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UNITED
STATES 
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 24, 2005
 OR
 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.
  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
 (254) 772-5355
  þ o
  o þ
  Common Stock
    
    Outstanding as of July 29, 2005$.01 Par Value
    
    
    100




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National
Waterworks, Inc.
 Form 10-Q
Index
  
 Page(s)PART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Balance Sheets as of June 24, 2005 (unaudited) and December 31, 2004
    
    3Statements of Operations for the Three Months and Six Months Ended June 24, 2005 and June 25, 2004 (unaudited)
    
    4Statements of Cash Flows for the Six Months Ended June 24, 2005 and June 25, 2004 (unaudited)
    
    5Notes to Financial Statements (unaudited)
    
    6-8Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    9-16Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    17Item 4.
    
    Controls and Procedures
    
    18PART II. OTHER INFORMATIONItem 6.
    
    Exhibits
    
    19SIGNATURES
    
    20CERTIFICATIONS
    
    21-23EX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATION
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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 National Waterworks, Inc.
 
 Balance Sheets
  June 24,
    
    December 31,2005
    
    2004AssetsCurrent assets:Cash and cash equivalents
    
    $
    16,085
    
    
    $
    15,940Trade accounts receivable, net
    
    
    297,925
    
    
    
    227,780Inventories
    
    
    136,597
    
    
    
    126,866Deferred income taxes
    
    
    2,070
    
    
    
    1,398Other current assets
    
    
    2,329
    
    
    
    2,668Total current assets
    
    
    455,006
    
    
    
    374,652Property and equipment, net
    
    
    19,719
    
    
    
    19,269Goodwill
    
    
    457,221
    
    
    
    457,221Deferred financing fees, net
    
    
    18,778
    
    
    
    20,565Other assets
    
    
    3,765
    
    
    
    2,961$
    954,489
    
    
    $
    874,668Liabilities and Stockholders EquityCurrent liabilities:Trade accounts payable
    
    $
    223,884
    
    
    $
    172,214Current installments of long-term debt
    
    
    16,250
    
    
    
    15,000Borrowings under revolving credit facility
    
    
    5,000
    
    
    
    Accrued compensation and benefits
    
    
    24,773
    
    
    
    33,795Other accrued expenses
    
    
    28,221
    
    
    
    12,564Total current liabilities
    
    
    298,128
    
    
    
    233,573Long-term debt, excluding current installments
    
    
    390,000
    
    
    
    395,000Deferred income taxes
    
    
    28,065
    
    
    
    23,163Other long-term liabilities
    
    
    4,065
    
    
    
    3,132Total liabilities
    
    
    720,258
    
    
    
    654,868Commitments and contingencies (note 3)Stockholders Equity:Common stock  $0.01 par value; 100 shares
authorized, issued and outstanding
    
    
    
    
    
    
    Additional paid-in capital
    
    
    199,806
    
    
    
    199,614Retained earnings
    
    
    34,425
    
    
    
    20,186Total stockholders equity
    
    
    234,231
    
    
    
    219,800$
    954,489
    
    
    $
    874,668
  3




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National Waterworks, Inc.
 
 Statements of Operations
  Three Months Ended
    
    Six Months EndedJune 24,
    
    June 25,
    
    June 24,
    
    June 25,2005
    
    2004
    
    2005
    
    2004Net sales
    
    $
    462,489
    
    
    $
    417,220
    
    
    $
    801,937
    
    
    $
    697,242Cost of goods sold
    
    
    369,934
    
    
    
    334,169
    
    
    
    639,533
    
    
    
    557,741Gross profit
    
    
    92,555
    
    
    
    83,051
    
    
    
    162,404
    
    
    
    139,501Operating expenses:Selling, general and administrative
    
    
    52,081
    
    
    
    47,113
    
    
    
    96,980
    
    
    
    85,188Depreciation and amortization
    
    
    524
    
    
    
    522
    
    
    
    1,286
    
    
    
    1,079Operating income
    
    
    39,950
    
    
    
    35,416
    
    
    
    64,138
    
    
    
    53,234Other income (expense):Interest expense, net
    
    
    (9,160
    )
    
    
    (8,514
    )
    
    
    (17,610
    )
    
    
    (16,763
    )Other
    
    
    40
    
    
    
    102
    
    
    
    (39
    )
    
    
    165Income before income taxes
    
    
    30,830
    
    
    
    27,004
    
    
    
    46,489
    
    
    
    36,636Income tax expense
    
    
    12,434
    
    
    
    10,811
    
    
    
    18,751
    
    
    
    14,750Net income
    
    $
    18,396
    
    
    $
    16,193
    
    
    $
    27,738
    
    
    $
    21,886
  4




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National Waterworks, Inc.
 
 Statements of Cash Flows
  Six Months EndedJune 24,
    
    June 25,2005
    
    2004Cash flows from operating activities:Net income
    
    $
    27,738
    
    
    $
    21,886Adjustments to reconcile net income
to net cash from operating activities:Deferred income taxes
    
    
    4,230
    
    
    
    6,332Amortization of deferred financing fees
    
    
    1,787
    
    
    
    1,788Non-cash stock compensation expense
    
    
    192
    
    
    
    Depreciation and amortization
    
    
    1,286
    
    
    
    1,079Gain on disposal of equipment
    
    
    (17
    )
    
    
    (221
    )Provision for doubtful accounts
    
    
    754
    
    
    
    1,010Changes in operating assets and liabilities,
net of acquisitions:Trade accounts receivable
    
    
    (70,899
    )
    
    
    (76,747
    )Inventories
    
    
    (9,731
    )
    
    
    (41,304
    )Other current assets
    
    
    339
    
    
    
    448Other assets
    
    
    (804
    )
    
    
    (713
    )Trade accounts payable and other accrued expenses
    
    
    58,305
    
    
    
    101,337Other long-term liabilities
    
    
    933
    
    
    
    841Net cash from operating activities
    
    
    14,113
    
    
    
    15,736Cash flows from investing activities:Capital expenditures
    
    
    (1,763
    )
    
    
    (549
    )Business acquisitions, net of cash
    
    
    
    
    
    
    (1,992
    )Proceeds from sales of property and equipment
    
    
    45
    
    
    
    536Net 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
    
    
    
    18,702Cash and cash equivalents at end of period
    
    $
    16,085
    
    
    $
    17,795Cash paid for interest
    
    $
    13,323
    
    
    $
    13,001Cash paid for income taxes
    
    $
    3,830
    
    
    $
    3,316
  5




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National Waterworks, Inc.
 
 Notes to Financial Statements (unaudited)
 Note 1. Basis of Presentation
    Fiscal Year
  Recent Accounting Pronouncements
 Share-Based Payment: an Amendment of
FASB Statements No. 123 and 95
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Note 2. Segments of an Enterprise and Related Information
 Disclosure about Segments of an Enterprise and Related Information
  Three Months Ended
    
    Six Months EndedJune 24,
    
    June 25,
    
    June 24,
    
    June 25,Product Category
    
    2005
    
    2004
    
    2005
    
    2004Pipe
    
    $
    206,877
    
    
    $
    186,830
    
    
    $
    357,604
    
    
    $
    303,745Fittings
    
    
    70,891
    
    
    
    60,886
    
    
    
    121,943
    
    
    
    103,322Valves
    
    
    52,102
    
    
    
    48,292
    
    
    
    90,430
    
    
    
    81,669Meters
    
    
    34,466
    
    
    
    29,584
    
    
    
    62,580
    
    
    
    54,357Fire hydrants
    
    
    27,064
    
    
    
    24,007
    
    
    
    45,243
    
    
    
    40,633Service and repair products
    
    
    26,248
    
    
    
    24,428
    
    
    
    47,032
    
    
    
    41,713Other
    
    
    44,841
    
    
    
    43,193
    
    
    
    77,105
    
    
    
    71,803$
    462,489
    
    
    $
    417,220
    
    
    $
    801,937
    
    
    $
    697,242
  Note 3. Commitments and Contingencies
   7




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Note 4. Related Party Transactions
  Note 5. Subsequent Events
    8




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  Forward-Looking Statements
 Unless the context otherwise requires, we, us, our and National Waterworks refer to
National Waterworks, Inc., a Delaware corporation.
   Overview
  9




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Factors affecting our business
 Commodity Pricing
 Demand Fluctuations.
 Seasonality.
  10




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Critical accounting policies and estimates
  Allowance for Doubtful Accounts.
 Inventories.
 Goodwill and Long-Lived Assets.
 11




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Results of operations
  Three Months Ended
    
    Six Months EndedJune 24,
    
    June 25,
    
    June 24,
    
    June 25,2005
    
    2004
    
    2005
    
    2004Statement of Operations Data:Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of goods sold
    
    
    80.0
    %
    
    
    80.1
    %
    
    
    79.7
    %
    
    
    80.0
    %Gross profit
    
    
    20.0
    %
    
    
    19.9
    %
    
    
    20.3
    %
    
    
    20.0
    %Operating expenses:Selling, general and administrative
    
    
    11.3
    %
    
    
    11.3
    %
    
    
    12.1
    %
    
    
    12.2
    %Depreciation and amortization
    
    
    0.1
    %
    
    
    0.1
    %
    
    
    0.2
    %
    
    
    0.2
    %Operating income
    
    
    8.6
    %
    
    
    8.5
    %
    
    
    8.0
    %
    
    
    7.6
    %Other income (expense):Interest expense, net
    
    
    (2.0
    %)
    
    
    (2.0
    %)
    
    
    (2.2
    %)
    
    
    (2.4
    %)Other
    
    
    0.0
    %
    
    
    0.0
    %
    
    
    (0.0
    %)
    
    
    0.0
    %Income before income taxes
    
    
    6.6
    %
    
    
    6.5
    %
    
    
    5.8
    %
    
    
    5.2
    %Income tax expense
    
    
    2.6
    %
    
    
    2.6
    %
    
    
    2.3
    %
    
    
    2.1
    %Net income
    
    
    4.0
    %
    
    
    3.9
    %
    
    
    3.5
    %
    
    
    3.1
    %
 Three Months Ended June 24, 2005 versus Three Months Ended June 25, 2004
 Net Sales.
 Three Months EndedJune 24,
    
    June 25,Product Category
    
    2005
    
    2004
    
    ChangePipe
    
    $
    206,877
    
    
    $
    186,830
    
    
    $
    20,047Fittings
    
    
    70,891
    
    
    
    60,886
    
    
    
    10,005Valves
    
    
    52,102
    
    
    
    48,292
    
    
    
    3,810Meters
    
    
    34,466
    
    
    
    29,584
    
    
    
    4,882Fire hydrants
    
    
    27,064
    
    
    
    24,007
    
    
    
    3,057Service and repair products
    
    
    26,248
    
    
    
    24,428
    
    
    
    1,820Other
    
    
    44,841
    
    

    
    43,193
    
    
    
    1,648$
    462,489
    
    
    $
    417,220
    
    
    $
    45,269
  Cost of Goods Sold.
 Gross Profit.
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Selling, General and Administrative.
 Interest Expense, Net.
 Income Taxes.
 Six Months Ended June 24, 2005 versus Six Months Ended June 25, 2004
 Net Sales.
 Six Months EndedJune 24,
    
    June 25,Product Category
    
    2005
    
    2004
    
    ChangePipe
    
    $
    357,604
    
    
    $
    303,745
    
    
    $
    53,859Fittings
    
    
    121,943
    
    
    
    103,322
    
    
    
    18,621Valves
    
    
    90,430
    
    
    
    81,669
    
    
    
    8,761Meters
    
    
    62,580
    
    
    
    54,357
    
    
    
    8,223Fire hydrants
    
    
    45,243
    
    
    
    40,633
    
    
    
    4,610Service and repair products
    
    
    47,032
    
    
    
    41,713
    
    
    
    5,319Other
    
    
    77,105
    
    
    
    71,803
    
    
    
    5,302$
    801,937
    
    
    $
    697,242
    
    
    $
    104,695
  Cost of Goods Sold.
 Gross Profit.
 Selling, General and Administrative.
 13




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Interest Expense, Net.
 Income Taxes.
 Liquidity and Capital Resources
         14




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
    
    our future financial and 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.
  15




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Recent Accounting Pronouncements
  Related Party Transactions
  16




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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  17




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Item 4. Controls and Procedures
    18




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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.
 19




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SIGNATURES
  NATIONAL WATERWORKS, INC.Date:  July 29, 2005
    By:
    /s/ Harry K. Hornish, Jr.Harry K. Hornish, Jr.President and Chief Executive OfficerDate:  July 29, 2005
    By:
    /s/ Philip KeippPhilip KeippVice President and Chief Financial Officer 20