinary~~“Sponsors”). ~~course~~Each of the Sponsors and its affiliates owns ~~business~~43.3% Inof the ~~opinion~~outstanding common stock of ~~management~~Holdings. Under the agreement, the ~~ultimate~~Sponsors ~~disposition~~agreed to provide NWW with financial advisory and other services. Beginning July 1, 2004, NWW pays each Sponsor an annual management fee of $0.5 million for these ~~matters~~services. The management agreement continues until terminated by a Sponsor as provided in the management agreement. Upon termination under certain conditions, each Sponsor will ~~not~~be ~~have~~entitled to receive a termination fee equal to the ~~material~~net ~~adverse~~present ~~effect~~value onof ~~NWW’s~~the ~~financial~~fees ~~position~~that orwould ~~results~~have been paid to the Sponsor for the 10-year period commencing on the date of ~~operations~~termination.

Note 45. ~~Related~~Subsequent ~~Party Transactions~~Events

InOn ~~November~~July ~~2002~~1, 2005, NWW ~~entered~~issued ~~into~~ a ~~management~~press ~~agreement~~release ~~with~~relating ~~J.P.~~to ~~Morgan~~the ~~Partners,~~commencement ~~LLC~~of ~~and~~a ~~Thomas A.~~tender ~~Lee~~offer ~~Partners, L.P.~~ (~~collectively,~~ the “~~Sponsors~~Tender Offer”). ~~Each~~for ofany ~~the~~and ~~Sponsors~~all ~~and~~of its ~~affiliates~~outstanding ~~owns 43~~$200.3%0 million ofaggregate ~~the~~principal ~~outstanding~~amount ~~common stock~~ of ~~Holdings~~ 10.50% ~~Under~~Senior ~~the~~Subordinated ~~agreement~~Notes, ~~the~~Series B, ~~Sponsors~~due ~~agreed~~2012 ~~to provide~~(the ~~NWW~~“Notes”). ~~with~~In ~~financial~~connection ~~advisory~~with ~~and~~the ~~other services. Beginning July 1~~Tender Offer, ~~2004,~~ NWW ~~pays~~also ~~each Sponsor~~announced anthe ~~annual~~solicitation ~~management~~of ~~fee~~consents offrom ~~$0.5 million~~the ~~for~~holders ~~these~~of ~~services.~~the ~~The~~Notes ~~management~~to ~~agreement~~eliminate ~~continues~~most ~~until~~of ~~terminated~~the byrestrictive acovenants ~~Sponsor~~in asthe ~~provided~~indenture inunder which the ~~management~~Notes ~~agreement~~were issued. ~~Upon~~In ~~termination~~addition ~~under~~to ~~certain~~other terms and conditions, ~~each~~set ~~Sponsor~~forth ~~will~~in bethe ~~entitled~~Offer to ~~receive~~Purchase aand ~~termination~~Consent ~~fee~~Solicitation ~~equal~~Statement dated toJuly 1, ~~the net~~2005 ~~present~~and ~~value~~related ofdocuments, the ~~fees~~Tender ~~that~~Offer ~~would~~was ~~have~~conditioned ~~been~~on, ~~paid~~among toother ~~the~~things, consummation ~~Sponsor~~of ~~for~~an ~~the~~initial ~~10-year~~public ~~period commencing~~offering onof ~~the~~common ~~date~~stock ofby ~~termination~~Holdings.

8On July 18, 2005, Holdings entered into a stock purchase agreement, pursuant to which Home Depot U.S.A, Inc. agreed to purchase all of Holdings’ issued and outstanding common stock (the “Acquisition”). The cash purchase price for the Acquisition is $1.35 billion, less any assumed debt, and subject to other adjustments as provided in the purchase agreement. The closing of the Acquisition is subject to the satisfaction or waiver of customary conditions. The purchase agreement contains customary representations, warranties and covenants. Until closing of the Acquisition, Holdings has agreed that it and NWW will operate their business in the ordinary course. The purchase agreement may be terminated by mutual agreement of Home Depot U.S.A., Inc. and the sellers’ representative or by each of them if certain conditions contained in the purchase agreement have not been satisfied or waived by September 30, 2005, subject to extension as provided in the purchase agreement.

~~Table~~As a result of ~~Contents~~the Acquisition, on July 19, 2005, NWW announced the amendment of the Tender Offer and related consent solicitation to amend the consideration offered for tendered Notes and delivered consents, to remove the condition that Holdings must complete an initial public offering, to add the condition that the Acquisition is consummated and to extend the consent time and expiration date.

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations~~8

TheTable following is management’s discussion and analysis of significant factors which have affected the financial condition of the Company as of March 25, 2005 and the results of operations for the three months then ended. This information should be read in conjunction with our financial statements and the notes thereto contained herein and in our annual report on Form 10-K for the year ended December 31, 2004. Contents

~~Forward-Looking~~Item 2. ~~Statements~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

~~Unless~~The following is management’s discussion and analysis of significant factors which have affected the ~~context~~financial ~~otherwise~~condition ~~requires,~~of ~~“we,”~~the ~~“us~~Company as of June 24,” ~~“our”~~2005 and ~~“National~~the ~~Waterworks”~~results ~~refer~~of tooperations for the ~~National~~three ~~Waterworks,~~months ~~Inc.,~~and asix ~~Delaware~~months ~~corporation~~then ended. This information should be read in conjunction with our financial statements and the notes thereto contained herein and in our annual report on Form 10-K for the year ended December 31, 2004.

~~This report contains “forward-looking statements” within the meaning of the federal securities laws.~~ Forward-~~looking~~Looking ~~statements include statements concerning our plans, objectives, goals,~~Statements strategies, future events, future revenue or performance, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “may,” “should”, and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including without limitation, management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved.

~~Actual~~Unless results or events may differ significantly from those expressed in, or implied by, such forward-looking statements as a result of various important factors. These factors include, but are not limited to, national, regional and local general economic and business conditions; trends in the ~~water~~context ~~and~~otherwise wastewater transmission products industry and trends in the construction industry; changes in municipal funding and spending levels; our high level of indebtedness and the restrictions imposed by the terms of our indebtedness; our ability to generate cash to service our debt; failure to successfully implementrequires, ~~or changes in~~“we,” our business strategy and the risk that our business strategy may not be successful in improving our operating results; competition and the development of alternatives to water and wastewater transmission products distributors in the supply chain; the loss of one or more of our major suppliers or a reduction in supplier participation in our preferred vendor program; changes in the cost of polyvinyl chloride (“~~PVC~~us,”~~) pipe~~ ~~or reductions in PVC pipe and other product availability; the risk that~~ “our” ~~quarterly operating results are subject to substantial seasonal fluctuations; the availability of qualified branch managers~~ and ~~sales~~“National ~~personnel~~Waterworks” ~~and~~refer the loss of members of our senior management team; disruptions in our IT systems which manage numerous aspects of our business and customer and supplier relationships; and changes in, or the failure or inability to ~~comply with, environmental~~ ~~and~~National ~~safety regulations and increased costs of such regulations~~Waterworks, ~~as well as the other risk factors affecting us detailed in our annual report on Form 10-K for the year ended December 31, 2004~~Inc. ~~Except as otherwise required by the federal securities laws~~, wea ~~assume~~Delaware ~~no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances~~corporation.

~~Overview~~This report contains “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, financing needs, plans or intentions relating to acquisitions, business trends and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “projects,” “forecasts,” “plans,” “intends,” “believes,” “may,” “should”, and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including without limitation, management’s examination of historical operating trends, are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved.

WeActual ~~are~~results aor ~~leading~~events ~~distributor~~may differ significantly from those expressed in, or implied by, such forward-looking statements as a result of various important factors. These factors include, but are not limited to, national, regional and local general economic and business conditions; trends in the water and wastewater transmission products industry and trends in the ~~United~~construction ~~States~~industry; ~~with~~changes anin ~~approximately~~municipal ~~17%~~funding ~~share~~and spending levels; our high level of indebtedness and the restrictions ~~estimated~~imposed ~~$9 billion~~by ~~U.S.~~the ~~waterworks~~terms ~~products~~of ~~distribution market.~~our Weindebtedness; ~~distribute~~our aability ~~full~~to ~~line~~generate ofcash ~~pipes,~~to ~~fittings,~~service ~~valves,~~our debt; ~~meters~~failure to successfully implement, ~~fire~~or ~~hydrants~~changes in, ~~service~~our ~~and repair~~business ~~products~~strategy and ~~other~~the ~~components~~risk that ~~are~~our business ~~used~~strategy tomay ~~transport~~not ~~clean~~be successful in improving our operating results; competition and the development of alternatives to water and wastewater ~~between~~transmission products distributors in the ~~reservoirs~~supply ~~and~~chain; ~~treatment~~the ~~plants~~loss ~~and~~of ~~residential~~one ~~and~~or ~~commercial~~more ~~locations.~~of ~~Our~~our ~~products~~major ~~are~~suppliers ~~integral~~or a reduction in supplier toparticipation ~~building,~~in ~~repairing~~our ~~and~~preferred ~~maintaining~~vendor ~~water~~program; ~~and~~changes ~~wastewater~~in the cost of polyvinyl chloride (~~sewer~~“PVC”) ~~systems~~ pipe or reductions in PVC pipe and ~~serve~~other asproduct ~~part~~availability; of the ~~basic~~risk ~~municipal~~that ~~infrastructure~~our ~~required~~quarterly operating results are subject to ~~support~~substantial ~~population~~seasonal ~~and~~fluctuations; ~~economic~~the ~~growth~~availability ~~and~~of qualified ~~residential~~branch managers and ~~commercial~~sales ~~construction.~~personnel ~~Through~~and ~~our~~the ~~network~~loss of ~~135~~members ~~branches~~of our senior management team; disruptions in 36our ~~states,~~IT wesystems ~~sell directly~~which tomanage ~~municipalities~~numerous aspects of our business and customer and supplier relationships; and changes in, or the failure or inability to ~~contractors~~comply ~~who~~with, ~~serve~~environmental and ~~municipalities~~safety regulations and ~~perform~~increased ~~residential~~costs of such regulations, as well as the other risk factors ~~commercial~~affecting ~~and~~us ~~industrial~~detailed ~~waterworks~~in ~~projects~~our annual report on Form 10-K for the year ended December 31, 2004. Except as otherwise required by the federal securities laws, we assume no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.

9Overview

~~Table~~We are a leading distributor of ~~Contents~~water and wastewater transmission products in the United States waterworks products distribution market. We distribute a full line of pipes, fittings, valves, meters, fire hydrants, service and repair products and other components that are used to transport clean water and wastewater between reservoirs and treatment plants and residential and commercial locations. Our products are integral to building, repairing and maintaining water and wastewater (sewer) systems and serve as part of the basic municipal infrastructure required to support population and economic growth and residential and commercial construction. Through our network of 136 branches in 36 states, we sell directly to municipalities and to contractors who serve municipalities and perform residential, commercial and industrial waterworks projects.

~~Factors affecting our business~~9

CommodityTable Pricing. The price we pay our suppliers for certain products can be volatile due to supply and demand dynamics, which are beyond our control. This volatility can cause fluctuations in our revenues and the related gross profit dollars. We attempt to manage this volatility by adjusting our prices to reflect vendor pricing fluctuations and by managing our inventory levels. However, our gross profit percentage may fluctuate somewhat due to competitive forces or the timing of our price adjustments. Contents

~~The~~Factors ~~cost~~affecting ~~of PVC pipe, which represented approximately 24% of~~ our ~~net sales for the quarter ended~~business ~~March 25, 2005, is particularly volatile and we have experienced a significant increase in the cost of PVC pipe during recent quarters.~~

~~Demand~~Commodity ~~Fluctuations~~Pricing. ~~Our~~The ~~sales~~price ~~are~~we ~~also~~pay ~~affected~~our bysuppliers ~~regional~~for ~~and~~certain ~~local~~products ~~changes~~can inbe ~~commercial~~volatile ~~and~~due to ~~residential~~supply ~~construction activity~~ and ~~the~~demand ~~level~~dynamics, ofwhich ~~municipal~~are ~~waterworks~~beyond ~~spending~~our control. ~~The~~This ~~level~~volatility ~~of activity~~can incause ~~the commercial construction market depends on the general economic outlook, corporate~~fluctuations ~~profitability,~~in ~~interest~~our ~~rates~~revenues and ~~existing plant capacity utilization. The level of activity in~~ the ~~residential~~ ~~construction~~related ~~market~~gross ~~depends~~profit ondollars. ~~new~~We ~~housing~~attempt ~~starts,~~to ~~which~~manage ~~are~~this ~~influenced~~volatility by ~~interest~~ ~~rates,~~adjusting ~~availability~~our ofprices ~~financing,~~to ~~housing~~reflect ~~affordability,~~vendor ~~unemployment~~pricing ~~rates,~~fluctuations ~~demographic trends, gross domestic product~~ and ~~consumer~~by ~~confidence.~~managing ~~Changing economic conditions in~~ our ~~markets~~inventory ~~could~~levels. ~~affect the level of construction activity and~~However, ~~consequently,~~ our ~~net~~gross ~~sales.~~profit Inpercentage ~~addition,~~may ~~water~~fluctuate ~~and wastewater~~somewhat ~~transmission~~due ~~products~~to ~~sales~~competitive ~~are~~forces ~~subject~~or to the ~~level~~ timing of ~~waterworks~~our ~~spending~~price ~~by municipalities~~adjustments. WeThe ~~believe~~cost ~~municipal spending is a function~~ of ~~the~~PVC ~~amount of repair and improvements required for existing systems~~pipe, which ~~are~~represented ~~functions~~approximately of23% ~~the age~~ of ~~the~~our ~~infrastructure,~~net ~~weather~~sales ~~and~~for ~~construction-related damage,~~ the ~~level~~three ofmonths ~~maintenance~~ended ~~spending~~June 24, ~~the~~2005, ~~water infrastructure~~is ~~needs~~particularly ofvolatile ~~the~~and ~~municipality~~we ~~relative~~have toexperienced ~~other~~a significant ~~spending~~increase ~~needs~~in ~~and~~ the ~~availability~~cost of ~~municipal,~~ ~~state~~PVC orpipe ~~federal~~during ~~funds~~recent ~~for waterworks projects~~quarters.

~~Seasonality~~Demand Fluctuations. ~~Given~~Our ~~the~~sales ~~seasonal~~are ~~nature~~also ofaffected by regional and local changes in commercial and residential construction activity inand ~~many~~the ~~regions~~level of ~~the~~municipal ~~United States,~~waterworks ~~our~~spending. ~~results~~The level of activity ~~operations~~in ~~and~~the ~~working~~commercial ~~capital,~~construction ~~including~~market ~~our~~depends ~~accounts~~on ~~receivable,~~the ~~inventory and~~general ~~accounts~~economic ~~payable~~outlook, ~~fluctuate~~corporate profitability, ~~during~~interest ~~the~~rates ~~year.~~and Weexisting ~~believe~~plant ~~that~~capacity ~~our~~utilization. ~~significant~~The ~~operations~~level of activity in ~~more~~the ~~mild~~residential ~~southern~~construction ~~climates~~market ~~moderate~~depends ~~our~~on ~~seasonality.~~new ~~Historically~~housing starts, ~~consistent~~which ~~with~~are ~~annual~~influenced ~~construction~~by interest ~~seasonality~~rates, ~~our~~availability ~~net~~of ~~sales~~financing, ~~are~~housing ~~typically~~affordability, ~~higher~~unemployment ~~during~~rates, ~~the~~demographic ~~second~~trends, gross domestic product and ~~third~~consumer ~~calendar~~confidence. ~~quarters~~Changing ~~as compared~~economic toconditions in our markets could affect the ~~first~~level of construction activity and, ~~fourth~~consequently, ~~calendar~~our ~~quarters~~net sales. In addition, wewater ~~typically~~and wastewater ~~generate~~transmission ~~cash~~products ~~from~~sales aare subject to the level of waterworks spending by ~~reduction~~municipalities. inWe ~~net~~believe ~~working~~municipal ~~capital~~spending inis a function of the ~~fourth~~amount ~~quarter~~of repair and improvements required for existing systems, which are functions of ~~each~~the ~~year~~age of the infrastructure, weather and ~~utilize~~construction-related ~~cash~~damage, ~~from operations~~the tolevel ~~fund~~of ~~increases~~maintenance inspending, ~~net~~the ~~working~~water infrastructure ~~capital~~needs inof the ~~first~~municipality relative to other spending needs and ~~second~~the ~~quarter~~availability of municipal, ~~each~~state ~~year~~or federal funds for waterworks projects.

~~Other~~Seasonality. ~~important~~Given ~~factors~~the ~~that~~seasonal ~~could~~nature ~~affect~~of construction activity in many regions of the United States, our results of operations ~~are~~and ~~set~~working ~~forth~~capital, inincluding ~~Item 7~~our ofaccounts receivable, inventory and accounts payable, fluctuate during the year. We believe that our significant operations in more mild southern climates moderate our seasonality. Historically, consistent with annual ~~report~~construction seasonality, onour ~~Form~~net ~~10-K~~sales ~~for~~are typically higher during the ~~year~~second ~~ended~~and ~~December 31,~~third ~~2004~~calendar quarters as compared to the first and fourth calendar quarters. In addition, we typically generate cash from a reduction in net working capital in the fourth quarter of each year and utilize cash from operations to fund increases in net working capital in the second quarter of each year.

Other important factors that could affect our results of operations are set forth in Item 7 of our annual report on Form 10-K for the year ended December 31, 2004.

~~Table of Contents~~10

CriticalTable accountingof policies and estimates Contents

~~Our~~Critical ~~significant~~ accounting policies are more fully described in the notes to our audited financial statements which are set forth in our annual report on Form 10-K for the year ended December 31, 2004. Certain of our accounting policies require management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. These judgments are based on our historical experience, current economic and industry trends, information provided by outside sources and management estimates~~. As with all judgments, they are subject to an inherent~~ ~~degree of uncertainty. Actual results may vary from the underlying estimates and such differences may be material to our results of operations.~~

~~Allowance~~Our ~~for~~significant ~~Doubtful~~accounting ~~Accounts.~~policies Weare ~~evaluate~~more ~~the~~fully ~~collectibility~~described ofin ~~accounts~~the ~~receivable~~notes ~~based~~to ~~on historical~~our ~~trends,~~audited ~~customer~~financial statements ~~transaction~~which ~~history,~~are ~~accounts~~set ~~receivable~~forth ~~aging~~in ~~and~~our anannual ~~evaluation~~report ~~of customer~~on ~~credit~~Form ~~worthiness.~~10-K ~~Initially,~~for athe ~~monthly~~year ~~provision~~ended ~~is made based on historical experience.~~December 31, On2004. aCertain ~~quarterly~~of ~~basis,~~our weaccounting ~~perform~~policies arequire ~~detailed~~management ~~analysis~~to ofmake ~~accounts~~estimates ~~receivable~~ and ~~adjust~~assumptions ~~the~~that ~~allowance~~affect ~~for~~amounts ~~doubtful~~reported ~~accounts~~in ~~when~~the ~~necessary.~~financial ~~While~~statements weand ~~have~~accompanying anotes. ~~large~~These ~~customer~~judgments ~~base~~are based ~~that~~on ~~is geographically~~our ~~diverse~~historical experience, ancurrent economic ~~slowdown~~and inindustry ~~the~~trends, ~~markets~~information inprovided ~~which~~by outside wesources ~~operate~~and ~~may~~management ~~result~~estimates. ~~in higher~~As ~~uncollected~~with ~~accounts~~all ~~receivable~~judgments, ~~and~~they ~~therefore~~are ~~the~~subject ~~need~~ to ~~revise~~an ~~estimates~~inherent degree ~~for~~of ~~bad debts~~uncertainty. ~~To the~~Actual ~~extent~~results ~~actual~~may ~~credit~~vary ~~experience~~from orthe ~~other~~underlying ~~assumptions~~estimates ~~used~~and bysuch ~~management change, the allowance~~differences ~~for~~may ~~doubtful accounts would~~ be ~~adjusted,~~material ~~which~~to ~~could affect~~ our ~~operating~~ results of operations.

~~Inventories~~Allowance for Doubtful Accounts. We ~~periodically~~ evaluate ~~our~~the ~~inventories~~collectibility toof ~~ensure~~accounts ~~they~~receivable ~~are~~based ~~recorded~~on historical attrends, ~~the~~customer ~~lower~~transaction ~~of cost~~history, oraccounts ~~market~~receivable ~~value.~~aging ~~The~~and ~~carrying~~an ~~value~~evaluation of customer ~~our~~credit ~~inventory~~worthiness. isInitially, ~~adjusted~~a monthly provision is made based on historical experience. On a ~~review~~quarterly basis, we perform a detailed analysis of accounts receivable and adjust the ~~slow~~allowance ~~moving~~for ~~inventories~~doubtful asaccounts ~~well~~when asnecessary. ~~other~~While ~~factors~~we ~~including~~have ~~potential~~a ~~adjustments~~large ~~from~~customer ~~physical~~base that is ~~inventory~~geographically ~~counts.~~diverse, ~~Significant~~an ~~unusual~~economic ~~events~~slowdown ~~are~~in ~~accounted~~the ~~for~~markets asin awhich ~~reduction~~we ofoperate ~~the~~may ~~carrying~~result ~~value~~in ofhigher ~~our~~uncollected ~~inventory~~accounts ~~when~~receivable ~~appropriate~~and therefore the need to revise estimates for bad debts. To the extent ~~future~~actual ~~events~~credit ~~impact~~experience ~~the~~or ~~salability~~other ofassumptions ~~our products,~~used ~~additional~~by ~~adjustments~~management tochange, the ~~carrying~~allowance for ~~value~~doubtful ofaccounts ~~our~~would ~~inventory~~be ~~may~~adjusted, bewhich ~~required~~could affect our operating results.

~~Goodwill and Long-Lived Assets~~Inventories. We ~~review~~periodically ~~the~~evaluate ~~carrying~~our ~~value~~inventories ofto ~~our~~ensure ~~goodwill~~they ~~for~~are ~~impairment~~recorded at ~~least~~ ~~annually~~the bylower ~~comparing~~of cost ~~the~~or ~~estimated~~market ~~fair~~ value. ofThe ~~each~~carrying value of our ~~six~~inventory ~~reporting~~is ~~units~~adjusted tomonthly ~~its carrying~~based ~~value.~~on Ifa ~~the~~review ~~carrying~~of slow ~~value~~moving ofinventories aas ~~reporting~~well ~~unit~~as ~~exceeds~~other ~~its~~factors ~~estimated~~including ~~fair~~potential ~~value,~~adjustments anfrom physical ~~indication~~inventory ~~exists~~counts. ~~that~~Significant ~~goodwill~~unusual isevents ~~impaired~~are ~~and~~accounted wefor ~~must~~as ~~perform~~a ~~additional~~reduction ~~analysis~~of ~~to determine~~ the ~~extent~~carrying value of ~~any~~our ~~impairment~~inventory when appropriate. ~~Any~~To ~~such~~the ~~impairment~~extent ~~would~~future beevents ~~reflected~~impact asthe asalability ~~charge~~of inour products, additional adjustments to the ~~statement~~ carrying value of ~~operations~~our atinventory ~~that~~may ~~time~~be required.

Goodwill and Long-Lived Assets. We review the carrying value of our goodwill for impairment at least annually by comparing the estimated fair value of each of our six reporting units to its carrying value. If the carrying value of a reporting unit exceeds its estimated fair value, an indication exists that goodwill is impaired and we must perform additional analysis to determine the extent of any impairment. Any such impairment would be reflected as a charge in the statement of operations at that time. Long-lived assets, including property and equipment, are reviewed for possible impairment whenever events or other changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds the sum of the undiscounted cash flows expected to result from the asset’s use and eventual disposition. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Results of operations

The following table sets forth the percentage relationship that certain items from our unaudited financial statements bear in relation to net sales.

	Three Months Ended						Six Months Ended
	March 25,			March 26,
	June 24,			June 25,			June 24,			June 25,
	2005			2004			2005			2004
Statement of Operations Data:
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		7980.40	%		7980.81	%		79.7	%		80.0	%
Gross profit		20.60	%		2019.29	%		20.3	%		20.0	%
Operating expenses:
Selling, general and administrative		1311.23	%		1311.63	%		12.1	%		12.2	%
Income before depreciation and amortization		7.4	%		6.6	%
Depreciation and amortization		0.1	%		0.1	%		0.2	%		0.2	%
Depreciation and amortization		0.2	%		0.2	%
Operating income		8.6	%		8.5	%		8.0	%		7.6	%
Operating income		7.2	%		6.4	%
Other income (expense):
Other income (expense):
Interest expense, net		(2.0	%)		(2.0	%)		(2.2	%)		(2.4	%)
Interest expense, net		(2.5	%)		(3.0	%)
Other		0.0	%		0.0	%		(0.0	%)		0.0	%
Other		0.0	%		0.0	%
Income before income taxes		6.6	%		6.5	%		5.8	%		5.2	%
Income before income taxes		4.7	%		3.4	%
Income tax expense		2.6	%		2.6	%		2.3	%		2.1	%
Income tax expense		1.9	%		1.4	%
Net income		4.0	%		3.9	%		3.5	%		3.1	%
Net income		2.8	%		2.0	%

Three Months Ended ~~March~~June 2524, 2005 versus Three Months Ended ~~March~~June 2625, 2004

Net Sales. Net sales for the three months ended ~~March~~June 2524, 2005 increased $5945.43 million, or 2110.29%, to $~~339~~462.45 million from $~~280~~417.02 million for the three months ended ~~March~~June 2625, 2004. The ~~increase~~following ~~reflects~~table ~~the~~sets ~~significant~~forth ~~price~~our ~~increases~~change onin ~~pipe,~~net ~~including~~sales ~~PVC~~by ~~pipe,~~product ascategory ~~well~~(in ~~as increased volume~~thousands): ~~and prices for most other major product lines.~~

Cost of Goods Sold. Cost of goods sold for the three months ended March 25, 2005 increased $46.0 million, or 20.6%, to $269.6 million from $223.6 million for the three months ended March 26, 2004. This increase is due primarily to the significant increase in our cost of pipe, including PVC pipe, as well as increased volume and costs for most other major product lines.


	Three Months Ended
	June 24,		June 25,
Product Category	2005		2004		Change
Pipe	$	206,877	$	186,830	$	20,047
Fittings		70,891		60,886		10,005
Valves		52,102		48,292		3,810
Meters		34,466		29,584		4,882
Fire hydrants		27,064		24,007		3,057
Service and repair products		26,248		24,428		1,820
Other		44,841		43,193		1,648

	$	462,489	$	417,220	$	45,269

~~Gross~~Due ~~Profit.~~to Asthe anumber ~~result~~and diversity of the ~~foregoing~~waterworks products that we sell, ~~gross~~it ~~profit~~is ~~for~~impossible to precisely quantify the ~~three~~portion ~~months~~of ~~ended~~our ~~March 25,~~growth ~~2005 increased~~that ~~$13.4 million,~~was due to ~~$69.8 million~~volume ~~from~~and ~~$56~~the portion that was due to price.~~4 million~~ ~~for~~However, ~~the~~based ~~three~~on ~~months~~our ~~ended~~internal ~~March 26~~estimates, ~~2004.~~ ~~Our~~we ~~gross~~believe ~~profit~~that ~~margin~~the ~~increased~~growth in our sales of pipe products was due primarily to 20the pass-through of vendor price increases.6% ~~for~~For ~~the~~our ~~2005~~non-pipe ~~period~~product lines, ~~compared~~we believe that our growth was due primarily to ~~20.2%~~a combination of volume growth and changes in the ~~2004 period~~product mix within product categories.

~~Selling,~~Cost ~~General~~of ~~and~~Goods ~~Administrative~~Sold. ~~Selling,~~Cost ~~general and administrative expenses, consisting primarily~~ of ~~compensation~~goods ~~and~~sold ~~benefits expense and facility costs,~~ for the three months ended ~~March 25~~June 24, 2005 increased $635.8 7 million, or 1710.87%, to $44369.9 million from $38334.12 million for the three months ended ~~March~~June 2625, 2004. This increase is due primarily to ~~increases~~the insignificant ~~costs~~increase ~~that~~in ~~vary~~our ~~based~~cost onof ~~our operating performance~~pipe, ~~such~~ as ~~variable~~well ~~employee compensation. As a percentage of sales, selling,~~as ~~general~~increased volume and ~~administrative~~costs ~~expenses were 13.2%~~ for ~~the~~most ~~2005~~other ~~period~~major ~~compared~~product ~~to 13~~lines.~~6% for the 2004~~ ~~period.~~

~~Depreciation~~Gross ~~and Amortization~~Profit. ~~Depreciation~~As ~~and~~a ~~amortization~~result ~~expenses~~of the foregoing, gross profit for the three months ended ~~March~~June 2524, 2005 increased ~~were~~ $09.85 million, ~~compared~~ to $092.6 million from $83.1 million for the three months ended ~~March~~June 2625, 2004. ~~Depreciation~~ ~~includes~~Our ~~depreciation~~gross ofprofit ~~property and equipment.~~margin

~~Operating Income. As a result of the foregoing, operating income for the three months ended March~~12 25, 2005 increased $6.4 million, or 36.0%, to $24.2 million from $17.8 million for the three months ended March 26, 2004. As a percentage of net sales, operating income increased to 7.2% for the 2005 period from 6.4% for the 2004 period.

InterestTable Expense, Net. Interest expense, net for the three months ended March 25, 2005 increased $0.2 million, or 2.4%, to $8.4 million from $8.2 million for the three months ended March 26, 2004. The increase is a result of higher interest rates during the 2005 period compared to the 2004 period. Contents

~~Income~~increased ~~Taxes~~to 20.0% ~~Our effective~~for ~~income~~the ~~tax~~2005 ~~rate~~period ~~for~~compared to 19.9% in the ~~three~~2004 ~~months~~period. ~~ended~~We ~~March 25~~record certain distribution costs, ~~2005~~such as facilities and branch personnel expenses, as components of selling, ~~was~~general ~~approximately~~and 40administrative expenses.3% ~~compared~~Our togross ~~40.9%~~margins ~~for~~may ~~the~~not ~~three~~be ~~months~~comparable ~~ended~~to other companies ~~March 26,~~that ~~2004~~record some or all of these types of costs as components of cost of goods sold.

12Selling, General and Administrative. Selling, general and administrative expenses, consisting primarily of compensation and benefits expense and facility costs, for the three months ended June 24, 2005 increased $5.0 million, or 10.6%, to $52.1 million from $47.1 million for the three months ended June 25, 2004. This increase is due primarily to increases in costs that vary based on our operating performance, such as variable employee compensation. As a percentage of sales, selling, general and administrative expenses were 11.3% for both the 2005 period and the 2004 period.

~~Table~~Interest Expense, Net. Interest expense, net for the three months ended June 24, 2005 increased $0.7 million, or 7.6%, to $9.2 million from $8.5 million for the three months ended June 25, 2004. The increase is a result of ~~Contents~~higher interest rates during the 2005 period compared to the 2004 period.

~~Net~~ Income Taxes. WeOur ~~reported~~effective ~~net~~ income oftax ~~$9.3 million~~rate for the three months ended ~~March~~June 2524, 2005, was approximately 40.3% compared to $540.~~7 million~~0% for the three months ended ~~March~~June 2625, 2004. ~~This increase primarily~~ ~~reflects the result of the foregoing, partially offset by the applicable increase in income tax expense.~~

~~Liquidity~~Six ~~and~~Months ~~Capital~~Ended ~~Resources~~June 24, 2005 versus Six Months Ended June 25, 2004

~~Our~~Net ~~primary~~Sales. ~~cash~~Net ~~requirements~~sales ~~are~~for ~~to make~~ the ~~interest~~six ~~and~~months ~~principal~~ended ~~payments~~June 24, on2005 ~~our~~increased ~~debt~~$104.7 million, ~~and~~or 15.0%, to ~~fund~~$801.9 million ~~our~~from ~~operations,~~$697.2 million ~~working~~for ~~capital~~the ~~and~~six ~~capital~~months ~~expenditures.~~ended WeJune 25, ~~expect~~2004. toThe ~~fund~~following ~~these needs~~table ~~principally~~sets ~~from~~forth ~~cash~~our ~~flow~~change ~~from~~in ~~operations~~net ~~and,~~sales ifby ~~necessary,~~product ~~borrowings~~category ~~under~~(in ~~the revolving credit~~thousands): ~~portion of our senior credit facility.~~

Net working capital is comprised of current assets, excluding cash and cash equivalents, minus current liabilities. We had net working capital of $119.8 million at March 25, 2005 compared to net working capital of $125.1 million at December 31, 2004. The decrease in net working capital reflects lower working capital needs during the quarter ended March 25, 2005, as compared to the quarter ended December 31, 2004, due to the seasonal reduction in sales volume in the current quarter.


	Six Months Ended
	June 24,		June 25,
Product Category	2005		2004		Change
Pipe	$	357,604	$	303,745	$	53,859
Fittings		121,943		103,322		18,621
Valves		90,430		81,669		8,761
Meters		62,580		54,357		8,223
Fire hydrants		45,243		40,633		4,610
Service and repair products		47,032		41,713		5,319
Other		77,105		71,803		5,302

	$	801,937	$	697,242	$	104,695

~~Net~~Due ~~cash~~to ~~provided~~the bynumber ~~operating~~and ~~activities~~diversity ~~for~~of the ~~three~~waterworks ~~months~~products ~~ended~~that ~~March 25~~we sell, ~~2005~~it ~~was~~is ~~$18.3~~impossible to ~~million~~precisely ~~compared~~quantify tothe ~~net~~portion ~~cash~~of ~~provided~~our bygrowth ~~operating~~that ~~activities~~was ofdue ~~$27.3 million~~to ~~for~~volume and the ~~three~~portion ~~months~~that was due to ~~ended~~price. ~~March 26~~However, ~~2004.~~based ~~This~~on ~~change~~our isinternal ~~primarily~~estimates, ~~attributable~~we tobelieve that the ~~increase~~growth in ~~net~~our ~~income,~~sales ~~offset~~of pipe byproducts was due primarily to the ~~applicable~~pass-through ~~changes~~of vendor price increases. For our non-pipe product lines, we believe that our growth was due primarily to a combination of volume growth and changes in ~~working~~the ~~capital~~product ~~during~~mix ~~each~~within ~~period~~product categories.

~~Net~~Cost ~~cash~~of ~~used~~Goods inSold. ~~investing~~Cost ~~activities~~of goods sold for the ~~three~~six months ended ~~March~~June 2524, 2005 ~~and~~increased ~~March 26~~$81.8 million, ~~2004 was~~or 14.7%, to $0639.45 million ~~and~~from $2557.17 million, ~~respectively. Net cash used in investing activities~~ for the ~~three~~ six months ended ~~March~~June 2625, 2004. This ~~reflects~~increase ~~the~~is ~~acquisition~~due ofprimarily ~~Midstate~~to ~~Utility~~the ~~Supply,~~significant ~~Inc.~~increase ~~for~~in ~~a net~~our ~~consideration~~cost of ~~$2.0 million.~~pipe, ~~Capital~~as ~~expenditures~~well ~~for the three months ended March 25, 2005~~as ~~were~~increased ~~$0.4 million~~volume ~~compared~~and tocosts ~~$0.2 million~~ for ~~the~~most ~~three~~other ~~months~~major ~~ended~~product ~~March 26, 2004~~lines.

~~Net~~Gross ~~cash~~Profit. ~~used~~As ina ~~financing~~result ~~activities~~of the foregoing, gross profit for the ~~three~~six months ended ~~March~~June 2524, 2005 increased ~~and March~~$22.9 26million, ~~2004 was~~to $5162.04 million ~~and~~from $6139.15 million for the six months ended June 25, 2004. ~~respectively~~Our gross profit margin increased to 20.3% ~~Net~~for ~~cash~~the ~~used~~2005 period compared to 20.0% in ~~each~~the 2004 period. ~~represents~~We ~~dividend distributions~~record tocertain ~~our~~distribution ~~parent~~costs, ~~National~~such ~~Waterworks~~as ~~Holdings~~facilities and branch personnel expenses, ~~Inc.~~as components ~~(“Holdings”)~~of selling, general and administrative expenses. Our gross margins may not be comparable to other companies that record some or all of these types of costs as components of cost of goods sold.

~~Our senior credit facility~~Selling, asGeneral ~~amended, consists of a $245.0 million term loan facility, of which $210.0 million was outstanding at March 25, 2005,~~ and ~~a $75~~Administrative.~~0 million~~ ~~revolving credit facility. No amount was outstanding under the revolving credit facility at March 25~~Selling, 2005; however, approximately $4.4 million of the availability under the revolving credit facility was used to support outstanding letters of credit. The borrowings under the revolving credit facility will be available until its maturity to fund our working capital requirements, capital expenditures and other general ~~corporate needs, subject to the negative covenants set forth in our senior credit facility. The revolving credit facility is scheduled to mature on November 22, 2008~~ and ~~will~~administrative ~~have no scheduled amortization or commitment reductions. The term loan facility is scheduled to mature on November 22~~expenses, ~~2009 and has quarterly scheduled amortization payments of $3.75 million in 2005,~~consisting ~~$5.0 million~~primarily ~~in 2006 and $6.25 million in 2007 and 2008, with the balance~~ of ~~the~~compensation ~~facility to be repaid quarterly~~ and atbenefits ~~maturity~~expense during 2009. In addition, we are required to make annual mandatory prepayments of the term loans (or, if no term loans are outstanding, revolving loans) under the senior credit facility in an amount equal to 75% of Excess Cash Flow, as defined in our senior credit facility, and determined generally as the amount by which our operating cash flow exceeds the sum of our capital expenditures (including in respect of permitted acquisitions), repayments of indebtedness and certain other amounts, or 50% of Excess Cash Flow if our ratio of consolidated total debt to consolidated EBITDA as of the last day of the applicable fiscal year is not greater than 4:0 to 1:0. The term loans (or, if no term loans are outstanding, revolving loans) are also subject to mandatory prepayments in an amount equal to (i) 75% of the net cash proceeds from certain equity issuances by us or our subsidiaries (or 50% if we meet the foregoing leverage ratio); (ii) 100% of the net cash proceeds of certain debt issuances; and (iii) 100% of the net cash proceeds of certain asset sales or other dispositions of property, in each case subject to certain exceptions. Borrowing under the term loan portion and revolving credit facility ~~each bear interest at a variable rate based on~~costs, atfor ~~our option,~~ the ~~Eurodollar~~six ~~rate~~months ~~plus~~ended ~~an applicable margin,~~June ~~or a base rate plus an applicable margin. The base rate is the higher of the prime rate or the federal funds rate plus 0.5%. At March 25~~24, 2005, ~~the~~increased ~~interest rate on the term loan was 5.06% per annum. Our senior credit facility permits us to issue up to an additional~~ $~~100~~11.~~0 million of credit~~8 facilities without the consent of the existing lenders thereunder, so long as no default or event of default under the senior credit facility has occurred and is continuing or would occur after giving effect to such issuance and certain other conditions are satisfied, including pro forma compliance with certain senior leverage ratios. Our senior credit facility provides that we can pay a dividend to

~~Holdings~~million, ~~from~~or ~~time~~13.8%, to ~~time,~~$97.0 million ~~contingent~~from ~~upon meeting certain financial covenants and ratios and other conditions~~$85.2 million ~~Holdings~~for ~~can use~~ the ~~amount~~six ~~of such~~months ~~dividend~~ended ~~for~~June 25, ~~certain purposes including to pay a dividend on its capital stock~~2004. ~~In addition,~~This ~~the~~increase ~~aggregate~~is ~~amount~~due ofprimarily ~~dividends paid pursuant~~ to ~~the~~increases ~~provision referred to~~ in ~~the~~costs ~~preceding sentence~~that ~~may~~vary ~~not~~based ~~exceed~~on ~~$125.0 million~~our inoperating ~~total~~performance, ~~and~~such as ~~may~~variable ~~not~~employee ~~exceed $40~~compensation.~~0 million~~ ~~per~~As ~~fiscal~~a ~~year, provided~~percentage ~~that~~of ~~any~~sales, ~~amount~~selling, ~~not~~general ~~paid~~and inadministrative expenses ~~the~~were ~~fiscal~~12.1% ~~year~~ for ~~which~~the it2005 isperiod ~~permitted~~and ~~may~~12.2% befor ~~carried~~the ~~over to~~2004 ~~any succeeding fiscal year~~period.

~~Our~~Interest ~~$200~~Expense, Net.~~0 million~~ ~~aggregate~~Interest ~~principal~~expense, ~~amount~~net offor ~~senior~~the ~~subordinated~~six ~~notes~~months ~~due~~ended ~~2012~~June 24, ~~bear~~2005 ~~interest at~~increased 10$0.~~50% per annum~~8 million, ~~with~~or ~~interest due semi-annually on June~~ 5.1%, ~~and~~to ~~December~~$17.6 million 1from ~~of each year~~$16. ~~Interest~~8 million ~~payments~~for on the ~~senior~~six ~~subordinated~~months ~~notes~~ended ~~and~~June 25, ~~required~~2004. ~~principal and interest payments on~~The ~~borrowings~~increase ~~under~~is ~~our~~a ~~senior~~result ~~credit~~of ~~facility~~higher ~~have~~interest ~~substantially~~rates ~~increased~~during ~~our~~the ~~liquidity requirements.~~2005 Weperiod ~~may,~~compared ~~from time~~ to ~~time, and subject to~~ the ~~limitations~~2004 ~~in our senior credit facility, purchase senior subordinated notes in the open market or in privately negotiated transactions~~period.

~~The~~Income senior credit facility and the indenture governing our senior subordinated notes impose certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, make investments, grant liens, sell our assets and engage in certain other activitiesTaxes. Our ~~senior credit~~effective ~~facility~~income ~~also~~tax ~~requires~~rate ~~that~~was weapproximately ~~satisfy leverage and interest coverage ratios and contains a capital expenditures limitation~~40.3% Wefor ~~were in compliance with all covenants at March 25, 2005. Indebtedness under~~ the ~~senior~~six ~~credit~~months ~~facility~~ended ~~is secured by substantially all of our and Holdings’~~June ~~assets~~24, ~~including~~2005 ~~our real~~ and ~~personal property, inventory, accounts receivable, intellectual property and other intangibles. In addition,~~ the ~~senior~~six ~~credit~~months ~~facility~~ended ~~is secured by the stock and substantially all of the assets of our future domestic and~~June 25, ~~to the extent that no material adverse tax consequences would result, foreign subsidiaries, if any~~2004. ~~We do not currently have any~~ ~~subsidiaries.~~

~~Our~~Liquidity ~~ability to pay principal~~ and ~~interest~~Capital ~~on our indebtedness and to satisfy our other obligations~~Resources ~~will depend upon, among other things:~~

•Our ~~our~~primary ~~future~~cash ~~financial~~requirements ~~and~~are ~~operating~~to ~~performance,~~make ~~which~~the ~~will~~interest beand ~~affected~~principal bypayments ~~prevailing~~on ~~economic~~our ~~conditions~~debt and ~~financial,~~to fund ~~business,~~our ~~regulatory and other factors~~operations, ~~many~~working ofcapital ~~which are beyond our control;~~ and •capital ~~the~~expenditures. ~~future~~We ~~availability~~expect ofto ~~borrowings~~fund ~~under~~these ~~our~~needs principally ~~senior~~from ~~credit~~cash ~~facility~~flow orfrom ~~any~~operations ~~successor facility~~and, ~~the~~if ~~availability of which depends or may depend on~~necessary, ~~among~~borrowings ~~other~~under ~~things, our complying with~~ the ~~covenants~~revolving incredit portion of our senior credit facility.

WeNet ~~believe~~working ~~that,~~capital ~~based~~is oncomprised ~~our~~of current ~~levels of operations~~assets, ~~our~~excluding cash ~~flow~~and ~~from~~cash ~~operations~~equivalents, ~~together~~minus ~~with~~current ~~available~~liabilities. ~~borrowings~~We ~~under~~had ~~the~~net ~~senior~~working ~~credit~~capital ~~facility,~~of ~~will~~$140.8 million beat ~~adequate~~June 24, ~~for~~2005 atcompared ~~least~~to ~~the next~~net ~~few~~working ~~years~~capital toof ~~make~~$125.1 million ~~scheduled~~at ~~amortization~~December 31, ~~and~~2004. ~~interest~~This ~~payments~~12.5% onincrease ~~our~~in ~~indebtedness,~~net toworking ~~fund~~capital ~~anticipated~~was ~~capital~~due ~~expenditures~~primarily ~~and~~ to ~~maintain~~a ~~sufficient working capital levels~~$70.1 million Weincrease ~~cannot assure~~in ~~you,~~accounts ~~however~~receivable, ~~that~~a ~~our~~$9.7 million ~~business~~increase ~~will~~in inventories ~~generate~~and ~~sufficient~~a ~~cash~~$9.0 million ~~flow~~decrease ~~from~~in ~~operations~~accrued orcompensation ~~that future~~and ~~borrowings~~benefits, ~~will~~offset beby ~~available~~a ~~under~~$51.7 million ~~the~~increase ~~senior~~in ~~credit~~accounts ~~facility~~payable, ina an$5.0 million ~~amount~~increase ~~sufficient to~~in ~~enable~~borrowings usunder toour ~~service~~revolving ~~our~~credit ~~indebtedness~~facility orand toa ~~fund~~$15.7 million ~~our~~increase in other ~~liquidity~~accrued ~~needs~~expenses.

InThe ~~addition~~30.8% toincrease ~~our~~in ~~outstanding~~accounts ~~debt,~~receivable aswas ofdue ~~March 25,~~primarily ~~2005,~~to ~~Holdings~~the ~~had~~seasonal ~~$250.0 million~~increase ~~aggregate~~in sales ~~principal~~activity ~~amount~~during ofthe ~~unsecured~~second ~~senior~~quarter ~~notes~~of ~~outstanding.~~2005 ~~These~~as ~~notes,~~compared ~~which are scheduled~~ to ~~mature on~~the ~~January 1,~~fourth ~~2014,~~quarter ~~bear~~of ~~interest~~2004. atThe 127.507% ~~and provide for quarterly interest payments with~~ ~~payment~~increase in ~~kind~~inventories ~~provisions,~~reflects asthe ~~defined~~seasonal increase in ~~the~~inventory ~~underlying~~levels ~~indenture,~~based aton ~~Holdings’~~expected ~~option. Though~~sales ~~not~~levels ~~obligated~~during tothe dosummer ~~so,~~months. weThe ~~intend~~26.7% todecrease ~~pay~~in ~~dividends~~accrued compensation and ~~make~~benefits ~~other~~was ~~distributions to Holdings to~~due ~~enable~~primarily it to ~~service~~ the ~~interest~~distribution ~~payments~~of on2004 ~~its~~incentive ~~senior~~compensation ~~subordinated~~payments ~~notes~~in March 2005.

OnThe ~~April 6,~~30.0% ~~2005,~~increase ~~Holdings~~in ~~filed~~accounts apayable ~~registration~~was ~~statement~~due onprimarily ~~Form~~to ~~S-1~~the ~~(File~~seasonal ~~No. 333-123874)~~increase ~~with~~in purchasing activity during the ~~Securities~~second ~~and~~quarter ~~Exchange~~of ~~Commission~~2005 inas ~~connection~~compared ~~with~~to ~~its~~the ~~initial~~fourth quarter ~~public~~of ~~offering~~2004. The 124.6% increase in other accrued expenses was due primarily to a $10.7 million increase in accrued income taxes and a $2.5 million increase in accrued interest.

~~Recent~~Net ~~Accounting~~cash ~~Pronouncements~~provided by operating activities for the six months ended June 24, 2005 was $14.1 million compared to net cash provided by operating activities of $15.7 million for the three months ended June 25, 2004. This decrease is primarily attributable to an increase in interest expense during the 2005 period and the applicable changes in working capital accounts.

~~See~~Net ~~discussion~~cash ~~regarding~~used ~~recent~~in ~~accounting~~investing ~~pronouncements~~activities infor ~~Note~~the six months ended June 24, 2005 was $1.7 million, which torepresented our net capital expenditures during the ~~accompanying~~period. ~~financial~~Net cash used in investing ~~statements~~activities for the six months ended June 25, 2004 was $2.0 million, which principally represented net cash used for business acquisitions.

~~Related~~Net ~~Party~~cash ~~Transactions~~used in financing activities for the six months ended June 24, 2005 and June 25, 2004 was $12.2 million and $14.6 million, respectively. This decrease was the result of $5.0 million of borrowings under our revolving credit facility at June 24, 2005, offset by a $2.6 million increase in dividend distributions to our parent, National Waterworks Holdings, Inc. (“Holdings”) during the 2005 period.

~~See~~Our ~~discussion~~senior ~~regarding~~credit ~~related~~facility, ~~party~~as ~~transactions~~amended, inconsists ~~Note~~of 4a to$245.0 million term loan facility, of which $206.3 million was outstanding at June 24, 2005, and a $75.0 million revolving credit facility. We had $5.0 million of outstanding borrowings under the ~~accompanying~~revolving ~~financial~~credit facility at June 24, 2005; ~~statements~~additionally, approximately $3.2 million of the availability under the revolving credit facility was used to support outstanding letters of credit. The borrowings under the revolving credit facility will be available until its maturity to fund our working capital requirements, capital expenditures and other general corporate needs, subject to the negative covenants set forth in our senior credit facility. The revolving credit facility is scheduled to mature on November 22, 2008 and will have no

~~Item~~scheduled amortization or commitment reductions. The term loan facility is scheduled to mature on November 22, 2009 and has quarterly scheduled amortization payments of $3.75 million ~~Quantitative~~in 2005, $5.0 million in 2006 and ~~Qualitative~~$6.25 million ~~Disclosures~~in ~~about~~2007 ~~Market~~and ~~Risk~~2008, with the balance of the facility to be repaid quarterly and at maturity during 2009. In addition, we are required to make annual mandatory prepayments of the term loans (or, if no term loans are outstanding, revolving loans) under the senior credit facility in an amount equal to 75% of Excess Cash Flow, as defined in our senior credit facility, and determined generally as the amount by which our operating cash flow exceeds the sum of our capital expenditures (including in respect of permitted acquisitions), repayments of indebtedness and certain other amounts, or 50% of Excess Cash Flow if our ratio of consolidated total debt to consolidated EBITDA as of the last day of the applicable fiscal year is not greater than 4:0 to 1:0. The term loans (or, if no term loans are outstanding, revolving loans) are also subject to mandatory prepayments in an amount equal to (i) 75% of the net cash proceeds from certain equity issuances by us or our subsidiaries (or 50% if we meet the foregoing leverage ratio); (ii) 100% of the net cash proceeds of certain debt issuances; and (iii) 100% of the net cash proceeds of certain asset sales or other dispositions of property, in each case subject to certain exceptions. Borrowing under the term loan portion and revolving credit facility each bear interest at a variable rate based on, at our option, the Eurodollar rate plus an applicable margin, or a base rate plus an applicable margin. The base rate is the higher of the prime rate or the federal funds rate plus 0.5%. At June 24, 2005, the interest rate on the term loan was 5.60% per annum. Our senior credit facility permits us to issue up to an additional $100.0 million of credit facilities without the consent of the existing lenders thereunder, provided no default or event of default under the senior credit facility has occurred and is continuing or would occur after giving effect to such issuance and certain other conditions are satisfied, including pro forma compliance with certain senior leverage ratios. Our senior credit facility provides that we can pay a dividend to Holdings from time to time, contingent upon meeting certain financial covenants and ratios and other conditions. Holdings can use the amount of such dividend for certain purposes including to pay a dividend on its capital stock. In addition, the aggregate amount of dividends paid pursuant to the provision referred to in the preceding sentence may not exceed $125.0 million in total, and may not exceed $40.0 million per fiscal year, provided that any amount not paid in the fiscal year for which it is permitted may be carried over to any succeeding fiscal year.

WeOur are exposed to certain market risks as part of our on-going business operations. Primary exposure includes changes in interest rates as borrowings under our senior credit facility bear interest at floating rates based on the London InterBank Offered Rate (‘‘LIBOR’’) or the prime rate, in each case plus an applicable borrowing margin. We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally do not affect the fair market value but do impact our earnings and cash flows, assuming other factors are held constant. As of March 25, 2005, we had $200.0 million aggregate principal amount of ~~fixed-rate~~senior ~~debt~~subordinated ~~represented by the~~ notes ~~and $210.0 million~~due of2012 ~~floating-rate~~bear ~~debt represented by borrowings under the term loan portion of the~~interest ~~senior~~at ~~credit facility~~10.50% Inper ~~addition~~annum, upwith tointerest ~~$75.0 million~~due ofsemi-annually ~~floating~~on ~~rate~~June ~~borrowings~~1 ~~are~~and ~~available under~~December ~~the~~1 ~~revolving credit portion~~ of ~~the~~each ~~senior credit facility, of which approximately $4~~year.4 ~~million~~Interest ~~was~~payments ~~used~~on tothe ~~support~~senior ~~outstanding~~subordinated ~~letters~~notes ofand ~~credit~~required atprincipal ~~March 25,~~and ~~2005.~~interest ~~Based~~payments on ~~the amount~~ ~~outstanding~~borrowings under ~~the~~our ~~term~~senior ~~loans~~credit atfacility ~~March 25,~~have ~~2005,~~substantially anincreased ~~immediate~~our ~~increase of one percentage point~~liquidity ~~in the applicable interest rate would cause an approximate $2~~requirements.~~1 million~~ ~~increase in annual interest expense.~~ We ~~may~~have ~~use~~made ~~derivative~~an ~~financial~~offer ~~instruments, where appropriate,~~ to ~~manage~~purchase ~~our~~all ~~interest rate risks. However, as a matter~~ of ~~policy, we will not enter into derivative or other financial investments for trading or speculative purposes. All of~~ our ~~sales~~outstanding ~~are~~senior ~~denominated~~subordinated ~~in U~~notes.~~S. dollars;~~ ~~thus~~Please ~~our~~see ~~financial~~Note ~~results~~5 ~~are not subject~~ to ~~foreign~~the ~~currency~~accompanying ~~exchange~~financial ~~risks or weak economic conditions in foreign markets~~statements.

15The senior credit facility and the indenture governing our senior subordinated notes impose certain restrictions on us, including restrictions on our ability to incur indebtedness, pay dividends, make investments, grant liens, sell our assets and engage in certain other activities. Our senior credit facility also requires that we satisfy leverage and interest coverage ratios and contains a capital expenditures limitation. We were in compliance with all covenants at June 24, 2005. Indebtedness under the senior credit facility is secured by substantially all of our and Holdings’ assets, including our real and personal property, inventory, accounts receivable, intellectual property and other intangibles. In addition, the senior credit facility is secured by the stock and substantially all of the assets of our future domestic and, to the extent that no material adverse tax consequences would result, foreign subsidiaries, if any. We do not currently have any subsidiaries.

~~Table~~Our ofability ~~Contents~~to pay principal and interest on our indebtedness and to satisfy our other obligations will depend upon, among other things:

~~Item~~• 4.our ~~Controls~~future financial and ~~Procedures~~operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, many of which are beyond our control; and • the future availability of borrowings under our senior credit facility or any successor facility, the availability of which depends or may depend on, among other things, our complying with the covenants in our senior credit facility.

We ~~maintain~~believe ~~disclosure controls and procedures~~ that, ~~are~~based ~~designed~~on toour ~~ensure~~current ~~that~~levels ~~information required~~of tooperations, ~~be disclosed in~~ our ~~Exchange~~cash ~~Act~~flow ~~reports~~from ~~is recorded~~operations, ~~processed, summarized and~~together ~~reported~~with ~~within~~available ~~the~~borrowings ~~time~~under ~~periods specified in~~ the ~~SEC’s~~senior ~~rules~~credit ~~and forms~~facility, ~~and~~will ~~that~~be ~~such~~adequate ~~information is~~for ~~accumulated~~at ~~and~~least ~~communicated~~the ~~to our management, including our Chief Executive Officer and Chief~~next ~~Financial~~few ~~Officer,~~years ~~as appropriate,~~ to ~~allow~~make ~~timely~~scheduled ~~decisions~~amortization ~~regarding required disclosure. In designing~~ and ~~evaluating~~interest ~~the~~payments ~~disclosure~~on ~~controls~~our ~~and procedures~~indebtedness, ~~management~~to ~~recognized~~fund anticipated ~~that~~capital ~~any controls~~expenditures and ~~procedures,~~to nomaintain ~~matter~~sufficient ~~how~~working ~~well~~capital ~~designed~~levels. ~~and~~We ~~operated, can provide only reasonable~~cannot ~~assurance~~assure ofyou, ~~achieving the desired control objectives~~however, ~~and~~that ~~management~~our ~~necessarily~~business ~~was~~will ~~required~~generate ~~to apply~~sufficient ~~its judgment in evaluating the cost-benefit relationship of possible controls and procedures.~~cash

~~We have carried out an evaluation, under the supervision and with the participation of our~~15 management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

ThereTable have been no significant changes in our internal controls over financials reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting in the three months since we last evaluated the system of internal controls in conjunction with the preparation of financial statements for the year ended December 31, 2004. Contents

16flow from operations or that future borrowings will be available under the senior credit facility in an amount sufficient to enable us to service our indebtedness or to fund our other liquidity needs.

~~Table~~In addition to our outstanding debt, as of ~~Contents~~June 24, 2005, Holdings had $250.0 million aggregate principal amount of unsecured senior notes outstanding. These notes, which are scheduled to mature on January 1, 2014, bear interest at 12.50% and provide for quarterly interest payments with payment in kind provisions, as defined in the underlying indenture, at Holdings’ option. Though not obligated to do so, we intend to pay dividends and make other distributions to Holdings to enable it to service the interest payments on its senior subordinated notes.

~~PART~~See ~~II.~~additional ~~OTHER~~discussion ~~INFORMATION~~regarding our liquidity and capital resources and the announced acquisition of all of Holdings’ issued and outstanding common stock in Note 5 to the accompanying financial statements.

~~Item~~Recent 6.Accounting ~~Exhibits~~Pronouncements

~~(a)~~See ~~Exhibits~~discussion regarding recent accounting pronouncements in Note 1 to the accompanying financial statements.

	31.1	Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.2	Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Related Party Transactions

17See discussion regarding related party transactions in Note 4 to the accompanying financial statements.

~~Table of Contents~~16

SIGNATURES Table of Contents

~~Pursuant~~Item 3. toQuantitative ~~the~~and ~~requirements~~Qualitative ofDisclosures ~~the~~about ~~Securities~~Market ~~Exchange Act of 1934, the Registrant has duly caused~~Risk ~~this report to be signed on its behalf by the undersigned thereunto duly authorized.~~

	NATIONAL WATERWORKS, INC.
Date: April 27, 2005	By:	/s/ Harry K. Hornish, Jr.
		Harry K. Hornish, Jr.
		President and Chief Executive Officer

We are exposed to certain market risks as part of our on-going business operations. Primary exposure includes changes in interest rates as borrowings under our senior credit facility bear interest at floating rates based on the London InterBank Offered Rate (‘‘LIBOR’’) or the prime rate, in each case plus an applicable borrowing margin. We manage our interest rate risk by balancing the amount of fixed-rate and floating-rate debt. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for floating-rate debt, interest rate changes generally do not affect the fair market value but do impact our earnings and cash flows, assuming other factors are held constant. As of June 24, 2005, we had $200.0 million aggregate principal amount of fixed-rate debt represented by the notes and $211.3 million of floating rate debt represented by $206.3 million of borrowings under the term loan portion of the senior credit facility and $5.0 million of borrowings under the revolving credit facility. In addition, up to $70.0 million of additional floating rate borrowings are available under the revolving credit portion of the senior credit facility, of which approximately $3.2 million was used to support outstanding letters of credit at June 24, 2005. Based on the amount outstanding under the term loans at June 24, 2005, an immediate increase of one percentage point in the applicable interest rate would cause an approximate $2.1 million increase in annual interest expense. We may use derivative financial instruments, where appropriate, to manage our interest rate risks. However, as a matter of policy, we will not enter into derivative or other financial investments for trading or speculative purposes. All of our sales are denominated in U.S. dollars; thus our financial results are not subject to foreign currency exchange risks or weak economic conditions in foreign markets.

Date: April 27, 2005	By:	/s/ Philip Keipp
		Philip Keipp
		Vice President and Chief Financial Officer

18 Table of Contents

Item 4. Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We have carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective.

There have been no significant changes in our internal controls over financials reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting in the six months since we last evaluated the system of internal controls in conjunction with the preparation of financial statements for the year ended December 31, 2004.

PART II. OTHER INFORMATION

Item 6. Exhibits

(a)

Exhibits

	31.1		Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	NATIONAL WATERWORKS, INC.
Date: July 29, 2005	By:	/s/ Harry K. Hornish, Jr.
		Harry K. Hornish, Jr.
		President and Chief Executive Officer


Date: July 29, 2005	By:	/s/ Philip Keipp
		Philip Keipp
		Vice President and Chief Financial Officer

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