** **

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

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**FORM 10-Q**

** **
| ý |   | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                              |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                           |
|   |   | **For the quarterly period ended July 3, 2004**                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                           |
| 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 333-113658**

 

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| **Sensus Metering Systems  (Bermuda 2) Ltd.**                   |       | **Sensus Metering Systems Inc.**                            |
|-----------------------------------------------------------------|------------|-------------------------------------------------------------|
| **(Exact name of registrant as  specified in its charter)**     | ** ** | **(Exact  name of registrant as specified in its charter)** |
| ** **                                                      | ** ** | ** **                                                  |
| **Bermuda**                                                     | ** ** | **98-0413362**                                              | ** ** | **Delaware** | ** ** | **51-0338883** |
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.)                       |   | (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification No.) |
|                                                                 |            |                                                             |  |  |  |  |  |

 

**8601 Six Forks Road, Suite 300, Raleigh,North Carolina 27615**

(Address of principal executive offices) (ZipCode)

 

**(919) 845-4017**

(Registrants’ telephone number,including area code)

 

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.    Yes  o     No  ý

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2of the Exchange Act).     Yes  o     No  ý

 

Number of Common Shares, $1.00 par value, outstanding atAugust 30, 2004: 12,000, all of which are owned by Sensus Metering Systems(Bermuda 1) Ltd.

 

 

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| Part I—Financial  Statements |
|-----------------------------------|
|                              |   |   |
| Item 1.                           | Financial  Statements |   |
|                              |   |   |
|                              | Condensed  Consolidated Balance Sheets as of July 3, 2004 and March 31, 2004 |   |
|                              |   |   |
|                              | Condensed  Consolidated Statements of Operations for the fiscal quarter ended July 3,  2004 and for the Predecessor for the fiscal quarter ended June 28, 2003 |   |
|                              |   |   |
|                              | Condensed  Consolidated Statements of Cash Flows for the fiscal quarter ended  July 3, 2004 and for the Predecessor for the fiscal quarter ended  June 28, 2003 |   |
|                              |   |   |
|                              | Notes  to Condensed Consolidated Financial Statements |   |
|                              |   |   |
| Item  2.                          | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                              |   |   |
| Item  3.                          | Quantitative  and Qualitative Disclosures About Market Risk |   |
|                              |   |   |
| Item 4.                           | Controls  and Procedures |   |
|                              |   |   |
| Part  II—Other Information   |
|                              |   |   |
| Item 1.                           | Legal  Proceedings |   |
|                              |   |   |
| Item 2.                           | Changes in Securities and  Use of Proceeds |   |
|                              |   |   |
| Item 3.                           | Defaults upon Senior  Securities |   |
|                              |   |   |
| Item  4.                          | Submission  of Matters to a Vote of Security Holders |   |
|                              |   |   |
| Item 5.                           | Other  Information |   |
|                              |   |   |
| Item 6.                           | Exhibits and Reports  on Form 8-K |   |

 

2

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**PART I—FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**SENSUSMETERING SYSTEMS (BERMUDA 2) LTD.CONDENSED CONSOLIDATED BALANCESHEETS**

**(In millions)**

 
| ** **                                                                                                                  | ** ** | **July 3,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|--------------------------|------------|
| ** **                                                                                                                  | ** ** | **(unaudited)**        | ** ** | ** **               | ** ** |
| **ASSETS**                                                                                                                  |       |                   |       |                     |       |
| CURRENT  ASSETS:                                                                                                            |       |                   |       |                     |       |
| Cash and cash equivalents                                                                                                   |       | $                      | 36.6       |                     | $          | 48.5 |   |
| Accounts receivable:                                                                                                        |       |                   |       |                     |       |
| Trade, net of allowance for doubtful  accounts of $1.2 and $1.3 at July 3, 2004 and March 31, 2004,  respectively |       | 82.1                   |       | 82.5                     |       |
| Other                                                                                                                       |       | 0.7                    |       | 2.4                      |       |
| Inventories, net                                                                                                            |       | 47.9                   |       | 46.5                     |       |
| Prepayments and other current assets                                                                                        |       | 9.1                    |       | 8.9                      |       |
| Deferred income taxes                                                                                                       |       | 1.2                    |       | 1.2                      |       |
| Total current assets                                                                                                        |       | 177.6                  |       | 190.0                    |       |
| PROPERTY,  PLANT AND EQUIPMENT, net                                                                                         |       | 115.7                  |       | 116.4                    |       |
| Intangible assets, net                                                                                                      |       | 253.9                  |       | 254.4                    |       |
| Goodwill                                                                                                                    |       | 348.0                  |       | 347.6                    |       |
| Deferred income taxes                                                                                                       |       | 18.0                   |       | 18.0                     |       |
| Other long-term assets                                                                                                      |       | 26.0                   |       | 25.0                     |       |
| Total assets                                                                                                                |       | $                      | 939.2      |                     | $          | 951.4 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                               |       |                   |       |                     |       |
| CURRENT  LIABILITIES:                                                                                                       |       |                   |       |                     |       |
| Accounts payable                                                                                                            |       | $                      | 43.3       |                     | $          | 43.7 |   |
| Current portion of long-term debt                                                                                           |       | 2.3                    |       | 2.3                      |       |
| Short-term borrowings                                                                                                       |       | —                 |       | 2.2                      |       |
| Income taxes payable                                                                                                        |       | 0.8                    |       | 0.7                      |       |
| Restructuring accruals                                                                                                      |       | 8.9                    |       | 8.6                      |       |
| Accruals and other current liabilities                                                                                      |       | 43.6                   |       | 51.7                     |       |
| Total current liabilities                                                                                                   |       | 98.9                   |       | 109.2                    |       |
| Long-term debt, less current portion                                                                                        |       | 501.6                  |       | 502.1                    |       |
| Pensions                                                                                                                    |       | 37.6                   |       | 37.6                     |       |
| Deferred income tax liabilities                                                                                             |       | 91.3                   |       | 91.9                     |       |
| Other long-term liabilities                                                                                                 |       | 6.7                    |       | 6.2                      |       |
| Minority interests                                                                                                          |       | 6.0                    |       | 6.4                      |       |
| Total liabilities                                                                                                           |       | 742.1                  |       | 753.4                    |       |
| STOCKHOLDERS’  EQUITY:                                                                                                 |       |                   |       |                     |       |
| Common stock, par value $1.00 per share,  12,000 shares authorized, issued and outstanding                                  |       | —                 |       | —                   |       |
| Paid-in capital                                                                                                             |       | 200.0                  |       | 200.0                    |       |
| Retained deficit                                                                                                            |       | (2.6                   | )          | (1.9                     | )          |
| Accumulated other comprehensive loss                                                                                        |       | (0.3                   | )          | (0.1                     | )          |
| Total stockholders’ equity                                                                                             |       | 197.1                  |       | 198.0                    |       |
| Total liabilities and stockholders’ equity                                                                             |       | $                      | 939.2      |                     | $          | 951.4 |   |

 

*Theaccompanying notes are an integral part of these condensed consolidatedfinancial statements.*

 

3

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**SENSUS METERING SYSTEMS (BERMUDA 2) LTD.**

**CONDENSED CONSOLIDATED STATEMENTS OF OPE****RATIONS**

**(In millions)**

 
| ** **                                            | ** ** | ** **                                    | ** ** | **Predecessor  (Note 1)**                      | ** ** |
|-------------------------------------------------------|------------|-----------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                            | ** ** | **Fiscal quarter  Ended  July 3,  2004** | ** ** | **Fiscal quarter  Ended  June 28,  2003** | ** ** |
| ** **                                            | ** ** | **(unaudited)**                               | ** ** | **(unaudited)**                                | ** ** |
| **NET SALES:**                                        |       |                                          |       |                                           |       |
| To third parties                                      |       | $                                             | 140.7      |                                           | $          | 125.5 |   |
| To affiliates                                         |       | —                                        |       | 1.8                                            |       |
| **TOTAL SALES**                                       |       | 140.7                                         |       | 127.3                                          |       |
| **COST OF SALES**                                     |       | 99.1                                          |       | 87.5                                           |       |
| **GROSS PROFIT**                                      |       | 41.6                                          |       | 39.8                                           |       |
| **OPERATING EXPENSES:**                               |       |                                          |       |                                           |       |
| Selling, general and administrative  expenses         |       | 24.5                                          |       | 23.6                                           |       |
| Restructuring and other similar costs                 |       | 2.0                                           |       | 6.3                                            |       |
| Amortization of intangible assets                     |       | 5.0                                           |       | 0.1                                            |       |
| Other operating expense (income), net                 |       | 0.5                                           |       | (0.2                                           | )          |
| **OPERATING INCOME**                                  |       | 9.6                                           |       | 10.0                                           |       |
| **NON-OPERATING  INCOME (EXPENSE):**                  |       |                                          |       |                                           |       |
| Interest income (expense):                            |       |                                          |       |                                           |       |
| From/to third parties                                 |       | (9.4                                          | )          | —                                         |       |
| From/to affiliates                                    |       | —                                        |       | 1.0                                            |       |
| **INCOME BEFORE  INCOME TAXES AND MINORITY INTEREST** |       | 0.2                                           |       | 11.0                                           |       |
| ** **                                            |       |                                          |       |                                           |       |
| **PROVISION FOR  INCOME TAXES**                       |       | 0.8                                           |       | 4.5                                            |       |
| **INCOME (LOSS)  BEFORE MINORITY INTEREST**           |       | (0.6                                          | )          | 6.5                                            |       |
| ** **                                            |       |                                          |       |                                           |       |
| **MINORITY INTEREST**                                 |       | (0.1                                          | )          | (0.1                                           | )          |
| **NET INCOME (LOSS)**                                 |       | $                                             | (0.7       | )                                              | $          | 6.4 |   |

 

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

 

4

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**SENSUS METERING SYSTEMS (BERMUDA 2) LTD.CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(In millions)**

 
| ** **                                                                              | ** ** | ** **             | ** ** | **Predecessor  (Note 1)** | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------|------------|---------------------------|------------|
| ** **                                                                              | ** ** | **July 3,  2004** | ** ** | **June 28,  2003**   | ** ** |
| ** **                                                                              | ** ** | **(unaudited)**        | ** ** | **(unaudited)**           | ** ** |
| **OPERATING  ACTIVITIES:**                                                              |       |                   |       |                      |       |
| Net income (loss)                                                                       |       | $                      | (0.7       | )                         | $          | 6.4 |   |
| Adjustments to reconcile net income (loss)  to net cash (used in) operating activities: |       |                   |       |                      |       |
| Depreciation                                                                            |       | 4.5                    |       | 3.9                       |       |
| Amortization of intangible assets                                                       |       | 5.0                    |       | 0.1                       |       |
| Deferred income taxes                                                                   |       | (0.8                   | )          | 0.2                       |       |
| Non-cash restructuring charges                                                          |       | —                 |       | 0.8                       |       |
| Minority interests                                                                      |       | 0.1                    |       | 0.1                       |       |
| Changes in operating assets and  liabilities:                                           |       |                   |       |                      |       |
| Accounts receivable                                                                     |       | 0.4                    |       | (14.3                     | )          |
| Inventories                                                                             |       | (1.1                   | )          | (3.2                      | )          |
| Accounts payable and other current  liabilities                                         |       | (5.4                   | )          | (13.0                     | )          |
| Other current assets                                                                    |       | 1.4                    |       | (3.5                      | )          |
| Other long-term assets                                                                  |       | (2.8                   | )          | 0.1                       |       |
| Other long-term liabilities                                                             |       | (1.3                   | )          | (1.3                      | )          |
| Pensions                                                                                |       | 0.3                    |       | 0.3                       |       |
| Net cash used in operating activities                                                   |       | (0.4                   | )          | (23.4                     | )          |
|                                                                                    |       |                   |       |                      |       |
| **INVESTING  ACTIVITIES:**                                                              |       |                   |       |                      |       |
| Expenditures for property, plant and  equipment                                         |       | (3.4                   | )          | (2.8                      | )          |
| Acquisitions, net of cash acquired                                                      |       | (5.0                   | )          | —                    |       |
| Net cash used in investing activities                                                   |       | (8.4                   | )          | (2.8                      | )          |
|                                                                                    |       |                   |       |                      |       |
| **FINANCING  ACTIVITIES:**                                                              |       |                   |       |                      |       |
| Decrease in short-term borrowings                                                       |       | (2.4                   | )          | (4.1                      | )          |
| Payments of long-term debt                                                              |       | (0.6                   | )          | —                    |       |
| Other, net                                                                              |       | —                 |       | 0.3                       |       |
| Other activity with affiliates                                                          |       | —                 |       | (2.6                      | )          |
| Net change in amounts due from affiliates  (a component of invested capital)            |       | —                 |       | 21.1                      |       |
| Net cash provided by (used in) financing  activities                                    |       | (3.0                   | )          | 14.7                      |       |
| Effect of exchange rate changes                                                         |       | (0.1                   | )          | —                    |       |
| **DECREASE IN CASH  AND CASH EQUIVALENTS**                                              |       | (11.9                  | )          | (11.5                     | )          |
| **CASH AND CASH  EQUIVALENTS AT BEGINNING OF PERIOD**                                   |       | 48.5                   |       | 17.1                      |       |
| ** **                                                                              |       |                   |       |                      |       |
| **CASH AND CASH  EQUIVALENTS AT END OF PERIOD**                                         |       | $                      | 36.6       |                      | $          | 5.6 |   |

 

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

 

5

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**SENSUS METERING SYSTEMS (BERMUDA 2) LTD.**

 

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**1. Description of Business and Summary of Significant AccountingPolicies**

 

**Description of Business**

 

Sensus Metering Systems (Bermuda 2) Ltd., together with itssubsidiaries, referred to herein as the Company, is a leading provider ofadvanced metering and related communications solutions to the worldwide utilityindustry. The Company is a global manufacturer of water meters, gas meters,heat meters, electricity meters and automatic meter reading devices. Inaddition, the Company produces pipe joining and repair products for water andnatural gas utilities and is a supplier of precision-manufactured aluminumdie-castings.

 

**TheAcquisition**

 

TheCompany was formed on December 17, 2003 through the acquisition (the“Acquisition”) of the metering systems and certain other businesses of Invensysplc (“Invensys”).  Prior to theAcquisition, the Company had no active business operations.  The Acquisition was completed pursuant to theterms of a Stock Purchase Agreement, dated as of October 21, 2003 (the“Stock Purchase Agreement”) between Invensys and certain of its affiliates andSensus Metering Systems Inc.  SensusMetering Systems Inc. is a wholly owned subsidiary of Sensus Metering Systems(Bermuda 2) Ltd.  The businesses acquiredfrom Invensys are referred to herein as Invensys Metering Systems, or thePredecessor, and form the basis for the financial information of thePredecessor included herein.

 

Theinitial purchase price for Invensys Metering Systems of $657.3 million (subjectto final adjustment) was financed through a combination of borrowings under a$230.0 million term loan facility which is part of the Company’s senior creditfacilities, the issuance of $275.0 million of senior subordinated notes, andequity contributions from the principal investors in the Company and certainofficers and directors of the Company.

 

The consolidated financial statements of the Company included hereininclude the accounts of Sensus Metering Systems (Bermuda 2) Ltd. forperiods subsequent to the Acquisition, which was completed on December 18,2003.

 

Thefinancial statements of the Predecessor are presented for comparative purposesand include the combined historical statements of the subsidiaries andoperations of Invensys Metering Systems, which were acquired by the Company.Numerous factors related to the Acquisition, including the Company’s increasedleverage, the impact of purchase accounting, and significant modifications tothe Company’s employee benefit arrangements and management structure, will havea material impact on the Company’s financial condition and results ofoperations.  As a result, the results ofoperations of the Predecessor may have only limited comparability to theresults of operation of the Company.

 

**Principlesof Presentation**

 

The accompanying condensed consolidated financial statements areunaudited and have been prepared by the Company’s management in accordance withthe rules and regulations of the Securities and Exchange Commission (the“SEC”). Certain information related to the Company’s organization, significantaccounting policies and footnote disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principles(“GAAP”) have been condensed or omitted. In the opinion of management, all adjustments, consisting of normalrecurring adjustments unless otherwise disclosed in a separate note, considerednecessary for the fair presentation of the unaudited, condensed consolidatedfinancial statements have been included, and the unaudited, condensedconsolidated financial statements present fairly the financial position andresults of operations for the interim periods presented. These unaudited,condensed consolidated financial statements should be read in conjunction withthe audited, consolidated financial statements for the year endedMarch 31, 2004 and related notes

 

6

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theretoincluded in the Company’s Registration Statement on Form S-4 (SEC File No.333-113658) as filed with the Securities and Exchange Commission (the “FormS-4”).

 

The accompanying condensed consolidated financial statements presentresults for the fiscal quarter ended July 3, 2004 and the fiscal quarterended June 28, 2003. The Company operates on a 4 week, 4 week, 5 weekfinancial and business closing schedule for all periods, except year-endwhich is March 31, and the fiscal half, which is September 30.  Operating results for interim periods are notnecessarily indicative of the results that may be achieved for the full year.

 

**Use of Estimates**

 

The preparation of financial statements in conformity with UnitedStates GAAP requires management to make estimates and assumptions that affectthe financial statements. Due to various factors affecting future costs andoperations, actual results could differ from those estimates.

 

**Stock-Based Compensation**

 

The Company’s parent, Sensus Metering Systems (Bermuda 1) Ltd.,maintains a Restricted Share Plan that provides for the award of restrictedcommon shares to officers, directors and consultants of the Company. Therestricted shares issued pursuant to the plan will be service time vestedratably over each of the five years from the date of grant, provided, that novesting will occur until the second anniversary of the date of grant. Inaddition, the vesting of the restricted shares may accelerate upon theoccurrence of certain stated liquidity events. Common shares awarded under theRestricted Share Plan are generally subject to restrictions on transfer,repurchase rights and other limitations as set forth in the managementsubscription and shareholders’ agreement. The Company accounts for this planunder the intrinsic value method prescribed by APB Opinion No. 25, *Accounting for Stock Issued to Employees* (“APB 25”), andrelated Interpretations. No compensation expense was recognized during thefiscal quarter ended July 3, 2004 as the recipients of the restrictedshares paid the fair value thereof.

 

**2.  Acquisition**

 

Asof June 4, 2004, the Company purchased certain assets of NexusData, Inc.(“Nexus”). This purchase provides the Company with full ownership of a fixednetwork AMR system for the water, gas and electric utility markets. Prior tothe acquisition, the Company had an exclusive distribution agreement with Nexusfor the water utility market.

 

This transaction has been accounted for in accordance with Statement ofFinancial Accounting Standards (“FAS”) No. 141, *BusinessCombinations*. The unaudited condensed consolidated financialstatements herein include Nexus’ results of operations for the period fromJune 4, 2004 through July 3, 2004.

 

The Company has completed its preliminary purchase price allocationattributable to the Nexus acquisition. The final allocation will be completedwithin one year of the transaction and any resulting adjustment is not expectedto have a material impact on the Company’s financial position or results ofoperations. The preliminary purchase price allocation based on management’sestimates at the date of the acquisition, is as follows (in millions):

 
| Inventories                       |   | $   | 0.4    |   |
|-----------------------------------|--------|-----|--------|--------|
| Property, plant and equipment     |   | 0.6 |   |
| Goodwill                          |   | 0.5 |   |
| Intangible assets                 |   | 4.5 |   |
| Total assets acquired             |   | 6.0 |   |
| Fair value of net assets acquired |   | $   | 6.0    |   |

 

The preliminary allocation of the purchase price resulted in therecognition of $0.5 million of goodwill primarily attributable to theanticipated future earnings and cash flows related to this acquisition. TheCompany

 

7

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preliminarily allocated $4.5 million of the purchase price tointangible assets, $4.0 million of which was related to intellectual propertythat will be amortized over 3 years. The remaining $0.5 million of intangibleassets was related to non-competition agreements that will be amortized over 7years.

 

**3.  Inventories**

 

Inventories are stated at the lower of cost or market using thefirst-in, first-out (“FIFO”) method. Cost is determined based on standard costwith appropriate adjustments to approximate FIFO cost. Market is determined onthe basis of estimated realizable values.

 

Inventories consist of the following (in millions):

 
| ** **                        | ** ** | **July 3,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------|------------|------------------------|------------|--------------------------|------------|
|                              |       |                   |       |                     |       |
| Raw materials, parts and supplies |       | $                      | 26.4       |                     | $          | 21.3 |   |
| Work in process                   |       | 14.3                   |       | 17.5                     |       |
| Finished goods                    |       | 9.9                    |       | 10.0                     |       |
| Provision                         |       | (2.7                   | )          | (2.3                     | )          |
| Inventories                       |       | $                      | 47.9       |                     | $          | 46.5 |   |

 

**4.  Intangible Assets**

 

Intangible assets consist of goodwill, tradenames, patents,non-competition agreements, and customer and distributor relationships.Goodwill at July 3, 2004 represents the excess of the purchase price paidby the Company for the Predecessor over the fair value of the net assetsacquired, and the excess of the purchase price paid by the Company for Nexus(see note 2). The initial purchase price allocation for the Predecessorresulted in $347.6 million of goodwill being recorded. The goodwill can beattributed to the value placed on the Company being an industry leader withmarket leading positions in the North American water metering market, theEuropean water metering market, and the North American clamps and couplingsmarket.  The initial purchase priceallocation for Nexus resulted in $0.5 million of goodwill and $4.5 million ofintangible assets being recorded.  Thegoodwill can be attributed to the anticipated future earnings and cash flows ofthe businesses acquired.

 

Intangible assets are summarized as follows (in millions):

 
| ** **                                      | ** ** | **July 3, 2004** | ** ** | **March 31, 2004**       | ** ** |
|-------------------------------------------------|------------|-----------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Cost**              | ** ** | **Accumulated  Amortization** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** |
|                                            |       |                  |       |                          |       |   |   |   |   |
| Intangible assets not subject to  amortization: |       |                  |       |                          |       |   |   |   |   |
| Goodwill                                        |       | $                     | 348.0      |                          | $          | — |   | $ | 347.6 |   | $ | — |   |
| Tradenames (indefinite lived)                   |       | 27.3                  |       | —                        |       | 27.3 |   | — |   |
|                                            |       | 375.3                 |       | —                        |       | 374.9 |   | — |   |
| Intangible assets subject to amortization:      |       |                  |       |                          |       |   |   |   |   |
| Distributor relationships                       |       | 191.8                 |       | (5.7                          | )          | 191.8 |   | (3.1 | ) |
| Non-competition agreements                      |       | 30.5                  |       | (4.0                          | )          | 30.0 |   | (2.1 | ) |
| Patents                                         |       | 15.0                  |       | (1.0                          | )          | 11.0 |   | (0.5 | ) |
|                                            |       | 237.3                 |       | (10.7                         | )          | 232.8 |   | (5.7 | ) |
| Total intangible assets                         |       | $                     | 612.6      |                          | $          | (10.7 | ) | $ | 607.7 |   | $ | (5.7 | ) |

 

8

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The following represents a reconciliation of the changes in goodwill(in millions) for the periods presented:

 
| Goodwill at March 31, 2004                        |   | $    | 347.6  |   |
|--------------------------------------------------------|--------|------|--------|--------|
| Goodwill arising from Nexus purchase price  allocation |   | 0.5  |   |
| Currency translation adjustment                        |   | (0.1 | )      |
| Goodwill at July 3, 2004                          |   | $    | 348.0  |   |

 

**5.  Restructuring and OtherSimilar Costs**

 

The following table reflects activity for the fiscal quarters endedJuly 3, 2004 and June 28, 2003 which are associated withrestructuring and other similar costs related to the Company’s restructuringinitiatives (in millions):

 
| ** **                                                   | ** ** | ** **                                   | ** ** | **Predecessor  (Note 1)**                     | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                   | ** ** | **Fiscal quarter  Ended July 3,  2004** | ** ** | **Fiscal quarter  Ended June 28,  2003** | ** ** |
| Severance  and other related costs:                          |       |                                         |       |                                          |       |
| Related to  headcount reduction initiatives                  |       | $                                            | 2.0        |                                          | $          | 0.2 |   |
| Related to  outsourcing                                      |       | —                                       |       | 0.1                                           |       |
| Related to  plant closures                                   |       | —                                       |       | 5.1                                           |       |
|                                                         |       | 2.0                                          |       | 5.4                                           |       |
| Asset  impairments:                                          |       |                                         |       |                                          |       |
| Related to  outsourcing                                      |       | —                                       |       | 0.8                                           |       |
|                                                         |       | —                                       |       | 0.8                                           |       |
|                                                         |       |                                         |       |                                          |       |
| Other                                                        |       | —                                       |       | 0.1                                           |       |
|                                                         |       | —                                       |       | 0.1                                           |       |
| Restructuring  and other similar costs charged to operations |       | $                                            | 2.0        |                                          | $          | 6.3 |   |

 

Prior to the closing date of the Acquisition, the Company identifiedopportunities to improve the operating performance of Invensys Metering Systemsvia the closure of a manufacturing facility in Europe. Subsequent to theclosing date of the Acquisition, the Company approved restructuring actions of$5.1 million related to the previously identified opportunities. Theseactions principally reflect severance benefits and asset impairments. Theserestructuring actions will commence in 2004 and the Company expects the actionswill be completed by March 31, 2005.

 

For the fiscal quarter ended July 3, 2004, the Company incurred$2.0 million of restructuring costs related to ongoing activities torationalize its water meter product line in Europe and to align the South Americanstructure with current market conditions. Actions in Europe affect both directand indirect personnel and will result in a headcount reduction of 16employees.  These programs areconcentrated in the Company’s German water meter production facility. SouthAmerican reorganization, affecting both direct and indirect personnel, willreduce headcount by 11 employees.  TheCompany anticipates that these initiatives will be completed by March 31,2005.

 

The charge for restructuring and other similar costs is comprised ofthe following (in millions):

 
| ** **                                 | ** ** | ** **                                   | ** ** | **Predecessor  (Note 1)**                     | ** ** |
|--------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **Fiscal Quarter  Ended July 3,  2004** | ** ** | **Fiscal Quarter  Ended June 28,  2003** | ** ** |
| Employee  severance and exit costs accrued |       | $                                            | 2.0        |                                          | $          | 5.2 |   |
| Impairment  of long-lived assets           |       | —                                       |       | 0.8                                           |       |
| Expensed  as incurred                      |       | —                                       |       | 0.3                                           |       |
|                                       |       | $                                            | 2.0        |                                          | $          | 6.3 |   |

 

9

----

 

Restructuring accruals are summarized as follows (in millions):

 
| ** **                                   | ** ** | ** **                                   | ** ** | **Predecessor   (Note 1)**                    | ** ** |
|----------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                   | ** ** | **Fiscal Quarter  Ended July 3,  2004** | ** ** | **Fiscal Quarter  Ended June 28,  2003** | ** ** |
| Balance at  beginning of period              |       | $                                            | 8.6        |                                          | $          | 7.1 |   |
| Cash  Payments                               |       | (1.7                                         | )          | (1.3                                          | )          |
| Accrue for  new committed/announced programs |       | 2.0                                          |       | 5.2                                           |       |
| Effect of  foreign currency translation      |       | —                                       |       | 0.5                                           |       |
| Balance at  end of period                    |       | $                                            | 8.9        |                                          | $          | 11.5 |   |

 

Restructuring expense accruals have been classified as currentliabilities as of July 3, 2004 and June 28, 2003.

 

**6. Comprehensive Income (Loss)**

 

Comprehensive income (loss) consists of the following (in millions):

 
| ** **                                | ** ** | ** **                                   | ** ** | **Predecessor  (Note 1)**                     | ** ** |
|-------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                | ** ** | **Fiscal Quarter  Ended July 3,  2004** | ** ** | **Fiscal Quarter  Ended June 28,  2003** | ** ** |
|                                      |       |                                         |       |                                          |       |
| Net income  (loss)                        |       | $                                            | (0.7       | )                                             | $          | 6.4 |   |
| Other  comprehensive income:              |       |                                         |       |                                          |       |
| Foreign  currency translation adjustments |       | (0.2                                         | )          | 6.3                                           |       |
| Comprehensive  income (loss)              |       | $                                            | (0.9       | )                                             | $          | 12.7 |   |

 

**7. Warranty Obligations**

 

Productwarranty reserves are established in the same period that revenue from the saleof the related products is recognized. The amounts of those reserves are basedon established terms and the Company’s best estimate of the amounts necessaryto settle future and existing claims on products sold as of the balance sheetdate.

 

The following represents a reconciliation of the changes in productwarranty reserves for the periods presented (in millions):

 
| ** **                     | ** ** | ** **            | ** ** | **Predecessor  (Note 1)** | ** ** |
|--------------------------------|------------|-----------------------|------------|---------------------------|------------|
| ** **                     | ** ** | **July 3, 2004** | ** ** | **June 28, 2003**    | ** ** |
| Balance at beginning of period |       | $                     | 8.6        |                      | $          | 9.1 |   |
| Warranties issued              |       | 0.6                   |       | 0.1                       |       |
| Settlements made               |       | (0.6                  | )          | (0.7                      | )          |
| Balance at end of period       |       | $                     | 8.6        |                      | $          | 8.5 |   |
| Current portion                |       | 3.5                   |       | 2.0                       |       |
| Non-current portion            |       | 5.1                   |       | 6.5                       |       |
| Total                          |       | $                     | 8.6        |                      | $          | 8.5 |   |

 

10

----

 

**8.  Income Taxes**

 

Theeffective tax rate for the quarter ended July 3, 2004 of 400% is theresult of income tax being incurred on the taxable income of the Company’s U.S.operations while no income tax benefit has been recorded on the operatinglosses incurred in certain foreign jurisdictions on which the realization ofrelated deferred tax asset is considered uncertain.

 
| ** **                                                            | ** ** | ** **                                   | ** ** | **Predecessor  (Note 1)**                     | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                            | ** ** | **Fiscal Quarter  Ended July 3,  2004** | ** ** | **Fiscal Quarter  Ended June 28,  2003** | ** ** |
|                                                                  |       |                                         |       |                                          |       |
| Statutory tax rate                                                    |       | 35.0                                         | %          | 35.0                                          | %          |
| State and local income taxes, net of  federal benefit                 |       | 3.2                                          | %          | 5.8                                           | %          |
| Statutory tax rate difference between the  U.S. and foreign locations |       | (0.1                                         | )%         | —                                        |       |
| Foreign net operating losses for which the  benefit was not provided  |       | 361.8                                        | %          | —                                        |       |
| Foreign dividend, and withholding                                     |       | —                                       |       | —                                        |       |
| Other                                                                 |       | 0.1                                          | %          | —                                        |       |
| Effective income tax rate                                             |       | 400.0                                        | %          | 40.8                                          | %          |

 

**9. Retirement Benefits**

 

The Company has defined benefit plans, principally in Germany, wheresuch plans are typically unfunded and provide for monthly pension payments toeligible employees upon retirement. Pension benefits for salaried employeesgenerally are based on years of credited service and average earnings. Pensionbenefits for hourly employees generally are based on specified benefit amountsand years of service. The Company’s policy is to fund its pension obligationsin conformity with the funding requirements of laws and governmentalregulations applicable in the respective country.

 

The following information reflects the benefit obligation, plan assetsand net liability information for participants in the Company’s significantretirement benefit plans. That information is summarized as follows (inmillions):

 

| ** **                             | ** ** | **Fiscal Quarter Ended** | ** ** |
|----------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | ** **               | ** ** | **Predecessor  (Note 1)** | ** ** |
| ** **                             | ** ** | **July 3, 2004**    | ** ** | **June 28,2003** | ** ** |
|                                   |       |                     |       |   |   |
| Benefit obligation at beginning period |       | $                        | 37.1       |   | $ | 31.2 |   |
| Service cost                           |       | 0.2                      |       | 0.3 |   |
| Interest cost                          |       | 0.4                      |       | 0.5 |   |
| Benefits paid                          |       | (0.5                     | )          | (0.5 | ) |
| Expected return on plan assets.        |       | —                   |       | — |   |
| Currency translation                   |       | (0.1                     | )          | 1.6 |   |
| Benefit obligation at end period.      |       | $                        | 37.1       |   | $ | 33.1 |   |
| Net periodic benefit cost              |       | $                        | 0.6        |   | $ | 0.8 |   |

 

The Company expects to continue to make contributions sufficient tofund benefits paid under its pension plans. Such contributions are expected tototal approximately $1.8 million in fiscal 2005.

 

11

----

 

**10. Guarantor Subsidiaries**

 

The following tables present condensed consolidating unauditedfinancial information for the Company at July 3, 2004 and March 31,2004 and for the period from April 1, 2004 through July 3, 2004,condensed combining financial unaudited information of the Predecessor for theperiod from April 1, 2003 through June 28, 2003 for: (a) SensusMetering Systems (Bermuda 2) Ltd. (referred to as Parent), (b) Sensus MeteringSystems Inc. the issuer of the Notes (referred to as Issuer), (c) on acombined basis, the subsidiaries of Sensus Metering Systems (Bermuda 2) Ltd.that are guaranteeing the Notes, which include all of the wholly-owned U.S.domestic subsidiaries of Sensus Metering Systems (Bermuda 2) Ltd. other thanIMSoftech Inc. (“Guarantor Subsidiaries”), and (d) on a combinedbasis, the subsidiaries of Sensus Metering Systems (Bermuda 2) Ltd. that arenot guaranteeing the Notes (“Non-Guarantor Subsidiaries”). Separate financialstatements of neither Issuer nor the Guarantor Subsidiaries are presentedbecause their guarantees are full and unconditional and joint and several, andthe Company believes separate financial statements and other disclosuresregarding Issuer and the Guarantor Subsidiaries are not material to investors.The Notes were issued by Sensus Metering Systems Inc. in connection withthe Acquisition of Invensys Metering Systems (see note 1).

 

12

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**Condensed Consolidating Balance Sheets(unaudited)**

**July 3, 2004**

 
| ** **                                      | ** ** | **Parent**        | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|------------|-------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                      | ** ** | **(in millions)** | ** ** |
|                                            |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| **Assets**                                      |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Current assets:                                 |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Cash and cash equivalents                       |       | $                 | —     |       | $          | 12.5                        |       | $                               | 9.4        |             | $          | 14.7             |       | $ | — |   | $ | 36.6 |   |
| Accounts receivable:                            |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Trade, net of allowance for doubtful  accounts  |       | —            |       | —     |       | 49.0                        |       | 33.1                            |       | —           |       | 82.1             |       |
| From affiliates                                 |       | (5.2              | )          | (6.4       | )          | 15.2                        |       | (3.6                            | )          | —           |       | —           |       |
| Other                                           |       | —            |       | —     |       | 0.5                         |       | 0.2                             |       | —           |       | 0.7              |       |
| Inventories                                     |       | —            |       | —     |       | 25.5                        |       | 22.4                            |       | —           |       | 47.9             |       |
| Prepayments and other current assets            |       | 0.2               |       | 0.2        |       | 3.0                         |       | 5.7                             |       | —           |       | 9.1              |       |
| Deferred income taxes                           |       | —            |       | —     |       | 1.2                         |       | —                          |       | —           |       | 1.2              |       |
| Total current assets                            |       | (5.0              | )          | 6.3        |       | 103.8                       |       | 72.5                            |       | —           |       | 177.6            |       |
| Notes receivable from affiliates                |       | —            |       | 433.2      |       | —                      |       | 29.1                            |       | (462.3           | )          | —           |       |
| Property, plant, and equipment, net             |       | —            |       | —     |       | 65.5                        |       | 50.2                            |       | —           |       | 115.7            |       |
| Intangible assets, net                          |       | —            |       | 26.0       |       | 179.3                       |       | 48.6                            |       | —           |       | 253.9            |       |
| Goodwill                                        |       | —            |       | —     |       | 320.7                       |       | 27.3                            |       | —           |       | 348.0            |       |
| Investment in subsidiaries                      |       | 664.4             |       | 579.2      |       | 9.3                         |       | —                          |       | (1,252.9         | )          | —           |       |
| Long-term deferred tax asset                    |       | —            |       | —     |       | 18.0                        |       | —                          |       | —           |       | 18.0             |       |
| Other long-term assets                          |       | —            |       | 21.1       |       | 2.2                         |       | 2.7                             |       | —           |       | 26.0             |       |
| Total assets                                    |       | $                 | 659.4      |       | $          | 1,065.8                     |       | $                               | 698.8      |             | $          | 230.4            |       | $ | (1,715.2 | ) | $ | 939.2 |   |
|                                            |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| **Liabilities and  stockholders’ equity**  |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Current liabilities:                            |       |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Accounts payable                                |       | —            |       | —     |       | 31.0                        |       | 12.3                            |       | —           |       | 43.3             |       |
| Current portion of long-term debt               |       | —            |       | 2.0        |       | —                      |       | 0.3                             |       | —           |       | 2.3              |       |
| Short-term borrowings                           |       | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Income taxes payable                            |       | —            |       | (5.0       | )          | 5.8                         |       | —                          |       | —           |       | 0.8              |       |
| Restructuring accruals                          |       | —            |       | —     |       | 1.1                         |       | 7.8                             |       | —           |       | 8.9              |       |
| Accruals and other current liabilities          |       | —            |       | 2.6        |       | 18.2                        |       | 22.8                            |       | —           |       | 43.6             |       |
| Total current liabilities                       |       | —            |       | (0.4       | )          | 56.1                        |       | 43.2                            |       | —           |       | 98.9             |       |
| Notes payable to affiliates                     |       | 462.3             |       | 10.8       |       | (13.2                       | )          | 2.4                             |       | (462.3           | )          | —           |       |
| Long-term debt, less current portion            |       | —            |       | 472.0      |       | —                      |       | 29.6                            |       | —           |       | 501.6            |       |
| Pensions                                        |       | —            |       | —     |       | 0.4                         |       | 37.2                            |       | —           |       | 37.6             |       |
| Deferred income taxes                           |       | —            |       | —     |       | 70.1                        |       | 21.2                            |       | —           |       | 91.3             |       |
| Other long-term liabilities                     |       | —            |       | —     |       | 6.2                         |       | 0.5                             |       | —           |       | 6.7              |       |
| Minority interests                              |       | —            |       | —     |       | —                      |       | 6.0                             |       | —           |       | 6.0              |       |
| Total liabilities                               |       | 462.3             |       | 482.4      |       | 119.6                       |       | 140.1                           |       | (462.3           | )          | 742.1            |       |
| Stockholders’ equity                       |       | 197.1             |       | 583.4      |       | 579.2                       |       | 90.3                            |       | (1,252.9         | )          | 197.1            |       |
| Total liabilities and stockholders’ equity |       | $                 | 659.4      |       | $          | 1,065.8                     |       | $                               | 698.8      |             | $          | 230.4            |       | $ | (1,715.2 | ) | $ | 939.2 |   |

 

13

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**Condensed Consolidating Balance Sheets**

**March 31, 2004**

 
|                                            |   | **Parent**        | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|--------|-------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
|                                            |   | **(in millions)** |       |
|                                            |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| **Assets**                                      |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Current assets:                                 |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Cash and cash equivalents                       |   | $                 | —     |       | $          | 12.7                        |       | $                               | 18.1       |             | $          | 17.7             |       | $ | — |   | $ | 48.5 |   |
| Accounts receivable:                            |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Trade, net of allowance for doubtful  accounts  |   | —            |       | —     |       | 47.4                        |       | 35.1                            |       | —           |       | 82.5             |       |
| From affiliates                                 |   | —            |       | 1.0        |       | (0.5                        | )          | (0.5                            | )          | —           |       | —           |       |
| Other                                           |   | —            |       | —     |       | 2.3                         |       | 0.1                             |       | —           |       | 2.4              |       |
| Inventories                                     |   | —            |       | —     |       | 24.0                        |       | 22.5                            |       | —           |       | 46.5             |       |
| Prepayments and other current assets            |   | —            |       | —     |       | 3.2                         |       | 5.7                             |       | —           |       | 8.9              |       |
| Deferred income taxes                           |   | —            |       | —     |       | 1.2                         |       | —                          |       | —           |       | 1.2              |       |
| Total current assets                            |   | —            |       | 13.7       |       | 95.7                        |       | 80.6                            |       | —           |       | 190.0            |       |
| Notes receivable from affiliates                |   | —            |       | 433.2      |       | —                      |       | 29.1                            |       | (462.3           | )          | —           |       |
| Property, plant, and equipment, net             |   | —            |       | —     |       | 65.8                        |       | 50.6                            |       | —           |       | 116.4            |       |
| Intangible assets, net                          |   | —            |       | 27.9       |       | 181.5                       |       | 45.0                            |       | —           |       | 254.4            |       |
| Goodwill                                        |   | —            |       | —     |       | 320.3                       |       | 27.3                            |       | —           |       | 347.6            |       |
| Investment in subsidiaries                      |   | 660.3             |       | 568.9      |       | 9.4                         |       | —                          |       | (1,238.6         | )          | —           |       |
| Long-term deferred tax asset                    |   | —            |       | —     |       | 18.0                        |       | —                          |       | —           |       | 18.0             |       |
| Other long-term assets                          |   | —            |       | 21.4       |       | 1.2                         |       | 2.4                             |       | —           |       | 25.0             |       |
| Total assets                                    |   | $                 | 660.3      |       | $          | 1,065.1                     |       | $                               | 691.9      |             | $          | 235.0            |       | $ | (1,700.9 | ) | $ | 951.4 |   |
|                                            |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| **Liabilities and  stockholders’ equity**  |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Current liabilities:                            |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Accounts payable                                |   | $                 | —     |       | $          | —                      |       | $                               | 30.0       |             | $          | 13.7             |       | $ | — |   | $ | 43.7 |   |
| Current portion of long-term debt               |   | —            |       | 2.0        |       | —                      |       | 0.3                             |       | —           |       | 2.3              |       |
| Short-term borrowings                           |   | —            |       | —     |       | —                      |       | 2.2                             |       | —           |       | 2.2              |       |
| Income taxes payable                            |   | —            |       | —     |       | 0.6                         |       | 0.1                             |       | —           |       | 0.7              |       |
| Restructuring accruals                          |   | —            |       | —     |       | 1.2                         |       | 7.4                             |       | —           |       | 8.6              |       |
| Accruals and other current liabilities          |   | —            |       | 8.1        |       | 18.3                        |       | 25.3                            |       | —           |       | 51.7             |       |
| Total current liabilities                       |   | —            |       | 10.1       |       | 50.1                        |       | 49.0                            |       | —           |       | 109.2            |       |
| Notes payable to affiliates                     |   | 462.3             |       | 2.7        |       | (3.8                        | )          | 1.1                             |       | (462.3           | )          | —           |       |
| Long-term debt, less current portion            |   | —            |       | 472.5      |       | —                      |       | 29.6                            |       | —           |       | 502.1            |       |
| Pensions                                        |   | —            |       | —     |       | 0.4                         |       | 37.2                            |       | —           |       | 37.6             |       |
| Deferred income taxes                           |   | —            |       | —     |       | 70.8                        |       | 21.1                            |       | —           |       | 91.9             |       |
| Other long-term liabilities                     |   | —            |       | —     |       | 5.5                         |       | 0.7                             |       | —           |       | 6.2              |       |
| Minority interests                              |   | —            |       | —     |       | —                      |       | 6.4                             |       | —           |       | 6.4              |       |
| Total liabilities                               |   | 462.3             |       | 485.3      |       | 123.0                       |       | 145.1                           |       | (462.3           | )          | 753.4            |       |
| Stockholders’ equity                       |   | 198.0             |       | 579.8      |       | 568.9                       |       | 89.9                            |       | (1,238.6         | )          | 198.0            |       |
| Total liabilities and stockholders’ equity |   | $                 | 660.3      |       | $          | 1,065.1                     |       | $                               | 691.9      |             | $          | 235.0            |       | $ | (1,700.9 | ) | $ | 951.4 |   |

 

14

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**Condensed Consolidating Statements ofOperations (unaudited)**

**Fiscal Quarter Ended July 3, 2004**

 
|                                           |   | **Parent**        | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|--------|-------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
|                                           |   | **(in millions)** | ** ** |
|                                           |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Net sales                                      |   | $                 | —     |       | $          | —                      |       | $                               | 98.2       |             | $          | 43.9             |       | $ | (1.4 | ) | $ | 140.7 |   |
| Cost of sales                                  |   | —            |       | —     |       | 67.2                        |       | 33.3                            |       | (1.4             | )          | 99.1             |       |
| Gross profit (loss)                            |   | —            |       | —     |       | 31.0                        |       | 10.6                            |       | —           |       | 41.6             |       |
| Selling, general, and administrative  expenses |   | —            |       | —     |       | 12.3                        |       | 12.2                            |       | —           |       | 24.5             |       |
| Restructuring and other similar costs          |   | —            |       | 0.4        |       | —                      |       | 1.6                             |       | —           |       | 2.0              |       |
| Amortization of intangible assets              |   | —            |       | 1.9        |       | 2.6                         |       | 0.5                             |       | —           |       | 5.0              |       |
| Other operating expenses, net                  |   | —            |       | —     |       | 0.5                         |       | —                          |       | —           |       | 0.5              |       |
| Operating income (loss)                        |   | —            |       | (2.3       | )          | 15.6                        |       | (3.7                            | )          | —           |       | 9.6              |       |
| Non-operating income (expense):                |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Interest income (expense):                     |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| From/to third parties                          |   | —            |       | (9.0       | )          | —                      |       | (0.4                            | )          | —           |       | (9.4             | )          |
| From/to affiliates                             |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Equity in earnings of subsidiaries             |   | (0.7              | )          | 10.3       |       | (0.1                        | )          | —                          |       | (9.5             | )          | —           |       |
| Other, net                                     |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Income (loss) before income taxes              |   | (0.7              | )          | (1.0       | )          | 15.5                        |       | (4.1                            | )          | (9.5             | )          | 0.2              |       |
| Provision (benefit) for income taxes           |   | —            |       | (4.6       | )          | 5.2                         |       | 0.2                             |       | —           |       | 0.8              |       |
| Income (loss) after income taxes               |   | (0.7              | )          | 3.6        |       | 10.3                        |       | (4.3                            | )          | (9.5             | )          | (0.6             | )          |
| Minority interest                              |   | —            |       | —     |       | —                      |       | (0.1                            | )          | —           |       | (0.1             | )          |
| Net income (loss)                              |   | $                 | (0.7       | )          | $          | 3.6                         |       | $                               | 10.3       |             | $          | (4.4             | )          | $ | (9.5 | ) | $ | (0.7 | ) |

 

15

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**Condensed Combining Statements ofOperations—Predecessor (unaudited)**

**Fiscal Quarter Ended June 28, 2003**

 
| ** **                                     | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|--------------|------------|
| ** **                                     | ** ** | **(in millions)**           | ** ** |
|                                           |       |                        |       |                            |       |             |       |         |       |
| Net sales                                      |       | $                           | 85.5       |                            | $          | 43.4             |       | $            | (1.6       | ) | $ | 127.3 |   |
| Cost of sales                                  |       | 57.4                        |       | 31.7                            |       | (1.6             | )          | 87.5         |       |
| Gross profit                                   |       | 28.1                        |       | 11.7                            |       | —           |       | 39.8         |       |
| Selling, general, and administrative  expenses |       | 12.5                        |       | 11.1                            |       | —           |       | 23.6         |       |
| Restructuring and other similar costs          |       | 0.3                         |       | 6.0                             |       | —           |       | 6.3          |       |
| Amortization of intangible assets              |       | 0.1                         |       | —                          |       | —           |       | 0.1          |       |
| Other operating income, net                    |       | (0.8                        | )          | 0.6                             |       | —           |       | (0.2         | )          |
| Operating income (loss)                        |       | 16.0                        |       | (6.0                            | )          | —           |       | 10.0         |       |
| Non-operating income (expense):                |       |                        |       |                            |       |             |       |         |       |
| Interest income (expense):                     |       |                        |       |                            |       |             |       |         |       |
| From/to third parties                          |       | —                      |       | —                          |       | —           |       | —       |       |
| From/to affiliates                             |       | 7.7                         |       | (6.7                            | )          | —           |       | 1.0          |       |
| Equity in earnings of subsidiaries             |       | —                      |       | —                          |       | —           |       | —       |       |
| Other, net                                     |       | —                      |       | —                          |       | —           |       | —       |       |
| Income (loss) before income taxes              |       | 23.7                        |       | (12.7                           | )          | —           |       | 11.0         |       |
| Provision for income taxes                     |       | 3.7                         |       | 0.8                             |       | —           |       | 4.5          |       |
| Income (loss) after income taxes               |       | 20.0                        |       | (13.5                           | )          | —           |       | 6.5          |       |
| Minority interest                              |       | —                      |       | (0.1                            | )          | —           |       | (0.1         | )          |
| Net income (loss)                              |       | $                           | 20.0       |                            | $          | (13.6            | )          | $            | —     |   | $ | 6.4 |   |

 

16

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**Condensed Consolidating Statements of CashFlows (unaudited)**

**Fiscal Quarter Ended July 3, 2004**

 
|                                                     |   | **Parent**        | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|--------|-------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
|                                                     |   | **(in millions)** | ** ** |
|                                                     |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| **Operating activities**                                 |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Net income (loss)                                        |   | $                 | (0.7       | )          | $          | 3.6                         |       | $                               | 10.3       |             | $          | (4.4             | )          | $ | (9.5 | ) | $ | (0.7 | ) |
| Non-cash adjustments                                     |   | —            |       | 1.9        |       | 4.6                         |       | 2.7                             |       | —           |       | 9.2              |       |
| Undistributed equity in earnings of  subsidiaries        |   | 0.7               |       | (10.3      | )          | 0.1                         |       | —                          |       | 9.5              |       | —           |       |
| Changes in operating assets and liabilities              |   | —            |       | 2.1        |       | (12.1                       | )          | 1.1                             |       | —           |       | (8.9             | )          |
| **Cash provided by  (used in) operating activities**     |   | —            |       | (2.7       | )          | 2.9                         |       | (0.6                            | )          | —           |       | (0.4             | )          |
| **Investing  activities**                                |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Expenditures for property, plant, and  equipment         |   | —            |       | —     |       | (2.3                        | )          | (1.1                            | )          | —           |       | (3.4             | )          |
| Acquisition, net                                         |   | —            |       | —     |       | —                      |       | (5.0                            | )          | —           |       | (5.0             | )          |
| **Cash provided by  (used in) investing activities**     |   | —            |       | —     |       | (2.3                        | )          | (6.1                            | )          | —           |       | (8.4             | )          |
| **Financing  activities**                                |   |              |       |       |       |                        |       |                            |       |             |       |             |       |
| Activity with affiliates                                 |   | —            |       | 3.1        |       | (9.3                        | )          | 6.2                             |       | —           |       | —           |       |
| Payments of dividends                                    |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Debt issuance costs                                      |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Decrease in short-term borrowings                        |   | —            |       | —     |       | —                      |       | (2.4                            | )          | —           |       | (2.4             | )          |
| Proceeds from debt issuance                              |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Proceeds from common stock issuance                      |   | —            |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Payments of long-term debt                               |   | —            |       | (0.6       | )          | —                      |       | —                          |       | —           |       | (0.6             | )          |
| **Net cash provided  by (used in) financing activities** |   | —            |       | 2.5        |       | (9.3                        | )          | 3.8                             |       | —           |       | (3.0             | )          |
| Effect of exchange rate changes on cash                  |   | —            |       | —     |       | —                      |       | (0.1                            | )          | —           |       | (0.1             | )          |
| **Decrease in cash  and cash equivalents**               |   | $                 | —     |       | $          | (0.2                        | )          | $                               | (8.7       | )                | (3.0       | )                | $          | — |   | $ | (11.9 | ) |
| Cash and cash equivalents at beginning of  period        |   | $                 | —     |       | $          | 12.7                        |       | $                               | 18.1       |             | $          | 17.7             |       | $ | — |   | $ | 48.5 |   |
| Cash and cash equivalents at end of period               |   | $                 | —     |       | $          | 12.5                        |       | $                               | 9.4        |             | $          | 14.7             |       | $ | — |   | $ | 36.6 |   |

 

17

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**Condensed Combining Statements of CashFlows—Predecessor (unaudited)**

**Fiscal Quarter Ended June 28, 2003**

 
| ** **                                               | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|--------------|------------|
| ** **                                               | ** ** | **(in millions)**           | ** ** |
|                                                     |       |                        |       |                            |       |             |       |         |       |
| **Operating  activities**                                |       |                        |       |                            |       |             |       |         |       |
| Net income (loss)                                        |       | $                           | 20.0       |                            | $          | (13.6            | )          | $            | —     |   | $ | 6.4 |   |
| Non-cash adjustments                                     |       | 2.8                         |       | 2.3                             |       | —           |       | 5.1          |       |
| Equity in earnings of subsidiaries                       |       | —                      |       | —                          |       | —           |       | —       |       |
| Changes in operating assets and liabilities              |       | (20.5                       | )          | (14.4                           | )          | —           |       | (34.9        | )          |
| **Cash provided by  (used in) operating activities**     |       | 2.3                         |       | (25.7                           | )          | —           |       | (23.4        | )          |
| **Investing  activities**                                |       |                        |       |                            |       |             |       |         |       |
| Expenditures for property, plant, and  equipment         |       | (2.5                        | )          | (0.3                            | )          | —           |       | (2.8         | )          |
| **Cash used in  investing activities**                   |       | (2.5                        | )          | (0.3                            | )          | —           |       | (2.8         | )          |
| **Financing  activities**                                |       |                        |       |                            |       |             |       |         |       |
| Decrease in short-term borrowings                        |       | 0.8                         |       | (4.9                            | )          | —           |       | (4.1         | )          |
| Other financing activities                               |       | (4.7                        | )          | 23.5                            |       | —           |       | 18.8         |       |
| **Net cash provided  by (used in) financing activities** |       | (3.9                        | )          | 18.6                            |       | —           |       | 14.7         |       |
| Effect of exchange rate changes on cash                  |       | —                      |       | —                          |       | —           |       | —       |       |
| **Decrease in cash  and cash equivalents**               |       | $                           | (4.1       | )                               | $          | (7.4             | )          | $            | —     |   | $ | (11.5 | ) |
| Cash and cash equivalents at beginning of  period        |       | $                           | 6.1        |                            | $          | 11.0             |       | $            | —     |   | $ | 17.1 |   |
| Cash and cash equivalents at end of period               |       | $                           | 2.0        |                            | $          | 3.6              |       | $            | —     |   | $ | 5.6 |   |

 

18

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**11.  Commitments and ContingentLiabilities**

 

The Company is involved in various unresolved legal actions,administrative proceedings, and claims in the ordinary course of its businessinvolving product liability, product warranty, property damage, insurancecoverage, patents, and environmental matters. Although it is not possible topredict with certainty the outcome of these unresolved legal actions or therange of possible loss or recovery, based upon current information, managementbelieves these unresolved legal actions will not have a material effect on thefinancial position or results of operations of the Company.

 

The Company, as well as many other third parties, has been named as a defendantin several lawsuits filed related to illnesses from exposure to asbestos orasbestos-containing products. The complaints fail to specify which plaintiffsallegedly were involved with the Company’s products, and because the cases arein initial stages, it is uncertain whether any plaintiffs have anasbestos-related illnesses or dealt with the Company’s products, much lesswhether any plaintiffs were exposed to an asbestos-containing component part ofthe Company’s product or whether such party could have been a substantialcontributing factor to the alleged illness. The Company is unable to estimatethe amount of its exposure, if any, related to these claims at this time. TheCompany does not believe the ultimate resolution of these issues will have amaterial adverse affect on the Company’s net earnings or financial position.

 

**12.  Subsequent Events**

 

Thepurchase price payable under the Stock Purchase Agreement for Invensys MeteringSystems was subject to adjustment based on (i) the level of working capital asof the closing date of the Acquisition, (ii) the projected pension benefitobligations of Invensys Metering Systems as of the closing date, and (iii) thenet level of intercompany payables and receivables as of the closing date.  Following the closing of the Acquisition,discussions were held by Invensys and the Company regarding the appropriatelevel of the adjustments, and on July 27, 2004, the parties reachedagreement on the adjustment amount which resulted in a cash payment of $5.0 millionby Invensys to the Company and a corresponding reduction to the purchaseprice.  The $5.0 million price reductionwill be reflected as a reduction of goodwill.

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

** **

*This Quarterly Report on Form 10-Q includes certain statements that maybe deemed to be  “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995. When used in this report, the words “anticipate,” “believe,”“estimate,” “expect,” “intend,” “plan” and similar expressions as they relateto Sensus Metering Systems are intended to identify these forward-lookingstatements. All statements by us regarding our expected financial position,sales, cash flow and other operating results, business strategy, financingplans, forecasted trends related to the markets in which we operate, legalproceedings and similar matters, other than those of historical fact, are forward-lookingstatements. We cannot assure you that our expectations expressed or implied inthese forward-looking statements will turn out to be correct. Our actualresults could be materially different from our expectations because of variousrisks. These risks, some of which are discussed under the caption “RiskFactors-Risks Relating to Our Business” in our Registration Statement on FormS-4 (SEC File No. 333-113658) filed with the Securities and ExchangeCommission, and include our dependence on new product development andintellectual property, and our dependence on independent distributors and thirdparty contract manufacturers, our substantial financial leverage, debt serviceand other cash requirements, liquidity constraints and risks related to futuregrowth and expansion. Other important risk factors that could cause actualevents or results to differ from those contained or implied in theforward-looking statements include, without limitation,  our ability to integrate acquired companies,general economic and business conditions, competition, adverse changes in theregulatory or legislative environment in which the company operates, and otherfactors beyond the Company’s control. The following management’s discussion andanalysis should be read in conjunction with the unaudited condensedconsolidated financial statements for the quarter ended July 3, 2004 andthe related notes thereto included in this report and the audited consolidatedfinancial statements for the year ended March 31, 2004 and related notesthereto included in our Registration Statement on Form S-4 (SEC File No.333-113658).*

 

*Unless we indicate otherwise, references below to “we,” “us,” “our” and“Sensus Metering Systems” mean Sensus Metering Systems (Bermuda 2) Ltd. and itssubsidiaries. Unless we indicate otherwise, we have rounded dollar amounts tothe nearest hundred thousand dollars.*

 

**General**

 

We are a leading provider of advanced metering and relatedcommunications systems to the worldwide utility industry and have over acentury of experience in designing and manufacturing metering products. We arethe largest global manufacturer of water meters, the fastest growing segment ofthe metering industry, and have a substantial share of the sales of automaticmetering reading, or AMR, devices to North American water utilities.Additionally, we are a leading global developer and manufacturer of gas andheat metering systems and recently entered the North American electric meteringmarket with iCon, our solid-state electricity meter. In addition to ourmetering business, we believe that, through our Smith-Blair, Inc. subsidiary,we are the leading North American producer of pipe joining and repair productsfor water and natural gas utilities and, through our Sensus Precision DieCasting, Inc. subsidiary, are a premier supplier of precision-manufactured,thin-wall, low-porosity aluminum die castings.

 

During the fiscal quarter ended July 3, 2004, we:

 

•                  Increasedsales from the same period in 2003 by 11%;

•                  Successfullyacquired certain assets of Nexus;

•                  Developedreplacement services and systems key for administrative functions at ourheadquarters resulting from the separation from Invensys; and

•                  Initiatedrestructuring programs to lower our cost base in our European and SouthAmerican operations.

 

***History and the Acquisition***

 

Although Sensus Metering Systems and its predecessors have beensupplying metering and related products for over a century, our currentbusiness was created in early 1999 when BTR plc and Siebe plc merged to formInvensys plc (“Invensys”). Since this merger, and until we acquired themetering systems and certain other businesses (“Invensys Metering Systems”)from Invensys, our business was generally operated as a single product groupwithin

 

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Invensys. During this time period, our business participated in variousstrategic initiatives implemented by Invensys, including customer development,services, and project management and lean supply chain programs. InvensysMetering Systems was acquired by us on December 17, 2003. This acquisitionis described herein under “The Acquisition.” Although we plan to continue ourfocus on improved operating efficiency, the programs previously implemented byInvensys may be modified or terminated. As a result of such modifications orterminations and other factors, the historical results of operations ofInvensys Metering Systems may not be indicative of our results of operations ona stand-alone basis.

 

***Recent Restructuring and Cost SavingsInitiatives***

 

Sensus Metering Systems and its Predecessor have undertaken significantcost savings initiatives over the last several years to reduce its overall costbase and improve operating margins. Through July 3, 2004, we estimate thatapproximately 97.0% of our five-year restructuring and cost reduction programshave been initiated and have realized $38.8 million of cumulative annualcost savings since the program’s initiation.

 

In fiscal 2005, we are continuing the implementation of theseinitiatives.  We expect to incuradditional restructuring costs of approximately $5.1 million in fiscal2005 to conclude the ongoing initiatives, generating cost savings fromreductions of facility costs, direct labor costs, manufacturing overhead costsand general and administrative costs of an estimated $2.3 million. For thefiscal quarter ended July 3, 2004, we incurred $2.0 million ofrestructuring costs, primarily related to employee severance and exitactivities.

 

**Other Information About Our Business**

 

The following table presents, as of the dates indicated, additionalinformation about our operations and business.

 
| ** **            | ** ** | **Fiscal Quarter Ended** | ** ** |
|-----------------------|------------|--------------------------|------------|
| ** **            | ** ** | **July 3, 2004**    | ** ** | **March 31, 2004** | ** ** | **December 28,  2003** | ** ** | **September 30,  2003** | ** ** | **June 28, 2003** | ** ** | **March 31, 2003** | ** ** |
| Orders (in millions)  |       | $                        | 143.2      |   | $ | 148.6 |   | $ | 119.2 |   | $ | 133.4 |   | $ | 128.9 |   | $ | 137.4 |   |
| Backlog (in millions) |       | $                        | 58.3       |   | $ | 56.0 |   | $ | 67.2 |   | $ | 48.9 |   | $ | 57.9 |   | $ | 54.8 |   |
| Sales (in millions)   |       | $                        | 140.7      |   | $ | 159.4 |   | $ | 104.2 |   | $ | 142.4 |   | $ | 127.3 |   | $ | 143.7 |   |
| Employees             |       | 3,459                    |       | 3,363 |   | 3,164 |   | 3,321 |   | 3,431 |   | 3,405 |   |

 

21

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**Results of Operations**

 

***Fiscal Quarter Ended July 3, 2004Compared with Fiscal Quarter Ended June 28, 2003***

 
| **(in  millions)**                                       | ** ** | **Fiscal  Quarter  Ended  July 3, 2004** | ** ** | **%**  | ** ** | **Predecessor  Fiscal  Quarter  Ended  June 28, 2003** | ** ** | **%**  | ** ** |
|----------------------------------------------------------|------------|-----------------------------------------------|------------|--------|------------|-------------------------------------------------------------|------------|--------|------------|
|                                                     |       |                                          |       |   |       |                                                        |       |   |       |
| Net sales                                                |       | $                                             | 140.7      |   | 100        | %                                                           | $          | 127.3  |       | 100 | % |
| Gross profit                                             |       | 41.6                                          |       | 30     | %          | 39.8                                                        |       | 31     | %          |
| Selling, general and administrative  expenses            |       | 24.5                                          |       | 17     | %          | 23.6                                                        |       | 18     | %          |
| Restructuring and other similar costs                    |       | 2.0                                           |       | 2      | %          | 6.3                                                         |       | 5      | %          |
| Amortization of intangible assets                        |       | 5.0                                           |       | 4      | %          | 0.1                                                         |       | — |       |
| Other operating income, net                              |       | 0.5                                           |       | — |       | (0.2                                                        | )          | — |       |
| Operating income (loss)                                  |       | 9.6                                           |       | 7      | %          | 10.0                                                        |       | 8      | %          |
| Interest income (expense), net                           |       | (9.4                                          | )          | (7     | )%         | 1.0                                                         |       | 1      | %          |
| Income (loss) before income taxes and minority  interest |       | 0.2                                           |       | — |       | 11.0                                                        |       | 9      | %          |
| Provision (benefit) for income taxes                     |       | 0.8                                           |       | — |       | 4.5                                                         |       | 4      | %          |
| Income (loss) before minority interest                   |       | (0.6                                          | )          | — |       | 6.5                                                         |       | 5      | %          |
| Minority interest                                        |       | (0.1                                          | )          | — |       | (0.1                                                        | )          | — |       |
| Net income (loss)                                        |       | $                                             | (0.7       | )      | —     |                                                        | $          | 6.4    |       | 5 | % |

 

 *Net Sales.*  Sales increased $13.4 million, orapproximately 11%, from $127.3 million in the fiscal quarter endedJune 28, 2003 to $140.7 million in the fiscal quarter ended July 3,2004. Favorable currency translation, due primarily to the appreciation of theEuro against the U.S. dollar, accounted for $2.4 million of the increase insales compared with the prior year fiscal period results. The remainingincrease was due primarily to strong demand for metering systems, withparticular buoyancy in North American water meters, that showed an increase insales of $5.6 million, or 11%, over the prior period, due to continued growthof AMR applications and strong product sales. The increased sales were alsoattributable to continued growth in sales of our iCon electric meter productsto electric utilities. Sales for pipe joining and repair products increased by$1.6 million, or 13%, compared to the prior year fiscal period, due to improvedpricing and an increase in North American construction activities.  Sales from our precision die casting productsalso demonstrated improvement in the fiscal quarter ended July 3, 2004,increasing by $1.0 million, or 11% over the prior year period, as we tookadvantage of new platform offerings to the top five suppliers to the U.S. automotiveindustry, known as the Tier I automotive suppliers.  In addition, sales increased over the prioryear period as a result of the fiscal quarter ended July 3, 2004containing 3 working days more than the fiscal quarter ended June 28,2003.

 

Our top ten customers accounted for approximately 33% of net salesduring the fiscal quarter ended July 3, 2004. Approximately 12% and 10% ofnet sales for the fiscal quarters ended July 3, 2004 and June 28,2003, respectively, were with one customer and its affiliates. No singleaffiliate of the customer accounted for more than 1% of net sales in any of theperiods presented.

 

We expect that net sales will remain strong for the remainder of thefiscal year, with increases over the prior fiscal year due to demand for AMRsystems, ongoing demand for iCon electric meters, expansion of precision diecasting products and favorable general economic trends.

 

*Gross Profit.*  Gross profit increased by $1.8 million, or5%, from $39.8 million for the fiscal quarter ended June 28, 2003 to $41.6million for the fiscal quarter ended July 3, 2004.  As a percentage of sales, however, grossprofit in the most recent quarter decreased by approximately one percentagepoint from the prior year period. The increase in the gross profit was theresult of increased net sales and favorable currency translation, due primarilyto the appreciation of

 

22

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the Euro versus the dollar that pushed gross margins up $0.6 millioncompared with the prior year period.  Thedecrease in gross profit as a percentage of net sales was primarilyattributable to the following factors:

 
| • |   | Increased prices for aluminum, altered pricing mechanisms to  automotive customers and increased natural gas prices negatively affected  margins on precision die casting products and gas meters; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| • |   | An unfavorable mix of higher electric meter sales at comparatively  lower margins;                                                                                                                 |
| • |   | Competitive pricing environments in European meter markets; and                                                                                                                                    |
| • |   | Continued softness in South American water meter markets,  particularly in Brazil.                                                                                                                 |

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses for the fiscal quarter endedJuly 3, 2004 increased by $0.9 million, or approximately 4%, from $23.6million from the fiscal quarter ended June 28, 2003 to $24.5 million forthe fiscal quarter ended July 3, 2004. Selling, general and administrativeexpense, as a percentage of net sales, however, decreased from 18% for thefiscal quarter ended June 28, 2003 to 17% for the fiscal quarter endedJuly 3, 2004.  The increase inexpense was due primarily to foreign currency translation that resulted in anincrease in foreign-based administrative costs of $0.9 million, as expressed inUS dollars.  In addition, we incurred incrementalmanagement fee expenses of approximately $0.5 million. Prior restructuringefforts and ongoing cost containment activities lowered base operating expensesand operating expenses in Europe, Mid East and Africa (“EMEA”) were flat yearover year, excluding the impacts of foreign currency.  Selling, general and administration expensesin South America and in North America were level for the fiscal quarters endedJuly 3, 2004 and June 28, 2003

 

*Restructuring Costs.*  Restructuring costs decreased by $4.3million, or approximately 68%, from $6.3 million for the fiscal quarter endedJune 28, 2003 to $2.0 million for the fiscal quarter ended July 3,2004.  The decrease is primarily theresult of the scaling down of our European restructuring activities as finalplans are essentially underway to achieve our targeted manufacturing footprintin the region.  Actions to close theFrench production facility and to downsize German operations constitute themajority of current activities. We expect to incur additional restructuringcosts of approximately $3.1 million in fiscal 2005.

 

*Amortization of Intangible Assets*.  Amortization of intangible assets increasedby $4.9 million from $0.1 million for the fiscal quarter ended June 28,2003 to $5.0 million for the fiscal quarter ended July 3, 2004.Amortization expense primarily relates to the intangible assets created at thetime of the Acquisition for non-competition agreements, customer relationshipsand patents (see note 4).  Theseintangible assets were not recorded on the balance sheet of the Predecessor. Asa result, the Predecessor did not incur as much amortization expense in thefiscal quarter ended June 28, 2003. We expect that amortization ofintangible assets will remain higher than historical levels of the Predecessorfor the foreseeable future as a result of higher levels of intangible assetsrecorded in connection with the Acquisition.

 

*Interest Income (Expense).*   Interest expense of $9.4 million for thefiscal quarter ended July 3, 2004 increased by $10.4 million compared withinterest income of $1.0 million for the fiscal quarter ended June 28,2003.  Prior to the Acquisition, thePredecessor had no debt. The Acquisition was financed with $230.0 millionin term loan financing and the issuance of $275.0 million of seniorsubordinated notes.  The increase ininterest expense is the result of the debt created to support the Acquisition.We expect that interest expense will remain higher than historical levels ofthe Predecessor for the foreseeable future as a result of higher levels of debtincurred in connection with acquisitions.

 

*Income Tax Expense.*   Income tax expense for the fiscal quarterended July 3, 2004 decreased by $3.7 million, or 82%, compared with thefiscal quarter ended June 28, 2003 from $4.5 million to $0.8 million.  The decrease is primarily the result of lowerpre-tax income for the period.  Despiteour lower pre-tax income, our effective tax rate was 400% for the fiscalquarter ended July 3, 2004 (compared with 40.8% for the fiscal quarter endedJune 28, 2003) as a result of foreign net operating losses for which notax benefit was recorded.

 

*Minority Interest.*  Minority interest for the fiscal quartersended July 3, 2004 and June 28, 2003 remain consistent and relate toour partner’s share of earnings of our United States, China and India jointventures.

 

23

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*Net Income.* Netincome for the fiscal quarter ended July 3, 2004 decreased by $7.1 millioncompared with the fiscal quarter ended June 28, 2003 due primarily to:

 

•                  higherinterest expense incurred during the period;

•                  greateramortization of intangible assets related to acquisitions;

•                  ourinability to record an income tax benefit on foreign net operating losscarry-forwards in certain jurisdictions; and

•                  managementfees associated with the Acquisition.

 

*EBITDA.*  EBITDA increased by $5.1 million, orapproximately 36%, from $14.0 million in the fiscal quarter ended June 28,2003 to $19.1 million in the fiscal quarter ended July 3, 2004. Theincrease in EBITDA during the period is generally attributable to the followingfactors:

 

•                  increasedsales resulting in higher gross profits;

•                  loweroperating expenses, excluding depreciation and amortization;

•                  significantlylower restructuring expenses; and

•                  theimpact of favorable foreign currency translation.

 

The discussion of EBITDA is being provided because management considersEBITDA to be an important measure of financial performance. Among other things,our management believes that EBITDA provides useful information for ourinvestors because it is useful for trending, analyzing and benchmarking theperformance and value of our business. Management also believes that EBITDA isuseful in assessing current performance compared with the historicalperformance of our predecessor because significant line items within our incomestatements such as depreciation, amortization and interest expense aresignificantly impacted by the Acquisition. Internally, EBITDA is used as afinancial measure to assess the performance of our business and is an importantmeasure in our incentive compensation plans. EBITDA should not be considered asan alternative to net income (determined in accordance with GAAP) as anindicator of our financial performance, or as an alternative to cash flows fromoperating activities (determined in accordance with GAAP) as a measure of ourliquidity.

 

The following table sets forth a quantitative reconciliation of thedifferences between EBITDA and net income (loss) calculated in accordance withgenerally accepted accounting principles for the fiscal quarters endedJuly 3, 2004 and June 28, 2003:

 

**Historical EBITDA Reconciliation**

 
| ** **                               | ** ** | **Fiscal Quarter Ended** | ** ** |
|------------------------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | ** **               | ** ** | **Predecessor** | ** ** |
| ** **                               | ** ** | **July 3, 2004**    | ** ** | **June 28,2003** | ** ** |
| Net income (loss)                        |       | $                        | (0.7       | ) | $ | 6.4 |   |
| Depreciation and amortization            |       | 9.5                      |       | 4.0 |   |
| Interest expense, net of interest income |       | 9.4                      |       | (1.0 | ) |
| Income taxes                             |       | 0.8                      |       | 4.5 |   |
| Minority interest                        |       | 0.1                      |       | 0.1 |   |
| EBITDA                                   |       | $                        | 19.1       |   | $ | 14.0 |   |

 

24

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**Liquidity and Capital Resources**

 

During the fiscal quarter ended July 3, 2004, we funded ouroperating and capital requirements through a combination of cash flows fromoperating activities and cash on hand. Going forward, operating and capitalrequirements will be funded from a combination of cash on hand, cash flows fromoperating activities and borrowings under our senior credit facilities.

 

Net cash flow provided by operating activities in the fiscal quartersended July 3, 2004 and June 28, 2003 was $(0.4) million and$(23.4) million, respectively.  Thenegative cash flow from operations for the fiscal quarter ended July 3,2004 was primarily the result of interest payments of $14.3 million, which wereattributable primarily to the Notes. The $23.0 million increase in netcash provided by operating activities in the fiscal quarter ended July 3,2004 as compared to the fiscal quarter ended June 28, 2003 was primarilyattributable to prior year cash flows from operations being negatively impactedby higher accounts receivable balances and lower accounts payablebalances.  Net income during the currentfiscal quarter was $7.1 million lower than the prior year period, whichwas partially offset by increased amortization of intangible assets of $5.0million due to the Acquisition.

 

Working capital as a percentage of net sales increased to 14% for thefiscal quarter ended July 3, 2004 as compared with 8% for the fiscalquarter ended June 28, 2003. This increase was primarily due to(i) an increase in cash and cash equivalents of $36.2 million resultingfrom the Acquisition, and (ii) an increase in accounts receivable of $5.3million due to increased sales.

 

Historically, cash provided by or used in investing activities has beenused for capital expenditures, business acquisitions and other investments,offset by proceeds from the disposition of property, plant and equipment.Capital expenditures in the fiscal quarter ended July 3, 2004 were$3.4 million as compared with capital expenditures of $2.8 million for thefiscal quarter ended June 28, 2003. Capital expenditure requirements arecomprised of equipment, molds and tooling for replacement and expenditures forcost reduction, maintenance, safety and expansion. For the full fiscal year2005, we expect to make capital expenditures of approximately $21.0 millionreflecting a shift from maintenance level capital expenditures of Invensys to amore growth-focused capital expenditures program.  Business acquisition expenditures in thefiscal quarter ended July 3, 2004 were $5.0 million and wereattributed entirely to the purchase of certain assets of Nexus describedelsewhere in this report. We evaluate potential acquisition opportunities on anongoing basis.  We seek candidates whoseacquisition would enhance our competitive position in the market place.

 

Restructuring cash expense over the fiscal quarters ended July 3,2004 and June 28, 2003 amounted to $2.0 million and$1.5 million, respectively. As of July 3, 2004, we had$8.9 million of restructuring accruals reflected on our balance sheet.Additional restructuring costs of approximately $3.1 million are expected to beincurred in fiscal 2005 as the current restructuring program is completed.

 

Historically, cash provided by or used in financing activitiesrepresented payments to or funding from Invensys, and, to a lesser extent,changes in indebtedness to third parties. As a result of the Acquisition, weincurred substantial third-party indebtedness. As of July 3, 2004, we hadapproximately $503.9 million of total indebtedness outstanding andinterest expense, including amortization of deferred financing costs, wasapproximately $9.4 million for the fiscal quarter ended July 3,2004.  Our senior credit facilitiesprovided for senior secured financing of $298.9 million, consisting of (a) twoterm loan facilities in an aggregate amount of $228.9 million, including a$199.0 million U.S. term loan facility and a $29.9 million Europeanterm loan facility and (b) two revolving credit facilities in an aggregateamount of $70.0 million, under one of which $40.0 million isavailable to Sensus in the form of U.S. dollar-denominated loans and under theother of which $30.0 million is available in the form of U.S.dollar-denominated loans, or in the form of euro- or UK sterling-denominatedloans. The full amount of the term loan facilities was drawn onDecember 17, 2003, and the term loan facilities will mature onDecember 17, 2010. Up to $30.0 million of the revolving creditfacilities is available in the form of letters of credit, and amounts repaidunder the revolving credit facilities may be re-borrowed (subject tosatisfaction of the applicable borrowing conditions) at any time prior to thematurity of the revolving credit facilities, which will be six years after theclosing date. There were no borrowings outstanding under the revolving creditfacility at July 3, 2004; however, $3.7 million of the facility wasutilized in connection with outstanding letters of credit. The Company was incompliance with all credit facility covenants at July 3, 2004.

 

25

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At July 3, 2004, approximately $3.7 million of borrowingcapacity under the revolving credit facilities were used to support letters ofcredit to guarantee our performance under certain contracts or as collateralfor bid and performance bonds. The borrowings under the revolving creditfacilities are available to fund working capital requirements, capitalexpenditures and other general corporate purposes.

 

We believe that cash on hand and cash flow we expect from operations,together with available borrowings under the revolving credit facilitiesconstituting part of our senior secured credit facilities, will providesufficient funds to enable us to fund our planned capital expenditures, makescheduled principal and interest payments and meet our other cash requirementsfor at least the next few years.

 

Our ability to make scheduled payments of principal of, or to payinterest on, or to refinance, our indebtedness, including the Notes, or to fundplanned capital expenditures will depend on our ability to generate cash in thefuture. Our ability to generate cash is subject to general economic, financial,competitive, legislative, regulatory and other factors that are beyond ourcontrol.

 

**Item3. Quantitative andQualitative Disclosures About Market Risk**

** **

The following discussion about our market risk disclosures involvesforward-looking statements. Actual results could differ materially from thoseprojected in forward-looking statements. We are exposed to various market risk factors such as fluctuatinginterest rates and changes in foreign currency rates. At present we do notutilize any derivative instruments to manage this risk.

 

 *Currencytranslation.*  The results ofoperations of our foreign subsidiaries are translated into U.S. dollars at theaverage exchange rates for each period concerned. This translation has noimpact on cash flow. The balance sheets of foreign subsidiaries are translatedinto U.S. dollars at the closing exchange rates. Any adjustments resulting fromthe translation are recorded as other comprehensive income. As of July 3,2004, assets of foreign subsidiaries constituted approximately 29% of totalassets. Foreign currency exchange rate exposure is most significant withrespect to the euro. For the fiscal quarter ended July 3, 2004, net saleswere positively impacted by the appreciation of foreign currencies, primarilythe euro, versus the U.S. dollar by approximately $2.4 million. Similarly,for the fiscal quarter ended June 28, 2003, net sales were positivelyimpacted by the appreciation of foreign currencies, primarily the euro, versusthe U.S. dollar by approximately $1.6 million.

 

*Currency transaction exposure.*  Currency transaction exposure arises where abusiness or company makes actual sales and purchases in a currency other thanits own functional currency. The majority of our businesses source rawmaterials and sell their products within their local markets in theirfunctional currencies and therefore have limited transaction exposure.

 

*Interest rate risk.*  Historically, the business of our predecessorwas exposed to market risk relating to changes in interest rates relating tointercompany funding receivable and payable balances and its other affiliates,which carried variable interest rates. Subsequent to the Acquisition, we have asignificant amount of debt, with a large portion being at variable rates. Totaldebt as of July 3, 2004 was $503.9 million, of which approximately$228.9 million bears interest at variable rates. As of July 3, 2004,the weighted average interest rate on our variable-rate term debt was 4.2%, allof which was outstanding under the senior credit facilities. Variable-rateborrowings under the senior credit facilities are, at our option, at the adjustedLIBOR plus 3.00% or the alternative base rate plus 2.00%.  Holding all other variables constant, anincrease in the interest rate of 1.0% on variable rate debt would increaseannual interest cost by $2.3 million. We have not sought to hedge exposureto variable interest rates.

 

**Item4. Controls and Procedures**

** **

Inconnection with the audit of our financial statements for the year endedMarch 31, 2004, our independent auditors identified a number of reportableconditions under standards established by the American Institute of CertifiedPublic Accountants with regard to the design or operation of internal controlthat, in their judgment,

 

26

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constitute “material weaknesses” within the meaning of the Statement ofAuditing Standards No. 60.  Thereportable conditions identified by our independent auditors resulted, in largepart, from circumstances arising from our transition from a division ofInvensys plc, a U.K. publicly traded company, to a standalone business enterprise.(See the disclosure under “the Acquisition” including elsewhere in thisreport.)  The reportable conditionsinclude:

 

(1)                                  Inadequatereview at the business unit and corporate levels of the financial closeprocess; and

 

(2)                                  Inadequate controls over theconsolidation process.

 

Wehave assigned a high priority to the short-term and long-term improvement ofour internal controls over financial reporting. The process began in the first quarter of fiscal 2005 with thedevelopment of replacement services and systems that are key for financialfunctions at our headquarters resulting from the separation from Invensys plc.

 

Todate, we have implemented internal control improvements by first strengtheningour staffing and monitoring controls over our accounting and financialreporting processes.  For example, in thefirst quarter of fiscal 2005, we hired a Director of Financial Reporting,created localized U.S. GAAP reporting procedures and implemented more rigorousdetailed line item reviews and variance analyses with subsidiary controllersand corporate staff.  Other actions wehave implemented include monthly review of key account activity and balances,more rigorous documentation of accounting issues and creation of an audit andreporting checklist.

 

Inaddition to the foregoing actions, we have begun the process of:

 
| • |   | Identifying and analyzing process and staffing improvements related  to interaction of our corporate accounting and finance group with our  subsidiary accounting and finance groups; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                  |
| • |   | Restructuring and enhancing our financial consolidation system;                                                                                                                       |
|   |   |                                                                                                                                                                                  |
| • |   | Developing and implementing standardized account reconciliation and  analysis procedures;                                                                                             |
|   |   |                                                                                                                                                                                  |
| • |   | Developing and implementing a company disclosure policy and  procedure;                                                                                                               |
|   |   |                                                                                                                                                                                  |
| • |   | Developing an accounting policies and procedures system;                                                                                                                              |
|   |   |                                                                                                                                                                                  |
| • |   | Engaging outside consultants to supplement our internal tax staff;  and                                                                                                               |
|   |   |                                                                                                                                                                                  |
| • |   | Coordinating quarterly financial training for our staff.                                                                                                                              |

 

Managementbelieves that the measures noted above will address the reportable conditionsidentified by our independent auditors. We will continue to evaluate the effectiveness of our disclosurecontrols and procedures and internal control over financial reporting on anon-going basis and will take further action and implement improvements, asnecessary.

 

Pursuantto Section 302 of the Sarbanes-Oxley Act and Rule 13a-15 under theSecurities Exchange Act of 1934 (“Exchange Act”) promulgated thereunder, ourmanagement, including our Chief Executive Officer and Chief Financial Officer,has evaluated the effectiveness of disclosure controls and procedures as of theend of the period covered by this report (the “Evaluation Date”).  Based on such evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that, as a result of thefactors discussed above, our disclosure controls and procedures may not havebeen effective, at a reasonable assurance level, as of the Evaluation Date toensure that information required to be disclosed in reports that we file orsubmit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms.  However, our Chief Executive Officer andChief Financial Officer believe that we have acted promptly and appropriatelyto remedy the deficiencies identified above and that, as of the date thisreport is being filed, our disclosure controls and procedures

 

27

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are effective, at a reasonable assurance level, to ensure thatinformation required to be disclosed in reports that we file or submit underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC rules and Forms.  The actions being taken, and to be taken, byus to address the reportable conditions identified above are reasonably likelyto have a material impact on our internal controls over financial reporting infuture periods.

 

28

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**PART II—OTHERINFORMATION**

** **

**ITEM 1: Legal Proceedings**

 

In September, 2003, Invensys Energy Metering, Inc., the predecessor ofour subsidiary, Sensus Metering Systems-North America Inc., was named as adefendant in a wrongful death claim filed in the Fifth Judicial District Court,Park County, Wyoming (W.R. Emmett, Decedent (by P. Rapp and C.R. Emmett,co-personal representatives of Decedent’s estate) v. Frannie-Deaver Utilities,and certain predecessors, including Invensys Energy Metering, Inc.) seekingunspecified damages arising from a natural gas explosion at a residence servedby a utility gas line that included one of our products. As of July 3,2004, the case was in the discovery phase. In addition, Smith-Blair, Inc.,our subsidiary, was named a defendant in an action filed in the Supreme Courtof New York County, New York on December 5, 2001 (James Trodden v.Consolidated Edison of New York, Felix Industries and Smith-Blair, Inc.)whereby the plaintiff seeks $10 million in damages for alleged personalinjuries arising from an underground gas explosion of a pipeline that includedone of our products. As of July 3, 2004, the case remains subject to astay resulting from the bankruptcy of a co-defendant. Pursuant to the terms ofthe stock purchase agreement for the acquisition of Invensys Metering Systems,we are entitled to full indemnification from the sellers for both of theselawsuits.

 

Our subsidiary, Sensus Metering Systems-North America Inc., along withas many as 200 or more other companies, is a defendant in several lawsuitsfiled in various state courts in Mississippi by groups of plaintiffs allegingillnesses from exposure to asbestos or asbestos-containing products and seekingunspecified compensatory and punitive damages. Because the cases are in initialstages, it is uncertain whether any plaintiffs have dealt with any of thesubsidiary’s products, were exposed to an asbestos-containing component part ofa product of the subsidiary or whether such part could have been a contributingfactor to the alleged illness. One such proceeding has been dismissed to date.There have been no other settlements, verdicts, judgments, or dismissals ofthese claims. Although we are entitled to indemnification for legal andindemnity costs for asbestos claims related to these products from certainsubsidiaries of Invensys pursuant to the stock purchase agreement for theacquisition of Invensys Metering Systems, such indemnities, when aggregatedwith all other indemnity claims, are limited to the purchase price paid by usin connection with the acquisition. See “The Acquisition IndemnificationObligations.”

 

In addition, we are, from time to time, party to legal proceedingsarising out of the operation of our business. We believe that an adverseoutcome of our existing legal proceedings, including the proceedings describedabove, would not have a material adverse impact on our business, financialcondition or results of operation. Nevertheless, unexpected adverse futureevents, such as an unforeseen development in our existing proceedings, asignificant increase in the number of new cases or changes in our currentinsurance arrangements could result in liabilities that have a material adverseimpact on our business, financial condition or results of operations.

 

**ITEM 2. Changes inSecurities**,Use of Proceeds and Issuer Purchases of Equity Securities

** **

(a)                                  None.

 

(b)                                 None.

 

(c)                                  None.

 

(d)                                 Not applicable.

 

(e)                                  Not applicable.

 

**ITEM3. Defaults Upon Senior Securities**

** **

None.

 

29

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**ITEM 4: Submission of Matters to a Vote ofSecurity Holders**

 

No matters weresubmitted to a vote of our shareholders during the fiscal quarter endedJuly 3, 2004.

 

**ITEM5. Other Information**

** **

**None.**

** **

**ITEM6. Exhibits and Reports on Form 8-K**

** **
| (a)    |   | A list of  exhibits filed herewith is contained on the Exhibit Index immediately  proceeding such exhibits and is incorporated herein by reference. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                |
| (b)    |   | Reports on Form  8-K - None.                                                                                                                        |

 

30

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**SIGNATURES**

** **

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
|                          | SENSUS METERING SYSTEMS  INC. |
|-------------------------------|-------------------------------|
|                          |                          |
|                          |                          |
| Date: September 7,  2004 | By:                           | /s/ Daniel  W. Harness |   |
| ** **                    |                          | **Daniel W. Harness  Chief Executive Officer and President** |   |
|                          |                          |   |   |
|                          |                          |   |   |
| Date: September 7,  2004 | /s/  Peter Mainz              |   |
| ** **                    |                          | **Peter Mainz  Chief Financial Officer** |   |

 

31

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**EXHIBITINDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1*                 |       | Certificate of  Incorporation of Sensus Metering Systems Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 3.2*                 |       | By-Laws of Sensus  Metering Systems Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.3*                 |       | Memorandum of  Association of Company Limited by Shares of Sensus Metering Systems (Bermuda  2) Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.4*                 |       | Certificate of  Incorporation of Sensus Metering Systems (Bermuda 2) Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1*                 |       | Indenture, dated as of  December 17, 2003, between Sensus Metering Systems Inc., Sensus Metering  Systems (Bermuda 2) Ltd, the Subsidiary Guarantors defined therein and U.S.  Bank National Association, as Trustee.                                                                                                                                                                                                                                                                                                                   |
| 4.2*                 |       | Form of Senior Subordinated  Note due 2013 (included in Exhibit 4.1).                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| 4.3*                 |       | Registration Rights  Agreement, dated as of December 17, 2003 between Sensus Metering Systems  Inc., Sensus Metering Systems (Bermuda 2) Ltd., M&FC Holding LLC,  Invensys Metering Headquarters Corporation, Smith-Blair Inc., Invensys  Metering Systems-North America Inc., Invensys Precision Die Casting Inc.,  Sensus Metering Systems IP Holdings, Inc. and Credit Suisse First Boston  Corporation and Goldman, Sachs & Co., as initial purchasers.                                                                     |
| 10.1*                |       | Credit Agreement, dated  as of December 17, 2003, among Sensus Metering Systems Inc., Sensus  Metering Systems (Luxco 2) S.A.R.L., Sensus Metering Systems (Bermuda 2)  Ltd., the lenders party thereto, Credit Suisse First Boston Corporation, as  Administrative Agent, Credit Suisse First Boston Corporation and Goldman  Sachs Credit Partners L.P., as Joint Bookrunners and Joint Lead Arrangers,  Goldman Sachs Credit Partners L.P., as Syndication Agent and National City  Bank, as Documentation Agent.                    |
| 10.2*                |       | U.S. Guarantee and Collateral  Agreement, dated as of December 17, 2003, among Sensus Metering Systems  Inc., Sensus Metering Systems (Bermuda 2) Ltd., the Subsidiaries of Sensus  Metering Systems Inc. identified therein, and Credit Suisse First Boston, as  U.S. Collateral Agent.                                                                                                                                                                                                                                                |
| 10.3*                |       | European Guarantee  Agreement, dated as of December 17, 2003, among Sensus Metering Systems  (Luxco 2) S.AR.L., Sensus Metering Systems (Bermuda 3) Ltd., Sensus Metering  Systems (Luxco 1) S.AR.L., the Subsidiaries of Sensus Metering Systems (Luxco  2) S.AR.L. identified therein, and Credit Suisse First Boston, as European  Collateral Agent.                                                                                                                                                                                 |
| 10.4*                |       | Pledge Agreement dated  December 17, 2003 among Sensus Metering Systems (Luxco 3) S.AR.L. and  Credit Suisse First Boston, as European Collateral Agent, relating to shares  of Sensus Metering Systems France Holdings.                                                                                                                                                                                                                                                                                                                |
| 10.5*                |       | Pledge Agreement, dated  December 17, 2003, among Sensus Metering Systems France Holdings and  Credit Suisse First Boston, as European Collateral Agent, relating to shares  of Financiere Pollux.                                                                                                                                                                                                                                                                                                                                      |
| 10.6*                |       | Pledge Agreement, dated  December 17, 2003, among Financiere Pollux and Credit Suisse First  Boston, as European Collateral Agent, relating to shares of Invensys Metering  Systems SAS.                                                                                                                                                                                                                                                                                                                                                |
| 10.7*                |       | Shareholders Agreement,  dated as of December 17, 2003, by and among Sensus Metering Systems  (Bermuda 1) Ltd, The Resolute SIE, L.P., The Resolute Fund Netherlands PV I,  L.P., The Resolute Fund Netherlands PV II, L.P., The Resolute Fund NQP, L.P.,  The Resolute Fund Singapore PV, L.P., GS Capital Partners 2000, L.P., GS  Capital Partners 2000 Offshore, L.P., GS Capital Partners 2000 GmbH & Co.  Beteiligungs KG, GS Capital Partners 2000 Employee Fund, L.P., and Goldman  Sachs Direct Investment Fund 2000, L.P. |
| 10.8*                |       | Management Subscription  and Shareholders Agreement, dated March 5, 2004, by and among Sensus  Metering Systems (Bermuda 1) Ltd. and the persons named therein.                                                                                                                                                                                                                                                                                                                                                                         |
| 10.9*                |       | Employment and  Non-Interference Agreement, dated December 17, 2003, by and between Dan  Harness and Sensus Metering Systems Inc.                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.10*               |       | Employment and  Non-Interference Agreement, dated December 17, 2003, by and between  Peter Mainz and Sensus Metering Systems Inc.                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.11*               |       | Restricted Share Plan  of Sensus Metering Systems (Bermuda 1) Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| 10.12*               |       | Form of Restricted  Share Agreement.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10.13*               |       | Consultant Subscription  and Shareholder Agreement, dated March 5, 2004, by and among Sensus  Metering Systems (Bermuda 1) Ltd. and the person named therein.                                                                                                                                                                                                                                                                                                                                                                           |
| 10.14*               |       | The Jordan Company,  L.P. Management Consulting Agreement, dated December 17, 2003, by and  among The Jordan Company, L.P., Sensus Metering Systems Inc. and its direct  and indirect subsidiaries party thereto.                                                                                                                                                                                                                                                                                                                       |
| 10.15*               |       | Letter Agreement, dated  December 17, 2003, among The Jordan Company, L.P., Sensus Metering                                                                                                                                                                                                                                                                                                                                                                                                                                             |

 

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|   |   | Systems Inc. and  Goldman, Sachs & Co.                                                                                                                                                                                                                                                           |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.16* |   | Transition Services  Agreement, dated December 17, 2003, by and between Sensus Metering  Systems Inc., Invensys plc, Invensys Inc., Invensys International Holdings  Limited, BTR Industries Limited, Foxboro Iberica SA, BTR France SAS, Invensys  Holdings Limited and Invensys SA (Pty) Ltd. |
| 10.17* |   | Non-Competition  Agreement, dated December 17, 2003, by and between Invensys plc and  Sensus Metering Systems Inc.                                                                                                                                                                              |
| 10.18* |   | Purchase Agreement,  dated December 11, 2003 among Sensus Metering Systems, Inc., Sensus  Metering Systems (Bermuda 2) LTD. And the Purchasers named therein.                                                                                                                                   |
| 10.19* |   | Stock Purchase  Agreement dated October 21, 2003 by and among the sellers identified  therein, Invensys plc and IMS Meter Holdings, Inc.                                                                                                                                                        |
| 10.20* |   | Amendment No. 1 to  Stock Purchase Agreement dated December 17, 2003.                                                                                                                                                                                                                           |
| 31.1   |   | Certificate of Chief  Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                                                                                 |
| 31.2   |   | Certificate of Chief  Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a)                                                                                                                                                                                                                 |
| 32.1   |   | Certificate of the  Chief Executive Officer and the Chief Financial Officer pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                          |

 

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*                                         Incorporatedby reference to the exhibits filed with the Sensus Metering System Inc.Registration Statement on Form S-4 filed on March 16, 2004 (SEC File No.333-113658).

 

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