** **

**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 September 30, 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)  (Zip Code)               |
|                                                               |
| **(919) 845-4017**                                                 |
| (Registrants’ telephone number, including  area code)         |

 

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90days.    Yes  o    No  ý

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the ExchangeAct).    Yes  o    No  ý

 

Number of Common Shares, $1.00 par value, outstanding at October 31,2004: 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 September 30, 2004 (unaudited) and March 31,  2004 |   |
|                             |   |   |   |
|                             |   | Condensed  Consolidated Statements of Operations for the fiscal quarter and six months  ended September 30, 2004 (unaudited) and for the Predecessor for the fiscal  quarter and six months ended September 30, 2003 (unaudited) |   |
|                             |   |   |   |
|                             |   | Condensed  Consolidated Statements of Cash Flows for the six months ended September 30,  2004 (unaudited) and for the Predecessor for the six months ended September  30, 2003 (unaudited) |   |
|                             |   |   |   |
|                             |   | Notes  to Unaudited 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**

 

**Item1.  Financial Statements.**

 

**SENSUS METERING SYSTEMS (BERMUDA2) LTD.**

**CONDENSED CONSOLIDATED BALANCESHEETS**

**($ In millions)**

 
| ** **                                                                                                              | ** ** | **September 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                                                                                                              | ** ** | **(unaudited)**         | ** ** | ** **          | ** ** |
| **ASSETS**                                                                                                              | ** ** |                    | ** ** | ** **          | ** ** |
| CURRENT ASSETS:                                                                                                         |       |                    |       |                |       |
| Cash and cash equivalents                                                                                               |       | $                       | 49.1       |                | $          | 48.5 |   |
| Accounts receivable:                                                                                                    |       |                    |       |                |       |
| Trade, net of allowance for doubtful  accounts of $2.4 and $1.3 at September 30, 2004 and March 31, 2004,  respectively |       | 86.5                    |       | 82.5                |       |
| Other                                                                                                                   |       | 1.5                     |       | 2.4                 |       |
| Inventories, net                                                                                                        |       | 49.8                    |       | 46.5                |       |
| Prepayments and other current assets                                                                                    |       | 7.5                     |       | 8.9                 |       |
| Deferred income taxes                                                                                                   |       | 1.2                     |       | 1.2                 |       |
| Total current assets                                                                                                    |       | 195.6                   |       | 190.0               |       |
|                                                                                                                    |       |                    |       |                |       |
| Property, plant and equipment, net                                                                                      |       | 115.9                   |       | 116.4               |       |
| Intangible assets, net                                                                                                  |       | 248.5                   |       | 254.4               |       |
| Goodwill                                                                                                                |       | 341.4                   |       | 347.6               |       |
| Deferred income taxes                                                                                                   |       | 18.0                    |       | 18.0                |       |
| Other long-term assets                                                                                                  |       | 26.4                    |       | 25.0                |       |
| Total assets                                                                                                            |       | $                       | 945.8      |                | $          | 951.4 |   |
|                                                                                                                    |       |                    |       |                |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                          |       |                    |       |                |       |
| CURRENT LIABILITIES:                                                                                                    |       |                    |       |                |       |
| Accounts payable                                                                                                        |       | $                       | 47.5       |                | $          | 43.7 |   |
| Current portion of long-term debt                                                                                       |       | 0.6                     |       | 2.3                 |       |
| Short-term borrowings                                                                                                   |       | —                  |       | 2.2                 |       |
| Income taxes payable                                                                                                    |       | —                  |       | 0.7                 |       |
| Restructuring accruals                                                                                                  |       | 8.5                     |       | 8.6                 |       |
| Accruals and other current liabilities                                                                                  |       | 52.9                    |       | 51.7                |       |
| Total current liabilities                                                                                               |       | 109.5                   |       | 109.2               |       |
|                                                                                                                    |       |                    |       |                |       |
| Long-term debt, less current portion                                                                                    |       | 501.0                   |       | 502.1               |       |
| Pensions                                                                                                                |       | 38.6                    |       | 37.6                |       |
| Deferred income tax liabilities                                                                                         |       | 91.3                    |       | 91.9                |       |
| Other long-term liabilities                                                                                             |       | 5.4                     |       | 6.2                 |       |
| Minority interests                                                                                                      |       | 5.0                     |       | 6.4                 |       |
| Total liabilities                                                                                                       |       | 750.8                   |       | 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               |       |
| Accumulated deficit                                                                                                     |       | (5.3                    | )          | (1.9                | )          |
| Accumulated other comprehensive gain (loss)                                                                             |       | 0.3                     |       | (0.1                | )          |
| Total stockholders’ equity                                                                                         |       | 195.0                   |       | 198.0               |       |
| Total liabilities and stockholders’ equity                                                                         |       | $                       | 945.8      |                | $          | 951.4 |   |

* *

*The accompanying notes are anintegral part of these condensed consolidated financial statements.*

 

3

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**SENSUS METERING SYSTEMS (BERMUDA2) LTD.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**($ In millions)**

 
| ** **                                                                              | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|-----------------------------------------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                              | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| ** **                                                                              | ** ** | **(unaudited)**                                | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**                            | ** ** | **(unaudited)**                                      | ** ** |
| **NET  SALES:**                                                                         |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| To third parties                                                                        |       | $                                              | 143.2      |                                                     | $          | 138.4                                      |       | $                                                    | 282.6      |   | $ | 262.9 |   |
| To affiliates                                                                           |       | —                                         |       | 2.7                                                      |       | —                                     |       | 4.5                                                  |       |
| **TOTAL  SALES**                                                                        |       | 143.2                                          |       | 141.1                                                    |       | 282.6                                      |       | 267.4                                                |       |
| **COST OF  SALES**                                                                      |       | 100.2                                          |       | 95.4                                                     |       | 198.3                                      |       | 182.3                                                |       |
| **GROSS  PROFIT**                                                                       |       | 43.0                                           |       | 45.7                                                     |       | 84.3                                       |       | 85.1                                                 |       |
| **OPERATING  EXPENSES:**                                                                |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Selling, general and administrative  expenses                                           |       | 25.3                                           |       | 22.6                                                     |       | 49.4                                       |       | 45.7                                                 |       |
| Restructuring and other similar costs                                                   |       | 2.5                                            |       | 1.8                                                      |       | 4.5                                        |       | 8.2                                                  |       |
| Amortization of intangible assets                                                       |       | 5.5                                            |       | 0.1                                                      |       | 10.5                                       |       | 0.2                                                  |       |
| Other operating expense (income), net                                                   |       | 1.2                                            |       | (1.0                                                     | )          | 1.7                                        |       | (1.2                                                 | )          |
| **OPERATING  INCOME FROM CONTINUING OPERATIONS**                                        |       | 8.5                                            |       | 22.2                                                     |       | 18.2                                       |       | 32.2                                                 |       |
| **NON-OPERATING  INCOME (EXPENSE):**                                                    |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Interest income (expense):                                                              |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| From/to third parties                                                                   |       | (9.1                                           | )          | —                                                   |       | (18.5                                      | )          | —                                               |       |
| From/to affiliates                                                                      |       | —                                         |       | —                                                   |       | —                                     |       | 1.0                                                  |       |
| Other income                                                                            |       | —                                         |       | —                                                   |       | —                                     |       | 0.1                                                  |       |
| **(LOSS)  INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND MINORITY INTEREST** |       | (0.6                                           | )          | 22.2                                                     |       | (0.3                                       | )          | 33.3                                                 |       |
| **PROVISION  FOR INCOME TAXES**                                                         |       | 1.8                                            |       | 9.0                                                      |       | 2.6                                        |       | 13.5                                                 |       |
| **(LOSS)  INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST**                  |       | (2.4                                           | )          | 13.2                                                     |       | (2.9                                       | )          | 19.8                                                 |       |
| **MINORITY  INTEREST**                                                                  |       | 0.2                                            |       | (0.2                                                     | )          | 0.1                                        |       | (0.3                                                 | )          |
| **(LOSS)  INCOME FROM CONTINUING OPERATIONS**                                           |       | (2.2                                           | )          | 13.0                                                     |       | (2.8                                       | )          | 19.5                                                 |       |
| **DISCONTINUED  OPERATIONS:**                                                           |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Loss from discontinued operations, net of  taxes                                        |       | (0.2                                           | )          | (0.3                                                     | )          | (0.3                                       | )          | (0.4                                                 | )          |
| Loss on disposition of discontinued  operations, net of taxes                           |       | (0.3                                           | )          | —                                                   |       | (0.3                                       | )          | —                                               |       |
| **LOSS  FROM DISCONTINUED OPERATIONS**                                                  |       | (0.5                                           | )          | (0.3                                                     | )          | (0.6                                       | )          | (0.4                                                 | )          |
| **NET  (LOSS) INCOME**                                                                  |       | $                                              | (2.7       | )                                                        | $          | 12.7                                       |       | $                                                    | (3.4       | ) | $ | 19.1 |   |

 

*The accompanying notes are an integral partof these condensed consolidated financial statements.*

 

4

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**SENSUS METERING SYSTEMS (BERMUDA2) LTD.**

**CONDENSED CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**($ In millions)**

 
| ** **                                                                               | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| ** **                                                                               | ** ** | **(unaudited)**                            | ** ** | **(unaudited)**                                      | ** ** |
| **OPERATING  ACTIVITIES:**                                                               |       |                                       |       |                                                 |       |
| Net (loss) income                                                                        |       | $                                          | (3.4       | )                                                    | $          | 19.1 |   |
| Adjustments to reconcile net (loss) income  to net cash provided by operating activities |       |                                       |       |                                                 |       |
| Depreciation                                                                             |       | 8.7                                        |       | 7.8                                                  |       |
| Amortization of intangible assets                                                        |       | 10.5                                       |       | 0.2                                                  |       |
| Deferred income taxes                                                                    |       | (0.8                                       | )          | 0.2                                                  |       |
| Net (gain) on sale of assets                                                             |       | (0.1                                       | )          | —                                               |       |
| Non-cash restructuring charges                                                           |       | —                                     |       | 0.8                                                  |       |
| Changes in operating assets and  liabilities:                                            |       |                                       |       |                                                 |       |
| Accounts receivable                                                                      |       | (3.6                                       | )          | 2.8                                                  |       |
| Inventories                                                                              |       | (2.6                                       | )          | (2.2                                                 | )          |
| Accounts payable and other current  liabilities                                          |       | 3.8                                        |       | 0.3                                                  |       |
| Other current assets                                                                     |       | 2.4                                        |       | (7.0                                                 | )          |
| Other long-term assets                                                                   |       | (0.4                                       | )          | —                                               |       |
| Other long-term liabilities                                                              |       | (2.0                                       | )          | (1.7                                                 | )          |
| Income taxes                                                                             |       | (0.7                                       | )          | (15.5                                                | )          |
| Pensions                                                                                 |       | 0.6                                        |       | 0.5                                                  |       |
| Net cash provided by operating activities                                                |       | 12.4                                       |       | 5.3                                                  |       |
|                                                                                     |       |                                       |       |                                                 |       |
| **INVESTING  ACTIVITIES:**                                                               |       |                                       |       |                                                 |       |
| Expenditures for property, plant and  equipment                                          |       | (8.6                                       | )          | (5.6                                                 | )          |
| Nexus acquisition                                                                        |       | (5.0                                       | )          | —                                               |       |
| Proceeds from Invensys acquisition  adjustment                                           |       | 5.0                                        |       | —                                               |       |
| Proceeds from sale of assets                                                             |       | 2.0                                        |       | —                                               |       |
| Net cash used in investing activities                                                    |       | (6.6                                       | )          | (5.6                                                 | )          |
|                                                                                     |       |                                       |       |                                                 |       |
| **FINANCING  ACTIVITIES:**                                                               |       |                                       |       |                                                 |       |
| Decrease in short-term borrowings                                                        |       | (2.4                                       | )          | (4.3                                                 | )          |
| Payments of long-term debt                                                               |       | (2.9                                       | )          | —                                               |       |
| Other activity with affiliates                                                           |       | —                                     |       | 5.2                                                  |       |
| Net change in amounts due from affiliates  (a component of invested capital)             |       | —                                     |       | (2.6                                                 | )          |
| Net cash used in financing activities                                                    |       | (5.3                                       | )          | (1.7                                                 | )          |
| Effect of exchange rate changes                                                          |       | 0.1                                        |       | 0.4                                                  |       |
| **INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS**                                    |       | 0.6                                        |       | (1.6                                                 | )          |
| **CASH AND  CASH EQUIVALENTS AT BEGINNING OF PERIOD**                                    |       | $                                          |  48.5 |                                                 | $          |  17.1 |   |
| ** **                                                                               |       |                                       |       |                                                 |       |
| **CASH AND  CASH EQUIVALENTS AT END OF PERIOD**                                          |       | $                                          | 49.1       |                                                 | $          | 15.5 |   |

 

*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.

 

**The Acquisition**

 

The Companywas formed on December 17, 2003 through the acquisition (the “Acquisition”) ofthe metering systems and certain other businesses of Invensys plc (“Invensys”).  Prior to the Acquisition, the Company had noactive business operations.  TheAcquisition was completed pursuant to the terms of a Stock Purchase Agreement,dated as of October 21, 2003 (the “Stock Purchase Agreement”) between Invensysand certain of its affiliates and Sensus Metering Systems Inc.  Sensus Metering Systems Inc. is a whollyowned subsidiary of Sensus Metering Systems (Bermuda 2) Ltd.  The businesses acquired from Invensys arereferred to herein as Invensys Metering Systems, or the Predecessor, and formthe basis for the financial information of the Predecessor included herein.

 

The initialpurchase price for Invensys Metering Systems of $657.3 million (subject tofinal 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 (“theNotes”), and equity contributions from the principal investors in the Companyand certain officers and directors of the Company. The purchase price payableunder the Stock Purchase Agreement for Invensys Metering Systems was subject toadjustment based on (i) the level of working capital as of the closing date ofthe Acquisition, (ii) the projected pension benefit obligations of Invensys MeteringSystems as of the closing date, and (iii) the net level of intercompanypayables 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 adjustment, and on July 27, 2004, the parties reached agreement onthe adjustment amount which resulted in a cash payment of $5.0 million byInvensys to the Company and a corresponding reduction to the purchase price.

 

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.

 

The financialstatements of the Predecessor are presented for comparative purposes andinclude the combined historical statements of the subsidiaries and operationsof Invensys Metering Systems, which were acquired by the Company. Numerousfactors related to the Acquisition, including the Company’s increased leverage,the impact of purchase accounting, and significant modifications to the Company’semployee benefit arrangements and management structure, will have a materialimpact on the Company’s financial condition and results of operations.  Consequently, the results of operations ofthe Predecessor may have only limited comparability to the results of operationof the Company.

 

**Principles of Presentation**

 

The accompanying condensed consolidatedfinancial statements are unaudited and have been prepared by the Company’s managementin accordance with the rules and regulations of the Securities and ExchangeCommission (the “SEC”). Certain information related to the Company’sorganization, significant accounting policies and footnote disclosures normallyincluded in financial statements prepared in accordance with accountingprinciples generally accepted in the United States (“GAAP”) have been condensedor 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 

 

6

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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 ended March 31,2004 and related notes thereto included in the Company’s Registration Statementon Form S-4 (SEC File No. 333-113658) as filed with the SEC (the “Form S-4”).

 

The accompanying condensed consolidatedfinancial statements present results of the Company for the fiscal quarter andsix months ended September 30, 2004 and of the Predecessor for the fiscalquarter and six months ended September 30, 2003. The Company operates on a 4week, 4 week, 5 week financial and business closing schedule for all periods,except year-end which is March 31, and the fiscal half, which is September30.  Operating results for interimperiods are not necessarily indicative of the results that may be achieved forthe full year.

 

**Use of Estimates**

 

The preparation of financial statements in conformity with GAAPrequires management to make estimates and assumptions that affect the financialstatements. Due to various factors affecting future costs and operations,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 management subscriptionand shareholders’ agreement. The Company accounts for this plan under theintrinsic 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 and six months ended September 30, 2004, as the recipients ofthe restricted shares paid the fair value thereof.

 

**2.  Discontinued Operations**

 

On September 10, 2004, the Company sold theassets of its utility billing software company, IMSofTech, Inc. (“IMSofTech”)for $1.1 million. The sale allows Sensus Metering Systems to focus on itsbusiness strategy to provide intelligent metering systems based solutions tothe global utility markets. The sale price of $1.1 million includes (1) aninitial cash payment of $850,000 received in September 2004, and (2) $250,000cash to be paid by the purchaser six months after closing, which is subject toadjustment for any indemnification claims. The contingent consideration will be recognized once collectibility isassured.

 

On September 30, 2004, the Company sold itsfifty-one percent (51%) interest in****MeasurementSolutions International LLC (“MSI”), a full service meter asset managementorganization based in Paulsboro, New Jersey for $0.6 million.  The sale was part of Sensus Metering Systems’strategy to focus on its core business. The sales price consisted of (1) $300,000 cash received in September2004, (2) $36,000 cash to be paid in November 2004, (3) $225,000 cash,  receivable upon renewal of specific servicecontracts, and (4) an amount in cash equal to 2% of revenue earned by MSI onnew service contracts generated by the Company through August 31, 2006. Thecontingent consideration will be recognized once collectibility is assured.

 

These dispositions have been accounted for asdiscontinued operations in accordance with Statement of Financial AccountingStandard No. 144, *Accounting for theImpairment or Disposal of Long-Lived Assets* and, accordingly,amounts in the consolidated condensed statement of operations for all periodspresented have been reclassified to reflect the dispositions as discontinuedoperations.  The results of operationsfor the discontinued businesses are as follows:

 

7

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| ** **                                                                    | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| ** **                                                                    | ** ** | **(unaudited)**                                | ** ** | **(unaudited)**                                          | ** ** | **(unaudited)**                            | ** ** | **(unaudited)**                                      | ** ** |
|                                                                          |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Net sales                                                                     |       | $                                              | 0.9        |                                                     | $          | 1.3                                        |       | $                                                    | 2.2        |   | $ | 2.3 |   |
| Cost of sales                                                                 |       | 0.7                                            |       | 0.7                                                      |       | 1.7                                        |       | 1.3                                                  |       |
| Gross profit                                                                  |       | 0.2                                            |       | 0.6                                                      |       | 0.5                                        |       | 1.0                                                  |       |
| Operating expenses:                                                           |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Selling, general and administrative  expenses                                 |       | 0.3                                            |       | 0.6                                                      |       | 0.7                                        |       | 1.0                                                  |       |
| Other operating expense, net                                                  |       | —                                         |       | 0.1                                                      |       | —                                     |       | 0.1                                                  |       |
| Operating income from discontinued  operations                                |       | (0.1                                           | )          | (0.1                                                     | )          | (0.2                                       | )          | (0.1                                                 | )          |
| Non-operating expense                                                         |       | —                                         |       | (0.1                                                     | )          | —                                     |       | (0.2                                                 | )          |
| Loss from discontinued operations before  income taxes and minority interest  |       | (0.1                                           | )          | (0.2                                                     | )          | (0.2                                       | )          | (0.3                                                 | )          |
| Provision for income taxes                                                    |       | —                                         |       | —                                                   |       | —                                     |       | —                                               |       |
| Loss from discontinued operations before  minority interest                   |       | (0.1                                           | )          | (0.2                                                     | )          | (0.2                                       | )          | (0.3                                                 | )          |
| Minority interest                                                             |       | (0.1                                           | )          | (0.1                                                     | )          | (0.1                                       | )          | (0.1                                                 | )          |
| Loss from discontinued operations                                             |       | $                                              | (0.2       | )                                                        | $          | (0.3                                       | )          | $                                                    | (0.3       | ) | $ | (0.4 | ) |
| Loss on disposition of discontinued  operations, net of taxes of $0.3 million |       | $                                              | (0.3       | )                                                        | $          | —                                     |       | $                                                    | (0.3       | ) | $ | — |   |
| Net loss from discontinued operations                                         |       | $                                              | (0.5       | )                                                        | $          | (0.3                                       | )          | $                                                    | (0.6       | ) | $ | (0.4 | ) |

 

 

Assets and liabilities related todiscontinued operations consisted of the following:

 
| ** **                                            | ** ** | **March 31,  2004** | ** ** |
|-------------------------------------------------------|------------|---------------------|------------|
| **ASSETS  RELATED TO DISCONTINUED OPERATIONS**        |       |                |       |
| Cash and cash equivalents                             |       | $                   | 0.2        |   |
| Accounts receivable, net                              |       | 0.3                 |       |
| Prepayments and other current assets                  |       | 0.3                 |       |
| Property, plant and equipment, net                    |       | 0.4                 |       |
| Other assets                                          |       | 1.5                 |       |
| Total assets related to discontinued  operations      |       | $                   | 2.7        |   |
| **LIABILITIES  RELATED TO DISCONTINUED OPERATIONS**   |       |                |       |
| Accounts payable                                      |       | 0.1                 |       |
| Accruals and other current liabilities                |       | 1.0                 |       |
| Other liabilities                                     |       | 0.2                 |       |
| Total liabilities related to discontinued  operations |       | $                   | 1.3        |   |

 

8

----

 

**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 consisted of the following (in millions):

 
| ** **                        | ** ** | **September 30,  2004** | ** ** | **March 31,  2004** | ** ** |
|-----------------------------------|------------|-------------------------|------------|---------------------|------------|
|                              |       |                    |       |                |       |
| Raw materials, parts and supplies |       | $                       | 27.2       |                | $          | 21.3 |   |
| Work in process                   |       | 15.1                    |       | 17.5                |       |
| Finished goods                    |       | 10.5                    |       | 10.0                |       |
| Provision for obsolescence        |       | (3.0                    | )          | (2.3                | )          |
| Inventories, net                  |       | $                       | 49.8       |                | $          | 46.5 |   |

 

**4.  Intangible Assets**

 

Intangibleassets consist of goodwill, tradenames, patents, non-competition agreements andcustomer and distributor relationships. Goodwill at September 30, 2004represents the excess of the purchase price paid by the Company for thePredecessor over the fair value of the net assets acquired, and the excess ofthe purchase price paid by the Company for NexusData, Inc. (“Nexus”) (see Note10) over the fair value of the net assets acquired. The purchase priceallocation for the Predecessor and Nexus resulted in $341.4 million ofgoodwill being recorded as of September 30, 2004. 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 purchase price payable under the Stock Purchase Agreement forInvensys Metering Systems was subject to adjustment based on the level ofworking capital as of the closing date of the Acquisition, the projectedpension benefit obligations of Invensys Metering Systems as of the closingdate, and the net level of intercompany payables and receivables as of theclosing date. Following the closing of the Acquisition, discussions were heldby Invensys and the Company regarding the appropriate level of the adjustments,and on July 27, 2004, the parties reached agreement on the adjustment amountwhich resulted in a cash payment of $5.0 million by Invensys to the Company anda corresponding reduction to the purchase price.  The $5.0 million price reduction is reflectedas a reduction of goodwill. The Company has also adjusted the purchase priceallocation by $1.6 million, reflecting an adjustment to the fair value of thenet assets acquired. The $1.6 million increase in net assets is reflected as areduction of goodwill.

 

The purchase price allocation for Nexus resulted in $0.5 million ofgoodwill and $4.5 million of identifiable intangible assets beingrecorded.  The goodwill can be attributedto the anticipated future earnings and cash flows of the businesses acquired.

 

Intangible assets are summarized as follows (in millions):

 
| ** **                                      | ** ** | **September 30, 2004** | ** ** | **March 31, 2004**            | ** ** |
|-------------------------------------------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                      | ** ** | **Cost**               | ** ** | **Accumulated  Amortization** | ** ** | **Cost** | ** ** | **Accumulated  Amortization** | ** ** |
|                                            |       |                   |       |                          |       |   |   |   |   |
| Intangible assets not subject to  amortization: |       |                   |       |                          |       |   |   |   |   |
| Goodwill                                        |       | $                      | 341.4      |                          | $          | — |   | $ | 347.6 |   | $ | — |   |
| Tradenames (indefinite lived)                   |       | 27.3                   |       | —                        |       | 27.3 |   | — |   |
|                                            |       | 368.7                  |       | —                        |       | 374.9 |   | — |   |
|                                            |       |                   |       |                          |       |   |   |   |   |
| Intangible assets subject to amortization:      |       |                   |       |                          |       |   |   |   |   |
| Distributor relationships                       |       | 191.8                  |       | (8.5                          | )          | 191.8 |   | (3.1 | ) |
| Non-competition agreements                      |       | 30.5                   |       | (5.9                          | )          | 30.0 |   | (2.1 | ) |
| Patents                                         |       | 15.1                   |       | (1.8                          | )          | 11.0 |   | (0.5 | ) |
|                                            |       | 237.4                  |       | (16.2                         | )          | 232.8 |   | (5.7 | ) |
| Total intangible assets                         |       | $                      | 606.1      |                          | $          | (16.2 | ) | $ | 607.7 |   | $ | (5.7 | ) |

 

9

----

 

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 (Note 10)           |   | 0.5  |   |
| Goodwill reduction from Invensys plc  payment (Note 1)                     |   | (5.0 | )      |
| Goodwill reduction from Invensys plc  purchase price fair value adjustment |   | (1.6 | )      |
| Other                                                                      |   | (0.1 | )      |
| Goodwill at September 30, 2004                                             |   | $    | 341.4  |   |

 

**5.  Restructuring and OtherSimilar Costs**

 

The following table reflects activity for the fiscal quarter and sixmonths ended September 30, 2004 and September 30, 2003 which are associatedwith restructuring and other similar costs related to the Company’srestructuring initiatives (in millions):

 
| ** **                                                   | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|--------------------------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                   | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| Severance and other related costs:                           | ** ** | ** **                                     | ** ** | ** **                                               | ** ** | ** **                                 | ** ** | ** **                                           | ** ** |
| Related to headcount reduction initiatives                   |       | $                                              | 2.1        |                                                     | $          | 1.6                                        |       | $                                                    | 4.1        |   | $ | 1.8 |   |
| Related to outsourcing                                       |       | 0.1                                            |       | —                                                   |       | 0.1                                        |       | 0.1                                                  |       |
| Related to plant closures and consolidation                  |       | 0.3                                            |       | —                                                   |       | 0.3                                        |       | 5.2                                                  |       |
|                                                         |       | 2.5                                            |       | 1.6                                                      |       | 4.5                                        |       | 7.1                                                  |       |
| Asset impairments:                                           |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Related to outsourcing                                       |       |                                           |       |                                                     |       |                                       |       | 0.7                                                  |       |
| Related to plant closures and consolidation                  |       | —                                         |       | —                                                   |       | —                                     |       | 0.1                                                  |       |
|                                                         |       | —                                         |       | —                                                   |       | —                                     |       | 0.8                                                  |       |
|                                                         |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Other                                                        |       | —                                         |       | 0.2                                                      |       | —                                     |       | 0.3                                                  |       |
|                                                         |       | —                                         |       | 0.2                                                      |       | —                                     |       | 0.3                                                  |       |
| Restructuring and other similar costs  charged to operations |       | $                                              | 2.5        |                                                     | $          | 1.8                                        |       | $                                                    | 4.5        |   | $ | 8.2 |   |

 

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 ofapproximately $6.0 million related to previously identified opportunities.These actions principally reflect severance benefits and asset impairments.These restructuring actions commenced in 2004 and the Company expects theactions will be completed by March 31, 2005.

 

For the fiscalquarter and six months ended September 30, 2004, the Company incurred $2.5million and $4.5 million, respectively, of restructuring and other similarcosts related to ongoing activities to rationalize its water and gas meterproduct lines in Europe and to align the South American structure with currentmarket conditions. Actions in Europe affect both direct and indirect personneland will result in a headcount reduction of 38 employees.  These programs are concentrated in theCompany’s German water meter and UK gas meter production facilities.  The South American reorganization, affectingboth direct and indirect personnel, will reduce headcount by 11 employees.  The Company anticipates that theseinitiatives will be completed by March 31, 2005.

 

10

----

 

The charge for restructuring and othersimilar costs was comprised of the following (in millions):

 
| ** **                                | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| Employee severance and exit costs accrued |       | $                                              | 2.5        |                                                     | $          | 1.6                                        |       | $                                                    | 4.5        |   | $ | 6.7 |   |
| Impairment of long-lived assets           |       | —                                         |       | —                                                   |       | —                                     |       | 0.8                                                  |       |
| Expensed as incurred                      |       | —                                         |       | 0.2                                                      |       | —                                     |       | 0.7                                                  |       |
|                                      |       | $                                              | 2.5        |                                                     | $          | 1.8                                        |       | $                                                    | 4.5        |   | $ | 8.2 |   |

 

Restructuring accruals are summarized asfollows (in millions):

 
| ** **                                  | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|---------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| Balance at beginning of period              |       | $                                              | 8.9        |                                                     | $          | 11.5                                       |       | $                                                    | 8.6        |   | $ | 7.1 |   |
| Cash payments                               |       | (3.0                                           | )          | (2.3                                                     | )          | (4.7                                       | )          | (3.5                                                 | )          |
| Accrue for new committed/announced programs |       | 2.5                                            |       | 1.6                                                      |       | 4.5                                        |       | 6.7                                                  |       |
| Effect of foreign currency translation      |       | 0.1                                            |       | (0.4                                                     | )          | 0.1                                        |       | 0.1                                                  |       |
| Balance at end of period                    |       | $                                              | 8.5        |                                                     | $          | 10.4                                       |       | $                                                    | 8.5        |   | $ | 10.4 |   |

 

Restructuring expense accruals were recordedwithin restructuring accruals as of September 30, 2004, September 30, 2003 andMarch 31, 2004.

 

**6. Comprehensive Income (Loss)**

 

Comprehensive income (loss) consisted of thefollowing (in millions):

 
| ** **                               | ** ** | ** **                                     | ** ** | **Predecessor**                                          | ** ** | ** **                                 | ** ** | **Predecessor**                                      | ** ** |
|------------------------------------------|------------|------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                               | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| ** **                               | ** ** | ** **                                     | ** ** | ** **                                               | ** ** | ** **                                 | ** ** | ** **                                           | ** ** |
| Net (loss) income                        |       | $                                              | (2.7       | )                                                        | $          | 12.7                                       |       | $                                                    | (3.4       | ) | $ | 19.1 |   |
| Other comprehensive income:              |       |                                           |       |                                                     |       |                                       |       |                                                 |       |
| Foreign currency translation adjustments |       | 0.5                                            |       | 1.0                                                      |       | 0.3                                        |       | 7.3                                                  |       |
| Comprehensive (loss) income              |       | $                                              | (2.2       | )                                                        | $          | 13.7                                       |       | $                                                    | (3.1       | ) | $ | 26.4 |   |

 

**7. Warranty Obligations**

 

Product warranty reserves are established in the same period thatrevenue from the sale of the related products is recognized. The amounts ofthose reserves are based on established terms and the Company’s best estimateof the amounts necessary to settle future and existing claims on products soldas of the balance sheet date.  Warrantyreserves are reflected within accruals and other current liabilities and otherlong-term liabilities in the accompanying financial statements.

 

11

----

 

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

 
| ** **               | ** ** | ** **             | ** ** | **Predecessor**                  | ** ** |
|--------------------------|------------|------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **September 30, 2004** | ** ** | **(Note 1)  September 30, 2003** | ** ** |
| Balance at March 31      |       | $                      | 8.6        |                             | $          | 9.1 |   |
| Warranties issued        |       | 1.5                    |       | 2.1                              |       |
| Settlements made         |       | (3.1                   | )          | (3.0                             | )          |
| Balance at end of period |       | $                      | 7.0        |                             | $          | 8.2 |   |
| Current portion          |       | 2.9                    |       | 2.0                              |       |
| Non-current portion      |       | 4.1                    |       | 6.2                              |       |
| Total                    |       | $                      | 7.0        |                             | $          | 8.2 |   |

 

**8.  Income Taxes**

 

Theeffective tax rates for the quarter and six months ended September 30, 2004were negative 300% and negative 867%, respectively, compared to 40.5% for eachof the fiscal quarter and six months ended September 30, 2003. The currentfiscal period rates were the result of income taxes being incurred on thetaxable income of the Company’s U.S. operations while no income tax benefit wasrecorded on the operating losses incurred in certain foreign jurisdictionswhere the realization of related deferred tax assets is considered uncertain.

 

**9. Retirement Benefits**

 

The Company has defined benefit plans, principally in Europe, 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 the laws and governmentalregulations applicable in the respective country.

 

The following information reflects the net period benefit cost forparticipants in the Company’s significant European retirement benefit plans.That information is summarized as follows (in millions):

 
| ** **                     | ** ** | ** **                                    | ** ** | **Predecessor**                                         | ** ** | ** **                                | ** ** | **Predecessor**                                     | ** ** |
|--------------------------------|------------|-----------------------------------------------|------------|---------------------------------------------------------|------------|-------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                     | ** ** | **Fiscal Quarter  Ended  September 30, 2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30, 2003** | ** ** | **Six Months  Ended  September 30, 2004** | ** ** | **(Note 1)  Six Months  Ended  September 30, 2003** | ** ** |
|                           |       |                                          |       |                                                    |       |                                      |       |                                                |       |
| Service cost                   |       | $                                             | 0.2        |                                                    | $          | 0.2                                       |       | $                                                   | 0.4        |   | $ | 0.5 |   |
| Interest cost                  |       | 0.6                                           |       | 0.4                                                     |       | 1.0                                       |       | 0.9                                                 |       |
| Expected return on plan assets |       | 0.0                                           |       | 0.0                                                     |       | 0.0                                       |       | 0.0                                                 |       |
| Net periodic benefit cost      |       | $                                             | 0.8        |                                                    | $          | 0.6                                       |       | $                                                   | 1.4        |   | $ | 1.4 |   |

 

TheCompany expects to continueto make contributions sufficient to fund benefits paid under its pension plans.Such contributions are expected to total approximately $2.8 million infiscal 2005.

 

12

----

 

**10. Acquisition**

 

As of June 4, 2004, the Company purchasedcertain assets of Nexus for $6.0 million. This purchase provides the Companywith full ownership of a fixed network AMR system for the water, gas andelectric utility markets. Prior to the acquisition, the Company had anexclusive distribution agreement with Nexus for the water utility market.

 

This transaction has been accounted for in accordance with Statement ofFinancial Accounting Standards No. 141, *BusinessCombinations*. The unaudited condensed consolidated financialstatements herein include Nexus’ results of operations for the period from June4, 2004 through September 30, 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 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.

 

The purchase agreement also included provisions for payment ofadditional considerations, up to a total of $1.5 million, to be paid to Nexusbased on specific performance criteria of the acquired business through June 4,2007.  Any payments made based on thesecriteria will adjust the Nexus purchase price and be allocated to goodwill.

 

**11. Guarantor Subsidiaries**

 

The following tables present condensed consolidating unauditedfinancial information at September 30, 2004 and the audited financialinformation at March 31, 2004 and the unaudited financial information for thefiscal quarter and six months ended September 30, 2004, condensed combiningfinancial unaudited information of the Predecessor for the fiscal quarter andsix months ended September 30, 2003 for: (a) Sensus Metering Systems (Bermuda2) Ltd. (referred to as Parent), (b) Sensus Metering Systems Inc. the issuer ofthe Notes (referred to as Issuer), (c) on a combined basis, the subsidiariesof 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 than IMSofTech Inc. (“Guarantor Subsidiaries”), and (d) on acombined basis, the subsidiaries of Sensus Metering Systems (Bermuda 2) Ltd.that are not guaranteeing the Notes, including IMSofTech (“Non-GuarantorSubsidiaries”). Separate financial statements for the Issuer and the GuarantorSubsidiaries are not presented because their guarantees are full andunconditional and joint and several, and the Company believes separatefinancial statements and other disclosures are not material to investors. TheNotes were issued by Sensus Metering Systems Inc. in connection with theAcquisition of Invensys Metering Systems (see Note 1).

 

13

----

 

**Condensed Consolidating Balance Sheets(unaudited)**

**September 30, 2004**

 
| ** **                                      | ** ** | **Parent**               | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|-------------------------------------------------|------------|--------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                      | ** ** | **($ in millions)** | ** ** |
| ** **                                      | ** ** | ** **               | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| **Assets**                                      |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Current assets:                                 |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Cash and cash equivalents                       |       | $                        | —     |       | $          | 12.5                        |       | $                               | 23.4       |             | $          | 13.2             |       | $ | — |   | $ | 49.1 |   |
| Accounts receivable:                            |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Trade, net of allowance for doubtful  accounts  |       | —                   |       | —     |       | 53.6                        |       | 32.9                            |       | —           |       | 86.5             |       |
| From affiliates                                 |       | (5.2                     | )          | (24.4      | )          | 34.0                        |       | (4.4                            | )          | —           |       | —           |       |
| Other                                           |       | —                   |       | —     |       | 1.3                         |       | 0.2                             |       | —           |       | 1.5              |       |
| Inventories, net                                |       | —                   |       | —     |       | 27.5                        |       | 22.3                            |       | —           |       | 49.8             |       |
| Prepayments and other current assets            |       | 0.1                      |       | 0.9        |       | 1.6                         |       | 4.9                             |       | —           |       | 7.5              |       |
| Deferred income taxes                           |       | —                   |       | —     |       | 1.2                         |       | —                          |       | —           |       | 1.2              |       |
| Total current assets                            |       | (5.1                     | )          | (11.0      | )          | 142.6                       |       | 69.1                            |       | —           |       | 195.6            |       |
| Notes receivable from affiliates                |       | —                   |       | 433.2      |       | —                      |       | 29.1                            |       | (462.3           | )          | —           |       |
| Property, plant, and equipment, net             |       | —                   |       | —     |       | 66.8                        |       | 49.1                            |       | —           |       | 115.9            |       |
| Intangible assets, net                          |       | —                   |       | 24.1       |       | 176.7                       |       | 47.7                            |       | —           |       | 248.5            |       |
| Goodwill                                        |       | —                   |       | —     |       | 314.1                       |       | 27.3                            |       | —           |       | 341.4            |       |
| Investment in subsidiaries                      |       | 662.4                    |       | 585.4      |       | 6.4                         |       | —                          |       | (1,254.2         | )          | —           |       |
| Long-term deferred tax asset                    |       | —                   |       | —     |       | 18.0                        |       | —                          |       | —           |       | 18.0             |       |
| Other long-term assets                          |       | —                   |       | 21.4       |       | 2.1                         |       | 2.9                             |       | —           |       | 26.4             |       |
| Total assets                                    |       | $                        | 657.3      |       | $          | 1,053.1                     |       | $                               | 726.7      |             | $          | 225.2            |       | $ | (1,716.5 | ) | $ | 945.8 |   |
|                                            |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| **Liabilities and stockholders’ equity**   |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Current liabilities:                            |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Accounts payable                                |       | $                        | —     |       | $          | —                      |       | $                               | 34.9       |             | $          | 12.6             |       | $ | — |   | $ | 47.5 |   |
| Current portion of long-term debt               |       | —                   |       | 0.5        |       | —                      |       | 0.1                             |       | —           |       | 0.6              |       |
| Income taxes payable                            |       | —                   |       | (10.5      | )          | 10.9                        |       | (0.4                            | )          | —           |       | —           |       |
| Restructuring accruals                          |       | —                   |       | —     |       | 0.7                         |       | 7.8                             |       | —           |       | 8.5              |       |
| Accruals and other current liabilities          |       | —                   |       | 10.0       |       | 18.5                        |       | 24.4                            |       | —           |       | 52.9             |       |
| Total current liabilities                       |       | —                   |       | —     |       | 65.0                        |       | 44.5                            |       | —           |       | 109.5            |       |
| Notes payable to affiliates                     |       | 462.3                    |       | (1.5       | )          | 0.5                         |       | 1.0                             |       | (462.3           | )          | —           |       |
| Long-term debt, less current portion            |       | —                   |       | 471.5      |       | —                      |       | 29.5                            |       | —           |       | 501.0            |       |
| Pensions                                        |       | —                   |       | —     |       | 0.6                         |       | 38.0                            |       | —           |       | 38.6             |       |
| Deferred income taxes                           |       | —                   |       | —     |       | 70.1                        |       | 21.2                            |       | —           |       | 91.3             |       |
| Other long-term liabilities                     |       | —                   |       | —     |       | 5.1                         |       | 0.3                             |       | —           |       | 5.4              |       |
| Minority interests                              |       | —                   |       | —     |       | —                      |       | 5.0                             |       | —           |       | 5.0              |       |
| Total liabilities                               |       | 462.3                    |       | 470.0      |       | 141.3                       |       | 139.5                           |       | (462.3           | )          | 750.8            |       |
| Stockholders’ equity                       |       | 195.0                    |       | 583.1      |       | 585.4                       |       | 85.7                            |       | (1,254.2         | )          | 195.0            |       |
| Total liabilities and stockholders’ equity |       | $                        | 657.3      |       | $          | 1,053.1                     |       | $                               | 726.7      |             | $          | 225.2            |       | $ | (1,716.5 | ) | $ | 945.8 |   |

 

14

----

 

**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, net                                |   | —                   |       | —     |       | 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 |   |

 

15

----

 

**Condensed Consolidating Statements ofOperations (unaudited)**

**Fiscal Quarter Ended September 30, 2004**

 
| ** **                                                   | ** ** | **Parent**               | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|--------------------------------------------------------------|------------|--------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                                   | ** ** | **($ in millions)** | ** ** |
|                                                         |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Net sales                                                    |       | $                        | —     |       | $          | —                      |       | $                               | 101.9      |             | $          | 42.7             |       | $ | (1.4 | ) | $ | 143.2 |   |
| Cost of sales                                                |       | —                   |       | —     |       | 69.1                        |       | 32.5                            |       | (1.4             | )          | 100.2            |       |
| Gross profit (loss)                                          |       | —                   |       | —     |       | 32.8                        |       | 10.2                            |       | —           |       | 43.0             |       |
| Selling, general, and administrative  expenses               |       | —                   |       | 0.2        |       | 13.3                        |       | 11.8                            |       | —           |       | 25.3             |       |
| Restructuring and other similar costs                        |       | —                   |       | (0.1       | )          | —                      |       | 2.6                             |       | —           |       | 2.5              |       |
| Amortization of intangible assets                            |       | —                   |       | 1.9        |       | 2.7                         |       | 0.9                             |       | —           |       | 5.5              |       |
| Other operating expenses, net                                |       | —                   |       | 0.2        |       | 0.6                         |       | 0.4                             |       | —           |       | 1.2              |       |
| Operating income (loss)                                      |       | —                   |       | (2.2       | )          | 16.2                        |       | (5.5                            | )          | —           |       | 8.5              |       |
| Non-operating income (expense):                              |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Interest income (expense):                                   |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| From/to third parties                                        |       | —                   |       | (8.9       | )          | 0.2                         |       | (0.4                            | )          | —           |       | (9.1             | )          |
| Equity in earnings of subsidiaries                           |       | (2.2                     | )          | 6.5        |       | (3.6                        | )          | —                          |       | (0.7             | )          | —           |       |
| Other, net                                                   |       | —                   |       | —     |       | 0.1                         |       | (0.1                            | )          | —           |       | —           |       |
| (Loss) income for continuing operations  before income taxes |       | (2.2                     | )          | (4.6       | )          | 12.9                        |       | (6.0                            | )          | (0.7             | )          | (0.6             | )          |
| Provision (benefit) for income taxes                         |       | —                   |       | (4.5       | )          | 6.4                         |       | (0.1                            | )          | —           |       | 1.8              |       |
| (Loss) income for continuing operations  after income taxes  |       | (2.2                     | )          | (0.1       | )          | 6.5                         |       | (5.9                            | )          | (0.7             | )          | (2.4             | )          |
| Minority interest                                            |       | —                   |       | —     |       | —                      |       | 0.2                             |       | —           |       | 0.2              |       |
| (Loss) income from continuing operations                     |       | (2.2                     | )          | (0.1       | )          | 6.5                         |       | (5.7                            | )          | (0.7             | )          | (2.2             | )          |
| (Loss) income from discontinued operations                   |       | (0.5                     | )          | (0.1       | )          | (0.1                        | )          | (0.4                            | )          | 0.6              |       | (0.5             | )          |
| Net (loss) income                                            |       | $                        | (2.7       | )          | $          | (0.2                        | )          | $                               | 6.4        |             | $          | (6.1             | )          | $ | (0.1 | ) | $ | (2.7 | ) |

 

16

----

 

**Condensed Consolidating Statements ofOperations (unaudited)**

**Six Months Ended September 30, 2004**

 
| ** **                                     | ** ** | **Parent**               | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|------------------------------------------------|------------|--------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                     | ** ** | **($ in millions)** | ** ** |
|                                           |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Net sales                                      |       | $                        | —     |       | $          | —                      |       | $                               | 200.1      |             | $          | 85.3             |       | $ | (2.8 | ) | $ | 282.6 |   |
| Cost of sales                                  |       | —                   |       | —     |       | 136.3                       |       | 64.8                            |       | (2.8             | )          | 198.3            |       |
| Gross profit (loss)                            |       | —                   |       | —     |       | 63.8                        |       | 20.5                            |       | —           |       | 84.3             |       |
| Selling, general, and administrative  expenses |       | —                   |       | 0.2        |       | 25.6                        |       | 23.6                            |       | —           |       | 49.4             |       |
| Restructuring and other similar costs          |       | —                   |       | 0.3        |       | —                      |       | 4.2                             |       | —           |       | 4.5              |       |
| Amortization of intangible assets              |       | —                   |       | 3.8        |       | 5.3                         |       | 1.4                             |       | —           |       | 10.5             |       |
| Other operating expenses, net                  |       | —                   |       | 0.2        |       | 1.1                         |       | 0.4                             |       | —           |       | 1.7              |       |
| Operating income (loss)                        |       | —                   |       | (4.5       | )          | 31.8                        |       | (9.1                            | )          | —           |       | 18.2             |       |
| Non-operating income (expense):                |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| Interest income (expense):                     |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| From/to third parties                          |       | —                   |       | (17.9      | )          | 0.2                         |       | (0.8                            | )          | —           |       | (18.5            | )          |
| From/to affiliates                             |       | —                   |       | —     |       | —                      |       | —                          |       | —           |       | —           |       |
| Equity in earnings (loss) of subsidiaries      |       | (2.8                     | )          | 16.8       |       | (3.7                        | )          | —                          |       | (10.3            | )          | —           |       |
| Other, net                                     |       | —                   |       | —     |       | 0.1                         |       | (0.1                            | )          | —           |       | —           |       |
| (Loss) income before income taxes              |       | (2.8                     | )          | (5.6       | )          | 28.4                        |       | (10.0                           | )          | (10.3            | )          | (0.3             | )          |
| Provision (benefit) for income taxes           |       | —                   |       | (9.1       | )          | 11.6                        |       | 0.1                             |       | —           |       | 2.6              |       |
| (Loss) income after income taxes               |       | (2.8                     | )          | 3.5        |       | 16.8                        |       | (10.1                           | )          | (10.3            | )          | (2.9             | )          |
| Minority interest                              |       | —                   |       | —     |       | —                      |       | 0.1                             |       | —           |       | 0.1              |       |
| (Loss) income from continuing operations       |       | (2.8                     | )          | 3.5        |       | 16.8                        |       | (10.0                           | )          | (10.3            | )          | (2.8             | )          |
| (Loss) income from discontinued operations     |       | (0.6                     | )          | (0.1       | )          | (0.1                        | )          | (0.5                            | )          | 0.7              |       | (0.6             | )          |
| Net (loss) income                              |       | $                        | (3.4       | )          | $          | 3.4                         |       | $                               | 16.7       |             | $          | (10.5            | )          | $ | (9.6 | ) | $ | (3.4 | ) |

 

17

----

 

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

**Fiscal Quarter Ended September 30, 2003**

 
| ** **                                     | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|--------------|------------|
| ** **                                     | ** ** | **($ in millions)**    | ** ** |
|                                           |       |                        |       |                            |       |             |       |         |       |
| Net sales                                      |       | $                           | 96.8       |                            | $          | 45.2             |       | $            | (0.9       | ) | $ | 141.1 |   |
| Cost of sales                                  |       | 62.0                        |       | 34.3                            |       | (0.9             | )          | 95.4         |       |
| Gross profit                                   |       | 34.8                        |       | 10.9                            |       | —           |       | 45.7         |       |
| Selling, general, and administrative  expenses |       | 11.8                        |       | 10.8                            |       | —           |       | 22.6         |       |
| Restructuring and other similar costs          |       | 0.1                         |       | 1.7                             |       | —           |       | 1.8          |       |
| Amortization of intangible assets              |       | 0.1                         |       | —                          |       | —           |       | 0.1          |       |
| Other operating income, net                    |       | 0.8                         |       | (1.8                            | )          | —           |       | (1.0         | )          |
| Operating income (loss)                        |       | 22.0                        |       | 0.2                             |       | —           |       | 22.2         |       |
| Non-operating income (expense):                |       |                        |       |                            |       |             |       |         |       |
| Interest income (expense):                     |       |                        |       |                            |       |             |       |         |       |
| From/to third parties                          |       | (0.1                        | )          | 0.1                             |       | —           |       | —       |       |
| From/to affiliates                             |       | 1.3                         |       | (1.3                            | )          | —           |       | —       |       |
| Equity in earnings of subsidiaries             |       | 0.6                         |       | —                          |       | (0.6             | )          | —       |       |
| Other, net                                     |       | —                      |       | —                          |       | —           |       | —       |       |
| Income (loss) before income taxes              |       | 23.8                        |       | (1.0                            | )          | (0.6             | )          | 22.2         |       |
| Provision for income taxes                     |       | 14.2                        |       | (5.2                            | )          | —           |       | 9.0          |       |
| Income (loss) after income taxes               |       | 9.6                         |       | 4.2                             |       | (0.6             | )          | 13.2         |       |
| Minority interest                              |       | —                      |       | (0.2                            | )          | —           |       | (0.2         | )          |
| Income (loss) from continuing operations       |       | 9.6                         |       | 4.0                             |       | (0.6             | )          | 13.0         |       |
| Loss from discontinued operations              |       | —                      |       | (0.3                            | )          | —           |       | (0.3         | )          |
| Net income (loss)                              |       | $                           | 9.6        |                            | $          | 3.7              |       | $            | (0.6       | ) | $ | 12.7 |   |

 

18

----

 

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

**Six Months Ended September 30, 2003**

 
| ** **                                     | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|--------------|------------|
| ** **                                     | ** ** | **($ in millions)**    | ** ** |
|                                           |       |                        |       |                            |       |             |       |         |       |
| Net sales                                      |       | $                           | 182.3      |                            | $          | 87.6             |       | $            | (2.5       | ) | $ | 267.4 |   |
| Cost of sales                                  |       | 119.4                       |       | 65.4                            |       | (2.5             | )          | 182.3        |       |
| Gross profit                                   |       | 62.9                        |       | 22.2                            |       | —           |       | 85.1         |       |
| Selling, general, and administrative  expenses |       | 24.3                        |       | 21.4                            |       | —           |       | 45.7         |       |
| Restructuring and other similar costs          |       | 0.4                         |       | 7.8                             |       | —           |       | 8.2          |       |
| Amortization of intangible assets              |       | 0.2                         |       | —                          |       | —           |       | 0.2          |       |
| Other operating income, net                    |       | —                      |       | (1.2                            | )          | —           |       | (1.2         | )          |
| Operating income (loss)                        |       | 38.0                        |       | (5.8                            | )          | —           |       | 32.2         |       |
| Non-operating income (expense):                |       |                        |       |                            |       |             |       |         |       |
| Interest income (expense):                     |       |                        |       |                            |       |             |       |         |       |
| From/to third parties                          |       | (0.1                        | )          | 0.1                             |       | —           |       | —       |       |
| From/to affiliates                             |       | 9.0                         |       | (8.0                            | )          | —           |       | 1.0          |       |
| Equity in earnings of subsidiaries             |       | 0.6                         |       | —                          |       | (0.6             | )          | —       |       |
| Other, net                                     |       | —                      |       | 0.1                             |       | —           |       | 0.1          |       |
| Income (loss) before income taxes              |       | 47.5                        |       | (13.6                           | )          | (0.6             | )          | 33.3         |       |
| Provision for income taxes                     |       | 17.9                        |       | (4.4                            | )          | —           |       | 13.5         |       |
| Income (loss) after income taxes               |       | 29.6                        |       | (9.2                            | )          | (0.6             | )          | 19.8         |       |
| Minority interest                              |       | —                      |       | (0.3                            | )          | —           |       | (0.3         | )          |
| Income (loss) from continuing operations       |       | 29.6                        |       | (9.5                            | )          | (0.6             | )          | 19.5         |       |
| Loss from discontinued operations              |       | —                      |       | (0.4                            | )          | —           |       | (0.4         | )          |
| Net income (loss)                              |       | $                           | 29.6       |                            | $          | (9.9             | )          | $            | (0.6       | ) | $ | 19.1 |   |

 

19

----

 

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

**Six Months Ended September 30, 2004**

 
| ** **                                               | ** ** | **Parent**               | ** ** | **Issuer** | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
|----------------------------------------------------------|------------|--------------------------|------------|------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|------------------|------------|
| ** **                                               | ** ** | **($ in millions)** | ** ** | ** ** |
|                                                     |       |                     |       |       |       |                        |       |                            |       |             |       |             |       |
| **Operating activities**                                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Net income (loss)                                        |       | $                        | (3.4       | )          | $          | 3.4                         |       | $                               | 16.7       |             | $          | (10.5            | )          | $ | (9.6 | ) | $ | (3.4 | ) |
| Non-cash adjustments                                     |       | —                   |       | 3.8        |       | 6.7                         |       | 4.4                             |       | —           |       | 14.9             |       |
| Undistributed equity in earnings of  subsidiaries        |       | 3.4                      |       | (16.7      | )          | 3.7                         |       | —                          |       | 9.6              |       | —           |       |
| Changes in operating assets and liabilities              |       | —                   |       | 16.1       |       | (19.2                       | )          | 4.0                             |       | —           |       | 0.9              |       |
| **Cash provided by (used in) operating  activities**     |       | —                   |       | 6.6        |       | 7.9                         |       | (2.1                            | )          | —           |       | 12.4             |       |
| **Investing activities**                                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Expenditures for property, plant, and  equipment         |       | —                   |       | —     |       | (6.4                        | )          | (2.2                            | )          | —           |       | (8.6             | )          |
| Proceeds from sale of assets                             |       | —                   |       | —     |       | 0.3                         |       | 1.7                             |       | —           |       | 2.0              |       |
| Acquisitions, net                                        |       | —                   |       | 5.0        |       | —                      |       | (5.0                            | )          | —           |       | —           |       |
| **Cash provided by (used in) investing  activities**     |       | —                   |       | 5.0        |       | (6.1                        | )          | (5.5                            | )          | —           |       | (6.6             | )          |
| **Financing activities**                                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **       | ** ** |
| Activity with affiliates                                 |       | —                   |       | (8.9       | )          | 3.5                         |       | 5.4                             |       | —           |       | —           |       |
| 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                               |       | —                   |       | (2.9       | )          | —                      |       | —                          |       | —           |       | (2.9             | )          |
| **Net cash provided by (used in) financing  activities** |       | —                   |       | (11.8      | )          | 3.5                         |       | 3.0                             |       | —           |       | (5.3             | )          |
| Effect of exchange rate changes on cash                  |       | —                   |       | —     |       | —                      |       | 0.1                             |       | —           |       | 0.1              |       |
| **(Decrease) increase in cash and cash  equivalents**    |       | $                        | —     |       | $          | (0.2                        | )          | 5.3                             |       | (4.5             | )          | $                | —     |   | $ | 0.6 |   |
| 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                        |       | $                               | 23.4       |             | $          | 13.2             |       | $ | — |   | $ | 49.1 |   |

 

20

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

**Six Months Ended September 30, 2003**

 
| ** **                                               | ** ** | **Guarantor  Subsidiaries** | ** ** | **Non-Guarantor  Subsidiaries** | ** ** | **Eliminations** | ** ** | **Combined** | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|------------------|------------|--------------|------------|
| ** **                                               | ** ** | **($ in millions)**    | ** ** |
|                                                     |       |                        |       |                            |       |             |       |         |       |
| **Operating activities**                                 |       |                        |       |                            |       |             |       |         |       |
| Net income (loss)                                        |       | $                           | 29.6       |                            | $          | (9.9             | )          | $            | (0.6       | ) | $ | 19.1 |   |
| Non-cash adjustments                                     |       | 5.1                         |       | 3.7                             |       | —           |       | 8.8          |       |
| Equity in earnings of non-guarantor  subsidiaries        |       | (0.6                        | )          | —                          |       | 0.6              |       | —       |       |
| Changes in operating assets and liabilities              |       | (14.5                       | )          | (5.5                            | )          | (2.6             | )          | (22.6        | )          |
| **Cash provided by (used in) operating  activities**     |       | 19.6                        |       | (11.7                           | )          | (2.6             | )          | 5.3          |       |
| **Investing activities**                                 | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **   | ** ** |
| Expenditures for property, plant, and  equipment         |       | (3.7                        | )          | (1.9                            | )          | —           |       | (5.6         | )          |
| **Cash used in investing activities**                    |       | (3.7                        | )          | (1.9                            | )          | —           |       | (5.6         | )          |
| **Financing activities**                                 | ** ** | ** **                  | ** ** | ** **                      | ** ** | ** **       | ** ** | ** **   | ** ** |
| Decrease in short-term borrowings                        |       | (1.7                        | )          | (2.6                            | )          | —           |       | (4.3         | )          |
| Other financing activities                               |       | (11.4                       | )          | 11.4                            |       | 2.6              |       | 2.6          |       |
| **Net cash provided by (used in) financing  activities** |       | (13.1                       | )          | 8.8                             |       | 2.6              |       | (1.7         | )          |
| Effect of exchange rate changes on cash                  |       | —                      |       | 0.4                             |       | —           |       | 0.4          |       |
| **Increase (decrease) in cash and cash  equivalents**    |       | $                           | 2.8        |                            | $          | (4.4             | )          | $            | —     |   | $ | (1.6 | ) |
| Cash and cash equivalents at beginning of  period        |       | $                           | 6.1        |                            | $          | 11.0             |       | $            | —     |   | $ | 17.1 |   |
| Cash and cash equivalents at end of period               |       | $                           | 8.9        |                            | $          | 6.6              |       | $            | —     |   | $ | 15.5 |   |

 

21

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**12.  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 adefendant in several lawsuits filed related to illnesses from exposure toasbestos or asbestos-containing products. The complaints fail to specify whichplaintiffs allegedly were involved with the Company’s products, and because thecases are in 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 effect on the Company’s net earnings or financial position. –See Part II-Other Information, Item 1: Legal Proceedings

 

The Company has entered into various agreements that require letters ofcredit for financial assurance purposes. These letters of credit are available to fund the payment of suchobligations.  At September 30, 2004, wehad $4.2 million of letters of credit outstanding with expiration dates rangingfrom one month to twelve months.

 

**13.  Subsequent Event**

 

On October 14, 2004, the Company entered into an amendment to itscredit agreement, provided by a consortium of lenders led by Credit SuisseFirst Boston to, among other things, reduce the interest rates the Company ischarged on borrowings under its term loan facility. As of September 30, 2004,the Company had $226.6 million of term debt outstanding under its senior creditfacility, which included $197.0 million outstanding under its U.S. term loanfacility and $29.6 million outstanding under its European term loan facility.The term loan facility was drawn on December 17, 2003 and will mature onDecember 17, 2010. Borrowing costs under the term loan facility are based onvariable rates tied to the London Interbank Offered Rate (“LIBOR”) plus aspecified margin, or the greater of the Prime Rate and the Federal FundsEffective Rate (“Alternative Base Rate”) plus a margin. Under the terms of therepricing amendment, the margin on rates linked to LIBOR was reduced to 2.5%from 3.0% and the margin on rates linked to the Alternative Base Rate wasreduced to 1.5% from 2.0%. Based on the Company’s current borrowings at theLIBOR-based rate, the Company’s new effective borrowing rate is 4.4%. Therepricing amendment also includes a one-year prepayment pricing protectionmechanism for the lenders, and expands the options available to the Company forinvesting its excess cash.

 

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**Item 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

 

*This Quarterly Report on Form 10-Q includescertain statements that may be deemed to be “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. When used in this report, the words “anticipate,”“believe,” “estimate,” “expect,” “intend,” “plan” and similar expressions asthey relate to Sensus Metering Systems are intended to identify theseforward-looking statements. All statements by us regarding our expectedfinancial position, sales, cash flow and other operating results, businessstrategy, financing plans, forecasted trends related to the markets in which weoperate, legal proceedings and similar matters, other than those of historicalfact, are forward-looking statements. We cannot assure you that ourexpectations expressed or implied in these forward-looking statements will turnout to be correct. Our actual results could be materially different from ourexpectations because of various risks. These risks, some of which are discussedunder the caption “Risk Factors-Risks Relating to Our Business” in ourRegistration Statement on Form S-4 (SEC File No. 333-113658) filed with theSecurities and Exchange Commission, and include our dependence on new productdevelopment and intellectual property, and our dependence on independentdistributors and third-party contract manufacturers, our substantial financialleverage, debt service and other cash requirements, liquidity constraints andrisks related to future growth and expansion. Other important risk factors thatcould cause actual events or results to differ from those contained or impliedin the forward-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 September 30, 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, referencesbelow to “we,” “us,” “our” and “Sensus Metering Systems” mean Sensus MeteringSystems (Bermuda 2) Ltd. and its subsidiaries. Unless we indicate otherwise, wehave rounded dollar amounts to the 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 and heat meteringsystems and recently entered the North American electric metering market withiCon, our solid-state electricity meter. In addition to our metering business,we believe that, through our Smith-Blair, Inc. subsidiary, we are the leadingNorth American producer of pipe joining and repair products for water andnatural gas utilities and, through our Sensus Precision Die Casting, Inc.subsidiary, are a premier supplier of precision-manufactured, thin-wall,low-porosity aluminum die castings.

 

During the fiscal quarter and six months ended September 30, 2004, we:

 

•                  Increasedsales from the same periods in 2003 by 1% and 6%, respectively;

•                  maintainedgross margins at 30%, despite double digit worldwide key material priceincreases;

•                  continuedrestructuring activities in our European subsidiaries to align operations withcurrent market conditions;

•                  successfullydisposed of the IMSofTech and MSI businesses, in support of our strategy tofocus on our core intelligent metering systems business; and

•                  negotiateda settlement with Invensys regarding final adjustments to the Acquisitionpurchase price, resulting in proceeds to the Company of $5.0 million.

 

***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 (see Note 1).Although we plan to continue our focus on improved operating efficiency, theprograms previously implemented by Invensys may be modified or terminated. As aresult of such modifications or terminations and other factors, the historicalresults of operations of Invensys Metering Systems may not be indicative of ourresults of operations on a 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 their overallcost base and improve operating margins. Through September 30, 2004, weestimate that approximately 98.0% of our five-year restructuring and costreduction programs have been initiated and have realized $39.4 million ofcumulative annual cost savings since the program’s initiation.

 

In fiscal 2005, we are continuing the implementation of theseinitiatives.  We expect to incuradditional restructuring costs of approximately $6.0 million in fiscal2005 to conclude the ongoing initiatives, generating savings in facility costs,direct labor costs, manufacturing overhead costs and general and administrativecosts resulting in estimated annual savings of $3.7 million. For the six monthsended September 30, 2004, we incurred $4.5 million of restructuring costs,primarily related to employee severance and exit activities.

 

**Other Information About Our Business**

 

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

 
| ** **             | ** ** | **Fiscal Quarter Ended** | ** ** |
|------------------------|------------|--------------------------|------------|
| ** **             | ** ** | **September 30,  2004**  | ** ** | **July 3, 2004** | ** ** | **March 31,  2004** | ** ** | **December 28,  2003** | ** ** | **September 30,  2003** | ** ** | **June 28, 2003** | ** ** |
| Orders (in $millions)  |       | 138.8                    |       | 143.2 |   | 148.6 |   | 119.2 |   | 133.4 |   | 128.9 |   |
| Backlog (in $millions) |       | 50.0                     |       | 58.3 |   | 56.0 |   | 67.2 |   | 48.9 |   | 57.9 |   |
| Sales (in $millions)   |       | 144.1                    |       | 140.7 |   | 159.4 |   | 104.2 |   | 142.4 |   | 127.3 |   |
| Employees              |       | 3,366                    |       | 3,459 |   | 3,363 |   | 3,164 |   | 3,321 |   | 3,431 |   |

 

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**Results of Operations**

 

***Fiscal Quarter and Six MonthsEnded September 30, 2004 Compared with Fiscal Quarter and Six Months EndedSeptember 30, 2003***

 

 
| **(in millions)**                                        | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **%**  | ** ** | **Predecessor  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **%**  | ** ** | **Six Months  Ended  September 30, 2004** | ** ** | **%**  | ** ** | **Predecessor  Six Months  Ended  September 30,  2003** | ** ** | **%**  | ** ** |
|----------------------------------------------------------|------------|------------------------------------------------|------------|--------|------------|-------------------------------------------------------------|------------|--------|------------|-------------------------------------------|------------|--------|------------|---------------------------------------------------------|------------|--------|------------|
|                                                     |       |                                           |       |   |       |                                                        |       |   |       |                                      |       |   |       |                                                    |       |   |       |
| Net sales                                                |       | $ 143.2                                   |       | 100    | %          | $ 141.1                                                |       | 100    | %          | $ 282.6                              |       | 100    | %          | $ 267.4                                            |       | 100    | %          |
| Gross profit                                             |       | 43.0                                           |       | 30     | %          | 45.7                                                        |       | 32     | %          | 84.3                                      |       | 30     | %          | 85.1                                                    |       | 32     | %          |
| Selling, general and administrative  expenses            |       | 25.3                                           |       | 18     | %          | 22.6                                                        |       | 16     | %          | 49.4                                      |       | 17     | %          | 45.7                                                    |       | 17     | %          |
| Restructuring costs                                      |       | 2.5                                            |       | 1      | %          | 1.8                                                         |       | 1      | %          | 4.5                                       |       | 2      | %          | 8.2                                                     |       | 3      | %          |
| Amortization of intangible assets                        |       | 5.5                                            |       | 4      | %          | 0.1                                                         |       | — |       | 10.5                                      |       | 4      | %          | 0.2                                                     |       | — |       |
| Other operating expense (income), net                    |       | 1.2                                            |       | 1      | %          | (1.0                                                        | )          | — |       | 1.7                                       |       | — |       | (1.2                                                    | )          | — |       |
| Operating income                                         |       | 8.5                                            |       | 6      | %          | 22.2                                                        |       | 15     | %          | 18.2                                      |       | 7      | %          | 32.2                                                    |       | 12     | %          |
| Interest income (expense), net                           |       | (9.1                                           | )          | (6     | )%         | —                                                      |       | — |       | (18.5                                     | )          | (7     | )%         | 1.1                                                     |       | — |       |
| (Loss) Income before income taxes and  minority interest |       | (0.6                                           | )          | — |       | 22.2                                                        |       | 15     | %          | (0.3                                      | )          | — |       | 33.3                                                    |       | 12     | %          |
| Provision for income taxes                               |       | 1.8                                            |       | 1      | %          | 9.0                                                         |       | 6      | %          | 2.6                                       |       | 1      | %          | 13.5                                                    |       | 5      | %          |
| (Loss) Income before minority interest                   |       | (2.4                                           | )          | (1     | )%         | 13.2                                                        |       | 9      | %          | (2.9                                      | )          | (1     | )%         | 19.8                                                    |       | 7      | %          |
| Minority interest                                        |       | 0.2                                            |       | — |       | (0.2                                                        | )          | — |       | 0.1                                       |       | — |       | (0.3                                                    | )          | — |       |
| Loss from discontinued operations                        |       | (0.5                                           | )          | — |       | (0.3                                                        | )          | — |       | (0.6                                      | )          | — |       | (0.4                                                    | )          | — |       |
| Net (loss) income                                        |       | $ (2.7                                    | )          | (1     | )%         | $ 12.7                                                 |       | 9      | %          | $ (3.4                               | )          | (1     | )%         | $ 19.1                                             |       | 7      | %          |

 

*Net Sales.*  Sales increased $2.1 million, orapproximately 1%, from $141.1 million in the fiscal quarter ended September 30,2003 to $143.2 million in the fiscal quarter ended September 30, 2004. For thesix months ended September 30, 2004, sales increased $15.2 million, orapproximately 6%, to $282.6 million from $267.4 million in the six months endedSeptember 30, 2003. Favorable currency translation, due primarily to theappreciation of the Euro against the U.S. dollar, accounted for additionalsales of $3.3 million and $6.1 million for the fiscal quarter and six monthsended September 30, 2004, respectively. We continue to experience strong demand for metering systems, due tocontinued growth of AMR applications and strong product sales for gas andelectric meters.  However, in the fiscalquarter ended September 30, 2004, the destructive hurricane season experiencedin the southeastern United States interrupted production of large meters at ourOrlando facility and impacted sales in the region.  North American sales of water meters werereduced by $1.0 million, or 2%, in the fiscal quarter due partially to thehurricane interruptions, and meter sales in Europe decreased $3.2 million, or8%, due to competitive pricing pressures and slower activity in the industrialmeter segment. These decreases were partially offset by increased sales of ouriCon electric meter products.  NorthAmerican sales of water meters for the six months ended September 30, 2004increased by $5.4 million, or 5%, compared to the six months ended September30, 2003, due primarily to demand for AMR applications and products, while theEuropean market continued to be soft with reduced sales of $5.5 million, or7.2%, as compared to the prior year six-month period.  Salesfrom our precision die casting products increased by $1.1 million, or 11%, comparedto the prior year fiscal quarter, and by $2.0 million, or 11%, compared to theprior year six-month fiscal period. We were able to leverage new platformofferings and to pass through aluminum indexed price increases to the top fivesuppliers to the U.S. automotive industry, known as Tier 1 automotivesuppliers, to generate the increased sales. Pipe joining and repair products sales decreased by $0.5 million, or 4%,compared to the prior year fiscal quarter, as increased pricing was offset bylower sales activities in the North American construction market due to theseverity of the hurricane season. However, for the six months ended September 30, 2004, sales increased$1.1 million, or 4%, compared to the prior year six-month fiscal period.  In addition, sales were impacted as a resultof the fiscal quarter ended September 30, 2004 containing 3 working days lessthan the prior year period.

 

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Our top ten customers accounted for approximately 36% of net salesduring the six months ended September 30, 2004. Approximately 12% and 10% ofnet sales for the six months ended September 30, 2004 and September 30, 2003,respectively, were with one customer and its affiliates.

 

We expect that net sales will be strong for the remainder of the fiscalyear, with increases over the prior fiscal year due to demand for AMR systems,recovery from hurricanes that affected the southeastern United States, ongoingdemand for iCon electric meters, expansion of precision die casting productsand favorable general economic trends.

 

*Gross Profit.*  Gross profit decreased by $2.7 million, or6%, from $45.7 million for the fiscal quarter ended September 30, 2003 to $43.0million for the fiscal quarter ended September 30, 2004, and decreased as apercentage of sales by approximately 2 percentage points from 32% to 30% forthe same periods.  Gross profit decreasedby $0.8 million, or 1%, from $85.1 million to $84.3 million for the six monthsended September 30, 2003 and 2004, respectively, and decreased as a percentageof sales by approximately 2 percentage points from 32% to 30% for the sameperiods. The decrease in gross profit was primarily the result of increasedworldwide material prices, partially offset by favorable foreign exchange ratesdue to the appreciation of the Euro versus the dollar, increasing gross profitby $0.9 million and $1.5 million for the fiscal quarter and six months endedSeptember 30, 2004, respectively, compared to the same periods in the prioryear.  Material cost, as a percentage ofsales, increased 2 percentage points in the fiscal quarter ended September 30,2004 compared to the prior year period, and 3 percentage points in the sixmonths ended September 30, 2004 compared to the prior year period. The increasein material costs was partially offset by pass throughs of raw material costincreases to customers.

 

The decrease in gross profit as a percentage of net sales was primarilyattributable to the following factors:

 

•                  Increasedprices for aluminum, altered pricing mechanisms to automotive customers andincreased natural gas prices negatively affected margins on precision diecasting products and gas meters;

•                  Increasedmix of electric meter sales at comparatively lower gross profit margins;

•                  Doubledigit price increases on key brass castings and steel components, negativelyimpacting water meter and pipe clamps and coupling gross margins;

•                  Competitivepricing environments in European meter markets; and,

•                  Continuedsoftness in South American water meter markets, particularly in Brazil.

 

*Selling, General and Administrative Expenses.*Selling, general and administrative expenses for the fiscal quarter endedSeptember 30, 2004 increased by $2.7 million, or approximately 12%, to $25.3million, from $22.6 million for the fiscal quarter ended September 30,2003.  Expenses, as a percentage ofsales, increased from 16% to 18% for the fiscal quarters ended September 30,2003 and 2004, respectively. Selling, general and administrative expenses forthe six months ended September 30, 2004 increased by $3.7 million, orapproximately 8%, to $49.4 million, from $45.7 million from the six monthsended September 30, 2003. Expenses, as a percentage of sales, remained constantat 17% for the six months ended September 30, 2003 and 2004.  The increase in expense was due partially toforeign currency translation that resulted in an increase in foreign-basedadministrative costs, as expressed in US dollars, of $0.9 million and $1.7million for the fiscal quarter and six months ended September 30, 2004,respectively.  Selling, general andadministrative expenses in Europe, Mid East and Africa (“EMEA”) were flat,excluding the impacts of foreign currency, due to prior restructuring effortsand ongoing cost containment activities designed to lower base operatingexpenses.  Selling, general andadministration expenses in South America and North America were $1.4 millionhigher for the fiscal quarter ended September 30, 2004 compared to the fiscalquarter ended September 30, 2003 because of higher investment in North AmericaWater research and development, including the integration of Nexus research anddevelopment activities, and higher insurance claims.

 

*Restructuring and Other Similar Costs.*  Restructuring costs increased by $0.7 million,or approximately 39%, from $1.8 million for the fiscal quarter ended September30, 2003 to $2.5 million for the fiscal quarter ended September 30, 2004.  Restructuring costs decreased by $3.7million, or approximately 45%, from $8.2 million for the six months endedSeptember 30, 2003 to $4.5 million for the six months ended September 30, 2004.The decrease for the six-month fiscal period compared to the prior year wasprimarily the result of reduced spending in our European restructuringactivities as plans to achieve our targeted manufacturing footprint in theregion are either underway or near completion. Actions to close our French production facility, to rationalize our UKgas meter operation and to downsize our German operations constitute the majorityof current activities. We expect to incur additional restructuring costs ofapproximately $1.5 million through March 31, 2005.

 

26

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*Amortization of Intangible Assets*.  Amortization of intangible assets increasedby $5.4 million from $0.1 million for the fiscal quarter ended September 30,2003 to $5.5 million for the fiscal quarter ended September 30, 2004.Amortization of intangible assets increased by $10.3 million from $0.2 millionfor the six months ended September 30, 2003 to $10.5 million for the six monthsended September 30, 2004. Amortization expense primarily relates to theintangible assets recorded at the time of the Acquisition for non-competitionagreements, customer relationships and patents (see Note 4).  These intangible assets were not recorded onthe balance sheet of the Predecessor. As a result, the Predecessor did notincur significant amortization expense in the fiscal quarter or six monthsended September 30, 2003. We expect that amortization of intangible assets willremain higher than historical levels of the Predecessor for the foreseeablefuture as a result of higher levels of intangible assets recorded in connectionwith acquisitions.

 

*Other Operating Income (Expense)*.  Other operating expense of $1.2 million forthe fiscal quarter ended September 30, 2004 increased by $2.2 million comparedto other operating income of $1.0 million for the fiscal quarter endedSeptember 30, 2003. Other operating expense of $1.7 million for the six-monthsended September 30, 2004 increased by $2.9 million compared with otheroperating income of $1.2 million for the six months ended September 30, 2003.The increase in expense is related to a management fee of $0.5 million and $1.0million for the fiscal quarter and the fiscal six months ended September 30,2004, and one-time expenses of $0.5 million associated with the Acquisition inthe fiscal quarter ended September 30, 2004. In addition, $0.9 million of Brazilian transactional tax gains wererecognized in the fiscal quarter ended September 30, 2003, which did not occurin the current fiscal period.  We expectthat other operating expenses will remain higher than historical levels for theforeseeable future as a result of quarterly management fees.

 

*Interest Income (Expense).   *Interestexpense was $9.1 million for the fiscal quarter ended September 30, 2004compared with no interest expense for the fiscal quarter ended September 30,2003.  Net interest expense of $18.5million for the six months ended September 30, 2004 increased by $19.6 millioncompared with interest income of $1.1 million for the six months endedSeptember 30, 2003. Prior to the Acquisition, the Predecessor had no debt. TheAcquisition was financed with $230.0 million in term loan financing andthe issuance of $275.0 million of senior subordinated notes.  The increase in interest expense is theresult of the debt created to support the Acquisition. We expect that interestexpense will remain higher than historical levels of the Predecessor for theforeseeable future as a result of higher levels of debt incurred in connectionwith the Acquisition.

 

*Income Tax Expense.  *Income tax expensefor the fiscal quarter ended September 30, 2004 decreased by $7.2 million, or80%, compared with the fiscal quarter ended September 30, 2003 from $9.0million to $1.8 million. Income tax expense for the six months ended September30, 2004 decreased by $10.9 million, or 81%, compared with the six months endedSeptember 30, 2003 from $13.5 million to $2.6 million.  The decrease is primarily the result of lowerpre-tax income for the period.  Despiteour lower pre-tax income, our effective tax rate was negative 867% for the sixmonth period ended September 30, 2004, compared with 40.9% for the six monthsended September 30, 2003, as a result of foreign net operating losses for whichno tax benefit was recorded.

 

*Minority Interest.*  Minority interest for the fiscal quarters andsix months ended September 30, 2004 and September 30, 2003 remained consistentand related to our partner’s share of earnings of our China and India jointventures.

 

*Net Income (Loss).*Net loss was $2.7 million and $3.4 million for the fiscal quarter and sixmonths ended September 30, 2004 as compared to net income of $12.7 million and$19.1 million for the same periods ended September 30, 2003 due primarily to:

 

•                  higherinterest expense incurred during the period;

•                  increasedmaterial costs;

•                  greateramortization of intangible assets related to acquisitions;

•                  losson the sale of discontinued operations;

•                  increasedresearch and development investment;

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

•                  managementand other one-time fees associated with the Acquisition.

 

27

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*EBITDA.*  EBITDA decreased by $8.2 million, orapproximately 32%, from $25.9 million in the fiscal quarter ended September 30,2003 to $17.7 million in the fiscal quarter ended September 30, 2004.  EBITDA decreased by $3.1 million, orapproximately 8%, from $39.9 million in the six months ended September 30, 2003to $36.8 million in the six months ended September 30, 2004. The decrease inEBITDA during the period is generally attributable to the following factors:

 

•                  higherworldwide materials costs;

•                  losson the sale of discontinued operations;

•                  increasedresearch and development investment; and

•                  managementand other one-time fees associated with the Acquisition.

 

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  and six months ended September 30, 2004 andSeptember 30, 2003:

 
| ** **                                 | ** ** | **Historical EBITDA Reconciliation**           | ** ** |
|--------------------------------------------|------------|------------------------------------------------|------------|
| ** **                                 | ** ** | ** **                                     | ** ** | **Predecessor** | ** ** | ** ** | ** ** | **Predecessor** | ** ** |
| ** **                                 | ** ** | **Fiscal Quarter  Ended  September 30,  2004** | ** ** | **(Note 1)  Fiscal Quarter  Ended  September 30,  2003** | ** ** | **Six Months  Ended  September 30,  2004** | ** ** | **(Note 1)  Six Months  Ended  September 30,  2003** | ** ** |
| Net (loss) income                          |       | $                                              | (2.7       | ) | $ | 12.7 |   | $ | (3.4 | ) | $ | 19.1 |   |
| Depreciation and amortization              |       | 9.7                                            |       | 4.0 |   | 19.2 |   | 8.0 |   |
| Interest expense, net of interest income   |       | 9.1                                            |       | — |   | 18.5 |   | (1.0 | ) |
| Income taxes                               |       | 1.8                                            |       | 9.0 |   | 2.6 |   | 13.5 |   |
| Minority interest                          |       | (0.2                                           | )          | 0.2 |   | (0.1 | ) | 0.3 |   |
| EBITDA                                     |       | $                                              | 17.7       |   | $ | 25.9 |   | $ | 36.8 |   | $ | 39.9 |   |
| Loss on discontinued operations            |       | 0.5                                            |       | 0.3 |   | 0.6 |   | 0.4 |   |
| EBITDA (excluding discontinued operations) |       | $                                              | 18.2       |   | $ | 26.2 |   | $ | 37.4 |   | $ | 40.3 |   |

 

 

** **

**Liquidityand Capital Resources**

 

During the fiscal quarter and six months ended September 30, 2004, wefunded our operating and capital requirements through a combination of cashflows from operating activities and cash on hand. Going forward, operating andcapital requirements will be funded from a combination of cash on hand, cashflows from operating activities and borrowings under our senior creditfacilities.

 

Net cash flow provided by operating activities for the six months endedSeptember 30, 2004 and 2003 was $12.4 million and $5.3 million, respectively.The $7.1 million increase in net cash provided by operating activities for thesix months ended September 30, 2004 as compared to the six months endedSeptember 30, 2003 was generated by decreased working capital resulting fromimproved accounts payable and current assets, partially offset by increasedaccounts receivable and reduced net income.

 

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Working capital as a percentage of net sales increased to 15% for thesix months ended September 30, 2004 as compared with 7% for the six monthsended September 30, 2003. This increase was primarily due to an increase incash and cash equivalents of $33.5 million resulting from cash received at thetime of the Acquisition, and an increase in accounts receivable of $26.8million due to increased sales and the discontinuation of discountingpractices, and a decrease in accounts payable resulting from better adherenceto standard payment terms compared to the practices of the Predecessor in the prioryear.

 

Historically, cash used for investing activities has been usedprimarily for capital expenditures, business acquisitions and otherinvestments, offset by proceeds from the disposition of property, plant andequipment. Capital expenditures were $8.6 million and $5.6 million for the sixmonths ended September 30, 2004 and 2003, respectively. Capital expenditurerequirements are comprised of equipment, molds and tooling for replacement andexpenditures for cost reduction, maintenance, safety and expansion. For thefull fiscal year 2005, we expect to make capital expenditures of approximately$21.0 million reflecting a shift from maintenance level capitalexpenditures of Invensys to a more growth-focused capital expendituresprogram.  The Company and Invensys agreedupon a purchase price adjustment amount, which resulted in a cash payment of$5.0 million by Invensys to the Company and a corresponding reduction to thepurchase price (see Note 1).  Businessacquisition expenditures of $5.0 million were attributable to the purchase ofcertain assets of Nexus (see Note 10). Proceeds from the sale of assets of $2.0 million are related primarilyto the sale of MSI and IMSofTech (see Note 2).

 

Cash expenditures for restructuring for the six months ended September30, 2004 and September 30, 2003 amounted to $4.7 million and $3.5 million,respectively. As of September 30, 2004, we had $8.5 million of restructuringaccruals reflected on our balance sheet. Additional restructuring expenses ofapproximately $1.5 million are expected to be incurred in fiscal 2005 as thecurrent restructuring programs near completion.

 

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, we incurred substantial third-partyindebtedness.  Our senior creditfacilities provide for senior secured financing of $296.6 million,consisting of (a) two term loan facilities in an aggregate amount of$226.6 million, including a $197.0 million U.S. term loan facilityand a $29.6 million European term loan facility and, (b) tworevolving credit facilities in an aggregate amount of $70.0 million, underone of which $40.0 million is available to Sensus in the form of U.S.dollar-denominated loans and under the other of which $30.0 million isavailable in the form of U.S. dollar-denominated loans, or in the form of euro-or UK sterling-denominated loans. The term loan facilities will mature on December 17,2010. Borrowing costs under the term loan facility are based on variable ratestied to the London Interbank Offered Rate (“LIBOR”) plus a specified margin, orthe greater of the Prime Rate and the Federal Funds Effective Rate (“AlternativeBase Rate”) plus a margin. 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.

 

As of September 30, 2004, we had approximately $501.6 million oftotal indebtedness outstanding, consisting of $275.0 million under the seniorsecured facility, $197.0 million under the U.S. term loan facility and $29.6million under the European term loan facility. Interest expense, including amortization of deferred financing costs,was approximately $9.1 million and $18.5 million for the fiscal quarter and sixmonths ended September 30, 2004, respectively. We made a principal prepayment of $2.3 million on the term loan facilityin the fiscal quarter.  As a result ofthe $2.3 million prepayment, there are no payments due or scheduled on the termloan facilities until September 2005. As a result of an amendment to the CreditAgreement in October 2004, the interest rate margin has been reduced by 50basis points for both LIBOR and Alternate Base Rate borrowings.  There were no borrowings outstanding underthe revolving credit facility at September 30, 2004; however, $4.2 millionof the facility was utilized in connection with outstanding letters of credit.We are in compliance with all credit facility covenants at September 30, 2004.

 

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 the foreseeable future.

 

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.

 

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**Item 3.Quantitative and Qualitative 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.

 

*Currency translation.*  The results of operations of our foreignsubsidiaries are translated into U.S. dollars at the average exchange rates foreach period concerned. This translation has no impact on cash flow. The balancesheets of foreign subsidiaries are translated into U.S. dollars at the closingexchange rates. Any adjustments resulting from the translation are recorded asother comprehensive income. As of September 30, 2004, assets of foreignsubsidiaries constituted approximately 22% of total assets. Foreign currencyexchange rate exposure is most significant with respect to the euro. For thefiscal quarter and six months ended September 30, 2004, net sales werepositively impacted by the appreciation of foreign currencies, primarily theeuro, versus the U.S. dollar by approximately $3.3 million and $6.1million, respectively. Similarly, for the fiscal quarter and six months endedSeptember 30, 2003, net sales were positively impacted by the appreciation offoreign currencies, primarily the euro, versus the U.S. dollar by approximately$6.1 million and $14.0 million, respectively.

 

*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 September 30, 2004 was $501.6 million, of which approximately$226.6 million bears interest at variable rates. As of September 30, 2004,the weighted average interest rate on our variable-rate term debt was 4.9%.Variable-rate borrowings under the senior credit facilities are, at our option,at the adjusted LIBOR plus 2.50% or the alternative base rate plus 1.50%.  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.

 

**Item 4. Controlsand Procedures**

 

We haveassigned a high priority to the short-term and long-term improvement orenhancement of our internal controls over financial reporting.  The process began in the first quarter offiscal 2005 with the development of replacement services and systems that arekey for financial functions at our headquarters resulting from the separationfrom Invensys plc.

 

During thefiscal quarter ended September 30, 2004, we have implemented internal controlimprovements over our accounting and financial reporting processes.  The internal control changes implemented duringthe second fiscal quarter are:

 

•                  Identifiedand implemented process and staffing improvements related to interaction of ourcorporate accounting and finance group with our subsidiary accounting andfinance groups;

 

•                  Restructuredand enhanced our financial consolidation system;

 

•                  Developeda company disclosure policy and procedure;

 

•                  Engagedoutside consultants to supplement our internal tax staff; and

 

•                  Coordinatedquarterly financial training for our global financial staff.

 

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We willcontinue to evaluate the effectiveness of our disclosure controls andprocedures and internal control over financial reporting on an on-going basisand will take further action and implement improvements, as necessary.  In addition to the foregoing actions, we havebegun the process of:

 

•                  Developingand implementing standardized account reconciliation and analysis procedures;

 

•                  Developingan accounting policies and procedures system; and

 

•                  Evaluatingthe information systems utilized to report and consolidate financialinformation.

 

Pursuant toSection 302 of the Sarbanes-Oxley Act and Rule 13a-15 under the SecuritiesExchange Act of 1934 (“Exchange Act”) promulgated thereunder, our management,including our Chief Executive Officer and Chief Financial Officer, hasevaluated the effectiveness of disclosure controls and procedures as of the endof the period covered by this report (the “Evaluation Date”).  Based on such evaluation, our Chief ExecutiveOfficer and Chief Financial Officer have concluded that our disclosure controlsand procedures were effective, at a reasonable assurance level, as of theEvaluation Date, to ensure that information required to be disclosed in reportsthat we file or submit under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in SEC rules andforms.

 

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**PART II—OTHERINFORMATION**

 

**ITEM 1: Legal Proceedings**

 

In September, 2003, Invensys Energy Metering, Inc., a 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-personalrepresentatives of Decedent’s estate) v. Frannie Deaver Utilities, andpredecessors Rockwell Automation, Inc. and Invensys Energy Metering, Inc.)seeking unspecified damages arising from a natural gas explosion at a residenceserved by a utility gas line that included one of our products. The lawsuit wassettled on September 30, 2004 at no cost to the Company, in accordance with theterms of the Stock Purchase Agreement. In addition, Smith-Blair, Inc., oursubsidiary, was named a defendant in an action filed in the Supreme Court ofNew 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 September 30, 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, fromtime to time, party to legal proceedings arising out of the operation of ourbusiness. We believe that an adverse outcome of our existing legal proceedings,including the proceedings described above, would not have a material adverseimpact on our business, financial condition or results of operation.Nevertheless, unexpected adverse future events, such as an unforeseendevelopment in our existing proceedings, a significant increase in the numberof new cases or changes in our current insurance arrangements could result inliabilities that have a material adverse impact on our business, financialcondition or results of operations.

 

**ITEM 2. Cha**nges in Securities, Use of Proceeds andIssuer Purchases of Equity Securities

** **

(a)           None.

 

(b)           None.

 

(c)           None.

 

(d)           Not applicable.

 

(e)           Not applicable.

 

**ITEM 3. Def**aults Upon Senior Securities

 

None.

 

**ITEM 4: Su****bmission of Matters to a Vote ofSecurity Holders**

 

No matters were submitted to a vote of ourshareholders during the fiscal quarter ended September 30, 2004.

 

32

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**ITEM 5. Oth**er Information

** **

**None.**

** **

**ITEM 6. Exh**ibits and Reports on Form 8-K

** **

(a)                                  A list of exhibits filed herewith iscontained on the Exhibit Index immediately proceeding such exhibits and isincorporated herein by reference.

 

(b)           Reports on Form 8-K -

 

Form 8-K filed on October18, 2004, relating to Amendment No. 1 to the Credit Agreement.

 

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**SIGNATURES**

** **

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 
|                     | SENSUS  METERING SYSTEMS (BERMUDA 2) LTD.                    |
|--------------------------|--------------------------------------------------------------|
|                     |                                                         |
|                     |                                                         |
| Date:  November 10, 2004 | By:                                                          | **/s/   Daniel W. Harness** |
| ** **               | **Daniel W. Harness  Chief Executive Officer and President** |
|                     |                                                         |
|                     |                                                         |
|                     |                                                         |
| Date:  November 10, 2004 | By:                                                          | **/s/  Peter  Mainz** |
| ** **               | **Peter Mainz  Chief Financial Officer**                     |
|                     |                                                         |
|                     |                                                         |
|                     |                                                         |
|                     | SENSUS  METERING SYSTEMS INC.                                |
|                     |                                                         |
|                     |                                                         |
| Date:  November 10, 2004 | By:                                                          | **/s/  Daniel  W. Harness** |
| ** **               | **Daniel W. Harness  Chief Executive Officer and President** |
|                     |                                                         |
|                     |                                                         |
|                     |                                                         |
| Date:  November 10, 2004 | By:                                                          | **/s/  Peter  Mainz** |
| ** **               | **Peter Mainz  Chief Financial Officer**                     |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                        |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.21                |       | Amendment  No. 1 to the Credit Agreement, dated October 14, 2004, among Sensus Metering  Systems Inc., Sensus Metering Systems (Luxco 2) S.AR.L., Sensus Metering  Systems (Bermuda 2) Ltd., Credit Suisse First Boston and the Lenders named in  the Credit Agreement |
| 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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