<HTML>
<HEAD>
<TITLE>FORM S-1</TITLE>
</HEAD>
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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>As filed with the Securities and Exchange Commission on
April&nbsp;5, 2005</B>
</DIV>

<DIV align="right" style="font-size: 10pt;">
<B>Registration
No.&nbsp;333-&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</B>
</DIV>

<DIV align="center" style="font-size: 6pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 3pt;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 4pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SECURITIES AND EXCHANGE COMMISSION</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>Washington,&nbsp;D.C. 20549</B>
</DIV>

<DIV align="center" style="font-size: 18pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Form S-1</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>REGISTRATION STATEMENT</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>UNDER</B>
</DIV>

<DIV align="center" style="font-size: 12pt;">
<B>THE SECURITIES ACT OF 1933</B>
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>National Waterworks Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Exact name of registrant as specified in its charter)</I>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 9pt; ">

<TR style="font-size: 1pt;">
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="27%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Delaware</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>5099</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>03-0484037</B></TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <I>(State or other jurisdiction of<BR>
    incorporation or organization)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(Primary Standard Industrial<BR>
    Classification Code Number)</I></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <I>(I.R.S. Employer<BR>
    Identification No.)</I></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>200 West Highway&nbsp;6, Suite&nbsp;620</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Waco, Texas 76712</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(254)&nbsp;772-5355</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Address, including zip code, and telephone number, including
area code, of registrants&#146; principal executive offices)</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Harry K. Hornish,&nbsp;Jr.</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>President and Chief Executive Officer</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>200 West Highway&nbsp;6, Suite&nbsp;620</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Waco, Texas 76712</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(254)&nbsp;772-5355</B>
</DIV>

<DIV align="center" style="font-size: 8pt;">
<I>(Name, address, including zip code, and telephone number,
including area code, of agent for service or process)</I>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>With copies to:</I></B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="51%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
</TR>

<TR>
    <TD align="center" valign="top">
    <B>Cristopher Greer,&nbsp;Esq.<BR>
    O&#146;Melveny&nbsp;&#38; Myers LLP<BR>
    Times Square Tower<BR>
    7 Times Square<BR>
    New York, New York 10036<BR>
    (212)&nbsp;408-2400</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    <B>William Gorin,&nbsp;Esq.<BR>
    Cleary Gottlieb Steen&nbsp;&#38; Hamilton LLP<BR>
    One Liberty Plaza<BR>
    New York, New York 10006<BR>
    (212)&nbsp;225-2000</B></TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Approximate date of commencement of proposed sale to the
public:</B>&nbsp;&nbsp;&nbsp;&nbsp;As promptly as practicable
after the effective date of this Registration Statement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule&nbsp;415 under the Securities Act of 1933, check the
following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is filed to register additional securities for an
offering pursuant to Rule&nbsp;462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If this Form is a post-effective amendment filed pursuant to
Rule&nbsp;462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If delivery of the prospectus is expected to be made pursuant to
Rule&nbsp;434, please check the following
box.&nbsp;&nbsp;&nbsp;&nbsp;<FONT face="wingdings">&#111;
</FONT>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>CALCULATION OF REGISTRATION FEE</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 3pt; ">

<TR style="font-size: 1pt;">
    <TD width="29%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="14%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="17%">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed Maximum</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Proposed Maximum</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount of</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Title of Each Class of</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Amount to be</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Offering Price</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Aggregate</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registration</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="center" nowrap><B>Securities to be Registered</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Registered</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>per Share</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Offering Price(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Fee</B></TD>
</TR>


<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common Stock, $0.01&nbsp;Par Value Per Share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $400,000,000</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="bottom">
    $47,080</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="9" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule&nbsp;457(o) under the
    Securities Act of 1993, as amended.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 15pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section&nbsp;8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the
Commission, acting pursuant to said Section&nbsp;8(a), may
determine.</B>
</DIV>

<DIV align="left" style="font-size: 3pt; margin-top: 8pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 100%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 4pt;">
<DIV style="width: 100%; border-top: 2.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" cellpadding="5" style="border: 3pt double #000000; margin-bottom: 6pt; font-size: 10pt"><TR><TD>
<FONT style="font-size: 8pt" color="#E8112D">The information in
this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
declared effective. This preliminary prospectus is not an offer
to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.</FONT><FONT style="font-size: 8pt"> <BR>


</FONT>
</TD></TR></TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 1pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><FONT color="#E8112D">SUBJECT TO COMPLETION,
DATED &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.</FONT></B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Shares</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y07374y0737400.gif" alt="(NATIONAL WATERWORKS)">
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>National Waterworks Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 14pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This is an initial public offering of shares of common stock of
National Waterworks Holdings, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks Holdings, Inc. is
offering &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
to be sold in the offering. The selling stockholders identified
in this prospectus are offering an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares.
We will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
National Waterworks Holdings, Inc. intends to list the common
stock on the New&nbsp;York Stock Exchange under the symbol
&#147;NWW.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>See &#147;Risk Factors&#148; on page&nbsp;14 to read about
factors you should consider before buying shares of common
stock.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<B>Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.</B>
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="73%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Initial price to public</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Underwriting discounts and commissions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to National Waterworks Holdings,
    Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds, before expenses, to selling stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
To the extent the underwriters sell more
than &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of stock, the underwriters have the option to purchase up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
from certain selling stockholders, at the initial public
offering price less the underwriting discounts and commissions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters expect to deliver the shares to purchasers
against payment in New&nbsp;York, New&nbsp;York on or
about &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The date of this prospectus
is &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005.
</DIV>
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<DIV align="left" style="font-size: 10pt;">

</DIV>

<DIV align="left" style="font-size: 10pt;">
<!-- TOC -->
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name="tocpage"></A>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>TABLE OF CONTENTS</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="78%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#101'>Prospectus Summary</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#102'>Disclosure Regarding Forward-Looking
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#103'>Risk Factors</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#104'>Use of Proceeds</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#122'>Dividend Policy</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#105'>Capitalization</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#106'>Dilution</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#107'>Selected Financial Data</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#108'>Management&#146;s Discussion and Analysis
    of Financial Condition and Results of Operations</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#109'>Business</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#110'>Management</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#111'>Principal and Selling Stockholders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#112'>Certain Relationships and Related
    Transactions</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>61</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#113'>Description of Certain Indebtedness</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>64</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#114'>Description of Capital Stock</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#115'>Shares Eligible for Future Sale</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>71</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#116'>Material U.S.&nbsp;Federal Income Tax
    Consequences for Non-U.S. Holders</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>72</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#117'>Underwriting</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#118'>Legal Matters</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#119'>Experts</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#120'>Where You Can Find More Information</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    &nbsp;<A HREF='#121'>Index To Consolidated Financial
    Statements</A></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-1</TD>
    <TD>&nbsp;</TD>
</TR>

<TR><TD colspan="9"><FONT size="2">&nbsp;<A HREF="y07374exv23w1.txt">EX-23.1: REPORT AND CONSENT OF KPMG LLP</A></FONT></TD></TR>
</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt;">
<!-- /TOC -->
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should rely only on the information contained in this
document. We have not authorized anyone to provide you with
information that is different. This document may only be used
where it is legal to sell these securities.
</DIV>

<DIV align="center" style="font-size: 3pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Until &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 (25&nbsp;days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This requirement is in addition to the
dealers&#146; obligation to deliver a prospectus when acting as
an underwriter and with respect to their unsold allotments or
subscriptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Market data and other statistical information used throughout
this prospectus are based on independent industry publications,
government publications, reports by market research firms or
other published independent sources. Some data is also based on
our good-faith estimates, which are derived from our review of
internal surveys, as well as the independent sources listed
above. We believe these sources are reliable but we have not
independently verified the information obtained from them.
</DIV>

<P align="center" style="font-size: 10pt;">ii

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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
<A name='101'></A>
</DIV>

<!-- link1 "Prospectus Summary" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Prospectus Summary</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>This summary highlights information contained elsewhere in
this prospectus. This summary is not complete and may not
contain all of the information that is important to you. We urge
you to read this entire prospectus, including the &#147;Risk
Factors&#148; section and the consolidated financial statements
and related notes. Unless the context requires otherwise, all
references to &#147;we,&#148; &#147;us&#148; and &#147;our&#148;
refer specifically to National Waterworks Holdings, Inc. and its
consolidated subsidiaries. All references to NWW Holdings refer
specifically only to National Waterworks Holdings, Inc.,
excluding its subsidiaries, and all references to National
Waterworks refer specifically only to National Waterworks, Inc.,
a direct, wholly-owned subsidiary of NWW Holdings. References to
the Acquisition refer to our acquisition of substantially all
the assets and businesses of, and the assumption of certain of
the liabilities and obligations of, U.S.&nbsp;Filter
Distribution Group, Inc. on November&nbsp;22, 2002.</I>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading distributor of water and wastewater
transmission products in the United States with an approximately
17% share of the estimated $9&nbsp;billion U.S.&nbsp;waterworks
products distribution market. We distribute a full line of
pipes, fittings, valves, meters, fire hydrants, service and
repair products and other components that are used to transport
clean water and wastewater between reservoirs and treatment
plants and residential and commercial locations. Our products
are integral to building, repairing and maintaining water and
wastewater (sewer)&nbsp;systems and serve as part of the basic
municipal infrastructure required to support population and
economic growth and residential and commercial construction.
Through our network of 135 branches in 36&nbsp;states, we sell
directly to municipalities and to contractors who serve
municipalities and perform residential, commercial and
industrial waterworks projects. In addition to significant
customer and geographic diversification, we estimate that our
net sales are divided approximately evenly between
publicly-funded and privately-funded sales. For the fiscal year
ended December&nbsp;31, 2004, we had net sales of
$1.5&nbsp;billion, net income of $47.6&nbsp;million and EBITDA
(as defined below in &#147;&#151;&nbsp;Summary Financial and
Other Data&#148;) of $123.4&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As the market for our products is characterized by a highly
fragmented local customer base, a wide variety of local product
standards and a broad group of suppliers, we believe that
distributors play a critical role in the supply chain. We
purchase products from approximately 3,500&nbsp;suppliers and
sell to over 26,000&nbsp;customers. We offer both our suppliers
and customers essential products and services. We provide
customers with a single source for water and wastewater
transmission products, which substantially reduces their need to
manage inventory and multiple vendor relationships. None of our
suppliers offers a complete waterworks product line and the
majority lack the scale, expertise and infrastructure (including
a large, local sales force) to service the broad customer base
directly. By aggregating the supply of our products, we relieve
our suppliers of the need to maintain a local inventory and a
local sales force and the related credit and accounts receivable
functions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our branches compete on a local basis and benefit from our large
scale and national coverage. We believe that our entrepreneurial
approach at the branch level and our local customer focus have
allowed us to achieve a leading market position in the majority
of our local markets. We have a sophisticated IT system that
supports our sales personnel and provides benefits to our
customers, including expedited project estimation and bid
preparation; real-time pricing, availability and order status
information; on-line ordering and purchase processing; and
material and project management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Industry Overview and Trends</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The U.S.&nbsp;water and wastewater transmission products
distribution market is highly fragmented, consisting of local
and regional distributors and only two other distributors with a
national presence. There are two primary waterworks end-markets:
(i)&nbsp;publicly-funded maintenance, repair and construction by
municipalities and contractors and (ii)&nbsp;privately-funded
residential, commercial and industrial construction by
contractors. There are approximately 54,000 municipal water
systems in the United States, which are maintained primarily by
municipalities that establish local product specifications and
undertake their own water system purchasing and contracting.
Municipalities generally complete short-term or modest-sized
repair or construction projects and rely on contractors for
longer-term or larger projects. Contractors
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">1

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<DIV align="left" style="font-size: 10pt;">
complete both privately-funded and publicly-funded projects,
typically after negotiated or competitive bids, with the latter
being the standard for publicly-funded projects. On any single
project, we typically assist multiple contractors in the
preparation of their bids. In 2004, we served approximately
9,000&nbsp;municipal customers and 17,500&nbsp;contractor and
industrial/other customers. Contractors tend to be small in
size, locally-oriented and are often family-owned businesses.
Given this local customer base, competition is primarily on the
local level, typically with four to six distributors in each
market. Competition is typically based on service, reliability
and total project cost to the customer, including product
pricing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Municipal waterworks systems include all publicly-owned or
funded water and wastewater supply, filtration, storage and
distribution systems, as well as public buildings and
conservation projects. Water is a critical, basic necessity and
municipalities must continuously repair and replace their
existing infrastructures. The maintenance and expansion of these
systems is important to support existing demand as well as
economic and population growth and residential and commercial
construction. In addition to on-going operations, maintenance
and capital expenditures, municipalities currently face
significant needs to replace and upgrade their water
infrastructures, the majority of which were installed in the
first half of the twentieth century. Municipalities can increase
their revenues and/or decrease costs by maintaining and
improving water and wastewater systems, including by repairing
clean water system leaks, reducing run-off water leakage into
the wastewater systems and improving metering. In some cities,
the water systems have water leakage rates as high as 20%.
According to the Congressional Budget Office, water industry
authorities believe that maintaining the water and wastewater
systems in the United States will require a substantial increase
in spending over the next two decades. In addition, the
Congressional Budget Office projects that annual costs will
average between $71.0&nbsp;billion and $98.0&nbsp;billion from
2000 to 2019, of which $25.0&nbsp;billion to $41.0&nbsp;billion
will be for new investments and $46.0&nbsp;billion to
$57.0&nbsp;billion will be for operations and maintenance. We
believe this will contribute to the ongoing demand for our
waterworks products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The privately-funded waterworks sector includes new clean water
and wastewater infrastructure for residential, commercial and
industrial construction. According to the U.S.&nbsp;Census
Bureau, from 1975 to 2004, spending on residential and
non-residential construction, which we believe is indicative of
privately-funded waterworks projects, grew at compounded annual
growth rates of 8.5% and 5.3%, respectively. Typically, once a
private contractor completes a waterworks system, ownership of
the system is transferred to the relevant municipality for
on-going repair and maintenance. We believe that growth in
commercial and residential spending is largely a function of new
housing spending, population and economic growth, increases in
U.S.&nbsp;home ownership rates and the availability of
commercial and residential financing.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strengths</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe our competitive strengths include:
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Leading Local Market Positions</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that we have a leading market share in the majority
of our local markets. We have achieved these leading positions
as a result of our branch managers&#146; and employees&#146;
long-term experience and customer relationships and knowledge of
local market dynamics and specifications. Approximately 80% of
our district and branch managers have more than 10&nbsp;years of
experience in waterworks product distribution. Each branch
operates as a local, entrepreneurial business and benefits from
our scale advantages and national coverage. Our branches operate
as independent profit centers, and all of our employees
participate in our incentive compensation system, which is based
on branch-level profitability and working capital management.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>National Presence and Scale Benefits</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading distributor of water and wastewater
transmission products in the United States, with an
approximately 17% market share, based on our net sales as a
percentage of a third-party estimate of the U.S. waterworks
products distribution market. Our broad network of 135 local
branches in 36&nbsp;states creates a national presence and
provides us with economies of scale that we believe cannot be
replicated by local and regional competitors. In addition to the
stability provided by customer and geographic
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">2
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<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="left" style="font-size: 10pt;">
diversity, we believe that our scale and position as the largest
distributor solely focused on waterworks products results in
many benefits, including: (i)&nbsp;the ability to invest in
infrastructure, including IT systems, and leverage fixed costs;
(ii)&nbsp;volume purchasing benefits from our suppliers;
(iii)&nbsp;national inventory coverage; (iv)&nbsp;the ability to
attract and retain strong managers and salespeople through an
incentive-based compensation system and upward mobility;
(v)&nbsp;a leveragable base of technical knowledge and best
practices; and (vi)&nbsp;a strong platform for future expansion.
</DIV>

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<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Superior, Value-Added Customer Service</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We offer our customers a complete line of water and wastewater
transmission products and reliable delivery. In 2004, we had a
95.4% fill rate (defined as individual product orders shipped
complete from stock on the first shipment), which we believe is
indicative of our ability to consistently deliver our products
on time. Timely and complete delivery is critical to our
customers, as their labor, equipment and mobilization costs are
substantially greater than their costs for our products. We
believe that our material management capabilities reduce our
customers&#146; downtime due to supply-related work stoppages
and increase their overall efficiency. In addition, we provide a
broad array of value-added services that we believe contribute
to our customers&#146; success. These services include project
estimation, project management and product advice. We believe
these services reduce our contractor customers&#146; overall
costs, improve their cash flow and allow them to increase
revenue by reducing their time spent preparing contract bids and
managing material purchases. We believe that these benefits are
more valuable to our customers than product pricing alone. We
utilize our sophisticated IT system to provide total project
management, including project estimates and bids that can be
quickly generated, which allows our customers to bid on more
projects.
</DIV>

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    <TD>
    <B><I>Diverse Revenues from Long-Standing Customers</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our customer base is diverse by individual customer, end-market,
project and geography, which we believe enables us to have more
stable operating results. In 2004, we served over
26,000&nbsp;customers and over 76% of our net sales were from
customers to whom we sold products in each of the last five
years, demonstrating the stability of our customer base. Our
largest customer and top ten customers accounted for less than
1% and 5%, respectively, of 2004&nbsp;net sales. We estimate
that our 2004&nbsp;net sales were split approximately evenly
between publicly-funded and privately-funded sales. Our net
sales are balanced across our six geographic regions, with our
largest region accounting for approximately 22% of our
2004&nbsp;net sales. We believe that our geographic diversity
mitigates our exposure to regional-specific economic cycles. The
majority of our operations are located in attractive regions
that have historically experienced above-average economic and
population growth. In addition, a significant portion of our
branches are located in milder southern climates, which reduces
the seasonality of our operations.
</DIV>

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    <TD>
    <B><I>Strategic Relationships with Diverse Supplier Base</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our strategic supplier relationships provide us with reliable
access to inventory, volume purchasing benefits and the ability
to deliver a diverse product offering on a cost-effective basis.
We buy products from approximately 3,500&nbsp;suppliers and
maintain multiple suppliers for substantially all of our
products. Substantially all of our primary suppliers have served
us or one of our predecessor companies for over 10&nbsp;years.
We have developed preferred vendor programs with over
130&nbsp;suppliers, which increase our profits and returns
through volume purchase incentives and attractive payment terms.
We believe that we are the largest customer of many of these
suppliers. Over 80% of our product purchases (based on cost of
goods sold) in 2004 were under preferred vendor programs.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Sophisticated IT System</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that we have a sophisticated IT system. We
continually leverage our technology to enhance our revenues,
profits and working capital efficiency. Our single, integrated
IT system is flexible and scalable to support expected growth.
It enables us to quickly and accurately provide and access
real-time information, which allows us to: (i)&nbsp;have a high
degree of branch-level flexibility while maintaining centralized
operational control; (ii)&nbsp;gain and retain customers by
providing superior customer service; (iii)&nbsp;evaluate and
focus on profitable business opportunities at the customer and
product level;
</DIV>
</DIV>

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(iv)&nbsp;maximize working capital efficiency; and
(v)&nbsp;track and evaluate performance on a real-time basis and
reward our branch management and sales force monthly for
operating results. Key system functions include:
(i)&nbsp;real-time control of pricing for sales and purchases,
accounts receivable and credit, inventory and accounts payable;
(ii)&nbsp;daily detailed operating and financial data by branch
and customer; (iii)&nbsp;expedited and automated order and
purchase processing; and (iv)&nbsp;the ability to quickly
consolidate the financial results from our 135 branches.
</DIV>

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    <B><I>Experienced and Motivated Management Team</I></B></TD>
</TR>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our senior management team has significant waterworks and
industrial distribution expertise and a proven track record of
success. Our senior corporate executives and regional vice
presidents have, on average, 27&nbsp;years of industry
experience and 18&nbsp;years of experience with us or one of our
predecessor companies. This management team is responsible for
developing our strategy, which has resulted in our leading
market positions, strong growth in revenues, profits and cash
flow, and our sophisticated IT system. The team has substantial
expertise in developing and maintaining customer and supplier
relationships, achieving organic growth, opening new branches
and completing and integrating acquisitions. The team has also
developed a compensation program that creates incentives for our
employees at all levels based primarily on branch-level
profitability and return on managed assets. We believe that
entrepreneurship at the branch level combined with this
compensation program have been essential drivers of our profit
growth. Following the offering, our senior management team will
own approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our equity
on a fully-diluted basis, a portion of which is subject to time
and performance vesting criteria.
</DIV>

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    <TD>
    <B><I>Operating Model Focused on Free Cash Flow</I></B></TD>
</TR>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that our operating model generates significant free
cash flow due to our variable cost structure, profit margin
improvement and low capital expenditure requirements and
efficient working capital management. Our variable cost base
includes substantially all of our costs of goods sold
(approximately 82% of total 2004 expenses) and a significant
portion of our operating costs (for example, more than half of
employee compensation was variable in 2004). From 2000 to 2004,
we (i)&nbsp;improved our EBITDA margins from 6.1% to 8.1%,
(ii)&nbsp;had average annual capital expenditures of
$1.9&nbsp;million and (iii)&nbsp;improved our working capital
performance metrics. We have historically been successful in
passing through price increases from our suppliers to our
customers without significantly impacting our margins. Over the
past three years, we averaged net write-offs of only 0.08%, and
only 9% of our accounts were 90&nbsp;days or more past due at
the end of 2004. In addition, we receive approximately
$12&nbsp;million per year of cash tax benefit due to the
amortization of goodwill that is deductible for federal income
tax purposes. This benefit is expected to continue through the
year 2017. See &#147;Management&#146;s Discussion and Analysis
of Financial Conditions and Results of Operations&nbsp;&#151;
Liquidity and Capital Resources.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Strategy</B>
</DIV>

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We intend to increase operating profits and cash flow by
continuing to be a leading distributor of water and wastewater
transmission products. Key elements of our strategy include the
following:
</DIV>

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    <TD>
    <B><I>Enhancing Local Market Share and Profitability</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our reputation for reliable service, a comprehensive product
offering and advanced IT tools has been critical to establishing
our leading local market positions. We believe that we are
well-positioned to exploit opportunities to selectively and
profitably increase our local market shares. We plan to gain new
customers and increase purchases by existing customers by
leveraging our products, information and materials management
capabilities and our scale advantages over local and regional
competitors to improve our customers&#146; efficiency and reduce
their administrative costs. We continually evaluate the
profitability of each of our customers, giving us the ability to
better manage our customer relationships and focus on the
profitability of our business.
</DIV>

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    <TD>
    <B><I>Continuing Focus on Operational Excellence</I></B></TD>
</TR>

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We will continue to regularly examine each branch&#146;s
profitability, working capital management and return on managed
assets, both on an overall and a customer basis. Our branch
managers use this
</DIV>
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information to optimize their local strategies, improve the
profitability of customer relationships and reduce operating
costs. Senior management uses this information to
(i)&nbsp;monitor each branch&#146;s performance and disseminate
best practices, (ii)&nbsp;evaluate opportunities to expand the
geographic coverage or number of branches and (iii)&nbsp;improve
the performance of an underperforming branch, or to close such a
branch if performance cannot be sufficiently improved.
</DIV>

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    <TD>
    <B><I>Geographic Expansion Initiatives</I></B></TD>
</TR>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The water and wastewater market is expected to experience
substantial growth over the next several years as municipalities
focus on repairing and/or upgrading existing infrastructure. Our
strategy is to leverage our strong national presence and leading
local market positions to capitalize on this expected growth. We
expect to do this through organic growth, new branch openings
and selective acquisitions. Our focus will be on markets where
we expect favorable waterworks product distribution demand
dynamics, including the need for significant repairs or
upgrades, population growth and underpenetration by other
distributors.
</DIV>

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<I>New Branch Openings.</I> We believe that we have the
opportunity to grow by opening satellite branches in contiguous
markets where we typically have an existing customer base. New
satellite branches can be opened with minimal capital
investment, and we target achieving profitability within three
months of commencing operations. We expect to open two or three
new satellite branches per year over the next several years.
Opening new branches is not constrained by the required capital
expenditures, but rather by the limited availability of
additional qualified branch managers and sales personnel with
local expertise and relationships, both of which are critical to
the success of a new branch.
</DIV>

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<I>Selective Acquisitions.</I> Given the significant
fragmentation and localized nature of our industry, we have the
opportunity to complement organic growth with selective
acquisitions that meet our key evaluative criteria. Between 1996
and 2002, we successfully completed and integrated 16
acquisitions with an average size of $27.0&nbsp;million and most
recently acquired Midstate Utility Supply in 2004 for
approximately $2&nbsp;million. While we will continue to focus
on organic growth and new branch openings, we will also continue
to consider acquisitions that provide us with immediate,
established access to new geographic markets, an expanded
customer base or, in certain cases, an exclusive local
distribution arrangement for certain higher margin products. Our
key evaluative criteria include established customer bases and
market presence, solid reputations, strong branch level
management and sales teams and the opportunity to achieve
meaningful financial and operating synergies.
</DIV>

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<B>Risks Relating to Our Business</B>
</DIV>

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Our ability to execute our strategy is subject to certain risks,
including those that are generally associated with the water and
wastewater transmission products industry. For example,
downturns in the industry caused by slowdowns in construction
activity and the amount spent by municipalities on
infrastructure could result in a decrease in our revenues and
operating results through reduced sales of our products.
Additionally, the sale of water and wastewater transmission
products is subject to seasonal and weather-related fluctuations
which make our operating results subject to quarterly or annual
fluctuations. These and other factors described in this
prospectus under &#147;Risk Factors&#148; may limit our ability
to successfully execute our business strategy.
</DIV>

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<B>The Transactions</B>
</DIV>

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Concurrently with the closing of this offering, we will either
amend our existing credit facility or enter into a new credit
facility, either of which is referred to in this prospectus as
the &#147;credit facility&#148; (the &#147;Financing
Transaction&#148;). The closing of this offering, the Financing
Transaction, the Tender Offer (as defined below) and the
repurchase referred to below are all conditioned on each other.
</DIV>

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Prior to the closing of this offering, National Waterworks
intends to commence a tender offer and related consent
solicitation, which we refer to in this prospectus as the
&#147;Tender Offer,&#148; with respect to all its outstanding
$200.0&nbsp;million aggregate principal amount of
10.50%&nbsp;Senior Subordinated Notes due 2012, which we refer
to as the &#147;10.50%&nbsp;Notes.&#148; In addition,
concurrently with the closing of this offering, we
</DIV>
</DIV>

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will repurchase all our outstanding $250.0&nbsp;million
aggregate principal of 12.50%&nbsp;Senior Subordinated Notes due
2014, which we refer to as the &#147;12.50%&nbsp;Notes.&#148;
</DIV>

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As used in this prospectus, the term &#147;Transactions&#148;
means, collectively, this offering (together with the
application of the proceeds therefrom), the Financing
Transaction, the Tender Offer and the repurchase of our
12.50%&nbsp;Notes.
</DIV>

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<B>Use of Proceeds</B>
</DIV>

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We estimate that we will receive net proceeds from this offering
of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
before deducting underwriting discounts and commissions and that
the selling stockholders will receive net proceeds of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million.
</DIV>

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We will use our net proceeds from this offering, together with
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
from our credit facility, to:
</DIV>

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    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    repay indebtedness under our existing credit facility;</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    repurchase all our outstanding 12.50%&nbsp;Notes;</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    consummate the Tender Offer;&nbsp;and</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    pay fees and expenses associated with the Transactions.</TD>
</TR>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will not receive any proceeds for the sale of our common
stock by the selling stockholders, including if the underwriters
exercise their option to purchase additional shares. In the
aggregate, the selling stockholders and their affiliates will
receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of the net proceeds of this offering, or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
if the underwriters&#146; option to purchase additional shares
is exercised in full.
</DIV>

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<DIV style="width: 26%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

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Our principal executive offices are located at 200&nbsp;West
Highway&nbsp;6, Suite&nbsp;620, Waco, Texas 76712. Our telephone
number is (254)&nbsp;772-5355.
</DIV>

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<B>The Financial Sponsors</B>
</DIV>

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J.P.&nbsp;Morgan Partners, LLC, or JPMP, is a global private
equity organization with approximately $13&nbsp;billion of
capital under management. Since its inception in 1984, JPMP and
its affiliated investment vehicles has been a leading provider
of private equity. JPMP has approximately 90&nbsp;investment
professionals in six principal offices throughout the world.
JPMP is an affiliate of JPMorgan Chase&nbsp;&#38; Co., one of
the largest financial institutions in the United States.
</DIV>

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Thomas H. Lee Partners, L.P., or THL, is a Boston-based private
equity firm that currently manages over $12&nbsp;billion of
committed capital. Founded in 1974, THL has 26&nbsp;investment
professionals and is currently investing from the Thomas H. Lee
Equity Fund&nbsp;V, a $6.1&nbsp;billion fund.
</DIV>

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JPMP and THL are collectively referred to herein as the
&#147;Sponsors.&#148;
</DIV>

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After the offering, it is expected that the Sponsors will
beneficially own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our
common stock.
</DIV>
</DIV>

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<B>The Offering</B>
</DIV>

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    <TD width="71%"></TD>
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    <TD valign="top">
    Shares of common stock outstanding prior to the offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Common stock offered</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    by us</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    by the selling stockholders</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Total offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Shares of common stock to be outstanding following the offering</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Price per share of common stock</TD>
    <TD></TD>
    <TD valign="top">
    &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Dividends</TD>
    <TD></TD>
    <TD valign="top">
    Our board of directors will adopt a dividend policy, effective
    upon the closing of this offering. We currently expect to pay
    dividends quarterly at an initial annual level of
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
    share.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
</TD>
    <TD></TD>
    <TD valign="top">
    Our credit facility will restrict our ability to declare and pay
    dividends based on the amount of our available cash.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR>
    <TD valign="top">
    Listing</TD>
    <TD></TD>
    <TD valign="top">
    We intend to list our common stock on the New York Stock
    Exchange under the trading symbol &#147;NWW.&#148;</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">7

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Other Information about this Prospectus</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Unless otherwise indicated, the information in this prospectus:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes the vesting of all unvested restricted Class&nbsp;A
    common stock will occur immediately prior to the completion of
    this offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes the conversion of each outstanding share of class&nbsp;B
    common stock into one share of our class&nbsp;A common stock,
    which will occur immediately prior to the completion of this
    offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    assumes the reclassification of all outstanding shares of
    class&nbsp;A common stock (after conversion of the class&nbsp;B
    common stock) into shares of common stock, which will occur
    immediately prior to the completion of this offering;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;-for-1
    reverse stock split of our shares of common stock.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">8

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Summary Financial and Other Data</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth selected historical financial and
other operating data of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    U.S.&nbsp;Filter Distribution Group, Inc. as of
    November&nbsp;21, 2002, and for the period from January&nbsp;1,
    2002 to November&nbsp;21, 2002. Such information was derived
    from U.S.&nbsp;Filter&#146;s audited consolidated financial
    statements appearing elsewhere in this prospectus;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    National Waterworks Holdings, Inc. for the period from
    November&nbsp;22, 2002 to December&nbsp;31, 2002, as of
    December&nbsp;31, 2002 and as of and for the years ended
    December&nbsp;31, 2003 and 2004. Such information was derived
    from the audited consolidated financial statements of National
    Waterworks Holdings, Inc. appearing elsewhere in this prospectus.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The unaudited as adjusted column adjusts the historical data for
the year ended December&nbsp;31, 2004 to give effect to the
Transactions as if they occurred as of such date in the case of
the unaudited as adjusted balance sheet data, and as of
January&nbsp;1, 2004 in the case of the unaudited as adjusted
statement of operations data.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the information contained in this table in
conjunction with &#147;Selected Historical Financial and Other
Data,&#148; &#147;Management&#146;s Discussion and Analysis of
Financial Condition and Results of Operations&#148; and the
historical consolidated financial statements and the
accompanying notes thereto of National Waterworks Holdings, Inc.
and U.S.&nbsp;Filter Distribution Group, Inc. included elsewhere
in this prospectus.
</DIV>
</DIV>

<P align="center" style="font-size: 10pt;">9

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="19%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor&nbsp;&#151;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S. Filter</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc. and</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Subsidiary</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B><I>Successor&nbsp;&#151; National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January 1 to</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November 22 to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4" align="center" nowrap><B>(dollars in thousands except</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4" align="center" nowrap><B>share information)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statements of operations data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,281,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,522,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of goods sold(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>831,764</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,013,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,212,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>227,004</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>309,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,825</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>186,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on accounts receivable securitization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,480</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,699</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,492</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,131</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,568</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,744</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Completion bonuses(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,200</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,333</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,706</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes and cumulative effect of a
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,391</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,582</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before cumulative effect of a change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,153</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of a change in accounting principle(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(459,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>
</DIV>

<P align="center" style="font-size: 10pt;">10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="25%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor&nbsp;&#151;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S. Filter</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc. and</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Subsidiary</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B><I>Successor&nbsp;&#151; National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January 1 to</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November 22 to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>(dollars in thousands except</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>share information)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares outstanding:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other operating data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EBITDA(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78,558</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,504</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EBITDA margin(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2.7</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.9</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjusted EBITDA(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,758</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjusted EBITDA margin(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6.9</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,240</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,163</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(643,855</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,443</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,780</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44,061</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53,755</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(56,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital expenditures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,442</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(102</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,022</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,424</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance sheet data (at period end):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,304</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>39,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,100,948</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>812,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>883,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>440,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>937,469</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    In connection with the Acquisition, we recorded a
    $13.0&nbsp;million inventory revaluation adjustment pursuant to
    Statement of Financial Accounting Standards No.&nbsp;141,
    <I>Business Combinations.</I> Of this amount, $9.0&nbsp;million
    was recognized in cost of goods sold for the period
    November&nbsp;22, 2002 to December&nbsp;31, 2002. The remaining
    $4.0&nbsp;million was recognized in cost of goods sold during
    the quarter ended March&nbsp;28, 2003.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Reflects completion bonuses paid by United States Filter
    Corporation to certain members of management and other key
    employees of U.S.&nbsp;Filter upon consummation of the
    Acquisition.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Reflects an impairment charge taken by U.S. Filter prior to the
    Acquisition relating to the adoption of Statement of Financial
    Accounting Standard No.&nbsp;142, <I>Goodwill and Other
    Intangible Assets.</I> See Note&nbsp;4 to the audited
    consolidated financial statements included elsewhere in this
    report.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    EBITDA represents income before interest expense, net; income
    taxes; and depreciation and amortization. Adjusted EBITDA is
    defined as EBITDA without giving effect giving effect to stock
    compensation expense or the increase in cost of goods sold
    resulting from a purchase accounting inventory revaluation
    adjustment. EBITDA and Adjusted EBITDA are presented because we
    believe they enhance an investor&#146;s understanding of a
    company&#146;s ability to satisfy principal and interest
    obligations with respect to its indebtedness and to utilize cash
    for other purposes. However, other companies in our industry may
    calculate EBITDA and Adjusted EBITDA differently than we do. Our
    management also focuses on these measures, and discusses them
    with our board of directors, to assess our liquidity and debt
    payment ability and because they are and will be used in meeting
    various covenants under our credit facility. Neither EBITDA nor
    Adjusted EBITDA are measurements of</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>
<DIV style="width: 100%; border: 1px solid black; padding: 12px;">

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    financial performance under generally accepted accounting
    principles, known as GAAP, and should not be construed as
    indicators of a company&#146;s performance or liquidity or in
    isolation from or as a substitute for net income, cash flow from
    operations or any other cash flow data prepared in accordance
    with GAAP:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="20%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor&nbsp;&#151;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S. Filter</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc. and</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="15">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Subsidiary</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap><B><I>Successor&nbsp;&#151; National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="14" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January 1 to</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November 22 to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>As Adjusted</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>(dollars in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Add:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of a change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>459,000</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,826</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,706</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,131</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    EBITDA</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>78,558</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(2,504</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>100,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>123,377</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Effect of SFAS&nbsp;141&nbsp;&#151; inventory revaluation
    adjustment to cost of goods sold</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Completion bonuses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,200</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjusted EBITDA</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>84,758</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,496</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>104,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>123,939</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    EBITDA margin is EBITDA divided by net sales. Adjusted EBITDA
    margin is Adjusted EBITDA divided by net sales.</TD>
</TR>

</TABLE>
</DIV>

<P align="center" style="font-size: 10pt;">12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='102'></A>
</DIV>

<!-- link1 "Disclosure Regarding Forward-Looking Statements" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Disclosure Regarding Forward-Looking Statements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus contains &#147;forward-looking statements&#148;
within the meaning of the federal securities laws.
Forward-looking statements include statements concerning our
plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions
relating to acquisitions, business trends and other information
that is not historical information. When used in this
prospectus, the words &#147;estimates,&#148;
&#147;expects,&#148; &#147;anticipates,&#148;
&#147;projects,&#148; &#147;forecasts,&#148; &#147;plans,&#148;
&#147;intends,&#148; &#147;believes,&#148; &#147;may,&#148;
&#147;should&#148; and variations of such words or similar
expressions are intended to identify forward-looking statements.
All forward-looking statements are based upon our current
expectations and various assumptions. Our expectations, beliefs
and projections are expressed in good faith and we believe there
is a reasonable basis for them. However, we cannot assure you
that management&#146;s expectations, beliefs and projections
will result or be achieved.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There are a number of risks, uncertainties and other factors,
many of which are outside of our control, that could cause our
actual results to differ materially from the forward-looking
statements contained in this prospectus. Such factors may
include, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    waterworks industry trends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general economic and business conditions, particularly any
    economic downturns;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increases in the amount of our indebtedness;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    unexpected seasonal or climatic fluctuations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    competition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to implement our business strategy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to retain our senior management and to attract and
    retain other qualified personnel;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the availability and terms of additional capital we may require
    to fund our operations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    any restrictions imposed by our debt agreements;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    disintermediation in the water and wastewater transmission
    products supply chain;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the availability of third-party transportation providers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    fluctuations in the cost of polyvinyl chloride (PVC)&nbsp;pipe;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    continued access to key suppliers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    availability of our IT system;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our ability to integrate future acquisitions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    any other factors set forth under &#147;Risk Factors&#148; and
    elsewhere in this prospectus.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There may be other factors that could cause our actual results
to differ materially from the results referred to in
forward-looking statements included in this prospectus. All
forward-looking statements attributable to us or persons acting
on our behalf apply only as of the date of this prospectus and
are expressly qualified in their entirety by the cautionary
statements included in this prospectus. We undertake no
obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
</DIV>

<P align="center" style="font-size: 10pt;">13

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<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='103'></A>
</DIV>

<!-- link1 "Risk Factors" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Risk Factors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should carefully consider the risk factors set forth below
as well as the other information contained in this prospectus
before investing in our common stock. Any of the following risks
could materially adversely affect our business, financial
condition or results of operations. In such case, you may lose
all or part of your original investment. The risks described
below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial may also materially and adversely affect
our business, financial condition or results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Risks Related to Our Business</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Downturns in the water and wastewater transmission products
industry have in the past, and may in the future, result in a
decrease in our revenues and operating results through reduced
sales of our products to our contractor and municipal
customers.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The water and wastewater transmission products industry is
affected by changes in economic conditions, including national,
regional and local slowdowns in construction activity and the
amount spent by municipalities on waterworks infrastructure.
Many of our products are distributed to waterworks contractors
in connection with residential, commercial and industrial
construction projects. New housing starts serve as an indicator
of the level of activity in the residential housing market and
are influenced by interest rates, availability of financing,
housing affordability, unemployment rates, demographic trends,
gross domestic product and consumer confidence. Historically,
new housing starts have decreased during economic slowdowns. The
level of activity in the commercial and industrial construction
markets depends on the general economic outlook, corporate
profitability, interest rates and existing plant capacity
utilization. Economic downturns in any of our regional markets
could reduce the level of construction activity, and thus our
level of sales, in that region. In addition, water and
wastewater transmission products sales are subject to the
availability of funding for municipal waterworks projects and
reduced municipal funding could adversely affect our sales. In
general, factors such as trends in the construction industry,
changes in municipal spending or other factors that influence
waterworks transmission products sales are not within our
control and, as a result, may cause a decrease in our sales and
operating results, which may cause our financial condition to
deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations which makes
our operating results subject to quarterly or annual
fluctuations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations. Coincident
with annual construction seasonality, our net sales are
typically higher during the second and third calendar quarters
and lower during the first and fourth calendar quarters due to
reduced construction activity during the winter. Adverse weather
conditions in our markets may also decrease the level of
construction activity and therefore our sales. As a result of
these factors, our sales and operating results may be subject to
quarterly or annual fluctuations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competition from our existing and new competitors could
result in reduced sales and profitability and a decrease in our
market share.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The markets in which we compete are highly competitive and
fragmented, with numerous regional and local participants. Two
national competitors are divisions or subsidiaries of companies
that have significantly greater financial, marketing and other
resources than we have. We compete with a large number of
distributors and a limited number of manufacturers who sell
directly to larger customers within our customer base. In
addition, smaller, local waterworks products distributors could
form a distribution cooperative to compete more effectively
against larger, national waterworks product distributors. The
principal methods of competition include offering prompt local
service, fulfillment capability, local knowledge, breadth of
product and service offerings and price. If we are unable to
compete effectively on these and other factors, our inability
could cause us to lose market share or sales, the loss of either
of which could result in a decrease in our operating results and
profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, a portion of our sales is from contracts with
municipalities. These contracts are often awarded and renewed
through periodic competitive bidding. We may not be successful
in obtaining or
</DIV>

<P align="center" style="font-size: 10pt;">14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
renewing these contracts. Our inability to replace a significant
number of contracts lost through competitive bidding processes
with other revenue sources within a reasonable time could be
harmful to our business and financial performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>If we cannot successfully implement our business strategy,
our business, results of operations and potential for growth
will be adversely affected.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our ability to achieve our business and financial objectives is
subject to a variety of factors, many of which are beyond our
control. For example, our business strategy contemplates that
existing customers will buy additional products from us in the
future and that we will gain new customers by leveraging our
product, information and materials management capabilities in
order to improve our customers&#146; efficiency and reduce their
administrative costs. Our business strategy further contemplates
a growth in sales through branch openings in contiguous markets
and through selective acquisitions of local and regional
waterworks distributors in attractive and growing markets.
Similarly, we believe our revenues will increase as
municipalities currently face significant needs to replace and
upgrade their water infrastructures. If our assumptions
regarding these trends and the needs of our customers prove to
be incorrect, we may not successfully implement our strategy. In
addition, implementing our strategy may not improve our
operating results. We may decide to alter or discontinue aspects
of our business strategy and may adopt alternative or additional
strategies due to business or competitive factors or factors not
currently expected, such as unforeseen costs and expenses or
events beyond our control. Any failure to successfully implement
our business strategy may result in a decrease in our revenues,
operating margins and results of operations and could limit or
cause us to forego opportunities for growth.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>If we fail to successfully integrate any future acquisitions
into our operations, our operating costs could increase and our
operating margins, operating results and profitability may
decrease.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If we do not successfully integrate future acquisitions, we may
not realize anticipated operating advantages and cost savings,
which could reduce our operating margins, operating results and
profitability. The acquisition and integration of companies
involves a number of risks, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    use of available cash or borrowings under our credit facility,
    or the issuance of new debt, to consummate the acquisition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    demands on management related to the increase in our size after
    an acquisition;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the diversion of management&#146;s attention from existing
    operations to the integration of acquired companies;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    difficulties in the assimilation and retention of
    employees;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    potential adverse effects on our operating results.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We may not be able to maintain the levels of operating
efficiency that acquired companies achieved separately.
Successful integration of acquired operations will depend upon
our ability to manage those operations and to eliminate
redundant and excess costs. We may not be able to achieve the
cost savings and other benefits that we would hope to achieve
from acquisitions, which could cause our financial condition to
deteriorate or result in an increase in our expenses or a
reduction in our operating margins, thereby reducing our
operating results and profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We depend on our senior management, and the loss of any
member of the team could adversely affect our business or
financial results.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our operations are dependent on the continued efforts of our
senior management. We have entered into various agreements and
compensation arrangements with our senior executives, including
Harry Hornish as President and Chief Executive Officer, Philip
Keipp as Vice President and Chief Financial Officer and Terry
Howell as Chief Information Officer, designed to encourage their
retention. However, we do not have employment agreements with
every member of the senior management team. Each member of our
senior management team has substantial experience and expertise
in our industry and has made significant contributions to our
growth and success. Members of our senior management may resign
in the
</DIV>

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<DIV align="left" style="font-size: 10pt;">
future, and the loss of their services could limit our ability
to grow our business and cause disruptions in our operations,
which could cause our financial results to suffer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Failure to retain and attract qualified branch managers and
sales persons could limit our growth and negatively impact our
operations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our business results depend largely upon our branch managers and
sales personnel and their experience, knowledge of local market
dynamics and specifications and long-standing customer
relationships. Our inability to retain or hire qualified branch
managers or sales persons at economically reasonable
compensation levels would restrict our ability to grow our
business, limit our ability to continue to successfully operate
our business and result in lower operating results and
profitability.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our cost of PVC pipe is volatile and increases in the cost of
PVC pipe or unexpected PVC pipe shortages could adversely impact
our operating results.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The cost of the PVC pipe that we distribute can fluctuate due to
supply and demand dynamics in the PVC pipe and PVC resin
markets. For example, our purchase price of PVC pipe averaged
$0.54, $0.41 and $0.36&nbsp;per pound for the years ended
December&nbsp;31, 2004, 2003 and 2002, respectively, with our
2004 PVC purchase price ranging from a quarterly average of
$0.46 to $0.58&nbsp;per pound. Significant fluctuations in these
markets may adversely affect our results of operations and cause
volatility in our operating performance. While in the past we
have been able to pass through the majority of the price changes
in PVC pipe to our customers, our inability to do so in the
future could have an adverse impact on our results of operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Loss of key suppliers or reduced product availability could
decrease sales and earnings.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our 10 largest suppliers in 2004 accounted for approximately 61%
of our purchases and our single largest supplier accounted for
approximately 13% of our purchases. The loss of any of these
suppliers, or a reduction in supplier participation in our
preferred vendor programs, could result in a decrease in our
sales, operating results and earnings by decreasing the
availability of products to us, which could limit our ability to
satisfy our customers&#146; product needs. Such reduced product
availability could put us at a competitive disadvantage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Reduction in product availability could decrease our sales
and earnings and put us at a competitive disadvantage.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Particular products or product lines may not be available to us,
or available in quantities sufficient to meet our customer
demand. A substantial decrease in the availability of these
products or product lines could result in a decrease in our
sales, operating results and earnings as we might not be able to
satisfy our customers&#146; product needs. Such reduced product
availability could put us at a competitive disadvantage.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We rely on our IT systems to manage numerous aspects of our
business and customer and supplier relationships, and a
disruption of these systems could adversely affect our
business.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our IT system is an integral part of our business and growth
strategies. A serious disruption of our IT system could
significantly limit our ability to manage and operate our
business efficiently, which in turn could cause our business and
competitive position to suffer and cause our results of
operations to be reduced. We depend on our IT system to process
orders, track credit risk and manage inventory and accounts
receivable collections. Our system also allows us to efficiently
purchase products from our suppliers and ship products to our
customers on a timely basis, maintain cost-effective operations
and provide superior service to our customers. While we have
contingency plans in place in case of an emergency, we cannot
assure you that the plans will allow us to continue to operate
at our current level of efficiency.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our sales are predominately on credit and an inability to
collect trade account receivables on a timely basis would reduce
our operating results and cash flow and cause our financial
condition to deteriorate.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Substantially all of our net sales are credit sales made
primarily to contractors, whose ability to pay depends in part
on the economic strength of the construction industry in their
areas, and municipalities,
</DIV>

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<DIV align="left" style="font-size: 10pt;">
whose ability to pay depends in part on their local
waterworks-related and tax revenues. Future downturns in the
regional or local economies that we serve, including reductions
in the revenue base of municipalities or the weak financial
performance of our customers, could lessen our ability to
collect trade accounts receivable on a timely basis and, in
turn, could cause our results of operations and cash flow to be
reduced and our financial condition to deteriorate.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The development of alternatives to water and wastewater
transmission products distributors in the supply chain could
cause a decrease in our sales and operating results and limit
our ability to grow our business.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our customers could begin purchasing more of their product needs
directly from manufacturers, which could result in decreases in
our sales and earnings. Our suppliers could invest in
infrastructure to expand their own local sales force and sell
more products directly to our customers. In addition, the
continued development of the Internet, e-businesses and other
alternatives may allow customers to purchase directly from
manufacturers or other suppliers. Multiple municipalities may
outsource their entire waterworks systems to a single company,
thereby increasing such company&#146;s leverage in the
marketplace and its ability to buy directly from suppliers. Any
future disintermediation from these or other causes may harm our
competitive position in the water and wastewater transmission
products marketplace and reduce our sales and earnings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Loss of third-party transportation providers upon whom we
depend could increase our costs and cause a disruption in our
operations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We depend upon third-party transportation providers for delivery
of products to our branches, and, to a lesser extent, to our
customers. Strikes, slowdowns, transportation disruptions or
other conditions in the transportation industry, particularly
those impacting United Parcel Service of America, Inc., could
increase our costs and disrupt our operations and our ability to
service our customers on a timely basis.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our compliance with environmental and safety requirements may
result in increased costs to operate our business.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to federal, state and local environmental and
occupational health and safety laws and regulations. We cannot
assure you that we have been or will be at all times in complete
compliance with all such requirements. These requirements are
complex and have tended to become more stringent over time. We
could become subject to new requirements in the future, or
otherwise become subject to environmental liabilities, which
could result in increased operating costs resulting in a
material effect on our operating results and business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We may become subject to asbestos liabilities in the future
to the extent we are found to be a successor to U.S.&nbsp;Filter
and to the extent U.S.&nbsp;Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations, in which event our financial condition and earnings
would deteriorate to the extent we are required to satisfy these
asbestos liabilities.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to U.S.&nbsp;Filter
and to the extent U.S.&nbsp;Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations as described below. Certain of
U.S.&nbsp;Filter&#146;s predecessors distributed or may have
distributed cement pipe containing asbestos. Certain of these
predecessors are or have been defendants in lawsuits seeking to
recover damages for alleged exposure to asbestos in these pipes.
The Acquisition was structured as an asset purchase, and we did
not assume any existing or future asbestos-related liabilities
relating to U.S.&nbsp;Filter or its predecessors.
U.S.&nbsp;Filter and United States Filter Corporation retained
these liabilities and jointly and severally agreed to indemnify
and defend us from and against these liabilities on an unlimited
basis with no termination date. In addition, Veolia has
guaranteed all obligations of United States Filter Corporation
and U.S.&nbsp;Filter under the asset purchase agreement,
including the indemnity discussed above, up to an aggregate of
$50.0&nbsp;million for a period ending November&nbsp;22, 2017.
Historically, courts have not held the acquirer of an
entity&#146;s assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a &#147;successor&#148; to the asset seller.
</DIV>

<P align="center" style="font-size: 10pt;">17

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our management faces challenges in implementing the
requirements of the Sarbanes-Oxley Act of 2002.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the Securities and Exchange Commission and the
New York Stock Exchange, have increased regulation and imposed
stricter standards on corporate governance practices of public
companies. For example, we are in the process of creating
additional board committees and are reviewing and adopting
comprehensive new policies regarding internal control over
financial reporting and disclosure controls and procedures. We
are also evaluating our internal controls systems in accordance
with Section&nbsp;404 of the Sarbanes-Oxley Act. If we do not
implement the requirements of Section&nbsp;404 in a timely
manner or with adequate compliance, we may not be able to
accurately report our financial results or prevent fraud and
might be subject to sanctions or investigation by regulatory
authorities, such as the SEC. Any such action could harm our
business or investors&#146; confidence in our company, and could
cause our stock price to fall.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B><I>Risks Relating to the Common Stock</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>You may not receive the intended level of dividends on our
common stock or any dividends at all.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently intend to pay quarterly cash dividends on our
common stock at an annual rate of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. However, dividend payments are not mandatory or
guaranteed, and our board of directors may, in its discretion,
not declare a dividend, decrease the level of dividends or
entirely discontinue the payment of dividends. Your decision
whether to purchase shares of our common stock should allow for
the possibility that no dividends will be paid. You may not
receive any dividends as a result of the following factors,
among others:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we are not legally or contractually required to pay dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we may modify or revoke our policy to pay a regular quarterly
    dividend;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    even if we do not modify or revoke our dividend policy, the
    actual amount of dividends distributed and the decision to make
    any distribution is entirely at the discretion of our board of
    directors and future dividends with respect to shares of our
    capital stock, if any, will depend on, among other things, our
    results of operations, cash requirements, financial condition,
    acquisition opportunities, provisions of applicable law and
    other factors that our board of directors may deem relevant;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the amount of dividends distributed is and will be subject to
    contractual restrictions under:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the terms of our credit facility;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the terms of any other outstanding indebtedness incurred by us
    or any of our subsidiaries after the completion of this offering;</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the amount of dividends distributed is subject to state law
    restrictions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our stockholders have no contractual or other legal right to
    dividends.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under Delaware law, our board of directors may declare dividends
only to the extent of our &#147;surplus&#148; (which is defined
as total assets at fair market value minus total liabilities,
minus statutory capital) or, if there is no surplus, out of our
net profits for the then current and/or immediately preceding
fiscal year. Although we believe we will have sufficient net
profits or surplus to pay dividends at the anticipated levels
during the first four full fiscal quarters after the closing of
this offering, our board of directors will seek periodically to
assure itself of this before actually declaring any dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the payment of a cash dividend on our common stock
will be considered a restricted payment under our credit
facility, and the amount of cash dividends on our common stock,
if any, is limited unless we satisfy certain conditions. The
terms of our credit facility will prohibit us from paying cash
dividends on our common stock if a default or an event of
default has occurred and is continuing under this agreement. See
&#147;Description of Capital Stock&nbsp;&#151; Common
Stock&#148; and &#147;Description of Certain Indebtedness.&#148;
Furthermore, we will be permitted under the terms of our debt
agreements to incur additional indebtedness that may severely
restrict or prohibit the payment of dividends. We cannot assure
</DIV>

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<DIV align="left" style="font-size: 10pt;">
you that the agreements governing our current and future
indebtedness will permit us to pay dividends on our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>To pay dividends at intended levels, we will require a
significant amount of cash. Our ability to generate cash depends
on many factors beyond our control. We may not generate
sufficient funds from operations to pay dividends with respect
to shares of our common stock.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We may not retain a sufficient amount of cash to fund our
operations consistent with past levels of funding in the event
of a significant business downturn. Our ability to pay dividends
will depend on our ability to generate cash flow from operations
in the future. This ability, to a certain extent, is subject to
general economic, financial, competitive, and other factors that
are beyond our control. We cannot assure you, however, that our
business will generate sufficient cash flow from operations, or
have sufficient surplus or net profits, as the case may be,
under Delaware law, in an amount sufficient to enable us to pay
our indebtedness, pay dividends or to fund our other liquidity
needs. If we do not have sufficient cash to fund dividend
payments, we would either reduce or eliminate dividends or rely
on cash provided by financing activities to fund dividend
payments, and such financing may or may not be available.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A significant portion of our cash flow from operations will be
dedicated to capital expenditures and debt service. In addition,
we currently expect to distribute a significant portion of our
cash earnings to our stockholders in the form of quarterly
dividends. As a result, we may not retain a sufficient amount of
cash to finance growth opportunities, including acquisitions, or
unanticipated capital expenditures or to fund our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We may also be forced to raise additional capital or sell assets
and, if we are forced to pursue any of these options under
distressed conditions, our business and the value of your
investment in our common stock could be adversely affected. In
addition, these alternatives may not be available to us when
needed or on satisfactory terms due to prevailing market
conditions, a decline in our business, or restrictions contained
in the agreements governing our indebtedness.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our substantial indebtedness could restrict our ability to
pay dividends on our common stock and have an adverse impact on
our financing options and liquidity position.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, after giving effect to the
Transactions, we would have had approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of total consolidated indebtedness. Our substantial indebtedness
could have important adverse consequences to the holders of our
common stock, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    limiting our ability to pay dividends on our common stock or
    make payments in connection with our other obligations,
    including under our credit facility and the new the notes, as
    the case may be;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    limiting our ability in the future to obtain additional
    financing for working capital, capital expenditures or
    acquisitions;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    limiting our ability in the future to refinance our indebtedness
    on terms acceptable to us or at all;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    likely requiring that a significant portion of our cash flow
    from operations is likely to be dedicated to the payment of the
    principal of and interest on our indebtedness, thereby reducing
    funds available for future operations, acquisitions, dividends
    on our common stock and/or capital expenditures;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increasing our vulnerability to economic and industry downturns
    and conditions, including changes in interest rates;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    placing us at a competitive disadvantage compared to those of
    our competitors that have less indebtedness.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Subject to certain covenants, our credit facility will permit us
to incur additional indebtedness. Any additional indebtedness
that we may incur would exacerbate the risks described above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, as a result of general economic conditions,
conditions in the lending markets, the results of our business
or for any other reason, we may elect or be required to amend or
refinance our credit facility or the new notes, at or prior to
maturity, or enter into additional agreements for indebtedness.
Any
</DIV>

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<DIV align="left" style="font-size: 10pt;">
such amendment, refinancing or additional agreement may contain
covenants that could limit in a significant manner our ability
to pay dividends to you.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>We are a holding company and rely on dividends, interest and
other payments, advances and transfers of funds from our
operating subsidiary and investments to meet our debt service
and other obligations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a holding company and conduct all of our operations
through National Waterworks, our operating subsidiary. We
currently have no significant assets other than the equity
interests in National Waterworks. As a result, we will rely on
dividends and other payments or distributions from National
Waterworks and any future operating subsidiaries to pay
dividends with respect to our common stock and to meet our debt
service obligations generally. The ability of National
Waterworks to pay dividends or make other payments or
distributions to us will depend on its operating results and may
be restricted by, among other things, its debt and other
agreements, the terms of our credit facility, and the covenants
of any future outstanding indebtedness we or our subsidiaries
incur.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks has no obligation, contingent or otherwise,
to make funds available to us, whether in the form of loans,
dividends or other distributions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Accordingly, our ability to pay dividends with respect to shares
of our common stock and to repay our credit facility at maturity
or otherwise may be dependent upon factors beyond our control.
Subject to limitations in our credit facility, our subsidiaries
may also enter into agreements that contain covenants
prohibiting them from distributing or advancing funds or
transferring assets to us under certain circumstances, including
to pay dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our credit facility will contain covenants that will limit
our business flexibility by imposing operating and financial
restrictions on our operations.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Covenants in our credit facility will impose significant
operating and financial restrictions on us. These restrictions
will prohibit or limit, among other things:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the incurrence of additional indebtedness and the issuance by
    our subsidiaries of preferred stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the payment of dividends on, and purchases or redemptions of,
    capital stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a number of other restricted payments, including investments;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the creation of liens;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability of our subsidiaries to guarantee our and their
    indebtedness;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    specified sales of assets;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the creation of encumbrances or restrictions on the ability of
    our subsidiaries to distribute and advance funds or transfer
    assets to us or any other subsidiary;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    specified transactions with affiliates;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    sale and leaseback transactions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    certain consolidations, mergers and sales and transfers of
    assets by or involving us.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our credit facility will also contain covenants that will
require us to maintain specified financial ratios and satisfy
financial condition tests, including, without limitation, a
maximum total leverage ratio and a minimum interest coverage
ratio.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our ability to comply with the covenants, ratios or tests
contained in our credit facility, or in the agreements governing
our future indebtedness, may be affected by events beyond our
control, including prevailing economic, financial and industry
conditions. A breach of any of these covenants, ratios or tests
could result in a default under such agreements. Certain events
of default under our credit facility would prohibit us from
making dividend payments on our common stock. In addition, upon
the occurrence of an event of default under such agreements, the
lenders under such agreements could elect to declare all amounts
outstanding under such agreements, together with accrued
interest, to be immediately due and payable. If we were unable
to repay those amounts, the lenders could proceed against the
security granted to them to secure that indebtedness. If the
lenders accelerate the payment of the indebtedness under our
</DIV>

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<DIV align="left" style="font-size: 10pt;">
credit facility, our assets may not be sufficient to repay in
full the indebtedness under our credit facility and our other
indebtedness, if any.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our common stock price may be volatile.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest will lead to the development of an active and liquid
trading market in our common stock. The initial public offering
price for our shares of common stock will be determined by
negotiations among us, the selling stockholders and the
representatives of the underwriters and may not be indicative of
the market price of the common stock that will prevail in the
trading market. The market price of the common stock may decline
below the initial public offering price. Some companies that
have had volatile market prices for their securities have had
securities class action suits filed against them. If a suit were
to be filed against us, regardless of the outcome, it could
result in substantial costs and a diversion of management&#146;s
attention and resources. This could have a material adverse
effect on our business, financial condition and results of
operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our common stock price may fluctuate in response to a number of
events, including:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    our quarterly operating results and our continued ability to pay
    dividends;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    future announcements concerning our business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in financial estimates and recommendations by securities
    analysts;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    actions of competitors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    market and industry perception of our success, or lack thereof,
    in pursuing our strategy;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    changes in government and environmental regulation;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    general market, economic and political conditions;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    natural disasters, terrorist attacks and acts of war.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Future sales or the possibility of future sales of a
substantial amount of our common stock may depress the price of
shares of our common stock and could impair our ability to raise
capital through future sales of equity securities.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon consummation of this offering, there will
be &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock outstanding. All shares of common stock sold
in this offering will be freely transferable without restriction
or further registration under the Securities Act. The remaining
shares of common stock outstanding, including the shares owned
by our Sponsors, will be restricted securities within the
meaning of Rule&nbsp;144 under the Securities Act, but will be
eligible for resale subject to applicable volume, manner of
sale, holding period and other limitations of Rule&nbsp;144. We
and the selling stockholders have agreed to a
&#147;lock-up,&#148; pursuant to which neither we nor they will
sell any shares without the prior consent
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;days
after the date of this prospectus. Following the expiration of
the applicable lock-up period, all these shares of our common
stock will be eligible for future sale, subject to the
applicable volume, manner of sale, holding period and other
limitations of Rule&nbsp;144. See &#147;Shares Eligible for
Future Sale&#148; for a discussion of the shares of common stock
that may be sold into the public market in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We may issue shares of our common stock or other securities from
time to time as consideration for future acquisitions and
investments. If any such acquisition or investment is
significant, the number of shares of our common stock, or the
number or aggregate principal amount, as the case may be, of
other securities that we may issue may in turn be substantial.
We may also grant registration rights covering those shares of
our common stock or other securities in connection with any such
acquisitions and investments.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Sponsors control us and their interests may conflict with
or differ from your interests as a stockholder. Our Sponsors, as
the principal selling stockholders, will realize substantial
benefits from the sale of shares in this offering.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After the consummation of this offering, our Sponsors will
beneficially own approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our common stock, assuming the underwriters do not exercise
their option to purchase additional shares. If the
</DIV>

<P align="center" style="font-size: 10pt;">21

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<DIV align="left" style="font-size: 10pt;">
underwriters exercise in full their option to purchase
additional shares, our Sponsors will beneficially own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of our common
stock. In addition, representatives of our Sponsors will
occupy &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;of
the &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;seats
on our board of directors. As a result, our Sponsors will have
the ability to prevent any transaction that requires the
approval of our board of directors and will have the ability to
influence all matters requiring stockholder approval, including
the election of our directors and the approval of significant
corporate transactions such as mergers, tender offers and the
sale of substantially all of our assets. The interests of our
Sponsors and their affiliates could conflict with or differ from
your interests as a holder of our common stock. For example, the
concentration of ownership held by our Sponsors could delay,
defer or prevent a change of control of our company or impede a
merger, takeover or other business combination which you as a
stockholder, may otherwise view favorably. Our Sponsors may also
pursue acquisition opportunities that may be complementary to
our business, and as a result, those acquisition opportunities
may not be available to us. Further, our Sponsors will realize
substantial benefits from the sale of their shares in this
offering. A sale of a substantial number of shares of stock in
the future by funds affiliated with our Sponsors could cause our
stock price to decline in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our organizational documents may impede or discourage a
takeover, which could deprive our investors of the opportunity
to receive a premium for their shares.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions of our amended and restated certificate of
incorporation and amended and restated by-laws may make it more
difficult for, or prevent a third party from, acquiring control
of us without the approval of our board of directors. These
provisions include the ability of our board of directors to
designate one or more series of preferred stock and issue shares
of preferred stock without stockholder approval; the general
inability of stockholders to act by written consent; and advance
notice requirements for nominating directors or introducing
other business to be conducted at stockholder meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The foregoing factors could impede a merger, takeover or other
business combination or discourage a potential investor from
making a tender offer for our common stock, which, under certain
circumstances, could reduce the market value of our common
stock. Such provisions also may have the effect of preventing
changes in our management. See &#147;Description of Capital
Stock.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>You will suffer an immediate and substantial dilution in the
net tangible book value of the common stock you purchase.</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Some prior investors have paid substantially less per share than
the price in this offering. The initial offering price is
expected to be substantially higher than the net tangible book
value per share of the outstanding common stock immediately
after this offering. Accordingly, based on an assumed initial
public offering price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share (the midpoint of the range set forth on the cover page of
this prospectus), purchasers of common stock in this offering
will experience immediate and substantial dilution of
approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share in net tangible book value of the common stock. See
&#147;Dilution.&#148;
</DIV>

<P align="center" style="font-size: 10pt;">22
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<DIV align="left" style="font-size: 10pt;">
<A name='104'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Use of Proceeds</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The table below sets forth an estimate of the funds required to
effect the Transactions and our uses of such funds. We expect to
receive
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of gross proceeds from the sale of our common stock. The
estimated sources and uses are based on an assumed offering
price of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock, which represents the mid-point of the
range set forth on the cover page of this prospectus. This table
assumes that we repurchase all outstanding 10.50%&nbsp;Notes in
the Tender Offer and all outstanding 12.50% Notes. Actual
amounts may vary from the amounts shown below.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="83%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Sources:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock offered hereby</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total sources of funds</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Uses:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repay existing credit facility(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repurchase&nbsp;10.50%&nbsp;Notes(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Repurchase 12.50%&nbsp;Notes(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fees and expenses(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total uses of funds</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    All revolving loans under our existing credit facility mature on
    November&nbsp;22, 2008 and bear interest in the manner described
    under &#147;Description of Certain Indebtedness&nbsp;&#151; Our
    Existing Credit Facility.&#148; A portion of the proceeds used
    to repay indebtedness under our existing credit facility will be
    paid to affiliates of certain of the underwriters.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The 10.50%&nbsp;Notes mature on November&nbsp;22, 2012.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    The 12.50%&nbsp;Notes mature on January&nbsp;1, 2014. A portion
    of the proceeds used to repurchase the 12.50% Notes will be paid
    to affiliates of one of the underwriters.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Includes tender premium, redemption premium, underwriting
    discount, arrangement fees payable to the providers of our
    credit facility, as well as payments to our Sponsors and
    $&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
    in other fees and expenses.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We will not receive any proceeds for the sale of our common
stock by the selling stockholders, including if the underwriters
exercise the option to purchase additional shares. In the
aggregate, the selling stockholders and their affiliates will
receive approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of the net proceeds of this offering, or approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
if the underwriters&#146; option to purchase additional shares
is exercised in full.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
JPMP, one of the selling stockholders, may be deemed to be an
affiliate of one of the underwriters. In addition, in connection
with the Transactions, we will pay approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
of which may include proceeds from this offering, to affiliates
of the underwriters in connection with the Tender Offer for the
outstanding 10.50%&nbsp;Notes and the repurchase of the
12.50%&nbsp;Notes. Such amount may include a tender or
redemption premium. See &#147;Underwriting.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='122'></A>
</DIV>

<!-- link1 "Dividend Policy" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dividend Policy</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We currently expect to pay dividends quarterly at an initial
annual level of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share. However, there can be no assurance that we will declare
or pay any dividends. The declaration and payment of future
dividends to holders of our common stock will be at the
discretion of our board of directors and will depend upon many
factors, including our financial condition, earnings, legal
requirements, restrictions in our credit facility and other
factors our board of directors deem relevant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December&nbsp;2003, March&nbsp;2004 and May&nbsp;2004, we
paid dividends in respect of our outstanding shares of
Class&nbsp;B common stock of $39.3 million, $6.1&nbsp;million
and $4.8&nbsp;million, respectively. In October&nbsp;2004, we
paid a dividend of $6.8&nbsp;million in respect of our
outstanding shares of Class&nbsp;A common stock and a dividend
of $253.2&nbsp;million in respect of our outstanding shares of
Class&nbsp;B common stock.
</DIV>

<P align="center" style="font-size: 10pt;">23
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='105'></A>
</DIV>

<!-- link1 "Capitalization" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Capitalization</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth our cash and cash equivalents and
capitalization as of December&nbsp;31, 2004 (i)&nbsp;on an
actual basis and (ii)&nbsp;on an as adjusted basis to give
effect to the Transactions. The information should be read in
conjunction with &#147;Use of Proceeds,&#148; &#147;Selected
Financial Data&#148; and the consolidated historical financial
statements and the accompanying notes thereto included elsewhere
in this prospectus.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="69%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>As of December&nbsp;31,</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap><B>2004</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Actual</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>As Adjusted</B></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>(dollars in millions, except share information)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18.9</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Debt:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>210.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amended/new credit facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12.50%&nbsp;Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.50%&nbsp;Notes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660.0</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; equity (deficit):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock, par value $0.01&nbsp;per
    share; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    authorized; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    issued and outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23.2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23.2</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total capitalization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>636.8</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">24
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='106'></A>
</DIV>

<!-- link1 "Dilution" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Dilution</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dilution is the amount by which:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the portion of the offering price paid by the purchasers of our
    common stock in this offering, exceeds</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the net tangible book value or deficiency per share of our
    common stock after the offering.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net tangible book value or deficiency per share of our common
stock is determined at any date by subtracting our total
liabilities from our total tangible assets and dividing the
difference by the number of shares of common stock deemed to be
outstanding at that date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our net tangible book deficiency as of December&nbsp;31, 2004
was approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million,
or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. After giving effect to our receipt and
intended use of approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering and borrowings we
expect to receive under our new credit facility, and assuming
that all of the outstanding 10.50%&nbsp;Notes are tendered
pursuant to the tender offer for such notes and we repurchase
all of the 12.50%&nbsp;Notes, our pro forma as adjusted net
tangible book deficiency as of December&nbsp;31, 2004 would have
been approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;million
(after adjustment), or
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of common stock. This amount represents an immediate
increase in net tangible book value of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to existing stockholders and an
immediate dilution of
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share of our common stock to new investors purchasing our common
stock in this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table illustrates this substantial and immediate
dilution to new investors:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Initial public offering price per share of our common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net tangible book value (deficiency) per share as of
    December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase per share attributable to cash payments made by
    investors in the offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pro forma as adjusted net tangible book value
    (deficiency)&nbsp;after this offering</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilution in net tangible book value per share to new investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth on a pro forma basis as of
December&nbsp;31, 2004, assuming no exercise of the
underwriters&#146; option to purchase additional shares:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total number of shares of our common stock owned by our
    existing equity investors and our officers and the total number
    of shares of our common stock to be owned by the new investors
    purchasing our common stock in this offering, as represented by
    our common stock to be sold in this offering;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the total consideration paid by such equity investors and such
    officers and to be paid by the new investors purchasing our
    common stock in this offering;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the average price per share of existing common stock by such
    existing equity investors and such officers and the average
    price per share of our common stock to be paid by new investors
    purchasing our common stock in this offering:</TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="32%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Common Stock</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Average Price</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Purchased</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Total Consideration</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Per Share of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Common</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Percent</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stock</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Existing equity investors and officers</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    New investors</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">25
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
<A name='107'></A>
</DIV>

<!-- link1 "Selected Financial Data" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Selected Financial Data</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth selected historical financial and
other operating data of:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    U.S.&nbsp;Filter Distribution Group, Inc. as of and for the
    years ended December&nbsp;31, 2000 and 2001, as of
    November&nbsp;21, 2002, and for the period from January&nbsp;1,
    2002 to November&nbsp;21, 2002. Information for the period from
    January&nbsp;1, 2002 to November&nbsp;21, 2002 was derived from
    U.S.&nbsp;Filter&#146;s audited financial statements appearing
    elsewhere in this prospectus. Information as of and for the
    years ended December&nbsp;31, 2000 and 2001 and as of
    November&nbsp;21, 2002 was derived from U.S.&nbsp;Filter&#146;s
    consolidated financial statements that are not included
    herein;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    National Waterworks Holdings, Inc. for the period from
    November&nbsp;22, 2002 to December&nbsp;31, 2002, and as of and
    for the years ended December&nbsp;31, 2003 and 2004. Such
    information was derived from the audited consolidated financial
    statements of National Waterworks Holdings, Inc. appearing
    elsewhere in this prospectus. Information as of
    December&nbsp;31, 2002 was derived from the consolidated
    financial statements of National Waterworks Holdings, Inc. that
    are not included herein.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The information set forth below should be read in conjunction
with the information under &#147;Management&#146;s Discussion
and Analysis of Financial Condition and Results of
Operations&#148; and our consolidated historical financial
statements and the accompanying notes thereto included elsewhere
in this prospectus.
</DIV>

<P align="center" style="font-size: 10pt;">26
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="23%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Predecessor&nbsp;&#151; U.S.&nbsp;Filter Distribution</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Group, Inc. and Subsidiary</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Successor&nbsp;&#151; National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1 to</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22 to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="3" align="left" nowrap><B>(dollars in thousands)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2000</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2001</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statements of operations data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,173,323</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,120,330</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,058,768</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,281,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,522,070</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of goods sold(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>936,502</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>880,569</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>831,764</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,013,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,212,582</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>236,821</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>239,761</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>227,004</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,245</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>309,488</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>151,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>152,470</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,825</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,737</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>186,466</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on accounts receivable securitization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>536</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,480</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>85,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,755</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,699</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,492</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,022</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,625</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,594</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,131</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,371</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,161</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,568</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,744</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,651</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Completion bonuses(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,200</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(86</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(79</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,333</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,706</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>178</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes and cumulative effect of a
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58,074</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,391</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,582</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,300</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,237</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>31,924</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before cumulative effect of a change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,153</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of a change in accounting principle(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(459,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>25,563</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,150</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss) per share:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average shares outstanding:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Other operating data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>83,728</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,399</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,240</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,044</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,445</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,595</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(265</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,163</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(643,855</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,443</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,780</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(81,625</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(205,099</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44,061</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644,699</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53,755</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(56,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital expenditures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,273</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,415</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,442</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(102</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,022</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,424</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Balance sheet data (at period end):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,438,949</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,462,116</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,100,948</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>812,817</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>802,957</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>883,149</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>852</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>631</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>440,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholder&#146;s equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,305,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,330,224</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>937,469</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    In connection with the Acquisition, we recorded a
    $13.0&nbsp;million inventory revaluation adjustment pursuant to
    Statement of Financial Accounting Standards No.&nbsp;141,
    <I>Business Combinations.</I> Of this amount, $9.0&nbsp;million
    was recognized in cost of goods sold for the period
    November&nbsp;22, 2002 to December&nbsp;31, 2002. The remaining
    $4.0&nbsp;million was recognized in cost of goods sold during
    the quarter ended March&nbsp;28, 2003.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">27
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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Reflects completion bonuses paid by United States Filter
    Corporation to certain members of management and other key
    employees of U.S.&nbsp;Filter upon consummation of the
    Acquisition.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Reflects an impairment charge taken by U.S.&nbsp;Filter
    Corporation prior to the Acquisition relating to the adoption of
    Statement of Financial Accounting Standard No.&nbsp;142,
    <I>Goodwill and Other Intangible Assets.</I> See Note&nbsp;4 to
    the audited consolidated financial statements included elsewhere
    in this report.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">28

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<DIV align="left" style="font-size: 10pt;">
<A name='108'></A>
</DIV>

<!-- link1 "Management&#146;s Discussion and Analysis of Financial Condition and Results of Operations" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Management&#146;s Discussion and Analysis of</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Financial Condition and Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You should read the following discussion with our consolidated
historical financial statements and the accompanying notes
thereto included elsewhere in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading distributor of water and wastewater
transmission products in the United States. We began operations
in 1996 when United States Filter Corporation acquired Davis
Water&nbsp;&#38; Waste Industries, Inc. (which changed its name
to U.S.&nbsp;Filter Distribution Group, Inc.
(&#147;U.S.&nbsp;Filter&#148;)) with the goal of creating the
first nationwide waterworks products distribution network.
Through the acquisition and combination of four additional
large-scale regional waterworks products distributors in 1996
and 1997, we became a major participant in the sector. We have
continued to increase our revenues through organic growth, new
branch openings and selected strategic acquisitions. In
November&nbsp;2002, we purchased substantially all of the assets
and businesses of, and assumed certain liabilities and
obligations of, U.S.&nbsp;Filter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We generate revenue by distributing a full line of products
including pipe, fittings, valves, meters, fire hydrants, service
and repair products and other components that are used to
transport clean water and wastewater between reservoirs and
treatment plants and residential and commercial locations. We
face a variety of challenges and opportunities in responding to
the dynamics of the water and wastewater transmission industry,
characterized by evolving customer needs and intense
competition. Our products are integral to building, repairing
and maintaining water and wastewater (sewer)&nbsp;systems and
serve as part of the basic municipal infrastructure required to
support population and economic growth and residential and
commercial construction. Through our network of 135 branches in
36&nbsp;states, we sell to municipalities and to contractors who
serve municipalities and also perform residential, commercial
and industrial waterworks projects. In addition to significant
customer and geographic diversification, our 2004&nbsp;net sales
were split approximately evenly between publicly-funded and
privately-funded sales. The following table sets forth our net
sales by product category as a percentage of 2004&nbsp;net sales:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 9pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="88%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pipe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>44%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fittings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Meters</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fire hydrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service and repair products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our strategy revolves around expanding and strengthening our
market presence while focusing on customer service.
Additionally, we partner with preferred vendors, manage working
capital and work toward improved profitability to improve our
overall financial strength. Our financial strength and ability
to adapt to current economic conditions is dependent in part on
our generation of cash flow, effective working capital
management and growth in our business. Additionally, we attempt
to mitigate the effect of economic conditions through a highly
variable cost structure and low capital spending requirements.
We generate cash primarily from our operations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, our cash and cash equivalents increased
$0.2&nbsp;million. This change resulted primarily from the
generation of $59.4&nbsp;million in cash flow from operating
activities and $250.0&nbsp;million of proceeds from long-term
debt, offset by $270.9&nbsp;million of dividend payments,
$30.0&nbsp;million of principal payments on our long-term
borrowings, $5.6&nbsp;million of financing fees,
$2.0&nbsp;million of acquisition costs related to the purchase
of Midstate Utility Supply, Inc. and $0.8&nbsp;million of net
capital expenditures.
</DIV>

<P align="center" style="font-size: 10pt;">29

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Factors Affecting Our Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>PVC Pipe Pricing.</I> The price of PVC pipe is volatile due
to supply and demand dynamics in the PVC pipe and PVC resin
markets. Volatility in these markets can cause fluctuations in
our revenues and related gross profit dollars. PVC pipe products
accounted for approximately 22% and 21% of our net sales for the
years ended December&nbsp;31, 2004 and 2003, respectively. Our
purchase price of PVC pipe averaged $0.54, $0.41 and
$0.36&nbsp;per pound for the years ended December&nbsp;31, 2004,
2003 and 2002 (combined), respectively, with our 2004 PVC
purchase price ranging from a quarterly average of $0.46 to
$0.58&nbsp;per pound. In periods of higher PVC pipe pricing,
assuming constant sales volumes, our net sales of PVC pipe would
be higher as the same volume of pipe sales generates higher
revenue. Conversely, in periods of lower PVC pipe prices,
assuming constant sales volumes, our net sales of PVC pipe would
be lower as the same volume of PVC pipe sales generates lower
revenue. We may also experience a decline in the volume of PVC
pipe sales, with an offsetting increase in the volume of ductile
iron pipe sales, in periods of higher PVC pipe pricing and
stable ductile iron pipe pricing, as our customers can
substitute ductile iron pipe for PVC pipe in certain
applications. PVC pipe accounts for approximately one-half of
our pipe sales. As a result of this interchangeability, pricing
of ductile iron pipe tends to move in the same direction as the
pricing of PVC pipe but in a less volatile fashion.
Consequently, we can experience a change in product mix between
PVC pipe and ductile iron pipe as the prices of these products
fluctuate. The impact of PVC pipe pricing also impacts our gross
profit dollars. Historically, excluding competitive forces, we
generally have been able to maintain our gross profit percentage
on a given volume of PVC pipe sales, even when PVC pipe prices
have fluctuated, as we have been able to pass through a majority
of the increase or decrease in PVC pipe prices to our customers.
Further, the impact of PVC price changes is minimized because we
sell more than half of our PVC pipe utilizing direct shipments
from suppliers and target and achieve high turnover for PVC pipe
sales out of our inventory.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Demand Fluctuations.</I> Our sales are also affected by
regional and local changes in commercial and residential
construction activity and the level of municipal waterworks
spending. The level of activity in the commercial construction
market depends on the general economic outlook, corporate
profitability, interest rates and existing plant capacity
utilization. The level of activity in the residential
construction market depends on new housing starts, which are
influenced by interest rates, availability of financing, housing
affordability, unemployment rates, demographic trends, gross
domestic product and consumer confidence. Changing economic
conditions in our markets could affect the level of construction
activity and, consequently, our net sales. In addition, water
and wastewater transmission products sales are subject to the
level of waterworks spending by municipalities. We believe
municipal spending is a function of the amount of repair and
improvements required for existing systems, which are functions
of the age of the infrastructure, weather and
construction-related damage, the level of maintenance spending,
the water infrastructure needs of the municipality relative to
other spending needs and the availability of municipal, state or
federal funds for waterworks projects.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Seasonality.</I> Given the seasonal nature of construction
activity in many regions of the United States, our results of
operations and working capital, including our accounts
receivable, inventory and accounts payable, fluctuate during the
year. We believe that our significant operations in more mild
southern climates moderate the impact of our seasonality.
Historically, consistent with annual construction seasonality,
our net sales are typically higher during our second and third
quarters as compared to the first and fourth quarters. In
addition, we typically generate cash from a reduction in net
working capital in the fourth quarter of each year and utilize
cash from operations to fund increases in net working capital in
the first and second quarter of each year.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Other important factors that could affect our results of
operations are set forth in &#147;Risk Factors.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Critical Accounting Policies and Estimates</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This discussion and analysis of financial condition and results
of operations is based upon our consolidated financial
statements, which have been prepared in accordance with GAAP.
The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and
</DIV>

<P align="center" style="font-size: 10pt;">30
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<DIV align="left" style="font-size: 10pt;">
liabilities. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Our senior management team has discussed the development,
selection and disclosure of these estimates with the Audit
Committee of our board of directors. Actual results may differ
from these estimates under different assumptions or conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We deem an accounting policy to be critical if it requires an
accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is
made and if different estimates that reasonably could have been
used or changes in the accounting estimates that are reasonably
likely to occur periodically could materially impact the
consolidated financial statements. We believe the following
critical accounting policies reflect the more significant
estimates and assumptions used in the preparation of the
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Allowance for Doubtful Accounts.</I> Since the beginning of
2002, on average, our bad debt expense has been only 0.08% of
net sales. We evaluate the collectibility of accounts receivable
based on historical trends, customer transaction history,
accounts receivable aging and an evaluation of customer
creditworthiness. Initially, a monthly provision is made based
on historical experience. We perform a detailed quarterly
analysis of accounts receivable and adjust the allowance for
doubtful accounts when necessary. While we have a large customer
base that is geographically diverse, an economic slowdown in the
markets in which we operate may result in higher uncollected
accounts receivable and therefore the need to revise estimates
for bad debts. To the extent actual credit experience or other
assumptions used by management change, the allowance for
doubtful accounts would be adjusted, which could affect our
operating results.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Inventories.</I> Since the beginning of 2002, our slow moving
inventory has averaged less than 2% of our total inventory. We
periodically evaluate our inventories to ensure they are
recorded at the lower of cost or market value. The carrying
value of our inventory is adjusted monthly based on a review of
slow moving inventories, as well as other factors such as
adjustments from physical inventory counts. Significant unusual
events are accounted for as a reduction of the carrying value of
our inventory when appropriate. To the extent future events
impact the salability of our products, additional adjustments to
the carrying value of our inventory may be required.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Goodwill and Long-Lived Assets.</I> We review the carrying
value of our goodwill for impairment at least annually by
comparing the estimated fair value of each of our six reporting
units to its carrying value. If the carrying value of a
reporting unit exceeds its estimated fair value, an indication
exists that goodwill is impaired, and we must perform additional
analysis to determine the extent of any impairment. Any such
impairment would be reflected as a charge in the statement of
operations at that time. Long-lived assets, including property
and equipment, are reviewed for possible impairment whenever
events or other changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An
impairment loss is recognized when the carrying amount of a
long-lived asset exceeds the sum of the undiscounted cash flows
expected to result from the asset&#146;s use and eventual
disposition. An impairment loss is measured as the amount by
which the carrying amount of the asset exceeds the fair value of
the asset.
</DIV>

<P align="center" style="font-size: 10pt;">31

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Results of Operations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the percentage relationship that
certain items from our consolidated financial statements bear in
relation to net sales:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="38%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor &#151;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S.&nbsp;Filter</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Successor&nbsp;&#151;</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc.</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January 1 to</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November 22</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>to December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Statements of operations data:</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of goods sold</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>78.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>87.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79.7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20.9</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on accounts receivable securitization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2.6</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.8</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.7</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2.9</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>8.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Completion bonuses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(0.6</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7.2</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3.2</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2.7</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes and cumulative effect of a
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10.1</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.4</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.8</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3.9</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.8</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.2</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before cumulative effect of a change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.3</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6.2</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of a change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(43.3</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.0</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39.0</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6.2</TD>
    <TD align="left" valign="bottom" nowrap>)%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2.6</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3.1</TD>
    <TD align="left" valign="bottom" nowrap>%</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussions regarding the year ended
December&nbsp;31, 2002 are based on the combined results of
operations of U.S.&nbsp;Filter for the period from
January&nbsp;1, 2002 to November&nbsp;21, 2002 and of National
Waterworks for the period from November&nbsp;22, 2002 to
December&nbsp;31, 2002. The Acquisition was accounted for as a
purchase in accordance with Statement of Financial Accounting
Standards No.&nbsp;141, <I>Business Combinations</I>, and the
excess of the purchase consideration over the historical basis
of the net assets acquired has been applied to revalue the
assets acquired and liabilities assumed to their fair values at
November&nbsp;22, 2002, the date of the Acquisition. Upon
completion of the Acquisition, we recorded goodwill of
$465.7&nbsp;million, which was reduced by $9.6&nbsp;million
during 2003 as a result of post-closing purchase price
adjustments. The combined 2002 results discussed below are not
necessarily indicative of what the full year 2002 would have
been if the change in ownership resulting from the Acquisition
had not occurred.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Year Ended December&nbsp;31, 2004 Compared to Year Ended
    December&nbsp;31, 2003</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Sales.</I> Net sales for the year ended December&nbsp;31,
2004 increased $241.0&nbsp;million, or 18.8%, to
$1,522.1&nbsp;million from $1,281.1&nbsp;million for the year
ended December&nbsp;31, 2003. The increase reflects the combined
effects of a $10.5&nbsp;million increase in net sales from our
acquisition of Midstate Utility Supply,
</DIV>

<P align="center" style="font-size: 10pt;">32

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt;">
Inc., a regional waterworks distribution company operating in
Oklahoma, which we acquired on February&nbsp;9, 2004, and a
$230.5&nbsp;million increase in net sales of our historical
operations. A portion of the increase was attributable to a
$76.5&nbsp;million increase in net sales of PVC pipe, primarily
resulting from the pass through of higher PVC pipe prices in
2004 and, to a lesser extent, increased sales volume. The
remaining increase resulted primarily from the pass through of
price increases on most of our other major product lines and
increased volume due to continued favorable economic conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cost of Goods Sold.</I> Cost of goods sold, consisting
primarily of purchases of the products we distribute from our
suppliers, for the year ended December&nbsp;31, 2004 increased
$199.5&nbsp;million, or 19.7%, to $1,212.6&nbsp;million from
$1,013.1&nbsp;million for the year ended December&nbsp;31, 2003.
The increase reflects an increase in cost of goods sold of our
historical operations which was primarily attributable to the
increase in cost of goods sold of PVC pipe products of
$71.9&nbsp;million and increased pricing and volume in all other
product categories. Additionally the increase reflects the
effect of an $8.9&nbsp;million increase in cost of goods sold
associated with sales resulting from our acquisition of Midstate
Utility Supply, Inc. As a percentage of net sales, cost of goods
sold increased to 79.7% in 2004 compared to 79.1% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Gross Profit.</I> As a result of the foregoing, gross profit
for the year ended December&nbsp;31, 2004 increased
$41.5&nbsp;million, or 15.5%, to $309.5&nbsp;million from
$268.0&nbsp;million for the year ended December&nbsp;31, 2003.
Our gross profit margin decreased to 20.3% in 2004 compared to
20.9% in 2003 as a result of the foregoing factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Selling, General and Administrative.</I> Selling, general and
administrative expenses, consisting primarily of compensation
and benefits and facility costs, for the year ended
December&nbsp;31, 2004 increased $19.3&nbsp;million, or 11.5%,
to $186.5&nbsp;million from $167.2&nbsp;million for the year
ended December&nbsp;31, 2003. This increase is primarily related
to the sales volume increases discussed above and
$1.1&nbsp;million of additional expenses resulting from our
acquisition of Midstate Utility Supply, Inc. As a percentage of
net sales, selling, general and administrative expenses were
12.2% in 2004 compared to 13.1% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization expenses for the year ended December&nbsp;31, 2004
were $2.4&nbsp;million, compared to $2.6&nbsp;million for the
year ended December&nbsp;31, 2003. Depreciation includes
depreciation of property and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Operating Income.</I> As a result of the foregoing, operating
income for the year ended December&nbsp;31, 2004 increased
$22.4&nbsp;million, or 22.8%, to $120.7&nbsp;million from
$98.3&nbsp;million for the year ended December&nbsp;31, 2003. As
a percentage of net sales, operating income increased to 8.0% in
2004 compared to 7.6% in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Interest Expense, Net.</I> Interest expense, net for the year
ended December&nbsp;31, 2004, was $40.7&nbsp;million, compared
to $41.3&nbsp;million for the year ended December&nbsp;31, 2003.
The decrease resulted primarily from more favorable interest
rates on our term loan in 2004, as compared to 2003, additional
interest expense recorded in 2003 related to two amendments to
our senior credit facility and reductions in the principal
balance of our term loan throughout 2003 and 2004. These
decreases were partially offset by $5.6&nbsp;million of
additional interest expense on the 12.50%&nbsp;Senior Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Income Taxes.</I> Our effective income tax rate for the year
ended December&nbsp;31, 2004 was approximately 40.7% compared to
40.9% for the year ended December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Income (Loss).</I> As a result of the foregoing, net
income for the year ended December&nbsp;31, 2004 increased
$14.0&nbsp;million to $47.6&nbsp;million compared to
$33.6&nbsp;million for the year ended December&nbsp;31, 2003.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>Year Ended December&nbsp;31, 2003 Compared to Combined
    Year Ended December&nbsp;31, 2002</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Certain Financial Statement Impacts of the Acquisition.</I>
As more fully discussed below, the revaluation of the net assets
acquired in the Acquisition did not affect our net sales.
However, we recorded a $13.0&nbsp;million valuation increase in
inventory at November&nbsp;22, 2002 as a result of the asset
revaluation. While the increase in the value of our inventory
had no cash impact, it did increase our cost of goods sold,
adversely impacting our gross profit. We recognized
$9.0&nbsp;million of the impact of the inventory revaluation
during the period of November&nbsp;22, 2002 to December&nbsp;31,
2002. The final $4.0&nbsp;million of the inventory revaluation
was recognized in the first quarter of 2003.
</DIV>

<P align="center" style="font-size: 10pt;">33

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Sales.</I> Net sales for the year ended December&nbsp;31,
2003 increased $128.1&nbsp;million, or 11.1%, to
$1,281.1&nbsp;million from $1,153.0&nbsp;million for the year
ended December&nbsp;31, 2002. The increase reflects the combined
effects of a $6.0&nbsp;million increase in net sales from our
acquisition of Utility Piping Systems, Inc., a regional
waterworks distribution company operating in Pennsylvania, New
Jersey and Delaware, which we acquired on March&nbsp;29, 2002,
and a $122.1&nbsp;million increase in net sales of our
historical operations. A portion of the increase was
attributable to an increase in net sales of PVC pipe of
$29.3&nbsp;million primarily resulting from the pass through of
an approximate 13% increase in our purchase price of PVC pipe
products. The remaining increase in net sales of our historical
operations was attributable to increases recorded in all product
areas brought by continued favorable economic conditions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cost of Goods Sold.</I> Cost of goods sold for the year ended
December&nbsp;31, 2003 increased $99.3&nbsp;million, or 10.9%,
to $1,013.1&nbsp;million from $913.8&nbsp;million for the year
ended December&nbsp;31, 2002. The increase reflects an increase
in cost of goods sold of our historical operations which was
primarily attributable to the increase in cost of goods sold of
PVC pipe products of $27.6&nbsp;million and increased volume in
all other product categories. Additionally the increase reflects
the combined effects of a $4.8&nbsp;million increase in cost of
goods sold associated with sales resulting from our acquisition
of Utility Piping Systems, Inc. and the recognition of the final
$4.0&nbsp;million impact of the inventory revaluation discussed
above. As a percentage of net sales, cost of goods sold
decreased to 79.1% in 2003 compared to 79.3% in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Gross Profit.</I> As a result of the foregoing, gross profit
for the year ended December&nbsp;31, 2003 increased
$28.8&nbsp;million, or 12.0%, to $268.0&nbsp;million from
$239.2&nbsp;million for the year ended December&nbsp;31, 2002.
Gross profit increased as a result of our acquisition of Utility
Piping Systems, Inc. and increased volume in our historical
operations. The increase was partially offset by the adverse
impact of the inventory revaluation, representing 0.3% of net
sales, recognized during the 2003 period. Our gross profit
margin increased to 20.9% in 2003 compared to 20.7% in 2002 as a
result of the foregoing factors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Selling, General and Administrative.</I> Selling, general and
administrative expenses for the year ended December&nbsp;31,
2003 increased $12.6&nbsp;million, or 8.2%, to
$167.2&nbsp;million from $154.6&nbsp;million for the year ended
December&nbsp;31, 2002. This increase is primarily related to
the sales volume increases discussed above and $0.9&nbsp;million
of additional expenses resulting from our acquisition of Utility
Piping Systems, Inc. As a percentage of net sales, selling,
general and administrative expenses were 13.1% in 2003 compared
to 13.4% in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Loss on Accounts Receivable Securitization.</I> Loss on
accounts receivable securitization was $2.5&nbsp;million for the
year ended December&nbsp;31 2002. This loss reflects the sale of
a portion of our accounts receivable at a discount relating to
an accounts receivable securitization facility that we entered
into on December&nbsp;19, 2001. For more information, see
&#147;&#151;&nbsp;Liquidity and Capital Resources&#148; below.
Concurrent with the Acquisition, the facility was repaid and
terminated in November 2002. Accordingly, there was no related
activity in 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Depreciation and Amortization.</I> Depreciation and
amortization expenses for the year ended December&nbsp;31, 2003
were $2.6&nbsp;million, compared to $3.4&nbsp;million for the
year ended December&nbsp;31, 2002. Depreciation includes
depreciation of property and equipment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Operating Income.</I> As a result of the foregoing, operating
income for the year ended December&nbsp;31, 2003 increased
$19.5&nbsp;million, or 24.7%, to $98.3&nbsp;million from
$78.8&nbsp;million for the year ended December&nbsp;31, 2002. As
a percentage of net sales, operating income increased to 7.6% in
2003 from 6.8% in 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Completion Bonuses.</I> In connection with the Acquisition,
we recognized $6.2&nbsp;million in non-recurring compensation
expense in 2002 for payments made by U.S.&nbsp;Filter to certain
members of our management upon consummation of the Acquisition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Interest Expense, Net.</I> Interest expense, net for the year
ended December&nbsp;31, 2003, was $41.3&nbsp;million, compared
to $6.9&nbsp;million for the year ended December&nbsp;31, 2002.
The increase reflects interest related to the additional debt we
incurred on November&nbsp;22, 2002 to finance the Acquisition.
</DIV>

<P align="center" style="font-size: 10pt;">34

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Income Taxes.</I> Our effective income tax rate for the year
ended December&nbsp;31, 2003 was approximately 40.9% compared to
38.8% for the year ended December&nbsp;31, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Cumulative Effect of Change in Accounting Principle.</I> As a
result of the adoption of SFAS&nbsp;No.&nbsp;142 prior to the
consummation of the Acquisition, U.S.&nbsp;Filter completed an
assessment of whether its goodwill was impaired at
January&nbsp;1, 2002, the date of adoption of
SFAS&nbsp;No.&nbsp;142. As a result of this assessment,
U.S.&nbsp;Filter concluded that it was probable that the
goodwill then assigned to its reporting units was impaired based
in part upon the anticipated sale price of substantially all of
its assets and liabilities to National Waterworks. Accordingly,
2002 included a charge for the estimated goodwill impairment of
$459.0&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Net Income (Loss).</I> As a result of the foregoing, and
excluding the cumulative effect of a change in accounting
principle in 2002, net income decreased $6.7&nbsp;million to
$33.6&nbsp;million from $40.3&nbsp;million for the year ended
December&nbsp;31, 2003 and 2002, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Liquidity and Capital Resources</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net working capital is comprised of current assets, excluding
cash and cash equivalents, minus current liabilities. We had net
working capital of $123.7&nbsp;million at December&nbsp;31,
2004, compared to net working capital of $115.2&nbsp;million at
December&nbsp;31, 2003. The increase in net working capital is
primarily attributable to increased working capital requirements
from higher sales volume in the fourth quarter of 2004 compared
to 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash provided by operating activities for the years ended
December&nbsp;31, 2004, 2003 and 2002 (combined)&nbsp;was
$59.4&nbsp;million, $37.0&nbsp;million and $95.3&nbsp;million,
respectively. The change in net cash provided by operating
activities in 2004 compared to 2003 was primarily attributable
to a $14.0&nbsp;million increase in net income and a
$72.5&nbsp;million greater increase in trade accounts payable
and other accrued expenses in 2004 as compared to 2003,
partially offset by a $6.9&nbsp;million reduction of deferred
income taxes, a $23.8&nbsp;million greater increase in trade
accounts receivable in 2004 as compared to 2003 and a
$36.1&nbsp;million greater increase in inventory in 2004 as
compared to 2003. The change in net cash provided by operating
activities in 2003 compared to 2002 (combined)&nbsp;was
primarily attributable to an approximate $32.3&nbsp;million and
$33.8&nbsp;million greater decrease in cash flows from trade
accounts receivable and trade accounts payable and accrued
expenses, respectively. We recognized cash tax benefits of
$12.7&nbsp;million and $12.6&nbsp;million from the amortization
of goodwill in 2004 and 2003, respectively. See notes 3 and 4 to
our consolidated historical financial statements included
elsewhere in this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash used in investing activities for the years ended
December&nbsp;31, 2004, 2003 and 2002 (combined)&nbsp;was
$2.8&nbsp;million, $4.4&nbsp;million and $664.0&nbsp;million,
respectively. Net cash used in investing activities for the year
ended December&nbsp;31, 2004 included the $2.0&nbsp;million
acquisition of Midstate Utility Supply, Inc., $1.4&nbsp;million
of capital expenditures and $0.6&nbsp;million of proceeds from
sales of property and equipment. Net cash used in investing
activities for the year ended December&nbsp;31, 2003 included
the post-closing purchase price adjustment of $3.2&nbsp;million
paid to United States Filter Corporation related to the level of
our working capital at the time of closing of the Acquisition,
$2.0&nbsp;million of capital expenditures and $0.8&nbsp;million
of proceeds from sales of property and equipment. Net cash used
in investing activities for the year ended December&nbsp;31,
2002 (combined)&nbsp;included the cash purchase price of the
Acquisition of $643.8&nbsp;million, the $19.6&nbsp;million
acquisition of Utility Piping Systems, Inc., capital
expenditures of $1.5&nbsp;million and proceeds from sales of
property and equipment of $0.9&nbsp;million.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Net cash provided by (used in) financing activities for the
years ended December&nbsp;31, 2004, 2003 and 2002
(combined)&nbsp;was ($56.4)&nbsp;million, ($53.8)&nbsp;million
and $600.6&nbsp;million, respectively. Net cash used in
financing activities in 2004 reflects dividend distributions of
$270.9&nbsp;million, $15.0&nbsp;million in principal payments on
our term loan, a $15.0&nbsp;million optional prepayment of our
term loan and $5.6&nbsp;million of financing fees, partially
offset by $250.0&nbsp;million of proceeds from the issuance of
the 12.50%&nbsp;Notes. Net cash used in financing activities in
2003 reflects dividend distributions of $39.3&nbsp;million and
$10.0&nbsp;million in principal payments on the term loan. The
2003 period also reflects a $1.0&nbsp;million cash equity
investment by one of our directors who had not made an
investment in us at the time the Acquisition was consummated.
The net cash provided by financing activities for the year ended
December&nbsp;31, 2002
</DIV>

<P align="center" style="font-size: 10pt;">35

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<DIV align="left" style="font-size: 10pt;">
(combined), excluding the net proceeds of $644.7&nbsp;million
provided to fund the Acquisition, resulted in net cash used in
financing activities of $44.1&nbsp;million. The
$44.1&nbsp;million reflects the excess of funds transferred to
our former parent, United States Filter Corporation, through the
cash management program over investments by, and expenditures
funded by, United States Filter Corporation during the period
January&nbsp;1, 2002 to November&nbsp;21, 2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On October&nbsp;29, 2004, NWW Holdings issued
$250.0&nbsp;million of unsecured senior notes for the purpose of
returning capital to its existing equity holders. These notes,
which bear interest at 12.50%, mature January&nbsp;1, 2014 and
provide for quarterly interest payments with payment in kind
provisions, as defined in the underlying indenture, at NWW
Holdings&#146; option. In connection therewith, we executed a
third amendment to our senior credit facility on
October&nbsp;26, 2004. This amendment, among other things,
provides for reduced pricing on the term loan and increases the
amount of limited dividends and distributions National
Waterworks can pay to NWW Holdings. The reduced pricing included
a reduction in the applicable margin of the term loan with a
step-down provision upon our achieving certain financial ratios.
Based on the satisfaction of certain financial covenants and
ratios and other conditions, the aggregate amount of dividends
that National Waterworks can pay to NWW Holdings refreshed to an
aggregate of $125.0&nbsp;million on January&nbsp;1, 2005. The
$40.0&nbsp;million per-fiscal-year restriction, with the
provision that any amount not paid in the fiscal year for which
it is permitted may be carried over to any succeeding fiscal
year, remains unchanged. We intend to repurchase the
12.50%&nbsp;Notes in connection with the Transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our existing credit facility, as previously amended, consists of
a $250.0&nbsp;million term loan facility, of which
$210.0&nbsp;million was outstanding at December&nbsp;31, 2004,
and a $75.0&nbsp;million revolving credit facility. No amount
was outstanding under the revolving credit facility at
December&nbsp;31, 2004, but approximately $4.4&nbsp;million of
the availability under the revolving credit facility was used to
support outstanding letters of credit. The borrowings under the
revolving credit facility will be available until its maturity
to fund our working capital requirements, capital expenditures
and other general corporate needs. The revolving credit facility
will mature on November&nbsp;22, 2008 and will have no scheduled
amortization or commitment reductions. The term loan facility
will mature on November&nbsp;22, 2009 and has quarterly
scheduled amortization payments of $3.75&nbsp;million in 2004
and 2005, $5.0&nbsp;million in 2006 and $6.25&nbsp;million in
2007 and 2008, with the balance of the facility to be repaid
quarterly during 2009. In addition, we are required to make
annual mandatory prepayments of the term loan under the senior
credit facility in an amount equal to 75% of Excess Cash Flow,
as defined in our senior credit facility, and determined
generally as the amount by which our operating cash flow exceeds
the sum of our capital expenditures (including in respect of
permitted acquisitions), repayments of indebtedness and certain
other amounts, or 50% of Excess Cash Flow if our ratio of
consolidated total debt to consolidated EBITDA as of the last
day of the fiscal year is not greater than 4:0 to 1:0. The term
loan is also subject to mandatory prepayments in an amount equal
to (i)&nbsp;75% of the net proceeds from certain equity
issuances (or 50% if we meet the foregoing leverage ratio);
(ii)&nbsp;100% of the net cash proceeds of certain debt
issuances; and (iii)&nbsp;100% of the net cash proceeds of
certain asset sales or other dispositions of property, in each
case subject to certain exceptions. Borrowings under the term
loan portion and revolving credit facility bear interest at a
variable rate based on, at our option, the Eurodollar rate plus
an applicable margin, or a base rate plus a margin. The base
rate is the higher of the prime rate or the Federal funds rate
plus 0.5%. At December&nbsp;31, 2004 and 2003, the interest rate
on the term loan was 5.06% and 3.92%&nbsp;per annum,
respectively. Our senior credit facility permits us to issue up
to an additional $100.0&nbsp;million of credit facilities
without the consent of the lenders thereunder, so long as no
default or event of default under the senior credit facility has
occurred or would occur after giving effect to such issuance and
certain other conditions are satisfied, including pro forma
compliance with certain leverage ratios. We may purchase an
interest note cap in connection with the floating rate
borrowings under our credit facility or swap a portion of the
floating rate borrowings for fixed rate debt that, in either
case, will effectively limit the interest rate on such
borrowings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks&#146; $200.0&nbsp;million aggregate
principal amount of senior subordinated notes due 2012 bear
interest at 10.50%&nbsp;per annum, with interest due
semi-annually on June&nbsp;1 and December&nbsp;1 of each year.
We intend to commence a Tender Offer for all outstanding
10.50%&nbsp;Notes in connection with the Transactions.
</DIV>

<P align="center" style="font-size: 10pt;">36

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Contractual Obligations</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Contractual obligations at December&nbsp;31, 2004 are summarized
as follows (dollars in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>One to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Four to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>More than</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>One Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Three Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Five Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Five Years</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Term B Note(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>210,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>45,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>150,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    10.50%&nbsp;Notes(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    12.50%&nbsp;Notes(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating Leases</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,585</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,048</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,140</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Sponsor fees(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employment Agreements(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,180</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,090</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>709,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>28,298</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>63,890</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>158,350</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>458,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    In addition to the contractually scheduled principal payments
    shown above, we are required to make mandatory prepayments of
    excess cash flow at the end of every fiscal year. Interest on
    Term B notes is based, at our option, on current LIBOR rate plus
    2.50% or prime plus 1.50%. The interest rate at
    December&nbsp;31, 2004 was 5.06%</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    The 10.50%&nbsp;Notes mature on December&nbsp;1, 2012. However,
    we have the option to redeem the notes at the following
    redemption prices (expressed in percentages): 105.25% in 2007,
    103.50% in 2008, 101.75% in 2009 and 100% in 2010 and thereafter.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    The 12.50%&nbsp;Notes mature on January&nbsp;1, 2014. However,
    we have the option to redeem the notes at the following
    redemption prices (expressed in percentages): 105.00% in 2005,
    103.75% in 2006, 102.50% in 2007, 101.25% in 2008 and 100.00% in
    2010 and thereafter.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Beginning July&nbsp;1, 2004, we pay annual management fees of
    $1.0&nbsp;million to our sponsors. The management agreement
    continues until terminated by a sponsor in accordance with its
    terms. Upon termination under certain conditions, each sponsor
    will be entitled to receive a termination fee equal to the net
    present value of the fees that would have been paid to the
    sponsor for the 10-year period commencing on the date of
    termination. For the purpose of the above table, we have
    included 10&nbsp;years of management fees.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Obligations for employment agreements with certain executive
    officers are based on each officer&#146;s base salary plus
    guaranteed 10&nbsp;percent bonus for the remaining life of each
    applicable employment agreement.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Contractual obligations at December&nbsp;31, 2004 after giving
effect to the Transactions are summarized as follows (dollars in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Less than</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>One to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Four to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>More than</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>One Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Three Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Five Years</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Five Years</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Credit Facility</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employment Agreements(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Obligations for employment agreements with certain executive
    officers are based on each officer&#146;s base salary plus
    guaranteed 10&nbsp;percent bonus for the remaining life of each
    applicable employment agreement.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Holding Company</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As a holding company, our investment in National Waterworks
constitutes substantially all of our operating assets.
Consequently, National Waterworks conducts all of our
consolidated operations and owns substantially all of our
operating assets. Our principal source of the cash required to
pay our and National
</DIV>

<P align="center" style="font-size: 10pt;">37
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<DIV align="left" style="font-size: 10pt;">
Waterworks&#146; obligations is the cash that National
Waterworks generates from its operations. National Waterworks is
a separate and distinct legal entity and has no obligations to
make funds available to us. The terms of the credit facility
restrict National Waterworks from paying dividends, making loans
or other distributions and otherwise transferring assets to us.
Furthermore, National Waterworks is permitted under the terms of
the credit facility to incur additional indebtedness that may
severely restrict or prohibit the making of distributions, the
payment of dividends or the making of loans by it to us. The
agreements governing our current and future indebtedness may not
permit National Waterworks to provide us with sufficient
dividends, distributions or loans to fund scheduled interest and
principal payments on our indebtedness when due. If we
consummate an acquisition, our debt service requirements could
increase. We may need to refinance all or a portion of our
indebtedness, on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Recent Accounting Pronouncements</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2002, the EITF reached consensus on
Issue&nbsp;02-16, <I>Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor</I>.
The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the
prices of the vendor&#146;s products or services and should be
treated as a reduction of cost of sales when recognized in the
customer&#146;s income statement. This presumption can be
overcome if the consideration can be shown to represent either a
payment for assets or services delivered to the vendor or a
reimbursement of costs incurred by the reseller to sell the
vendor&#146;s products. It also reached consensus on when a
customer should recognize a rebate or refund that is payable
only if the customer completes a specified level of purchases.
Recognition should occur when the rebate or refund is probable
and reasonably estimable and should be based on a systematic and
rational method. We have historically accounted for such
consideration as a reduction of cost of goods sold when the
vendor rebate is probable and reasonably estimable and based on
a systematic and rational allocation of the cash consideration
to be received. We estimated the adoption of this EITF increased
net income by $1.4&nbsp;million for the year ended
December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2004, the FASB issued SFAS&nbsp;No.&nbsp;151,
<I>Inventory Costs&nbsp;&#151; An amendment of ARB No.&nbsp;43,
Chapter&nbsp;4</I>. SFAS&nbsp;No.&nbsp;151 clarifies that
abnormal amounts of idle facility expense, freight, handling
costs and spoilage should be expensed as incurred and not
included in overhead. Further, SFAS&nbsp;No.&nbsp;151 requires
that allocation of fixed production overheads to conversion
costs should be based on normal capacity of the production
facilities. The provisions of SFAS&nbsp;No.&nbsp;151 are
effective for inventory costs incurred during fiscal years
beginning after June&nbsp;15, 2005. We plan to adopt
SFAS&nbsp;No.&nbsp;151 on January&nbsp;1, 2006. The adoption of
SFAS&nbsp;No.&nbsp;151 is not expected to have a significant
impact on our consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued SFAS&nbsp;No.&nbsp;153,
<I>Exchanges of Nonmonetary Assets&nbsp;&#151; An Amendment of
APB Opinion No.&nbsp;29</I>. The amendments made by
SFAS&nbsp;No.&nbsp;153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have &#147;commercial
substance.&#148; Previously, Opinion No.&nbsp;29 required that
the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same
or similar productive asset should be based on the recorded
amount of the asset relinquished. The provisions of
SFAS&nbsp;No.&nbsp;153 are effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June&nbsp;15, 2005. We plan to adopt SFAS&nbsp;No.&nbsp;153 on
July&nbsp;1, 2005. The adoption of SFAS&nbsp;No.&nbsp;153 is not
expected to have a significant impact on our consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2004, the FASB issued SFAS&nbsp;No.&nbsp;123
(Revised 2004), <I>Share-Based Payment: an Amendment of FASB
Statements No.&nbsp;123 and 95 </I>(SFAS&nbsp;No.&nbsp;123R).
SFAS&nbsp;No.&nbsp;123R requires the recognition in the income
statement of the grant-date fair value of stock options and
other equity-based compensation issued to employees.
SFAS&nbsp;No.&nbsp;123R is effective for most public
companies&#146; interim or annual periods beginning after
June&nbsp;15, 2005. We plan to adopt SFAS&nbsp;No.&nbsp;123R
prospectively on July&nbsp;1, 2005. The adoption of
SFAS&nbsp;No.&nbsp;123R is not expected to have a significant
impact on our consolidated financial statements.
</DIV>

<P align="center" style="font-size: 10pt;">38

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Quantitative and Qualitative Disclosures about Market Risk</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are exposed to certain market risks as part of our on-going
business operations. Primary exposure includes changes in
interest rates under our senior credit facility, which bears
interest at floating rates based on the London InterBank Offered
Rate or the prime rate, in each case plus an applicable
borrowing margin. We manage our interest rate risk by balancing
the amount of fixed rate and floating rate debt. For fixed rate
debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for floating rate
debt, interest rate changes generally do not affect the fair
market value but do impact our earnings and cash flows, assuming
other factors are held constant. We may use derivative financial
instruments, where appropriate, to manage our interest rate
risks. However, as a matter of policy, we will not enter into
derivative or other financial investments for trading or
speculative purposes. All of our sales are denominated in
U.S.&nbsp;dollars; thus our financial results are not subject to
foreign currency exchange risks or weak economic conditions in
foreign markets.
</DIV>

<P align="center" style="font-size: 10pt;">39

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<DIV align="left" style="font-size: 10pt;">
<A name='109'></A>
</DIV>

<!-- link1 "Business" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Business</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>General</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a leading distributor of water and wastewater
transmission products in the United States with an approximately
17% share of the estimated $9&nbsp;billion U.S.&nbsp;waterworks
products distribution market. We distribute a full line of
pipes, fittings, valves, meters, fire hydrants, service and
repair products and other components that are used to transport
clean water and wastewater between reservoirs and treatment
plants and residential and commercial locations. Our products
are integral to building, repairing and maintaining water and
wastewater (sewer)&nbsp;systems and serve as part of the basic
municipal infrastructure required to support population and
economic growth and residential and commercial construction.
Through our network of 135&nbsp;branches in 36&nbsp;states, we
sell directly to municipalities and to contractors who serve
municipalities and perform residential, commercial and
industrial waterworks projects. In addition to significant
customer and geographic diversification, we estimate that our
net sales are divided approximately evenly between
publicly-funded and privately-funded sales.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As the market for our products is characterized by a highly
fragmented local customer base, a wide variety of local product
standards and a broad group of suppliers, we believe that
distributors play a critical role in the supply chain. We
purchase products from approximately 3,500 suppliers and sell to
over 26,000&nbsp;customers. We offer both our suppliers and
customers essential products and services. We provide customers
with a single source for water and wastewater transmission
products, which substantially reduces their need to manage
inventory and multiple vendor relationships. None of our
suppliers offers a complete waterworks product line and the
majority lack the scale, expertise and infrastructure (including
a large, local sales force) to service the broad customer base
directly. By aggregating the supply of our products, we relieve
our suppliers of the need to maintain a local inventory and a
local sales force and the related credit and accounts receivable
functions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our branches compete on a local basis and benefit from our large
scale and national coverage. We believe that our entrepreneurial
approach at the branch level and our local customer focus has
allowed us to achieve a leading market position in the majority
of our local markets. We have a sophisticated IT&nbsp;system
that supports our sales personnel and provides benefits to our
customers, including expedited project estimation and bid
preparation; real-time pricing, availability and order status
information; on-line ordering and purchase processing; and
material and project management.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Overview of Our Business</B>
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD>
    <B><I>History</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In 1996, United States Filter Corporation acquired Davis
Water&nbsp;&#38; Waste Industries, Inc. (which changed its name
to U.S.&nbsp;Filter) with the goal of creating the first
nationwide waterworks products distribution network. At that
time, no national waterworks distribution platform existed in
the United States, and the sector was primarily comprised of
regional and local firms. Through the acquisition and
combination of four additional large-scale regional waterworks
products distributors in 1996 and 1997, U.S.&nbsp;Filter became
a major participant in the sector. Each of these regional
acquisitions and the majority of our other acquisitions had been
in business for over 20&nbsp;years and were the source of the
majority of U.S.&nbsp;Filter&#146;s senior and branch
management. In November 2002, we purchased substantially all of
the assets and businesses of, and assumed certain liabilities
and obligations of, U.S.&nbsp;Filter, in the Acquisition.
</DIV>

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We have continued to increase our revenues through organic
growth and new branch openings, as well as through selected
strategic acquisitions. Since the beginning of 2000, we have
opened or acquired 16&nbsp;new branches, while closing or
consolidating 21&nbsp;branches in order to eliminate branch
overlap due to acquisitions and to improve our profitability and
return on managed assets. We identify acquisition opportunities
that allow us to expand our local market positions, geographic
coverage or local product lines. As we have expanded our branch
network, we have also broadened our product mix to meet the
demands of customers in our diverse local markets.
</DIV>

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<B>Industry Overview and Trends</B>
</DIV>

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The U.S.&nbsp;water and wastewater transmission products
distribution market is highly fragmented, consisting of local
and regional distributors and only two other distributors with a
national presence. There are two primary waterworks end-markets:
(i)&nbsp;publicly-funded maintenance, repair and construction by
municipalities and contractors and (ii)&nbsp;privately-funded
residential, commercial and industrial construction by
contractors. There are approximately 54,000&nbsp;municipal water
systems in the United States, which are maintained primarily by
municipalities that establish local product specifications and
undertake their own water system purchasing and contracting.
Municipalities generally complete short-term or modest-sized
repair or construction projects and rely on contractors for
longer-term or larger projects. Contractors complete both
privately-funded projects and publicly-funded projects,
typically after negotiated or competitive bids, with the latter
being the standard for publicly-funded projects. On any single
project, we typically assist multiple contractors in the
preparation of their bids. In 2004, we served approximately
9,000&nbsp;municipal customers and 17,500 contractor and
industrial/other customers. Contractors tend to be small in
size, locally-oriented and are often family-owned businesses.
Given this local customer base, competition is primarily on the
local level, typically with four to six distributors in each
market. Competition is typically based on service, reliability
and total project cost to the customer, including product
pricing.
</DIV>

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Municipal waterworks systems include all publicly-owned or
funded water and wastewater supply, filtration, storage and
distribution systems, as well as public buildings and
conservation projects. Water is a critical, basic necessity and
municipalities must continuously repair and replace their
existing infrastructures. The maintenance and expansion of these
systems is important to support existing demand as well as
economic and population growth and residential and commercial
construction. In addition to on-going operations, maintenance
and capital expenditures, municipalities currently face
significant needs to replace and upgrade their water
infrastructures, the majority of which were installed in the
first half of the twentieth century. Municipalities can increase
their revenues and/or decrease costs by maintaining and
improving water and wastewater systems, including by repairing
clean water system leaks, reducing run-off water leakage into
the wastewater system and improving metering. In some cities,
the water systems have water leakage rates as high as 20%.
According to the Congressional Budget Office, water industry
authorities believe that maintaining the water and wastewater
systems in the United States will require a substantial increase
in spending over the next two decades. In addition, the
Congressional Budget Office projects that annual costs will
average between $71.0&nbsp;billion and $98.0&nbsp;billion from
2000 to 2019, of which $25.0&nbsp;billion to $41.0&nbsp;billion
will be for new investments and $46.0&nbsp;billion to
$57.0&nbsp;billion will be for operations and maintenance. We
believe this will contribute to the ongoing demand for our
waterworks products.
</DIV>

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The privately-funded waterworks sector includes new clean water
and wastewater infrastructure for residential, commercial and
industrial construction. According to the U.S.&nbsp;Census
Bureau, from 1975 to 2004, spending on residential and
non-residential construction, which we believe is indicative of
privately-funded waterworks projects, grew at compounded annual
growth rates of 8.5% and 5.3%, respectively. Typically, once a
private contractor completes a waterworks system, ownership of
the system is transferred to the relevant municipality for
on-going repair and maintenance. We believe that growth in
commercial and residential spending is largely a function of new
housing spending, population and economic growth, increases in
U.S.&nbsp;home ownership rates and the availability of
commercial and residential financing.
</DIV>

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<B>Our Strengths</B>
</DIV>

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We believe our competitive strengths include:
</DIV>

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    <B><I>Leading Local Market Positions</I></B></TD>
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We believe that we have a leading market share in the majority
of our local markets. We have achieved these leading positions
as a result of our branch managers&#146; and employees&#146;
long-term experience, customer relationships and knowledge of
local market dynamics and specifications. Approximately 80% of
our district and branch managers have more than 10&nbsp;years of
experience in waterworks product distribution. Each branch
operates as a local, entrepreneurial business and benefits from
our scale
</DIV>

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advantages and national coverage. Our branches operate as
independent profit centers, and all of our employees participate
in our incentive compensation system, which is based on
branch-level profitability and working capital.
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    <B><I>National Presence and Scale Benefits</I></B></TD>
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We are a leading distributor of water and wastewater
transmission products in the United States, with an
approximately 17% market share, based on our net sales as a
percentage of a third-party estimate of the U.S. Waterworks
products distribution market. Our broad network of
135&nbsp;local branches in 36&nbsp;states creates a national
presence and provides us with economies of scale that we believe
cannot be replicated by local and regional competitors. In
addition to the stability provided by customer and geographic
diversity, we believe that our scale and position as the largest
distributor solely focused on waterworks products results in
many benefits, including: (i)&nbsp;the ability to invest in
infrastructure, including IT systems, and leverage fixed costs;
(ii)&nbsp;volume purchasing benefits from our suppliers;
(iii)&nbsp;national inventory coverage; (iv)&nbsp;the ability to
attract and retain strong managers and salespeople through an
incentive-based compensation system and upward mobility;
(v)&nbsp;a leveragable base of technical knowledge and best
practices; and (vi)&nbsp;a strong platform for future expansion.
</DIV>

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    <B><I>Superior, Value-Added Customer Service</I></B></TD>
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We offer our customers a complete line of water and wastewater
transmission products and reliable delivery. In 2004, we had a
95.4% fill rate (defined as individual product orders shipped
complete from stock on the first shipment), which we believe is
indicative of our ability to consistently deliver our products
on time. Timely and complete delivery is critical to our
customers, as their labor, equipment and mobilization costs are
substantially greater than their costs for our products. We
believe that our material management capabilities reduce our
customers&#146; downtime due to supply-related work stoppages
and increase their overall efficiency. In addition, we provide a
broad array of value-added services that we believe contribute
to our customers&#146; success. These services include project
estimation, project management and product advice. We believe
these services reduce our contractor customers&#146; overall
costs, improve their cash flow and allow them to increase
revenue by reducing their time spent preparing contract bids and
managing material purchases. We believe that these benefits are
more valuable to our customers than product pricing alone. We
utilize our sophisticated IT&nbsp;system to provide total
project management, including project estimates and bids that
can be quickly generated, which allows our customers to bid on
more projects.
</DIV>

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    <B><I>Diverse Revenues from Long-Standing Customers</I></B></TD>
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Our customer base is diverse by individual customer, end-market,
project and geography, which we believe enables us to have more
stable operating results. In 2004, we served over
26,000&nbsp;customers and over 76% of our net sales were from
customers to whom we sold products in each of the last five
years. Our largest customer and top ten customers accounted for
less than 1% and 5%, respectively, of 2004&nbsp;net sales. We
estimate that our 2004&nbsp;net sales were split approximately
evenly between publicly-funded and privately-funded sales. Our
net sales are balanced across our six geographic regions, with
our largest region accounting for approximately 22% of our
2004&nbsp;net sales. We believe that our geographic diversity
mitigates our exposure to regional-specific economic cycles. The
majority of our operations are located in attractive regions
that have historically experienced above-average economic and
population growth. In addition, a significant portion of our
branches are located in milder southern climates, which reduces
the seasonality of our operations.
</DIV>

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    <B><I>Strategic Relationships with Diverse Supplier Base</I></B></TD>
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Our strategic supplier relationships provide us with reliable
access to inventory, volume purchasing benefits and the ability
to deliver a diverse product offering on a cost-effective basis.
We buy products from approximately 3,500&nbsp;suppliers and
maintain multiple suppliers for substantially all of our
products. Substantially all of our primary suppliers have served
us or one of our predecessor companies for over 10&nbsp;years.
We have developed preferred vendor programs with over
130&nbsp;suppliers, which increase our profits and returns
through volume purchase incentives and attractive payment terms.
We believe that we are the
</DIV>

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largest customer of many of these suppliers. Over 80% of our
product purchases (based on costs of goods sold) in 2004 were
under preferred vendor programs.
</DIV>

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    <B><I>Sophisticated IT System</I></B></TD>
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We believe that we have a sophisticated IT&nbsp;system. We
continually leverage our technology to enhance our revenues,
profits and working capital efficiency. Our single, integrated
IT system is flexible and scalable to support expected growth.
It enables us to quickly and accurately provide and access
real-time information, which allows us to: (i)&nbsp;have a high
degree of branch-level flexibility while maintaining centralized
operational control; (ii)&nbsp;gain and retain customers by
providing superior customer service; (iii)&nbsp;evaluate and
focus on profitable business opportunities at the customer and
product level; (iv)&nbsp;maximize working capital efficiency;
and (v)&nbsp;track and evaluate performance on a real-time basis
and reward our branch management and sales force monthly for
operating results. Key system functions include:
(i)&nbsp;real-time control of pricing for sales and purchases,
accounts receivable and credit, inventory and accounts payable;
(ii)&nbsp;daily detailed operating and financial data by branch
and customer; (iii)&nbsp;expedited and automated order and
purchase processing; and (iv)&nbsp;the ability to quickly
consolidate the financial results from our 135 branches.
</DIV>

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    <B><I>Experienced and Motivated Management Team</I></B></TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our senior management team has significant waterworks and
industrial distribution expertise and a proven track record of
success. Our senior corporate executives and regional vice
presidents have, on average, 27&nbsp;years of industry
experience and 18&nbsp;years of experience with us or one of our
predecessor companies. This management team is responsible for
developing our strategy, which has resulted in our leading
market positions, strong growth in revenues, profits and cash
flow, and our sophisticated IT&nbsp;system. The team has
substantial expertise in developing and maintaining customer and
supplier relationships, achieving organic growth, opening new
branches and completing and integrating acquisitions. The team
has also developed a compensation program that creates
incentives for our employees at all levels based primarily on
branch-level profitability and return on managed assets. We
believe that entrepreneurship at the branch level combined with
this compensation program have been essential drivers of our
profit growth. Following the offering, our senior management
team will own approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;% of
our equity on a fully-diluted basis, a portion of which is
subject to time and performance vesting criteria.
</DIV>

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    <B><I>Operating Model Focused on Free Cash Flow</I></B></TD>
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We believe that our operating model generates significant free
cash flow due to our variable cost structure, profit margin
improvement and low capital expenditure requirements and
efficient working capital management. Our variable cost base
includes substantially all of our costs of goods sold
(approximately 82% of total 2004 expenses) and a significant
portion of our operating costs (for example, more than half of
employee compensation was variable in 2004). From 1998 to 2004,
we (i)&nbsp;improved our EBITDA margins from 6.1% to 8.1%,
(ii)&nbsp;had average annual capital expenditures of
$1.9&nbsp;million and (iii)&nbsp;improved our working capital
performance metrics. We have historically been successful in
passing through price increases from our suppliers to our
customers without significantly impacting our margins. Over the
past three years, we averaged net write-offs of only 0.08%, and
only 9% of our accounts were 90&nbsp;days or more past due at
the end of 2004. In addition, we receive approximately
$12&nbsp;million per year cash tax benefit due to the
amortization of goodwill that is deductible for federal income
tax purposes. This benefit is expected to continue through the
year 2017.
</DIV>

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<B>Our Strategy</B>
</DIV>

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We intend to increase operating profits and cash flow by
continuing to be a leading distributor of water and wastewater
transmission products. Key elements of our strategy include the
following:
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    <B><I>Enhancing Local Market Share and Profitability</I></B></TD>
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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our reputation for reliable service, a comprehensive product
offering and advanced IT tools has been critical to establishing
our leading local market positions. We believe that we are
well-positioned to exploit opportunities to selectively and
profitably increase our local market shares. We plan to gain new
customers
</DIV>

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and increase purchases by existing customers by leveraging our
products, information and materials management capabilities and
our scale advantages over local and regional competitors to
improve our customers&#146; efficiency and reduce their
administrative costs. We continually evaluate the profitability
of each of our customers, giving us the ability to focus on
those that meet and exceed our targets.
</DIV>

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    <B><I>Continuing Focus on Operational Excellence</I></B></TD>
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We will continue to regularly examine each branch&#146;s
profitability, working capital management and return on managed
assets, both on an overall and a customer basis. Our branch
managers use this information to optimize their local
strategies, improve the profitability of customer relationships
and reduce operating costs. Senior management uses this
information to (i)&nbsp;monitor each branch&#146;s performance
and disseminate best practices, (ii)&nbsp;evaluate opportunities
to expand the geographic coverage or number of branches and
(iii)&nbsp;improve the performance of an underperforming branch,
or to close such a branch if performance cannot be sufficiently
improved.
</DIV>

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    <B><I>Geographic Expansion Initiatives</I></B></TD>
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The water and wastewater market is expected to experience
substantial growth over the next several years as municipalities
focus on repairing and/or upgrading existing infrastructure. Our
strategy is to leverage our strong national presence and leading
local market positions to capitalize on this expected growth. We
expect to do this through organic growth, new branch openings
and selective acquisitions. Our focus will be on markets where
we expect favorable waterworks product distribution demand
dynamics, including the need for significant repairs or
upgrades, population growth and underpenetration by other
distributors.
</DIV>

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<I>New Branch Openings.</I> We believe that we have the
opportunity to grow by opening satellite branches in contiguous
markets where we typically have an existing customer base. New
satellite branches can be opened with minimal capital
investment, and we target achieving profitability within three
months of commencing operations. We expect to open two or three
new satellite branches per year over the next several years.
Opening new branches is not constrained by the required capital
expenditures, but rather by the limited availability of
additional qualified branch managers and sales personnel with
local expertise and relationships, both of which are critical to
the success of a new branch.
</DIV>

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<I>Selective Acquisitions.</I> Given the significant
fragmentation and localized nature of our industry, we have the
opportunity to complement organic growth with selective
acquisitions that meet our key evaluative criteria. Between 1996
and 2002, we successfully completed and integrated
16&nbsp;acquisitions with an average size of $27.0&nbsp;million
and most recently acquired Midstate Utility Supply in 2004 for
approximately $2&nbsp;million. While we will continue to focus
on organic growth and new branch openings, we will also continue
to consider acquisitions that provide us with immediate,
established access to new geographic markets, an expanded
customer base or, in certain cases, an exclusive local
distribution arrangement for certain higher margin products. Our
key evaluative criteria include established customer bases and
market presence, solid reputations, strong branch level
management and sales teams and the opportunity to achieve
meaningful financial and operating synergies.
</DIV>

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    <B><I>Business Operations</I></B></TD>
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<I>Regional Organization and Branch Network.</I> We are
organized geographically into six different regions in the
United States (Midwest, Southwest, Pacific, Southeast, Mid-South
and Mid-Continent). While we are organized regionally, our
distribution network operates on a branch system. Each region
has 16&nbsp;to 30&nbsp;branches and a regional vice president
responsible for overall sales and operations. This regional
structure enables us to address the specific management,
strategic, operational and other needs of each region.
</DIV>

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<I>Branch Management.</I> We believe that our branch network and
management structure brings many benefits, including
entrepreneurship, flexibility and long-term customer
relationships at the local level. Each branch is managed by a
district/branch manager, who is typically supported by a branch
operations manager. We believe that our branch managers are able
to maximize their branch&#146;s financial performance due to the
flexibility with which they operate within the company-wide
management and control structure.
</DIV>

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This structure enables a branch manager to tailor his or her
branch&#146;s particular strategy, marketing and product and
service offerings to address the needs of customers in the local
market. Our senior management establishes pricing and purchasing
parameters, which branch managers are able to adjust within a
specified range to enhance their branch&#146;s results and
address specific customer situations.
</DIV>

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Our compensation programs align our interests with those of our
employees by linking compensation levels to the achievement of
branch or region specific goals based on profitability and
return on managed assets. These incentive programs give
managers, sales personnel and all other employees an opportunity
to personally benefit from improving these metrics, reducing
costs, developing local market niches and adapting to changing
market conditions. We also benefit from this program as a
substantial portion of our employee-related costs is variable
based on financial performance.
</DIV>

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The majority of our district/branch managers have spent
substantially all of their careers in their local markets. Given
our managers&#146; strong industry and local expertise, they are
empowered to manage their own customer relationships, sales
force and other personnel, pricing for product sales and
purchases (within company-wide parameters), inventory and other
activities. While branches benefit from this expertise and
entrepreneurship, they also benefit from being part of our
nationwide network. At the corporate level, we:
</DIV>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    set overall financial, operating and strategic goals and
    parameters, including pricing guidelines and working capital
    management;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    support our branches with services such as IT, credit, human
    resources, finance, accounting and legal;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    negotiate preferred vendor purchasing programs;</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provide tools that support value-added customer services;</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provide training and operational support;&nbsp;and</TD>
</TR>

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    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    help branches meet their goals by transferring best practices
    and providing other management assistance.</TD>
</TR>

</TABLE>

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<I>Branch Operations.</I> A branch&#146;s organization varies
depending on its size. Our branches averaged over
$11&nbsp;million of net sales in 2004. A typical branch consists
of 9&nbsp;to 12&nbsp;people, including a branch manager, a
branch operations manager, outside sales personnel, inside sales
personnel and support/warehouse personnel. In larger branches,
the staff may also include a sales manager, a purchasing manager
and/or an estimator. When several branches are in close
proximity to each other, a district manager may oversee all such
branches as opposed to having individual managers at each
branch. In these cases, the branch operations managers in that
district tend to be more senior and experienced managers. Each
branch customizes its product and service offerings based on its
local market. A typical branch offers 2,400&nbsp;to
3,000&nbsp;products and stocks 1,000&nbsp;to 1,600&nbsp;items.
</DIV>

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We receive our orders from customers either directly or through
negotiated or competitive bids, which are typically evaluated
based on service, availability, reliability and price. A new
order or bid is either generated by, or input into, our
IT&nbsp;system for scheduling, inventory management, ordering
from a supplier (if necessary) and billing. Products are
delivered either from the relevant branch&#146;s inventory,
another branch&#146;s inventory or, in the case of large or
long-lead time orders, directly from the manufacturer to the
customer (&#147;direct&#148; sales). Direct sales accounted for
approximately 36% of our net sales in 2004. Direct sales and the
ability to access other branches&#146; inventory allow our
branches to reduce their inventory and the related holding and
handling costs. In addition, our IT&nbsp;system automatically
generates recommended purchasing reports to replenish our
inventory as products are sold.
</DIV>

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<B>Products and Services</B>
</DIV>

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    <B><I>Products</I></B></TD>
</TR>

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A typical waterworks system is comprised of many components,
including reservoirs and other water sources, water treatment
plants and pumping stations, wastewater treatment plants and
residential and commercial customers. We distribute products
that comprise the water and wastewater transmission
</DIV>

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network within the waterworks system. Our primary products
include pipe, fittings, valves, meters, fire hydrants and
service and repair products. We also offer other complementary
products for waterworks construction and maintenance/repair.
Typically, our gross margin percentages on pipe products are
lower than our gross margin percentages for other product lines.
</DIV>

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<I>Pipe.</I> Piping products are our primary waterworks product
and generate the greatest portion of our net sales,
approximately 44% in 2004. Given the relatively large size and
weight of pipe and typically large size of pipe orders, the
majority of our pipe sales are shipped directly from the
manufacturer to the customer, which reduces our handling costs,
inventory and exposure to changes in raw material prices. We
distribute a broad range of pipe made from different materials,
including polyvinyl chloride (PVC), ductile iron, copper,
polyethylene and high-density polyethylene (HDPE). PVC and
ductile iron are the most commonly used types of pipe and
account for the majority of our pipe sales.
</DIV>

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<I>Fittings.</I> Fittings are used to connect pipe to other pipe
sections, valves and other devices. Fittings complement our
broad pipe products line with high customer overlap. In 2004,
fittings accounted for approximately 15% of our net sales. We
distribute a broad range of fittings made from PVC, ductile
iron, and to a lesser extent, copper, brass and HDPE.
</DIV>

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<I>Valves.</I> Valves are used to control the flow of water and
wastewater within transmission networks and, similar to
fittings, complement our other product offerings. In 2004,
valves accounted for approximately 11% of our net sales. Besides
an array of standard valves, we also distribute backflow
preventers, which primarily prevent reverse flow of liquid in
the water system.
</DIV>

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<I>Meters and Fire Hydrants.</I> In 2004, meters and fire
hydrants accounted for approximately 8% and 6% of our net sales,
respectively. Meters measure the amount of liquid that flows
through pipes and are critical to municipalities and other water
and wastewater system operators for billing purposes. New meter
technology, such as the ability to receive data electronically,
and the importance of water-related revenues to municipalities,
has led to growth in meter sales. Fire hydrants are critical to
firefighting activities and the protection of public safety.
</DIV>

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<I>Service and Repair Products.</I> Our service and repair
products include water cut-off devices, clamps and other
products. In 2004, these products accounted for approximately 6%
of our net sales. Local availability and timely delivery of
these products are critical to meeting customer needs because
many of these products are used for emergency repairs.
</DIV>

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<I>Other Products.</I> We offer other complementary products
that are necessary for water and wastewater systems or allow us
to be a full product supplier to our customers. These products
accounted for approximately 10% of our net sales in 2004.
Examples include access boxes that protect valves and meters
from theft, damage or destruction; iron castings, including
grates and manhole covers, which fit into or on top of
waterworks structures; and tools specific to waterworks
construction and maintenance, as well as general hand tools.
</DIV>

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The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations. Coincident
with annual construction seasonality, our net sales are
typically higher during the second and third calendar quarters
and lower during the first and fourth quarters due to reduced
construction activity during the winter. Adverse weather
conditions in our markets may also decrease the level of
construction activity.
</DIV>

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    <TD></TD>
    <TD>
    <B><I>Customer Service</I></B></TD>
</TR>

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We focus on offering our customers consistent, high quality
local service and a broad range of value-added services, which
result in long-term customer relationships. Initially, we assist
contractor customers in the preparation of their bids with
product knowledge and advice, cost estimates, inventory levels
and product standardization. In addition, our sales
representatives maintain databases of local specifications and
provide customized databases for contractors. After a contractor
begins a project, we focus on reducing their total project cost
by:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reducing their inventory cost;</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expediting the completion of the project through the timely and
    coordinated delivery of the necessary waterworks
    products;&nbsp;and</TD>
</TR>

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    <TD width="1%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reducing the related administrative burdens.</TD>
</TR>

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Through the combination of these services, we believe that we
have been able to reduce our contractor customers&#146; focus on
product pricing by reducing their overall costs and downtime and
improving their project planning and execution. We provide our
municipal customers with similar services and benefits.
</DIV>

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We also leverage our sophisticated IT system to provide superior
customer service. The IT system is specifically designed to
provide our customers and our sales force with direct, quick,
accurate and convenient access to data (including product
pricing and availability and past and current order information)
in a variety of electronic media (on-line, fax, email,
electronic data interchange and spreadsheet). Our sales
representatives can access our IT system either from their
desktop computer or remotely from laptop computers and transmit
and receive updated information on a real-time basis. Our
customers have access to their accounts and our product and
service offerings over a secure and real-time Internet system.
</DIV>

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<B>Customers</B>
</DIV>

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We have a diversified customer base, which minimizes our
exposure to any particular customer, customer type or region.
Substantially all of our customers are local in nature and
include municipalities, public works contractors who serve
municipalities, private waterworks contractors who perform
residential, commercial and industrial construction projects and
industrial customers. These sectors are affected by different
macroeconomic variables, which we believe reduces our exposure
to adverse conditions in any particular sector. In 2004, we
served approximately 9,000 municipal customers and 17,500
contractor and industrial/other customers. During 2004, over 76%
of our net sales were to customers who purchased products from
us in each of the last five years. We have established long-term
relationships with the majority of our customers, but no single
customer accounted for more than 1% of our net sales during
2004. Additionally, the largest of our regions accounted for
approximately 22% of our net sales during 2004.
</DIV>

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<B>Suppliers and Preferred Vendor Programs</B>
</DIV>

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We purchase products from approximately 3,500 suppliers, and
substantially all of our primary suppliers have supplied us for
over ten years. We utilize multiple suppliers for substantially
all of our products and purchase from both national suppliers
and local or regional suppliers, which allows our branch
managers to customize their product offering for their local
markets. Our largest supplier accounted for approximately
$168&nbsp;million, or 13%, of product purchases in 2004. The
products we purchase from this supplier are also sourced from
other suppliers. Our ten largest suppliers in 2004 accounted for
approximately 61% of our purchases.
</DIV>

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We have established preferred vendor programs to more
effectively leverage our purchasing power with suppliers. As
part of this effort, we have significantly reduced our supplier
base, which has resulted in stronger strategic relationships
with a core group of vendors, more reliable deliveries and
better purchasing terms. Our preferred vendor programs typically
include volume purchase incentives and other benefits, including
cash discounts and extended payment terms. Approximately 130 of
our suppliers have attained preferred vendor status and we
continue to establish or enhance these relationships with new
and existing suppliers. In 2004, we purchased over 80% of our
products from these preferred vendors.
</DIV>

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<B>Marketing and Sales</B>
</DIV>

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We have over 250 sales representatives experienced in the water
and wastewater transmission products distribution sector. These
sales representatives have in-depth product and technical
knowledge, significant local experience and long-term customer
relationships, all of which are critical to our success. In
addition, we believe that our leading market position,
high-quality service offering and innovative compensation
program result in low turnover rates among our sales force.
</DIV>

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Our field sales representatives are based at branches and are
responsible for generating sales, providing all of our basic and
value-added services to customers and establishing new customer
relationships. These
</DIV>

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sales representatives are highly qualified professionals and
participate in ongoing training programs. Our service-oriented
philosophy and incentive compensation program encourage our
sales representatives to proactively participate in product
selection; provide product specifications, usage data, product
alternatives (within required product specifications) and
project bids; and participate in the collection of accounts
receivable.
</DIV>

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We also have regionally-based product specialists, who support
the outside sales representatives in their respective region.
These specialists have expertise with respect to specific
product and service offerings. In addition, we have customer
service representatives who support the outside sales force.
These customer service representatives are responsible for
entering and tracking orders, answering technical questions and
sourcing products. The customer service representatives provide
additional depth to our customer relationships and a pool of
talent for future outside sales representatives.
</DIV>

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<I>Accounts Receivable.</I> We proactively manage our accounts
receivable with customers. We maintain detailed, up-to-date
credit history and receivables information on over 26,000
customers and conduct extensive credit checks on new customers.
Since the beginning of 2002, on average, less than 8% of
accounts receivable have been outstanding more than 90&nbsp;days
and bad debt expense has averaged approximately .08% of net
sales. Our credit department, which includes national and
regional professionals, is responsible for approving
customers&#146; credit, collecting receivables and ensuring that
appropriate state and local bond and lien statutes are followed.
</DIV>

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We maintain all of our credit and receivables information on our
IT system, allowing for easy access by our credit department and
branch managers. A customer&#146;s status is automatically
reviewed by the IT system during order entry and product
shipment to ensure branches operate within credit guidelines. We
are also able to generate daily reports that highlight any
potential issues to our credit professionals and branch
managers. Customers can also track their outstanding balances
online to accelerate the payment process.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Management Information Systems</B>
</DIV>

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Our IT system is critical to our success and we believe it
provides us an important competitive advantage. We have
developed a single infrastructure that integrates our customer
service, management, operational and financial functions in a
reliable, flexible and user-friendly system. The system is
easily scalable to support additional organic growth and
acquisitions and currently has unused capacity. We leverage our
IT system to provide superior, customized service, which reduces
our customers&#146; costs and improves our operating efficiency.
Examples of customer service benefits include:
</DIV>

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<I>Material Management Online.</I> Our Internet interface allows
our customers to manage all aspects of their accounts on a
secure, online and real-time basis. Our customers can:
</DIV>

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    <TD width="3%"></TD>
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    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    access product pricing and availability and place orders,
    including using their own product numbers which are
    automatically converted to our product numbers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    access order information (including status, delivery schedule
    and past invoices);</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    release products for delivery;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    access account-specific catalogs, including account-specific
    pricing and past preferences;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    view local specifications and requirements.</TD>
</TR>

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<I>Project Management.</I> We offer numerous project management
services to reduce our customers&#146; costs and to allow them
to bid on more projects. Through this system, we provide over
10,000 project estimates monthly. We can either:
</DIV>

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    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    integrate price-supported product databases into a
    contractor&#146;s estimating system;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    provide access to our own estimating system;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    generate the estimate ourselves in the format requested by the
    customer (e.g., spreadsheets delivered via email).</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">48

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our estimating system is integrated with the rest of our IT
system, allowing for a seamless interface between sales and
operations. During a project, a customer can receive
project-specific management reports and other information (e.g.,
shipment and payment status, products released against the bid,
change orders and invoices) via the Internet, email or fax,
which result in more efficient project management. Our customers
can receive their invoices via email on a daily basis to
expedite billing their customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
From an internal point-of-view, our IT system improves our
efficiency, profitability and asset management. It integrates
all of our locations and key functions and provides easy access
to detailed, up-to-date information. Benefits include:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    nationwide and local real-time control of pricing for sales and
    purchases, including for individual customers;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to monitor individual customer profitability and
    accounts receivable, including preset credit limits;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    better inventory management and sharing across branches;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    expedited and automatic posting, matching and processing of
    orders, receivables and payables;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    integrated payroll and accounting, including the ability to
    quickly consolidate financial results from our branches.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The system is used to generate management reports that track key
metrics for each region, branch and customer. This allows us to
monitor and more effectively manage our business at all levels
and to set sales strategies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have established emergency contingencies to protect our IT
system, and we test our preparedness and contingency plan
yearly. Such measures include automatic re-establishment of a
branch&#146;s connection to the system if the connection is lost
and a fully functional, secure back-up location provided by a
third party.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Raw Materials</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We do not manufacture any products. However, our suppliers are
susceptible to fluctuations in certain raw material prices,
which can impact our purchase and sales prices for these
products. For example, PVC pipe accounted for approximately 22%
of our 2004&nbsp;net sales and is susceptible to price
fluctuations. Our purchase price of PVC pipe averaged $0.54,
$0.41 and $0.36&nbsp;per pound for the years ended
December&nbsp;31, 2004, 2003 and 2002 (combined), respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that we take minimal raw material price risk, based
on our high inventory turns, sales shipped directly from
manufacturers to customers, our ability to quickly pass price
fluctuations on to customers and our relatively small average
project size and short timing. In addition, when we enter into
longer-term arrangements with our customers, we typically enter
into similar term arrangements with our suppliers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Employees</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, we had approximately 1,500
employees, of which approximately 225 were in managerial
positions, 275 were in sales positions and 1,000 were in
warehouse/delivery and general administrative positions. Eleven
of our employees at three branches were unionized pursuant to
collective bargaining agreements that expire in December 2006
and July 2009. We believe that we have good relationships with
our employees and experience low voluntary turnover.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Competition</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In each of our local markets, we typically compete with three to
five other distributors. Generally, local competition includes a
branch of one or both of the other two national distributors,
Hughes Supply, Inc. and Wolseley PLC. We also compete with other
local and regional distributors. The principal methods of
competition include offering prompt local service, fulfillment
capability, local knowledge, breadth of product and service
offerings, total cost to the customer and price.
</DIV>

<P align="center" style="font-size: 10pt;">49

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<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Properties</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We lease and own 107 and 28 branches, respectively. Our
facilities are used for storing inventory and maintaining office
space and typically consist of a one-to-two acre lot adjacent to
a warehouse/office building. We typically enter into leases with
terms ranging from two to five years that include renewal
options. In addition, we lease our principal executive offices
in Waco, Texas and own our two other administrative centers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Intellectual Property</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe we have the trademarks, trade names and licenses that
are necessary for the operation of our business as we currently
conduct it. We do not consider our trademarks, trade names or
licenses to be material to the operation of our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Environmental Matters</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our facilities and operations are subject to federal, state and
local environmental and workplace health and safety
requirements, including those relating to the handling, storage
and disposal of hazardous materials and wastes and the cleanup
of properties affected by pollutants. Historically, we have not
had, nor do we currently anticipate, any material adverse effect
on our business or financial condition as a result of our
efforts to comply with, or our liability under, such
requirements. Our operations consist of distribution of water
and wastewater transmission products rather than manufacturing,
so we are not significantly regulated from an environmental
standpoint.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the future, federal, state or local governments could enact
new or more stringent laws or regulations concerning
environmental and workplace health and safety matters that could
affect our operations. We could be found to be in violation of
these or other environmental laws and regulations, and we could
be held liable for contamination that may be found at our
facilities or off-site locations where we have sent waste. We
are currently not aware of circumstances where a violation of or
a liability under environmental requirements could have a
material adverse effect on our business or financial condition.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain of U.S.&nbsp;Filter&#146;s predecessors distributed or
may have distributed cement pipe containing asbestos. Certain of
these predecessors are or have been defendants in lawsuits
seeking to recover personal injury and other damages for alleged
exposure to asbestos in these pipes, and at December&nbsp;31,
2004, 69&nbsp;lawsuits remained outstanding. Total defense and
settlement costs paid in these settled actions through
December&nbsp;31, 2004 by U.S.&nbsp;Filter have been
approximately $2.8&nbsp;million, the majority of which has been
paid by insurance companies. The Acquisition was structured as
an asset purchase, and we did not assume any existing or future
asbestos-related liabilities relating to U.S.&nbsp;Filter or its
predecessors. U.S.&nbsp;Filter and United States Filter
Corporation retained these liabilities and jointly and severally
agreed to indemnify and defend us from and against these
liabilities on an unlimited basis with no termination date.
United States Filter Corporation and U.S.&nbsp;Filter also
agreed that, until November&nbsp;22, 2012, U.S.&nbsp;Filter
will, and United States Filter Corporation will cause
U.S.&nbsp;Filter, to maintain U.S.&nbsp;Filter&#146;s corporate
existence and ensure that U.S.&nbsp;Filter has sufficient funds
to pay any and all of its debts and other obligations, including
liabilities retained by U.S.&nbsp;Filter and its indemnification
obligations, as and when they become due. In addition, Veolia
Environnement (&#147;Veolia,&#148; formerly Vivendi
Environnement S.A.) has guaranteed all obligations of United
States Filter Corporation and U.S.&nbsp;Filter under the asset
purchase agreement, including the indemnity discussed above, up
to an aggregate of $50.0&nbsp;million through November&nbsp;22,
2017. Historically, courts have not held the acquirer of an
entity&#146;s assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a &#147;successor&#148; to the asset seller. Accordingly, we
could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to U.S.&nbsp;Filter
and to the extent U.S.&nbsp;Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Legal Proceedings</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition to those items disclosed under
&#147;&#151;&nbsp;Environmental Matters,&#148; we are from time
to time involved in litigation incidental to the conduct of our
business. We believe that no litigation currently pending
against us, if adversely determined, would have a material
adverse effect on our financial position or results of
operations.
</DIV>

<P align="center" style="font-size: 10pt;">50

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<DIV align="left" style="font-size: 10pt;">
<A name='110'></A>
</DIV>

<!-- link1 "Management" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Management</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth certain information with respect
to our current directors and executive officers and certain
other key employees and their ages. In accordance with our
restated by-laws, we will alter the composition of our board of
directors so that, within one year following the completion of
this offering, a majority of the members of our board of
directors will be &#147;independent,&#148; as such term is
defined in Rule&nbsp;10A-3(b)(i) under the Exchange Act and
under NYSE Rule&nbsp;303(A):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="43%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Name</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Age</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Position</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Executive Officers</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Harry K. Hornish,&nbsp;Jr.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President, Chief Executive Officer and Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philip Keipp</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Chief Financial Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Terry Howell</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>41</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Information Officer</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J. L. Walker</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President of Human Resources</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Other Key Employees</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Rob Hickson</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Midwest Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ed Maczko</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>57</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Southwest Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Ron Hood</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Pacific Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jerry Webb</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Southeast Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Irving Welchons&nbsp;III</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Mid-South Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jack Schaller</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Mid-Continent Region</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Don Clayton</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Corporate Controller</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Jack Olson</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>54</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director of Information Technology</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B><I>Non-Employee Directors</I></B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Todd M. Abbrecht</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony J. DiNovi</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen V. McKenna</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Paul M. Meister</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    C. Dean Metropoulos</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>58</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen P. Murray</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Kevin G. O&#146;Brien</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Soren L. Oberg</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>34</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Andrew D. Seidel</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Director</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Harry K. Hornish,&nbsp;Jr.</I> has been our President, Chief
Executive Officer and a director since November&nbsp;22, 2002.
Prior thereto, Mr.&nbsp;Hornish was President and Chief
Operating Officer of U.S.&nbsp;Filter Distribution Group, Inc.
since February 1998. Previously, Mr.&nbsp;Hornish served as
U.S.&nbsp;Filter Distribution Group, Inc.&#146;s Executive Vice
President since its inception in 1996. Prior to that,
Mr.&nbsp;Hornish was President and Chief Executive Officer of
The Utility Supply Group, Inc., which was acquired by
U.S.&nbsp;Filter Distribution Group, Inc. in 1996, after it was
spun-off from CertainTeed Corporation in 1994. Mr.&nbsp;Hornish
was employed by CertainTeed Corporation from 1987 to 1994, where
he held executive positions in both the Building Materials and
the Utility Supply divisions. His early career included several
sales, marketing and senior management positions with the
distribution division of Owens Corning Fiberglass.
Mr.&nbsp;Hornish received a B.A. degree in Political Science
from Marshall University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Philip Keipp </I>has been our Chief Financial Officer since
January&nbsp;5, 2005. Prior thereto, Mr.&nbsp;Keipp served as
our Controller since November&nbsp;22, 2002 and held the same
position with U.S.&nbsp;Filter Distribution Group, Inc. since
1998. Previously, Mr.&nbsp;Keipp was Chief Financial Officer
with Sidener Supply Company, which U.S.&nbsp;Filter Distribution
Group, Inc. acquired in 1997. Prior to that, Mr.&nbsp;Keipp was
with KPMG from 1986 to 1996 where he was a Senior Manager in the
firm&#146;s Manufacturing, Retail and Distribution Practice.
Mr.&nbsp;Keipp received a B.S. degree in Business Administration
with an emphasis in Accounting from Lindenwood University. He
also attended the University of Missouri in St.&nbsp;Louis and
is a Certified Public Accountant.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Terry Howell </I>has been our Chief Information Officer since
November&nbsp;22, 2002. Prior thereto, he served as Vice
President of Marketing&nbsp;&#38; System Operations with
U.S.&nbsp;Filter Distribution Group, Inc. since its inception in
1996. Mr.&nbsp;Howell served in various staff positions with
U.S.&nbsp;Filter Distribution Group, Inc.&#146;s predecessor,
Davis Water&nbsp;&#38; Waste Industries, Inc. At that company,
he served as Manager of Plant Sales, Operations Analyst, IT
Manager, and finally as Marketing Manager, where he was part of
a four person management team directly responsible for the
operations and sales of 25 branches. He joined Davis
Water&nbsp;&#38; Waste, Industries, Inc. in 1991 after serving
six years as a decorated Commissioned Officer in the
U.S.&nbsp;Navy. Mr.&nbsp;Howell earned a degree from the US
Naval Academy in 1985 in Applied Science&nbsp;&#151; Computer
Programming and training as a Gas Turbine Engineer.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>J.L. Walker </I>has been our Vice President of Human
Resources since November&nbsp;22, 2002. Prior thereto he held
the same position with U.S.&nbsp;Filter Distribution Group, Inc.
since its inception in 1996. Prior to that, Mr.&nbsp;Walker held
the same position with The Utility Supply Group, Inc. since its
inception in 1994. Mr.&nbsp;Walker was employed by CertainTeed
Corporation from 1980 to 1994, where he held various management
positions in Human Resources for both the Building Materials and
the Utility Supply divisions. Mr.&nbsp;Walker&#146;s experience
also includes ten years in various manufacturing positions and
service in the U.S.&nbsp;Navy. Mr.&nbsp;Walker received a B.A.
degree from Georgia State University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Rob Hickson </I>has been our Vice President&nbsp;&#151;
Midwest Region since November&nbsp;22, 2002. Prior thereto, he
held the same position with U.S.&nbsp;Filter Distribution Group,
Inc. since 1996. Previously, Mr.&nbsp;Hickson held Regional Vice
President positions with WaterPro Supplies Corporation from 1990
until U.S.&nbsp;Filter Distribution Group, Inc. acquired it in
1996. Mr.&nbsp;Hickson has been employed in the waterworks
industry since 1972. Mr.&nbsp;Hickson attended Clemson
University and Francis Marion University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Edward E. Maczko,&nbsp;Jr.</I> has been our Vice
President&nbsp;&#151; Southwest Region since November&nbsp;22,
2002. Prior thereto, he held the same position with
U.S.&nbsp;Filter Distribution Group, Inc. since 1999. Prior to
that, Mr.&nbsp;Maczko served as the District Manager for
Arizona. Mr.&nbsp;Maczko held a similar position with The
Utility Supply Group, Inc. from 1990 until U.S.&nbsp;Filter
Distribution Group, Inc. acquired it in 1996. He has been
employed in the waterworks industry since 1971 and received a
B.S. degree in Business from Northeastern University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Ron Hood </I>has been our Vice President&nbsp;&#151; Pacific
Region since November&nbsp;22, 2002. Prior thereto, he held the
same position with U.S.&nbsp;Filter Distribution Group, Inc.
since 1996. Mr.&nbsp;Hood served in the same position with The
Utility Supply Group, Inc. until U.S.&nbsp;Filter Distribution
Group, Inc. acquired it in 1996. There he also held various
branch and district management positions from 1990 until 1995.
Mr.&nbsp;Hood had been employed by manufacturing and
distribution companies in the waterworks industry since 1966 and
attended Fullerton Jr. College.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Jerry L. Webb </I>has been our Vice President&nbsp;&#151;
Southeast Region since November&nbsp;22, 2002. Prior thereto, he
held the same position with U.S.&nbsp;Filter Distribution Group,
Inc. since 1997. Previously, Mr.&nbsp;Webb served as National
Sales Manager of the distribution division of U.S.&nbsp;Filter
Distribution Group, Inc.&#146;s predecessor, Davis
Water&nbsp;&#38; Waste Industries, Inc. since 1995.
Mr.&nbsp;Webb previously held various management positions with
Davis companies from 1988 to 1995. He has been employed in the
waterworks industry since 1981 and received a B.B.A. degree in
Accounting from Valdosta State University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Irving B. Welchons&nbsp;III </I>has been our Vice
President&nbsp;&#151; Mid-South Region since November&nbsp;22,
2002. Prior thereto, he held the same position with
U.S.&nbsp;Filter Distribution Group, Inc. since 1996.
Previously, Mr.&nbsp;Welchons served as Regional Manager of
WaterPro Supplies Corporation from 1991 until it was acquired by
U.S.&nbsp;Filter Distribution Group, Inc. in 1996. Prior to
that, Mr.&nbsp;Welchons held various positions in the waterworks
distribution industry since 1972. Mr.&nbsp;Welchons attended
Virginia Polytechnic Institute and State University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Jack Schaller </I>has been National Waterworks&#146; Vice
President&nbsp;&#151; Mid-Continent Region since
November&nbsp;22, 2002. Prior thereto, he held the same position
with U.S.&nbsp;Filter Distribution Group, Inc. since 1997.
Previously, Mr.&nbsp;Schaller served as President of Sidener
Supply Company from 1996 until it was acquired by
U.S.&nbsp;Filter Distribution Group, Inc. in 1997. From 1984 to
1997, Mr.&nbsp;Schaller held numerous positions with Sidener
Supply Company, including branch manager of three locations and
</DIV>

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<DIV align="left" style="font-size: 10pt;">
director of implementation for a new computer system.
Mr.&nbsp;Schaller has been employed in the waterworks industry
since 1979 and received a degree in Forest Management from the
University of Missouri and a Master&#146;s degree in Business
Management from Webster University.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Don Clayton </I>has been our Corporate Controller since
December&nbsp;6, 2004. Prior thereto, he served in the audit
practice of PricewaterhouseCoopers LLP since 1997, most recently
as a Senior Manager. Mr.&nbsp;Clayton received a B.S. degree in
Business Administration with an emphasis in accounting from
Southeast Missouri State University. Mr.&nbsp;Clayton is a
Certified Public Accountant.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Jack Olson </I>has been our Director of Information
Technology since November&nbsp;22, 2002. Prior thereto, he held
the same position with U.S.&nbsp;Filter Distribution Group, Inc.
since 1996. From 1994 to 1996, Mr.&nbsp;Olson served as Director
of Information Technology of U.S.&nbsp;Filter Distribution
Group, Inc.&#146;s predecessor, Davis Water&nbsp;&#38; Waste
Industries, Inc. Prior to that, Mr.&nbsp;Olson held the position
of Systems Engineer and Instructor with IBM from 1977 to 1994.
Mr.&nbsp;Olson received a B.A. degree in Mathematics from
Southwest Minnesota State University and a M.S. degree in
Mathematics from the University of Idaho.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Todd M. Abbrecht </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;Abbrecht has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1992 and currently serves as Managing Director.
Prior to joining the firm, Mr.&nbsp;Abbrecht was in the mergers
and acquisitions department of Credit Suisse First Boston.
Mr.&nbsp;Abbrecht is currently a director of Michael Foods,
Inc., Warner Chilcott Corporation and Simmons Company.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Anthony J. DiNovi </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;DiNovi has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1988 and currently serves as Co-President. Prior
to joining the firm, Mr.&nbsp;DiNovi was in the corporate
finance department of Goldman, Sachs&nbsp;&#38; Co.
Mr.&nbsp;DiNovi is currently a director of American Media, Inc.,
Endurance Specialty Insurance, Ltd., FairPoint Communications,
Inc., Michael Foods, Inc., US LEC Corporation and Vertis, Inc.,
and also serves on the boards of several private companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stephen V. McKenna </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;McKenna is a Principal of
J.P.&nbsp;Morgan Partners, LLC. Prior to joining
J.P.&nbsp;Morgan Partners, LLC in 2000, Mr.&nbsp;McKenna worked
in the Investment Banking Division at Morgan Stanley&nbsp;&#38;
Co. Prior to joining Morgan Stanley&nbsp;&#38; Co. in 1999,
Mr.&nbsp;McKenna worked in the Mergers&nbsp;&#38; Acquisitions
Group at J.P.&nbsp;Morgan&nbsp;&#38; Co. since 1996. Currently,
he serves as a director of PQ Corp., as well as several private
companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Paul M. Meister </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;Meister currently serves as
Vice Chairman of the board of directors of Fisher Scientific
International, Inc. Mr.&nbsp;Meister is also a Managing Director
of Latona Associates, a merchant banking firm. Mr.&nbsp;Meister
also serves as a director of M&#38;F Worldwide Corp and LKQ
Corporation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>C.&nbsp;Dean Metropoulos </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;Metropoulos is Chairman and CEO
of C. Dean Metropoulos&nbsp;&#38; Company, a boutique
acquisition and management firm with offices in New York, NY,
Greenwich, CT and London, United Kingdom. C. Dean
Metropoulos&nbsp;&#38; Co. has been involved in more than 45
acquisitions involving over $12&nbsp;billion in invested capital
over the past 12&nbsp;years.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stephen P. Murray </I>has been one of our directors since
September 2002. Mr.&nbsp;Murray is a Partner of J.P.&nbsp;Morgan
Partners, LLC. Prior to joining J.P.&nbsp;Morgan Partners, LLC
in 1984, Mr.&nbsp;Murray was a Vice President with the
Middle-Market Lending Division of Manufacturers Hanover Trust
Company. Currently, he serves as a director of Cornerstone
Brands, ERisk, The Excite Network, La&nbsp;Petite Academy,
Pinnacle Foods, Strongwood Holdings and Zoots, Inc., and also
serves as a board observer at Cabela&#146;s, Inc.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Kevin G. O&#146;Brien </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;O&#146;Brien is a Principal of
J.P.&nbsp;Morgan Partners, LLC. Prior to joining
J.P.&nbsp;Morgan Partners, LLC in 2000, Mr.&nbsp;O&#146;Brien
was a Vice President in the High Yield Capital Markets and High
Yield Corporate Finance Groups at Chase Securities Inc. (a
predecessor of J.P.&nbsp;Morgan Securities, Inc.) since 1994.
Previously, he was an officer in the U.S.&nbsp;Navy. Currently,
he serves as a director of La&nbsp;Petite Academy and Pinnacle
Foods Holding Corp.
</DIV>

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Soren L. Oberg </I>became one of our directors on
November&nbsp;22, 2002. Mr.&nbsp;Oberg has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1993 and currently serves as Managing Director.
Prior to joining the firm, Mr.&nbsp;Oberg worked in the Merchant
Banking Division of Morgan Stanley&nbsp;&#38; Co., Inc.
Mr.&nbsp;Oberg is currently a director of American Media, Inc.
and Vertis, Inc., and also serves on the boards of several
private companies.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Andrew D. Seidel </I>became one of our directors on
January&nbsp;28, 2005. Mr.&nbsp;Seidel was employed by United
States Filter Corporation from inception in 1991 until its
acquisition by Siemens A.G. in 2004. From 2000 until 2004,
Mr.&nbsp;Seidel served as United States Filter
Corporation&#146;s Chief Executive Officer. Prior to 2000,
Mr.&nbsp;Seidel served as Executive Vice President and Chief
Operating Officer of the U.S.&nbsp;Filter Water&nbsp;&#38;
Wastewater Group. Mr.&nbsp;Seidel previously served as a
director on the board of United States Filter Corporation and
Philadelphia Suburban Water and as a director on the Management
Board of French-based Veolia Environnement. Mr.&nbsp;Seidel
holds a bachelor&#146;s degree in Chemical Engineering and an
MBA from the Wharton School at the University of Pennsylvania.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Committees of the Board of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has standing compensation and audit
committees. Upon the closing of this offering, we will create a
nominating and corporate governance committee.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Compensation Committee.</I> The members of our compensation
committee currently are Messrs.&nbsp;McKenna, Metropoulos and
Oberg. Within 90&nbsp;days following the closing of this
offering, we intend to nominate an independent director to our
compensation committee and will add a third new independent
member within one year of the closing of this offering to
replace Messrs.&nbsp;McKenna and Oberg so that all of our
compensation committee members will be independent as such term
is defined in Rule&nbsp;10A-3(b)(i) under the Exchange Act and
under NYSE Rule&nbsp;303(A). Our compensation committee:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviews and approves the compensation and benefits for our
    employees, directors and consultants;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    administers our employee benefit plans; authorizes and ratifies
    stock option grants and other incentive arrangements;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    authorizes employment and related agreements.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Audit Committee.</I> The members of our audit committee are
Messrs.&nbsp;Abbrecht, Meister and O&#146;Brien. Within
90&nbsp;days following the closing of this offering, we intend
to nominate an independent director to our audit committee and
will add a third new independent member within one year of the
closing of this offering to replace Messrs.&nbsp;Abbrecht and
O&#146;Brien so that all of our audit committee members will be
independent. Our board of directors has determined that
Mr.&nbsp;Meister currently meets the independence requirements
of the NYSE. Mr.&nbsp;Meister serves as the board&#146;s audit
committee financial expert. Our audit committee is responsible
for:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the annual appointment of our independent auditors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing the scope of, and approving, all audit and non-audit
    services and related fees of our independent auditors;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    reviewing with the independent auditors, among other matters,
    accounting principles we will use in financial reporting,
    internal auditing procedures and the adequacy of our internal
    auditing procedures.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Corporate Governance Committee.</I> Upon the closing of this
offering, we will create a corporate governance committee. Our
corporate governance committee will initially consist of at
least one independent director and we intend to have a majority
of the committee consist of independent directors within
90&nbsp;days following the closing of this offering and have a
fully independent corporate governance committee within one year
following the closing of this offering. Upon the closing of this
offering, among other functions, the principal duties and
responsibilities of our corporate governance committee will be
to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    identify candidates qualified to become board members,
    consistent with criteria approved by the board;</TD>
</TR>

</TABLE>

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    recommend the candidates identified be selected as nominees for
    the next annual meeting of shareholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    develop and recommend to the board a set of corporate governance
    principles applicable to the corporation;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    oversee the evaluation of the board and management.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation of Directors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our directors who are also our employees or employees of our
principal stockholders receive no additional compensation for
their service as directors. Compensation for other directors is
$25,000&nbsp;per annum for collective Board and Committee
service. Additionally, we provide payment of travel-related
expenses incurred in connection with attendance of Board and
Committee meetings.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Codes of Ethics</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our employee handbook contains certain standards for ethical
conduct required of our employees. We require all employees to
meet our ethical standards which include compliance with all
laws while performing their job duties with high integrity and
professionalism.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have also adopted a Code of Ethics for our Chief Executive
Officer, our Chief Financial Officer, our Corporate Controller
and all other executive officers, as well as certain other key
employees. This Code of Ethics is intended to promote honest and
ethical conduct, full and accurate reporting and compliance with
all applicable laws and regulations. A copy of our Code of
Ethics is posted on our website at
<U>www.nationalwaterworks.com</U>. In the event that we amend or
waive any of the provisions of the Code of Ethics, we intend to
disclose that fact on our website.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Executive Compensation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the compensation earned by our
Chief Executive Officer and four other most highly compensated
executive officers during 2004, 2003 and 2002.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="36%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Other Annual</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>All Other</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="left" nowrap><B>Name and Principal Position</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Salary</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Bonus</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap><B>Compensation(1)</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Compensation(2)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Harry K. Hornish,&nbsp;Jr.,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>452,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>450,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>97,849</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    President and Chief Executive Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>426,958</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>344,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>97,349</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,255</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,560,305</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Mechelle Slaughter,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>212,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>212,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>52,174</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Former Chief Financial Officer(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>200,943</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>162,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,674</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>172,634</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>77,510</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>937,875</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Terry Howell,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,750</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,337</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Chief Information Officer</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>150,712</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>121,500</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>28,837</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>135,708</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43,240</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>564,688</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J.L. Walker,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>138,440</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>51,142</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,209</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President&nbsp;&#151; Human Resources</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>130,589</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>48,230</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,709</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>104,512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,703</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>129,847</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philip Keipp,</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2004</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>137,746</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49,686</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,209</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Vice President and Chief Financial</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2003</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>124,801</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,382</TD>
    <TD>&nbsp;</TD>
</TR>

<TR bgcolor="#CCEEFF">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Officer(3)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2002</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>112,698</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>36,431</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>129,847</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Excludes perquisites and other benefits the amount of which did
    not exceed the greater of $50,000 or 10% of the employee&#146;s
    total salary and bonus.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Consists of 401(k) contributions by United States Filter
    Corporation and National Waterworks and the change of control
    bonuses paid by United States Filter Corporation in connection
    with the Acquisition. In April 2002, United States Filter
    Corporation entered into agreements with certain members of
    management and other key employees of U.S.&nbsp;Filter,
    including the persons listed in the executive compensation
    table, to provide them with an opportunity to earn cash
    incentive &#147;completion</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">55

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    bonuses&#148; in connection with the anticipated sale of the
    business of U.S.&nbsp;Filter. Completion bonus payments were
    made by United States Filter Corporation following consummation
    of the Acquisition to each employee with such an agreement,
    unless such individual&#146;s employment was terminated
    voluntarily or for cause prior thereto. Payments by United
    States Filter Corporation pursuant to these arrangements totaled
    $6.2&nbsp;million, including $1,550,050, $558,050, $124,050,
    $124,050 and $930,000 to Messrs.&nbsp;Hornish, Howell, Keipp and
    Walker, and Ms.&nbsp;Slaughter, respectively. Additionally,
    consists of restricted shares of Class&nbsp;A common stock which
    vested during each period. See additional discussion below.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Effective January&nbsp;5, 2005, Ms.&nbsp;Slaughter resigned as
    our Chief Financial Officer and was replaced by Mr.&nbsp;Philip
    Keipp. Mr.&nbsp;Keipp previously served as our Controller.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Employment Agreements.</I> We are party to employment
agreements with Mr.&nbsp;Hornish, Mr.&nbsp;Howell and
Mr.&nbsp;Keipp providing for base salaries of approximately
$482,000, $169,000 and $189,000, respectively, subject to annual
adjustment as determined by our board of directors. The
agreements with Mr.&nbsp;Hornish, Mr.&nbsp;Howell and
Mr.&nbsp;Keipp are set to expire on November&nbsp;22, 2006,
November&nbsp;22, 2006 and March&nbsp;1, 2009, respectively.
Each of the employment agreements provides for a four
(4)&nbsp;year term and a bonus, based on EBITDA, ranging from
10% to 100% of base salary. Additionally, Mr.&nbsp;Keipp&#146;s
employment agreement and related stock option agreement, which
were executed on March&nbsp;1, 2005, provide for the issuance of
employee stock options, for which vesting will be based on time
and various measures of company performance.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, each of the employment agreements provides for
certain severance payments to be made if the executive&#146;s
employment is terminated without &#147;cause,&#148; due to a
resignation for a &#147;good reason&#148; (each as defined in
the employment agreement), or involuntarily, such as a
consequence of death or disability. Following any of these
events, each of Messrs.&nbsp;Hornish, Howell and Keipp would be
entitled to receive their base salary over the twelve
(12)&nbsp;month period commencing on the date of termination,
(ii)&nbsp;a pro rata portion of any bonus earned during the
calendar year in which the termination occurs payable
concurrently with other management bonuses and
(iii)&nbsp;reimbursement for any previously unreimbursed
expenses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the employment agreements contains a non-compete and
non-solicitation provision pursuant to which each executive
agrees not to be affiliated with a competing business during the
term of the employment agreement and for a one-year period
thereafter, and not to solicit any of our employees, consultants
or customers during the term of the employment agreement and for
a three-year period thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to her resignation, Ms.&nbsp;Slaughter was party to a
similar employment agreement. No severance payments were due
upon Ms.&nbsp;Slaughter&#146;s resignation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Stock Sales and Restricted Stock Grants.</I>
Messrs.&nbsp;Hornish, Howell, Keipp, Walker and certain other
employees are parties to executive subscription and stock
purchase agreements with NWW&nbsp;Holdings. Mr.&nbsp;Hornish
purchased 20,400&nbsp;shares of NWW&nbsp;Holdings&#146;
Class&nbsp;B Common Stock, Mr.&nbsp;Howell purchased
2,700&nbsp;shares of NWW&nbsp;Holdings&#146; Class&nbsp;B Common
Stock, Messrs.&nbsp;Keipp and Walker each purchased
1,266&nbsp;shares of NWW Holdings&#146; Class&nbsp;B Common
Stock, and other employees purchased 25,266&nbsp;shares of NWW
Holdings&#146; Class&nbsp;B Common Stock, in each case at a
purchase price of $50.00&nbsp;per share of Class&nbsp;B Common
Stock. Such shares of Class&nbsp;B Common Stock represent, in
the aggregate, 1.28% of NWW&nbsp;Holdings&#146; fully-diluted
equity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, each of Messrs.&nbsp;Hornish, Howell, Keipp and
Walker, and certain other employees, purchased for nominal
consideration the conditional right to receive, in the
aggregate, up to 11.75% of the fully-diluted capital stock of
NWW&nbsp;Holdings, comprised of shares of
NWW&nbsp;Holdings&#146; Class&nbsp;A Common Stock and entered
into a restricted stock agreement with NWW&nbsp;Holdings. Under
the restricted stock agreements, the shares of Class&nbsp;A
Common Stock are subject to three forms of vesting:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    time-based vesting over a four-year period, covering 50% of the
    applicable employee&#146;s shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    performance-based vesting based on EBITDA targets over a
    four-year period, covering 25% of the applicable employee&#146;s
    shares; and</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">56

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    performance-based vesting based on net working capital targets
    over a four-year period, covering 25% of the applicable
    employee&#146;s shares.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All time-based vesting shall immediately accelerate if the
employee&#146;s employment is terminated without cause within
one year of a sale of NWW&nbsp;Holdings or National Waterworks
and all performance-based vesting shall immediately accelerate
if NWW&nbsp;Holdings or National Waterworks are sold or if there
is a public offering of equity securities of NWW&nbsp;Holdings
or National Waterworks, in each case, in which the Sponsors
realize a specified return on their original investment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In all other cases, upon termination of employment, all
time-based and performance-based vesting shall also immediately
cease, subject to certain pro rata vesting as of the date such
employee is terminated, and all unvested shares shall be subject
to repurchase. In addition, all vested shares shall also be
subject to repurchase if an employee&#146;s employment is
terminated for cause. All shares subject to performance-based
vesting shall automatically and immediately vest on the eighth
anniversary of the effective date of the restricted stock
agreement if the employee remains employed by us. Each employee
shall be obligated to vote unvested shares in the same manner
and proportions as the votes cast by the holders of
NWW&nbsp;Holdings&#146; voting capital stock not subject to
repurchase rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The restricted stock agreement executed by Mr.&nbsp;Walker
contains non-compete and non-solicitation provisions
substantially similar to those contained in the employment
agreements discussed above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In February 2005, we repurchased Ms.&nbsp;Slaughter&#146;s
45,607&nbsp;unvested shares of restricted Class&nbsp;A stock for
an amount equal to her original purchase price of those shares.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Compensation Committee Interlocks and Inside Participation</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2004, none of our executive officers served as a member
of the board of directors or compensation committee (or other
board committee performing similar functions) of another entity.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The compensation committee is authorized to make recommendations
to the board of directors with respect to the general
compensation and benefits for executive officers. The
compensation committee utilizes the same performance appraisal
form used for our other employees to evaluate the performance of
executive officers on an annual basis. Certain executive
officers are parties to employment agreements with us as
previously described in &#147;&#151;&nbsp;Employment
Agreements&#148; above.
</DIV>

<P align="center" style="font-size: 10pt;">57

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<DIV align="left" style="font-size: 10pt;">
 <A name='111'></A>
</DIV>

<!-- link1 "Principal and Selling Stockholders" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Principal and Selling Stockholders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth sets forth information as
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005 regarding beneficial ownership of our common stock before
and after completion of this offering (in each case, as adjusted
to reflect the conversion of our class&nbsp;B common stock into
class&nbsp;A common stock and the subsequent reclassification of
our class&nbsp;A common stock into common stock which is
expected to occur immediately prior to the consummation of this
offering), and shows the number of shares and percentage owned
by (i)&nbsp;each person known to beneficially own more than 5%
of our common stock before and after completion of this
offering, (ii)&nbsp;each of our named executive officers,
(iii)&nbsp;the other employee selling stockholders,
(iv)&nbsp;each member of our board of directors and (v)&nbsp;all
of our executive officers and members of our board of directors
as a group. As
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;,
2005, there
were &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;holders
of record of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The amounts and percentages of common stock beneficially owned
are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under
the rules of the SEC, a person is deemed to be a
&#147;beneficial owner&#148; of a security if that person has or
shares &#147;voting power,&#148; which includes the power to
vote or to direct the voting of such security, or
&#147;investment power,&#148; which includes the power to
dispose of or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities
of which that person has a right to acquire beneficial ownership
within 60&nbsp;days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person
may be deemed a beneficial owner of securities as to which he
has no economic interest.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The column below titled &#147;Shares to be Sold in this
Offering&#148; represents the shares of common stock being sold
in this offering by entities or funds affiliated with JPMP
Capital Corp. and Thomas H. Lee Equity Fund&nbsp;V, L.P., our
Sponsors, and by the other selling stockholders identified
below. Additional information with respect to our equity sponsor
and employee selling stockholders and their relationships with
our company is provided under the captions
&#147;Management&#148; and &#147;Certain Relationships and
Related Transactions.&#148;
</DIV>

<P align="center" style="font-size: 10pt;">58

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="27%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned After This</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned After This</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Offering Assuming</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Offering Assuming No</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercise in Full of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares Beneficially</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Exercise of the</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>the Option to</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Owned Prior to</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Option to Purchase</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Purchase Additional</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>This Offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Additional Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B>Shares</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares to be&nbsp;Sold</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>in This Offering</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>%</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    JPMP Capital Corp.(1)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thomas H. Lee Equity Fund&nbsp;V, L.P. and Co-Investment
    Entities(2)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Todd M. Abbrecht(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,024,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Anthony J. DiNovi(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,024,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Paul M. Meister(5)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    C. Dean Metropoulos(6)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen P. Murray(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Kevin G. O&#146;Brien(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Soren L. Oberg(4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,024,278</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stephen V. McKenna(3)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,059,351</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Harry K. Hornish,&nbsp;Jr.(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210,759</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4.4</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Terry Howell(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50,290</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1.1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Philip Keipp(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    J.L. Walker(7)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>*</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    All Executive Officers and Directors as a group (12&nbsp;persons)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,516,385</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94.5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>%</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="1%"></TD>
    <TD width="3%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>*&nbsp; &nbsp;</TD>
    <TD align="left">
    Less than 1%</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(1)&nbsp;</TD>
    <TD align="left">
    Includes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock owned by J.P.&nbsp;Morgan Partners (BHCA), L.P.,
    J.P.&nbsp;Morgan Partners Global Investors, L.P.,
    J.P.&nbsp;Morgan Partners Global Investors A, L.P.,
    J.P.&nbsp;Morgan Partners Global Investors (Cayman), L.P. and
    J.P.&nbsp;Morgan Partners Global Investors (Cayman)&nbsp;II,
    L.P., respectively. The general partner of J.P. Morgan Partners
    (BHCA), L.P. is JPMP Master Fund Manager, L.P. The general
    partner of each of J.P. Morgan Partners Global Investors, L.P.,
    J.P. Morgan Partners Global Investors (Cayman), L.P., J.P.
    Morgan Partners Global Investors&nbsp;A, L.P., and J.P. Morgan
    Partners Global Investors (Cayman) II, L.P. is JPMP Global
    Investors, L.P. JPMP Capital Corp., a wholly-owned subsidiary of
    JPMorgan Chase &#38; Co., a publicly-traded company, is the
    general partner of each of JPMP Master Fund Manager, L.P. and
    JPMP Global Investors, L.P. As a result, each of JPMP Master
    Fund Manager, L.P., JPMP Global Investors, L.P. and JPMP Capital
    Corp. may be deemed beneficial owners of the shares held by J.P.
    Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global
    Investors, L.P., J.P. Morgan Partners Global Investors A, L.P.,
    J.P. Morgan Partners Global Investors (Cayman), L.P., and J.P.
    Morgan Partners Global Investors (Cayman) II, L.P.
    (collectively, the &#147;JPMP Entities&#148;). The foregoing,
    however, shall not be construed as an admission that such
    entities are the beneficial owners of the shares held by the
    JPMP Entities. Each of the JPMP Entities, JPMP Master Fund
    Manager, L.P., JPMP Global Investors, L.P. and JPMP Capital
    Corp. are members of the private equity business unit of
    JPMorgan Chase &#38; Co., a publicly-traded company.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(2)&nbsp;</TD>
    <TD align="left">
    Includes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock owned by each of Thomas</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">59

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD></TD>
    <TD align="left">
    H. Lee Equity Fund&nbsp;V, L.P., Thomas H. Lee Parallel
    Fund&nbsp;V, L.P., Thomas H. Lee Cayman Fund&nbsp;V, L.P.
    (collectively, the &#147;THL&nbsp;Funds&#148;), Putnam
    Investments Holdings, LLC, Putnam Investments Employees&#146;
    Securities Company&nbsp;I LLC, Putnam Investments
    Employees&#146; Securities Company&nbsp;II LLC (collectively,
    the &#147;Putnam Funds&#148;), 1997 Thomas H. Lee Nominee Trust
    (the &#147;Lee Trust&#148;) and Thomas H. Lee Investors Limited
    Partnership (&#147;Investors&#148;), respectively. The shares
    held by the THL&nbsp;Funds may be deemed to be beneficially
    owned by THL&nbsp;Equity Advisors&nbsp;V, LLC
    (&#147;Advisors&#148;), the general partner of each of the THL
    Funds. Advisors disclaims beneficial ownership of such shares.
    The Putnam Funds, the Lee Trust and Investors are co-investment
    entities of the THL Funds and each disclaims beneficial
    ownership of any shares other than those shares held directly by
    such entity. Each of the THL&nbsp;Funds, Advisors, Investors and
    the Lee Trust has an address c/o&nbsp;Thomas H. Lee Partners,
    L.P., 75&nbsp;State Street, Suite&nbsp;2600, Boston,
    Massachusetts 02109. The Putnam Funds have an address
    c/o&nbsp;Putnam Investment, Inc., 1&nbsp;Post Office Square,
    Boston, Massachusetts 02109.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="4%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>(3)&nbsp;</TD>
    <TD align="left">
    Each of Messrs.&nbsp;Murray, McKenna and O&#146;Brien may be
    deemed the beneficial owner of the shares of common stock owned
    by affiliates of J.P.&nbsp;Morgan Partners, LLC set forth in
    note (1)&nbsp;due to their status as a partner or principal of
    J.P.&nbsp;Morgan Partners, LLC, which advises such entity. Each
    such person disclaims beneficial ownership of any such shares,
    except to the extent of his pecuniary interest.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(4)&nbsp;</TD>
    <TD align="left">
    Each of Messrs.&nbsp;Abbrecht, DiNovi and Oberg may be deemed
    the beneficial owner of the shares of common stock owned by the
    THL&nbsp;Funds and Investors in their capacity as a managing
    director with respect to Messrs. Abbrecht and Oberg, and
    Co-President, with respect to Mr. DiNovi, of Thomas H. Lee
    Partners, L.P. Each of Messrs.&nbsp;Abbrecht, DiNovi and Oberg
    disclaim beneficial ownership of any such shares.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(5)&nbsp;</TD>
    <TD align="left">
    Shares are owned by a limited liability company of which
    Mr.&nbsp;Meister is manager.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(6)&nbsp;</TD>
    <TD align="left">
    Shares are owned by a trust for the benefit of the children of
    Mr.&nbsp;Metropoulos.</TD>
</TR>

<TR>
    <TD style="font-size: 3pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>(7)&nbsp;</TD>
    <TD align="left">
    Each of Messrs.&nbsp;Hornish, Howell, Keipp and Walker
    holds &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
    of common stock, respectively.</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">60
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<DIV align="left" style="font-size: 10pt;">
 <A name='112'></A>
</DIV>

<!-- link1 "Certain Relationships and Related Transactions" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Certain Relationships and Related Transactions</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Stockholders&#146; Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are a party to a stockholders&#146; agreement with all of our
stockholders. The stockholders&#146; agreement, among other
matters:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    restricts the transfer of our shares, subject to certain
    exceptions, and provides that all transferees must become a
    party to the stockholders&#146; agreement;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    establishes a board of directors consisting of ten directors
    (nine prior to January&nbsp;27, 2005), of which:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    three will be nominated by the stockholders affiliated with
    J.P.&nbsp;Morgan Partners, LLC (the &#147;JPM Directors&#148;)
    so long as they own at least 25% of our common stock on a fully
    diluted basis; or two persons if they own less than 25% but 10%
    or more of our common stock, and one person if they own more
    than 0% but less than 10% of our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    three will be nominated by the stockholders affiliated with
    Thomas H. Lee Partners, L.P. (the &#147;THL Directors&#148;) so
    long as they own at least 25% of our common stock on a fully
    diluted basis; or two persons if they own less than 25% but 10%
    or more of our common stock, and one person if they own more
    than 0% but less than 10% of our common stock;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    one will be our chief executive officer;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    three shall be nominated by the other directors including a
    majority of each of the JPM Directors and the THL Directors so
    long as the affiliates of J.P.&nbsp;Morgan Partners, LLC or
    Thomas H. Lee Partners, L.P., respectively, own at least 10% of
    our common stock on a fully-diluted basis;</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    requires each stockholder of Holdings to vote all their shares
    for the election of the persons nominated as directors as
    provided above;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    prohibits us from taking the following actions without the prior
    approval of the stockholders affiliated with each of
    J.P.&nbsp;Morgan Partners, LLC and Thomas H. Lee Partners, L.P.
    so long as in each case the stockholders affiliated with the
    applicable Sponsor owns at least 10% of our outstanding capital
    stock:</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="1%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    materially changing the duties of or terminating our chief
    executive officer, chief financial officer, chief operating
    officer or chief information officer, amending or revising any
    employment agreement with any such officer, or, if any such
    officer is terminated, hiring a replacement for such officer;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    incurring indebtedness outside of the ordinary course of
    business;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    entering into agreements to acquire a controlling interest in,
    or all or substantially all of the assets of, another entity;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    making investments or capital expenditures, in each case in
    excess of $250,000 that are not included in the annual operating
    budget approved by the board;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    disposing of assets outside the ordinary course of business and
    other than sales of fully depreciated or obsolete or surplus
    tangible personal property;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    entering into transactions with affiliates subject to specified
    exceptions;&nbsp;or</TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    effecting any changes in our strategic direction not specified
    in our annual strategic plan;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    contains rights of the Class&nbsp;B stockholders and, under
    certain circumstances, the Class&nbsp;A stockholders to
    participate in transfers of Holdings&#146; shares by
    stockholders to third parties;</TD>
</TR>

</TABLE>

<P align="center" style="font-size: 10pt;">61

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<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    requires the stockholders to participate in and cooperate in
    consummating a sale of the Company that is approved by
    stockholders holding at least 75% of the outstanding
    Class&nbsp;B shares;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants us and the stockholders affiliated with the Sponsors,
    including certain of their affiliates, certain rights of first
    refusal with respect to transfers of our Class&nbsp;B shares to
    third parties by Class&nbsp;B stockholders other than those
    affiliated with the Sponsors and grants the stockholders
    affiliated with a Sponsor certain rights of first refusal with
    respect to transfers of our shares to third parties by the other
    Sponsor;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    grants the holders of Class&nbsp;B Common Stock certain
    preemptive rights;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    requires each stockholder (other than stockholders affiliated
    with the Sponsors) to grant an irrevocable proxy to our chief
    executive officer, to vote all such stockholder&#146;s shares in
    order to effectuate the provisions of the stockholder&#146;s
    agreement.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to an initial public offering of our capital stock, the
stockholders&#146; agreement provides that we will be required
to redeem each issued and outstanding share of its Class&nbsp;B
Common Stock for:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the unreturned original cost and unpaid yield upon such shares
    to the date of the closing of the initial public offering, which
    may be paid in cash (to the extent contractually permitted) or
    short-term securities, or a combination thereof, as may be
    reasonably acceptable to holders of 75% of the Class&nbsp;B
    Common Stock then outstanding; plus</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    one share of our Class&nbsp;A Common Stock.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The stockholders&#146; agreement will terminate upon our sale,
dissolution or liquidation.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Registration Rights Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are party to a registration rights agreement with the holders
of Class&nbsp;B Common Stock. The registration rights agreement,
among other matters, provides for the following, subject to
certain customary limitations:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Demand registration.</I> At any time following the effective
    date of a registration statement filed by us with respect to an
    initial public offering of our capital stock, at the request of
    stockholders affiliated with a Sponsor, we will be required to
    use our best efforts to register the common shares, including
    shares convertible or exercisable for common shares, held by
    such requesting stockholders under the Securities Act provided
    that the anticipated aggregate offering price to the public is
    at least $25&nbsp;million. The registration rights agreement
    provides for up to three demand registrations on Form&nbsp;S-1
    for each Sponsor and its affiliates who are stockholders.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Piggyback registration.</I> If we propose to register any of
    our shares for our own account or otherwise, we must give
    written notice to each of our Class&nbsp;B stockholders of our
    intention to register and upon written request, we must use our
    best efforts to cause all requested shares to be included in
    such registration on the same terms and conditions as the
    securities otherwise being sold, subject to standard cutback and
    other customary restrictions.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Registration on Form&nbsp;S-3.</I> If we will have qualified
    for the use of Form&nbsp;S-3, the stockholders affiliated with a
    Sponsor will have the unlimited right to request that we effect
    a registration under the Securities Act using Form&nbsp;S-3. We
    will not be obligated to effect any such registration if the
    anticipated gross offering price of all shares to be registered
    would be less than $10,000,000 or if we will have effected four
    or more registration statements on Form&nbsp;S-3 during the
    12-month period prior to the date of such request for
    registration.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, the registration rights agreement provides for the
payment by us of all of the fees and expenses of any
registration provided for in such agreement, including the
attorney&#146;s fees for the selling stockholder&#146;s but
excluding underwriting discounts and selling commissions which
shall be borne by the selling stockholders on a pro rata basis.
The registration rights agreement also contains standard
indemnification provisions customary in an agreement of this
type from us to the selling stockholders.
</DIV>

<P align="center" style="font-size: 10pt;">62

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Arrangement with Sponsors</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks is a party to a management agreement with
the Sponsors. Under this agreement, the Sponsors agreed to
provide National Waterworks with financial advisory and other
services. National Waterworks pays each Sponsor an annual
management fee in the amount of $0.5&nbsp;million
($1.0&nbsp;million in the aggregate). National Waterworks pays
this fee quarterly in advance. National Waterworks also
reimburses the Sponsors for all expenses incurred by them in
connection with the agreement. The management agreement also
contains standard indemnification provisions for agreements of
this type. The management agreement may be terminated by a
Sponsor with respect to that Sponsor only, or by mutual consent
of the Sponsors, at any time on 30&nbsp;days notice, and will
terminate with respect to a Sponsor on the date such Sponsor
owns less than 5% of our capital stock that it purchased on the
closing date of the Acquisition. In addition, the management
agreement may be terminated with respect to a Sponsor in
connection with an initial public offering or a change in law,
occurrence or event which causes the existence of the management
agreement to render any of the directors designated by a Sponsor
an &#147;interested&#148; or not otherwise independent director
or adversely affects such Sponsor&#146;s right to designate a
director or such director&#146;s ability to perform his duties
as director. In such event, such Sponsor will be entitled to
receive a termination fee equal to the net present value of the
fees which would have been paid to the Sponsor for the
10&nbsp;year period commencing on the date of termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, upon consummation of the Acquisition, National
Waterworks paid each Sponsor a transaction fee in the amount of
$8.0&nbsp;million ($16.0&nbsp;million in the aggregate).
National Waterworks also paid all expenses of the Sponsors and
their controlled affiliates, including the fees and expenses of
their respective counsel and other advisors and consultants, in
connection with the Acquisition. These arrangements with the
Sponsors also contain standard indemnification provisions by us
of the Sponsors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Arrangements with Affiliates of J.P.&nbsp;Morgan Partners,
LLC</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks is a party to a senior credit facility with
J.P.&nbsp;Morgan Securities Inc. as a co-syndication agent and
as a joint lead arranger and Chase Lincoln First Commercial
Corp., an affiliate of JPMorgan Chase Bank, as a lender.
J.P.&nbsp;Morgan Securities Inc. was also an initial purchaser
of the notes. Both J.P.&nbsp;Morgan Securities Inc. and Chase
Lincoln First Commercial Corp. are affiliates of
J.P.&nbsp;Morgan Partners, LLC. In connection with the senior
credit facility and amendments thereto, J.P.&nbsp;Morgan
Securities Inc. and Chase Lincoln First Commercial Corp.
received customary fees for acting in such capacities.
J.P.&nbsp;Morgan Securities Inc. was also paid customary
underwriting fees in connection with the offering of our senior
subordinated notes. In addition, J.P.&nbsp;Morgan Securities
Inc. received a customary fee in respect of a bridge financing
commitment which was not utilized. The aggregate amount of fees
paid in connection with those transactions to affiliates of J.P.
Morgan Partners, LLC was approximately $6.6&nbsp;million.
J.P.&nbsp;Morgan Securities Inc. is also acting as one of the
underwriters in connection with this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Tax Allocation Agreement</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW&nbsp;Holdings files federal income tax returns with National
Waterworks on a consolidated basis. At the closing of the
Acquisition, NWW&nbsp;Holdings entered into a tax allocation
agreement with National Waterworks which provides that National
Waterworks will make distributions to NWW&nbsp;Holdings, and
NWW&nbsp;Holdings will make contributions to National
Waterworks, such that National Waterworks will incur the expense
for taxes generated by its business on the same basis as if we
did not file consolidated tax returns.
</DIV>

<P align="center" style="font-size: 10pt;">63
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<DIV align="left" style="font-size: 10pt;">
<A name='113'></A>
</DIV>

<!-- link1 "Description of Certain Indebtedness" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Description of Certain Indebtedness</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Our Existing Credit Facility</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW Holdings and National Waterworks entered into a senior
credit facility with J.P.&nbsp;Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as joint lead arrangers,
joint bookrunners and co-syndication agents, UBS AG, Stamford
Branch, as administrative agent, and certain banks and financial
institutions as lenders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The existing credit facility consists of a $75.0&nbsp;million
senior secured revolving credit facility that matures on
November&nbsp;22, 2008, and a $250.0&nbsp;million senior secured
term loan facility that matures on November&nbsp;22, 2009.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Borrowings under the senior credit facility bear interest as
follows:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD align="left">
    <I>Revolving credit facility:</I> (a)&nbsp;in the case of loans
    with an interest rate based on the ABR rate, an applicable
    margin of 2.00%&nbsp;per annum plus the higher of (1)&nbsp;UBS
    AG, Stamford Branch&#146;s prime rate and (2)&nbsp;the federal
    funds effective rate plus 0.5% or (b)&nbsp;in the case of loans
    with an interest rate based on the Eurodollar rate, the
    Eurodollar rate plus an applicable margin of 3.00%&nbsp;per
    annum. Such applicable margins are currently subject to
    reduction if National Waterworks attains certain leverage
    ratios;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    <I>Term loan facility:</I> (a)&nbsp;in the case of loans with an
    interest rate based on the ABR rate, an applicable margin of
    1.75%&nbsp;per annum plus the higher of (1)&nbsp;UBS AG,
    Stamford Branch&#146;s prime rate and (2)&nbsp;the federal funds
    effective rate plus 0.5% or (b)&nbsp;in the case of loans with
    an interest rate based on the Eurodollar rate, the Eurodollar
    rate plus an applicable margin of 2.50%&nbsp;per annum.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The senior credit facility provides for the payment to the
lenders of a commitment fee on average unused commitments under
the revolving credit facility initially equal to 0.5%&nbsp;per
annum. Such commitment fee is currently subject to reduction if
National Waterworks attains certain leverage ratios.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>The 10.50%&nbsp;Notes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks currently has $200.0&nbsp;million aggregate
principal amount of its 10.50%&nbsp;Notes outstanding.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest on the 10.50%&nbsp;Notes accrues at the rate of
10.50%&nbsp;per annum and is payable semi-annually in arrears on
June&nbsp;1 and December&nbsp;1 each year. The 10.50%&nbsp;Notes
mature on December&nbsp;1, 2012. National Waterworks is not
required to make mandatory redemption or sinking fund payments
with respect to the 10.50%&nbsp;Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 10.50%&nbsp;Notes are guaranteed on a senior subordinated
basis by all of National Waterworks&#146; future domestic
subsidiaries, if any. National Waterworks does not currently
have any subsidiaries.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 10.50%&nbsp;Notes are general unsecured senior subordinated
obligations of National Waterworks. They rank behind all of
National Waterworks&#146; current and future indebtedness, other
than trade payables, except future indebtedness that expressly
provides that it ranks equally with, or subordinated in right of
payment to, the 10.50%&nbsp;Notes. The 10.50%&nbsp;Notes rank
equally with all of National Waterworks&#146; future senior
subordinated indebtedness. The 10.50%&nbsp;Notes are effectively
subordinated to all obligations of National Waterworks&#146;
subsidiaries that exist in the future and do not guarantee the
10.50%&nbsp;Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to the closing of this offering, National Waterworks
intends to commence a tender offer and consent solicitation with
respect to all its outstanding $200.0&nbsp;million aggregate
principal amount of 10.50%&nbsp;Notes. The closing of this
offering is conditioned upon the receipt of the tenders and
consents of at least a majority in aggregate principal amount of
the outstanding 10.50%&nbsp;Notes. Upon receipt of the requisite
consents, National Waterworks will execute a supplemental
indenture with respect to the 10.50%&nbsp;Notes, with
effectiveness subject to the consummation of the tender offer.
The supplemental
</DIV>

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<DIV align="left" style="font-size: 10pt;">
indenture will delete all of the material restrictive covenants
contained in the indenture governing the 10.50%&nbsp;Notes. The
only operative material covenant will be the covenant to make
payment on the 10.50%&nbsp;Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>12.50%&nbsp;Notes</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On October&nbsp;29, 2004, NWW Holdings completed a private
offering of $250.0&nbsp;million aggregate principal amount of
its 12.50%&nbsp;Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Interest on the 12.50%&nbsp;Notes accrues at the rate of
12.50%&nbsp;per annum and is payable quarterly in arrears on
March&nbsp;15, June&nbsp;15, September 15 and December 15 of
each year. The 12.50%&nbsp;Notes mature on January&nbsp;1, 2014.
NWW Holdings is not required to make mandatory redemption or
sinking fund payments with respect to the 12.50%&nbsp;Notes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW Holdings may redeem all or a portion of the
12.50%&nbsp;Notes prior to December&nbsp;1, 2007 at a price
equal to 100% of the principal amount of the 12.50%&nbsp;Senior
Notes plus a &#147;make-whole&#148; premium. NWW Holdings
intends to repurchase the 12.50%&nbsp;Notes concurrently with
the closing of this offering.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='114'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Description of Capital Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following is a description of the terms of our amended and
restated certificate of incorporation and amended and restated
by-laws, the forms of which have been filed with the Securities
and Exchange Commission as exhibits to the registration
statement of which this prospectus is part and which will become
effective upon the consummation of this offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Authorized Capitalization</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon the closing of this offering, our authorized capital stock
will consist of:
</DIV>

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    <TD align="left">
    shares of common stock, par value $0.01&nbsp;per share, all such
    shares will be designated common stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    shares of preferred stock, par value $0.01&nbsp;per share.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
After this offering, and including the conversion of all of our
class&nbsp;B common stock into our class&nbsp;A common stock and
the reclassification of our class&nbsp;A common stock into our
common
stock, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our common stock and no shares of our preferred stock will be
issued and outstanding. The number of shares of our common stock
issued and outstanding
includes &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of restricted stock to be awarded under our stock incentive plan
on the closing date of this offering, which shares will begin to
vest
on &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and
will not be entitled to receive dividends for any period prior
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors will adopt a dividend policy, effective
upon the closing of this offering, pursuant to which, in the
event and to the extent we have cash available for distribution
to the holders of our common stock, and subject to applicable
law and the terms of our credit facility and any other
outstanding indebtedness of ours, our board of directors will
declare cash dividends on our common stock. This policy reflects
our judgment that our stockholders would be better served if we
distributed a substantial portion of our cash available for
distribution to them instead of retaining it in our business.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004, there were
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;record
holders of our class&nbsp;A common stock
and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;record
holders of our class&nbsp;B common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Common Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All shares of common stock to be outstanding upon completion of
this offering will be validly issued, fully paid and
nonassessable.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends.</I> Holders of shares of our common stock will be
entitled to receive dividends and other distributions in cash,
stock or property of ours as may be declared by our board of
directors from time to time out of our assets or funds legally
available for dividends or other distributions. Dividends on our
common stock will not be cumulative. Consequently, if dividends
on our common stock are not declared and/or paid at the targeted
level, our stockholders will not be entitled to receive such
payments in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors will adopt a dividend policy, effective
upon the closing of this offering, pursuant to which, in the
event and to the extent we have cash available for distribution
to the holders of shares of our common stock, and subject to
applicable law and the terms of our credit facility, and any
other then outstanding indebtedness of ours, our board of
directors will declare cash dividends on our common stock. The
initial dividend rate on our common stock is expected to be
equal to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share per annum, subject to adjustment.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors may, in its discretion, amend or repeal
the dividend policy with respect to our common stock to decrease
the level of dividends provided for or discontinue entirely the
payment of dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Rights Upon Liquidation.</I> In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share in our
assets remaining after
</DIV>

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<DIV align="left" style="font-size: 10pt;">
payment of all debts and other liabilities, subject to the
liquidation preference of any outstanding preferred stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Voting Rights.</I> Shares of our common stock carry one vote
per share. Except as otherwise required by law, holders of our
common stock are not entitled to vote on any amendment to our
amended and restated certificate of incorporation that relates
solely to the terms of one or more outstanding series of
preferred stock if the holders of the affected shares are
entitled to vote on the amendment. Holders of shares of our
common stock will not be entitled to cumulative voting rights.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except as otherwise required by the Delaware General Corporation
Law and our amended and restated certificate of incorporation
and amended and restated by-laws, action requiring stockholder
approval may be taken by a vote of the holders of a majority of
the common stock at a meeting at which a quorum is present. See
&#147;&#151;&nbsp;Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Restated Certificate of Incorporation and
Amended and Restated By-laws.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Other Rights.</I> Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Preferred Stock</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated certificate of incorporation provides
that we may issue up
to &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of our preferred stock in one or more series as may be
determined by our board of directors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our board of directors has broad discretionary authority with
respect to the rights of issued series of our preferred stock
and may take several actions without any vote or action of the
holders of our common stock, including:
</DIV>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    determining the number of shares to be included in each series;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

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    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    fixing the designation, powers, preferences and relative rights
    of the shares of each series and any qualifications, limitations
    or restrictions with respect to each series, including
    provisions related to dividends, conversion, voting, redemption
    and liquidation, which may be superior to those of our common
    stock;&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    increasing or decreasing the number of shares of any series.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The board of directors may authorize, without approval of
holders of our common stock, the issuance of preferred stock
with voting and conversion rights that could adversely affect
the voting power and other rights of holders of our common
stock. For example, our preferred stock may rank prior to our
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be
convertible into shares of our common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our preferred stock could be issued quickly with terms designed
to delay or prevent a change in the control of our company or to
make the removal of our management more difficult. This could
have the effect of discouraging third party bids for our common
stock or may otherwise adversely affect the market price of our
common stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe that the ability of our board of directors to issue
one or more series of our preferred stock will provide us with
flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of our preferred stock, as well as
shares of our common stock, will be available for issuance
without action by our common stockholders, unless such action is
required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Although our board of directors has no intention at the present
time of doing so, it could issue a series of our preferred stock
that could, depending on the terms of such series, be used to
implement a stockholder rights plan or otherwise impede the
completion of a merger, tender offer or other takeover
</DIV>

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<DIV align="left" style="font-size: 10pt;">
attempt of our company. Our board of directors could issue
preferred stock having terms that could discourage an
acquisition attempt through which an acquirer may be able to
change the composition of the board of directors, including a
tender offer or other transaction that some, or a majority, of
our stockholders might believe to be in their best interest or
in which stockholders might receive a premium for their stock
over the then best current market price.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Anti-Takeover Effects of Various Provisions of Delaware Law
and Our Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Provisions of the Delaware General Corporation Law, our amended
and restated certificate of incorporation and amended and
restated by-laws contain provisions that may have some
anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in
a premium over the market price for the shares held by
stockholders.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

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    <TD></TD>
    <TD>
    <B><I>Delaware Anti-Takeover Statute</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We are subject to Section&nbsp;203 of the Delaware General
Corporation Law. Subject to specific exceptions,
Section&nbsp;203 prohibits a publicly held Delaware corporation
from engaging in a &#147;business combination&#148; with an
&#147;interested stockholder&#148; for a period of three years
after the time the person became an interested stockholder,
unless:
</DIV>

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    <TD align="left">
    the business combination, or the transaction in which the
    stockholder became an interested stockholder, is approved by our
    board of directors prior to the time the interested stockholder
    attained that status;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    upon consummation of the transaction that resulted in the
    stockholder becoming an interested stockholder, the interested
    stockholder owned at least 85% of the voting stock of the
    corporation outstanding at the time the transaction commenced,
    excluding those shares owned by persons who are directors and
    also officers and by employee stock plans in which employee
    participants do not have the right to determine confidentially
    whether shares held subject to the plan will be tendered in a
    tender or exchange offer;&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    at or after the time a person became an interested stockholder,
    the business combination is approved by our board of directors
    and authorized at an annual or special meeting of stockholders
    by the affirmative vote of at least two-thirds of the
    outstanding voting stock that is not owned by the interested
    stockholder.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&#147;Business combinations&#148; include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, in
general an &#147;interested stockholder&#148; is a person who,
together with his or her affiliates and associates, owns, or
within three years did own, 15% or more of the shares of the
corporation&#146;s outstanding voting stock. These restrictions
could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to us and,
therefore, may discourage attempts to acquire us.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, provisions of our amended and restated certificate
of incorporation and amended and restated by-laws, which are
summarized in the following paragraphs, may have an
anti-takeover effect.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Quorum Requirements; Removal of Directors.</I> Our amended
and restated certificate of incorporation provides for a minimum
quorum of one-third in voting power of the outstanding shares of
our capital stock entitled to vote, except that a minimum quorum
of a majority in voting power of the outstanding shares of our
capital stock entitled to vote is necessary to hold a vote for
any director in a contested election, the removal of a director
or the filling of a vacancy on our board of directors. Our
amended and restated by-laws provide that directors may be
removed only for cause by the affirmative vote of at least a
majority in voting power of the outstanding shares of our
capital stock entitled to vote generally in the election of
directors.
</DIV>

<P align="center" style="font-size: 10pt;">68

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>No Cumulative Voting.</I> The Delaware General Corporation
Law provides that stockholders are denied the right to cumulate
votes in the election of directors unless our amended and
restated certificate of incorporation provides otherwise. Our
amended and restated certificate of incorporation does not
expressly address cumulative voting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>No Stockholder Action by Written Consent; Calling of Special
Meeting of Stockholders.</I> Our amended and restated
certificate of incorporation prohibits stockholder action by
written consent. It and our amended and restated by-laws also
provide that special meetings of our stockholders may be called
only by (1)&nbsp;the chairman of our board of directors or
(2)&nbsp;our board of directors or (3)&nbsp;our board of
directors upon a request by holders of at least 50% in voting
power of all the outstanding shares entitled to vote at that
meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Advance Notice Requirements for Stockholder Proposals and
Director Nominations.</I> Our amended and restated by-laws
provide that stockholders seeking to bring business before or to
nominate candidates for election as directors at an annual
meeting of stockholders must provide timely notice of their
proposal in writing to the corporate secretary. To be timely, a
stockholder&#146;s notice must be delivered or mailed and
received at our principal executive offices not less than 90 nor
more than 120&nbsp;days in advance of the anniversary date of
the immediately preceding annual meeting of stockholders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated by-laws also specify requirements as to
the form and content of a stockholder&#146;s notice. These
provisions may impede stockholders&#146; ability to bring
matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
Stockholder nominations for the election of directors at a
special meeting must be received by our corporate secretary by
the later of 10&nbsp;days following the day on which notice of
the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made or 90&nbsp;days
prior to the date that meeting is proposed to be held and not
more than 120&nbsp;days prior to such meeting.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Limitations on Liability and Indemnification of Officers and
Directors.</I> The Delaware General Corporation Law authorizes
corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary
damages for breaches of directors&#146; fiduciary duties as
directors. Our amended and restated certificate of incorporation
includes a provision that eliminates the personal liability of
directors to us or our stockholders for monetary damages for
breaches of their fiduciary duty as directors to the fullest
extent permitted by the Delaware General Corporation Law.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated by-laws provide that we must indemnify
our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law and that such indemnitees
shall generally also be entitled to an advancement of expenses.
We are also expressly authorized to, and do, carry
directors&#146; and officers&#146; insurance for our directors,
officers and certain employees for some liabilities. We believe
that these indemnification provisions and insurance are useful
to attract and retain qualified directors and executive officers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The limitation of liability and indemnification provisions in
our amended and restated by-laws may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Authorized but Unissued Shares.</I> Our authorized but
unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock
</DIV>

<P align="center" style="font-size: 10pt;">69

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<DIV align="left" style="font-size: 10pt;">
and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Supermajority Provisions.</I> The Delaware General
Corporation Law provides generally that the affirmative vote of
a majority in voting power of the outstanding shares entitled to
vote is required to amend a corporation&#146;s certificate of
incorporation, unless the certificate of incorporation requires
a greater percentage. Our amended and restated certificate of
incorporation provides that the following provisions in the
amended and restated certificate of incorporation may be amended
only by a vote of two-thirds or more in voting power of all the
outstanding shares of our capital stock entitled to vote:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the prohibition on stockholder action by written consent;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the ability to call a special meeting of stockholders being
    vested solely in (1)&nbsp;the chairman of our board of
    directors, (2)&nbsp;our board of directors and (3)&nbsp;our
    board of directors upon a request by holders of at least 50% in
    voting power of all the outstanding shares entitled to vote at
    that meeting;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions requiring that our business and affairs be
    managed by or under the direction of our board of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the classification of our board of
    directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the size of our board of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the filling of vacancies on our board
    of directors;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to the quorum requirements at
    stockholder meetings for the transaction of business and at
    stockholder meetings regarding votes for any director in a
    contested election, the removal of a director, or the filling of
    a vacancy on our board of directors by our stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions relating to advance notice requirements for
    stockholder proposals and director nominations;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the limitation on the liability of our directors to us and our
    stockholders;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions granting authority to our board of directors to
    amend or repeal our by-laws without a stockholder vote, as
    described below in more detail;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the provisions granting stockholders representing no less than
    two-thirds of the voting power of our capital stock the
    authority to amend our by-laws, as described below in more
    detail; and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the supermajority voting requirements listed above.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our amended and restated certificate of incorporation grants our
board of directors the authority to amend and repeal our by-laws
without a stockholder vote in any manner not inconsistent with
the laws of the State of Delaware or our amended and restated
certificate of incorporation. In addition, our restated
certificate of incorporation provides that our amended and
restated by-laws may be amended by stockholders representing no
less than two-thirds of the voting power of all the outstanding
shares of our capital stock entitled to vote.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Listing</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to list our common stock on the New York Stock
Exchange under the trading symbol &#147;NWW.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Transfer Agent and Registrar</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;will
be the transfer agent and registrar for our shares of common
stock.
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='115'></A>
</DIV>

<!-- link1 "Shares Eligible for Future Sale" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Shares Eligible for Future Sale</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Upon completion of this
offering, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock will be outstanding. Of these shares, the shares
of common stock sold in this offering will be freely tradable
without restriction or further registration under the Securities
Act, except for any shares which may be acquired by an affiliate
of ours as that term is defined in Rule&nbsp;144 under the
Securities Act, which will be subject to the resale limitations
of Rule&nbsp;144. The
remaining &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
of common stock outstanding will be restricted securities, as
that term is defined in Rule&nbsp;144, and may in the future be
sold without restriction under the Securities Act to the extent
permitted by Rule&nbsp;144 or any applicable exemption under the
Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In general, under Rule&nbsp;144 as currently in effect, a person
(or persons whose shares are aggregated) who has beneficially
owned its, his or her shares of common stock for at least one
year from the date such securities were acquired from us or an
affiliate of ours would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of one percent of the then-outstanding shares of common
stock (approximately shares immediately after this offering) and
the average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person. Sales under
Rule&nbsp;144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current
public information about us. Under Rule&nbsp;144, however, a
person who has held restricted securities for a minimum of two
years from the later of the date of such securities were
acquired from us or an affiliate of ours and who is not, and for
the three months prior to the sale of such restricted securities
has not been, an affiliate of ours, is free to sell such shares
of common stock without regard to the volume, manner-of-sale and
the other limitations contained in Rule&nbsp;144. The foregoing
summary of Rule&nbsp;144 is not intended to be a complete
discussion thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Commencing 180&nbsp;days after the date of this prospectus,
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;outstanding
restricted securities will be eligible for sale under
Rule&nbsp;144 subject to applicable volume limitations, manner
of sale and notice requirements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or any securities convertible into or
exchangeable or exercisable for any such shares, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for
a period
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;days
after the date of this prospectus, subject to specified
exceptions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Our officers, directors and all existing stockholders have
agreed, subject to specified exceptions, that they will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, shares of our common stock or any
securities convertible into or exchangeable or exercisable for
any such securities, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement without, in each case, the prior written
consent
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;for
a period
of &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;days
after the date of this prospectus.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no established market for
our common stock, and no predictions can be made about the
effect, if any, that market sales of shares of common stock or
the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, the actual
sale of, or the perceived potential for the sale of, common
stock in the public market may have an adverse effect on the
market price for the common stock.
</DIV>

<P align="center" style="font-size: 10pt;">71

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<DIV align="left" style="font-size: 10pt;">
<A name='116'></A>
</DIV>

<!-- link1 "Material U.S. Federal Income Tax Consequences for Non-U.S. Holders" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Material U.S.&nbsp;Federal Income Tax Consequences for
Non-U.S. Holders</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following discussion describes the material
U.S.&nbsp;federal income tax consequences associated with the
purchase, ownership, and disposition of our common stock as of
the date hereof by Non-U.S.&nbsp;Holders. A &#147;Non-U.S.
Holder&#148; is a holder that is not a
&#147;U.S.&nbsp;Holder.&#148;
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
A &#147;U.S.&nbsp;Holder&#148; means a holder of common stock
that is for U.S.&nbsp;federal income tax purposes:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an individual citizen or resident of the United States,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a corporation (or other entity taxable as a corporation) created
    or organized in or under the laws of the United States or any
    state thereof or the District of Columbia,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    an estate the income of which is subject to U.S.&nbsp;federal
    income taxation regardless of its source,&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    a trust if it (1)&nbsp;is subject to the primary supervision of
    a court within the United States and one or more
    U.S.&nbsp;persons have the authority to control all substantial
    decisions of the trust or (2)&nbsp;has a valid election in
    effect under applicable Treasury regulations to be treated as a
    U.S.&nbsp;person.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If a partnership or other entity or arrangement treated as a
partnership for U.S.&nbsp;federal income tax purposes holds
common stock, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership purchasing
common stock, we urge you to consult your own tax advisor.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Except where noted, this discussion deals only with common stock
held as capital assets.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the
&#147;Code&#148;), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations
thereof, all as of the date hereof, and such authorities may be
repealed, revoked, modified or subject to differing
interpretations, possibly on a retroactive basis, so as to
result in U.S.&nbsp;federal income tax consequences different
from those discussed below.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Special rules may apply to certain Non-U.S.&nbsp;Holders, such
as:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    U.S.&nbsp;expatriates,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &#147;controlled foreign corporations,&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    &#147;passive foreign investment companies,&#148;</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    corporations that accumulate earnings to avoid U.S.&nbsp;federal
    income tax,&nbsp;and</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    investors in pass-through entities that are subject to special
    treatment under the Code.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Such Non-U.S.&nbsp;Holders are urged to consult their own tax
advisors to determine the U.S.&nbsp;federal, state, local and
other tax consequences that may be relevant to them.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Dividends.</I> Dividends paid to you generally will be
subject to withholding of U.S.&nbsp;federal income tax at a 30%
rate or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively
connected with your conduct of a trade or business within the
United States and, if certain tax treaties apply, are
attributable to your U.S.&nbsp;permanent establishment, are not
subject to the withholding tax, but instead are subject to
U.S.&nbsp;federal income tax on a net income basis in the same
manner as if you were a U.S.&nbsp;Holder. Special certification
and disclosure requirements (including the Non-U.S. Holder
providing an appropriately completed IRS Form&nbsp;W-8ECI) must
be satisfied for effectively connected income to be exempt from
withholding. If you are a foreign corporation, any such
effectively connected dividends received by you may be subject
to an additional branch profits tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
</DIV>

<P align="center" style="font-size: 10pt;">72

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<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you wish to claim the benefit of an applicable treaty rate
(and also avoid backup withholding as discussed below) for
dividends, you will be required to:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    complete IRS Form&nbsp;W-8BEN (or other applicable form) and
    certify under penalties of perjury that you are not a
    U.S.&nbsp;person and that you are entitled to the benefits of
    the applicable treaty, or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    if the shares of our common stock are held through certain
    foreign intermediaries, satisfy the relevant certification
    requirements of applicable U.S.&nbsp;Treasury regulations.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Special certification and other requirements apply to certain
Non-U.S.&nbsp;Holders that are entities rather than individuals.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you are eligible for a reduced rate of U.S.&nbsp;withholding
tax pursuant to an income tax treaty, you may obtain a refund of
any excess amounts withheld by filing an appropriate claim for
refund with the IRS.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Sale or Exchange of Common Stock.</I> As a non-U.S. holder,
you generally will not be subject to U.S.&nbsp;federal income
tax with respect to gain recognized on a sale or other
disposition of shares of our common stock unless:
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="1%"></TD>
    <TD width="96%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    the gain is effectively connected with your conduct of a trade
    or business in the United States, and if certain tax treaties
    apply, is attributable to your U.S.&nbsp;permanent establishment,</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    if you are an individual and hold shares of our common stock as
    a capital asset, you are present in the United States for 183 or
    more days in the taxable year of the sale or other disposition,
    and certain other conditions are met,&nbsp;or</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>&#149;&nbsp;</TD>
    <TD align="left">
    we are or have been a &#147;U.S.&nbsp;real property holding
    corporation&#148; for U.S.&nbsp;federal income tax purposes.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If you are an individual and are described in the first bullet
above, you will be subject to tax on the net gain derived from
the sale under regular graduated U.S.&nbsp;federal income tax
rates in the same manner as if you were a U.S.&nbsp;Holder. If
you are an individual and are described in the second bullet
above, you will be subject to a flat 30% tax on the gain derived
from the sale, which may be offset by U.S.&nbsp;source capital
losses (even though you are not considered a resident of the
United States). If you are a foreign corporation and are
described in the first bullet above, you will be subject to tax
on your gain under regular graduated U.S.&nbsp;federal income
tax rates in the same manner as if you were a U.S.&nbsp;Holder
and, in addition, may be subject to the branch profits tax on
your effectively connected earnings and profits at a rate of 30%
or at such lower rate as may be specified by an applicable
income tax treaty.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We believe we are not and do not anticipate becoming a
&#147;U.S.&nbsp;real property holding corporation&#148; for
U.S.&nbsp;federal income tax purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Information Reporting and Backup Withholding.</I> Under
certain circumstances, Treasury regulations require information
reporting and backup withholding on certain payments on common
stock.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Dividends on common stock paid to a Non-U.S.&nbsp;Holder will
generally be exempt from backup withholding, provided the
Non-U.S.&nbsp;Holder meets applicable certification requirements
or otherwise establishes an exemption. We must report annually
to the IRS and to each Non-U.S.&nbsp;Holder the amount of
dividends paid to that holder and the U.S.&nbsp;federal
withholding tax withheld with respect to those dividends.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Under United States Treasury Regulations, payments on the sale
or redemption of our common stock effected through a foreign
office of a broker to its customer generally are not subject to
information reporting or backup withholding. However, if the
broker is a U.S.&nbsp;person, a controlled foreign corporation,
a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for
a specified three-year period, a foreign partnership with
significant United States ownership, or a United States branch
of a foreign bank or insurance company, then information
reporting (but not backup withholding) will be required, unless
the broker has in its records documentary evidence that the
</DIV>

<P align="center" style="font-size: 10pt;">73

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<DIV align="left" style="font-size: 10pt;">
beneficial owner of the payment is not a U.S.&nbsp;person or is
otherwise entitled to an exemption, and other applicable
certification requirements are met. Information reporting and
backup withholding generally will apply to sale or redemption
payments effected at a United States office of any United States
or foreign broker, unless the broker has in its records
documentary evidence that the beneficial owner of the payment is
not a U.S.&nbsp;person or is otherwise entitled to an exemption,
and other applicable certification requirements are met.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Backup withholding does not represent an additional income tax.
Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against the
holder&#146;s United States federal income tax liability and may
entitle the holder to a refund, provided that the required
information or returns are timely furnished by the holder to the
IRS.
</DIV>

<P align="center" style="font-size: 10pt;">74

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<DIV align="left" style="font-size: 10pt;">
<A name='117'></A>
</DIV>

<!-- link1 "Underwriting" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Underwriting</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following
table. &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;and &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;are
the representatives of the underwriters (together, the
&#147;Representatives&#148;).
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="76%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="9%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap>Underwriters</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Number of Shares</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;shares
from the selling shareholders to cover such sales. They may
exercise that option for 30&nbsp;days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by NWW
Holdings and the selling shareholders. Such amounts are shown
assuming both no exercise and full exercise of the
underwriters&#146; option to
purchase &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;additional
shares.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<U>Paid by NWW Holdings</U>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap>No Exercise</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Full Exercise</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Per Share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<U>Paid by the Selling Shareholders</U>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="65%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap>No Exercise</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Full Exercise</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Per Share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We and our officers, directors, and the holders of substantially
all of our common stock, including the selling shareholders,
have agreed with the underwriters that, with the exception of
the common stock being offered pursuant to this prospectus and
without the prior written consent of the Representatives, each
of us will not, during the period ending 180&nbsp;days after the
date of this prospectus, (1)&nbsp;offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly
or indirectly, any
</DIV>

<P align="center" style="font-size: 10pt;">75
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<DIV align="left" style="font-size: 10pt;">
shares of common stock or any securities convertible into or
exercisable or exchangeable for such shares or (2)&nbsp;enter
into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership
of such shares, whether any such transaction described in
clause&nbsp;(1) or (2)&nbsp;above is to be settled by delivery
of such shares or such other securities, in cash or otherwise or
(3)&nbsp;file any registration statement with the Securities and
Exchange Commission relating to the offering of any of such
shares or any securities convertible into or exercisable or
exchangeable for such shares, without the prior written consent
of the Representatives.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The 180-day restricted period described in the preceding
paragraph will be automatically extended if (1)&nbsp;during the
last 17&nbsp;days of the 180-day restricted period, we issue an
earnings release or material news or a material event relating
to us occurs; or (2)&nbsp;prior to the expiration of the 180-day
restricted period, we announce that we will release earnings
results during the 16-day period beginning on the last day of
the 180-day period, the 180-day restricted period shall continue
to apply until the expiration of the 18-day period beginning on
the issuance of the earnings release of the announcement of the
material news or material event.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This agreement does not apply to any existing employee benefit
plans. See &#147;Shares Eligible for Future Sale&#148; for a
discussion of certain transfer restrictions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to this offering, there has been no public market for the
shares. The initial public offering price has been negotiated
among us and the Representatives. Among the factors to be
considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, will be
NWW Holdings&#146; historical performance, estimates of the
business potential and earnings prospects of NWW Holdings, an
assessment of NWW Holdings&#146; management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
An application has been made to list the common stock on the New
York Stock Exchange under the symbol &#147;NWW.&#148; In order
to meet one of the requirements for listing the common stock on
the NYSE, the underwriters have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial holders.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Shorts
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
&#147;Covered&#148; short sales are sales made in an amount not
greater than the underwriters&#146; option to purchase
additional shares from the selling stockholders in the offering.
The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. &#147;Naked&#148; short sales are
any sales in excess of such option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of various
bids for or purchases of common stock made by the underwriters
in the open market prior to the completion of the offering.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
Representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of our stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of
</DIV>

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<DIV align="left" style="font-size: 10pt;">
the common stock may be higher than the price that otherwise
might exist in the open market. If these activities are
commenced, they may be discontinued at any time. These
transactions may be effected on the New York Stock Exchange, in
the over-the-counter market or otherwise.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each underwriter has represented, warranted and agreed that:
(i)&nbsp;it has not offered or sold and, prior to the expiry of
a period of six months from the closing date, will not offer or
sell any shares to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii)&nbsp;it
has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of section&nbsp;21 of the Financial Services and Markets Act
2000 (&#147;FSMA&#148;)) received by it in connection with the
issue or sale of any shares in circumstances in which
section&nbsp;21(1) of the FSMA does not apply to the Issuer; and
(iii)&nbsp;it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shares may not be offered or sold, transferred or delivered,
as part of their initial distribution or at any time thereafter,
directly or indirectly, to any individual or legal entity in the
Netherlands other than to individuals or legal entities who or
which trade or invest in securities in the conduct of their
profession or trade, which includes banks, securities
intermediaries, insurance companies, pension funds, other
institutional investors and commercial enterprises which, as an
ancillary activity, regularly trade or invest in securities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The shares may not be offered or sold by means of any document
other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public
within the meaning of the Companies Ordinance (Cap. 32) of Hong
Kong, and no advertisement, invitation or document relating to
the shares may be issued, whether in Hong Kong or elsewhere,
which is directed at, or the contents of which are likely to be
accessed or read by, the public in Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other
than with respect to shares which are or are intended to be
disposed of only to persons outside Hong Kong or only to
&#147;professional investors&#148; within the meaning of the
Securities and Futures Ordinance (Cap. 571) of Hong Kong and any
rules made thereunder.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation or subscription or purchase, of the
securities may not be circulated or distributed, nor may the
securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than under
circumstances in which such offer, sale or invitation does not
constitute an offer or sale, or invitation for subscription or
purchase, of the securities to the public in Singapore.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities and
Exchange Law) and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
JPMP, which will own
approximately &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;%
of our outstanding common shares immediately prior to this
offering, is one of the selling shareholders and may be deemed
to be an affiliate of J.P.&nbsp;Morgan Securities Inc. In
addition, three affiliates of Goldman, Sachs&nbsp;&#38; Co. own
approximately $139.0&nbsp;million of the outstanding
12.50%&nbsp;Notes, which we will purchase in connection with the
Financing Transactions using proceeds from this offering and
borrowings under our credit facility. Such holders may
</DIV>

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<DIV align="left" style="font-size: 10pt;">
also receive a redemption premium. Because J.P.&nbsp;Morgan
Securities Inc. and Goldman, Sachs&nbsp;&#38; Co. are
underwriters, and each of them or their respective affiliates
may receive more than 10% of the entire net proceeds in this
offering, the underwriters may be deemed to have a
&#147;conflict of interest&#148; under Rule&nbsp;2710(h) of the
Conduct Rules of the National Association of Securities Dealers,
Inc. (the &#147;Conduct Rules&#148;). In addition, as a result
of its relationship with JPMP, J.P.&nbsp;Morgan Securities Inc.
may be deemed to be our &#147;affiliate&#148; as defined by
Rule&nbsp;2720 of the Conduct Rules. Accordingly, this offering
will be made in compliance with the applicable provisions of
Rule&nbsp;2720. Rule&nbsp;2720 requires that the initial public
offering price can be no higher than that recommended by a
&#147;qualified independent underwriter,&#148; as defined by the
NASD. Morgan Stanley &#38; Co. Incorporated has served in that
capacity and performed due diligence investigations and reviewed
and participated in the preparation of the registration
statement of which this prospectus forms a part.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The underwriters will not execute sales in discretionary
accounts without the prior written specific approval of the
customers.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW Holdings and the selling shareholders estimate that their
share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately
$&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW Holdings and the selling shareholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for NWW Holdings or National Waterworks, for which they
received or will receive customary fees and expenses. For
example, NWW Holdings and National Waterworks are parties to a
senior credit facility with J.P.&nbsp;Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as co-syndication agents and
joint lead arrangers, UBS AG, Stamford Branch, as administrative
agent and Citigroup Investments Corporate Loan&nbsp;Fund and
Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as lenders. J.P.&nbsp;Morgan Securities Inc. was
also paid customary underwriting fees in connection with the
offering of our senior subordinated notes, and J.P.&nbsp;Morgan
Securities Inc. received a customary fee in respect of a bridge
financing commitment which was not utilized. The aggregate
amount of fees paid in connection with those transactions to
affiliates of J.P. Morgan Partners, LLC was approximately
$6.6&nbsp;million. In addition, JPMP, an affiliate of
J.P.&nbsp;Morgan Securities Inc., is one of two largest
shareholders of NWW Holdings and receives annual fees in
connection with a management agreement. See &#147;Certain
Relationships and Related Transactions.&#148;
</DIV>

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<DIV align="left" style="font-size: 10pt;">
<A name='118'></A>
</DIV>

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Legal Matters</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The validity of the issuance of the shares of common stock
offered hereby will be passed upon for us by
O&#146;Melveny&nbsp;&#38; Myers LLP, New York, New York. Certain
legal matters relating to this offering will be passed upon for
the underwriters by Cleary Gottlieb Steen&nbsp;&#38; Hamilton
LLP, New York, New York.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='119'></A>
</DIV>

<!-- link1 "Experts" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Experts</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated financial statements of National Waterworks
Holdings, Inc. (Successor) and subsidiary as of
December&nbsp;31, 2004 and 2003 and for the years then ended and
for the period of November&nbsp;22, 2002 through
December&nbsp;31, 2002 and the consolidated financial statements
of U.S.&nbsp;Filter Distribution Group, Inc. (Predecessor) and
subsidiary for the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002, have been included in this prospectus in
reliance upon the report of KPMG LLP, independent registered
public accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The audit report covering the Predecessor financial statements
refers to a change in the method of accounting for goodwill in
2002.
</DIV>

<DIV align="left" style="font-size: 10pt;">
<A name='120'></A>
</DIV>

<!-- link1 "Where You Can Find More Information" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Where You Can Find More Information</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have filed a Registration Statement on Form&nbsp;S-1 with the
SEC regarding this offering. This prospectus, which is part of
the registration statement, does not contain all of the
information included in the registration statement, and you
should refer to the registration statement and its exhibits to
read that information. As a result of the effectiveness of the
registration statement, we will be subject to the informational
reporting requirements of the Exchange Act of 1934 and, under
that Act, we will file reports, proxy statements and other
information with the SEC. In addition, our operating subsidiary,
National Waterworks, has filed periodic and other reports with
the SEC since January&nbsp;9, 2003. You may read and copy the
registration statement, the related exhibits and the reports,
proxy statements and other information we file with the SEC at
the SEC&#146;s public reference facilities maintained by the SEC
at Judiciary Plaza, 450&nbsp;Fifth Street, N.W.,
Washington,&nbsp;D.C. 20549. You can also request copies of
those documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The
SEC also maintains an Internet site that contains reports, proxy
and information statements and other information regarding
issuers that file with the SEC. The site&#146;s Internet address
is www.sec.gov. Certain information about our company may also
be obtained from our website at www.nationalwaterworks.com.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
You may also request a copy of these filings, at no cost, by
writing or telephoning us at:
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
National Waterworks Holdings, Inc.
</DIV>

<DIV align="center" style="font-size: 10pt;">
200 West Highway 6
</DIV>

<DIV align="center" style="font-size: 10pt;">
Waco, Texas 76712
</DIV>

<DIV align="center" style="font-size: 10pt;">
(254)&nbsp;772-5355
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We intend to furnish holders of the shares of common stock
offered in this offering with annual reports containing audited
consolidated financial statements together with a report by our
independent registered public accounting firm.
</DIV>

<P align="center" style="font-size: 10pt;">79
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<DIV align="left" style="font-size: 10pt;">
<A name='121'></A>
</DIV>

<!-- link1 "Index To Consolidated Financial Statements" -->

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Index To Consolidated Financial Statements</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NATIONAL WATERWORKS HOLDINGS, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>U.S.&nbsp;FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Page</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Report of Independent Registered Public Accounting Firm</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-2</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    As of December&nbsp;31, 2004 and 2003:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Balance Sheets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    For the years ended December&nbsp;31, 2004 and 2003, the period
    of November&nbsp;22, 2002 through December&nbsp;31, 2002 and the
    period of January&nbsp;1, 2002 through November&nbsp;21, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Operations</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-4</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Stockholders&#146; Equity (Deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Consolidated Statements of Cash Flows</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-6</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Notes to Consolidated Financial Statements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>F-7</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-1

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<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Report of Independent Registered Public Accounting Firm</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The Board of Directors
</DIV>

<DIV align="left" style="font-size: 10pt;">
National Waterworks Holdings, Inc.:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We have audited the accompanying consolidated balance sheets of
National Waterworks Holdings, Inc. (Successor) and subsidiary as
of December&nbsp;31, 2004 and 2003, and the related consolidated
statements of operations, stockholders&#146; equity
(deficit)&nbsp;and cash flows for the years then ended and the
period of November&nbsp;22, 2002 through December&nbsp;31, 2002.
We have also audited the accompanying consolidated statements of
operations, stockholder&#146;s equity and cash flows of
U.S.&nbsp;Filter Distribution Group, Inc. (Predecessor) and
subsidiary, a wholly owned subsidiary of United States Filter
Corporation, for the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002. These consolidated financial statements
are the responsibility of the management of National Waterworks
Holdings, Inc. and U.S.&nbsp;Filter Distribution Group, Inc. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of National Waterworks Holdings, Inc. and subsidiary as
of December&nbsp;31, 2004 and 2003, and the results of their
operations and their cash flows for the years then ended and the
period of November&nbsp;22, 2002 through December&nbsp;31, 2002,
and the results of operations and cash flows of U.S.&nbsp;Filter
Distribution Group, Inc. and subsidiary for the period of
January&nbsp;1, 2002 through November&nbsp;21, 2002, in
conformity with accounting principles generally accepted in the
United States of America.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As discussed in Note&nbsp;4 to the consolidated financial
statements, U.S.&nbsp;Filter Distribution Group, Inc. changed
its method of accounting for goodwill in 2002.
</DIV>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    /s/ <FONT style="font-variant:SMALL-CAPS">KPMG LLP
    </FONT></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
March&nbsp;28, 2005
</DIV>

<DIV align="left" style="font-size: 10pt;">
St.&nbsp;Louis, Missouri
</DIV>

<P align="center" style="font-size: 10pt;">F-2
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>National Waterworks Holdings, Inc.</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Consolidated Balance Sheets</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands except per share information)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,702</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade accounts receivable, less allowance for doubtful accounts
    of $3,492 in 2004 and $3,213 in 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>227,780</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>188,476</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>126,866</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>90,739</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,398</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,689</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>377,664</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>300,606</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>19,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,523</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>457,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>456,080</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred financing fees, less accumulated amortization of $6,737
    in 2004 and $3,060 in 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,034</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>24,141</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,961</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,607</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>883,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>802,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="11">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Liabilities and Stockholders&#146; Equity (Deficit)</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>172,234</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>115,038</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current installments of long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accrued compensation and benefits</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,036</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,009</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,677</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>235,038</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>166,751</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt, excluding current installments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>645,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>425,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,059</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other long-term liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,132</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,674</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>906,333</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>603,484</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Commitments and contingencies (note&nbsp;14)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholders&#146; Equity (Deficit):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock&nbsp;&#151; $0.01&nbsp;par value;
    800&nbsp;shares authorized; 512&nbsp;shares issued and
    outstanding</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock&nbsp;&#151; $0.01&nbsp;par value;
    4,220&nbsp;shares authorized, issued, and outstanding;
    liquidation preference of $0 and $193,596, respectively</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional paid-in capital</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,421</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Retained earnings (accumulated deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,274</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,005</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>883,149</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>802,957</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these financial
statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Consolidated Statements of Operations</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands except per share information)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="33%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor&nbsp;&#151;</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S.&nbsp;Filter</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Successor&nbsp;&#151; National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc.</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B>(note&nbsp;1)</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(note&nbsp;1)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net sales</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,522,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,281,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>94,250</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,058,768</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cost of goods sold</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,212,582</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,013,079</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>82,005</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>831,764</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gross profit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>309,488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>267,990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>12,245</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>227,004</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating expenses:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Selling, general and administrative</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>186,466</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>167,152</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,737</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>139,825</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on accounts receivable securitization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,480</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>123,022</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>100,838</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,492</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84,699</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>252</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,131</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Operating income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>120,651</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>98,274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,744</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>81,568</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other income (expense):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Completion bonuses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,200</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense, net</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(40,706</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(41,333</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,826</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(36</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>355</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(11</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes and cumulative effect of a
    change in accounting principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>80,300</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,930</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(9,582</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>75,391</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before cumulative effect of a change in accounting
    principle</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>46,153</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cumulative effect of a change in accounting principle
    (note&nbsp;4)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(459,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Per share information (note&nbsp;5):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted earnings (loss) per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.40</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these financial
statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Consolidated Statements of Stockholders&#146; Equity
(Deficit)</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 8pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="26%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>


<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><I>Class&nbsp;A</I></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Retained</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><I>Common Stock</I></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap><B><I>Class&nbsp;B Common Stock</I></B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additional</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Earnings</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="6" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Paid-In</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>(Accumulated</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Stockholders&#146;</B></TD><TD></TD>
</TR>

<TR style="font-size: 7pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Shares</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Amount</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Capital</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deficit)</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Equity (Deficit)</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Predecessor&nbsp;&#151; U.S.&nbsp;Filter Distribution Group,
    Inc. and Subsidiary (note&nbsp;1):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2001</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,257,574</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>72,650</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,330,224</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment by U.S.&nbsp;Filter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,093</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at November&nbsp;21, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,277,667</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(340,197</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>937,470</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="30" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Successor&nbsp;&#151; National Waterworks Holdings, Inc.
    (note&nbsp;1):</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock issuance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>209,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>209,999</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net loss</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2002</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,200</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,952</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>204,105</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Common stock issuance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Distributions to stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(12,531</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,742</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,273</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2003</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>198,421</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,005</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Employee stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Distributions to stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(198,940</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(71,911</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>512</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>42</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>43</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(23,274</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(23,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these financial
statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Consolidated Statements of Cash Flows</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 9pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="30%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="2%">&nbsp;</TD><!-- Right VRule -->
    <TD width="2%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Predecessor&nbsp;&#151;</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="11">&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>U.S.&nbsp;Filter</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>Successor &#151;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Distribution</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>National Waterworks Holdings, Inc.</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>Group, Inc.</I></B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap><B><I>(note&nbsp;1)&nbsp;</I></B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B><I>(note&nbsp;1)</I></B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="10" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="7">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(412,847</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income (loss) to net cash from
    operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,500</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,677</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,928</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>133</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,371</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,564</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>252</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,131</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Loss on goodwill impairment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>459,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Gain on disposal of equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(264</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(55</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(72</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Provision for doubtful accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(119</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,004</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Changes in operating assets and liabilities, net of acquisitions:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade accounts receivable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,264</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,417</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,470</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(22,557</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(35,228</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>880</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,651</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,769</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(287</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,401</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>673</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,345</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,566</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,306</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade accounts payable and other accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6,396</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,140</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,221</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other long term liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,903</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,674</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>59,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>37,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,044</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>56,240</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Capital expenditures</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,424</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,022</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(102</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,442</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Business acquisitions, net of cash</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,992</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,224</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(643,753</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(19,595</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from sales of property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>636</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>803</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>874</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,780</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,443</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(643,855</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,163</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,482</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(15,300</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from common stock issuance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,999</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Principal payments on long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(30,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(10,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(222</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Distributions to stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,273</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment by U.S.&nbsp;Filter Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,093</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Funds transferred to U.S.&nbsp;Filter Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,103,045</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expenditures funded by U.S.&nbsp;Filter Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>994,010</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allocation of expenses from U.S.&nbsp;Filter Corporation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,103</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(56,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(53,755</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>644,699</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(44,061</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase (decrease) in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>244</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(21,186</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,888</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(7,984</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>39,888</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>13,288</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>18,702</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>39,888</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>5,304</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="6">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for interest</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>35,754</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>40,176</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>997</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>37</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="6" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash paid for income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,605</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD style="border-right:1.5pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>27,088</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
The accompanying notes are an integral part of these financial
statements.
</DIV>

<P align="center" style="font-size: 10pt;">F-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NOTES TO CONSOLIDATED FINANCIAL STATEMENTS</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>NATIONAL WATERWORKS HOLDINGS, INC.</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>As of December&nbsp;31, 2004 and 2003 and for</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>the Years Ended December&nbsp;31, 2004 and 2003 and the</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>Period of November&nbsp;22, 2002 through December&nbsp;31,
2002</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>U.S.&nbsp;FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>For the Period of January&nbsp;1, 2002 through
November&nbsp;21, 2002</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(1)</B></TD>
    <TD>
    <B>Description of Business</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks Holdings, Inc. (&#147;NWW&#148; or
&#147;Successor&#148;) and its subsidiary, National Waterworks,
Inc. were incorporated in September 2002 for the purpose of
acquiring substantially all of the assets and assuming certain
obligations of U.S.&nbsp;Filter Distribution Group, Inc.
(&#147;USFDG&#148; or &#147;Predecessor&#148;), a wholly owned
subsidiary of United States Filter Corporation
(&#147;USFC&#148;), which is an indirect wholly-owned subsidiary
of Veolia Environnement (&#147;Veolia&#148;, formerly Vivendi
Environnement S.A.). The acquisition was consummated on
November&nbsp;22, 2002 (see note&nbsp;3).
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW is a distributor of water and wastewater
(sewer)&nbsp;transmission products including pipe, fittings,
valves, meters, fire hydrants, service and repair products and
other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and
residential and commercial locations. Principal customers served
are in the contractor and municipal markets in the United
States. Prior to the acquisition, USFDG conducted such business
activities.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(2)</B></TD>
    <TD>
    <B>Summary of Significant Accounting Policies</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)</I></B></TD>
    <TD>
    <B><I>Principles of Consolidation and Basis of
    Presentation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The consolidated balance sheets as of December&nbsp;31, 2004 and
2003, and the consolidated statements of operations,
stockholders&#146; equity (deficit) and cash flows for the years
ended December&nbsp;31, 2004 and 2003 and for the period from
November&nbsp;22, 2002 through December&nbsp;31, 2002 represent
the financial position of NWW and its subsidiary, National
Waterworks, Inc., and the results of their operations and cash
flows as of those dates and for those periods. The consolidated
statements of operations, stockholder&#146;s equity and cash
flows for the period of January&nbsp;1, 2002 through
November&nbsp;21, 2002 represent the results of operations and
cash flows of USFDG and its subsidiary, USFC. All significant
intercompany balances and transactions have been eliminated in
consolidation for all periods presented.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)</I></B></TD>
    <TD>
    <B><I>Cash Equivalents</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All highly liquid investments with maturities at date of
purchase of three months or less are considered to be cash
equivalents.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c)</I></B></TD>
    <TD>
    <B><I>Inventories</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Inventories are stated at the lower of cost or market. The
weighted average cost method is used to determine cost for all
inventories.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d)</I></B></TD>
    <TD>
    <B><I>Property and Equipment</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment are stated at cost. Depreciation on
property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets as follows:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="80%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="8%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Buildings and improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>5 to 30&nbsp; years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture, fixtures and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>3 to 5&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transportation equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>1 to 5&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom" nowrap>5&nbsp;years</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Depreciation expense related to leasehold improvements generally
is recorded over the remaining life of the lease. Maintenance
and repair costs are charged to expense as incurred. Additions,
renewals and improvements are capitalized. Upon the sale or
retirement of an asset, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss
is recognized.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e)</I></B></TD>
    <TD>
    <B><I>Impairment of Long-Lived Assets Other than Goodwill</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-lived assets, including property and equipment, are
reviewed for possible impairment whenever events or other
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized
when the carrying amount of a long-lived asset exceeds the sum
of the undiscounted cash flows expected to result from the
asset&#146;s use and eventual disposition. An impairment loss is
measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f)</I></B></TD>
    <TD>
    <B><I>Income Taxes</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW and its subsidiary file a consolidated federal income tax
return. USFDG filed as part of USFC&#146;s consolidated federal
income tax return. USFC implemented certain tax planning
strategies and the related impact is not reflected in these
separate financial statements of USFDG. For the purpose of the
consolidated financial statements presented herein, USFDG
provided for income taxes as if it were a taxable entity filing
a separate return.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g)</I></B></TD>
    <TD>
    <B><I>Segments of an Enterprise and Related Information</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW has implemented the provisions of Statement of Financial
Accounting Standards (&#147;SFAS&#148;) No.&nbsp;131,
<I>Disclosure about Segments of an Enterprise and Related
Information</I>. NWW&#146;s six geographic regions, to which
substantially all income and expenses are allocated for purposes
of allocating resources by the chief operating decision maker,
meet all of the aggregation criteria of SFAS&nbsp;No.&nbsp;131,
including similar economic characteristics. Accordingly, there
is one reportable segment.
</DIV>

<P align="center" style="font-size: 10pt;">F-8

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Products include pipe, fittings, valves, meters, fire hydrants,
service and repair products and other complementary products for
waterworks construction and maintenance/repair. The following
table sets forth net sales by product category (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD align="left" nowrap><B>Product Category</B></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Pipe</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>665,335</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>511,938</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>38,256</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>424,544</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fittings</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>225,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>196,136</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>14,735</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>162,932</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Valves</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>175,024</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>160,996</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,396</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>131,208</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Meters</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>115,946</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>110,911</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7,827</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>94,905</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Fire hydrants</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>89,647</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>79,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,344</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>66,046</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Service and repair products</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>91,701</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>86,481</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,336</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>69,515</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>159,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>134,807</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>10,356</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>109,618</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,522,070</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,281,069</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>94,250</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,058,768</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
All revenues are derived from customers domiciled in the United
States and there are no long-lived assets located outside of the
United States. No single customer, as defined in
SFAS&nbsp;No.&nbsp;131, represents ten percent or more of
revenues for any period presented.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h)</I></B></TD>
    <TD>
    <B><I>Use of Estimates</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i)</I></B></TD>
    <TD>
    <B><I>Revenue Recognition</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Revenue on sales is recognized when products are shipped to
customers and NWW has no further obligation with respect to such
products. Revenues are reported in the consolidated statements
of operations net of sales returns and allowances. NWW&#146;s
customer return policy generally allows customers to return
products only if the products can be returned to the vendor or
returned to inventory and sold at full value.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Rebates received from vendors are classified as a reduction of
the purchase price of inventory and included as a reduction of
cost of goods sold during the period in which the related
products are sold. Vendor payments that represent rebates or
refunds for meeting a targeted volume of purchases are
proportionally allocated as purchases are made if the payment is
the result of a binding contractual agreement, the payment under
such agreement is probable and the amount of the payment is
reasonably estimable.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j)</I></B></TD>
    <TD>
    <B><I>Shipping and Handling Costs</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Shipping and handling costs billed to customers are included in
net sales. Shipping and handling costs associated with outbound
freight are included in cost of goods sold.
</DIV>

<P align="center" style="font-size: 10pt;">F-9

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k)</I></B></TD>
    <TD>
    <B><I>Goodwill</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Goodwill represents the excess of the purchase price of acquired
businesses over the allocated fair value of the related net
assets. NWW reviews goodwill for impairment annually at the
beginning of the fourth quarter and whenever events or changes
in circumstances indicate that the carrying value may not be
recoverable.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="8%"></TD>
    <TD width="92%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l)</I></B></TD>
    <TD>
    <B><I>Earnings per Share</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW calculates earnings per share in accordance with
SFAS&nbsp;No.&nbsp;128, <I>Earnings per Share</I>. Based on this
guidance, NWW uses the two-class method to allocate earnings
between Class&nbsp;A common stock and Class&nbsp;B common stock
for the purpose of computing basic and diluted earnings per
share. Such allocation is necessary because distributions are
first made to holders of Class&nbsp;B shares in an amount equal
to their original investment plus a 9% return, compounded daily,
prior to the holders of Class&nbsp;A shares receiving a
distribution. Accordingly, all of NWW&#146;s earnings were
allocated to the Class&nbsp;B shares prior to the satisfaction
of the liquidation preference on October&nbsp;29, 2004.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Basic earnings per share is calculated by dividing income
available to Class&nbsp;A and Class&nbsp;B common stockholders
by the weighted average common shares outstanding for each
respective class of common stock. Diluted earnings per share is
calculated similarly except that for Class&nbsp;A common stock,
weighted average common shares outstanding includes the dilutive
effect of the unvested shares of Class&nbsp;A common stock.
During the periods presented, there were no differences between
weighted average shares outstanding for the basic and diluted
earnings per share calculations with respect to Class&nbsp;B
common stock.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m)</I></B></TD>
    <TD>
    <B><I>Stock Compensation</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW follows SFAS&nbsp;No.&nbsp;123, <I>Accounting for
Stock-Based Compensation</I>, which establishes a fair
value-based method of accounting for stock-based compensation
plans. In accordance with SFAS&nbsp;No.&nbsp;123, the fair value
of stock-based compensation is recorded as compensation expense
over the vesting or performance period with a corresponding
increase to additional paid-in capital.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n)</I></B></TD>
    <TD>
    <B><I>Recent Accounting Pronouncements</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November&nbsp;2002, the EITF reached consensus on
Issue&nbsp;02-16, <I>Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor</I>.
The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the
prices of the vendor&#146;s products or services and should be
treated as a reduction of cost of sales when recognized in the
customer&#146;s income statement. This presumption can be
overcome if the consideration can be shown to represent either a
payment for assets or services delivered to the vendor or a
reimbursement of costs incurred by the reseller to sell the
vendor&#146;s products. It also reached consensus on when a
customer should recognize a rebate or refund that is payable
only if the customer completes a specified level of purchases.
Recognition should occur when the rebate or refund is probable
and reasonably estimable and should be based on a systematic and
rational method. NWW has historically accounted for such
consideration as a reduction of cost of goods sold when the
vendor rebate is probable and reasonably estimable and based on
a systematic and rational allocation of the cash consideration
to be received. NWW estimated the adoption of this EITF issue
increased net income by $1.4&nbsp;million for the year ended
December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November&nbsp;2004, the FASB issued SFAS&nbsp;No.&nbsp;151,
<I>Inventory Costs&nbsp;&#151; An amendment of ARB No.&nbsp;43,
Chapter&nbsp;4</I>. SFAS&nbsp;No.&nbsp;151 clarifies that
abnormal amounts of idle facility expense, freight, handling
costs and spoilage should be expensed as incurred and not
included in overhead. Further, SFAS&nbsp;No.&nbsp;151 requires
that allocation of fixed production overheads to conversion
costs should be based on normal capacity of the production
facilities. The provisions of SFAS&nbsp;No.&nbsp;151 are
effective for inventory costs incurred during fiscal years
beginning after June&nbsp;15, 2005. NWW plans to adopt
SFAS&nbsp;No.&nbsp;151 on
</DIV>

<P align="center" style="font-size: 10pt;">F-10

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
January&nbsp;1, 2006. The adoption of SFAS&nbsp;No.&nbsp;151 is
not expected to have a significant impact on NWW&#146;s
consolidated financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December&nbsp;2004, the FASB issued SFAS&nbsp;No.&nbsp;153,
<I>Exchanges of Nonmonetary Assets&nbsp;&#151; An Amendment of
APB Opinion No.&nbsp;29</I>. The amendments made by
SFAS&nbsp;No.&nbsp;153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have &#147;commercial
substance.&#148; Previously, Opinion No.&nbsp;29 required that
the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same
or similar productive asset should be based on the recorded
amount of the asset relinquished. The provisions of
SFAS&nbsp;No.&nbsp;153 are effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June&nbsp;15, 2005. NWW plans to adopt SFAS&nbsp;No.&nbsp;153 on
July&nbsp;1, 2005. The adoption of SFAS&nbsp;No.&nbsp;153 is not
expected to have a significant impact on NWW&#146;s consolidated
financial statements.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December&nbsp;2004, the FASB issued SFAS&nbsp;No.&nbsp;123
(Revised 2004), <I>Share-Based Payment: an Amendment of FASB
Statements No.&nbsp;123 and 95</I> (SFAS&nbsp;No.&nbsp;123R).
SFAS&nbsp;No.&nbsp;123R requires the recognition in the income
statement of the grant-date fair value of stock options and
other equity-based compensation issued to employees.
SFAS&nbsp;No.&nbsp;123R is effective for most public
companies&#146; interim or annual periods beginning after
June&nbsp;15, 2005. NWW plans to adopt SFAS&nbsp;No.&nbsp;123R
prospectively on July&nbsp;1, 2005. The adoption of
SFAS&nbsp;No.&nbsp;123R is not expected to have a significant
impact on NWW&#146;s consolidated financial statements.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>(3)</I></B></TD>
    <TD>
    <B><I>Acquisitions and Divestitures</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On February&nbsp;9, 2004, NWW acquired substantially all of the
assets and certain liabilities of Midstate Utility Supply, Inc.
for an aggregate purchase price of approximately
$2.0&nbsp;million. This acquisition was accounted for as a
purchase under SFAS&nbsp;No.&nbsp;141, <I>Business
Combinations</I>. Accordingly, the purchase price was allocated
to the net assets acquired based upon their estimated fair
values as of the date of acquisition. The allocation of the
purchase price resulted in the recognition of approximately
$1.1&nbsp;million of goodwill. As this acquisition is immaterial
to the consolidated financial statements, pro forma results of
operations are not presented.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On November&nbsp;22, 2002, NWW acquired substantially all of the
assets and certain liabilities of USFDG. The acquisition was
accounted for as a business combination under
SFAS&nbsp;No.&nbsp;141 and as a taxable transaction for federal
and state income tax purposes. The aggregate purchase price,
prior to post-closing purchase price adjustments, was
$643.8&nbsp;million. In addition, NWW incurred
$15.3&nbsp;million in financing fees of which $12.8&nbsp;million
was capitalized as deferred financing fees and $2.5&nbsp;million
expensed as interest expense. During 2003, NWW recorded
additional deferred financing fees of $8.9&nbsp;million which
were initially considered direct costs of the acquisition. These
fees will be amortized over the remaining life of the related
debt.
</DIV>

<P align="center" style="font-size: 10pt;">F-11

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table summarizes the estimated fair value of the
assets acquired and the liabilities assumed as of the date of
acquisition (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="77%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>312,684</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Property and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,953</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Goodwill</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>465,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>800,299</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>156,546</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>156,546</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net assets acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>643,753</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The goodwill acquired is deductible for income tax purposes.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current assets includes a $13.0&nbsp;million inventory valuation
adjustment pursuant to SFAS&nbsp;No.&nbsp;141 of which
$4.0&nbsp;million and $9.0&nbsp;million was recognized as an
increase in cost of goods sold for the year ended
December&nbsp;31, 2003 and the period of November&nbsp;22, 2002
through December&nbsp;31, 2002, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The acquisition agreement provided for a post-closing purchase
price adjustment based on working capital at the closing date.
The purchase price adjustment was finalized and resulted in an
additional cash payment of $3.1&nbsp;million paid in the first
quarter of 2003. The $3.1&nbsp;million payment was recorded as
an adjustment to goodwill.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The pro forma results of operations for 2002 (in thousands) as
though the business combination had been completed as of
January&nbsp;1, 2002 would have resulted in revenue of
$1,153,018 and net income of $25,259.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On March&nbsp;29, 2002, USFDG acquired substantially all of the
assets and certain liabilities of Utility Piping Systems, Inc.
for an aggregate purchase price of $19.6&nbsp;million. This
acquisition was accounted for by the purchase method, and
accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values as of the date
of acquisition. The allocation of purchase price resulted in
approximately $14.3&nbsp;million of goodwill acquired. As this
acquisition is immaterial to USFDG&#146;s consolidated financial
statements, pro forma results of operations are not presented.
</DIV>

<P align="center" style="font-size: 10pt;">F-12

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(4)</B></TD>
    <TD>
    <B>Goodwill</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The changes in the carrying amount of goodwill for the years
ended December&nbsp;31, 2004 and 2003, are as follows (in
thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="60%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>456,080</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>465,662</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Midstate Utility Supply, Inc. acquisition</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,141</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional goodwill related to the NWW acquisition of USFDG:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional transaction costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>84</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Working capital purchase price adjustment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,140</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Purchase accounting adjustment-change in tax basis of assets
    acquired</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,886</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Additional financing fees initially considered direct
    acquisition costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(8,920</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Balance at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>457,221</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>456,080</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
During 2003, NWW recorded additional deferred financing fees of
$8.9&nbsp;million that will be amortized over the remaining life
of the related debt. Also, additional deferred tax assets of
$3.9&nbsp;million were recorded based on management&#146;s best
estimate of the acquired assets that will ultimately be accepted
by the taxing authorities.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Effective with the acquisition of USFDG, NWW adopted the
provisions of SFAS&nbsp;No.&nbsp;142, <I>Goodwill and Other
Intangible Assets</I>, which requires goodwill be tested for
impairment on an annual basis at the reporting unit level. NWW
identified and assigned goodwill to its six reporting units as
described in note&nbsp;2. NWW reviewed goodwill for impairment
at the beginning of fourth quarter 2004 and 2003. Based on the
results of these impairment tests, NWW determined there was no
impairment of goodwill to any of the reporting units.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with SFAS&nbsp;No.&nbsp;142, effective
January&nbsp;1, 2002, USFDG completed the transition assessment
of whether there was an indication that goodwill was impaired
and concluded that it was probable that goodwill assigned to its
reporting units was impaired. The fair value of USFDG&#146;s
reporting units was estimated using, among other factors, the
sales price included in the sale agreement by USFC and USFDG to
sell substantially all of USFDG&#146;s assets, net of certain
liabilities, for a cash purchase price of $620.0&nbsp;million.
USFDG&#146;s management estimated an impairment loss of
approximately $459.0&nbsp;million. The goodwill impairment loss
was reported as a cumulative effect of a change in accounting
principle.
</DIV>

<P align="center" style="font-size: 10pt;">F-13

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(5)</B></TD>
    <TD>
    <B>Earnings per Share</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the computation of NWW&#146;s
basic and diluted earnings per share (in thousands except per
share information):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="46%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss):</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>366</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>47,266</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Weighted average number of common shares:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock&nbsp;&#151; Basic</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>231</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Dilutive effect of unvested restricted shares</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>276</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock&nbsp;&#151; Diluted</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>507</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>103</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,220</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,200</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;A common stock:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1.59</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Diluted earnings per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>0.72</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Class&nbsp;B common stock:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Basic and diluted earnings (loss) per share</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11.20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7.97</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1.40</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with SFAS&nbsp;No.&nbsp;128, net income (loss) was
allocated to the holders of Class&nbsp;A and Class&nbsp;B common
stock based upon their respective liquidation and distribution
rights. Accordingly, all earnings were allocated to Class&nbsp;B
common stock prior to the satisfaction of the Class&nbsp;B
common stock liquidation preference on October&nbsp;29, 2004.
Subsequently, each share of Class&nbsp;A and Class&nbsp;B common
stock was allocated an equal amount of NWW&#146;s net income.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(6)</B></TD>
    <TD>
    <B>Stockholders&#146; Equity (Deficit)</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At December&nbsp;31, 2004, the authorized capital of NWW
consists of 0.8&nbsp;million shares of $0.01&nbsp;par value
Class&nbsp;B common stock and 4.22&nbsp;million shares of
$0.01&nbsp;par value Class&nbsp;B common stock. The owners of
Class&nbsp;A common stock and Class&nbsp;B common stock
generally vote together as a single class on all matters
requiring a vote of the stockholders, with each share of
Class&nbsp;A and Class&nbsp;B common stock entitled to one vote.
The owners of Class&nbsp;B common stock are entitled to certain
preferences with respect to the membership of the board of
directors and the committees thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Following the incorporation of NWW, each share of Class&nbsp;B
common stock had a liquidation preference equal to the total
investment by Class&nbsp;B stockholders plus an amount equal to
accrued and unpaid distributions at a rate of 9%&nbsp;per annum,
compounded daily. On October&nbsp;29, 2004, NWW paid an
aggregate $260.0&nbsp;million to its Class&nbsp;A and
Class&nbsp;B stockholders, including $197.2&nbsp;million to
satisfy the liquidation preference on Class&nbsp;B common stock
at that date. Class&nbsp;A and Class&nbsp;B stockholders share
equally in all subsequent distributions, including the remaining
$62.8&nbsp;million paid on October&nbsp;29, 2004, based on their
pro rata portion of total outstanding shares of Class&nbsp;A and
Class&nbsp;B common stock. In the event of an initial public
offering, each share of Class&nbsp;B common stock will convert
into one share of Class&nbsp;A common stock, as adjusted to
reflect applicable stock dividends or other adjustments.
</DIV>

<P align="center" style="font-size: 10pt;">F-14

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
Additionally, in the event of an initial public offering, all
unvested shares of restricted Class&nbsp;A common stock will
vest immediately.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(7)</B></TD>
    <TD>
    <B>Allocations and Other Services</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
USFDG participated in certain services provided by USFC, as
described below:
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a)</I></B></TD>
    <TD>
    <B><I>Cash Management</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Prior to November 2002, USFDG participated in USFC&#146;s
centralized cash management system and, as such, USFDG&#146;s
cash funding requirements including interest and tax
obligations, were met by USFC and cash received by USFDG was
transferred to USFC on a daily basis.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B><I>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b)</I></B></TD>
    <TD>
    <B><I>Allocations</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The statement of operations for the period of January&nbsp;1,
2002 through November&nbsp;21, 2002 includes all direct costs of
USFDG as well as $45.1&nbsp;million of corporate costs allocated
by USFC. Allocated costs include general liability insurance,
workers&#146; compensation insurance, employee health and dental
insurance, 401(k) plan matching contributions, legal fees,
income taxes and certain other costs. In the opinion of
management, these allocations were made on a basis believed to
be reasonable based on USFDG operating within the structure of a
larger parent organization. However, the allocations are not
necessarily indicative of the level of expenses which might have
been incurred by USFDG if it had operated as a stand-alone
entity.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(8)</B></TD>
    <TD>
    <B>Property and Equipment</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Property and equipment consists of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="64%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Land</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,146</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>6,295</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Buildings and improvements</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,839</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,694</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Office furniture, fixtures and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,454</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,821</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transportation equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,418</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,420</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Machinery and equipment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>990</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>830</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,847</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>23,060</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less accumulated depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(4,578</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(2,537</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,269</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20,523</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="5%"></TD>
    <TD width="95%"></TD>
</TR>

<TR valign="top">
    <TD><B>(9)</B></TD>
    <TD>
    <B>Leases</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW has certain noncancelable operating leases primarily for
transportation equipment and office space. These leases
generally contain automatic renewal options until terminated by
either party and require the lessee to pay all executory costs
such as maintenance and insurance. Rental expense for operating
leases was $15.6&nbsp;million and $14.6&nbsp;million for years
ended December&nbsp;31, 2004 and 2003, respectively, and
$1.2&nbsp;million and $12.6&nbsp;million for the period of
November&nbsp;22, 2002 through December&nbsp;31, 2002 and the
period of January&nbsp;1, 2002 through November&nbsp;21, 2002,
respectively.
</DIV>

<P align="center" style="font-size: 10pt;">F-15

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Future minimum lease payments under noncancelable operating
leases (with initial or remaining lease terms in excess of one
year) as of December&nbsp;31, 2004 are (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>12,048</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,430</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,370</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,005</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,135</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,597</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>37,585</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(10)</B></TD>
    <TD>
    <B>Long-Term Debt</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Long-term debt at December&nbsp;31, 2004 and 2003 consists of
the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="72%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unsecured 10.5%&nbsp;senior subordinated notes due
    December&nbsp;1, 2012, interest payable semi-annually</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>200,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Secured borrowings under financing agreement; for 2004, LIBOR
    interest (no floor) plus a spread of 2.50%; for 2003, LIBOR
    interest (no floor) plus a spread of 2.75%; interest rates were
    5.06% and 3.92% at December&nbsp;31, 2004 and 2003,
    respectively; principal payments due quarterly plus annual
    payments based on excess cash flow provisions as defined in the
    agreement; matures November&nbsp;22, 2009; secured by the assets
    of NWW</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>210,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>240,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Unsecured 12.5%&nbsp;senior subordinated notes due
    January&nbsp;1, 2014, interest payable quarterly</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>660,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>440,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Less current installments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt, excluding current installments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>645,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>425,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2002, NWW issued $200.0&nbsp;million principal
amount of 10.5%&nbsp;senior subordinated notes pursuant to
Rule&nbsp;144A of the Securities Act of 1933. Before
December&nbsp;1, 2005, 35% of the senior subordinated notes can
be redeemed with net cash proceeds of certain equity offerings
at a redemption price of 110.50%. In addition, prior to
December&nbsp;1, 2007, all or a portion of the notes may be
redeemed at a price equal to 100% of the principal amount plus a
make whole premium. On or after December&nbsp;1 of the years
indicated, NWW may redeem the notes at the following redemption
prices (expressed in percentages): 105.25% in 2007, 103.50% in
2008, 101.75% in 2009, and 100% in 2010 and thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2002, NWW entered into a financing agreement with a
syndicate of lenders under which NWW borrowed
$250.0&nbsp;million under a term loan bearing an interest rate
of LIBOR (floor of 2.5%) plus 4.0% or alternatively Prime plus
3.0%. The spread decreases upon attaining certain financial
targets and ratios. The financing agreement allows for
additional revolver borrowings through November&nbsp;22, 2008 in
the amount of $75.0&nbsp;million. The revolver had an interest
rate of LIBOR (floor 2.5%) plus 3% or alternatively Prime plus
2%. NWW has the option to elect&nbsp;30, 60, 90, or 180&nbsp;day
interest periods and must pay an annual commitment fee of 1/2 of
1% on the unused portion of the commitment. The spread and
commitment fee decrease based on attaining certain financial
targets and ratios. The agreement allows NWW to utilize up to
$35.0&nbsp;million of the $75.0&nbsp;million revolver borrowings
for letters of credit, bearing an interest rate of 3% and
upfront fees of .25%. NWW utilized $4.4&nbsp;million and
$3.8&nbsp;million of the
</DIV>

<P align="center" style="font-size: 10pt;">F-16

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
revolver borrowings to cover outstanding letters of credit at
December&nbsp;31, 2004 and 2003, respectively. The
$75.0&nbsp;million revolver capacity was reduced accordingly at
these dates.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In August 2003, NWW amended the senior credit facility in
connection with the refinancing of the outstanding term loan
portion thereof. The amendment, among other things, provided for
lower applicable margins for both LIBOR rate and Prime rate term
loan under the refinanced facility. In addition, the minimum
LIBOR rate of 2.50% for the term loan that existed prior to the
amendment was removed. The amendment also permits NWW to issue,
without the consent of lenders under the senior credit facility,
an incremental $50.0&nbsp;million of credit facilities in
addition to the $50.0&nbsp;million permitted prior to the
amendment, contingent upon meeting certain covenants. In
connection with the amendment, NWW paid approximately
$6.0&nbsp;million of financing fees, including a
$4.9&nbsp;million call premium. The call premium was recorded as
deferred financing fees. The remaining financing fees were
charged to interest expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In December 2003, NWW executed a Second Amendment to the senior
credit facility in connection with a distribution to its
shareholders. The amendment permits National Waterworks, Inc. to
pay a dividend to NWW from time to time, contingent upon meeting
certain financial covenants and ratios. In addition, the
aggregate amount of distributions paid pursuant to this
amendment may not exceed $110.0&nbsp;million in total, and may
not exceed $45.0&nbsp;million for the year ended
December&nbsp;31, 2003 and $40.0&nbsp;million for any year
thereafter, provided that any amount not paid in the year for
which it is permitted may be carried over to any succeeding
year. In connection with the amendment, NWW paid approximately
$2.3&nbsp;million in financing fees which were charged to
interest expense.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
On October&nbsp;29, 2004, NWW issued $250.0&nbsp;million of
unsecured senior notes for the purpose of returning capital to
its existing equity holders. These notes, which bear interest at
12.5%, mature January&nbsp;1, 2014 and provide for quarterly
interest payments with payment in kind provisions, as defined in
the underlying indenture, at NWW&#146;s option. Before
October&nbsp;29, 2005, 35% of the senior subordinated notes can
be redeemed with net cash proceeds of certain equity offerings
at a redemption price of 112.50%. In addition, prior to
October&nbsp;29, 2009, all or a portion of the notes may be
redeemed at a price equal to 100% of the principal amount plus a
make whole premium. On or after October 29 of the years
indicated, NWW may redeem the notes at the following redemption
prices (expressed in percentages): 105.00% in 2005, 103.75% in
2006, 102.50% in 2007, 101.25% in 2008 and 100% in 2009 and
thereafter.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the issuance of these senior subordinated
notes, NWW executed a Third Amendment to its senior credit
facility on October&nbsp;26, 2004. This amendment, among other
things, provides for reduced pricing on the term loan and
increases the amount of limited dividends and distributions that
National Waterworks, Inc. may pay to NWW. Though not obligated
to do so, National Waterworks, Inc. anticipates paying such
dividends and distributions to NWW to service the interest
payments on its senior subordinated notes. The reduced pricing
includes a reduction in the applicable margin of the term loan
with a step-down provision upon National Waterworks, Inc.
achieving certain financial ratios. Based on the satisfaction of
certain financial covenants and ratios and other conditions, the
aggregate amount of dividends that National Waterworks, Inc. can
pay to NWW refreshed to an aggregate of $125.0&nbsp;million on
January&nbsp;1, 2005. The $40.0&nbsp;million per-fiscal-year
restriction, with the provision that any amount not paid in the
fiscal year for which it is permitted may be carried over to any
succeeding fiscal year, remains unchanged. The financing
agreement and the indenture related to the senior subordinated
notes contain various covenants including limitations on
additional indebtedness, restricted payments, the incurrence of
liens, transactions with affiliates and sales of assets. In
addition, the financing agreement requires NWW to satisfy
certain financial covenants, including leverage and interest
coverage ratios and capital expenditure limitations. NWW was in
compliance with all of the covenants of the financing agreement
and the indenture at December&nbsp;31, 2004 and 2003. In
connection with the amendment, NWW paid approximately
$5.6&nbsp;million of financing fees, which will be amortized
over the life of the related debt.
</DIV>

<P align="center" style="font-size: 10pt;">F-17

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The aggregate maturities of long-term debt for each of the five
years subsequent to December&nbsp;31, 2004 are (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="86%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Total</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2005</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>15,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2006</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>20,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2007</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2008</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>25,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    2009</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>125,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Thereafter</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>450,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>660,000</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In addition, NWW is required to repay the term loan under the
financing agreement in an amount equal to 75% of excess cash
flow (as defined in the financing agreement) each fiscal year
and with 100% of the net proceeds of certain asset dispositions
and debt issuances and 75% of the net proceeds of certain equity
issuances. The prepayment percentages with respect to excess
cash flow and equity issuances were reduced to 50% after
December&nbsp;31, 2003 based on NWW&#146;s attainment of certain
financial ratios. NWW made an optional prepayment of
$15.0&nbsp;million in December 2004. NWW was not required to
make an excess cash flow payment for the year ended
December&nbsp;31, 2004 or 2003.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(11)</B></TD>
    <TD>
    <B>Income Taxes</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income tax expense (benefit) attributable to income (loss) from
continuing operations for each of the periods presented consists
of the following (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="37%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>17,795</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>4,547</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,547</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,627</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>649</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,541</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>21,422</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,196</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,088</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Federal</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>9,359</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,831</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,098</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,869</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,887</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,262</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(590</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>281</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2"><FONT style="font-size: 10pt">&nbsp;</FONT></TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>11,246</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>18,093</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,150</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-18

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Income tax expense (benefit) attributable to income (loss) from
continuing operations differs from the amounts computed by
applying the U.S.&nbsp;federal income tax rate of 35% to pretax
income from continuing operations as a result of the following
(in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="31%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>January&nbsp;1,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;21,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Expected income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>28,105</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>19,925</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,354</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>26,387</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Increase (decrease) resulting from:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Permanent differences:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Meals and entertainment</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>508</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>511</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>50</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>364</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stock compensation</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>197</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>274</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>7</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    State and local income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,584</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,846</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(384</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,484</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Actual income tax expense (benefit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>32,668</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>23,289</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(3,688</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>29,238</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December&nbsp;31, 2004 and 2003 are presented
below (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="55%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventories</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,286</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>759</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Allowance for doubtful accounts</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>814</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,339</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Start-up costs</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,174</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,886</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accruals</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>488</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,768</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6,017</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred tax liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Depreciation and amortization</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>26,343</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>15,235</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Prepaid expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,190</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,252</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>49</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>27,533</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>16,536</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net deferred tax liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>21,765</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>10,519</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="4">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Current income taxes payable of $2.9&nbsp;million and
$2.1&nbsp;million are included in other accrued expenses at
December&nbsp;31, 2004 and 2003, respectively. Current deferred
tax liability of $0.5&nbsp;million is included in other accrued
expenses at December&nbsp;31, 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections of future taxable
income over the periods in which the deferred tax assets will be
deductible, management believes it is more likely than not that
NWW will realize the benefits of these temporary differences at
December&nbsp;31, 2004 and, therefore, has not established a
valuation allowance.
</DIV>

<P align="center" style="font-size: 10pt;">F-19

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
At December&nbsp;31, 2002, NWW had a net operating loss
carryforward for Federal and state income tax purposes of
approximately $15.6&nbsp;million which was available to offset
Federal taxable income through 2022 and future taxable income in
various states through 2007. The entire net operating loss
carryforward was utilized during 2003 for both Federal and state
income tax purposes.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(12)</B></TD>
    <TD>
    <B>Completion Bonuses and Restricted Stock Agreements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In April 2002, USFC entered into agreements with certain members
of management and other key employees of USFDG, to provide them
with an opportunity to earn cash incentive &#147;completion
bonuses&#148; in connection with the anticipated sale of USFDG.
Completion bonus payments were made by USFC following
consummation of the acquisition to each employee with such an
agreement, unless such individual&#146;s employment was
terminated voluntarily or for cause prior thereto. Payments by
USFC pursuant to these arrangements totaled $6.2&nbsp;million
for the period of January&nbsp;1, 2002 through November&nbsp;21,
2002.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2002, certain employees of NWW purchased shares of
Class&nbsp;A and Class&nbsp;B Common Stock and entered into a
restricted stock agreement related to the shares of Class&nbsp;A
common stock. Under the terms of the restricted stock agreement,
NWW has the option to repurchase the Class&nbsp;A shares at the
lower of the then current fair value of the stock or the
employees&#146; purchase price. Certain shares subject to
repurchase by NWW are reduced over a four-year period
(&#147;time based shares&#148;) with the remaining shares being
reduced over a four-year period if certain financial measures,
as defined in the restricted stock agreement, are met by
National Waterworks, Inc. (&#147;performance based
shares&#148;). If the employee remains employed by NWW, and if
the performance based targets are not met, NWW ceases to have
the right to repurchase such shares on the eighth anniversary of
the date of the restricted stock agreement.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In the event the employee ceases employment with NWW, there is
no further reduction in the shares then subject to repurchase.
If an employee is terminated without cause within one year of a
sale of NWW or National Waterworks, Inc., NWW ceases to have the
right to repurchase any time-based shares then subject to
repurchase. In addition, if there is a sale of NWW or National
Waterworks, Inc. or a public offering of the equity securities
of either company, NWW ceases to have the right to repurchase
any performance based shares then subject to repurchase if
J.P.&nbsp;Morgan Partners, LLC and Thomas H. Lee Partners, L.P.
and their affiliates realize a specified return on their
original investments as defined in the restricted stock
agreement. In the event the employee is terminated for cause,
all shares purchased by the employee are subject to repurchase
by NWW.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As of December&nbsp;31, 2004 and 2003, respectively, 248,962 and
376,860 outstanding shares of Class&nbsp;A common stock were
unvested.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(13)</B></TD>
    <TD>
    <B>Employee Benefit Plans</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Retirement Savings Plan.</I> NWW adopted a 401(k) retirement
savings plan on January&nbsp;1, 2003 which is available to full
time and full time equivalent employees. The plan allows
employees to contribute a portion of their compensation on a
pretax basis, subject to statutory limits. NWW matches 50% of up
to 7% of participant contributions. Expenses charged to
operations related to this plan were $2.1&nbsp;million and
$1.9&nbsp;million for the years ended December&nbsp;31, 2004 and
2003, respectively.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
<I>Management Deferred Compensation Plan.</I> NWW established a
non-qualified management deferred compensation plan on
January&nbsp;1, 2003. The plan allows eligible employees to
defer up to 50% of their regular taxable earnings and up to 100%
of their annual bonus, as described in the plan. The
participants&#146; contributions are not matched by NWW.
Although there are no specific funding requirements under the
plan, NWW has elected to fund the plan through contributions to
a rabbi trust. The fair value of the assets held in the rabbi
trust was $2.9&nbsp;million and $1.6&nbsp;million at
December&nbsp;31, 2004 and 2003, respectively, and is included
in other assets. The fair value of the participant accounts was
$3.1&nbsp;million and $1.7&nbsp;million at December&nbsp;31,
2004 and 2003, respectively, and is included in other long-term
liabilities.
</DIV>

<P align="center" style="font-size: 10pt;">F-20

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<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(14)</B></TD>
    <TD>
    <B>Commitments and Contingencies</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Certain of USFDG&#146;s predecessors distributed or may have
distributed cement pipe containing asbestos. Except for one
predecessor, the cement pipe distributed was primarily used in
water and sewage application where the pipe was typically buried
underground. Management believes that the nature of the
asbestos-containing pipe distributed by the predecessors and the
uses of such pipe makes it unlikely that a large number of
plaintiffs would be exposed to friable asbestos emanating from
the pipe. Management is not aware of any predecessor
manufacturing or fabricating asbestos containing products of any
type or assuming any product liability for such products.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
As discussed in Note&nbsp;3, USFC and USFDG completed an
agreement to sell substantially all of USFDG&#146;s assets, net
of certain liabilities as defined in the sales agreement, to
NWW. The November 2002 acquisition was structured as an asset
purchase and NWW did not assume any existing or future
asbestos-related liabilities relating to USFC or its
predecessors. USFC and USFDG retained these liabilities and
jointly and severally agreed to indemnify and defend NWW from
and against these liabilities on an unlimited basis with no
termination date. USFC and USFDG also agreed that, until
November&nbsp;22, 2012, USFC will cause USFDG to maintain
USFDG&#146;s corporate existence and ensure that USFDG has
sufficient funds to pay any and all of its debts and other
obligations, including liabilities retained by USFDG and its
indemnification obligations, as and when they become due. In
addition, Veolia has guaranteed all obligations of USFC and
USFDG under the asset purchase agreement, including the
indemnity discussed above, up to an aggregate of
$50.0&nbsp;million through the period ending November&nbsp;22,
2017. Historically, courts have not held the acquirer of an
entity&#146;s assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a &#147;successor&#148; to the asset seller. Accordingly, we
could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to USFDG and to the
extent USFDG, USFC and Veolia are unable to fulfill their
contractual obligations. As the asbestos claims were retained by
USFDG and USFC and in view of the indemnity by USFDG and USFC
with respect to retained liabilities and the Veolia guarantee,
discussed above, management of NWW believes that it has no
liability related to asbestos claims at December&nbsp;31, 2004
and 2003.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
USFDG and its predecessor companies have been named as
defendants in 1,172 asbestos related lawsuits, of which 960 have
been dismissed, 143 have been settled and 69 remain open at
December&nbsp;31, 2004. The majority of these suits have related
to one location and have either been dismissed or settled for
nominal amounts. USFDG&#146;s insurers have paid the majority of
the settlement and defense costs related to these suits. As of
December,&nbsp;31, 2004, USFDG has made aggregate settlement
payments of $0.1&nbsp;million and paid aggregate defense costs
of $0.5&nbsp;million related to settled claims.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on NWW&#146;s financial position
or results of operations.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(15)</B></TD>
    <TD>
    <B>Fair Value of Financial Instruments</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Financial instruments consist of cash and cash equivalents and
long-term debt as of December&nbsp;31, 2004 and 2003. The
carrying amount of cash and cash equivalents approximates the
fair value because of the short-term nature of these
instruments. The aggregate fair value of the senior subordinated
notes long-term debt is estimated at $475.0&nbsp;million and
$228.0&nbsp;million at December&nbsp;31, 2004 and 2003,
respectively, based on quoted market prices and NWW&#146;s
estimates as of those dates, compared to the aggregate carrying
value of $450.0&nbsp;million and $200.0&nbsp;million,
respectively. The carrying value of the term loan under
NWW&#146;s financing agreement approximates the fair value as
the interest rates float with market interest rates.
</DIV>

<P align="center" style="font-size: 10pt;">F-21

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<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(16)</B></TD>
    <TD>
    <B>Related Party Transactions</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In November 2002, NWW entered into a management agreement with
J.P.&nbsp;Morgan Partners, LLC and Thomas A. Lee Partners, L.P.
(&#147;Sponsors&#148;). Each of the Sponsors and its affiliates
owns 43.3% of the outstanding common stock of NWW. Under the
agreement, the Sponsors agreed to provide NWW with financial
advisory and other services. Beginning July&nbsp;1, 2004, NWW
pays each Sponsor an annual management fee of $0.5&nbsp;million
for these services. The management agreement continues until
terminated by a Sponsor as provided in the management agreement.
Upon termination under certain conditions, each Sponsor will be
entitled to receive a termination fee equal to the net present
value of the fees that would have been paid to the Sponsor for
the 10-year period commencing on the date of termination.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In connection with the Acquisition, NWW paid each Sponsor a
transaction fee in the amount of $8.0&nbsp;million
($16.0&nbsp;million in the aggregate). NWW also paid all
expenses of the Sponsors and their controlled affiliates,
including the fees and expenses of their respective counsel and
other advisors and consultants, in connection with the
Acquisition. These arrangements with the Sponsors also contain
standard indemnification provisions by NWW of the Sponsors.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Additionally, in connection with the Acquisition, NWW entered
into the senior credit facility with J.P.&nbsp;Morgan Securities
Inc. as a co-syndication agent and as a joint lead arranger and
Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as a lender. J.P.&nbsp;Morgan Securities Inc. was
also an initial purchaser of NWW&#146;s senior subordinated
notes. Both J.P.&nbsp;Morgan Securities Inc. and Chase Lincoln
First Commercial Corp. are affiliates of J.P.&nbsp;Morgan
Partners, LLC. In connection with the senior credit facility,
J.P.&nbsp;Morgan Securities Inc. and Chase Lincoln First
Commercial Corp. received customary fees for acting in such
capacities. J.P.&nbsp;Morgan Securities Inc. also received a
proportionate share of the initial purchasers discount in
connection with the offering of NWW&#146;s senior subordinated
notes. In addition, J.P.&nbsp;Morgan Securities also received a
customary fee in respect of a bridge financing commitment which
was not utilized. J.P.&nbsp;Morgan Securities Inc. was also paid
usual and customary arrangement fees in connection with the
execution of the First, Second and Third amendments to
NWW&#146;s senior credit facility.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In January 2003, one of the directors of NWW and National
Waterworks, Inc. who had not made an investment in NWW at the
time the acquisition was consummated made a $1.0&nbsp;million
cash equity investment in NWW in exchange for the issuance of
shares of NWW common stock. The investment was made at the same
price per share as the original investment made by the Sponsors
and management on November&nbsp;22, 2002.
</DIV>

<P align="center" style="font-size: 10pt;">F-22

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(17)</B></TD>
    <TD>
    <B>Valuation and Qualifying Accounts</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Activity related to NWW&#146;s valuation and qualifying accounts
is summarized as follows (in thousands):
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="47%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Beginning</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Ending</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Additions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Deductions</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Balance</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Period of January&nbsp;1, 2002<BR>
    through November&nbsp;21, 2002:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,941</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>1,252</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(1,634</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,559</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Inventory allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,830</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>389</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(3,219</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Period of November&nbsp;22, 2002<BR>
    through December&nbsp;31, 2002:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,441</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(47</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,394</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2003:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,394</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>953</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,134</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,213</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Year ended December&nbsp;31, 2004:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Accounts receivable allowance</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,213</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,076</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(797</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,492</TD>
    <TD>&nbsp;</TD>
</TR>

</TABLE>
</CENTER>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="6%"></TD>
    <TD width="94%"></TD>
</TR>

<TR valign="top">
    <TD><B>(18)</B></TD>
    <TD>
    <B>Parent Company Only Financial Statements</B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
NWW generates all of its cash from the operations of National
Waterworks, Inc. As discussed in note&nbsp;10, the senior credit
facility of National Waterworks, Inc. restricts the total
dividends that may be paid to NWW. Accordingly, substantially
all of National Waterworks, Inc.&#146;s net assets of
$219.8&nbsp;million were restricted as to distribution to NWW as
of December&nbsp;31, 2004.
</DIV>

<P align="center" style="font-size: 10pt;">F-23

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following condensed parent company only financial statements
of NWW account for the investment in National Waterworks, Inc.
under the equity method of accounting. These condensed financial
statements should be read in conjunction with the consolidated
financial statements of NWW and notes thereto.
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>National Waterworks Holdings, Inc. (Parent Company Only)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Condensed Balance Sheets</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="58%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="7%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Assets</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current assets:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>6</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,012</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Deferred financing fees, less accumulated amortization of $101
    at December&nbsp;31, 2004</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,469</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Investment in National Waterworks, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>219,800</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>228,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="3" align="center" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    <B>Liabilities and Stockholders&#146; Equity (Deficit)</B></DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Current liabilities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Trade accounts payable</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>20</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Other accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,445</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total current liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Long-term debt, excluding current installments</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>251,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total stockholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(23,184</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total liabilities and stockholders&#146; equity (deficit)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>228,281</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>199,473</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Condensed Statements of Operations</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="49%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Equity in net income (loss) of National Waterworks, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>51,163</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Interest expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,560</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income (loss) before income taxes</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>45,603</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Income tax benefit</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>2,029</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-24

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt;">
<B>NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS&nbsp;&#151;&nbsp;(Continued)</B>
</DIV>

<DIV align="center" style="font-size: 10pt; margin-top: 30pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Condensed Statements of Cash Flows</B>
</DIV>

<DIV align="center" style="font-size: 10pt;">
<B>(in thousands)</B>
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 12pt; ">

<TR style="font-size: 1pt;">
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="40%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="6%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Period of</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>November&nbsp;22,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>Year Ended</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002 through</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>December&nbsp;31,</B></TD><TD></TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2004</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2003</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap><B>2002</B></TD><TD></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from operating activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net income (loss)</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>(5,894</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="3" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Adjustments to reconcile net income to net cash from operating
    activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Amortization of deferred financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>101</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Non-cash stock compensation expense</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>562</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Undistributed net income (loss) of National Waterworks,
    Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(20,327</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,894</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in other current assets</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(6</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Change in trade accounts payable and accrued expenses</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,465</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from operating activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>29,427</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>33,641</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from investing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Contributions to National Waterworks, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(1,000</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(209,999</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Return of capital from National Waterworks, Inc.&nbsp;</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>5,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from investing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>4,632</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(209,999</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash flows from financing activities:</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Proceeds from long-term debt</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>250,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Financing fees</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(5,570</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Stockholder contributions</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>1,000</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,999</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD>&nbsp;</TD>
    <TD colspan="4" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Distributions to stockholders</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(270,851</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(39,273</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net cash from financing activities</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(26,421</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>(38,273</TD>
    <TD align="left" valign="bottom" nowrap>)</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>209,999</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Net increase in cash and cash equivalents</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>3,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at beginning of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD colspan="5" align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Cash and cash equivalents at end of period</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>3,006</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&#151;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="5">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">F-25
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<IMG src="y07374y0737401.gif" alt="(NATIONAL WATERWORKS)">
</DIV>

<DIV align="center" style="font-size: 24pt; margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>National Waterworks Holdings, Inc.</B>
</DIV>

<DIV style="margin-top: 9pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Part&nbsp;II&nbsp;&#151; Information Not Required in
Prospectus</B>
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;13.</B></TD>
    <TD>
    <B><I>Other Expenses of Issuance and Distribution</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by National
Waterworks Holdings, Inc. in connection with the issuance and
sale of the securities being registered. All amounts are
estimates except the SEC registration and NYSE filing fees.
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="87%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="4%">&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    SEC registration fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>47,080</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NASD filing fee</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>40,500</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    NYSE filing fee*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Transfer agent&#146;s fee*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Printing and engraving expenses*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Legal and accounting fees and expenses*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" bgcolor="#cceeff">
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Miscellaneous*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">&nbsp;</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

<TR>
    <TD align="left" valign="top">
    <DIV style="margin-left: 10px; text-indent: -10px">
    Total*</DIV>
    </TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="bottom">$</TD>
    <TD align="right" valign="bottom" nowrap>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD colspan="2" align="left" style="border-top: 3pt double #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>

</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="2%"></TD>
    <TD width="98%"></TD>
</TR>

<TR valign="top">
    <TD>*&nbsp;</TD>
    <TD align="left">
    To be completed by amendment.</TD>
</TR>

</TABLE>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;14.</B></TD>
    <TD>
    <B><I>Indemnification of Directors and Officers</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;145 of the Delaware General Corporation Law
(&#147;DGCL&#148;) provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than
an action by or in the fight of the corporation) by reason of
the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys&#146; fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Section&nbsp;145 further provides that a
corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the fight of the corporation to procure a judgment
in its favor, against expenses (including attorneys&#146; fees)
actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or such other court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Section&nbsp;102(b)(7) of the DGCL permits a corporation to
include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a
director (i)&nbsp;for any breach of the director&#146;s duty of
loyalty to the corporation or its stockholders, (ii)&nbsp;for
acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii)&nbsp;under
Section&nbsp;174 of the DGCL (relating to unlawful payment of
dividends and unlawful stock purchase and redemption) or
(iv)&nbsp;for any transaction from which the director derived an
improper personal benefit.
</DIV>

<P align="center" style="font-size: 10pt;">II-1

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
In accordance with the provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of
National Waterworks Holdings, Inc., National Waterworks
Holdings, Inc. shall indemnify, to the fullest extent permitted
by law, any person who is or was a party, or is threatened to be
made a party to, any threatened, pending or contemplated action,
suit or other type of proceeding (other than an action by or in
our right), whether civil, criminal, administrative,
investigative or otherwise, and whether formal or informal, by
reason of the fact that such person is or was National
Waterworks Holdings, Inc.&#146;s director, officer or employee
or is or was serving at National Waterworks Holdings,
Inc.&#146;s request (as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise) against judgments, amounts paid in settlement,
penalties, fines (including an excise tax assessed with respect
to any employee benefit plan) and expenses (including counsel
fees) actually and reasonably incurred in connection with any
such action, suit or other proceeding, including any appeal
thereof, if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, National
Waterworks Holdings, Inc.&#146;s best interests and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe such person&#146;s conduct was unlawful. In
addition, National Waterworks Holdings, Inc. also carries
insurance on behalf of its directors, officers, employees or
agents that may cover liabilities under the Securities Act.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
National Waterworks Holdings, Inc. provides its directors and
officers with additional director and officer liability
insurance.
</DIV>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;15.</B></TD>
    <TD>
    <B><I>Recent Sales of Unregistered Securities</I></B></TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Set forth below in chronological order is certain information
regarding securities issued by the Registrant in the last three
years in transactions that were not registered under the
Securities Act, including the consideration, if any, received by
the Registrant for such issuances.
</DIV>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    1.&nbsp;On November&nbsp;22, 2002, the Registrant issued
    2,059,351&nbsp;shares of Class&nbsp;B common stock to entities
    affiliated with JPMP for an aggregate purchase price of
    $102,967,550.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    2.&nbsp;On November&nbsp;22, 2002, the Registrant issued
    2,059,351&nbsp;shares of Class&nbsp;B common stock to entities
    affiliated with TH Lee for an aggregate purchase price of
    $102,967,550.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    3.&nbsp;On November&nbsp;22, 2002, the Registrant issued
    511,590.36&nbsp;shares of Class&nbsp;A common stock to certain
    of its executives for an aggregate purchase price of $9,152.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    4.&nbsp;On November&nbsp;22, 2002, the Registrant issued
    61,098&nbsp;shares of Class&nbsp;B common stock to certain of
    its executives for an aggregate purchase price of $3,054,900.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    5.&nbsp;On November&nbsp;22, 2003, the Registrant issued
    20,000&nbsp;shares of Class&nbsp;B common stock to one of its
    directors for an aggregate purchase price of $1,000,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    6.&nbsp;On January&nbsp;29, 2003, the Registrant issued
    20,000&nbsp;shares of Class&nbsp;B common stock to entities
    affiliated with one of its directors for an aggregate purchase
    price of $1,000,000.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    7.&nbsp;On October&nbsp;29, 2004, the Registrant issued
    $250,000,000 of 12.50%&nbsp;senior subordinated notes due 2012
    to certain private investors, including affiliates of Goldman,
    Sachs&nbsp;&#38; Co.</TD>
</TR>

<TR>
    <TD style="font-size: 6pt">&nbsp;</TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
    8.&nbsp;On March&nbsp;1, 2005, the Registrant granted stock
    options to one of its executive officers to
    purchase&nbsp;95,628&nbsp;shares of its Class&nbsp;A common
    stock for an aggregate exercise price of $9,754,056.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Each of the above-described transactions were exempt from
registration (i)&nbsp;pursuant to Section&nbsp;4(2) of the
Securities Act, or Regulation&nbsp;D promulgated thereunder, as
transactions not involving a public offering or (ii)&nbsp;in the
case of stock options, as transactions not involving a sale of
securities. With respect to each transaction listed above, no
general solicitation was made by either the Registrant or any
person acting on its behalf; the securities sold are subject to
transfer restrictions; and the certificates for the shares
contained an appropriate legend stating such securities have not
been registered under the Securities Act and may not be offered
or sold absent, registration or pursuant to an exemption
therefrom.
</DIV>

<P align="center" style="font-size: 10pt;">II-2
<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV style="margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="9%"></TD>
    <TD width="91%"></TD>
</TR>

<TR valign="top">
    <TD><B>Item&nbsp;16.</B></TD>
    <TD>
    <B><I>Exhibits and Financial Statement Schedules</I></B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="4%"></TD>
    <TD width="93%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD><B>(a)&nbsp;</B></TD>
    <TD align="left">
    <B>Exhibits</B></TD>
</TR>

</TABLE>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Exhibit</B></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Number</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>1</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Underwriting Agreement.**</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>2</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Asset Purchase Agreement dated September&nbsp;12, 2002 by and
    among United States Filter Corporation, U.S.&nbsp;Filter
    Distribution Group, Inc. and National Waterworks, Inc.
    (Incorporated by reference to Exhibit&nbsp;2.1 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated Certificate of Incorporation of
    National Waterworks Holdings, Inc.**</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>3</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Amended and Restated By-laws of Incorporation of
    National Waterworks Holdings, Inc.**</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Indenture, dated as of November&nbsp;22, 2002, between National
    Waterworks, Inc. and Wells Fargo Bank, Minnesota, National
    Association, as Trustee (Incorporated by Reference to
    Exhibit&nbsp;4.1 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Form of Senior Subordinated Note, Series&nbsp;B, due 2012 (a
    form of which is incorporated by reference to an exhibit to the
    Indenture filed as Exhibit&nbsp;4.1 to National Waterworks,
    Inc.&#146;s Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>4</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Exchange and Registration Rights Agreement, dated as of
    November&nbsp;22, 2002, among National Waterworks, Inc.,
    Goldman, Sachs&nbsp;&#38; Co., J.P.&nbsp;Morgan Securities Inc.
    and UBS Warburg LLC (Incorporated by reference to
    Exhibit&nbsp;4.3 of National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>5</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Opinion of O&#146;Melveny&nbsp;&#38; Myers LLP.**</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Credit Agreement, dated as of November&nbsp;22, 2002, among
    National Waterworks Holdings, Inc., National Waterworks, Inc.,
    as Borrower, the several lenders from time to time parties
    thereto, J.P.&nbsp;Morgan Securities Inc., as Co-Syndication
    Agent, Goldman Sachs Credit Partners L.P., as Co-Syndication
    Agent, General Electric Capital Corporation, as Co-Documentation
    Agent, Antares Capital Corporation, as Co-Documentation Agent
    and UBS AG, Stamford Branch, as Administrative Agent
    (Incorporated by Reference to Exhibit&nbsp;10.1 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Guarantee and Collateral Agreement, dated as of
    November&nbsp;22, 2002, among National Waterworks Holdings,
    Inc., and National Waterworks, Inc. as Borrower in favor of UBS
    AG, Stamford branch, as Administrative Agent (Incorporated by
    Reference to Exhibit&nbsp;10.2 to National Waterworks,
    Inc.&#146;s Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.3</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Deed of Trust, Assignment of Rents and Leases and Security
    Agreement, dated as of November&nbsp;22, 2002, made by National
    Waterworks, Inc for the use and benefit of UBS AG, Stamford
    Branch, as Administrative Agent. (St.&nbsp;Louis, MO)
    (Incorporated by Reference to Exhibit&nbsp;10.3 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.4</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Deed of Trust, Assignment of Rents and Leases, Fixture Filing
    and Security Agreement, dated as of November&nbsp;22, 2002, made
    by National Waterworks, Inc for the use and benefit of UBS AG,
    Stamford Branch, as Administrative Agent (Puyallup, WA)
    (Incorporated by Reference to Exhibit&nbsp;10.4 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.5</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employee Leasing Agreement between United States Filter
    Corporation, U.S.&nbsp;Filter Distribution Group, Inc. and
    National Waterworks, Inc., dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.5 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="right" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.6</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Reimbursement Agreement between United States Filter Corporation
    and National Waterworks, Inc., dated as of November&nbsp;22,
    2002 (Incorporated by Reference to Exhibit&nbsp;10.6 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-3

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.7</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stockholders Agreement among National Waterworks Holdings, Inc.,
    THL Managers&nbsp;V, LLC and certain of its affiliates,
    J.P.&nbsp;Morgan Partners, LLC and certain of its affiliates,
    and the other parties thereto, dated as of November&nbsp;22,
    2002 (Incorporated by Reference to Exhibit&nbsp;10.7 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.8</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Registration Rights Agreement among National Waterworks
    Holdings, Inc. and its stockholders, dated as of
    November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.8 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.9</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subscription and Stock Purchase Agreement by and among National
    Waterworks Holdings, Inc. and each of Thomas H. Lee Equity
    Fund&nbsp;V, L.P., Thomas H. Lee Parallel Fund&nbsp;V, L.P.,
    Thomas H. Lee Equity (Cayman) Fund&nbsp;V, L.P., Putnam
    Investments Holdings, LLC, Putnam Investments Employees&#146;
    Securities Company I LLC, Putnam Investments Employees&#146;
    Securities Company&nbsp;II LLC, 1997 Thomas H. Lee Nominee
    Trust, Thomas H. Lee Investors Limited Partnership,
    J.P.&nbsp;Morgan Partners (BHCA), L.P., J.P.&nbsp;Morgan
    Partners Global Investors, L.P., J.P.&nbsp;Morgan Partners
    Global Investors (Cayman), L.P., J.P.&nbsp;Morgan Partners
    Global Investors A, L.P., J.P.&nbsp;Morgan Partners Global
    Investors (Cayman)&nbsp;II, L.P. and Latona NW Investment, LLC,
    dated as of November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.9 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.10</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Subscription and Stock Purchase Agreement by and among National
    Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle
    Slaughter, Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry
    Webb, Irving Welchons, Jack Schaller, Joe Walker, Phil Keipp and
    Jack Olson, dated as of November&nbsp;22, 2002 (Incorporated by
    Reference to Exhibit&nbsp;10.10 to National Waterworks,
    Inc.&#146;s Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.11</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Harry Hornish, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.11 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.12</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Mechelle Slaughter, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.12 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.13</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Terry Howell, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.13 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.14</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Rob Hickson, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.14 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.15</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Ed Maczko dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.15 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.16</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Ron Hood, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.16 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.17</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jerry Webb, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.17 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.18</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Irving Welchons, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.18 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.19</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jack Schaller, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.19 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.20</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Joe Walker, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.20 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-4

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.21</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Philip Keipp, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.21 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.22</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jack Olson, dated as of November&nbsp;22, 2002
    (Incorporated by Reference to Exhibit&nbsp;10.22 to National
    Waterworks, Inc.&#146;s Registration Statement on Form&nbsp;S-4,
    File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.23</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Harry Hornish, dated as of
    November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.23 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.24</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Mechelle Slaughter, dated as of
    November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.24 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.25</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Terry Howell, dated as of November&nbsp;22,
    2002 (Incorporated by Reference to Exhibit&nbsp;10.25 to
    National Waterworks, Inc.&#146;s Registration Statement on
    Form&nbsp;S-4, File No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.26</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Management Agreement between National Waterworks, Inc., THL
    Managers&nbsp;V, LLC and certain of its affiliates and
    J.P.&nbsp;Morgan Partners, LLC and certain of its affiliates,
    dated as of November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.26 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.27</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Fee Agreement between National Waterworks, Inc., THL
    Managers&nbsp;V, LLC and certain of its affiliates and
    J.P.&nbsp;Morgan Partners, LLC and certain of its affiliates,
    dated September&nbsp;30, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.27 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.28</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Tax Sharing Agreement between National Waterworks, Inc. and
    National Waterworks Holdings, Inc., dated as of
    November&nbsp;22, 2002 (Incorporated by Reference to
    Exhibit&nbsp;10.28 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.29</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Real property lease covering premises located at 200 Highway 6
    West, Suite&nbsp;620, Waco, TX (Incorporated by Reference to
    Exhibit&nbsp;10.29 to National Waterworks, Inc.&#146;s
    Registration Statement on Form&nbsp;S-4, File
    No.&nbsp;333-102430).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.30</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    First Amendment, dated as of August&nbsp;7, 2003, with respect
    to the Credit Agreement, dated as of November&nbsp;22, 2002,
    among National Waterworks Holdings, Inc., National Waterworks,
    Inc., the several banks and other financial institutions or
    entities from time to time parties to the Credit Agreement,
    J.P.&nbsp;Morgan Securities Inc. and Goldman Sachs Credit
    Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent. (Incorporated by reference to
    Exhibit&nbsp;10.32 to National Waterworks, Inc.&#146;s Quarterly
    Report on Form&nbsp;10-Q for the quarter ended June&nbsp;27,
    2003).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.31</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Second Amendment, dated as of December&nbsp;2, 2003, with
    respect to the Credit Agreement, dated as of November&nbsp;22,
    2002, among National Waterworks Holdings, Inc., National
    Waterworks, Inc., the several banks and other financial
    institutions or entities from time to time parties to the Credit
    Agreement, J.P.&nbsp;Morgan Securities Inc. and Goldman Sachs
    Credit Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.31 to National Waterworks, Inc.&#146;s Annual
    Report on Form&nbsp;10-K for the fiscal year ended
    December&nbsp;31, 2003).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.32</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Third Amendment, dated as of October&nbsp;26, 2004, with respect
    to the Credit Agreement, dated as of November&nbsp;22, 2002,
    among National Waterworks Holdings, Inc., National Waterworks,
    Inc., the several banks and other financial institutions or
    entities from time to time parties to the Credit Agreement,
    J.P.&nbsp;Morgan Securities Inc. and Goldman Sachs Credit
    Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent (Incorporated by reference to
    Exhibit&nbsp;10.32 to National Waterworks, Inc.&#146;s Current
    Report on Form&nbsp;8-K dated October&nbsp;26, 2004).</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-5

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="6%">&nbsp;</TD>
    <TD width="1%">&nbsp;</TD>
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="85%">&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Exhibit</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD>&nbsp;</TD>
</TR>

<TR style="font-size: 8pt;">
    <TD colspan="2" align="center" nowrap><B>Number</B></TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Exhibit</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="2" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD><TD></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.33</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Employment Agreement between National Waterworks, Inc. and
    Philip Keipp, dated as of March&nbsp;1, 2005 (Incorporated by
    reference to Exhibit&nbsp;10.31 to National Waterworks,
    Inc.&#146;s Annual Report on Form&nbsp;10-K for the fiscal year
    ended December&nbsp;31, 2004).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>10</TD>
    <TD align="left" valign="top" nowrap>.34</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Stock Option Agreement between National Waterworks Holdings,
    Inc. and Philip Keipp, dated as of March&nbsp;1, 2005
    (Incorporated by reference to Exhibit&nbsp;10.32 to National
    Waterworks, Inc.&#146;s Annual Report on Form&nbsp;10-K for the
    fiscal year ended December&nbsp;31, 2004).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>21</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    List of Subsidiaries.**</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of KPMG LLP</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>23</TD>
    <TD align="left" valign="top" nowrap>.2</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Consent of O&#146;Melveny&nbsp;&#38; Myers LLP (included in
    Exhibit&nbsp;5.1).</TD>
</TR>

<TR>
    <TD align="left" valign="top">&nbsp;</TD>
    <TD align="right" valign="top" nowrap>24</TD>
    <TD align="left" valign="top" nowrap>.1</TD>
    <TD>&nbsp;</TD>
    <TD align="left" valign="top">
    Powers of Attorney (included on signature page).</TD>
</TR>

</TABLE>
</CENTER>

<DIV align="left" style="font-size: 3pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<DIV style="width: 18%; border-top: 1.0pt solid black; font-size: 1pt">&nbsp;</DIV>
</DIV>

<DIV style="margin-top: 3pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="3%"></TD>
    <TD width="97%"></TD>
</TR>

<TR valign="top">
    <TD>**&nbsp;</TD>
    <TD align="left">
    To be filed by Amendment.</TD>
</TR>

</TABLE>

<DIV align="left" style="font-size: 10pt; margin-top: 12pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Item&nbsp;17.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<I>Undertakings</I></B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
1.&nbsp;The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
2.&nbsp;Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore
unenforceable. In the event that a claim for indemnification by
the registrant against such liabilities, other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
3.&nbsp;The undersigned registrant hereby undertakes that:
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(1)&nbsp;For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule&nbsp;430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule&nbsp;424(b)(1) or (4)&nbsp;or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
(2)&nbsp;For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
</DIV>

<P align="center" style="font-size: 10pt;">II-6

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>SIGNATURES</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waco, State of Texas, on the
4th&nbsp;day of April, 2005.
</DIV>

<DIV style="margin-top: 24pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <B>NATIONAL WATERWORKS HOLDINGS, INC.</B></TD>
</TR>

</TABLE>

<DIV style="margin-top: 48pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;"></DIV>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 10pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="2%"></TD>
    <TD width="58%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD>By:&nbsp;</TD>
    <TD align="center">
    /s/ <FONT style="font-variant:SMALL-CAPS">Harry K.
    Hornish,&nbsp;Jr.
    </FONT></TD>
</TR>

</TABLE>

<TABLE width="100%" border="0" cellpadding="0" cellspacing="0" style="font-size: 3pt;">

<TR>
    <TD width="40%"></TD>
    <TD width="60%"></TD>
</TR>

<TR valign="top">
    <TD>&nbsp;</TD>
    <TD align="left">
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt" align="left">&nbsp;</DIV></TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Harry K. Hornish,&nbsp;Jr.</TD>
</TR>

<TR valign="top"  style="font-size: 10pt;">
    <TD>&nbsp;</TD>
    <TD align="left">
    Chief Executive Officer</TD>
</TR>

</TABLE>

<DIV align="center" style="font-size: 10pt; margin-top: 18pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">
<B>Power of Attorney</B>
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints HARRY K.
HORNISH, JR. and PHILIP KEIPP, or either of them, his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities to sign any and
all amendments (including post-effective amendments) to the
registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing
requisite or necessary to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that each said attorney-in-fact and agent or any of them or
their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
</DIV>

<DIV align="left" style="font-size: 10pt; margin-top: 6pt; margin-left: 0; margin-right: 0; margin-bottom: 0; color: #000000; background: #ffffff;">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
</DIV>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; margin-top: 6pt; ">

<TR style="font-size: 1pt;">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Harry K.
    Hornish,&nbsp;Jr.<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Harry
    K. Hornish,&nbsp;Jr.</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    President, Chief Executive Officer and Director<BR>
    (Principal Executive Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Philip Keipp<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Philip
    Keipp</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Chief Financial Officer (Principal Financial and Accounting
    Officer)</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Todd M. Abbrecht<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Todd
    M. Abbrecht</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Anthony J. DiNovi<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Anthony
    J. DiNovi</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Stephen V. McKenna<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Stephen
    V. McKenna</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Paul M. Meister<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Paul
    M. Meister</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-7

<!-- PAGEBREAK -->
<P><HR noshade><P>
<H5 align="left" style="page-break-before:always"><A HREF="#tocpage">Table of Contents</A></H5><P>

<CENTER>
<TABLE width="100%" align="center" cellspacing="0" cellpadding="0" border="0" style="font-size: 10pt; ">

<TR style="font-size: 1pt;">
    <TD width="5%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="41%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="34%">&nbsp;</TD>
    <TD width="3%">&nbsp;</TD>
    <TD width="11%">&nbsp;</TD>
</TR>


<TR style="font-size: 8pt;">
    <TD colspan="3" align="center" nowrap><B>Signature</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Title</B></TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap><B>Date</B></TD>
</TR>

<TR valign="bottom" style="font-size: 1px">
    <TD colspan="3" align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
    <TD>&nbsp;</TD>
    <TD align="center" nowrap style="border-top: 1pt solid #000000;">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">C. Dean Metropoulos<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>C.
    Dean Metropoulos</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Stephen P. Murray<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Stephen
    P. Murray</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Kevin G.
    O&#146;Brien<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Kevin
    G. O&#146;Brien</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Soren L. Oberg<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Soren
    L. Oberg</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

<TR>
    <TD colspan="7">&nbsp;</TD>
</TR>

<TR>
    <TD colspan="3" align="center" valign="top">
    /s/ <FONT style="font-variant:SMALL-CAPS">Andrew D. Seidel<BR>
    <DIV style="border-top: 1pt solid #000000; font-size: 1pt; margin-top: 2pt;">&nbsp;</DIV></FONT>Andrew
    D. Seidel</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    Director</TD>
    <TD>&nbsp;</TD>
    <TD align="center" valign="top">
    April&nbsp;4, 2005</TD>
</TR>

</TABLE>
</CENTER>

<P align="center" style="font-size: 10pt;">II-8
</BODY>
</HTML>
[{"type": "S-1", "sequence": "1", "filename": "y07374sv1.htm", "description": "FORM S-1", "secsgml_size_bytes": 1161301}]
{"company-data": {"conformed-name": "National Waterworks Holdings, Inc.", "cik": "0001321567", "irs-number": "030484037", "state-of-incorporation": "DE", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "S-1", "act": "33", "file-number": "333-123874", "film-number": "05735670"}, "business-address": {"street1": "AMERICAN PLAZA", "street2": "200 WEST HIGHWAY 6, SUITE 620", "city": "WACO", "state": "TX", "zip": "76712", "phone": "254-772-5355"}, "mail-address": {"street1": "AMERICAN PLAZA", "street2": "200 WEST HIGHWAY 6, SUITE 620", "city": "WACO", "state": "TX", "zip": "76712"}}
FORM S-1
Table of Contents
As filed with the Securities and Exchange Commission on
April 5, 2005
Registration
No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
National Waterworks Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
5099
03-0484037
(State or other jurisdiction of
incorporation or organization)
(Primary Standard Industrial
Classification Code Number)
(I.R.S. Employer
Identification No.)
200 West Highway 6, Suite 620
Waco, Texas 76712
(254) 772-5355
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
Harry K. Hornish, Jr.
President and Chief Executive Officer
200 West Highway 6, Suite 620
Waco, Texas 76712
(254) 772-5355
(Name, address, including zip code, and telephone number,
including area code, of agent for service or process)
With copies to:
Cristopher Greer, Esq.
O'Melveny & Myers LLP
Times Square Tower
7 Times Square
New York, New York 10036
(212) 408-2400
William Gorin, Esq.
Cleary Gottlieb Steen & Hamilton LLP
One Liberty Plaza
New York, New York 10006
(212) 225-2000
Approximate date of commencement of proposed sale to the
public:
As promptly as practicable
after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box.
o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering.
o
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following
box.
o
CALCULATION OF REGISTRATION FEE
Proposed Maximum
Proposed Maximum
Amount of
Title of Each Class of
Amount to be
Offering Price
Aggregate
Registration
Securities to be Registered
Registered
per Share
Offering Price(1)
Fee
Common Stock, $0.01 Par Value Per Share
$400,000,000
$47,080
(1)
Estimated solely for the purpose of calculating the amount of
    the registration fee pursuant to Rule 457(o) under the
    Securities Act of 1993, as amended.
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such dates as the
Commission, acting pursuant to said Section 8(a), may
determine.
Table of Contents
The information in
this preliminary prospectus is not complete and may be changed.
These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
declared effective. This preliminary prospectus is not an offer
to sell nor does it seek an offer to buy these securities in any
jurisdiction where the offer or sale is not
permitted.
SUBJECT TO COMPLETION,
DATED                     ,
2005.
Shares
National Waterworks Holdings, Inc.
Common Stock
This is an initial public offering of shares of common stock of
National Waterworks Holdings, Inc.
National Waterworks Holdings, Inc. is
offering                      shares
to be sold in the offering. The selling stockholders identified
in this prospectus are offering an
additional                      shares.
We will not receive any of the proceeds from the sale of the
shares being sold by the selling stockholders.
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$          and
$          .
National Waterworks Holdings, Inc. intends to list the common
stock on the New York Stock Exchange under the symbol
"NWW."
See "Risk Factors" on page 14 to read about
factors you should consider before buying shares of common
stock.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
Per Share
Total
Initial price to public
$
$
Underwriting discounts and commissions
$
$
Proceeds, before expenses, to National Waterworks Holdings,
    Inc.
$
$
Proceeds, before expenses, to selling stockholders
$
$
To the extent the underwriters sell more
than                      shares
of stock, the underwriters have the option to purchase up to an
additional                      shares
from certain selling stockholders, at the initial public
offering price less the underwriting discounts and commissions.
The underwriters expect to deliver the shares to purchasers
against payment in New York, New York on or
about                     ,
2005.
The date of this prospectus
is                     ,
2005.
TABLE OF CONTENTS
Page
Prospectus Summary
1
Disclosure Regarding Forward-Looking
    Statements
13
Risk Factors
14
Use of Proceeds
23
Dividend Policy
23
Capitalization
24
Dilution
25
Selected Financial Data
26
Management's Discussion and Analysis
    of Financial Condition and Results of Operations
29
Business
40
Management
51
Principal and Selling Stockholders
58
Certain Relationships and Related
    Transactions
61
Description of Certain Indebtedness
64
Description of Capital Stock
66
Shares Eligible for Future Sale
71
Material U.S. Federal Income Tax
    Consequences for Non-U.S. Holders
72
Underwriting
75
Legal Matters
79
Experts
79
Where You Can Find More Information
79
Index To Consolidated Financial
    Statements
F-1
EX-23.1: REPORT AND CONSENT OF KPMG LLP
You should rely only on the information contained in this
document. We have not authorized anyone to provide you with
information that is different. This document may only be used
where it is legal to sell these securities.
Until                     ,
2005 (25 days after the commencement of this offering), all
dealers that buy, sell or trade shares of our common stock,
whether or not participating in this offering, may be required
to deliver a prospectus. This requirement is in addition to the
dealers' obligation to deliver a prospectus when acting as
an underwriter and with respect to their unsold allotments or
subscriptions.
Market data and other statistical information used throughout
this prospectus are based on independent industry publications,
government publications, reports by market research firms or
other published independent sources. Some data is also based on
our good-faith estimates, which are derived from our review of
internal surveys, as well as the independent sources listed
above. We believe these sources are reliable but we have not
independently verified the information obtained from them.
ii
Table of Contents
Prospectus Summary
This summary highlights information contained elsewhere in
this prospectus. This summary is not complete and may not
contain all of the information that is important to you. We urge
you to read this entire prospectus, including the "Risk
Factors" section and the consolidated financial statements
and related notes. Unless the context requires otherwise, all
references to "we," "us" and "our"
refer specifically to National Waterworks Holdings, Inc. and its
consolidated subsidiaries. All references to NWW Holdings refer
specifically only to National Waterworks Holdings, Inc.,
excluding its subsidiaries, and all references to National
Waterworks refer specifically only to National Waterworks, Inc.,
a direct, wholly-owned subsidiary of NWW Holdings. References to
the Acquisition refer to our acquisition of substantially all
the assets and businesses of, and the assumption of certain of
the liabilities and obligations of, U.S. Filter
Distribution Group, Inc. on November 22, 2002.
Our Company
We are a leading distributor of water and wastewater
transmission products in the United States with an approximately
17% share of the estimated $9 billion U.S. waterworks
products distribution market. We distribute a full line of
pipes, fittings, valves, meters, fire hydrants, service and
repair products and other components that are used to transport
clean water and wastewater between reservoirs and treatment
plants and residential and commercial locations. Our products
are integral to building, repairing and maintaining water and
wastewater (sewer) systems and serve as part of the basic
municipal infrastructure required to support population and
economic growth and residential and commercial construction.
Through our network of 135 branches in 36 states, we sell
directly to municipalities and to contractors who serve
municipalities and perform residential, commercial and
industrial waterworks projects. In addition to significant
customer and geographic diversification, we estimate that our
net sales are divided approximately evenly between
publicly-funded and privately-funded sales. For the fiscal year
ended December 31, 2004, we had net sales of
$1.5 billion, net income of $47.6 million and EBITDA
(as defined below in "— Summary Financial and
Other Data") of $123.4 million.
As the market for our products is characterized by a highly
fragmented local customer base, a wide variety of local product
standards and a broad group of suppliers, we believe that
distributors play a critical role in the supply chain. We
purchase products from approximately 3,500 suppliers and
sell to over 26,000 customers. We offer both our suppliers
and customers essential products and services. We provide
customers with a single source for water and wastewater
transmission products, which substantially reduces their need to
manage inventory and multiple vendor relationships. None of our
suppliers offers a complete waterworks product line and the
majority lack the scale, expertise and infrastructure (including
a large, local sales force) to service the broad customer base
directly. By aggregating the supply of our products, we relieve
our suppliers of the need to maintain a local inventory and a
local sales force and the related credit and accounts receivable
functions.
Our branches compete on a local basis and benefit from our large
scale and national coverage. We believe that our entrepreneurial
approach at the branch level and our local customer focus have
allowed us to achieve a leading market position in the majority
of our local markets. We have a sophisticated IT system that
supports our sales personnel and provides benefits to our
customers, including expedited project estimation and bid
preparation; real-time pricing, availability and order status
information; on-line ordering and purchase processing; and
material and project management.
Industry Overview and Trends
The U.S. water and wastewater transmission products
distribution market is highly fragmented, consisting of local
and regional distributors and only two other distributors with a
national presence. There are two primary waterworks end-markets:
(i) publicly-funded maintenance, repair and construction by
municipalities and contractors and (ii) privately-funded
residential, commercial and industrial construction by
contractors. There are approximately 54,000 municipal water
systems in the United States, which are maintained primarily by
municipalities that establish local product specifications and
undertake their own water system purchasing and contracting.
Municipalities generally complete short-term or modest-sized
repair or construction projects and rely on contractors for
longer-term or larger projects. Contractors
1
Table of Contents
complete both privately-funded and publicly-funded projects,
typically after negotiated or competitive bids, with the latter
being the standard for publicly-funded projects. On any single
project, we typically assist multiple contractors in the
preparation of their bids. In 2004, we served approximately
9,000 municipal customers and 17,500 contractor and
industrial/other customers. Contractors tend to be small in
size, locally-oriented and are often family-owned businesses.
Given this local customer base, competition is primarily on the
local level, typically with four to six distributors in each
market. Competition is typically based on service, reliability
and total project cost to the customer, including product
pricing.
Municipal waterworks systems include all publicly-owned or
funded water and wastewater supply, filtration, storage and
distribution systems, as well as public buildings and
conservation projects. Water is a critical, basic necessity and
municipalities must continuously repair and replace their
existing infrastructures. The maintenance and expansion of these
systems is important to support existing demand as well as
economic and population growth and residential and commercial
construction. In addition to on-going operations, maintenance
and capital expenditures, municipalities currently face
significant needs to replace and upgrade their water
infrastructures, the majority of which were installed in the
first half of the twentieth century. Municipalities can increase
their revenues and/or decrease costs by maintaining and
improving water and wastewater systems, including by repairing
clean water system leaks, reducing run-off water leakage into
the wastewater systems and improving metering. In some cities,
the water systems have water leakage rates as high as 20%.
According to the Congressional Budget Office, water industry
authorities believe that maintaining the water and wastewater
systems in the United States will require a substantial increase
in spending over the next two decades. In addition, the
Congressional Budget Office projects that annual costs will
average between $71.0 billion and $98.0 billion from
2000 to 2019, of which $25.0 billion to $41.0 billion
will be for new investments and $46.0 billion to
$57.0 billion will be for operations and maintenance. We
believe this will contribute to the ongoing demand for our
waterworks products.
The privately-funded waterworks sector includes new clean water
and wastewater infrastructure for residential, commercial and
industrial construction. According to the U.S. Census
Bureau, from 1975 to 2004, spending on residential and
non-residential construction, which we believe is indicative of
privately-funded waterworks projects, grew at compounded annual
growth rates of 8.5% and 5.3%, respectively. Typically, once a
private contractor completes a waterworks system, ownership of
the system is transferred to the relevant municipality for
on-going repair and maintenance. We believe that growth in
commercial and residential spending is largely a function of new
housing spending, population and economic growth, increases in
U.S. home ownership rates and the availability of
commercial and residential financing.
Our Strengths
We believe our competitive strengths include:
Leading Local Market Positions
We believe that we have a leading market share in the majority
of our local markets. We have achieved these leading positions
as a result of our branch managers' and employees'
long-term experience and customer relationships and knowledge of
local market dynamics and specifications. Approximately 80% of
our district and branch managers have more than 10 years of
experience in waterworks product distribution. Each branch
operates as a local, entrepreneurial business and benefits from
our scale advantages and national coverage. Our branches operate
as independent profit centers, and all of our employees
participate in our incentive compensation system, which is based
on branch-level profitability and working capital management.
National Presence and Scale Benefits
We are a leading distributor of water and wastewater
transmission products in the United States, with an
approximately 17% market share, based on our net sales as a
percentage of a third-party estimate of the U.S. waterworks
products distribution market. Our broad network of 135 local
branches in 36 states creates a national presence and
provides us with economies of scale that we believe cannot be
replicated by local and regional competitors. In addition to the
stability provided by customer and geographic
2
Table of Contents
diversity, we believe that our scale and position as the largest
distributor solely focused on waterworks products results in
many benefits, including: (i) the ability to invest in
infrastructure, including IT systems, and leverage fixed costs;
(ii) volume purchasing benefits from our suppliers;
(iii) national inventory coverage; (iv) the ability to
attract and retain strong managers and salespeople through an
incentive-based compensation system and upward mobility;
(v) a leveragable base of technical knowledge and best
practices; and (vi) a strong platform for future expansion.
Superior, Value-Added Customer Service
We offer our customers a complete line of water and wastewater
transmission products and reliable delivery. In 2004, we had a
95.4% fill rate (defined as individual product orders shipped
complete from stock on the first shipment), which we believe is
indicative of our ability to consistently deliver our products
on time. Timely and complete delivery is critical to our
customers, as their labor, equipment and mobilization costs are
substantially greater than their costs for our products. We
believe that our material management capabilities reduce our
customers' downtime due to supply-related work stoppages
and increase their overall efficiency. In addition, we provide a
broad array of value-added services that we believe contribute
to our customers' success. These services include project
estimation, project management and product advice. We believe
these services reduce our contractor customers' overall
costs, improve their cash flow and allow them to increase
revenue by reducing their time spent preparing contract bids and
managing material purchases. We believe that these benefits are
more valuable to our customers than product pricing alone. We
utilize our sophisticated IT system to provide total project
management, including project estimates and bids that can be
quickly generated, which allows our customers to bid on more
projects.
Diverse Revenues from Long-Standing Customers
Our customer base is diverse by individual customer, end-market,
project and geography, which we believe enables us to have more
stable operating results. In 2004, we served over
26,000 customers and over 76% of our net sales were from
customers to whom we sold products in each of the last five
years, demonstrating the stability of our customer base. Our
largest customer and top ten customers accounted for less than
1% and 5%, respectively, of 2004 net sales. We estimate
that our 2004 net sales were split approximately evenly
between publicly-funded and privately-funded sales. Our net
sales are balanced across our six geographic regions, with our
largest region accounting for approximately 22% of our
2004 net sales. We believe that our geographic diversity
mitigates our exposure to regional-specific economic cycles. The
majority of our operations are located in attractive regions
that have historically experienced above-average economic and
population growth. In addition, a significant portion of our
branches are located in milder southern climates, which reduces
the seasonality of our operations.
Strategic Relationships with Diverse Supplier Base
Our strategic supplier relationships provide us with reliable
access to inventory, volume purchasing benefits and the ability
to deliver a diverse product offering on a cost-effective basis.
We buy products from approximately 3,500 suppliers and
maintain multiple suppliers for substantially all of our
products. Substantially all of our primary suppliers have served
us or one of our predecessor companies for over 10 years.
We have developed preferred vendor programs with over
130 suppliers, which increase our profits and returns
through volume purchase incentives and attractive payment terms.
We believe that we are the largest customer of many of these
suppliers. Over 80% of our product purchases (based on cost of
goods sold) in 2004 were under preferred vendor programs.
Sophisticated IT System
We believe that we have a sophisticated IT system. We
continually leverage our technology to enhance our revenues,
profits and working capital efficiency. Our single, integrated
IT system is flexible and scalable to support expected growth.
It enables us to quickly and accurately provide and access
real-time information, which allows us to: (i) have a high
degree of branch-level flexibility while maintaining centralized
operational control; (ii) gain and retain customers by
providing superior customer service; (iii) evaluate and
focus on profitable business opportunities at the customer and
product level;
3
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(iv) maximize working capital efficiency; and
(v) track and evaluate performance on a real-time basis and
reward our branch management and sales force monthly for
operating results. Key system functions include:
(i) real-time control of pricing for sales and purchases,
accounts receivable and credit, inventory and accounts payable;
(ii) daily detailed operating and financial data by branch
and customer; (iii) expedited and automated order and
purchase processing; and (iv) the ability to quickly
consolidate the financial results from our 135 branches.
Experienced and Motivated Management Team
Our senior management team has significant waterworks and
industrial distribution expertise and a proven track record of
success. Our senior corporate executives and regional vice
presidents have, on average, 27 years of industry
experience and 18 years of experience with us or one of our
predecessor companies. This management team is responsible for
developing our strategy, which has resulted in our leading
market positions, strong growth in revenues, profits and cash
flow, and our sophisticated IT system. The team has substantial
expertise in developing and maintaining customer and supplier
relationships, achieving organic growth, opening new branches
and completing and integrating acquisitions. The team has also
developed a compensation program that creates incentives for our
employees at all levels based primarily on branch-level
profitability and return on managed assets. We believe that
entrepreneurship at the branch level combined with this
compensation program have been essential drivers of our profit
growth. Following the offering, our senior management team will
own approximately      % of our equity
on a fully-diluted basis, a portion of which is subject to time
and performance vesting criteria.
Operating Model Focused on Free Cash Flow
We believe that our operating model generates significant free
cash flow due to our variable cost structure, profit margin
improvement and low capital expenditure requirements and
efficient working capital management. Our variable cost base
includes substantially all of our costs of goods sold
(approximately 82% of total 2004 expenses) and a significant
portion of our operating costs (for example, more than half of
employee compensation was variable in 2004). From 2000 to 2004,
we (i) improved our EBITDA margins from 6.1% to 8.1%,
(ii) had average annual capital expenditures of
$1.9 million and (iii) improved our working capital
performance metrics. We have historically been successful in
passing through price increases from our suppliers to our
customers without significantly impacting our margins. Over the
past three years, we averaged net write-offs of only 0.08%, and
only 9% of our accounts were 90 days or more past due at
the end of 2004. In addition, we receive approximately
$12 million per year of cash tax benefit due to the
amortization of goodwill that is deductible for federal income
tax purposes. This benefit is expected to continue through the
year 2017. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations —
Liquidity and Capital Resources."
Our Strategy
We intend to increase operating profits and cash flow by
continuing to be a leading distributor of water and wastewater
transmission products. Key elements of our strategy include the
following:
Enhancing Local Market Share and Profitability
Our reputation for reliable service, a comprehensive product
offering and advanced IT tools has been critical to establishing
our leading local market positions. We believe that we are
well-positioned to exploit opportunities to selectively and
profitably increase our local market shares. We plan to gain new
customers and increase purchases by existing customers by
leveraging our products, information and materials management
capabilities and our scale advantages over local and regional
competitors to improve our customers' efficiency and reduce
their administrative costs. We continually evaluate the
profitability of each of our customers, giving us the ability to
better manage our customer relationships and focus on the
profitability of our business.
Continuing Focus on Operational Excellence
We will continue to regularly examine each branch's
profitability, working capital management and return on managed
assets, both on an overall and a customer basis. Our branch
managers use this
4
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information to optimize their local strategies, improve the
profitability of customer relationships and reduce operating
costs. Senior management uses this information to
(i) monitor each branch's performance and disseminate
best practices, (ii) evaluate opportunities to expand the
geographic coverage or number of branches and (iii) improve
the performance of an underperforming branch, or to close such a
branch if performance cannot be sufficiently improved.
Geographic Expansion Initiatives
The water and wastewater market is expected to experience
substantial growth over the next several years as municipalities
focus on repairing and/or upgrading existing infrastructure. Our
strategy is to leverage our strong national presence and leading
local market positions to capitalize on this expected growth. We
expect to do this through organic growth, new branch openings
and selective acquisitions. Our focus will be on markets where
we expect favorable waterworks product distribution demand
dynamics, including the need for significant repairs or
upgrades, population growth and underpenetration by other
distributors.
New Branch Openings.
We believe that we have the
opportunity to grow by opening satellite branches in contiguous
markets where we typically have an existing customer base. New
satellite branches can be opened with minimal capital
investment, and we target achieving profitability within three
months of commencing operations. We expect to open two or three
new satellite branches per year over the next several years.
Opening new branches is not constrained by the required capital
expenditures, but rather by the limited availability of
additional qualified branch managers and sales personnel with
local expertise and relationships, both of which are critical to
the success of a new branch.
Selective Acquisitions.
Given the significant
fragmentation and localized nature of our industry, we have the
opportunity to complement organic growth with selective
acquisitions that meet our key evaluative criteria. Between 1996
and 2002, we successfully completed and integrated 16
acquisitions with an average size of $27.0 million and most
recently acquired Midstate Utility Supply in 2004 for
approximately $2 million. While we will continue to focus
on organic growth and new branch openings, we will also continue
to consider acquisitions that provide us with immediate,
established access to new geographic markets, an expanded
customer base or, in certain cases, an exclusive local
distribution arrangement for certain higher margin products. Our
key evaluative criteria include established customer bases and
market presence, solid reputations, strong branch level
management and sales teams and the opportunity to achieve
meaningful financial and operating synergies.
Risks Relating to Our Business
Our ability to execute our strategy is subject to certain risks,
including those that are generally associated with the water and
wastewater transmission products industry. For example,
downturns in the industry caused by slowdowns in construction
activity and the amount spent by municipalities on
infrastructure could result in a decrease in our revenues and
operating results through reduced sales of our products.
Additionally, the sale of water and wastewater transmission
products is subject to seasonal and weather-related fluctuations
which make our operating results subject to quarterly or annual
fluctuations. These and other factors described in this
prospectus under "Risk Factors" may limit our ability
to successfully execute our business strategy.
The Transactions
Concurrently with the closing of this offering, we will either
amend our existing credit facility or enter into a new credit
facility, either of which is referred to in this prospectus as
the "credit facility" (the "Financing
Transaction"). The closing of this offering, the Financing
Transaction, the Tender Offer (as defined below) and the
repurchase referred to below are all conditioned on each other.
Prior to the closing of this offering, National Waterworks
intends to commence a tender offer and related consent
solicitation, which we refer to in this prospectus as the
"Tender Offer," with respect to all its outstanding
$200.0 million aggregate principal amount of
10.50% Senior Subordinated Notes due 2012, which we refer
to as the "10.50% Notes." In addition,
concurrently with the closing of this offering, we
5
Table of Contents
will repurchase all our outstanding $250.0 million
aggregate principal of 12.50% Senior Subordinated Notes due
2014, which we refer to as the "12.50% Notes."
As used in this prospectus, the term "Transactions"
means, collectively, this offering (together with the
application of the proceeds therefrom), the Financing
Transaction, the Tender Offer and the repurchase of our
12.50% Notes.
Use of Proceeds
We estimate that we will receive net proceeds from this offering
of approximately
$           million
before deducting underwriting discounts and commissions and that
the selling stockholders will receive net proceeds of
$           million.
We will use our net proceeds from this offering, together with
$           million
from our credit facility, to:
•
repay indebtedness under our existing credit facility;
•
repurchase all our outstanding 12.50% Notes;
•
consummate the Tender Offer; and
•
pay fees and expenses associated with the Transactions.
We will not receive any proceeds for the sale of our common
stock by the selling stockholders, including if the underwriters
exercise their option to purchase additional shares. In the
aggregate, the selling stockholders and their affiliates will
receive approximately
$           million
of the net proceeds of this offering, or approximately
$           million
if the underwriters' option to purchase additional shares
is exercised in full.
Our principal executive offices are located at 200 West
Highway 6, Suite 620, Waco, Texas 76712. Our telephone
number is (254) 772-5355.
The Financial Sponsors
J.P. Morgan Partners, LLC, or JPMP, is a global private
equity organization with approximately $13 billion of
capital under management. Since its inception in 1984, JPMP and
its affiliated investment vehicles has been a leading provider
of private equity. JPMP has approximately 90 investment
professionals in six principal offices throughout the world.
JPMP is an affiliate of JPMorgan Chase & Co., one of
the largest financial institutions in the United States.
Thomas H. Lee Partners, L.P., or THL, is a Boston-based private
equity firm that currently manages over $12 billion of
committed capital. Founded in 1974, THL has 26 investment
professionals and is currently investing from the Thomas H. Lee
Equity Fund V, a $6.1 billion fund.
JPMP and THL are collectively referred to herein as the
"Sponsors."
After the offering, it is expected that the Sponsors will
beneficially own
approximately        % of our
common stock.
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Table of Contents
The Offering
Shares of common stock outstanding prior to the offering
shares
Common stock offered
shares
    by us
shares
    by the selling stockholders
Total offering
shares
Shares of common stock to be outstanding following the offering
shares
Price per share of common stock
per
    share
Dividends
Our board of directors will adopt a dividend policy, effective
    upon the closing of this offering. We currently expect to pay
    dividends quarterly at an initial annual level of
    $          per
    share.
Our credit facility will restrict our ability to declare and pay
    dividends based on the amount of our available cash.
Listing
We intend to list our common stock on the New York Stock
    Exchange under the trading symbol "NWW."
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Table of Contents
Other Information about this Prospectus
Unless otherwise indicated, the information in this prospectus:
•
assumes the vesting of all unvested restricted Class A
    common stock will occur immediately prior to the completion of
    this offering;
•
assumes the conversion of each outstanding share of class B
    common stock into one share of our class A common stock,
    which will occur immediately prior to the completion of this
    offering;
•
assumes the reclassification of all outstanding shares of
    class A common stock (after conversion of the class B
    common stock) into shares of common stock, which will occur
    immediately prior to the completion of this offering; and
•
a          -for-1
    reverse stock split of our shares of common stock.
8
Table of Contents
Summary Financial and Other Data
The following table sets forth selected historical financial and
other operating data of:
•
U.S. Filter Distribution Group, Inc. as of
    November 21, 2002, and for the period from January 1,
    2002 to November 21, 2002. Such information was derived
    from U.S. Filter's audited consolidated financial
    statements appearing elsewhere in this prospectus; and
•
National Waterworks Holdings, Inc. for the period from
    November 22, 2002 to December 31, 2002, as of
    December 31, 2002 and as of and for the years ended
    December 31, 2003 and 2004. Such information was derived
    from the audited consolidated financial statements of National
    Waterworks Holdings, Inc. appearing elsewhere in this prospectus.
The unaudited as adjusted column adjusts the historical data for
the year ended December 31, 2004 to give effect to the
Transactions as if they occurred as of such date in the case of
the unaudited as adjusted balance sheet data, and as of
January 1, 2004 in the case of the unaudited as adjusted
statement of operations data.
You should read the information contained in this table in
conjunction with "Selected Historical Financial and Other
Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the
historical consolidated financial statements and the
accompanying notes thereto of National Waterworks Holdings, Inc.
and U.S. Filter Distribution Group, Inc. included elsewhere
in this prospectus.
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Table of Contents
Predecessor —
U.S. Filter
Distribution
Group, Inc. and
Subsidiary
Successor — National Waterworks Holdings, Inc.
Period of
Period of
January 1 to
November 22 to
Year Ended
Year Ended
As Adjusted
(dollars in thousands except
November 21,
December 31,
December 31,
December 31,
December 31,
share information)
2002
2002
2003
2004
2004
Statements of operations data:
Net sales
$
1,058,768
$
94,250
$
1,281,069
$
1,522,070
$
Cost of goods sold(1)
831,764
82,005
1,013,079
1,212,582
Gross profit
227,004
12,245
267,990
309,488
Operating expenses:
Selling, general and administrative
139,825
14,737
167,152
186,466
Loss on accounts receivable securitization
2,480
—
—
—
Income (loss) before depreciation and amortization
84,699
(2,492
)
100,838
123,022
Depreciation and amortization
3,131
252
2,564
2,371
Operating income (loss)
81,568
(2,744
)
98,274
120,651
Other income (expense):
Completion bonuses(2)
(6,200
)
—
—
—
Interest expense, net
(36
)
(6,826
)
(41,333
)
(40,706
)
Other
59
(12
)
(11
)
355
Income (loss) before income taxes and cumulative effect of a
    change in accounting principle
75,391
(9,582
)
56,930
80,300
Income tax expense (benefit)
29,238
(3,688
)
23,289
32,668
Income (loss) before cumulative effect of a change in accounting
    principle
46,153
(5,894
)
33,641
47,632
Cumulative effect of a change in accounting principle(3)
(459,000
)
—
—
—
Net income (loss)
$
(412,847
)
$
(5,894
)
$
33,641
$
47,632
$
Net income (loss) per share:
Basic
Diluted
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Predecessor —
U.S. Filter
Distribution
Group, Inc. and
Subsidiary
Successor — National Waterworks Holdings, Inc.
Period of
Period of
January 1 to
November 22 to
Year Ended
Year Ended
As Adjusted
(dollars in thousands except
November 21,
December 31,
December 31,
December 31,
December 31,
share information)
2002
2002
2003
2004
2004
Weighted average shares outstanding:
Basic
Diluted
Other operating data:
EBITDA(4)
78,558
(2,504
)
100,827
123,377
EBITDA margin(5)
7.4
%
(2.7
)%
7.9
%
8.1
%
Adjusted EBITDA(4)
84,758
6,496
104,827
123,939
Adjusted EBITDA margin(5)
8.0
%
6.9
%
8.2
%
8.1
%
Net cash from operating activities
56,240
39,044
37,012
59,445
Net cash from investing activities
(20,163
)
(643,855
)
(4,443
)
(2,780
)
Net cash from financing activities
(44,061
)
644,699
(53,755
)
(56,421
)
Capital expenditures
(1,442
)
(102
)
(2,022
)
(1,424
)
Balance sheet data (at period end):
Cash and cash equivalents
$
5,304
$
39,888
$
18,702
$
18,946
$
Total assets
1,100,948
812,817
802,957
883,149
Total debt
631
450,000
440,000
660,000
Total stockholders' equity (deficit)
937,469
204,105
199,473
(23,184
)
(1)
In connection with the Acquisition, we recorded a
    $13.0 million inventory revaluation adjustment pursuant to
    Statement of Financial Accounting Standards No. 141,
Business Combinations.
Of this amount, $9.0 million
    was recognized in cost of goods sold for the period
    November 22, 2002 to December 31, 2002. The remaining
    $4.0 million was recognized in cost of goods sold during
    the quarter ended March 28, 2003.
(2)
Reflects completion bonuses paid by United States Filter
    Corporation to certain members of management and other key
    employees of U.S. Filter upon consummation of the
    Acquisition.
(3)
Reflects an impairment charge taken by U.S. Filter prior to the
    Acquisition relating to the adoption of Statement of Financial
    Accounting Standard No. 142,
Goodwill and Other
    Intangible Assets.
See Note 4 to the audited
    consolidated financial statements included elsewhere in this
    report.
(4)
EBITDA represents income before interest expense, net; income
    taxes; and depreciation and amortization. Adjusted EBITDA is
    defined as EBITDA without giving effect giving effect to stock
    compensation expense or the increase in cost of goods sold
    resulting from a purchase accounting inventory revaluation
    adjustment. EBITDA and Adjusted EBITDA are presented because we
    believe they enhance an investor's understanding of a
    company's ability to satisfy principal and interest
    obligations with respect to its indebtedness and to utilize cash
    for other purposes. However, other companies in our industry may
    calculate EBITDA and Adjusted EBITDA differently than we do. Our
    management also focuses on these measures, and discusses them
    with our board of directors, to assess our liquidity and debt
    payment ability and because they are and will be used in meeting
    various covenants under our credit facility. Neither EBITDA nor
    Adjusted EBITDA are measurements of
11
Table of Contents
financial performance under generally accepted accounting
    principles, known as GAAP, and should not be construed as
    indicators of a company's performance or liquidity or in
    isolation from or as a substitute for net income, cash flow from
    operations or any other cash flow data prepared in accordance
    with GAAP:
Predecessor —
U.S. Filter
Distribution
Group, Inc. and
Subsidiary
Successor — National Waterworks Holdings, Inc.
Period of
Period of
January 1 to
November 22 to
Year Ended
Year Ended
As Adjusted
November 21,
December 31,
December 31,
December 31,
December 31,
(dollars in thousands)
2002
2002
2003
2004
2004
Net income (loss)
$
(412,847
)
$
(5,894
)
$
33,641
$
47,632
$
Add:
Cumulative effect of a change in accounting principle
459,000
—
—
—
Interest expense, net
36
6,826
41,333
40,706
Income taxes
29,238
(3,688
)
23,289
32,668
Depreciation and amortization
3,131
252
2,564
2,371
EBITDA
$
78,558
$
(2,504
)
$
100,827
$
123,377
$
Non-cash stock compensation expense
—
—
—
562
Effect of SFAS 141 — inventory revaluation
    adjustment to cost of goods sold
—
9,000
4,000
—
Completion bonuses
6,200
—
—
—
Adjusted EBITDA
$
84,758
$
6,496
$
104,827
$
123,939
$
(5)
EBITDA margin is EBITDA divided by net sales. Adjusted EBITDA
    margin is Adjusted EBITDA divided by net sales.
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Table of Contents
Disclosure Regarding Forward-Looking Statements
This prospectus contains "forward-looking statements"
within the meaning of the federal securities laws.
Forward-looking statements include statements concerning our
plans, objectives, goals, strategies, future events, future
revenue or performance, financing needs, plans or intentions
relating to acquisitions, business trends and other information
that is not historical information. When used in this
prospectus, the words "estimates,"
"expects," "anticipates,"
"projects," "forecasts," "plans,"
"intends," "believes," "may,"
"should" and variations of such words or similar
expressions are intended to identify forward-looking statements.
All forward-looking statements are based upon our current
expectations and various assumptions. Our expectations, beliefs
and projections are expressed in good faith and we believe there
is a reasonable basis for them. However, we cannot assure you
that management's expectations, beliefs and projections
will result or be achieved.
There are a number of risks, uncertainties and other factors,
many of which are outside of our control, that could cause our
actual results to differ materially from the forward-looking
statements contained in this prospectus. Such factors may
include, among other things:
•
waterworks industry trends;
•
general economic and business conditions, particularly any
    economic downturns;
•
increases in the amount of our indebtedness;
•
unexpected seasonal or climatic fluctuations;
•
competition;
•
our ability to implement our business strategy;
•
our ability to retain our senior management and to attract and
    retain other qualified personnel;
•
the availability and terms of additional capital we may require
    to fund our operations;
•
any restrictions imposed by our debt agreements;
•
disintermediation in the water and wastewater transmission
    products supply chain;
•
the availability of third-party transportation providers;
•
fluctuations in the cost of polyvinyl chloride (PVC) pipe;
•
continued access to key suppliers;
•
availability of our IT system;
•
our ability to integrate future acquisitions; and
•
any other factors set forth under "Risk Factors" and
    elsewhere in this prospectus.
There may be other factors that could cause our actual results
to differ materially from the results referred to in
forward-looking statements included in this prospectus. All
forward-looking statements attributable to us or persons acting
on our behalf apply only as of the date of this prospectus and
are expressly qualified in their entirety by the cautionary
statements included in this prospectus. We undertake no
obligation to publicly update or revise forward-looking
statements to reflect events or circumstances after the date
made or to reflect the occurrence of unanticipated events.
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Risk Factors
You should carefully consider the risk factors set forth below
as well as the other information contained in this prospectus
before investing in our common stock. Any of the following risks
could materially adversely affect our business, financial
condition or results of operations. In such case, you may lose
all or part of your original investment. The risks described
below are not the only risks facing us. Additional risks and
uncertainties not currently known to us or that we currently
deem to be immaterial may also materially and adversely affect
our business, financial condition or results of operations.
Risks Related to Our Business
Downturns in the water and wastewater transmission products
industry have in the past, and may in the future, result in a
decrease in our revenues and operating results through reduced
sales of our products to our contractor and municipal
customers.
The water and wastewater transmission products industry is
affected by changes in economic conditions, including national,
regional and local slowdowns in construction activity and the
amount spent by municipalities on waterworks infrastructure.
Many of our products are distributed to waterworks contractors
in connection with residential, commercial and industrial
construction projects. New housing starts serve as an indicator
of the level of activity in the residential housing market and
are influenced by interest rates, availability of financing,
housing affordability, unemployment rates, demographic trends,
gross domestic product and consumer confidence. Historically,
new housing starts have decreased during economic slowdowns. The
level of activity in the commercial and industrial construction
markets depends on the general economic outlook, corporate
profitability, interest rates and existing plant capacity
utilization. Economic downturns in any of our regional markets
could reduce the level of construction activity, and thus our
level of sales, in that region. In addition, water and
wastewater transmission products sales are subject to the
availability of funding for municipal waterworks projects and
reduced municipal funding could adversely affect our sales. In
general, factors such as trends in the construction industry,
changes in municipal spending or other factors that influence
waterworks transmission products sales are not within our
control and, as a result, may cause a decrease in our sales and
operating results, which may cause our financial condition to
deteriorate.
The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations which makes
our operating results subject to quarterly or annual
fluctuations.
The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations. Coincident
with annual construction seasonality, our net sales are
typically higher during the second and third calendar quarters
and lower during the first and fourth calendar quarters due to
reduced construction activity during the winter. Adverse weather
conditions in our markets may also decrease the level of
construction activity and therefore our sales. As a result of
these factors, our sales and operating results may be subject to
quarterly or annual fluctuations.
Competition from our existing and new competitors could
result in reduced sales and profitability and a decrease in our
market share.
The markets in which we compete are highly competitive and
fragmented, with numerous regional and local participants. Two
national competitors are divisions or subsidiaries of companies
that have significantly greater financial, marketing and other
resources than we have. We compete with a large number of
distributors and a limited number of manufacturers who sell
directly to larger customers within our customer base. In
addition, smaller, local waterworks products distributors could
form a distribution cooperative to compete more effectively
against larger, national waterworks product distributors. The
principal methods of competition include offering prompt local
service, fulfillment capability, local knowledge, breadth of
product and service offerings and price. If we are unable to
compete effectively on these and other factors, our inability
could cause us to lose market share or sales, the loss of either
of which could result in a decrease in our operating results and
profitability.
In addition, a portion of our sales is from contracts with
municipalities. These contracts are often awarded and renewed
through periodic competitive bidding. We may not be successful
in obtaining or
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renewing these contracts. Our inability to replace a significant
number of contracts lost through competitive bidding processes
with other revenue sources within a reasonable time could be
harmful to our business and financial performance.
If we cannot successfully implement our business strategy,
our business, results of operations and potential for growth
will be adversely affected.
Our ability to achieve our business and financial objectives is
subject to a variety of factors, many of which are beyond our
control. For example, our business strategy contemplates that
existing customers will buy additional products from us in the
future and that we will gain new customers by leveraging our
product, information and materials management capabilities in
order to improve our customers' efficiency and reduce their
administrative costs. Our business strategy further contemplates
a growth in sales through branch openings in contiguous markets
and through selective acquisitions of local and regional
waterworks distributors in attractive and growing markets.
Similarly, we believe our revenues will increase as
municipalities currently face significant needs to replace and
upgrade their water infrastructures. If our assumptions
regarding these trends and the needs of our customers prove to
be incorrect, we may not successfully implement our strategy. In
addition, implementing our strategy may not improve our
operating results. We may decide to alter or discontinue aspects
of our business strategy and may adopt alternative or additional
strategies due to business or competitive factors or factors not
currently expected, such as unforeseen costs and expenses or
events beyond our control. Any failure to successfully implement
our business strategy may result in a decrease in our revenues,
operating margins and results of operations and could limit or
cause us to forego opportunities for growth.
If we fail to successfully integrate any future acquisitions
into our operations, our operating costs could increase and our
operating margins, operating results and profitability may
decrease.
If we do not successfully integrate future acquisitions, we may
not realize anticipated operating advantages and cost savings,
which could reduce our operating margins, operating results and
profitability. The acquisition and integration of companies
involves a number of risks, including:
•
use of available cash or borrowings under our credit facility,
    or the issuance of new debt, to consummate the acquisition;
•
demands on management related to the increase in our size after
    an acquisition;
•
the diversion of management's attention from existing
    operations to the integration of acquired companies;
•
difficulties in the assimilation and retention of
    employees; and
•
potential adverse effects on our operating results.
We may not be able to maintain the levels of operating
efficiency that acquired companies achieved separately.
Successful integration of acquired operations will depend upon
our ability to manage those operations and to eliminate
redundant and excess costs. We may not be able to achieve the
cost savings and other benefits that we would hope to achieve
from acquisitions, which could cause our financial condition to
deteriorate or result in an increase in our expenses or a
reduction in our operating margins, thereby reducing our
operating results and profitability.
We depend on our senior management, and the loss of any
member of the team could adversely affect our business or
financial results.
Our operations are dependent on the continued efforts of our
senior management. We have entered into various agreements and
compensation arrangements with our senior executives, including
Harry Hornish as President and Chief Executive Officer, Philip
Keipp as Vice President and Chief Financial Officer and Terry
Howell as Chief Information Officer, designed to encourage their
retention. However, we do not have employment agreements with
every member of the senior management team. Each member of our
senior management team has substantial experience and expertise
in our industry and has made significant contributions to our
growth and success. Members of our senior management may resign
in the
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future, and the loss of their services could limit our ability
to grow our business and cause disruptions in our operations,
which could cause our financial results to suffer.
Failure to retain and attract qualified branch managers and
sales persons could limit our growth and negatively impact our
operations.
Our business results depend largely upon our branch managers and
sales personnel and their experience, knowledge of local market
dynamics and specifications and long-standing customer
relationships. Our inability to retain or hire qualified branch
managers or sales persons at economically reasonable
compensation levels would restrict our ability to grow our
business, limit our ability to continue to successfully operate
our business and result in lower operating results and
profitability.
Our cost of PVC pipe is volatile and increases in the cost of
PVC pipe or unexpected PVC pipe shortages could adversely impact
our operating results.
The cost of the PVC pipe that we distribute can fluctuate due to
supply and demand dynamics in the PVC pipe and PVC resin
markets. For example, our purchase price of PVC pipe averaged
$0.54, $0.41 and $0.36 per pound for the years ended
December 31, 2004, 2003 and 2002, respectively, with our
2004 PVC purchase price ranging from a quarterly average of
$0.46 to $0.58 per pound. Significant fluctuations in these
markets may adversely affect our results of operations and cause
volatility in our operating performance. While in the past we
have been able to pass through the majority of the price changes
in PVC pipe to our customers, our inability to do so in the
future could have an adverse impact on our results of operations.
Loss of key suppliers or reduced product availability could
decrease sales and earnings.
Our 10 largest suppliers in 2004 accounted for approximately 61%
of our purchases and our single largest supplier accounted for
approximately 13% of our purchases. The loss of any of these
suppliers, or a reduction in supplier participation in our
preferred vendor programs, could result in a decrease in our
sales, operating results and earnings by decreasing the
availability of products to us, which could limit our ability to
satisfy our customers' product needs. Such reduced product
availability could put us at a competitive disadvantage.
Reduction in product availability could decrease our sales
and earnings and put us at a competitive disadvantage.
Particular products or product lines may not be available to us,
or available in quantities sufficient to meet our customer
demand. A substantial decrease in the availability of these
products or product lines could result in a decrease in our
sales, operating results and earnings as we might not be able to
satisfy our customers' product needs. Such reduced product
availability could put us at a competitive disadvantage.
We rely on our IT systems to manage numerous aspects of our
business and customer and supplier relationships, and a
disruption of these systems could adversely affect our
business.
Our IT system is an integral part of our business and growth
strategies. A serious disruption of our IT system could
significantly limit our ability to manage and operate our
business efficiently, which in turn could cause our business and
competitive position to suffer and cause our results of
operations to be reduced. We depend on our IT system to process
orders, track credit risk and manage inventory and accounts
receivable collections. Our system also allows us to efficiently
purchase products from our suppliers and ship products to our
customers on a timely basis, maintain cost-effective operations
and provide superior service to our customers. While we have
contingency plans in place in case of an emergency, we cannot
assure you that the plans will allow us to continue to operate
at our current level of efficiency.
Our sales are predominately on credit and an inability to
collect trade account receivables on a timely basis would reduce
our operating results and cash flow and cause our financial
condition to deteriorate.
Substantially all of our net sales are credit sales made
primarily to contractors, whose ability to pay depends in part
on the economic strength of the construction industry in their
areas, and municipalities,
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whose ability to pay depends in part on their local
waterworks-related and tax revenues. Future downturns in the
regional or local economies that we serve, including reductions
in the revenue base of municipalities or the weak financial
performance of our customers, could lessen our ability to
collect trade accounts receivable on a timely basis and, in
turn, could cause our results of operations and cash flow to be
reduced and our financial condition to deteriorate.
The development of alternatives to water and wastewater
transmission products distributors in the supply chain could
cause a decrease in our sales and operating results and limit
our ability to grow our business.
Our customers could begin purchasing more of their product needs
directly from manufacturers, which could result in decreases in
our sales and earnings. Our suppliers could invest in
infrastructure to expand their own local sales force and sell
more products directly to our customers. In addition, the
continued development of the Internet, e-businesses and other
alternatives may allow customers to purchase directly from
manufacturers or other suppliers. Multiple municipalities may
outsource their entire waterworks systems to a single company,
thereby increasing such company's leverage in the
marketplace and its ability to buy directly from suppliers. Any
future disintermediation from these or other causes may harm our
competitive position in the water and wastewater transmission
products marketplace and reduce our sales and earnings.
Loss of third-party transportation providers upon whom we
depend could increase our costs and cause a disruption in our
operations.
We depend upon third-party transportation providers for delivery
of products to our branches, and, to a lesser extent, to our
customers. Strikes, slowdowns, transportation disruptions or
other conditions in the transportation industry, particularly
those impacting United Parcel Service of America, Inc., could
increase our costs and disrupt our operations and our ability to
service our customers on a timely basis.
Our compliance with environmental and safety requirements may
result in increased costs to operate our business.
We are subject to federal, state and local environmental and
occupational health and safety laws and regulations. We cannot
assure you that we have been or will be at all times in complete
compliance with all such requirements. These requirements are
complex and have tended to become more stringent over time. We
could become subject to new requirements in the future, or
otherwise become subject to environmental liabilities, which
could result in increased operating costs resulting in a
material effect on our operating results and business.
We may become subject to asbestos liabilities in the future
to the extent we are found to be a successor to U.S. Filter
and to the extent U.S. Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations, in which event our financial condition and earnings
would deteriorate to the extent we are required to satisfy these
asbestos liabilities.
We could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to U.S. Filter
and to the extent U.S. Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations as described below. Certain of
U.S. Filter's predecessors distributed or may have
distributed cement pipe containing asbestos. Certain of these
predecessors are or have been defendants in lawsuits seeking to
recover damages for alleged exposure to asbestos in these pipes.
The Acquisition was structured as an asset purchase, and we did
not assume any existing or future asbestos-related liabilities
relating to U.S. Filter or its predecessors.
U.S. Filter and United States Filter Corporation retained
these liabilities and jointly and severally agreed to indemnify
and defend us from and against these liabilities on an unlimited
basis with no termination date. In addition, Veolia has
guaranteed all obligations of United States Filter Corporation
and U.S. Filter under the asset purchase agreement,
including the indemnity discussed above, up to an aggregate of
$50.0 million for a period ending November 22, 2017.
Historically, courts have not held the acquirer of an
entity's assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a "successor" to the asset seller.
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Our management faces challenges in implementing the
requirements of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002, as well as rules subsequently
implemented by the Securities and Exchange Commission and the
New York Stock Exchange, have increased regulation and imposed
stricter standards on corporate governance practices of public
companies. For example, we are in the process of creating
additional board committees and are reviewing and adopting
comprehensive new policies regarding internal control over
financial reporting and disclosure controls and procedures. We
are also evaluating our internal controls systems in accordance
with Section 404 of the Sarbanes-Oxley Act. If we do not
implement the requirements of Section 404 in a timely
manner or with adequate compliance, we may not be able to
accurately report our financial results or prevent fraud and
might be subject to sanctions or investigation by regulatory
authorities, such as the SEC. Any such action could harm our
business or investors' confidence in our company, and could
cause our stock price to fall.
Risks Relating to the Common Stock
You may not receive the intended level of dividends on our
common stock or any dividends at all.
We currently intend to pay quarterly cash dividends on our
common stock at an annual rate of
$           per
share. However, dividend payments are not mandatory or
guaranteed, and our board of directors may, in its discretion,
not declare a dividend, decrease the level of dividends or
entirely discontinue the payment of dividends. Your decision
whether to purchase shares of our common stock should allow for
the possibility that no dividends will be paid. You may not
receive any dividends as a result of the following factors,
among others:
•
we are not legally or contractually required to pay dividends;
•
we may modify or revoke our policy to pay a regular quarterly
    dividend;
•
even if we do not modify or revoke our dividend policy, the
    actual amount of dividends distributed and the decision to make
    any distribution is entirely at the discretion of our board of
    directors and future dividends with respect to shares of our
    capital stock, if any, will depend on, among other things, our
    results of operations, cash requirements, financial condition,
    acquisition opportunities, provisions of applicable law and
    other factors that our board of directors may deem relevant;
•
the amount of dividends distributed is and will be subject to
    contractual restrictions under:
•
the terms of our credit facility; and
•
the terms of any other outstanding indebtedness incurred by us
    or any of our subsidiaries after the completion of this offering;
•
the amount of dividends distributed is subject to state law
    restrictions; and
•
our stockholders have no contractual or other legal right to
    dividends.
Under Delaware law, our board of directors may declare dividends
only to the extent of our "surplus" (which is defined
as total assets at fair market value minus total liabilities,
minus statutory capital) or, if there is no surplus, out of our
net profits for the then current and/or immediately preceding
fiscal year. Although we believe we will have sufficient net
profits or surplus to pay dividends at the anticipated levels
during the first four full fiscal quarters after the closing of
this offering, our board of directors will seek periodically to
assure itself of this before actually declaring any dividends.
In addition, the payment of a cash dividend on our common stock
will be considered a restricted payment under our credit
facility, and the amount of cash dividends on our common stock,
if any, is limited unless we satisfy certain conditions. The
terms of our credit facility will prohibit us from paying cash
dividends on our common stock if a default or an event of
default has occurred and is continuing under this agreement. See
"Description of Capital Stock — Common
Stock" and "Description of Certain Indebtedness."
Furthermore, we will be permitted under the terms of our debt
agreements to incur additional indebtedness that may severely
restrict or prohibit the payment of dividends. We cannot assure
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you that the agreements governing our current and future
indebtedness will permit us to pay dividends on our common stock.
To pay dividends at intended levels, we will require a
significant amount of cash. Our ability to generate cash depends
on many factors beyond our control. We may not generate
sufficient funds from operations to pay dividends with respect
to shares of our common stock.
We may not retain a sufficient amount of cash to fund our
operations consistent with past levels of funding in the event
of a significant business downturn. Our ability to pay dividends
will depend on our ability to generate cash flow from operations
in the future. This ability, to a certain extent, is subject to
general economic, financial, competitive, and other factors that
are beyond our control. We cannot assure you, however, that our
business will generate sufficient cash flow from operations, or
have sufficient surplus or net profits, as the case may be,
under Delaware law, in an amount sufficient to enable us to pay
our indebtedness, pay dividends or to fund our other liquidity
needs. If we do not have sufficient cash to fund dividend
payments, we would either reduce or eliminate dividends or rely
on cash provided by financing activities to fund dividend
payments, and such financing may or may not be available.
A significant portion of our cash flow from operations will be
dedicated to capital expenditures and debt service. In addition,
we currently expect to distribute a significant portion of our
cash earnings to our stockholders in the form of quarterly
dividends. As a result, we may not retain a sufficient amount of
cash to finance growth opportunities, including acquisitions, or
unanticipated capital expenditures or to fund our operations.
We may also be forced to raise additional capital or sell assets
and, if we are forced to pursue any of these options under
distressed conditions, our business and the value of your
investment in our common stock could be adversely affected. In
addition, these alternatives may not be available to us when
needed or on satisfactory terms due to prevailing market
conditions, a decline in our business, or restrictions contained
in the agreements governing our indebtedness.
Our substantial indebtedness could restrict our ability to
pay dividends on our common stock and have an adverse impact on
our financing options and liquidity position.
As of December 31, 2004, after giving effect to the
Transactions, we would have had approximately
$           million
of total consolidated indebtedness. Our substantial indebtedness
could have important adverse consequences to the holders of our
common stock, including:
•
limiting our ability to pay dividends on our common stock or
    make payments in connection with our other obligations,
    including under our credit facility and the new the notes, as
    the case may be;
•
limiting our ability in the future to obtain additional
    financing for working capital, capital expenditures or
    acquisitions;
•
limiting our ability in the future to refinance our indebtedness
    on terms acceptable to us or at all;
•
likely requiring that a significant portion of our cash flow
    from operations is likely to be dedicated to the payment of the
    principal of and interest on our indebtedness, thereby reducing
    funds available for future operations, acquisitions, dividends
    on our common stock and/or capital expenditures;
•
increasing our vulnerability to economic and industry downturns
    and conditions, including changes in interest rates; and
•
placing us at a competitive disadvantage compared to those of
    our competitors that have less indebtedness.
Subject to certain covenants, our credit facility will permit us
to incur additional indebtedness. Any additional indebtedness
that we may incur would exacerbate the risks described above.
In addition, as a result of general economic conditions,
conditions in the lending markets, the results of our business
or for any other reason, we may elect or be required to amend or
refinance our credit facility or the new notes, at or prior to
maturity, or enter into additional agreements for indebtedness.
Any
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such amendment, refinancing or additional agreement may contain
covenants that could limit in a significant manner our ability
to pay dividends to you.
We are a holding company and rely on dividends, interest and
other payments, advances and transfers of funds from our
operating subsidiary and investments to meet our debt service
and other obligations.
We are a holding company and conduct all of our operations
through National Waterworks, our operating subsidiary. We
currently have no significant assets other than the equity
interests in National Waterworks. As a result, we will rely on
dividends and other payments or distributions from National
Waterworks and any future operating subsidiaries to pay
dividends with respect to our common stock and to meet our debt
service obligations generally. The ability of National
Waterworks to pay dividends or make other payments or
distributions to us will depend on its operating results and may
be restricted by, among other things, its debt and other
agreements, the terms of our credit facility, and the covenants
of any future outstanding indebtedness we or our subsidiaries
incur.
National Waterworks has no obligation, contingent or otherwise,
to make funds available to us, whether in the form of loans,
dividends or other distributions.
Accordingly, our ability to pay dividends with respect to shares
of our common stock and to repay our credit facility at maturity
or otherwise may be dependent upon factors beyond our control.
Subject to limitations in our credit facility, our subsidiaries
may also enter into agreements that contain covenants
prohibiting them from distributing or advancing funds or
transferring assets to us under certain circumstances, including
to pay dividends.
Our credit facility will contain covenants that will limit
our business flexibility by imposing operating and financial
restrictions on our operations.
Covenants in our credit facility will impose significant
operating and financial restrictions on us. These restrictions
will prohibit or limit, among other things:
•
the incurrence of additional indebtedness and the issuance by
    our subsidiaries of preferred stock;
•
the payment of dividends on, and purchases or redemptions of,
    capital stock;
•
a number of other restricted payments, including investments;
•
the creation of liens;
•
the ability of our subsidiaries to guarantee our and their
    indebtedness;
•
specified sales of assets;
•
the creation of encumbrances or restrictions on the ability of
    our subsidiaries to distribute and advance funds or transfer
    assets to us or any other subsidiary;
•
specified transactions with affiliates;
•
sale and leaseback transactions; and
•
certain consolidations, mergers and sales and transfers of
    assets by or involving us.
Our credit facility will also contain covenants that will
require us to maintain specified financial ratios and satisfy
financial condition tests, including, without limitation, a
maximum total leverage ratio and a minimum interest coverage
ratio.
Our ability to comply with the covenants, ratios or tests
contained in our credit facility, or in the agreements governing
our future indebtedness, may be affected by events beyond our
control, including prevailing economic, financial and industry
conditions. A breach of any of these covenants, ratios or tests
could result in a default under such agreements. Certain events
of default under our credit facility would prohibit us from
making dividend payments on our common stock. In addition, upon
the occurrence of an event of default under such agreements, the
lenders under such agreements could elect to declare all amounts
outstanding under such agreements, together with accrued
interest, to be immediately due and payable. If we were unable
to repay those amounts, the lenders could proceed against the
security granted to them to secure that indebtedness. If the
lenders accelerate the payment of the indebtedness under our
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credit facility, our assets may not be sufficient to repay in
full the indebtedness under our credit facility and our other
indebtedness, if any.
Our common stock price may be volatile.
Prior to this offering, there has been no public market for our
common stock. We cannot predict the extent to which investor
interest will lead to the development of an active and liquid
trading market in our common stock. The initial public offering
price for our shares of common stock will be determined by
negotiations among us, the selling stockholders and the
representatives of the underwriters and may not be indicative of
the market price of the common stock that will prevail in the
trading market. The market price of the common stock may decline
below the initial public offering price. Some companies that
have had volatile market prices for their securities have had
securities class action suits filed against them. If a suit were
to be filed against us, regardless of the outcome, it could
result in substantial costs and a diversion of management's
attention and resources. This could have a material adverse
effect on our business, financial condition and results of
operations.
Our common stock price may fluctuate in response to a number of
events, including:
•
our quarterly operating results and our continued ability to pay
    dividends;
•
future announcements concerning our business;
•
changes in financial estimates and recommendations by securities
    analysts;
•
actions of competitors;
•
market and industry perception of our success, or lack thereof,
    in pursuing our strategy;
•
changes in government and environmental regulation;
•
general market, economic and political conditions; and
•
natural disasters, terrorist attacks and acts of war.
Future sales or the possibility of future sales of a
substantial amount of our common stock may depress the price of
shares of our common stock and could impair our ability to raise
capital through future sales of equity securities.
Upon consummation of this offering, there will
be                      shares
of our common stock outstanding. All shares of common stock sold
in this offering will be freely transferable without restriction
or further registration under the Securities Act. The remaining
shares of common stock outstanding, including the shares owned
by our Sponsors, will be restricted securities within the
meaning of Rule 144 under the Securities Act, but will be
eligible for resale subject to applicable volume, manner of
sale, holding period and other limitations of Rule 144. We
and the selling stockholders have agreed to a
"lock-up," pursuant to which neither we nor they will
sell any shares without the prior consent
of                     for            days
after the date of this prospectus. Following the expiration of
the applicable lock-up period, all these shares of our common
stock will be eligible for future sale, subject to the
applicable volume, manner of sale, holding period and other
limitations of Rule 144. See "Shares Eligible for
Future Sale" for a discussion of the shares of common stock
that may be sold into the public market in the future.
We may issue shares of our common stock or other securities from
time to time as consideration for future acquisitions and
investments. If any such acquisition or investment is
significant, the number of shares of our common stock, or the
number or aggregate principal amount, as the case may be, of
other securities that we may issue may in turn be substantial.
We may also grant registration rights covering those shares of
our common stock or other securities in connection with any such
acquisitions and investments.
Our Sponsors control us and their interests may conflict with
or differ from your interests as a stockholder. Our Sponsors, as
the principal selling stockholders, will realize substantial
benefits from the sale of shares in this offering.
After the consummation of this offering, our Sponsors will
beneficially own approximately      %
of our common stock, assuming the underwriters do not exercise
their option to purchase additional shares. If the
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underwriters exercise in full their option to purchase
additional shares, our Sponsors will beneficially own
approximately      % of our common
stock. In addition, representatives of our Sponsors will
occupy                     of
the                     seats
on our board of directors. As a result, our Sponsors will have
the ability to prevent any transaction that requires the
approval of our board of directors and will have the ability to
influence all matters requiring stockholder approval, including
the election of our directors and the approval of significant
corporate transactions such as mergers, tender offers and the
sale of substantially all of our assets. The interests of our
Sponsors and their affiliates could conflict with or differ from
your interests as a holder of our common stock. For example, the
concentration of ownership held by our Sponsors could delay,
defer or prevent a change of control of our company or impede a
merger, takeover or other business combination which you as a
stockholder, may otherwise view favorably. Our Sponsors may also
pursue acquisition opportunities that may be complementary to
our business, and as a result, those acquisition opportunities
may not be available to us. Further, our Sponsors will realize
substantial benefits from the sale of their shares in this
offering. A sale of a substantial number of shares of stock in
the future by funds affiliated with our Sponsors could cause our
stock price to decline in the future.
Our organizational documents may impede or discourage a
takeover, which could deprive our investors of the opportunity
to receive a premium for their shares.
Provisions of our amended and restated certificate of
incorporation and amended and restated by-laws may make it more
difficult for, or prevent a third party from, acquiring control
of us without the approval of our board of directors. These
provisions include the ability of our board of directors to
designate one or more series of preferred stock and issue shares
of preferred stock without stockholder approval; the general
inability of stockholders to act by written consent; and advance
notice requirements for nominating directors or introducing
other business to be conducted at stockholder meetings.
The foregoing factors could impede a merger, takeover or other
business combination or discourage a potential investor from
making a tender offer for our common stock, which, under certain
circumstances, could reduce the market value of our common
stock. Such provisions also may have the effect of preventing
changes in our management. See "Description of Capital
Stock."
You will suffer an immediate and substantial dilution in the
net tangible book value of the common stock you purchase.
Some prior investors have paid substantially less per share than
the price in this offering. The initial offering price is
expected to be substantially higher than the net tangible book
value per share of the outstanding common stock immediately
after this offering. Accordingly, based on an assumed initial
public offering price of
$           per
share (the midpoint of the range set forth on the cover page of
this prospectus), purchasers of common stock in this offering
will experience immediate and substantial dilution of
approximately
$           per
share in net tangible book value of the common stock. See
"Dilution."
22
Table of Contents
Use of Proceeds
The table below sets forth an estimate of the funds required to
effect the Transactions and our uses of such funds. We expect to
receive
$           million
of gross proceeds from the sale of our common stock. The
estimated sources and uses are based on an assumed offering
price of
$           per
share of common stock, which represents the mid-point of the
range set forth on the cover page of this prospectus. This table
assumes that we repurchase all outstanding 10.50% Notes in
the Tender Offer and all outstanding 12.50% Notes. Actual
amounts may vary from the amounts shown below.
Sources:
Common stock offered hereby
$
Credit facility
Total sources of funds
$
Uses:
Repay existing credit facility(1)
$
Repurchase 10.50% Notes(2)
Repurchase 12.50% Notes(3)
Fees and expenses(4)
Total uses of funds
$
(1)
All revolving loans under our existing credit facility mature on
    November 22, 2008 and bear interest in the manner described
    under "Description of Certain Indebtedness — Our
    Existing Credit Facility." A portion of the proceeds used
    to repay indebtedness under our existing credit facility will be
    paid to affiliates of certain of the underwriters.
(2)
The 10.50% Notes mature on November 22, 2012.
(3)
The 12.50% Notes mature on January 1, 2014. A portion
    of the proceeds used to repurchase the 12.50% Notes will be paid
    to affiliates of one of the underwriters.
(4)
Includes tender premium, redemption premium, underwriting
    discount, arrangement fees payable to the providers of our
    credit facility, as well as payments to our Sponsors and
    $           million
    in other fees and expenses.
We will not receive any proceeds for the sale of our common
stock by the selling stockholders, including if the underwriters
exercise the option to purchase additional shares. In the
aggregate, the selling stockholders and their affiliates will
receive approximately
$           million
of the net proceeds of this offering, or approximately
$           million
if the underwriters' option to purchase additional shares
is exercised in full.
JPMP, one of the selling stockholders, may be deemed to be an
affiliate of one of the underwriters. In addition, in connection
with the Transactions, we will pay approximately
$          ,
of which may include proceeds from this offering, to affiliates
of the underwriters in connection with the Tender Offer for the
outstanding 10.50% Notes and the repurchase of the
12.50% Notes. Such amount may include a tender or
redemption premium. See "Underwriting."
Dividend Policy
We currently expect to pay dividends quarterly at an initial
annual level of
$          per
share. However, there can be no assurance that we will declare
or pay any dividends. The declaration and payment of future
dividends to holders of our common stock will be at the
discretion of our board of directors and will depend upon many
factors, including our financial condition, earnings, legal
requirements, restrictions in our credit facility and other
factors our board of directors deem relevant.
In December 2003, March 2004 and May 2004, we
paid dividends in respect of our outstanding shares of
Class B common stock of $39.3 million, $6.1 million
and $4.8 million, respectively. In October 2004, we
paid a dividend of $6.8 million in respect of our
outstanding shares of Class A common stock and a dividend
of $253.2 million in respect of our outstanding shares of
Class B common stock.
23
Table of Contents
Capitalization
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2004 (i) on an
actual basis and (ii) on an as adjusted basis to give
effect to the Transactions. The information should be read in
conjunction with "Use of Proceeds," "Selected
Financial Data" and the consolidated historical financial
statements and the accompanying notes thereto included elsewhere
in this prospectus.
As of December 31,
2004
Actual
As Adjusted
(dollars in millions, except share information)
Cash and cash equivalents
$
18.9
$
Debt:
Existing credit facility
$
210.0
$
—
Amended/new credit facility
—
12.50% Notes
250.0
—
10.50% Notes
200.0
—
Total debt
660.0
Stockholders' equity (deficit):
Common stock, par value $0.01 per
    share;         shares
    authorized;            shares
    issued and outstanding
Additional paid-in capital
—
Retained earnings
(23.2
)
Total stockholders' equity (deficit)
(23.2
)
Total capitalization
$
636.8
$
24
Table of Contents
Dilution
Dilution is the amount by which:
•
the portion of the offering price paid by the purchasers of our
    common stock in this offering, exceeds
•
the net tangible book value or deficiency per share of our
    common stock after the offering.
Net tangible book value or deficiency per share of our common
stock is determined at any date by subtracting our total
liabilities from our total tangible assets and dividing the
difference by the number of shares of common stock deemed to be
outstanding at that date.
Our net tangible book deficiency as of December 31, 2004
was approximately
$           million,
or
$           per
share of common stock. After giving effect to our receipt and
intended use of approximately
$           million
of estimated net proceeds (after deducting estimated
underwriting discounts and commissions and offering expenses)
from our sale of common stock in this offering and borrowings we
expect to receive under our new credit facility, and assuming
that all of the outstanding 10.50% Notes are tendered
pursuant to the tender offer for such notes and we repurchase
all of the 12.50% Notes, our pro forma as adjusted net
tangible book deficiency as of December 31, 2004 would have
been approximately
$           million
(after adjustment), or
$           per
share of common stock. This amount represents an immediate
increase in net tangible book value of
$           per
share of our common stock to existing stockholders and an
immediate dilution of
$           per
share of our common stock to new investors purchasing our common
stock in this offering.
The following table illustrates this substantial and immediate
dilution to new investors:
Per Share of
Common Stock
Initial public offering price per share of our common stock
$
Net tangible book value (deficiency) per share as of
    December 31, 2004
$
Increase per share attributable to cash payments made by
    investors in the offering
$
Pro forma as adjusted net tangible book value
    (deficiency) after this offering
$
Dilution in net tangible book value per share to new investors
$
The following table sets forth on a pro forma basis as of
December 31, 2004, assuming no exercise of the
underwriters' option to purchase additional shares:
•
the total number of shares of our common stock owned by our
    existing equity investors and our officers and the total number
    of shares of our common stock to be owned by the new investors
    purchasing our common stock in this offering, as represented by
    our common stock to be sold in this offering;
•
the total consideration paid by such equity investors and such
    officers and to be paid by the new investors purchasing our
    common stock in this offering; and
•
the average price per share of existing common stock by such
    existing equity investors and such officers and the average
    price per share of our common stock to be paid by new investors
    purchasing our common stock in this offering:
Shares of
Common Stock
Average Price
Purchased
Total Consideration
Per Share of
Common
Number
Percent
Amount
Percent
Stock
Existing equity investors and officers
$
%
$
%
$
New investors
$
%
$
%
$
Total
$
%
$
%
$
25
Table of Contents
Selected Financial Data
The following table sets forth selected historical financial and
other operating data of:
•
U.S. Filter Distribution Group, Inc. as of and for the
    years ended December 31, 2000 and 2001, as of
    November 21, 2002, and for the period from January 1,
    2002 to November 21, 2002. Information for the period from
    January 1, 2002 to November 21, 2002 was derived from
    U.S. Filter's audited financial statements appearing
    elsewhere in this prospectus. Information as of and for the
    years ended December 31, 2000 and 2001 and as of
    November 21, 2002 was derived from U.S. Filter's
    consolidated financial statements that are not included
    herein; and
•
National Waterworks Holdings, Inc. for the period from
    November 22, 2002 to December 31, 2002, and as of and
    for the years ended December 31, 2003 and 2004. Such
    information was derived from the audited consolidated financial
    statements of National Waterworks Holdings, Inc. appearing
    elsewhere in this prospectus. Information as of
    December 31, 2002 was derived from the consolidated
    financial statements of National Waterworks Holdings, Inc. that
    are not included herein.
The information set forth below should be read in conjunction
with the information under "Management's Discussion
and Analysis of Financial Condition and Results of
Operations" and our consolidated historical financial
statements and the accompanying notes thereto included elsewhere
in this prospectus.
26
Table of Contents
Predecessor — U.S. Filter Distribution
Group, Inc. and Subsidiary
Successor — National Waterworks Holdings, Inc.
Period of
Period of
Year Ended
Year Ended
January 1 to
November 22 to
Year Ended
Year Ended
December 31,
December 31,
November 21,
December 31,
December 31,
December 31,
(dollars in thousands)
2000
2001
2002
2002
2003
2004
Statements of operations data:
Net sales
$
1,173,323
$
1,120,330
$
1,058,768
$
94,250
$
1,281,069
$
1,522,070
Cost of goods sold(1)
936,502
880,569
831,764
82,005
1,013,079
1,212,582
Gross profit
236,821
239,761
227,004
12,245
267,990
309,488
Operating expenses:
Selling, general and administrative
151,488
152,470
139,825
14,737
167,152
186,466
Loss on accounts receivable securitization
—
536
2,480
—
—
—
Income (loss) before depreciation and amortization
85,333
86,755
84,699
(2,492
)
100,838
123,022
Depreciation and amortization
28,625
28,594
3,131
252
2,564
2,371
Operating income (loss)
56,708
58,161
81,568
(2,744
)
98,274
120,651
Other income (expense):
Completion bonuses(2)
—
—
(6,200
)
—
—
—
Interest expense, net
(86
)
(79
)
(36
)
(6,826
)
(41,333
)
(40,706
)
Other
178
(8
)
59
(12
)
(11
)
355
Income (loss) before income taxes and cumulative effect of a
    change in accounting principle
56,800
58,074
75,391
(9,582
)
56,930
80,300
Income tax expense (benefit)
31,237
31,924
29,238
(3,688
)
23,289
32,668
Income (loss) before cumulative effect of a change in accounting
    principle
25,563
26,150
46,153
(5,894
)
33,641
47,632
Cumulative effect of a change in accounting principle(3)
—
—
(459,000
)
—
—
—
Net income (loss)
$
25,563
$
26,150
$
(412,847
)
$
(5,894
)
$
33,641
$
47,632
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Other operating data:
Net cash from operating activities
83,728
209,399
56,240
39,044
37,012
59,445
Net cash from investing activities
(2,595
)
(265
)
(20,163
)
(643,855
)
(4,443
)
(2,780
)
Net cash from financing activities
(81,625
)
(205,099
)
(44,061
)
644,699
(53,755
)
(56,421
)
Capital expenditures
3,273
1,415
(1,442
)
(102
)
(2,022
)
(1,424
)
Balance sheet data (at period end):
Total assets
$
1,438,949
$
1,462,116
$
1,100,948
$
812,817
$
802,957
$
883,149
Total debt
2,176
852
631
450,000
440,000
660,000
Total stockholder's equity (deficit)
1,305,024
1,330,224
937,469
204,105
199,473
(23,184
)
(1)
In connection with the Acquisition, we recorded a
    $13.0 million inventory revaluation adjustment pursuant to
    Statement of Financial Accounting Standards No. 141,
Business Combinations.
Of this amount, $9.0 million
    was recognized in cost of goods sold for the period
    November 22, 2002 to December 31, 2002. The remaining
    $4.0 million was recognized in cost of goods sold during
    the quarter ended March 28, 2003.
27
Table of Contents
(2)
Reflects completion bonuses paid by United States Filter
    Corporation to certain members of management and other key
    employees of U.S. Filter upon consummation of the
    Acquisition.
(3)
Reflects an impairment charge taken by U.S. Filter
    Corporation prior to the Acquisition relating to the adoption of
    Statement of Financial Accounting Standard No. 142,
Goodwill and Other Intangible Assets.
See Note 4 to
    the audited consolidated financial statements included elsewhere
    in this report.
28
Table of Contents
Management's Discussion and Analysis of
Financial Condition and Results of Operations
You should read the following discussion with our consolidated
historical financial statements and the accompanying notes
thereto included elsewhere in this prospectus.
Overview
We are a leading distributor of water and wastewater
transmission products in the United States. We began operations
in 1996 when United States Filter Corporation acquired Davis
Water & Waste Industries, Inc. (which changed its name
to U.S. Filter Distribution Group, Inc.
("U.S. Filter")) with the goal of creating the
first nationwide waterworks products distribution network.
Through the acquisition and combination of four additional
large-scale regional waterworks products distributors in 1996
and 1997, we became a major participant in the sector. We have
continued to increase our revenues through organic growth, new
branch openings and selected strategic acquisitions. In
November 2002, we purchased substantially all of the assets
and businesses of, and assumed certain liabilities and
obligations of, U.S. Filter.
We generate revenue by distributing a full line of products
including pipe, fittings, valves, meters, fire hydrants, service
and repair products and other components that are used to
transport clean water and wastewater between reservoirs and
treatment plants and residential and commercial locations. We
face a variety of challenges and opportunities in responding to
the dynamics of the water and wastewater transmission industry,
characterized by evolving customer needs and intense
competition. Our products are integral to building, repairing
and maintaining water and wastewater (sewer) systems and
serve as part of the basic municipal infrastructure required to
support population and economic growth and residential and
commercial construction. Through our network of 135 branches in
36 states, we sell to municipalities and to contractors who
serve municipalities and also perform residential, commercial
and industrial waterworks projects. In addition to significant
customer and geographic diversification, our 2004 net sales
were split approximately evenly between publicly-funded and
privately-funded sales. The following table sets forth our net
sales by product category as a percentage of 2004 net sales:
Pipe
44%
Fittings
15%
Valves
11%
Meters
8%
Fire hydrants
6%
Service and repair products
6%
Other
10%
Total
100%
Our strategy revolves around expanding and strengthening our
market presence while focusing on customer service.
Additionally, we partner with preferred vendors, manage working
capital and work toward improved profitability to improve our
overall financial strength. Our financial strength and ability
to adapt to current economic conditions is dependent in part on
our generation of cash flow, effective working capital
management and growth in our business. Additionally, we attempt
to mitigate the effect of economic conditions through a highly
variable cost structure and low capital spending requirements.
We generate cash primarily from our operations.
During 2004, our cash and cash equivalents increased
$0.2 million. This change resulted primarily from the
generation of $59.4 million in cash flow from operating
activities and $250.0 million of proceeds from long-term
debt, offset by $270.9 million of dividend payments,
$30.0 million of principal payments on our long-term
borrowings, $5.6 million of financing fees,
$2.0 million of acquisition costs related to the purchase
of Midstate Utility Supply, Inc. and $0.8 million of net
capital expenditures.
29
Table of Contents
Factors Affecting Our Business
PVC Pipe Pricing.
The price of PVC pipe is volatile due
to supply and demand dynamics in the PVC pipe and PVC resin
markets. Volatility in these markets can cause fluctuations in
our revenues and related gross profit dollars. PVC pipe products
accounted for approximately 22% and 21% of our net sales for the
years ended December 31, 2004 and 2003, respectively. Our
purchase price of PVC pipe averaged $0.54, $0.41 and
$0.36 per pound for the years ended December 31, 2004,
2003 and 2002 (combined), respectively, with our 2004 PVC
purchase price ranging from a quarterly average of $0.46 to
$0.58 per pound. In periods of higher PVC pipe pricing,
assuming constant sales volumes, our net sales of PVC pipe would
be higher as the same volume of pipe sales generates higher
revenue. Conversely, in periods of lower PVC pipe prices,
assuming constant sales volumes, our net sales of PVC pipe would
be lower as the same volume of PVC pipe sales generates lower
revenue. We may also experience a decline in the volume of PVC
pipe sales, with an offsetting increase in the volume of ductile
iron pipe sales, in periods of higher PVC pipe pricing and
stable ductile iron pipe pricing, as our customers can
substitute ductile iron pipe for PVC pipe in certain
applications. PVC pipe accounts for approximately one-half of
our pipe sales. As a result of this interchangeability, pricing
of ductile iron pipe tends to move in the same direction as the
pricing of PVC pipe but in a less volatile fashion.
Consequently, we can experience a change in product mix between
PVC pipe and ductile iron pipe as the prices of these products
fluctuate. The impact of PVC pipe pricing also impacts our gross
profit dollars. Historically, excluding competitive forces, we
generally have been able to maintain our gross profit percentage
on a given volume of PVC pipe sales, even when PVC pipe prices
have fluctuated, as we have been able to pass through a majority
of the increase or decrease in PVC pipe prices to our customers.
Further, the impact of PVC price changes is minimized because we
sell more than half of our PVC pipe utilizing direct shipments
from suppliers and target and achieve high turnover for PVC pipe
sales out of our inventory.
Demand Fluctuations.
Our sales are also affected by
regional and local changes in commercial and residential
construction activity and the level of municipal waterworks
spending. The level of activity in the commercial construction
market depends on the general economic outlook, corporate
profitability, interest rates and existing plant capacity
utilization. The level of activity in the residential
construction market depends on new housing starts, which are
influenced by interest rates, availability of financing, housing
affordability, unemployment rates, demographic trends, gross
domestic product and consumer confidence. Changing economic
conditions in our markets could affect the level of construction
activity and, consequently, our net sales. In addition, water
and wastewater transmission products sales are subject to the
level of waterworks spending by municipalities. We believe
municipal spending is a function of the amount of repair and
improvements required for existing systems, which are functions
of the age of the infrastructure, weather and
construction-related damage, the level of maintenance spending,
the water infrastructure needs of the municipality relative to
other spending needs and the availability of municipal, state or
federal funds for waterworks projects.
Seasonality.
Given the seasonal nature of construction
activity in many regions of the United States, our results of
operations and working capital, including our accounts
receivable, inventory and accounts payable, fluctuate during the
year. We believe that our significant operations in more mild
southern climates moderate the impact of our seasonality.
Historically, consistent with annual construction seasonality,
our net sales are typically higher during our second and third
quarters as compared to the first and fourth quarters. In
addition, we typically generate cash from a reduction in net
working capital in the fourth quarter of each year and utilize
cash from operations to fund increases in net working capital in
the first and second quarter of each year.
Other important factors that could affect our results of
operations are set forth in "Risk Factors."
Critical Accounting Policies and Estimates
This discussion and analysis of financial condition and results
of operations is based upon our consolidated financial
statements, which have been prepared in accordance with GAAP.
The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses,
and related disclosure of contingent assets and
30
Table of Contents
liabilities. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Our senior management team has discussed the development,
selection and disclosure of these estimates with the Audit
Committee of our board of directors. Actual results may differ
from these estimates under different assumptions or conditions.
We deem an accounting policy to be critical if it requires an
accounting estimate to be made based on assumptions about
matters that are highly uncertain at the time the estimate is
made and if different estimates that reasonably could have been
used or changes in the accounting estimates that are reasonably
likely to occur periodically could materially impact the
consolidated financial statements. We believe the following
critical accounting policies reflect the more significant
estimates and assumptions used in the preparation of the
consolidated financial statements.
Allowance for Doubtful Accounts.
Since the beginning of
2002, on average, our bad debt expense has been only 0.08% of
net sales. We evaluate the collectibility of accounts receivable
based on historical trends, customer transaction history,
accounts receivable aging and an evaluation of customer
creditworthiness. Initially, a monthly provision is made based
on historical experience. We perform a detailed quarterly
analysis of accounts receivable and adjust the allowance for
doubtful accounts when necessary. While we have a large customer
base that is geographically diverse, an economic slowdown in the
markets in which we operate may result in higher uncollected
accounts receivable and therefore the need to revise estimates
for bad debts. To the extent actual credit experience or other
assumptions used by management change, the allowance for
doubtful accounts would be adjusted, which could affect our
operating results.
Inventories.
Since the beginning of 2002, our slow moving
inventory has averaged less than 2% of our total inventory. We
periodically evaluate our inventories to ensure they are
recorded at the lower of cost or market value. The carrying
value of our inventory is adjusted monthly based on a review of
slow moving inventories, as well as other factors such as
adjustments from physical inventory counts. Significant unusual
events are accounted for as a reduction of the carrying value of
our inventory when appropriate. To the extent future events
impact the salability of our products, additional adjustments to
the carrying value of our inventory may be required.
Goodwill and Long-Lived Assets.
We review the carrying
value of our goodwill for impairment at least annually by
comparing the estimated fair value of each of our six reporting
units to its carrying value. If the carrying value of a
reporting unit exceeds its estimated fair value, an indication
exists that goodwill is impaired, and we must perform additional
analysis to determine the extent of any impairment. Any such
impairment would be reflected as a charge in the statement of
operations at that time. Long-lived assets, including property
and equipment, are reviewed for possible impairment whenever
events or other changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. An
impairment loss is recognized when the carrying amount of a
long-lived asset exceeds the sum of the undiscounted cash flows
expected to result from the asset's use and eventual
disposition. An impairment loss is measured as the amount by
which the carrying amount of the asset exceeds the fair value of
the asset.
31
Table of Contents
Results of Operations
The following table sets forth the percentage relationship that
certain items from our consolidated financial statements bear in
relation to net sales:
Predecessor —
U.S. Filter
Distribution
Successor —
Group, Inc.
National Waterworks Holdings, Inc.
Period of
Period of
January 1 to
November 22
Year Ended
Year Ended
November 21,
to December 31,
December 31,
December 31,
2002
2002
2003
2004
Statements of operations data:
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of goods sold
78.6
%
87.0
%
79.1
%
79.7
%
Gross profit
21.4
%
13.0
%
20.9
%
20.3
%
Operating expenses:
Selling, general and administrative
13.2
%
15.6
%
13.1
%
12.2
%
Loss on accounts receivable securitization
0.2
%
0.0
%
0.0
%
0.0
%
Income (loss) before depreciation and amortization
8.0
%
(2.6
)%
7.8
%
8.1
%
Depreciation and amortization
0.3
%
0.3
%
0.2
%
0.1
%
Operating income (loss)
7.7
%
(2.9
)%
7.6
%
8.0
%
Other income (expense):
Completion bonuses
(0.6
)%
0.0
%
0.0
%
0.0
%
Interest expense, net
0.0
%
(7.2
)%
(3.2
)%
(2.7
)%
Other
0.0
%
0.0
%
0.0
%
0.0
%
Income (loss) before income taxes and cumulative effect of a
    change in accounting principle
7.1
%
(10.1
)%
4.4
%
5.3
%
Income tax expense (benefit)
2.8
%
(3.9
)%
1.8
%
2.2
%
Income (loss) before cumulative effect of a change in accounting
    principle
4.3
%
(6.2
)%
2.6
%
3.1
%
Cumulative effect of a change in accounting principle
(43.3
)%
0.0
%
0.0
%
0.0
%
Net income (loss)
(39.0
)%
(6.2
)%
2.6
%
3.1
%
The following discussions regarding the year ended
December 31, 2002 are based on the combined results of
operations of U.S. Filter for the period from
January 1, 2002 to November 21, 2002 and of National
Waterworks for the period from November 22, 2002 to
December 31, 2002. The Acquisition was accounted for as a
purchase in accordance with Statement of Financial Accounting
Standards No. 141,
Business Combinations
, and the
excess of the purchase consideration over the historical basis
of the net assets acquired has been applied to revalue the
assets acquired and liabilities assumed to their fair values at
November 22, 2002, the date of the Acquisition. Upon
completion of the Acquisition, we recorded goodwill of
$465.7 million, which was reduced by $9.6 million
during 2003 as a result of post-closing purchase price
adjustments. The combined 2002 results discussed below are not
necessarily indicative of what the full year 2002 would have
been if the change in ownership resulting from the Acquisition
had not occurred.
Year Ended December 31, 2004 Compared to Year Ended
    December 31, 2003
Net Sales.
Net sales for the year ended December 31,
2004 increased $241.0 million, or 18.8%, to
$1,522.1 million from $1,281.1 million for the year
ended December 31, 2003. The increase reflects the combined
effects of a $10.5 million increase in net sales from our
acquisition of Midstate Utility Supply,
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Inc., a regional waterworks distribution company operating in
Oklahoma, which we acquired on February 9, 2004, and a
$230.5 million increase in net sales of our historical
operations. A portion of the increase was attributable to a
$76.5 million increase in net sales of PVC pipe, primarily
resulting from the pass through of higher PVC pipe prices in
2004 and, to a lesser extent, increased sales volume. The
remaining increase resulted primarily from the pass through of
price increases on most of our other major product lines and
increased volume due to continued favorable economic conditions.
Cost of Goods Sold.
Cost of goods sold, consisting
primarily of purchases of the products we distribute from our
suppliers, for the year ended December 31, 2004 increased
$199.5 million, or 19.7%, to $1,212.6 million from
$1,013.1 million for the year ended December 31, 2003.
The increase reflects an increase in cost of goods sold of our
historical operations which was primarily attributable to the
increase in cost of goods sold of PVC pipe products of
$71.9 million and increased pricing and volume in all other
product categories. Additionally the increase reflects the
effect of an $8.9 million increase in cost of goods sold
associated with sales resulting from our acquisition of Midstate
Utility Supply, Inc. As a percentage of net sales, cost of goods
sold increased to 79.7% in 2004 compared to 79.1% in 2003.
Gross Profit.
As a result of the foregoing, gross profit
for the year ended December 31, 2004 increased
$41.5 million, or 15.5%, to $309.5 million from
$268.0 million for the year ended December 31, 2003.
Our gross profit margin decreased to 20.3% in 2004 compared to
20.9% in 2003 as a result of the foregoing factors.
Selling, General and Administrative.
Selling, general and
administrative expenses, consisting primarily of compensation
and benefits and facility costs, for the year ended
December 31, 2004 increased $19.3 million, or 11.5%,
to $186.5 million from $167.2 million for the year
ended December 31, 2003. This increase is primarily related
to the sales volume increases discussed above and
$1.1 million of additional expenses resulting from our
acquisition of Midstate Utility Supply, Inc. As a percentage of
net sales, selling, general and administrative expenses were
12.2% in 2004 compared to 13.1% in 2003.
Depreciation and Amortization.
Depreciation and
amortization expenses for the year ended December 31, 2004
were $2.4 million, compared to $2.6 million for the
year ended December 31, 2003. Depreciation includes
depreciation of property and equipment.
Operating Income.
As a result of the foregoing, operating
income for the year ended December 31, 2004 increased
$22.4 million, or 22.8%, to $120.7 million from
$98.3 million for the year ended December 31, 2003. As
a percentage of net sales, operating income increased to 8.0% in
2004 compared to 7.6% in 2003.
Interest Expense, Net.
Interest expense, net for the year
ended December 31, 2004, was $40.7 million, compared
to $41.3 million for the year ended December 31, 2003.
The decrease resulted primarily from more favorable interest
rates on our term loan in 2004, as compared to 2003, additional
interest expense recorded in 2003 related to two amendments to
our senior credit facility and reductions in the principal
balance of our term loan throughout 2003 and 2004. These
decreases were partially offset by $5.6 million of
additional interest expense on the 12.50% Senior Notes.
Income Taxes.
Our effective income tax rate for the year
ended December 31, 2004 was approximately 40.7% compared to
40.9% for the year ended December 31, 2003.
Net Income (Loss).
As a result of the foregoing, net
income for the year ended December 31, 2004 increased
$14.0 million to $47.6 million compared to
$33.6 million for the year ended December 31, 2003.
Year Ended December 31, 2003 Compared to Combined
    Year Ended December 31, 2002
Certain Financial Statement Impacts of the Acquisition.
As more fully discussed below, the revaluation of the net assets
acquired in the Acquisition did not affect our net sales.
However, we recorded a $13.0 million valuation increase in
inventory at November 22, 2002 as a result of the asset
revaluation. While the increase in the value of our inventory
had no cash impact, it did increase our cost of goods sold,
adversely impacting our gross profit. We recognized
$9.0 million of the impact of the inventory revaluation
during the period of November 22, 2002 to December 31,
2002. The final $4.0 million of the inventory revaluation
was recognized in the first quarter of 2003.
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Net Sales.
Net sales for the year ended December 31,
2003 increased $128.1 million, or 11.1%, to
$1,281.1 million from $1,153.0 million for the year
ended December 31, 2002. The increase reflects the combined
effects of a $6.0 million increase in net sales from our
acquisition of Utility Piping Systems, Inc., a regional
waterworks distribution company operating in Pennsylvania, New
Jersey and Delaware, which we acquired on March 29, 2002,
and a $122.1 million increase in net sales of our
historical operations. A portion of the increase was
attributable to an increase in net sales of PVC pipe of
$29.3 million primarily resulting from the pass through of
an approximate 13% increase in our purchase price of PVC pipe
products. The remaining increase in net sales of our historical
operations was attributable to increases recorded in all product
areas brought by continued favorable economic conditions.
Cost of Goods Sold.
Cost of goods sold for the year ended
December 31, 2003 increased $99.3 million, or 10.9%,
to $1,013.1 million from $913.8 million for the year
ended December 31, 2002. The increase reflects an increase
in cost of goods sold of our historical operations which was
primarily attributable to the increase in cost of goods sold of
PVC pipe products of $27.6 million and increased volume in
all other product categories. Additionally the increase reflects
the combined effects of a $4.8 million increase in cost of
goods sold associated with sales resulting from our acquisition
of Utility Piping Systems, Inc. and the recognition of the final
$4.0 million impact of the inventory revaluation discussed
above. As a percentage of net sales, cost of goods sold
decreased to 79.1% in 2003 compared to 79.3% in 2002.
Gross Profit.
As a result of the foregoing, gross profit
for the year ended December 31, 2003 increased
$28.8 million, or 12.0%, to $268.0 million from
$239.2 million for the year ended December 31, 2002.
Gross profit increased as a result of our acquisition of Utility
Piping Systems, Inc. and increased volume in our historical
operations. The increase was partially offset by the adverse
impact of the inventory revaluation, representing 0.3% of net
sales, recognized during the 2003 period. Our gross profit
margin increased to 20.9% in 2003 compared to 20.7% in 2002 as a
result of the foregoing factors.
Selling, General and Administrative.
Selling, general and
administrative expenses for the year ended December 31,
2003 increased $12.6 million, or 8.2%, to
$167.2 million from $154.6 million for the year ended
December 31, 2002. This increase is primarily related to
the sales volume increases discussed above and $0.9 million
of additional expenses resulting from our acquisition of Utility
Piping Systems, Inc. As a percentage of net sales, selling,
general and administrative expenses were 13.1% in 2003 compared
to 13.4% in 2002.
Loss on Accounts Receivable Securitization.
Loss on
accounts receivable securitization was $2.5 million for the
year ended December 31 2002. This loss reflects the sale of
a portion of our accounts receivable at a discount relating to
an accounts receivable securitization facility that we entered
into on December 19, 2001. For more information, see
"— Liquidity and Capital Resources" below.
Concurrent with the Acquisition, the facility was repaid and
terminated in November 2002. Accordingly, there was no related
activity in 2003.
Depreciation and Amortization.
Depreciation and
amortization expenses for the year ended December 31, 2003
were $2.6 million, compared to $3.4 million for the
year ended December 31, 2002. Depreciation includes
depreciation of property and equipment.
Operating Income.
As a result of the foregoing, operating
income for the year ended December 31, 2003 increased
$19.5 million, or 24.7%, to $98.3 million from
$78.8 million for the year ended December 31, 2002. As
a percentage of net sales, operating income increased to 7.6% in
2003 from 6.8% in 2002.
Completion Bonuses.
In connection with the Acquisition,
we recognized $6.2 million in non-recurring compensation
expense in 2002 for payments made by U.S. Filter to certain
members of our management upon consummation of the Acquisition.
Interest Expense, Net.
Interest expense, net for the year
ended December 31, 2003, was $41.3 million, compared
to $6.9 million for the year ended December 31, 2002.
The increase reflects interest related to the additional debt we
incurred on November 22, 2002 to finance the Acquisition.
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Table of Contents
Income Taxes.
Our effective income tax rate for the year
ended December 31, 2003 was approximately 40.9% compared to
38.8% for the year ended December 31, 2002.
Cumulative Effect of Change in Accounting Principle.
As a
result of the adoption of SFAS No. 142 prior to the
consummation of the Acquisition, U.S. Filter completed an
assessment of whether its goodwill was impaired at
January 1, 2002, the date of adoption of
SFAS No. 142. As a result of this assessment,
U.S. Filter concluded that it was probable that the
goodwill then assigned to its reporting units was impaired based
in part upon the anticipated sale price of substantially all of
its assets and liabilities to National Waterworks. Accordingly,
2002 included a charge for the estimated goodwill impairment of
$459.0 million.
Net Income (Loss).
As a result of the foregoing, and
excluding the cumulative effect of a change in accounting
principle in 2002, net income decreased $6.7 million to
$33.6 million from $40.3 million for the year ended
December 31, 2003 and 2002, respectively.
Liquidity and Capital Resources
Net working capital is comprised of current assets, excluding
cash and cash equivalents, minus current liabilities. We had net
working capital of $123.7 million at December 31,
2004, compared to net working capital of $115.2 million at
December 31, 2003. The increase in net working capital is
primarily attributable to increased working capital requirements
from higher sales volume in the fourth quarter of 2004 compared
to 2003.
Net cash provided by operating activities for the years ended
December 31, 2004, 2003 and 2002 (combined) was
$59.4 million, $37.0 million and $95.3 million,
respectively. The change in net cash provided by operating
activities in 2004 compared to 2003 was primarily attributable
to a $14.0 million increase in net income and a
$72.5 million greater increase in trade accounts payable
and other accrued expenses in 2004 as compared to 2003,
partially offset by a $6.9 million reduction of deferred
income taxes, a $23.8 million greater increase in trade
accounts receivable in 2004 as compared to 2003 and a
$36.1 million greater increase in inventory in 2004 as
compared to 2003. The change in net cash provided by operating
activities in 2003 compared to 2002 (combined) was
primarily attributable to an approximate $32.3 million and
$33.8 million greater decrease in cash flows from trade
accounts receivable and trade accounts payable and accrued
expenses, respectively. We recognized cash tax benefits of
$12.7 million and $12.6 million from the amortization
of goodwill in 2004 and 2003, respectively. See notes 3 and 4 to
our consolidated historical financial statements included
elsewhere in this prospectus.
Net cash used in investing activities for the years ended
December 31, 2004, 2003 and 2002 (combined) was
$2.8 million, $4.4 million and $664.0 million,
respectively. Net cash used in investing activities for the year
ended December 31, 2004 included the $2.0 million
acquisition of Midstate Utility Supply, Inc., $1.4 million
of capital expenditures and $0.6 million of proceeds from
sales of property and equipment. Net cash used in investing
activities for the year ended December 31, 2003 included
the post-closing purchase price adjustment of $3.2 million
paid to United States Filter Corporation related to the level of
our working capital at the time of closing of the Acquisition,
$2.0 million of capital expenditures and $0.8 million
of proceeds from sales of property and equipment. Net cash used
in investing activities for the year ended December 31,
2002 (combined) included the cash purchase price of the
Acquisition of $643.8 million, the $19.6 million
acquisition of Utility Piping Systems, Inc., capital
expenditures of $1.5 million and proceeds from sales of
property and equipment of $0.9 million.
Net cash provided by (used in) financing activities for the
years ended December 31, 2004, 2003 and 2002
(combined) was ($56.4) million, ($53.8) million
and $600.6 million, respectively. Net cash used in
financing activities in 2004 reflects dividend distributions of
$270.9 million, $15.0 million in principal payments on
our term loan, a $15.0 million optional prepayment of our
term loan and $5.6 million of financing fees, partially
offset by $250.0 million of proceeds from the issuance of
the 12.50% Notes. Net cash used in financing activities in
2003 reflects dividend distributions of $39.3 million and
$10.0 million in principal payments on the term loan. The
2003 period also reflects a $1.0 million cash equity
investment by one of our directors who had not made an
investment in us at the time the Acquisition was consummated.
The net cash provided by financing activities for the year ended
December 31, 2002
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(combined), excluding the net proceeds of $644.7 million
provided to fund the Acquisition, resulted in net cash used in
financing activities of $44.1 million. The
$44.1 million reflects the excess of funds transferred to
our former parent, United States Filter Corporation, through the
cash management program over investments by, and expenditures
funded by, United States Filter Corporation during the period
January 1, 2002 to November 21, 2002.
On October 29, 2004, NWW Holdings issued
$250.0 million of unsecured senior notes for the purpose of
returning capital to its existing equity holders. These notes,
which bear interest at 12.50%, mature January 1, 2014 and
provide for quarterly interest payments with payment in kind
provisions, as defined in the underlying indenture, at NWW
Holdings' option. In connection therewith, we executed a
third amendment to our senior credit facility on
October 26, 2004. This amendment, among other things,
provides for reduced pricing on the term loan and increases the
amount of limited dividends and distributions National
Waterworks can pay to NWW Holdings. The reduced pricing included
a reduction in the applicable margin of the term loan with a
step-down provision upon our achieving certain financial ratios.
Based on the satisfaction of certain financial covenants and
ratios and other conditions, the aggregate amount of dividends
that National Waterworks can pay to NWW Holdings refreshed to an
aggregate of $125.0 million on January 1, 2005. The
$40.0 million per-fiscal-year restriction, with the
provision that any amount not paid in the fiscal year for which
it is permitted may be carried over to any succeeding fiscal
year, remains unchanged. We intend to repurchase the
12.50% Notes in connection with the Transactions.
Our existing credit facility, as previously amended, consists of
a $250.0 million term loan facility, of which
$210.0 million was outstanding at December 31, 2004,
and a $75.0 million revolving credit facility. No amount
was outstanding under the revolving credit facility at
December 31, 2004, but approximately $4.4 million of
the availability under the revolving credit facility was used to
support outstanding letters of credit. The borrowings under the
revolving credit facility will be available until its maturity
to fund our working capital requirements, capital expenditures
and other general corporate needs. The revolving credit facility
will mature on November 22, 2008 and will have no scheduled
amortization or commitment reductions. The term loan facility
will mature on November 22, 2009 and has quarterly
scheduled amortization payments of $3.75 million in 2004
and 2005, $5.0 million in 2006 and $6.25 million in
2007 and 2008, with the balance of the facility to be repaid
quarterly during 2009. In addition, we are required to make
annual mandatory prepayments of the term loan under the senior
credit facility in an amount equal to 75% of Excess Cash Flow,
as defined in our senior credit facility, and determined
generally as the amount by which our operating cash flow exceeds
the sum of our capital expenditures (including in respect of
permitted acquisitions), repayments of indebtedness and certain
other amounts, or 50% of Excess Cash Flow if our ratio of
consolidated total debt to consolidated EBITDA as of the last
day of the fiscal year is not greater than 4:0 to 1:0. The term
loan is also subject to mandatory prepayments in an amount equal
to (i) 75% of the net proceeds from certain equity
issuances (or 50% if we meet the foregoing leverage ratio);
(ii) 100% of the net cash proceeds of certain debt
issuances; and (iii) 100% of the net cash proceeds of
certain asset sales or other dispositions of property, in each
case subject to certain exceptions. Borrowings under the term
loan portion and revolving credit facility bear interest at a
variable rate based on, at our option, the Eurodollar rate plus
an applicable margin, or a base rate plus a margin. The base
rate is the higher of the prime rate or the Federal funds rate
plus 0.5%. At December 31, 2004 and 2003, the interest rate
on the term loan was 5.06% and 3.92% per annum,
respectively. Our senior credit facility permits us to issue up
to an additional $100.0 million of credit facilities
without the consent of the lenders thereunder, so long as no
default or event of default under the senior credit facility has
occurred or would occur after giving effect to such issuance and
certain other conditions are satisfied, including pro forma
compliance with certain leverage ratios. We may purchase an
interest note cap in connection with the floating rate
borrowings under our credit facility or swap a portion of the
floating rate borrowings for fixed rate debt that, in either
case, will effectively limit the interest rate on such
borrowings.
National Waterworks' $200.0 million aggregate
principal amount of senior subordinated notes due 2012 bear
interest at 10.50% per annum, with interest due
semi-annually on June 1 and December 1 of each year.
We intend to commence a Tender Offer for all outstanding
10.50% Notes in connection with the Transactions.
36
Table of Contents
Contractual Obligations
Contractual obligations at December 31, 2004 are summarized
as follows (dollars in thousands):
Less than
One to
Four to
More than
Total
One Year
Three Years
Five Years
Five Years
Term B Note(1)
$
210,000
$
15,000
$
45,000
$
150,000
$
—
10.50% Notes(2)
200,000
—
—
—
200,000
12.50% Notes(3)
250,000
—
—
—
250,000
Operating Leases
37,585
12,048
15,800
6,140
3,597
Sponsor fees(4)
10,000
1,000
2,000
2,000
5,000
Employment Agreements(5)
2,180
880
1,090
210
—
$
709,765
$
28,298
$
63,890
$
158,350
$
458,597
(1)
In addition to the contractually scheduled principal payments
    shown above, we are required to make mandatory prepayments of
    excess cash flow at the end of every fiscal year. Interest on
    Term B notes is based, at our option, on current LIBOR rate plus
    2.50% or prime plus 1.50%. The interest rate at
    December 31, 2004 was 5.06%
(2)
The 10.50% Notes mature on December 1, 2012. However,
    we have the option to redeem the notes at the following
    redemption prices (expressed in percentages): 105.25% in 2007,
    103.50% in 2008, 101.75% in 2009 and 100% in 2010 and thereafter.
(3)
The 12.50% Notes mature on January 1, 2014. However,
    we have the option to redeem the notes at the following
    redemption prices (expressed in percentages): 105.00% in 2005,
    103.75% in 2006, 102.50% in 2007, 101.25% in 2008 and 100.00% in
    2010 and thereafter.
(4)
Beginning July 1, 2004, we pay annual management fees of
    $1.0 million to our sponsors. The management agreement
    continues until terminated by a sponsor in accordance with its
    terms. Upon termination under certain conditions, each sponsor
    will be entitled to receive a termination fee equal to the net
    present value of the fees that would have been paid to the
    sponsor for the 10-year period commencing on the date of
    termination. For the purpose of the above table, we have
    included 10 years of management fees.
(5)
Obligations for employment agreements with certain executive
    officers are based on each officer's base salary plus
    guaranteed 10 percent bonus for the remaining life of each
    applicable employment agreement.
Contractual obligations at December 31, 2004 after giving
effect to the Transactions are summarized as follows (dollars in
thousands):
Less than
One to
Four to
More than
Total
One Year
Three Years
Five Years
Five Years
Credit Facility
Employment Agreements(1)
$
$
$
$
$
(1)
Obligations for employment agreements with certain executive
    officers are based on each officer's base salary plus
    guaranteed 10 percent bonus for the remaining life of each
    applicable employment agreement.
Holding Company
As a holding company, our investment in National Waterworks
constitutes substantially all of our operating assets.
Consequently, National Waterworks conducts all of our
consolidated operations and owns substantially all of our
operating assets. Our principal source of the cash required to
pay our and National
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Table of Contents
Waterworks' obligations is the cash that National
Waterworks generates from its operations. National Waterworks is
a separate and distinct legal entity and has no obligations to
make funds available to us. The terms of the credit facility
restrict National Waterworks from paying dividends, making loans
or other distributions and otherwise transferring assets to us.
Furthermore, National Waterworks is permitted under the terms of
the credit facility to incur additional indebtedness that may
severely restrict or prohibit the making of distributions, the
payment of dividends or the making of loans by it to us. The
agreements governing our current and future indebtedness may not
permit National Waterworks to provide us with sufficient
dividends, distributions or loans to fund scheduled interest and
principal payments on our indebtedness when due. If we
consummate an acquisition, our debt service requirements could
increase. We may need to refinance all or a portion of our
indebtedness, on or before maturity. We may not be able to
refinance any of our indebtedness on commercially reasonable
terms or at all.
Recent Accounting Pronouncements
In November 2002, the EITF reached consensus on
Issue 02-16,
Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor
.
The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the
prices of the vendor's products or services and should be
treated as a reduction of cost of sales when recognized in the
customer's income statement. This presumption can be
overcome if the consideration can be shown to represent either a
payment for assets or services delivered to the vendor or a
reimbursement of costs incurred by the reseller to sell the
vendor's products. It also reached consensus on when a
customer should recognize a rebate or refund that is payable
only if the customer completes a specified level of purchases.
Recognition should occur when the rebate or refund is probable
and reasonably estimable and should be based on a systematic and
rational method. We have historically accounted for such
consideration as a reduction of cost of goods sold when the
vendor rebate is probable and reasonably estimable and based on
a systematic and rational allocation of the cash consideration
to be received. We estimated the adoption of this EITF increased
net income by $1.4 million for the year ended
December 31, 2003.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs — An amendment of ARB No. 43,
Chapter 4
. SFAS No. 151 clarifies that
abnormal amounts of idle facility expense, freight, handling
costs and spoilage should be expensed as incurred and not
included in overhead. Further, SFAS No. 151 requires
that allocation of fixed production overheads to conversion
costs should be based on normal capacity of the production
facilities. The provisions of SFAS No. 151 are
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. We plan to adopt
SFAS No. 151 on January 1, 2006. The adoption of
SFAS No. 151 is not expected to have a significant
impact on our consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets — An Amendment of
APB Opinion No. 29
. The amendments made by
SFAS No. 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have "commercial
substance." Previously, Opinion No. 29 required that
the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same
or similar productive asset should be based on the recorded
amount of the asset relinquished. The provisions of
SFAS No. 153 are effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. We plan to adopt SFAS No. 153 on
July 1, 2005. The adoption of SFAS No. 153 is not
expected to have a significant impact on our consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123
(Revised 2004),
Share-Based Payment: an Amendment of FASB
Statements No. 123 and 95
(SFAS No. 123R).
SFAS No. 123R requires the recognition in the income
statement of the grant-date fair value of stock options and
other equity-based compensation issued to employees.
SFAS No. 123R is effective for most public
companies' interim or annual periods beginning after
June 15, 2005. We plan to adopt SFAS No. 123R
prospectively on July 1, 2005. The adoption of
SFAS No. 123R is not expected to have a significant
impact on our consolidated financial statements.
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Table of Contents
Quantitative and Qualitative Disclosures about Market Risk
We are exposed to certain market risks as part of our on-going
business operations. Primary exposure includes changes in
interest rates under our senior credit facility, which bears
interest at floating rates based on the London InterBank Offered
Rate or the prime rate, in each case plus an applicable
borrowing margin. We manage our interest rate risk by balancing
the amount of fixed rate and floating rate debt. For fixed rate
debt, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for floating rate
debt, interest rate changes generally do not affect the fair
market value but do impact our earnings and cash flows, assuming
other factors are held constant. We may use derivative financial
instruments, where appropriate, to manage our interest rate
risks. However, as a matter of policy, we will not enter into
derivative or other financial investments for trading or
speculative purposes. All of our sales are denominated in
U.S. dollars; thus our financial results are not subject to
foreign currency exchange risks or weak economic conditions in
foreign markets.
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Table of Contents
Business
General
We are a leading distributor of water and wastewater
transmission products in the United States with an approximately
17% share of the estimated $9 billion U.S. waterworks
products distribution market. We distribute a full line of
pipes, fittings, valves, meters, fire hydrants, service and
repair products and other components that are used to transport
clean water and wastewater between reservoirs and treatment
plants and residential and commercial locations. Our products
are integral to building, repairing and maintaining water and
wastewater (sewer) systems and serve as part of the basic
municipal infrastructure required to support population and
economic growth and residential and commercial construction.
Through our network of 135 branches in 36 states, we
sell directly to municipalities and to contractors who serve
municipalities and perform residential, commercial and
industrial waterworks projects. In addition to significant
customer and geographic diversification, we estimate that our
net sales are divided approximately evenly between
publicly-funded and privately-funded sales.
As the market for our products is characterized by a highly
fragmented local customer base, a wide variety of local product
standards and a broad group of suppliers, we believe that
distributors play a critical role in the supply chain. We
purchase products from approximately 3,500 suppliers and sell to
over 26,000 customers. We offer both our suppliers and
customers essential products and services. We provide customers
with a single source for water and wastewater transmission
products, which substantially reduces their need to manage
inventory and multiple vendor relationships. None of our
suppliers offers a complete waterworks product line and the
majority lack the scale, expertise and infrastructure (including
a large, local sales force) to service the broad customer base
directly. By aggregating the supply of our products, we relieve
our suppliers of the need to maintain a local inventory and a
local sales force and the related credit and accounts receivable
functions.
Our branches compete on a local basis and benefit from our large
scale and national coverage. We believe that our entrepreneurial
approach at the branch level and our local customer focus has
allowed us to achieve a leading market position in the majority
of our local markets. We have a sophisticated IT system
that supports our sales personnel and provides benefits to our
customers, including expedited project estimation and bid
preparation; real-time pricing, availability and order status
information; on-line ordering and purchase processing; and
material and project management.
Overview of Our Business
History
In 1996, United States Filter Corporation acquired Davis
Water & Waste Industries, Inc. (which changed its name
to U.S. Filter) with the goal of creating the first
nationwide waterworks products distribution network. At that
time, no national waterworks distribution platform existed in
the United States, and the sector was primarily comprised of
regional and local firms. Through the acquisition and
combination of four additional large-scale regional waterworks
products distributors in 1996 and 1997, U.S. Filter became
a major participant in the sector. Each of these regional
acquisitions and the majority of our other acquisitions had been
in business for over 20 years and were the source of the
majority of U.S. Filter's senior and branch
management. In November 2002, we purchased substantially all of
the assets and businesses of, and assumed certain liabilities
and obligations of, U.S. Filter, in the Acquisition.
We have continued to increase our revenues through organic
growth and new branch openings, as well as through selected
strategic acquisitions. Since the beginning of 2000, we have
opened or acquired 16 new branches, while closing or
consolidating 21 branches in order to eliminate branch
overlap due to acquisitions and to improve our profitability and
return on managed assets. We identify acquisition opportunities
that allow us to expand our local market positions, geographic
coverage or local product lines. As we have expanded our branch
network, we have also broadened our product mix to meet the
demands of customers in our diverse local markets.
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Industry Overview and Trends
The U.S. water and wastewater transmission products
distribution market is highly fragmented, consisting of local
and regional distributors and only two other distributors with a
national presence. There are two primary waterworks end-markets:
(i) publicly-funded maintenance, repair and construction by
municipalities and contractors and (ii) privately-funded
residential, commercial and industrial construction by
contractors. There are approximately 54,000 municipal water
systems in the United States, which are maintained primarily by
municipalities that establish local product specifications and
undertake their own water system purchasing and contracting.
Municipalities generally complete short-term or modest-sized
repair or construction projects and rely on contractors for
longer-term or larger projects. Contractors complete both
privately-funded projects and publicly-funded projects,
typically after negotiated or competitive bids, with the latter
being the standard for publicly-funded projects. On any single
project, we typically assist multiple contractors in the
preparation of their bids. In 2004, we served approximately
9,000 municipal customers and 17,500 contractor and
industrial/other customers. Contractors tend to be small in
size, locally-oriented and are often family-owned businesses.
Given this local customer base, competition is primarily on the
local level, typically with four to six distributors in each
market. Competition is typically based on service, reliability
and total project cost to the customer, including product
pricing.
Municipal waterworks systems include all publicly-owned or
funded water and wastewater supply, filtration, storage and
distribution systems, as well as public buildings and
conservation projects. Water is a critical, basic necessity and
municipalities must continuously repair and replace their
existing infrastructures. The maintenance and expansion of these
systems is important to support existing demand as well as
economic and population growth and residential and commercial
construction. In addition to on-going operations, maintenance
and capital expenditures, municipalities currently face
significant needs to replace and upgrade their water
infrastructures, the majority of which were installed in the
first half of the twentieth century. Municipalities can increase
their revenues and/or decrease costs by maintaining and
improving water and wastewater systems, including by repairing
clean water system leaks, reducing run-off water leakage into
the wastewater system and improving metering. In some cities,
the water systems have water leakage rates as high as 20%.
According to the Congressional Budget Office, water industry
authorities believe that maintaining the water and wastewater
systems in the United States will require a substantial increase
in spending over the next two decades. In addition, the
Congressional Budget Office projects that annual costs will
average between $71.0 billion and $98.0 billion from
2000 to 2019, of which $25.0 billion to $41.0 billion
will be for new investments and $46.0 billion to
$57.0 billion will be for operations and maintenance. We
believe this will contribute to the ongoing demand for our
waterworks products.
The privately-funded waterworks sector includes new clean water
and wastewater infrastructure for residential, commercial and
industrial construction. According to the U.S. Census
Bureau, from 1975 to 2004, spending on residential and
non-residential construction, which we believe is indicative of
privately-funded waterworks projects, grew at compounded annual
growth rates of 8.5% and 5.3%, respectively. Typically, once a
private contractor completes a waterworks system, ownership of
the system is transferred to the relevant municipality for
on-going repair and maintenance. We believe that growth in
commercial and residential spending is largely a function of new
housing spending, population and economic growth, increases in
U.S. home ownership rates and the availability of
commercial and residential financing.
Our Strengths
We believe our competitive strengths include:
Leading Local Market Positions
We believe that we have a leading market share in the majority
of our local markets. We have achieved these leading positions
as a result of our branch managers' and employees'
long-term experience, customer relationships and knowledge of
local market dynamics and specifications. Approximately 80% of
our district and branch managers have more than 10 years of
experience in waterworks product distribution. Each branch
operates as a local, entrepreneurial business and benefits from
our scale
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advantages and national coverage. Our branches operate as
independent profit centers, and all of our employees participate
in our incentive compensation system, which is based on
branch-level profitability and working capital.
National Presence and Scale Benefits
We are a leading distributor of water and wastewater
transmission products in the United States, with an
approximately 17% market share, based on our net sales as a
percentage of a third-party estimate of the U.S. Waterworks
products distribution market. Our broad network of
135 local branches in 36 states creates a national
presence and provides us with economies of scale that we believe
cannot be replicated by local and regional competitors. In
addition to the stability provided by customer and geographic
diversity, we believe that our scale and position as the largest
distributor solely focused on waterworks products results in
many benefits, including: (i) the ability to invest in
infrastructure, including IT systems, and leverage fixed costs;
(ii) volume purchasing benefits from our suppliers;
(iii) national inventory coverage; (iv) the ability to
attract and retain strong managers and salespeople through an
incentive-based compensation system and upward mobility;
(v) a leveragable base of technical knowledge and best
practices; and (vi) a strong platform for future expansion.
Superior, Value-Added Customer Service
We offer our customers a complete line of water and wastewater
transmission products and reliable delivery. In 2004, we had a
95.4% fill rate (defined as individual product orders shipped
complete from stock on the first shipment), which we believe is
indicative of our ability to consistently deliver our products
on time. Timely and complete delivery is critical to our
customers, as their labor, equipment and mobilization costs are
substantially greater than their costs for our products. We
believe that our material management capabilities reduce our
customers' downtime due to supply-related work stoppages
and increase their overall efficiency. In addition, we provide a
broad array of value-added services that we believe contribute
to our customers' success. These services include project
estimation, project management and product advice. We believe
these services reduce our contractor customers' overall
costs, improve their cash flow and allow them to increase
revenue by reducing their time spent preparing contract bids and
managing material purchases. We believe that these benefits are
more valuable to our customers than product pricing alone. We
utilize our sophisticated IT system to provide total
project management, including project estimates and bids that
can be quickly generated, which allows our customers to bid on
more projects.
Diverse Revenues from Long-Standing Customers
Our customer base is diverse by individual customer, end-market,
project and geography, which we believe enables us to have more
stable operating results. In 2004, we served over
26,000 customers and over 76% of our net sales were from
customers to whom we sold products in each of the last five
years. Our largest customer and top ten customers accounted for
less than 1% and 5%, respectively, of 2004 net sales. We
estimate that our 2004 net sales were split approximately
evenly between publicly-funded and privately-funded sales. Our
net sales are balanced across our six geographic regions, with
our largest region accounting for approximately 22% of our
2004 net sales. We believe that our geographic diversity
mitigates our exposure to regional-specific economic cycles. The
majority of our operations are located in attractive regions
that have historically experienced above-average economic and
population growth. In addition, a significant portion of our
branches are located in milder southern climates, which reduces
the seasonality of our operations.
Strategic Relationships with Diverse Supplier Base
Our strategic supplier relationships provide us with reliable
access to inventory, volume purchasing benefits and the ability
to deliver a diverse product offering on a cost-effective basis.
We buy products from approximately 3,500 suppliers and
maintain multiple suppliers for substantially all of our
products. Substantially all of our primary suppliers have served
us or one of our predecessor companies for over 10 years.
We have developed preferred vendor programs with over
130 suppliers, which increase our profits and returns
through volume purchase incentives and attractive payment terms.
We believe that we are the
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largest customer of many of these suppliers. Over 80% of our
product purchases (based on costs of goods sold) in 2004 were
under preferred vendor programs.
Sophisticated IT System
We believe that we have a sophisticated IT system. We
continually leverage our technology to enhance our revenues,
profits and working capital efficiency. Our single, integrated
IT system is flexible and scalable to support expected growth.
It enables us to quickly and accurately provide and access
real-time information, which allows us to: (i) have a high
degree of branch-level flexibility while maintaining centralized
operational control; (ii) gain and retain customers by
providing superior customer service; (iii) evaluate and
focus on profitable business opportunities at the customer and
product level; (iv) maximize working capital efficiency;
and (v) track and evaluate performance on a real-time basis
and reward our branch management and sales force monthly for
operating results. Key system functions include:
(i) real-time control of pricing for sales and purchases,
accounts receivable and credit, inventory and accounts payable;
(ii) daily detailed operating and financial data by branch
and customer; (iii) expedited and automated order and
purchase processing; and (iv) the ability to quickly
consolidate the financial results from our 135 branches.
Experienced and Motivated Management Team
Our senior management team has significant waterworks and
industrial distribution expertise and a proven track record of
success. Our senior corporate executives and regional vice
presidents have, on average, 27 years of industry
experience and 18 years of experience with us or one of our
predecessor companies. This management team is responsible for
developing our strategy, which has resulted in our leading
market positions, strong growth in revenues, profits and cash
flow, and our sophisticated IT system. The team has
substantial expertise in developing and maintaining customer and
supplier relationships, achieving organic growth, opening new
branches and completing and integrating acquisitions. The team
has also developed a compensation program that creates
incentives for our employees at all levels based primarily on
branch-level profitability and return on managed assets. We
believe that entrepreneurship at the branch level combined with
this compensation program have been essential drivers of our
profit growth. Following the offering, our senior management
team will own approximately      % of
our equity on a fully-diluted basis, a portion of which is
subject to time and performance vesting criteria.
Operating Model Focused on Free Cash Flow
We believe that our operating model generates significant free
cash flow due to our variable cost structure, profit margin
improvement and low capital expenditure requirements and
efficient working capital management. Our variable cost base
includes substantially all of our costs of goods sold
(approximately 82% of total 2004 expenses) and a significant
portion of our operating costs (for example, more than half of
employee compensation was variable in 2004). From 1998 to 2004,
we (i) improved our EBITDA margins from 6.1% to 8.1%,
(ii) had average annual capital expenditures of
$1.9 million and (iii) improved our working capital
performance metrics. We have historically been successful in
passing through price increases from our suppliers to our
customers without significantly impacting our margins. Over the
past three years, we averaged net write-offs of only 0.08%, and
only 9% of our accounts were 90 days or more past due at
the end of 2004. In addition, we receive approximately
$12 million per year cash tax benefit due to the
amortization of goodwill that is deductible for federal income
tax purposes. This benefit is expected to continue through the
year 2017.
Our Strategy
We intend to increase operating profits and cash flow by
continuing to be a leading distributor of water and wastewater
transmission products. Key elements of our strategy include the
following:
Enhancing Local Market Share and Profitability
Our reputation for reliable service, a comprehensive product
offering and advanced IT tools has been critical to establishing
our leading local market positions. We believe that we are
well-positioned to exploit opportunities to selectively and
profitably increase our local market shares. We plan to gain new
customers
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and increase purchases by existing customers by leveraging our
products, information and materials management capabilities and
our scale advantages over local and regional competitors to
improve our customers' efficiency and reduce their
administrative costs. We continually evaluate the profitability
of each of our customers, giving us the ability to focus on
those that meet and exceed our targets.
Continuing Focus on Operational Excellence
We will continue to regularly examine each branch's
profitability, working capital management and return on managed
assets, both on an overall and a customer basis. Our branch
managers use this information to optimize their local
strategies, improve the profitability of customer relationships
and reduce operating costs. Senior management uses this
information to (i) monitor each branch's performance
and disseminate best practices, (ii) evaluate opportunities
to expand the geographic coverage or number of branches and
(iii) improve the performance of an underperforming branch,
or to close such a branch if performance cannot be sufficiently
improved.
Geographic Expansion Initiatives
The water and wastewater market is expected to experience
substantial growth over the next several years as municipalities
focus on repairing and/or upgrading existing infrastructure. Our
strategy is to leverage our strong national presence and leading
local market positions to capitalize on this expected growth. We
expect to do this through organic growth, new branch openings
and selective acquisitions. Our focus will be on markets where
we expect favorable waterworks product distribution demand
dynamics, including the need for significant repairs or
upgrades, population growth and underpenetration by other
distributors.
New Branch Openings.
We believe that we have the
opportunity to grow by opening satellite branches in contiguous
markets where we typically have an existing customer base. New
satellite branches can be opened with minimal capital
investment, and we target achieving profitability within three
months of commencing operations. We expect to open two or three
new satellite branches per year over the next several years.
Opening new branches is not constrained by the required capital
expenditures, but rather by the limited availability of
additional qualified branch managers and sales personnel with
local expertise and relationships, both of which are critical to
the success of a new branch.
Selective Acquisitions.
Given the significant
fragmentation and localized nature of our industry, we have the
opportunity to complement organic growth with selective
acquisitions that meet our key evaluative criteria. Between 1996
and 2002, we successfully completed and integrated
16 acquisitions with an average size of $27.0 million
and most recently acquired Midstate Utility Supply in 2004 for
approximately $2 million. While we will continue to focus
on organic growth and new branch openings, we will also continue
to consider acquisitions that provide us with immediate,
established access to new geographic markets, an expanded
customer base or, in certain cases, an exclusive local
distribution arrangement for certain higher margin products. Our
key evaluative criteria include established customer bases and
market presence, solid reputations, strong branch level
management and sales teams and the opportunity to achieve
meaningful financial and operating synergies.
Business Operations
Regional Organization and Branch Network.
We are
organized geographically into six different regions in the
United States (Midwest, Southwest, Pacific, Southeast, Mid-South
and Mid-Continent). While we are organized regionally, our
distribution network operates on a branch system. Each region
has 16 to 30 branches and a regional vice president
responsible for overall sales and operations. This regional
structure enables us to address the specific management,
strategic, operational and other needs of each region.
Branch Management.
We believe that our branch network and
management structure brings many benefits, including
entrepreneurship, flexibility and long-term customer
relationships at the local level. Each branch is managed by a
district/branch manager, who is typically supported by a branch
operations manager. We believe that our branch managers are able
to maximize their branch's financial performance due to the
flexibility with which they operate within the company-wide
management and control structure.
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This structure enables a branch manager to tailor his or her
branch's particular strategy, marketing and product and
service offerings to address the needs of customers in the local
market. Our senior management establishes pricing and purchasing
parameters, which branch managers are able to adjust within a
specified range to enhance their branch's results and
address specific customer situations.
Our compensation programs align our interests with those of our
employees by linking compensation levels to the achievement of
branch or region specific goals based on profitability and
return on managed assets. These incentive programs give
managers, sales personnel and all other employees an opportunity
to personally benefit from improving these metrics, reducing
costs, developing local market niches and adapting to changing
market conditions. We also benefit from this program as a
substantial portion of our employee-related costs is variable
based on financial performance.
The majority of our district/branch managers have spent
substantially all of their careers in their local markets. Given
our managers' strong industry and local expertise, they are
empowered to manage their own customer relationships, sales
force and other personnel, pricing for product sales and
purchases (within company-wide parameters), inventory and other
activities. While branches benefit from this expertise and
entrepreneurship, they also benefit from being part of our
nationwide network. At the corporate level, we:
•
set overall financial, operating and strategic goals and
    parameters, including pricing guidelines and working capital
    management;
•
support our branches with services such as IT, credit, human
    resources, finance, accounting and legal;
•
negotiate preferred vendor purchasing programs;
•
provide tools that support value-added customer services;
•
provide training and operational support; and
•
help branches meet their goals by transferring best practices
    and providing other management assistance.
Branch Operations.
A branch's organization varies
depending on its size. Our branches averaged over
$11 million of net sales in 2004. A typical branch consists
of 9 to 12 people, including a branch manager, a
branch operations manager, outside sales personnel, inside sales
personnel and support/warehouse personnel. In larger branches,
the staff may also include a sales manager, a purchasing manager
and/or an estimator. When several branches are in close
proximity to each other, a district manager may oversee all such
branches as opposed to having individual managers at each
branch. In these cases, the branch operations managers in that
district tend to be more senior and experienced managers. Each
branch customizes its product and service offerings based on its
local market. A typical branch offers 2,400 to
3,000 products and stocks 1,000 to 1,600 items.
We receive our orders from customers either directly or through
negotiated or competitive bids, which are typically evaluated
based on service, availability, reliability and price. A new
order or bid is either generated by, or input into, our
IT system for scheduling, inventory management, ordering
from a supplier (if necessary) and billing. Products are
delivered either from the relevant branch's inventory,
another branch's inventory or, in the case of large or
long-lead time orders, directly from the manufacturer to the
customer ("direct" sales). Direct sales accounted for
approximately 36% of our net sales in 2004. Direct sales and the
ability to access other branches' inventory allow our
branches to reduce their inventory and the related holding and
handling costs. In addition, our IT system automatically
generates recommended purchasing reports to replenish our
inventory as products are sold.
Products and Services
Products
A typical waterworks system is comprised of many components,
including reservoirs and other water sources, water treatment
plants and pumping stations, wastewater treatment plants and
residential and commercial customers. We distribute products
that comprise the water and wastewater transmission
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network within the waterworks system. Our primary products
include pipe, fittings, valves, meters, fire hydrants and
service and repair products. We also offer other complementary
products for waterworks construction and maintenance/repair.
Typically, our gross margin percentages on pipe products are
lower than our gross margin percentages for other product lines.
Pipe.
Piping products are our primary waterworks product
and generate the greatest portion of our net sales,
approximately 44% in 2004. Given the relatively large size and
weight of pipe and typically large size of pipe orders, the
majority of our pipe sales are shipped directly from the
manufacturer to the customer, which reduces our handling costs,
inventory and exposure to changes in raw material prices. We
distribute a broad range of pipe made from different materials,
including polyvinyl chloride (PVC), ductile iron, copper,
polyethylene and high-density polyethylene (HDPE). PVC and
ductile iron are the most commonly used types of pipe and
account for the majority of our pipe sales.
Fittings.
Fittings are used to connect pipe to other pipe
sections, valves and other devices. Fittings complement our
broad pipe products line with high customer overlap. In 2004,
fittings accounted for approximately 15% of our net sales. We
distribute a broad range of fittings made from PVC, ductile
iron, and to a lesser extent, copper, brass and HDPE.
Valves.
Valves are used to control the flow of water and
wastewater within transmission networks and, similar to
fittings, complement our other product offerings. In 2004,
valves accounted for approximately 11% of our net sales. Besides
an array of standard valves, we also distribute backflow
preventers, which primarily prevent reverse flow of liquid in
the water system.
Meters and Fire Hydrants.
In 2004, meters and fire
hydrants accounted for approximately 8% and 6% of our net sales,
respectively. Meters measure the amount of liquid that flows
through pipes and are critical to municipalities and other water
and wastewater system operators for billing purposes. New meter
technology, such as the ability to receive data electronically,
and the importance of water-related revenues to municipalities,
has led to growth in meter sales. Fire hydrants are critical to
firefighting activities and the protection of public safety.
Service and Repair Products.
Our service and repair
products include water cut-off devices, clamps and other
products. In 2004, these products accounted for approximately 6%
of our net sales. Local availability and timely delivery of
these products are critical to meeting customer needs because
many of these products are used for emergency repairs.
Other Products.
We offer other complementary products
that are necessary for water and wastewater systems or allow us
to be a full product supplier to our customers. These products
accounted for approximately 10% of our net sales in 2004.
Examples include access boxes that protect valves and meters
from theft, damage or destruction; iron castings, including
grates and manhole covers, which fit into or on top of
waterworks structures; and tools specific to waterworks
construction and maintenance, as well as general hand tools.
The sale of water and wastewater transmission products is
subject to seasonal and weather-related fluctuations. Coincident
with annual construction seasonality, our net sales are
typically higher during the second and third calendar quarters
and lower during the first and fourth quarters due to reduced
construction activity during the winter. Adverse weather
conditions in our markets may also decrease the level of
construction activity.
Customer Service
We focus on offering our customers consistent, high quality
local service and a broad range of value-added services, which
result in long-term customer relationships. Initially, we assist
contractor customers in the preparation of their bids with
product knowledge and advice, cost estimates, inventory levels
and product standardization. In addition, our sales
representatives maintain databases of local specifications and
provide customized databases for contractors. After a contractor
begins a project, we focus on reducing their total project cost
by:
•
reducing their inventory cost;
•
expediting the completion of the project through the timely and
    coordinated delivery of the necessary waterworks
    products; and
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•
reducing the related administrative burdens.
Through the combination of these services, we believe that we
have been able to reduce our contractor customers' focus on
product pricing by reducing their overall costs and downtime and
improving their project planning and execution. We provide our
municipal customers with similar services and benefits.
We also leverage our sophisticated IT system to provide superior
customer service. The IT system is specifically designed to
provide our customers and our sales force with direct, quick,
accurate and convenient access to data (including product
pricing and availability and past and current order information)
in a variety of electronic media (on-line, fax, email,
electronic data interchange and spreadsheet). Our sales
representatives can access our IT system either from their
desktop computer or remotely from laptop computers and transmit
and receive updated information on a real-time basis. Our
customers have access to their accounts and our product and
service offerings over a secure and real-time Internet system.
Customers
We have a diversified customer base, which minimizes our
exposure to any particular customer, customer type or region.
Substantially all of our customers are local in nature and
include municipalities, public works contractors who serve
municipalities, private waterworks contractors who perform
residential, commercial and industrial construction projects and
industrial customers. These sectors are affected by different
macroeconomic variables, which we believe reduces our exposure
to adverse conditions in any particular sector. In 2004, we
served approximately 9,000 municipal customers and 17,500
contractor and industrial/other customers. During 2004, over 76%
of our net sales were to customers who purchased products from
us in each of the last five years. We have established long-term
relationships with the majority of our customers, but no single
customer accounted for more than 1% of our net sales during
2004. Additionally, the largest of our regions accounted for
approximately 22% of our net sales during 2004.
Suppliers and Preferred Vendor Programs
We purchase products from approximately 3,500 suppliers, and
substantially all of our primary suppliers have supplied us for
over ten years. We utilize multiple suppliers for substantially
all of our products and purchase from both national suppliers
and local or regional suppliers, which allows our branch
managers to customize their product offering for their local
markets. Our largest supplier accounted for approximately
$168 million, or 13%, of product purchases in 2004. The
products we purchase from this supplier are also sourced from
other suppliers. Our ten largest suppliers in 2004 accounted for
approximately 61% of our purchases.
We have established preferred vendor programs to more
effectively leverage our purchasing power with suppliers. As
part of this effort, we have significantly reduced our supplier
base, which has resulted in stronger strategic relationships
with a core group of vendors, more reliable deliveries and
better purchasing terms. Our preferred vendor programs typically
include volume purchase incentives and other benefits, including
cash discounts and extended payment terms. Approximately 130 of
our suppliers have attained preferred vendor status and we
continue to establish or enhance these relationships with new
and existing suppliers. In 2004, we purchased over 80% of our
products from these preferred vendors.
Marketing and Sales
We have over 250 sales representatives experienced in the water
and wastewater transmission products distribution sector. These
sales representatives have in-depth product and technical
knowledge, significant local experience and long-term customer
relationships, all of which are critical to our success. In
addition, we believe that our leading market position,
high-quality service offering and innovative compensation
program result in low turnover rates among our sales force.
Our field sales representatives are based at branches and are
responsible for generating sales, providing all of our basic and
value-added services to customers and establishing new customer
relationships. These
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sales representatives are highly qualified professionals and
participate in ongoing training programs. Our service-oriented
philosophy and incentive compensation program encourage our
sales representatives to proactively participate in product
selection; provide product specifications, usage data, product
alternatives (within required product specifications) and
project bids; and participate in the collection of accounts
receivable.
We also have regionally-based product specialists, who support
the outside sales representatives in their respective region.
These specialists have expertise with respect to specific
product and service offerings. In addition, we have customer
service representatives who support the outside sales force.
These customer service representatives are responsible for
entering and tracking orders, answering technical questions and
sourcing products. The customer service representatives provide
additional depth to our customer relationships and a pool of
talent for future outside sales representatives.
Accounts Receivable.
We proactively manage our accounts
receivable with customers. We maintain detailed, up-to-date
credit history and receivables information on over 26,000
customers and conduct extensive credit checks on new customers.
Since the beginning of 2002, on average, less than 8% of
accounts receivable have been outstanding more than 90 days
and bad debt expense has averaged approximately .08% of net
sales. Our credit department, which includes national and
regional professionals, is responsible for approving
customers' credit, collecting receivables and ensuring that
appropriate state and local bond and lien statutes are followed.
We maintain all of our credit and receivables information on our
IT system, allowing for easy access by our credit department and
branch managers. A customer's status is automatically
reviewed by the IT system during order entry and product
shipment to ensure branches operate within credit guidelines. We
are also able to generate daily reports that highlight any
potential issues to our credit professionals and branch
managers. Customers can also track their outstanding balances
online to accelerate the payment process.
Management Information Systems
Our IT system is critical to our success and we believe it
provides us an important competitive advantage. We have
developed a single infrastructure that integrates our customer
service, management, operational and financial functions in a
reliable, flexible and user-friendly system. The system is
easily scalable to support additional organic growth and
acquisitions and currently has unused capacity. We leverage our
IT system to provide superior, customized service, which reduces
our customers' costs and improves our operating efficiency.
Examples of customer service benefits include:
Material Management Online.
Our Internet interface allows
our customers to manage all aspects of their accounts on a
secure, online and real-time basis. Our customers can:
•
access product pricing and availability and place orders,
    including using their own product numbers which are
    automatically converted to our product numbers;
•
access order information (including status, delivery schedule
    and past invoices);
•
release products for delivery;
•
access account-specific catalogs, including account-specific
    pricing and past preferences; and
•
view local specifications and requirements.
Project Management.
We offer numerous project management
services to reduce our customers' costs and to allow them
to bid on more projects. Through this system, we provide over
10,000 project estimates monthly. We can either:
•
integrate price-supported product databases into a
    contractor's estimating system;
•
provide access to our own estimating system; or
•
generate the estimate ourselves in the format requested by the
    customer (e.g., spreadsheets delivered via email).
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Our estimating system is integrated with the rest of our IT
system, allowing for a seamless interface between sales and
operations. During a project, a customer can receive
project-specific management reports and other information (e.g.,
shipment and payment status, products released against the bid,
change orders and invoices) via the Internet, email or fax,
which result in more efficient project management. Our customers
can receive their invoices via email on a daily basis to
expedite billing their customers.
From an internal point-of-view, our IT system improves our
efficiency, profitability and asset management. It integrates
all of our locations and key functions and provides easy access
to detailed, up-to-date information. Benefits include:
•
nationwide and local real-time control of pricing for sales and
    purchases, including for individual customers;
•
the ability to monitor individual customer profitability and
    accounts receivable, including preset credit limits;
•
better inventory management and sharing across branches;
•
expedited and automatic posting, matching and processing of
    orders, receivables and payables; and
•
integrated payroll and accounting, including the ability to
    quickly consolidate financial results from our branches.
The system is used to generate management reports that track key
metrics for each region, branch and customer. This allows us to
monitor and more effectively manage our business at all levels
and to set sales strategies.
We have established emergency contingencies to protect our IT
system, and we test our preparedness and contingency plan
yearly. Such measures include automatic re-establishment of a
branch's connection to the system if the connection is lost
and a fully functional, secure back-up location provided by a
third party.
Raw Materials
We do not manufacture any products. However, our suppliers are
susceptible to fluctuations in certain raw material prices,
which can impact our purchase and sales prices for these
products. For example, PVC pipe accounted for approximately 22%
of our 2004 net sales and is susceptible to price
fluctuations. Our purchase price of PVC pipe averaged $0.54,
$0.41 and $0.36 per pound for the years ended
December 31, 2004, 2003 and 2002 (combined), respectively.
We believe that we take minimal raw material price risk, based
on our high inventory turns, sales shipped directly from
manufacturers to customers, our ability to quickly pass price
fluctuations on to customers and our relatively small average
project size and short timing. In addition, when we enter into
longer-term arrangements with our customers, we typically enter
into similar term arrangements with our suppliers.
Employees
As of December 31, 2004, we had approximately 1,500
employees, of which approximately 225 were in managerial
positions, 275 were in sales positions and 1,000 were in
warehouse/delivery and general administrative positions. Eleven
of our employees at three branches were unionized pursuant to
collective bargaining agreements that expire in December 2006
and July 2009. We believe that we have good relationships with
our employees and experience low voluntary turnover.
Competition
In each of our local markets, we typically compete with three to
five other distributors. Generally, local competition includes a
branch of one or both of the other two national distributors,
Hughes Supply, Inc. and Wolseley PLC. We also compete with other
local and regional distributors. The principal methods of
competition include offering prompt local service, fulfillment
capability, local knowledge, breadth of product and service
offerings, total cost to the customer and price.
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Properties
We lease and own 107 and 28 branches, respectively. Our
facilities are used for storing inventory and maintaining office
space and typically consist of a one-to-two acre lot adjacent to
a warehouse/office building. We typically enter into leases with
terms ranging from two to five years that include renewal
options. In addition, we lease our principal executive offices
in Waco, Texas and own our two other administrative centers.
Intellectual Property
We believe we have the trademarks, trade names and licenses that
are necessary for the operation of our business as we currently
conduct it. We do not consider our trademarks, trade names or
licenses to be material to the operation of our business.
Environmental Matters
Our facilities and operations are subject to federal, state and
local environmental and workplace health and safety
requirements, including those relating to the handling, storage
and disposal of hazardous materials and wastes and the cleanup
of properties affected by pollutants. Historically, we have not
had, nor do we currently anticipate, any material adverse effect
on our business or financial condition as a result of our
efforts to comply with, or our liability under, such
requirements. Our operations consist of distribution of water
and wastewater transmission products rather than manufacturing,
so we are not significantly regulated from an environmental
standpoint.
In the future, federal, state or local governments could enact
new or more stringent laws or regulations concerning
environmental and workplace health and safety matters that could
affect our operations. We could be found to be in violation of
these or other environmental laws and regulations, and we could
be held liable for contamination that may be found at our
facilities or off-site locations where we have sent waste. We
are currently not aware of circumstances where a violation of or
a liability under environmental requirements could have a
material adverse effect on our business or financial condition.
Certain of U.S. Filter's predecessors distributed or
may have distributed cement pipe containing asbestos. Certain of
these predecessors are or have been defendants in lawsuits
seeking to recover personal injury and other damages for alleged
exposure to asbestos in these pipes, and at December 31,
2004, 69 lawsuits remained outstanding. Total defense and
settlement costs paid in these settled actions through
December 31, 2004 by U.S. Filter have been
approximately $2.8 million, the majority of which has been
paid by insurance companies. The Acquisition was structured as
an asset purchase, and we did not assume any existing or future
asbestos-related liabilities relating to U.S. Filter or its
predecessors. U.S. Filter and United States Filter
Corporation retained these liabilities and jointly and severally
agreed to indemnify and defend us from and against these
liabilities on an unlimited basis with no termination date.
United States Filter Corporation and U.S. Filter also
agreed that, until November 22, 2012, U.S. Filter
will, and United States Filter Corporation will cause
U.S. Filter, to maintain U.S. Filter's corporate
existence and ensure that U.S. Filter has sufficient funds
to pay any and all of its debts and other obligations, including
liabilities retained by U.S. Filter and its indemnification
obligations, as and when they become due. In addition, Veolia
Environnement ("Veolia," formerly Vivendi
Environnement S.A.) has guaranteed all obligations of United
States Filter Corporation and U.S. Filter under the asset
purchase agreement, including the indemnity discussed above, up
to an aggregate of $50.0 million through November 22,
2017. Historically, courts have not held the acquirer of an
entity's assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a "successor" to the asset seller. Accordingly, we
could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to U.S. Filter
and to the extent U.S. Filter, United States Filter
Corporation and Veolia are unable to fulfill their contractual
obligations.
Legal Proceedings
In addition to those items disclosed under
"— Environmental Matters," we are from time
to time involved in litigation incidental to the conduct of our
business. We believe that no litigation currently pending
against us, if adversely determined, would have a material
adverse effect on our financial position or results of
operations.
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Management
The following table sets forth certain information with respect
to our current directors and executive officers and certain
other key employees and their ages. In accordance with our
restated by-laws, we will alter the composition of our board of
directors so that, within one year following the completion of
this offering, a majority of the members of our board of
directors will be "independent," as such term is
defined in Rule 10A-3(b)(i) under the Exchange Act and
under NYSE Rule 303(A):
Name
Age
Position
Executive Officers
Harry K. Hornish, Jr.
59
President, Chief Executive Officer and Director
Philip Keipp
43
Vice President and Chief Financial Officer
Terry Howell
41
Chief Information Officer
J. L. Walker
58
Vice President of Human Resources
Other Key Employees
Rob Hickson
57
Vice President — Midwest Region
Ed Maczko
57
Vice President — Southwest Region
Ron Hood
59
Vice President — Pacific Region
Jerry Webb
46
Vice President — Southeast Region
Irving Welchons III
56
Vice President — Mid-South Region
Jack Schaller
49
Vice President — Mid-Continent Region
Don Clayton
29
Corporate Controller
Jack Olson
54
Director of Information Technology
Non-Employee Directors
Todd M. Abbrecht
36
Director
Anthony J. DiNovi
42
Director
Stephen V. McKenna
36
Director
Paul M. Meister
52
Director
C. Dean Metropoulos
58
Director
Stephen P. Murray
42
Director
Kevin G. O'Brien
39
Director
Soren L. Oberg
34
Director
Andrew D. Seidel
42
Director
Harry K. Hornish, Jr.
has been our President, Chief
Executive Officer and a director since November 22, 2002.
Prior thereto, Mr. Hornish was President and Chief
Operating Officer of U.S. Filter Distribution Group, Inc.
since February 1998. Previously, Mr. Hornish served as
U.S. Filter Distribution Group, Inc.'s Executive Vice
President since its inception in 1996. Prior to that,
Mr. Hornish was President and Chief Executive Officer of
The Utility Supply Group, Inc., which was acquired by
U.S. Filter Distribution Group, Inc. in 1996, after it was
spun-off from CertainTeed Corporation in 1994. Mr. Hornish
was employed by CertainTeed Corporation from 1987 to 1994, where
he held executive positions in both the Building Materials and
the Utility Supply divisions. His early career included several
sales, marketing and senior management positions with the
distribution division of Owens Corning Fiberglass.
Mr. Hornish received a B.A. degree in Political Science
from Marshall University.
Philip Keipp
has been our Chief Financial Officer since
January 5, 2005. Prior thereto, Mr. Keipp served as
our Controller since November 22, 2002 and held the same
position with U.S. Filter Distribution Group, Inc. since
1998. Previously, Mr. Keipp was Chief Financial Officer
with Sidener Supply Company, which U.S. Filter Distribution
Group, Inc. acquired in 1997. Prior to that, Mr. Keipp was
with KPMG from 1986 to 1996 where he was a Senior Manager in the
firm's Manufacturing, Retail and Distribution Practice.
Mr. Keipp received a B.S. degree in Business Administration
with an emphasis in Accounting from Lindenwood University. He
also attended the University of Missouri in St. Louis and
is a Certified Public Accountant.
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Terry Howell
has been our Chief Information Officer since
November 22, 2002. Prior thereto, he served as Vice
President of Marketing & System Operations with
U.S. Filter Distribution Group, Inc. since its inception in
1996. Mr. Howell served in various staff positions with
U.S. Filter Distribution Group, Inc.'s predecessor,
Davis Water & Waste Industries, Inc. At that company,
he served as Manager of Plant Sales, Operations Analyst, IT
Manager, and finally as Marketing Manager, where he was part of
a four person management team directly responsible for the
operations and sales of 25 branches. He joined Davis
Water & Waste, Industries, Inc. in 1991 after serving
six years as a decorated Commissioned Officer in the
U.S. Navy. Mr. Howell earned a degree from the US
Naval Academy in 1985 in Applied Science — Computer
Programming and training as a Gas Turbine Engineer.
J.L. Walker
has been our Vice President of Human
Resources since November 22, 2002. Prior thereto he held
the same position with U.S. Filter Distribution Group, Inc.
since its inception in 1996. Prior to that, Mr. Walker held
the same position with The Utility Supply Group, Inc. since its
inception in 1994. Mr. Walker was employed by CertainTeed
Corporation from 1980 to 1994, where he held various management
positions in Human Resources for both the Building Materials and
the Utility Supply divisions. Mr. Walker's experience
also includes ten years in various manufacturing positions and
service in the U.S. Navy. Mr. Walker received a B.A.
degree from Georgia State University.
Rob Hickson
has been our Vice President —
Midwest Region since November 22, 2002. Prior thereto, he
held the same position with U.S. Filter Distribution Group,
Inc. since 1996. Previously, Mr. Hickson held Regional Vice
President positions with WaterPro Supplies Corporation from 1990
until U.S. Filter Distribution Group, Inc. acquired it in
1996. Mr. Hickson has been employed in the waterworks
industry since 1972. Mr. Hickson attended Clemson
University and Francis Marion University.
Edward E. Maczko, Jr.
has been our Vice
President — Southwest Region since November 22,
2002. Prior thereto, he held the same position with
U.S. Filter Distribution Group, Inc. since 1999. Prior to
that, Mr. Maczko served as the District Manager for
Arizona. Mr. Maczko held a similar position with The
Utility Supply Group, Inc. from 1990 until U.S. Filter
Distribution Group, Inc. acquired it in 1996. He has been
employed in the waterworks industry since 1971 and received a
B.S. degree in Business from Northeastern University.
Ron Hood
has been our Vice President — Pacific
Region since November 22, 2002. Prior thereto, he held the
same position with U.S. Filter Distribution Group, Inc.
since 1996. Mr. Hood served in the same position with The
Utility Supply Group, Inc. until U.S. Filter Distribution
Group, Inc. acquired it in 1996. There he also held various
branch and district management positions from 1990 until 1995.
Mr. Hood had been employed by manufacturing and
distribution companies in the waterworks industry since 1966 and
attended Fullerton Jr. College.
Jerry L. Webb
has been our Vice President —
Southeast Region since November 22, 2002. Prior thereto, he
held the same position with U.S. Filter Distribution Group,
Inc. since 1997. Previously, Mr. Webb served as National
Sales Manager of the distribution division of U.S. Filter
Distribution Group, Inc.'s predecessor, Davis
Water & Waste Industries, Inc. since 1995.
Mr. Webb previously held various management positions with
Davis companies from 1988 to 1995. He has been employed in the
waterworks industry since 1981 and received a B.B.A. degree in
Accounting from Valdosta State University.
Irving B. Welchons III
has been our Vice
President — Mid-South Region since November 22,
2002. Prior thereto, he held the same position with
U.S. Filter Distribution Group, Inc. since 1996.
Previously, Mr. Welchons served as Regional Manager of
WaterPro Supplies Corporation from 1991 until it was acquired by
U.S. Filter Distribution Group, Inc. in 1996. Prior to
that, Mr. Welchons held various positions in the waterworks
distribution industry since 1972. Mr. Welchons attended
Virginia Polytechnic Institute and State University.
Jack Schaller
has been National Waterworks' Vice
President — Mid-Continent Region since
November 22, 2002. Prior thereto, he held the same position
with U.S. Filter Distribution Group, Inc. since 1997.
Previously, Mr. Schaller served as President of Sidener
Supply Company from 1996 until it was acquired by
U.S. Filter Distribution Group, Inc. in 1997. From 1984 to
1997, Mr. Schaller held numerous positions with Sidener
Supply Company, including branch manager of three locations and
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director of implementation for a new computer system.
Mr. Schaller has been employed in the waterworks industry
since 1979 and received a degree in Forest Management from the
University of Missouri and a Master's degree in Business
Management from Webster University.
Don Clayton
has been our Corporate Controller since
December 6, 2004. Prior thereto, he served in the audit
practice of PricewaterhouseCoopers LLP since 1997, most recently
as a Senior Manager. Mr. Clayton received a B.S. degree in
Business Administration with an emphasis in accounting from
Southeast Missouri State University. Mr. Clayton is a
Certified Public Accountant.
Jack Olson
has been our Director of Information
Technology since November 22, 2002. Prior thereto, he held
the same position with U.S. Filter Distribution Group, Inc.
since 1996. From 1994 to 1996, Mr. Olson served as Director
of Information Technology of U.S. Filter Distribution
Group, Inc.'s predecessor, Davis Water & Waste
Industries, Inc. Prior to that, Mr. Olson held the position
of Systems Engineer and Instructor with IBM from 1977 to 1994.
Mr. Olson received a B.A. degree in Mathematics from
Southwest Minnesota State University and a M.S. degree in
Mathematics from the University of Idaho.
Todd M. Abbrecht
became one of our directors on
November 22, 2002. Mr. Abbrecht has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1992 and currently serves as Managing Director.
Prior to joining the firm, Mr. Abbrecht was in the mergers
and acquisitions department of Credit Suisse First Boston.
Mr. Abbrecht is currently a director of Michael Foods,
Inc., Warner Chilcott Corporation and Simmons Company.
Anthony J. DiNovi
became one of our directors on
November 22, 2002. Mr. DiNovi has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1988 and currently serves as Co-President. Prior
to joining the firm, Mr. DiNovi was in the corporate
finance department of Goldman, Sachs & Co.
Mr. DiNovi is currently a director of American Media, Inc.,
Endurance Specialty Insurance, Ltd., FairPoint Communications,
Inc., Michael Foods, Inc., US LEC Corporation and Vertis, Inc.,
and also serves on the boards of several private companies.
Stephen V. McKenna
became one of our directors on
November 22, 2002. Mr. McKenna is a Principal of
J.P. Morgan Partners, LLC. Prior to joining
J.P. Morgan Partners, LLC in 2000, Mr. McKenna worked
in the Investment Banking Division at Morgan Stanley &
Co. Prior to joining Morgan Stanley & Co. in 1999,
Mr. McKenna worked in the Mergers & Acquisitions
Group at J.P. Morgan & Co. since 1996. Currently,
he serves as a director of PQ Corp., as well as several private
companies.
Paul M. Meister
became one of our directors on
November 22, 2002. Mr. Meister currently serves as
Vice Chairman of the board of directors of Fisher Scientific
International, Inc. Mr. Meister is also a Managing Director
of Latona Associates, a merchant banking firm. Mr. Meister
also serves as a director of M&F Worldwide Corp and LKQ
Corporation.
C. Dean Metropoulos
became one of our directors on
November 22, 2002. Mr. Metropoulos is Chairman and CEO
of C. Dean Metropoulos & Company, a boutique
acquisition and management firm with offices in New York, NY,
Greenwich, CT and London, United Kingdom. C. Dean
Metropoulos & Co. has been involved in more than 45
acquisitions involving over $12 billion in invested capital
over the past 12 years.
Stephen P. Murray
has been one of our directors since
September 2002. Mr. Murray is a Partner of J.P. Morgan
Partners, LLC. Prior to joining J.P. Morgan Partners, LLC
in 1984, Mr. Murray was a Vice President with the
Middle-Market Lending Division of Manufacturers Hanover Trust
Company. Currently, he serves as a director of Cornerstone
Brands, ERisk, The Excite Network, La Petite Academy,
Pinnacle Foods, Strongwood Holdings and Zoots, Inc., and also
serves as a board observer at Cabela's, Inc.
Kevin G. O'Brien
became one of our directors on
November 22, 2002. Mr. O'Brien is a Principal of
J.P. Morgan Partners, LLC. Prior to joining
J.P. Morgan Partners, LLC in 2000, Mr. O'Brien
was a Vice President in the High Yield Capital Markets and High
Yield Corporate Finance Groups at Chase Securities Inc. (a
predecessor of J.P. Morgan Securities, Inc.) since 1994.
Previously, he was an officer in the U.S. Navy. Currently,
he serves as a director of La Petite Academy and Pinnacle
Foods Holding Corp.
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Soren L. Oberg
became one of our directors on
November 22, 2002. Mr. Oberg has been employed by
Thomas H. Lee Partners, L.P. and its predecessor Thomas H. Lee
Company since 1993 and currently serves as Managing Director.
Prior to joining the firm, Mr. Oberg worked in the Merchant
Banking Division of Morgan Stanley & Co., Inc.
Mr. Oberg is currently a director of American Media, Inc.
and Vertis, Inc., and also serves on the boards of several
private companies.
Andrew D. Seidel
became one of our directors on
January 28, 2005. Mr. Seidel was employed by United
States Filter Corporation from inception in 1991 until its
acquisition by Siemens A.G. in 2004. From 2000 until 2004,
Mr. Seidel served as United States Filter
Corporation's Chief Executive Officer. Prior to 2000,
Mr. Seidel served as Executive Vice President and Chief
Operating Officer of the U.S. Filter Water &
Wastewater Group. Mr. Seidel previously served as a
director on the board of United States Filter Corporation and
Philadelphia Suburban Water and as a director on the Management
Board of French-based Veolia Environnement. Mr. Seidel
holds a bachelor's degree in Chemical Engineering and an
MBA from the Wharton School at the University of Pennsylvania.
Committees of the Board of Directors
Our board of directors has standing compensation and audit
committees. Upon the closing of this offering, we will create a
nominating and corporate governance committee.
Compensation Committee.
The members of our compensation
committee currently are Messrs. McKenna, Metropoulos and
Oberg. Within 90 days following the closing of this
offering, we intend to nominate an independent director to our
compensation committee and will add a third new independent
member within one year of the closing of this offering to
replace Messrs. McKenna and Oberg so that all of our
compensation committee members will be independent as such term
is defined in Rule 10A-3(b)(i) under the Exchange Act and
under NYSE Rule 303(A). Our compensation committee:
•
reviews and approves the compensation and benefits for our
    employees, directors and consultants;
•
administers our employee benefit plans; authorizes and ratifies
    stock option grants and other incentive arrangements; and
•
authorizes employment and related agreements.
Audit Committee.
The members of our audit committee are
Messrs. Abbrecht, Meister and O'Brien. Within
90 days following the closing of this offering, we intend
to nominate an independent director to our audit committee and
will add a third new independent member within one year of the
closing of this offering to replace Messrs. Abbrecht and
O'Brien so that all of our audit committee members will be
independent. Our board of directors has determined that
Mr. Meister currently meets the independence requirements
of the NYSE. Mr. Meister serves as the board's audit
committee financial expert. Our audit committee is responsible
for:
•
the annual appointment of our independent auditors;
•
reviewing the scope of, and approving, all audit and non-audit
    services and related fees of our independent auditors; and
•
reviewing with the independent auditors, among other matters,
    accounting principles we will use in financial reporting,
    internal auditing procedures and the adequacy of our internal
    auditing procedures.
Corporate Governance Committee.
Upon the closing of this
offering, we will create a corporate governance committee. Our
corporate governance committee will initially consist of at
least one independent director and we intend to have a majority
of the committee consist of independent directors within
90 days following the closing of this offering and have a
fully independent corporate governance committee within one year
following the closing of this offering. Upon the closing of this
offering, among other functions, the principal duties and
responsibilities of our corporate governance committee will be
to:
•
identify candidates qualified to become board members,
    consistent with criteria approved by the board;
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•
recommend the candidates identified be selected as nominees for
    the next annual meeting of shareholders;
•
develop and recommend to the board a set of corporate governance
    principles applicable to the corporation; and
•
oversee the evaluation of the board and management.
Compensation of Directors
Our directors who are also our employees or employees of our
principal stockholders receive no additional compensation for
their service as directors. Compensation for other directors is
$25,000 per annum for collective Board and Committee
service. Additionally, we provide payment of travel-related
expenses incurred in connection with attendance of Board and
Committee meetings.
Codes of Ethics
Our employee handbook contains certain standards for ethical
conduct required of our employees. We require all employees to
meet our ethical standards which include compliance with all
laws while performing their job duties with high integrity and
professionalism.
We have also adopted a Code of Ethics for our Chief Executive
Officer, our Chief Financial Officer, our Corporate Controller
and all other executive officers, as well as certain other key
employees. This Code of Ethics is intended to promote honest and
ethical conduct, full and accurate reporting and compliance with
all applicable laws and regulations. A copy of our Code of
Ethics is posted on our website at
www.nationalwaterworks.com
. In the event that we amend or
waive any of the provisions of the Code of Ethics, we intend to
disclose that fact on our website.
Executive Compensation
The following table sets forth the compensation earned by our
Chief Executive Officer and four other most highly compensated
executive officers during 2004, 2003 and 2002.
Other Annual
All Other
Name and Principal Position
Year
Salary
Bonus
Compensation(1)
Compensation(2)
Harry K. Hornish, Jr.,
2004
$
452,928
$
450,500
$
—
$
97,849
President and Chief Executive Officer
2003
426,958
344,250
—
97,349
2002
355,780
159,255
—
1,560,305
Mechelle Slaughter,
2004
212,005
212,000
—
52,174
Former Chief Financial Officer(3)
2003
200,943
162,000
—
51,674
2002
172,634
77,510
—
937,875
Terry Howell,
2004
159,750
159,000
—
29,337
Chief Information Officer
2003
150,712
121,500
—
28,837
2002
135,708
43,240
—
564,688
J.L. Walker,
2004
138,440
51,142
—
12,209
Vice President — Human Resources
2003
130,589
48,230
—
11,709
2002
104,512
32,703
—
129,847
Philip Keipp,
2004
137,746
49,686
—
12,209
Vice President and Chief Financial
2003
124,801
46,200
—
9,382
Officer(3)
2002
112,698
36,431
—
129,847
(1)
Excludes perquisites and other benefits the amount of which did
    not exceed the greater of $50,000 or 10% of the employee's
    total salary and bonus.
(2)
Consists of 401(k) contributions by United States Filter
    Corporation and National Waterworks and the change of control
    bonuses paid by United States Filter Corporation in connection
    with the Acquisition. In April 2002, United States Filter
    Corporation entered into agreements with certain members of
    management and other key employees of U.S. Filter,
    including the persons listed in the executive compensation
    table, to provide them with an opportunity to earn cash
    incentive "completion
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bonuses" in connection with the anticipated sale of the
    business of U.S. Filter. Completion bonus payments were
    made by United States Filter Corporation following consummation
    of the Acquisition to each employee with such an agreement,
    unless such individual's employment was terminated
    voluntarily or for cause prior thereto. Payments by United
    States Filter Corporation pursuant to these arrangements totaled
    $6.2 million, including $1,550,050, $558,050, $124,050,
    $124,050 and $930,000 to Messrs. Hornish, Howell, Keipp and
    Walker, and Ms. Slaughter, respectively. Additionally,
    consists of restricted shares of Class A common stock which
    vested during each period. See additional discussion below.
(3)
Effective January 5, 2005, Ms. Slaughter resigned as
    our Chief Financial Officer and was replaced by Mr. Philip
    Keipp. Mr. Keipp previously served as our Controller.
Employment Agreements.
We are party to employment
agreements with Mr. Hornish, Mr. Howell and
Mr. Keipp providing for base salaries of approximately
$482,000, $169,000 and $189,000, respectively, subject to annual
adjustment as determined by our board of directors. The
agreements with Mr. Hornish, Mr. Howell and
Mr. Keipp are set to expire on November 22, 2006,
November 22, 2006 and March 1, 2009, respectively.
Each of the employment agreements provides for a four
(4) year term and a bonus, based on EBITDA, ranging from
10% to 100% of base salary. Additionally, Mr. Keipp's
employment agreement and related stock option agreement, which
were executed on March 1, 2005, provide for the issuance of
employee stock options, for which vesting will be based on time
and various measures of company performance.
Additionally, each of the employment agreements provides for
certain severance payments to be made if the executive's
employment is terminated without "cause," due to a
resignation for a "good reason" (each as defined in
the employment agreement), or involuntarily, such as a
consequence of death or disability. Following any of these
events, each of Messrs. Hornish, Howell and Keipp would be
entitled to receive their base salary over the twelve
(12) month period commencing on the date of termination,
(ii) a pro rata portion of any bonus earned during the
calendar year in which the termination occurs payable
concurrently with other management bonuses and
(iii) reimbursement for any previously unreimbursed
expenses.
Each of the employment agreements contains a non-compete and
non-solicitation provision pursuant to which each executive
agrees not to be affiliated with a competing business during the
term of the employment agreement and for a one-year period
thereafter, and not to solicit any of our employees, consultants
or customers during the term of the employment agreement and for
a three-year period thereafter.
Prior to her resignation, Ms. Slaughter was party to a
similar employment agreement. No severance payments were due
upon Ms. Slaughter's resignation.
Stock Sales and Restricted Stock Grants.
Messrs. Hornish, Howell, Keipp, Walker and certain other
employees are parties to executive subscription and stock
purchase agreements with NWW Holdings. Mr. Hornish
purchased 20,400 shares of NWW Holdings'
Class B Common Stock, Mr. Howell purchased
2,700 shares of NWW Holdings' Class B Common
Stock, Messrs. Keipp and Walker each purchased
1,266 shares of NWW Holdings' Class B Common
Stock, and other employees purchased 25,266 shares of NWW
Holdings' Class B Common Stock, in each case at a
purchase price of $50.00 per share of Class B Common
Stock. Such shares of Class B Common Stock represent, in
the aggregate, 1.28% of NWW Holdings' fully-diluted
equity.
In addition, each of Messrs. Hornish, Howell, Keipp and
Walker, and certain other employees, purchased for nominal
consideration the conditional right to receive, in the
aggregate, up to 11.75% of the fully-diluted capital stock of
NWW Holdings, comprised of shares of
NWW Holdings' Class A Common Stock and entered
into a restricted stock agreement with NWW Holdings. Under
the restricted stock agreements, the shares of Class A
Common Stock are subject to three forms of vesting:
•
time-based vesting over a four-year period, covering 50% of the
    applicable employee's shares;
•
performance-based vesting based on EBITDA targets over a
    four-year period, covering 25% of the applicable employee's
    shares; and
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•
performance-based vesting based on net working capital targets
    over a four-year period, covering 25% of the applicable
    employee's shares.
All time-based vesting shall immediately accelerate if the
employee's employment is terminated without cause within
one year of a sale of NWW Holdings or National Waterworks
and all performance-based vesting shall immediately accelerate
if NWW Holdings or National Waterworks are sold or if there
is a public offering of equity securities of NWW Holdings
or National Waterworks, in each case, in which the Sponsors
realize a specified return on their original investment.
In all other cases, upon termination of employment, all
time-based and performance-based vesting shall also immediately
cease, subject to certain pro rata vesting as of the date such
employee is terminated, and all unvested shares shall be subject
to repurchase. In addition, all vested shares shall also be
subject to repurchase if an employee's employment is
terminated for cause. All shares subject to performance-based
vesting shall automatically and immediately vest on the eighth
anniversary of the effective date of the restricted stock
agreement if the employee remains employed by us. Each employee
shall be obligated to vote unvested shares in the same manner
and proportions as the votes cast by the holders of
NWW Holdings' voting capital stock not subject to
repurchase rights.
The restricted stock agreement executed by Mr. Walker
contains non-compete and non-solicitation provisions
substantially similar to those contained in the employment
agreements discussed above.
In February 2005, we repurchased Ms. Slaughter's
45,607 unvested shares of restricted Class A stock for
an amount equal to her original purchase price of those shares.
Compensation Committee Interlocks and Inside Participation
During 2004, none of our executive officers served as a member
of the board of directors or compensation committee (or other
board committee performing similar functions) of another entity.
The compensation committee is authorized to make recommendations
to the board of directors with respect to the general
compensation and benefits for executive officers. The
compensation committee utilizes the same performance appraisal
form used for our other employees to evaluate the performance of
executive officers on an annual basis. Certain executive
officers are parties to employment agreements with us as
previously described in "— Employment
Agreements" above.
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Table of Contents
Principal and Selling Stockholders
The following table sets forth sets forth information as
of                     ,
2005 regarding beneficial ownership of our common stock before
and after completion of this offering (in each case, as adjusted
to reflect the conversion of our class B common stock into
class A common stock and the subsequent reclassification of
our class A common stock into common stock which is
expected to occur immediately prior to the consummation of this
offering), and shows the number of shares and percentage owned
by (i) each person known to beneficially own more than 5%
of our common stock before and after completion of this
offering, (ii) each of our named executive officers,
(iii) the other employee selling stockholders,
(iv) each member of our board of directors and (v) all
of our executive officers and members of our board of directors
as a group. As
of                     ,
2005, there
were                     holders
of record of our common stock.
The amounts and percentages of common stock beneficially owned
are reported on the basis of regulations of the SEC governing
the determination of beneficial ownership of securities. Under
the rules of the SEC, a person is deemed to be a
"beneficial owner" of a security if that person has or
shares "voting power," which includes the power to
vote or to direct the voting of such security, or
"investment power," which includes the power to
dispose of or to direct the disposition of such security. A
person is also deemed to be a beneficial owner of any securities
of which that person has a right to acquire beneficial ownership
within 60 days. Under these rules, more than one person may
be deemed a beneficial owner of the same securities and a person
may be deemed a beneficial owner of securities as to which he
has no economic interest.
The column below titled "Shares to be Sold in this
Offering" represents the shares of common stock being sold
in this offering by entities or funds affiliated with JPMP
Capital Corp. and Thomas H. Lee Equity Fund V, L.P., our
Sponsors, and by the other selling stockholders identified
below. Additional information with respect to our equity sponsor
and employee selling stockholders and their relationships with
our company is provided under the captions
"Management" and "Certain Relationships and
Related Transactions."
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Table of Contents
Except as indicated by footnote, the persons named in the table
below have sole voting and investment power with respect to all
shares of common stock shown as beneficially owned by them.
Shares Beneficially
Shares Beneficially
Owned After This
Owned After This
Offering Assuming
Offering Assuming No
Exercise in Full of
Shares Beneficially
Exercise of the
the Option to
Owned Prior to
Option to Purchase
Purchase Additional
This Offering
Additional Shares
Shares
Shares to be Sold
Number
%
in This Offering
Number
%
Number
%
JPMP Capital Corp.(1)
2,059,351
43.1
%
%
Thomas H. Lee Equity Fund V, L.P. and Co-Investment
    Entities(2)
2,059,351
43.1
%
%
Todd M. Abbrecht(4)
2,024,278
42.4
%
%
Anthony J. DiNovi(4)
2,024,278
42.4
%
%
Paul M. Meister(5)
20,000
*
%
%
C. Dean Metropoulos(6)
20,000
*
%
%
Stephen P. Murray(3)
2,059,351
43.1
%
%
Kevin G. O'Brien(3)
2,059,351
43.1
%
%
Soren L. Oberg(4)
2,024,278
42.4
%
%
Stephen V. McKenna(3)
2,059,351
43.1
%
%
Harry K. Hornish, Jr.(7)
210,759
4.4
%
%
Terry Howell(7)
50,290
1.1
%
%
Philip Keipp(7)
13,163
*
%
%
J.L. Walker(7)
13,163
*
%
%
All Executive Officers and Directors as a group (12 persons)
4,516,385
94.5
%
%
*
Less than 1%
(1)
Includes                      shares,                      shares,                      shares,                      shares
    and                      shares
    of common stock owned by J.P. Morgan Partners (BHCA), L.P.,
    J.P. Morgan Partners Global Investors, L.P.,
    J.P. Morgan Partners Global Investors A, L.P.,
    J.P. Morgan Partners Global Investors (Cayman), L.P. and
    J.P. Morgan Partners Global Investors (Cayman) II,
    L.P., respectively. The general partner of J.P. Morgan Partners
    (BHCA), L.P. is JPMP Master Fund Manager, L.P. The general
    partner of each of J.P. Morgan Partners Global Investors, L.P.,
    J.P. Morgan Partners Global Investors (Cayman), L.P., J.P.
    Morgan Partners Global Investors A, L.P., and J.P. Morgan
    Partners Global Investors (Cayman) II, L.P. is JPMP Global
    Investors, L.P. JPMP Capital Corp., a wholly-owned subsidiary of
    JPMorgan Chase & Co., a publicly-traded company, is the
    general partner of each of JPMP Master Fund Manager, L.P. and
    JPMP Global Investors, L.P. As a result, each of JPMP Master
    Fund Manager, L.P., JPMP Global Investors, L.P. and JPMP Capital
    Corp. may be deemed beneficial owners of the shares held by J.P.
    Morgan Partners (BHCA), L.P., J.P. Morgan Partners Global
    Investors, L.P., J.P. Morgan Partners Global Investors A, L.P.,
    J.P. Morgan Partners Global Investors (Cayman), L.P., and J.P.
    Morgan Partners Global Investors (Cayman) II, L.P.
    (collectively, the "JPMP Entities"). The foregoing,
    however, shall not be construed as an admission that such
    entities are the beneficial owners of the shares held by the
    JPMP Entities. Each of the JPMP Entities, JPMP Master Fund
    Manager, L.P., JPMP Global Investors, L.P. and JPMP Capital
    Corp. are members of the private equity business unit of
    JPMorgan Chase & Co., a publicly-traded company.
(2)
Includes                      shares,                      shares,                      shares,                      shares,                      shares,                      shares,                      shares
    and                      shares
    of common stock owned by each of Thomas
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H. Lee Equity Fund V, L.P., Thomas H. Lee Parallel
    Fund V, L.P., Thomas H. Lee Cayman Fund V, L.P.
    (collectively, the "THL Funds"), Putnam
    Investments Holdings, LLC, Putnam Investments Employees'
    Securities Company I LLC, Putnam Investments
    Employees' Securities Company II LLC (collectively,
    the "Putnam Funds"), 1997 Thomas H. Lee Nominee Trust
    (the "Lee Trust") and Thomas H. Lee Investors Limited
    Partnership ("Investors"), respectively. The shares
    held by the THL Funds may be deemed to be beneficially
    owned by THL Equity Advisors V, LLC
    ("Advisors"), the general partner of each of the THL
    Funds. Advisors disclaims beneficial ownership of such shares.
    The Putnam Funds, the Lee Trust and Investors are co-investment
    entities of the THL Funds and each disclaims beneficial
    ownership of any shares other than those shares held directly by
    such entity. Each of the THL Funds, Advisors, Investors and
    the Lee Trust has an address c/o Thomas H. Lee Partners,
    L.P., 75 State Street, Suite 2600, Boston,
    Massachusetts 02109. The Putnam Funds have an address
    c/o Putnam Investment, Inc., 1 Post Office Square,
    Boston, Massachusetts 02109.
(3)
Each of Messrs. Murray, McKenna and O'Brien may be
    deemed the beneficial owner of the shares of common stock owned
    by affiliates of J.P. Morgan Partners, LLC set forth in
    note (1) due to their status as a partner or principal of
    J.P. Morgan Partners, LLC, which advises such entity. Each
    such person disclaims beneficial ownership of any such shares,
    except to the extent of his pecuniary interest.
(4)
Each of Messrs. Abbrecht, DiNovi and Oberg may be deemed
    the beneficial owner of the shares of common stock owned by the
    THL Funds and Investors in their capacity as a managing
    director with respect to Messrs. Abbrecht and Oberg, and
    Co-President, with respect to Mr. DiNovi, of Thomas H. Lee
    Partners, L.P. Each of Messrs. Abbrecht, DiNovi and Oberg
    disclaim beneficial ownership of any such shares.
(5)
Shares are owned by a limited liability company of which
    Mr. Meister is manager.
(6)
Shares are owned by a trust for the benefit of the children of
    Mr. Metropoulos.
(7)
Each of Messrs. Hornish, Howell, Keipp and Walker
    holds                      shares,                      shares,                      shares,                      shares
    and                      shares
    of common stock, respectively.
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Certain Relationships and Related Transactions
Stockholders' Agreement
We are a party to a stockholders' agreement with all of our
stockholders. The stockholders' agreement, among other
matters:
•
restricts the transfer of our shares, subject to certain
    exceptions, and provides that all transferees must become a
    party to the stockholders' agreement;
•
establishes a board of directors consisting of ten directors
    (nine prior to January 27, 2005), of which:
•
three will be nominated by the stockholders affiliated with
    J.P. Morgan Partners, LLC (the "JPM Directors")
    so long as they own at least 25% of our common stock on a fully
    diluted basis; or two persons if they own less than 25% but 10%
    or more of our common stock, and one person if they own more
    than 0% but less than 10% of our common stock;
•
three will be nominated by the stockholders affiliated with
    Thomas H. Lee Partners, L.P. (the "THL Directors") so
    long as they own at least 25% of our common stock on a fully
    diluted basis; or two persons if they own less than 25% but 10%
    or more of our common stock, and one person if they own more
    than 0% but less than 10% of our common stock;
•
one will be our chief executive officer; and
•
three shall be nominated by the other directors including a
    majority of each of the JPM Directors and the THL Directors so
    long as the affiliates of J.P. Morgan Partners, LLC or
    Thomas H. Lee Partners, L.P., respectively, own at least 10% of
    our common stock on a fully-diluted basis;
•
requires each stockholder of Holdings to vote all their shares
    for the election of the persons nominated as directors as
    provided above;
•
prohibits us from taking the following actions without the prior
    approval of the stockholders affiliated with each of
    J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P.
    so long as in each case the stockholders affiliated with the
    applicable Sponsor owns at least 10% of our outstanding capital
    stock:
•
materially changing the duties of or terminating our chief
    executive officer, chief financial officer, chief operating
    officer or chief information officer, amending or revising any
    employment agreement with any such officer, or, if any such
    officer is terminated, hiring a replacement for such officer;
•
incurring indebtedness outside of the ordinary course of
    business;
•
entering into agreements to acquire a controlling interest in,
    or all or substantially all of the assets of, another entity;
•
making investments or capital expenditures, in each case in
    excess of $250,000 that are not included in the annual operating
    budget approved by the board;
•
disposing of assets outside the ordinary course of business and
    other than sales of fully depreciated or obsolete or surplus
    tangible personal property; or
•
entering into transactions with affiliates subject to specified
    exceptions; or
•
effecting any changes in our strategic direction not specified
    in our annual strategic plan;
•
contains rights of the Class B stockholders and, under
    certain circumstances, the Class A stockholders to
    participate in transfers of Holdings' shares by
    stockholders to third parties;
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•
requires the stockholders to participate in and cooperate in
    consummating a sale of the Company that is approved by
    stockholders holding at least 75% of the outstanding
    Class B shares;
•
grants us and the stockholders affiliated with the Sponsors,
    including certain of their affiliates, certain rights of first
    refusal with respect to transfers of our Class B shares to
    third parties by Class B stockholders other than those
    affiliated with the Sponsors and grants the stockholders
    affiliated with a Sponsor certain rights of first refusal with
    respect to transfers of our shares to third parties by the other
    Sponsor;
•
grants the holders of Class B Common Stock certain
    preemptive rights; and
•
requires each stockholder (other than stockholders affiliated
    with the Sponsors) to grant an irrevocable proxy to our chief
    executive officer, to vote all such stockholder's shares in
    order to effectuate the provisions of the stockholder's
    agreement.
Prior to an initial public offering of our capital stock, the
stockholders' agreement provides that we will be required
to redeem each issued and outstanding share of its Class B
Common Stock for:
•
the unreturned original cost and unpaid yield upon such shares
    to the date of the closing of the initial public offering, which
    may be paid in cash (to the extent contractually permitted) or
    short-term securities, or a combination thereof, as may be
    reasonably acceptable to holders of 75% of the Class B
    Common Stock then outstanding; plus
•
one share of our Class A Common Stock.
The stockholders' agreement will terminate upon our sale,
dissolution or liquidation.
Registration Rights Agreement
We are party to a registration rights agreement with the holders
of Class B Common Stock. The registration rights agreement,
among other matters, provides for the following, subject to
certain customary limitations:
•
Demand registration.
At any time following the effective
    date of a registration statement filed by us with respect to an
    initial public offering of our capital stock, at the request of
    stockholders affiliated with a Sponsor, we will be required to
    use our best efforts to register the common shares, including
    shares convertible or exercisable for common shares, held by
    such requesting stockholders under the Securities Act provided
    that the anticipated aggregate offering price to the public is
    at least $25 million. The registration rights agreement
    provides for up to three demand registrations on Form S-1
    for each Sponsor and its affiliates who are stockholders.
•
Piggyback registration.
If we propose to register any of
    our shares for our own account or otherwise, we must give
    written notice to each of our Class B stockholders of our
    intention to register and upon written request, we must use our
    best efforts to cause all requested shares to be included in
    such registration on the same terms and conditions as the
    securities otherwise being sold, subject to standard cutback and
    other customary restrictions.
•
Registration on Form S-3.
If we will have qualified
    for the use of Form S-3, the stockholders affiliated with a
    Sponsor will have the unlimited right to request that we effect
    a registration under the Securities Act using Form S-3. We
    will not be obligated to effect any such registration if the
    anticipated gross offering price of all shares to be registered
    would be less than $10,000,000 or if we will have effected four
    or more registration statements on Form S-3 during the
    12-month period prior to the date of such request for
    registration.
In addition, the registration rights agreement provides for the
payment by us of all of the fees and expenses of any
registration provided for in such agreement, including the
attorney's fees for the selling stockholder's but
excluding underwriting discounts and selling commissions which
shall be borne by the selling stockholders on a pro rata basis.
The registration rights agreement also contains standard
indemnification provisions customary in an agreement of this
type from us to the selling stockholders.
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Arrangement with Sponsors
National Waterworks is a party to a management agreement with
the Sponsors. Under this agreement, the Sponsors agreed to
provide National Waterworks with financial advisory and other
services. National Waterworks pays each Sponsor an annual
management fee in the amount of $0.5 million
($1.0 million in the aggregate). National Waterworks pays
this fee quarterly in advance. National Waterworks also
reimburses the Sponsors for all expenses incurred by them in
connection with the agreement. The management agreement also
contains standard indemnification provisions for agreements of
this type. The management agreement may be terminated by a
Sponsor with respect to that Sponsor only, or by mutual consent
of the Sponsors, at any time on 30 days notice, and will
terminate with respect to a Sponsor on the date such Sponsor
owns less than 5% of our capital stock that it purchased on the
closing date of the Acquisition. In addition, the management
agreement may be terminated with respect to a Sponsor in
connection with an initial public offering or a change in law,
occurrence or event which causes the existence of the management
agreement to render any of the directors designated by a Sponsor
an "interested" or not otherwise independent director
or adversely affects such Sponsor's right to designate a
director or such director's ability to perform his duties
as director. In such event, such Sponsor will be entitled to
receive a termination fee equal to the net present value of the
fees which would have been paid to the Sponsor for the
10 year period commencing on the date of termination.
In addition, upon consummation of the Acquisition, National
Waterworks paid each Sponsor a transaction fee in the amount of
$8.0 million ($16.0 million in the aggregate).
National Waterworks also paid all expenses of the Sponsors and
their controlled affiliates, including the fees and expenses of
their respective counsel and other advisors and consultants, in
connection with the Acquisition. These arrangements with the
Sponsors also contain standard indemnification provisions by us
of the Sponsors.
Arrangements with Affiliates of J.P. Morgan Partners,
LLC
National Waterworks is a party to a senior credit facility with
J.P. Morgan Securities Inc. as a co-syndication agent and
as a joint lead arranger and Chase Lincoln First Commercial
Corp., an affiliate of JPMorgan Chase Bank, as a lender.
J.P. Morgan Securities Inc. was also an initial purchaser
of the notes. Both J.P. Morgan Securities Inc. and Chase
Lincoln First Commercial Corp. are affiliates of
J.P. Morgan Partners, LLC. In connection with the senior
credit facility and amendments thereto, J.P. Morgan
Securities Inc. and Chase Lincoln First Commercial Corp.
received customary fees for acting in such capacities.
J.P. Morgan Securities Inc. was also paid customary
underwriting fees in connection with the offering of our senior
subordinated notes. In addition, J.P. Morgan Securities
Inc. received a customary fee in respect of a bridge financing
commitment which was not utilized. The aggregate amount of fees
paid in connection with those transactions to affiliates of J.P.
Morgan Partners, LLC was approximately $6.6 million.
J.P. Morgan Securities Inc. is also acting as one of the
underwriters in connection with this offering.
Tax Allocation Agreement
NWW Holdings files federal income tax returns with National
Waterworks on a consolidated basis. At the closing of the
Acquisition, NWW Holdings entered into a tax allocation
agreement with National Waterworks which provides that National
Waterworks will make distributions to NWW Holdings, and
NWW Holdings will make contributions to National
Waterworks, such that National Waterworks will incur the expense
for taxes generated by its business on the same basis as if we
did not file consolidated tax returns.
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Table of Contents
Description of Certain Indebtedness
Our Existing Credit Facility
NWW Holdings and National Waterworks entered into a senior
credit facility with J.P. Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as joint lead arrangers,
joint bookrunners and co-syndication agents, UBS AG, Stamford
Branch, as administrative agent, and certain banks and financial
institutions as lenders.
The existing credit facility consists of a $75.0 million
senior secured revolving credit facility that matures on
November 22, 2008, and a $250.0 million senior secured
term loan facility that matures on November 22, 2009.
Borrowings under the senior credit facility bear interest as
follows:
•
Revolving credit facility:
(a) in the case of loans
    with an interest rate based on the ABR rate, an applicable
    margin of 2.00% per annum plus the higher of (1) UBS
    AG, Stamford Branch's prime rate and (2) the federal
    funds effective rate plus 0.5% or (b) in the case of loans
    with an interest rate based on the Eurodollar rate, the
    Eurodollar rate plus an applicable margin of 3.00% per
    annum. Such applicable margins are currently subject to
    reduction if National Waterworks attains certain leverage
    ratios; and
•
Term loan facility:
(a) in the case of loans with an
    interest rate based on the ABR rate, an applicable margin of
    1.75% per annum plus the higher of (1) UBS AG,
    Stamford Branch's prime rate and (2) the federal funds
    effective rate plus 0.5% or (b) in the case of loans with
    an interest rate based on the Eurodollar rate, the Eurodollar
    rate plus an applicable margin of 2.50% per annum.
The senior credit facility provides for the payment to the
lenders of a commitment fee on average unused commitments under
the revolving credit facility initially equal to 0.5% per
annum. Such commitment fee is currently subject to reduction if
National Waterworks attains certain leverage ratios.
The 10.50% Notes
National Waterworks currently has $200.0 million aggregate
principal amount of its 10.50% Notes outstanding.
Interest on the 10.50% Notes accrues at the rate of
10.50% per annum and is payable semi-annually in arrears on
June 1 and December 1 each year. The 10.50% Notes
mature on December 1, 2012. National Waterworks is not
required to make mandatory redemption or sinking fund payments
with respect to the 10.50% Notes.
The 10.50% Notes are guaranteed on a senior subordinated
basis by all of National Waterworks' future domestic
subsidiaries, if any. National Waterworks does not currently
have any subsidiaries.
The 10.50% Notes are general unsecured senior subordinated
obligations of National Waterworks. They rank behind all of
National Waterworks' current and future indebtedness, other
than trade payables, except future indebtedness that expressly
provides that it ranks equally with, or subordinated in right of
payment to, the 10.50% Notes. The 10.50% Notes rank
equally with all of National Waterworks' future senior
subordinated indebtedness. The 10.50% Notes are effectively
subordinated to all obligations of National Waterworks'
subsidiaries that exist in the future and do not guarantee the
10.50% Notes.
Prior to the closing of this offering, National Waterworks
intends to commence a tender offer and consent solicitation with
respect to all its outstanding $200.0 million aggregate
principal amount of 10.50% Notes. The closing of this
offering is conditioned upon the receipt of the tenders and
consents of at least a majority in aggregate principal amount of
the outstanding 10.50% Notes. Upon receipt of the requisite
consents, National Waterworks will execute a supplemental
indenture with respect to the 10.50% Notes, with
effectiveness subject to the consummation of the tender offer.
The supplemental
64
Table of Contents
indenture will delete all of the material restrictive covenants
contained in the indenture governing the 10.50% Notes. The
only operative material covenant will be the covenant to make
payment on the 10.50% Notes.
12.50% Notes
On October 29, 2004, NWW Holdings completed a private
offering of $250.0 million aggregate principal amount of
its 12.50% Notes.
Interest on the 12.50% Notes accrues at the rate of
12.50% per annum and is payable quarterly in arrears on
March 15, June 15, September 15 and December 15 of
each year. The 12.50% Notes mature on January 1, 2014.
NWW Holdings is not required to make mandatory redemption or
sinking fund payments with respect to the 12.50% Notes.
NWW Holdings may redeem all or a portion of the
12.50% Notes prior to December 1, 2007 at a price
equal to 100% of the principal amount of the 12.50% Senior
Notes plus a "make-whole" premium. NWW Holdings
intends to repurchase the 12.50% Notes concurrently with
the closing of this offering.
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Description of Capital Stock
The following is a description of the terms of our amended and
restated certificate of incorporation and amended and restated
by-laws, the forms of which have been filed with the Securities
and Exchange Commission as exhibits to the registration
statement of which this prospectus is part and which will become
effective upon the consummation of this offering.
Authorized Capitalization
Upon the closing of this offering, our authorized capital stock
will consist of:
•
shares of common stock, par value $0.01 per share, all such
    shares will be designated common stock; and
•
shares of preferred stock, par value $0.01 per share.
After this offering, and including the conversion of all of our
class B common stock into our class A common stock and
the reclassification of our class A common stock into our
common
stock,                     shares
of our common stock and no shares of our preferred stock will be
issued and outstanding. The number of shares of our common stock
issued and outstanding
includes                      shares
of restricted stock to be awarded under our stock incentive plan
on the closing date of this offering, which shares will begin to
vest
on                     and
will not be entitled to receive dividends for any period prior
to                               .
Our board of directors will adopt a dividend policy, effective
upon the closing of this offering, pursuant to which, in the
event and to the extent we have cash available for distribution
to the holders of our common stock, and subject to applicable
law and the terms of our credit facility and any other
outstanding indebtedness of ours, our board of directors will
declare cash dividends on our common stock. This policy reflects
our judgment that our stockholders would be better served if we
distributed a substantial portion of our cash available for
distribution to them instead of retaining it in our business.
As of December 31, 2004, there were
approximately                      record
holders of our class A common stock
and                      record
holders of our class B common stock.
Common Stock
All shares of common stock to be outstanding upon completion of
this offering will be validly issued, fully paid and
nonassessable.
Dividends.
Holders of shares of our common stock will be
entitled to receive dividends and other distributions in cash,
stock or property of ours as may be declared by our board of
directors from time to time out of our assets or funds legally
available for dividends or other distributions. Dividends on our
common stock will not be cumulative. Consequently, if dividends
on our common stock are not declared and/or paid at the targeted
level, our stockholders will not be entitled to receive such
payments in the future.
Our board of directors will adopt a dividend policy, effective
upon the closing of this offering, pursuant to which, in the
event and to the extent we have cash available for distribution
to the holders of shares of our common stock, and subject to
applicable law and the terms of our credit facility, and any
other then outstanding indebtedness of ours, our board of
directors will declare cash dividends on our common stock. The
initial dividend rate on our common stock is expected to be
equal to
$           per
share per annum, subject to adjustment.
Our board of directors may, in its discretion, amend or repeal
the dividend policy with respect to our common stock to decrease
the level of dividends provided for or discontinue entirely the
payment of dividends.
Rights Upon Liquidation.
In the event of our voluntary or
involuntary liquidation, dissolution or winding up, holders of
shares of our common stock will be entitled to share in our
assets remaining after
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payment of all debts and other liabilities, subject to the
liquidation preference of any outstanding preferred stock.
Voting Rights.
Shares of our common stock carry one vote
per share. Except as otherwise required by law, holders of our
common stock are not entitled to vote on any amendment to our
amended and restated certificate of incorporation that relates
solely to the terms of one or more outstanding series of
preferred stock if the holders of the affected shares are
entitled to vote on the amendment. Holders of shares of our
common stock will not be entitled to cumulative voting rights.
Except as otherwise required by the Delaware General Corporation
Law and our amended and restated certificate of incorporation
and amended and restated by-laws, action requiring stockholder
approval may be taken by a vote of the holders of a majority of
the common stock at a meeting at which a quorum is present. See
"— Anti-Takeover Effects of Various Provisions of
Delaware Law and Our Restated Certificate of Incorporation and
Amended and Restated By-laws."
Other Rights.
Holders of shares of our common stock have
no preemptive rights. The holders of common stock are subject
to, and may be adversely affected by, the rights of the holders
of shares of any series of preferred stock that we may designate
and issue in the future.
Preferred Stock
Our amended and restated certificate of incorporation provides
that we may issue up
to                      shares
of our preferred stock in one or more series as may be
determined by our board of directors.
Our board of directors has broad discretionary authority with
respect to the rights of issued series of our preferred stock
and may take several actions without any vote or action of the
holders of our common stock, including:
•
determining the number of shares to be included in each series;
•
fixing the designation, powers, preferences and relative rights
    of the shares of each series and any qualifications, limitations
    or restrictions with respect to each series, including
    provisions related to dividends, conversion, voting, redemption
    and liquidation, which may be superior to those of our common
    stock; and
•
increasing or decreasing the number of shares of any series.
The board of directors may authorize, without approval of
holders of our common stock, the issuance of preferred stock
with voting and conversion rights that could adversely affect
the voting power and other rights of holders of our common
stock. For example, our preferred stock may rank prior to our
common stock as to dividend rights, liquidation preferences or
both, may have full or limited voting rights and may be
convertible into shares of our common stock.
Our preferred stock could be issued quickly with terms designed
to delay or prevent a change in the control of our company or to
make the removal of our management more difficult. This could
have the effect of discouraging third party bids for our common
stock or may otherwise adversely affect the market price of our
common stock.
We believe that the ability of our board of directors to issue
one or more series of our preferred stock will provide us with
flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might
arise. The authorized shares of our preferred stock, as well as
shares of our common stock, will be available for issuance
without action by our common stockholders, unless such action is
required by applicable law or the rules of any stock exchange or
automated quotation system on which our securities may be listed
or traded.
Although our board of directors has no intention at the present
time of doing so, it could issue a series of our preferred stock
that could, depending on the terms of such series, be used to
implement a stockholder rights plan or otherwise impede the
completion of a merger, tender offer or other takeover
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attempt of our company. Our board of directors could issue
preferred stock having terms that could discourage an
acquisition attempt through which an acquirer may be able to
change the composition of the board of directors, including a
tender offer or other transaction that some, or a majority, of
our stockholders might believe to be in their best interest or
in which stockholders might receive a premium for their stock
over the then best current market price.
Anti-Takeover Effects of Various Provisions of Delaware Law
and Our Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws
Provisions of the Delaware General Corporation Law, our amended
and restated certificate of incorporation and amended and
restated by-laws contain provisions that may have some
anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider in
its best interest, including those attempts that might result in
a premium over the market price for the shares held by
stockholders.
Delaware Anti-Takeover Statute
We are subject to Section 203 of the Delaware General
Corporation Law. Subject to specific exceptions,
Section 203 prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an
"interested stockholder" for a period of three years
after the time the person became an interested stockholder,
unless:
•
the business combination, or the transaction in which the
    stockholder became an interested stockholder, is approved by our
    board of directors prior to the time the interested stockholder
    attained that status;
•
upon consummation of the transaction that resulted in the
    stockholder becoming an interested stockholder, the interested
    stockholder owned at least 85% of the voting stock of the
    corporation outstanding at the time the transaction commenced,
    excluding those shares owned by persons who are directors and
    also officers and by employee stock plans in which employee
    participants do not have the right to determine confidentially
    whether shares held subject to the plan will be tendered in a
    tender or exchange offer; or
•
at or after the time a person became an interested stockholder,
    the business combination is approved by our board of directors
    and authorized at an annual or special meeting of stockholders
    by the affirmative vote of at least two-thirds of the
    outstanding voting stock that is not owned by the interested
    stockholder.
"Business combinations" include mergers, asset sales
and other transactions resulting in a financial benefit to the
interested stockholder. Subject to various exceptions, in
general an "interested stockholder" is a person who,
together with his or her affiliates and associates, owns, or
within three years did own, 15% or more of the shares of the
corporation's outstanding voting stock. These restrictions
could prohibit or delay the accomplishment of mergers or other
takeover or change in control attempts with respect to us and,
therefore, may discourage attempts to acquire us.
In addition, provisions of our amended and restated certificate
of incorporation and amended and restated by-laws, which are
summarized in the following paragraphs, may have an
anti-takeover effect.
Quorum Requirements; Removal of Directors.
Our amended
and restated certificate of incorporation provides for a minimum
quorum of one-third in voting power of the outstanding shares of
our capital stock entitled to vote, except that a minimum quorum
of a majority in voting power of the outstanding shares of our
capital stock entitled to vote is necessary to hold a vote for
any director in a contested election, the removal of a director
or the filling of a vacancy on our board of directors. Our
amended and restated by-laws provide that directors may be
removed only for cause by the affirmative vote of at least a
majority in voting power of the outstanding shares of our
capital stock entitled to vote generally in the election of
directors.
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No Cumulative Voting.
The Delaware General Corporation
Law provides that stockholders are denied the right to cumulate
votes in the election of directors unless our amended and
restated certificate of incorporation provides otherwise. Our
amended and restated certificate of incorporation does not
expressly address cumulative voting.
No Stockholder Action by Written Consent; Calling of Special
Meeting of Stockholders.
Our amended and restated
certificate of incorporation prohibits stockholder action by
written consent. It and our amended and restated by-laws also
provide that special meetings of our stockholders may be called
only by (1) the chairman of our board of directors or
(2) our board of directors or (3) our board of
directors upon a request by holders of at least 50% in voting
power of all the outstanding shares entitled to vote at that
meeting.
Advance Notice Requirements for Stockholder Proposals and
Director Nominations.
Our amended and restated by-laws
provide that stockholders seeking to bring business before or to
nominate candidates for election as directors at an annual
meeting of stockholders must provide timely notice of their
proposal in writing to the corporate secretary. To be timely, a
stockholder's notice must be delivered or mailed and
received at our principal executive offices not less than 90 nor
more than 120 days in advance of the anniversary date of
the immediately preceding annual meeting of stockholders.
Our amended and restated by-laws also specify requirements as to
the form and content of a stockholder's notice. These
provisions may impede stockholders' ability to bring
matters before an annual meeting of stockholders or make
nominations for directors at an annual meeting of stockholders.
Stockholder nominations for the election of directors at a
special meeting must be received by our corporate secretary by
the later of 10 days following the day on which notice of
the date of the special meeting was mailed or public disclosure
of the date of the special meeting was made or 90 days
prior to the date that meeting is proposed to be held and not
more than 120 days prior to such meeting.
Limitations on Liability and Indemnification of Officers and
Directors.
The Delaware General Corporation Law authorizes
corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary
damages for breaches of directors' fiduciary duties as
directors. Our amended and restated certificate of incorporation
includes a provision that eliminates the personal liability of
directors to us or our stockholders for monetary damages for
breaches of their fiduciary duty as directors to the fullest
extent permitted by the Delaware General Corporation Law.
Our amended and restated by-laws provide that we must indemnify
our directors and officers to the fullest extent authorized by
the Delaware General Corporation Law and that such indemnitees
shall generally also be entitled to an advancement of expenses.
We are also expressly authorized to, and do, carry
directors' and officers' insurance for our directors,
officers and certain employees for some liabilities. We believe
that these indemnification provisions and insurance are useful
to attract and retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in
our amended and restated by-laws may discourage stockholders
from bringing a lawsuit against directors for breach of their
fiduciary duty. These provisions may also have the effect of
reducing the likelihood of derivative litigation against
directors and officers, even though such an action, if
successful, might otherwise benefit us and our stockholders. In
addition, your investment may be adversely affected to the
extent that, in a class action or direct suit, we pay the costs
of settlement and damage awards against directors and officers
pursuant to these indemnification provisions.
There is currently no pending material litigation or proceeding
involving any of our directors, officers or employees for which
indemnification is sought.
Authorized but Unissued Shares.
Our authorized but
unissued shares of common stock and preferred stock will be
available for future issuance without your approval. We may use
additional shares for a variety of corporate purposes, including
future public offerings to raise additional capital, corporate
acquisitions and employee benefit plans. The existence of
authorized but unissued shares of common stock
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and preferred stock could render more difficult or discourage an
attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
Supermajority Provisions.
The Delaware General
Corporation Law provides generally that the affirmative vote of
a majority in voting power of the outstanding shares entitled to
vote is required to amend a corporation's certificate of
incorporation, unless the certificate of incorporation requires
a greater percentage. Our amended and restated certificate of
incorporation provides that the following provisions in the
amended and restated certificate of incorporation may be amended
only by a vote of two-thirds or more in voting power of all the
outstanding shares of our capital stock entitled to vote:
•
the prohibition on stockholder action by written consent;
•
the ability to call a special meeting of stockholders being
    vested solely in (1) the chairman of our board of
    directors, (2) our board of directors and (3) our
    board of directors upon a request by holders of at least 50% in
    voting power of all the outstanding shares entitled to vote at
    that meeting;
•
the provisions requiring that our business and affairs be
    managed by or under the direction of our board of directors;
•
the provisions relating to the classification of our board of
    directors;
•
the provisions relating to the size of our board of directors;
•
the provisions relating to the filling of vacancies on our board
    of directors;
•
the provisions relating to the quorum requirements at
    stockholder meetings for the transaction of business and at
    stockholder meetings regarding votes for any director in a
    contested election, the removal of a director, or the filling of
    a vacancy on our board of directors by our stockholders;
•
the provisions relating to advance notice requirements for
    stockholder proposals and director nominations;
•
the limitation on the liability of our directors to us and our
    stockholders;
•
the provisions granting authority to our board of directors to
    amend or repeal our by-laws without a stockholder vote, as
    described below in more detail;
•
the provisions granting stockholders representing no less than
    two-thirds of the voting power of our capital stock the
    authority to amend our by-laws, as described below in more
    detail; and
•
the supermajority voting requirements listed above.
Our amended and restated certificate of incorporation grants our
board of directors the authority to amend and repeal our by-laws
without a stockholder vote in any manner not inconsistent with
the laws of the State of Delaware or our amended and restated
certificate of incorporation. In addition, our restated
certificate of incorporation provides that our amended and
restated by-laws may be amended by stockholders representing no
less than two-thirds of the voting power of all the outstanding
shares of our capital stock entitled to vote.
Listing
We intend to list our common stock on the New York Stock
Exchange under the trading symbol "NWW."
Transfer Agent and Registrar
will
be the transfer agent and registrar for our shares of common
stock.
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Shares Eligible for Future Sale
Future sales or the availability for sale of substantial amounts
of our common stock in the public market could adversely affect
prevailing market prices and could impair our ability to raise
capital through future sales of our securities.
Upon completion of this
offering,                     shares
of common stock will be outstanding. Of these shares, the shares
of common stock sold in this offering will be freely tradable
without restriction or further registration under the Securities
Act, except for any shares which may be acquired by an affiliate
of ours as that term is defined in Rule 144 under the
Securities Act, which will be subject to the resale limitations
of Rule 144. The
remaining                     shares
of common stock outstanding will be restricted securities, as
that term is defined in Rule 144, and may in the future be
sold without restriction under the Securities Act to the extent
permitted by Rule 144 or any applicable exemption under the
Securities Act.
In general, under Rule 144 as currently in effect, a person
(or persons whose shares are aggregated) who has beneficially
owned its, his or her shares of common stock for at least one
year from the date such securities were acquired from us or an
affiliate of ours would be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of one percent of the then-outstanding shares of common
stock (approximately shares immediately after this offering) and
the average weekly trading volume of the common stock during the
four calendar weeks preceding a sale by such person. Sales under
Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and the availability of current
public information about us. Under Rule 144, however, a
person who has held restricted securities for a minimum of two
years from the later of the date of such securities were
acquired from us or an affiliate of ours and who is not, and for
the three months prior to the sale of such restricted securities
has not been, an affiliate of ours, is free to sell such shares
of common stock without regard to the volume, manner-of-sale and
the other limitations contained in Rule 144. The foregoing
summary of Rule 144 is not intended to be a complete
discussion thereof.
Commencing 180 days after the date of this prospectus,
approximately                     outstanding
restricted securities will be eligible for sale under
Rule 144 subject to applicable volume limitations, manner
of sale and notice requirements.
We have agreed that we will not offer, sell, contract to sell,
pledge or otherwise dispose of, directly or indirectly, or file
with the Securities and Exchange Commission a registration
statement under the Securities Act relating to, any shares of
our common stock or any securities convertible into or
exchangeable or exercisable for any such shares, or publicly
disclose the intention to make any offer, sale, pledge,
disposition or filing, without the prior written consent
of                     for
a period
of                     days
after the date of this prospectus, subject to specified
exceptions.
Our officers, directors and all existing stockholders have
agreed, subject to specified exceptions, that they will not
offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, shares of our common stock or any
securities convertible into or exchangeable or exercisable for
any such securities, enter into a transaction that would have
the same effect, or enter into any swap, hedge or other
arrangement that transfers, in whole or in part, any of the
economic consequences of ownership of our common stock, whether
any of these transactions are to be settled by delivery of our
common stock or other securities, in cash or otherwise, or
publicly disclose the intention to make any offer, sale, pledge
or disposition, or to enter into any transaction, swap, hedge or
other arrangement without, in each case, the prior written
consent
of                     for
a period
of                     days
after the date of this prospectus.
Prior to this offering, there has been no established market for
our common stock, and no predictions can be made about the
effect, if any, that market sales of shares of common stock or
the availability of such shares for sale will have on the market
price prevailing from time to time. Nevertheless, the actual
sale of, or the perceived potential for the sale of, common
stock in the public market may have an adverse effect on the
market price for the common stock.
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Material U.S. Federal Income Tax Consequences for
Non-U.S. Holders
The following discussion describes the material
U.S. federal income tax consequences associated with the
purchase, ownership, and disposition of our common stock as of
the date hereof by Non-U.S. Holders. A "Non-U.S.
Holder" is a holder that is not a
"U.S. Holder."
A "U.S. Holder" means a holder of common stock
that is for U.S. federal income tax purposes:
•
an individual citizen or resident of the United States,
•
a corporation (or other entity taxable as a corporation) created
    or organized in or under the laws of the United States or any
    state thereof or the District of Columbia,
•
an estate the income of which is subject to U.S. federal
    income taxation regardless of its source, or
•
a trust if it (1) is subject to the primary supervision of
    a court within the United States and one or more
    U.S. persons have the authority to control all substantial
    decisions of the trust or (2) has a valid election in
    effect under applicable Treasury regulations to be treated as a
    U.S. person.
If a partnership or other entity or arrangement treated as a
partnership for U.S. federal income tax purposes holds
common stock, the tax treatment of a partner will generally
depend upon the status of the partner and the activities of the
partnership. If you are a partner of a partnership purchasing
common stock, we urge you to consult your own tax advisor.
Except where noted, this discussion deals only with common stock
held as capital assets.
The discussion below is based upon the provisions of the
Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury regulations promulgated
thereunder and administrative and judicial interpretations
thereof, all as of the date hereof, and such authorities may be
repealed, revoked, modified or subject to differing
interpretations, possibly on a retroactive basis, so as to
result in U.S. federal income tax consequences different
from those discussed below.
Special rules may apply to certain Non-U.S. Holders, such
as:
•
U.S. expatriates,
•
"controlled foreign corporations,"
•
"passive foreign investment companies,"
•
corporations that accumulate earnings to avoid U.S. federal
    income tax, and
•
investors in pass-through entities that are subject to special
    treatment under the Code.
Such Non-U.S. Holders are urged to consult their own tax
advisors to determine the U.S. federal, state, local and
other tax consequences that may be relevant to them.
Dividends.
Dividends paid to you generally will be
subject to withholding of U.S. federal income tax at a 30%
rate or such lower rate as may be specified by an applicable
income tax treaty. However, dividends that are effectively
connected with your conduct of a trade or business within the
United States and, if certain tax treaties apply, are
attributable to your U.S. permanent establishment, are not
subject to the withholding tax, but instead are subject to
U.S. federal income tax on a net income basis in the same
manner as if you were a U.S. Holder. Special certification
and disclosure requirements (including the Non-U.S. Holder
providing an appropriately completed IRS Form W-8ECI) must
be satisfied for effectively connected income to be exempt from
withholding. If you are a foreign corporation, any such
effectively connected dividends received by you may be subject
to an additional branch profits tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty.
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If you wish to claim the benefit of an applicable treaty rate
(and also avoid backup withholding as discussed below) for
dividends, you will be required to:
•
complete IRS Form W-8BEN (or other applicable form) and
    certify under penalties of perjury that you are not a
    U.S. person and that you are entitled to the benefits of
    the applicable treaty, or
•
if the shares of our common stock are held through certain
    foreign intermediaries, satisfy the relevant certification
    requirements of applicable U.S. Treasury regulations.
Special certification and other requirements apply to certain
Non-U.S. Holders that are entities rather than individuals.
If you are eligible for a reduced rate of U.S. withholding
tax pursuant to an income tax treaty, you may obtain a refund of
any excess amounts withheld by filing an appropriate claim for
refund with the IRS.
Sale or Exchange of Common Stock.
As a non-U.S. holder,
you generally will not be subject to U.S. federal income
tax with respect to gain recognized on a sale or other
disposition of shares of our common stock unless:
•
the gain is effectively connected with your conduct of a trade
    or business in the United States, and if certain tax treaties
    apply, is attributable to your U.S. permanent establishment,
•
if you are an individual and hold shares of our common stock as
    a capital asset, you are present in the United States for 183 or
    more days in the taxable year of the sale or other disposition,
    and certain other conditions are met, or
•
we are or have been a "U.S. real property holding
    corporation" for U.S. federal income tax purposes.
If you are an individual and are described in the first bullet
above, you will be subject to tax on the net gain derived from
the sale under regular graduated U.S. federal income tax
rates in the same manner as if you were a U.S. Holder. If
you are an individual and are described in the second bullet
above, you will be subject to a flat 30% tax on the gain derived
from the sale, which may be offset by U.S. source capital
losses (even though you are not considered a resident of the
United States). If you are a foreign corporation and are
described in the first bullet above, you will be subject to tax
on your gain under regular graduated U.S. federal income
tax rates in the same manner as if you were a U.S. Holder
and, in addition, may be subject to the branch profits tax on
your effectively connected earnings and profits at a rate of 30%
or at such lower rate as may be specified by an applicable
income tax treaty.
We believe we are not and do not anticipate becoming a
"U.S. real property holding corporation" for
U.S. federal income tax purposes.
Information Reporting and Backup Withholding.
Under
certain circumstances, Treasury regulations require information
reporting and backup withholding on certain payments on common
stock.
Dividends on common stock paid to a Non-U.S. Holder will
generally be exempt from backup withholding, provided the
Non-U.S. Holder meets applicable certification requirements
or otherwise establishes an exemption. We must report annually
to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the U.S. federal
withholding tax withheld with respect to those dividends.
Under United States Treasury Regulations, payments on the sale
or redemption of our common stock effected through a foreign
office of a broker to its customer generally are not subject to
information reporting or backup withholding. However, if the
broker is a U.S. person, a controlled foreign corporation,
a foreign person 50% or more of whose gross income is
effectively connected with a United States trade or business for
a specified three-year period, a foreign partnership with
significant United States ownership, or a United States branch
of a foreign bank or insurance company, then information
reporting (but not backup withholding) will be required, unless
the broker has in its records documentary evidence that the
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beneficial owner of the payment is not a U.S. person or is
otherwise entitled to an exemption, and other applicable
certification requirements are met. Information reporting and
backup withholding generally will apply to sale or redemption
payments effected at a United States office of any United States
or foreign broker, unless the broker has in its records
documentary evidence that the beneficial owner of the payment is
not a U.S. person or is otherwise entitled to an exemption,
and other applicable certification requirements are met.
Backup withholding does not represent an additional income tax.
Any amounts withheld from a payment to a holder under the backup
withholding rules will be allowed as a credit against the
holder's United States federal income tax liability and may
entitle the holder to a refund, provided that the required
information or returns are timely furnished by the holder to the
IRS.
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Underwriting
We, the selling stockholders and the underwriters named below
have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each
underwriter has severally agreed to purchase the number of
shares indicated in the following
table.                               and                          are
the representatives of the underwriters (together, the
"Representatives").
Underwriters
Number of Shares
Total
The underwriters are committed to take and pay for all of the
shares being offered, if any are taken, other than the shares
covered by the option described below unless and until this
option is exercised.
If the underwriters sell more shares than the total number set
forth in the table above, the underwriters have an option to buy
up to an
additional                     shares
from the selling shareholders to cover such sales. They may
exercise that option for 30 days. If any shares are
purchased pursuant to this option, the underwriters will
severally purchase shares in approximately the same proportion
as set forth in the table above.
The following tables show the per share and total underwriting
discounts and commissions to be paid to the underwriters by NWW
Holdings and the selling shareholders. Such amounts are shown
assuming both no exercise and full exercise of the
underwriters' option to
purchase                     additional
shares.
Paid by NWW Holdings
No Exercise
Full Exercise
Per Share
$
$
Total
$
$
Paid by the Selling Shareholders
No Exercise
Full Exercise
Per Share
$
$
Total
$
$
Shares sold by the underwriters to the public will initially be
offered at the initial public offering price set forth on the
cover of this prospectus. Any shares sold by the underwriters to
securities dealers may be sold at a discount of up to
$           per
share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the
underwriters to certain other brokers or dealers at a discount
of up to
$           per
share from the initial public offering price. If all the shares
are not sold at the initial public offering price, the
representatives may change the offering price and the other
selling terms.
We and our officers, directors, and the holders of substantially
all of our common stock, including the selling shareholders,
have agreed with the underwriters that, with the exception of
the common stock being offered pursuant to this prospectus and
without the prior written consent of the Representatives, each
of us will not, during the period ending 180 days after the
date of this prospectus, (1) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant
to purchase, lend, or otherwise transfer or dispose of, directly
or indirectly, any
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shares of common stock or any securities convertible into or
exercisable or exchangeable for such shares or (2) enter
into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership
of such shares, whether any such transaction described in
clause (1) or (2) above is to be settled by delivery
of such shares or such other securities, in cash or otherwise or
(3) file any registration statement with the Securities and
Exchange Commission relating to the offering of any of such
shares or any securities convertible into or exercisable or
exchangeable for such shares, without the prior written consent
of the Representatives.
The 180-day restricted period described in the preceding
paragraph will be automatically extended if (1) during the
last 17 days of the 180-day restricted period, we issue an
earnings release or material news or a material event relating
to us occurs; or (2) prior to the expiration of the 180-day
restricted period, we announce that we will release earnings
results during the 16-day period beginning on the last day of
the 180-day period, the 180-day restricted period shall continue
to apply until the expiration of the 18-day period beginning on
the issuance of the earnings release of the announcement of the
material news or material event.
This agreement does not apply to any existing employee benefit
plans. See "Shares Eligible for Future Sale" for a
discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the
shares. The initial public offering price has been negotiated
among us and the Representatives. Among the factors to be
considered in determining the initial public offering price of
the shares, in addition to prevailing market conditions, will be
NWW Holdings' historical performance, estimates of the
business potential and earnings prospects of NWW Holdings, an
assessment of NWW Holdings' management and the
consideration of the above factors in relation to market
valuation of companies in related businesses.
An application has been made to list the common stock on the New
York Stock Exchange under the symbol "NWW." In order
to meet one of the requirements for listing the common stock on
the NYSE, the underwriters have undertaken to sell lots of 100
or more shares to a minimum of 2,000 beneficial holders.
In connection with the offering, the underwriters may purchase
and sell shares of common stock in the open market. These
transactions may include short sales, stabilizing transactions
and purchases to cover positions created by short sales. Shorts
sales involve the sale by the underwriters of a greater number
of shares than they are required to purchase in the offering.
"Covered" short sales are sales made in an amount not
greater than the underwriters' option to purchase
additional shares from the selling stockholders in the offering.
The underwriters may close out any covered short position by
either exercising their option to purchase additional shares or
purchasing shares in the open market. In determining the source
of shares to close out the covered short position, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market as compared to
the price at which they may purchase additional shares pursuant
to the option granted to them. "Naked" short sales are
any sales in excess of such option. The underwriters must close
out any naked short position by purchasing shares in the open
market. A naked short position is more likely to be created if
the underwriters are concerned that there may be downward
pressure on the price of the common stock in the open market
after pricing that could adversely affect investors who purchase
in the offering. Stabilizing transactions consist of various
bids for or purchases of common stock made by the underwriters
in the open market prior to the completion of the offering.
The underwriters may also impose a penalty bid. This occurs when
a particular underwriter repays to the underwriters a portion of
the underwriting discount received by it because the
Representatives have repurchased shares sold by or for the
account of such underwriter in stabilizing or short covering
transactions.
Purchases to cover a short position and stabilizing transactions
may have the effect of preventing or retarding a decline in the
market price of our stock, and together with the imposition of
the penalty bid, may stabilize, maintain or otherwise affect the
market price of the common stock. As a result, the price of
76
Table of Contents
the common stock may be higher than the price that otherwise
might exist in the open market. If these activities are
commenced, they may be discontinued at any time. These
transactions may be effected on the New York Stock Exchange, in
the over-the-counter market or otherwise.
Each underwriter has represented, warranted and agreed that:
(i) it has not offered or sold and, prior to the expiry of
a period of six months from the closing date, will not offer or
sell any shares to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring,
holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it
has only communicated or caused to be communicated and will only
communicate or cause to be communicated any invitation or
inducement to engage in investment activity (within the meaning
of section 21 of the Financial Services and Markets Act
2000 ("FSMA")) received by it in connection with the
issue or sale of any shares in circumstances in which
section 21(1) of the FSMA does not apply to the Issuer; and
(iii) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the shares in, from or otherwise involving the
United Kingdom.
The shares may not be offered or sold, transferred or delivered,
as part of their initial distribution or at any time thereafter,
directly or indirectly, to any individual or legal entity in the
Netherlands other than to individuals or legal entities who or
which trade or invest in securities in the conduct of their
profession or trade, which includes banks, securities
intermediaries, insurance companies, pension funds, other
institutional investors and commercial enterprises which, as an
ancillary activity, regularly trade or invest in securities.
The shares may not be offered or sold by means of any document
other than to persons whose ordinary business is to buy or sell
shares or debentures, whether as principal or agent, or in
circumstances which do not constitute an offer to the public
within the meaning of the Companies Ordinance (Cap. 32) of Hong
Kong, and no advertisement, invitation or document relating to
the shares may be issued, whether in Hong Kong or elsewhere,
which is directed at, or the contents of which are likely to be
accessed or read by, the public in Hong Kong (except if
permitted to do so under the securities laws of Hong Kong) other
than with respect to shares which are or are intended to be
disposed of only to persons outside Hong Kong or only to
"professional investors" within the meaning of the
Securities and Futures Ordinance (Cap. 571) of Hong Kong and any
rules made thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation or subscription or purchase, of the
securities may not be circulated or distributed, nor may the
securities be offered or sold, or be made the subject of an
invitation for subscription or purchase, whether directly or
indirectly, to persons in Singapore other than under
circumstances in which such offer, sale or invitation does not
constitute an offer or sale, or invitation for subscription or
purchase, of the securities to the public in Singapore.
The securities have not been and will not be registered under
the Securities and Exchange Law of Japan (the Securities and
Exchange Law) and each underwriter has agreed that it will not
offer or sell any securities, directly or indirectly, in Japan
or to, or for the benefit of, any resident of Japan (which term
as used herein means any person resident in Japan, including any
corporation or other entity organized under the laws of Japan),
or to others for re-offering or resale, directly or indirectly,
in Japan or to a resident of Japan, except pursuant to an
exemption from the registration requirements of, and otherwise
in compliance with, the Securities and Exchange Law and any
other applicable laws, regulations and ministerial guidelines of
Japan.
JPMP, which will own
approximately                     %
of our outstanding common shares immediately prior to this
offering, is one of the selling shareholders and may be deemed
to be an affiliate of J.P. Morgan Securities Inc. In
addition, three affiliates of Goldman, Sachs & Co. own
approximately $139.0 million of the outstanding
12.50% Notes, which we will purchase in connection with the
Financing Transactions using proceeds from this offering and
borrowings under our credit facility. Such holders may
77
Table of Contents
also receive a redemption premium. Because J.P. Morgan
Securities Inc. and Goldman, Sachs & Co. are
underwriters, and each of them or their respective affiliates
may receive more than 10% of the entire net proceeds in this
offering, the underwriters may be deemed to have a
"conflict of interest" under Rule 2710(h) of the
Conduct Rules of the National Association of Securities Dealers,
Inc. (the "Conduct Rules"). In addition, as a result
of its relationship with JPMP, J.P. Morgan Securities Inc.
may be deemed to be our "affiliate" as defined by
Rule 2720 of the Conduct Rules. Accordingly, this offering
will be made in compliance with the applicable provisions of
Rule 2720. Rule 2720 requires that the initial public
offering price can be no higher than that recommended by a
"qualified independent underwriter," as defined by the
NASD. Morgan Stanley & Co. Incorporated has served in that
capacity and performed due diligence investigations and reviewed
and participated in the preparation of the registration
statement of which this prospectus forms a part.
The underwriters will not execute sales in discretionary
accounts without the prior written specific approval of the
customers.
NWW Holdings and the selling shareholders estimate that their
share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately
$          .
NWW Holdings and the selling shareholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
Certain of the underwriters and their respective affiliates
have, from time to time, performed, and may in the future
perform, various financial advisory and investment banking
services for NWW Holdings or National Waterworks, for which they
received or will receive customary fees and expenses. For
example, NWW Holdings and National Waterworks are parties to a
senior credit facility with J.P. Morgan Securities Inc. and
Goldman Sachs Credit Partners L.P. as co-syndication agents and
joint lead arrangers, UBS AG, Stamford Branch, as administrative
agent and Citigroup Investments Corporate Loan Fund and
Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as lenders. J.P. Morgan Securities Inc. was
also paid customary underwriting fees in connection with the
offering of our senior subordinated notes, and J.P. Morgan
Securities Inc. received a customary fee in respect of a bridge
financing commitment which was not utilized. The aggregate
amount of fees paid in connection with those transactions to
affiliates of J.P. Morgan Partners, LLC was approximately
$6.6 million. In addition, JPMP, an affiliate of
J.P. Morgan Securities Inc., is one of two largest
shareholders of NWW Holdings and receives annual fees in
connection with a management agreement. See "Certain
Relationships and Related Transactions."
78
Table of Contents
Legal Matters
The validity of the issuance of the shares of common stock
offered hereby will be passed upon for us by
O'Melveny & Myers LLP, New York, New York. Certain
legal matters relating to this offering will be passed upon for
the underwriters by Cleary Gottlieb Steen & Hamilton
LLP, New York, New York.
Experts
The consolidated financial statements of National Waterworks
Holdings, Inc. (Successor) and subsidiary as of
December 31, 2004 and 2003 and for the years then ended and
for the period of November 22, 2002 through
December 31, 2002 and the consolidated financial statements
of U.S. Filter Distribution Group, Inc. (Predecessor) and
subsidiary for the period of January 1, 2002 through
November 21, 2002, have been included in this prospectus in
reliance upon the report of KPMG LLP, independent registered
public accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The audit report covering the Predecessor financial statements
refers to a change in the method of accounting for goodwill in
2002.
Where You Can Find More Information
We have filed a Registration Statement on Form S-1 with the
SEC regarding this offering. This prospectus, which is part of
the registration statement, does not contain all of the
information included in the registration statement, and you
should refer to the registration statement and its exhibits to
read that information. As a result of the effectiveness of the
registration statement, we will be subject to the informational
reporting requirements of the Exchange Act of 1934 and, under
that Act, we will file reports, proxy statements and other
information with the SEC. In addition, our operating subsidiary,
National Waterworks, has filed periodic and other reports with
the SEC since January 9, 2003. You may read and copy the
registration statement, the related exhibits and the reports,
proxy statements and other information we file with the SEC at
the SEC's public reference facilities maintained by the SEC
at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. You can also request copies of
those documents, upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The
SEC also maintains an Internet site that contains reports, proxy
and information statements and other information regarding
issuers that file with the SEC. The site's Internet address
is www.sec.gov. Certain information about our company may also
be obtained from our website at www.nationalwaterworks.com.
You may also request a copy of these filings, at no cost, by
writing or telephoning us at:
National Waterworks Holdings, Inc.
200 West Highway 6
Waco, Texas 76712
(254) 772-5355
We intend to furnish holders of the shares of common stock
offered in this offering with annual reports containing audited
consolidated financial statements together with a report by our
independent registered public accounting firm.
79
Table of Contents
Index To Consolidated Financial Statements
NATIONAL WATERWORKS HOLDINGS, INC.
U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY
Page
Report of Independent Registered Public Accounting Firm
F-2
As of December 31, 2004 and 2003:
Consolidated Balance Sheets
F-3
For the years ended December 31, 2004 and 2003, the period
    of November 22, 2002 through December 31, 2002 and the
    period of January 1, 2002 through November 21, 2002
Consolidated Statements of Operations
F-4
Consolidated Statements of Stockholders' Equity (Deficit)
F-5
Consolidated Statements of Cash Flows
F-6
Notes to Consolidated Financial Statements
F-7
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors
National Waterworks Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of
National Waterworks Holdings, Inc. (Successor) and subsidiary as
of December 31, 2004 and 2003, and the related consolidated
statements of operations, stockholders' equity
(deficit) and cash flows for the years then ended and the
period of November 22, 2002 through December 31, 2002.
We have also audited the accompanying consolidated statements of
operations, stockholder's equity and cash flows of
U.S. Filter Distribution Group, Inc. (Predecessor) and
subsidiary, a wholly owned subsidiary of United States Filter
Corporation, for the period of January 1, 2002 through
November 21, 2002. These consolidated financial statements
are the responsibility of the management of National Waterworks
Holdings, Inc. and U.S. Filter Distribution Group, Inc. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of National Waterworks Holdings, Inc. and subsidiary as
of December 31, 2004 and 2003, and the results of their
operations and their cash flows for the years then ended and the
period of November 22, 2002 through December 31, 2002,
and the results of operations and cash flows of U.S. Filter
Distribution Group, Inc. and subsidiary for the period of
January 1, 2002 through November 21, 2002, in
conformity with accounting principles generally accepted in the
United States of America.
As discussed in Note 4 to the consolidated financial
statements, U.S. Filter Distribution Group, Inc. changed
its method of accounting for goodwill in 2002.
/s/
KPMG LLP
March 28, 2005
St. Louis, Missouri
F-2
Table of Contents
National Waterworks Holdings, Inc.
Consolidated Balance Sheets
(in thousands except per share information)
December 31,
December 31,
2004
2003
Assets
Current assets:
Cash and cash equivalents
$
18,946
$
18,702
Trade accounts receivable, less allowance for doubtful accounts
    of $3,492 in 2004 and $3,213 in 2003
227,780
188,476
Inventories
126,866
90,739
Deferred income taxes
1,398
—
Other current assets
2,674
2,689
Total current assets
377,664
300,606
Property and equipment, net
19,269
20,523
Goodwill
457,221
456,080
Deferred financing fees, less accumulated amortization of $6,737
    in 2004 and $3,060 in 2003
26,034
24,141
Other assets
2,961
1,607
$
883,149
$
802,957
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Trade accounts payable
$
172,234
$
115,038
Current installments of long-term debt
15,000
15,000
Accrued compensation and benefits
33,795
27,036
Other accrued expenses
14,009
9,677
Total current liabilities
235,038
166,751
Long-term debt, excluding current installments
645,000
425,000
Deferred income taxes
23,163
10,059
Other long-term liabilities
3,132
1,674
Total liabilities
906,333
603,484
Commitments and contingencies (note 14)
Stockholders' Equity (Deficit):
Class A common stock — $0.01 par value;
    800 shares authorized; 512 shares issued and
    outstanding
5
5
Class B common stock — $0.01 par value;
    4,220 shares authorized, issued, and outstanding;
    liquidation preference of $0 and $193,596, respectively
42
42
Additional paid-in capital
43
198,421
Retained earnings (accumulated deficit)
(23,274
)
1,005
Total stockholders' equity (deficit)
(23,184
)
199,473
$
883,149
$
802,957
The accompanying notes are an integral part of these financial
statements.
F-3
Table of Contents
Consolidated Statements of Operations
(in thousands except per share information)
Predecessor —
U.S. Filter
Distribution
Successor — National Waterworks Holdings, Inc.
Group, Inc.
(note 1)
(note 1)
Period of
Period of
November 22,
January 1,
Year Ended
Year Ended
2002 through
2002 through
December 31,
December 31,
December 31,
November 21,
2004
2003
2002
2002
Net sales
$
1,522,070
$
1,281,069
$
94,250
$
1,058,768
Cost of goods sold
1,212,582
1,013,079
82,005
831,764
Gross profit
309,488
267,990
12,245
227,004
Operating expenses:
Selling, general and administrative
186,466
167,152
14,737
139,825
Loss on accounts receivable securitization
—
—
—
2,480
Income (loss) before depreciation and amortization
123,022
100,838
(2,492
)
84,699
Depreciation and amortization
2,371
2,564
252
3,131
Operating income (loss)
120,651
98,274
(2,744
)
81,568
Other income (expense):
Completion bonuses
—
—
—
(6,200
)
Interest expense, net
(40,706
)
(41,333
)
(6,826
)
(36
)
Other
355
(11
)
(12
)
59
Income (loss) before income taxes and cumulative effect of a
    change in accounting principle
80,300
56,930
(9,582
)
75,391
Income tax expense (benefit)
32,668
23,289
(3,688
)
29,238
Income (loss) before cumulative effect of a change in accounting
    principle
47,632
33,641
(5,894
)
46,153
Cumulative effect of a change in accounting principle
    (note 4)
—
—
—
(459,000
)
Net income (loss)
$
47,632
$
33,641
$
(5,894
)
$
(412,847
)
Per share information (note 5):
Class A common stock:
Basic earnings per share
$
1.59
$
—
$
—
Diluted earnings per share
0.72
—
—
Class B common stock:
Basic and diluted earnings (loss) per share
11.20
7.97
(1.40
)
The accompanying notes are an integral part of these financial
statements.
F-4
Table of Contents
Consolidated Statements of Stockholders' Equity
(Deficit)
(in thousands)
Class A
Retained
Common Stock
Class B Common Stock
Additional
Earnings
Total
Paid-In
(Accumulated
Stockholders'
Shares
Amount
Shares
Amount
Capital
Deficit)
Equity (Deficit)
Predecessor — U.S. Filter Distribution Group,
    Inc. and Subsidiary (note 1):
Balance at December 31, 2001
1
$
—
—
$
—
$
1,257,574
$
72,650
$
1,330,224
Investment by U.S. Filter
—
—
—
—
20,093
—
20,093
Net loss
—
—
—
—
—
(412,847
)
(412,847
)
Balance at November 21, 2002
1
$
—
—
$
—
$
1,277,667
$
(340,197
)
$
937,470
Successor — National Waterworks Holdings, Inc.
    (note 1):
Common stock issuance
512
$
5
4,200
$
42
$
209,952
$
—
$
209,999
Net loss
—
—
—
—
—
(5,894
)
(5,894
)
Balance at December 31, 2002
512
5
4,200
42
209,952
(5,894
)
204,105
Common stock issuance
—
—
20
—
1,000
—
1,000
Net income
—
—
—
—
—
33,641
33,641
Distributions to stockholders
—
—
—
—
(12,531
)
(26,742
)
(39,273
)
Balance at December 31, 2003
512
5
4,220
42
198,421
1,005
199,473
Employee stock compensation
—
—
—
—
562
—
562
Net income
—
—
—
—
—
47,632
47,632
Distributions to stockholders
—
—
—
—
(198,940
)
(71,911
)
(270,851
)
Balance at December 31, 2004
512
$
5
4,220
$
42
$
43
$
(23,274
)
$
(23,184
)
The accompanying notes are an integral part of these financial
statements.
F-5
Table of Contents
Consolidated Statements of Cash Flows
(in thousands)
Predecessor —
U.S. Filter
Successor —
Distribution
National Waterworks Holdings, Inc.
Group, Inc.
(note 1)
(note 1)
Period of
Period of
November 22,
January 1,
Year Ended
Year Ended
2002 through
2002 through
December 31,
December 31,
December 31,
November 21,
2004
2003
2002
2002
Cash flows from operating activities:
Net income (loss)
$
47,632
$
33,641
$
(5,894
)
$
(412,847
)
Adjustments to reconcile net income (loss) to net cash from
    operating activities:
Deferred income taxes
11,246
18,093
(3,688
)
2,150
Financing fees
—
—
2,500
—
Amortization of deferred financing fees
3,677
2,928
133
—
Non-cash stock compensation expense
562
—
—
—
Depreciation and amortization
2,371
2,564
252
3,131
Loss on goodwill impairment
—
—
—
459,000
Gain on disposal of equipment
(264
)
(55
)
—
(72
)
Provision for doubtful accounts
1,076
953
(119
)
1,004
Changes in operating assets and liabilities, net of acquisitions:
Trade accounts receivable
(39,264
)
(15,417
)
39,470
(22,557
)
Inventories
(35,228
)
880
6,651
(4,769
)
Other current assets
(1
)
(287
)
(1,401
)
673
Other assets
(1,345
)
(1,566
)
—
4,306
Trade accounts payable and other accrued expenses
66,080
(6,396
)
1,140
26,221
Other long term liabilities
2,903
1,674
—
—
Net cash from operating activities
59,445
37,012
39,044
56,240
Cash flows from investing activities:
Capital expenditures
(1,424
)
(2,022
)
(102
)
(1,442
)
Business acquisitions, net of cash
(1,992
)
(3,224
)
(643,753
)
(19,595
)
Proceeds from sales of property and equipment
636
803
—
874
Net cash from investing activities
(2,780
)
(4,443
)
(643,855
)
(20,163
)
Cash flows from financing activities:
Proceeds from long-term debt
250,000
—
450,000
—
Financing fees
(5,570
)
(5,482
)
(15,300
)
—
Proceeds from common stock issuance
—
1,000
209,999
—
Principal payments on long-term debt
(30,000
)
(10,000
)
—
(222
)
Distributions to stockholders
(270,851
)
(39,273
)
—
—
Investment by U.S. Filter Corporation
—
—
—
20,093
Funds transferred to U.S. Filter Corporation
—
—
—
(1,103,045
)
Expenditures funded by U.S. Filter Corporation
—
—
—
994,010
Allocation of expenses from U.S. Filter Corporation
—
—
—
45,103
Net cash from financing activities
(56,421
)
(53,755
)
644,699
(44,061
)
Net increase (decrease) in cash and cash equivalents
244
(21,186
)
39,888
(7,984
)
Cash and cash equivalents at beginning of period
18,702
39,888
—
13,288
Cash and cash equivalents at end of period
$
18,946
$
18,702
$
39,888
$
5,304
Cash paid for interest
$
35,754
$
40,176
$
997
$
37
Cash paid for income taxes
$
20,605
$
3,136
$
—
$
27,088
The accompanying notes are an integral part of these financial
statements.
F-6
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATIONAL WATERWORKS HOLDINGS, INC.
As of December 31, 2004 and 2003 and for
the Years Ended December 31, 2004 and 2003 and the
Period of November 22, 2002 through December 31,
2002
U.S. FILTER DISTRIBUTION GROUP, INC. AND SUBSIDIARY
For the Period of January 1, 2002 through
November 21, 2002
(1)
Description of Business
National Waterworks Holdings, Inc. ("NWW" or
"Successor") and its subsidiary, National Waterworks,
Inc. were incorporated in September 2002 for the purpose of
acquiring substantially all of the assets and assuming certain
obligations of U.S. Filter Distribution Group, Inc.
("USFDG" or "Predecessor"), a wholly owned
subsidiary of United States Filter Corporation
("USFC"), which is an indirect wholly-owned subsidiary
of Veolia Environnement ("Veolia", formerly Vivendi
Environnement S.A.). The acquisition was consummated on
November 22, 2002 (see note 3).
NWW is a distributor of water and wastewater
(sewer) transmission products including pipe, fittings,
valves, meters, fire hydrants, service and repair products and
other components that are used to transport clean water and
wastewater between reservoirs and treatment plants and
residential and commercial locations. Principal customers served
are in the contractor and municipal markets in the United
States. Prior to the acquisition, USFDG conducted such business
activities.
(2)
Summary of Significant Accounting Policies
(a)
Principles of Consolidation and Basis of
    Presentation
The consolidated balance sheets as of December 31, 2004 and
2003, and the consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the years
ended December 31, 2004 and 2003 and for the period from
November 22, 2002 through December 31, 2002 represent
the financial position of NWW and its subsidiary, National
Waterworks, Inc., and the results of their operations and cash
flows as of those dates and for those periods. The consolidated
statements of operations, stockholder's equity and cash
flows for the period of January 1, 2002 through
November 21, 2002 represent the results of operations and
cash flows of USFDG and its subsidiary, USFC. All significant
intercompany balances and transactions have been eliminated in
consolidation for all periods presented.
(b)
Cash Equivalents
All highly liquid investments with maturities at date of
purchase of three months or less are considered to be cash
equivalents.
(c)
Inventories
Inventories are stated at the lower of cost or market. The
weighted average cost method is used to determine cost for all
inventories.
(d)
Property and Equipment
Property and equipment are stated at cost. Depreciation on
property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets as follows:
Buildings and improvements
5 to 30  years
Office furniture, fixtures and equipment
3 to 5 years
Transportation equipment
1 to 5 years
Machinery and equipment
5 years
F-7
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Depreciation expense related to leasehold improvements generally
is recorded over the remaining life of the lease. Maintenance
and repair costs are charged to expense as incurred. Additions,
renewals and improvements are capitalized. Upon the sale or
retirement of an asset, the related cost and accumulated
depreciation are removed from the accounts and any gain or loss
is recognized.
(e)
Impairment of Long-Lived Assets Other than Goodwill
Long-lived assets, including property and equipment, are
reviewed for possible impairment whenever events or other
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. An impairment loss is recognized
when the carrying amount of a long-lived asset exceeds the sum
of the undiscounted cash flows expected to result from the
asset's use and eventual disposition. An impairment loss is
measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset.
(f)
Income Taxes
Income taxes are accounted for using the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
NWW and its subsidiary file a consolidated federal income tax
return. USFDG filed as part of USFC's consolidated federal
income tax return. USFC implemented certain tax planning
strategies and the related impact is not reflected in these
separate financial statements of USFDG. For the purpose of the
consolidated financial statements presented herein, USFDG
provided for income taxes as if it were a taxable entity filing
a separate return.
(g)
Segments of an Enterprise and Related Information
NWW has implemented the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 131,
Disclosure about Segments of an Enterprise and Related
Information
. NWW's six geographic regions, to which
substantially all income and expenses are allocated for purposes
of allocating resources by the chief operating decision maker,
meet all of the aggregation criteria of SFAS No. 131,
including similar economic characteristics. Accordingly, there
is one reportable segment.
F-8
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Products include pipe, fittings, valves, meters, fire hydrants,
service and repair products and other complementary products for
waterworks construction and maintenance/repair. The following
table sets forth net sales by product category (in thousands):
Period of
Period of
November 22,
January 1,
2002
2002
Year Ended
Year Ended
through
through
December 31,
December 31,
December 31,
November 21,
Product Category
2004
2003
2002
2002
Pipe
$
665,335
$
511,938
$
38,256
$
424,544
Fittings
225,196
196,136
14,735
162,932
Valves
175,024
160,996
11,396
131,208
Meters
115,946
110,911
7,827
94,905
Fire hydrants
89,647
79,800
5,344
66,046
Service and repair products
91,701
86,481
6,336
69,515
Other
159,221
134,807
10,356
109,618
$
1,522,070
$
1,281,069
$
94,250
$
1,058,768
All revenues are derived from customers domiciled in the United
States and there are no long-lived assets located outside of the
United States. No single customer, as defined in
SFAS No. 131, represents ten percent or more of
revenues for any period presented.
(h)
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual
results could differ from these estimates.
(i)
Revenue Recognition
Revenue on sales is recognized when products are shipped to
customers and NWW has no further obligation with respect to such
products. Revenues are reported in the consolidated statements
of operations net of sales returns and allowances. NWW's
customer return policy generally allows customers to return
products only if the products can be returned to the vendor or
returned to inventory and sold at full value.
Rebates received from vendors are classified as a reduction of
the purchase price of inventory and included as a reduction of
cost of goods sold during the period in which the related
products are sold. Vendor payments that represent rebates or
refunds for meeting a targeted volume of purchases are
proportionally allocated as purchases are made if the payment is
the result of a binding contractual agreement, the payment under
such agreement is probable and the amount of the payment is
reasonably estimable.
(j)
Shipping and Handling Costs
Shipping and handling costs billed to customers are included in
net sales. Shipping and handling costs associated with outbound
freight are included in cost of goods sold.
F-9
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(k)
Goodwill
Goodwill represents the excess of the purchase price of acquired
businesses over the allocated fair value of the related net
assets. NWW reviews goodwill for impairment annually at the
beginning of the fourth quarter and whenever events or changes
in circumstances indicate that the carrying value may not be
recoverable.
(l)
Earnings per Share
NWW calculates earnings per share in accordance with
SFAS No. 128,
Earnings per Share
. Based on this
guidance, NWW uses the two-class method to allocate earnings
between Class A common stock and Class B common stock
for the purpose of computing basic and diluted earnings per
share. Such allocation is necessary because distributions are
first made to holders of Class B shares in an amount equal
to their original investment plus a 9% return, compounded daily,
prior to the holders of Class A shares receiving a
distribution. Accordingly, all of NWW's earnings were
allocated to the Class B shares prior to the satisfaction
of the liquidation preference on October 29, 2004.
Basic earnings per share is calculated by dividing income
available to Class A and Class B common stockholders
by the weighted average common shares outstanding for each
respective class of common stock. Diluted earnings per share is
calculated similarly except that for Class A common stock,
weighted average common shares outstanding includes the dilutive
effect of the unvested shares of Class A common stock.
During the periods presented, there were no differences between
weighted average shares outstanding for the basic and diluted
earnings per share calculations with respect to Class B
common stock.
(m)
Stock Compensation
NWW follows SFAS No. 123,
Accounting for
Stock-Based Compensation
, which establishes a fair
value-based method of accounting for stock-based compensation
plans. In accordance with SFAS No. 123, the fair value
of stock-based compensation is recorded as compensation expense
over the vesting or performance period with a corresponding
increase to additional paid-in capital.
(n)
Recent Accounting Pronouncements
In November 2002, the EITF reached consensus on
Issue 02-16,
Accounting by a Customer (Including a
Reseller) for Certain Consideration Received from a Vendor
.
The consensus was reached that cash consideration received by a
customer from a vendor is presumed to be a reduction of the
prices of the vendor's products or services and should be
treated as a reduction of cost of sales when recognized in the
customer's income statement. This presumption can be
overcome if the consideration can be shown to represent either a
payment for assets or services delivered to the vendor or a
reimbursement of costs incurred by the reseller to sell the
vendor's products. It also reached consensus on when a
customer should recognize a rebate or refund that is payable
only if the customer completes a specified level of purchases.
Recognition should occur when the rebate or refund is probable
and reasonably estimable and should be based on a systematic and
rational method. NWW has historically accounted for such
consideration as a reduction of cost of goods sold when the
vendor rebate is probable and reasonably estimable and based on
a systematic and rational allocation of the cash consideration
to be received. NWW estimated the adoption of this EITF issue
increased net income by $1.4 million for the year ended
December 31, 2003.
In November 2004, the FASB issued SFAS No. 151,
Inventory Costs — An amendment of ARB No. 43,
Chapter 4
. SFAS No. 151 clarifies that
abnormal amounts of idle facility expense, freight, handling
costs and spoilage should be expensed as incurred and not
included in overhead. Further, SFAS No. 151 requires
that allocation of fixed production overheads to conversion
costs should be based on normal capacity of the production
facilities. The provisions of SFAS No. 151 are
effective for inventory costs incurred during fiscal years
beginning after June 15, 2005. NWW plans to adopt
SFAS No. 151 on
F-10
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
January 1, 2006. The adoption of SFAS No. 151 is
not expected to have a significant impact on NWW's
consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153,
Exchanges of Nonmonetary Assets — An Amendment of
APB Opinion No. 29
. The amendments made by
SFAS No. 153 are based on the principle that exchanges
of nonmonetary assets should be measured based on the fair value
of the assets exchanged. Further, the amendments eliminate the
narrow exception for nonmonetary exchanges of similar productive
assets and replace it with a broader exception for exchanges of
nonmonetary assets that do not have "commercial
substance." Previously, Opinion No. 29 required that
the accounting for an exchange of a productive asset for a
similar productive asset or an equivalent interest in the same
or similar productive asset should be based on the recorded
amount of the asset relinquished. The provisions of
SFAS No. 153 are effective for nonmonetary asset
exchanges occurring in fiscal periods beginning after
June 15, 2005. NWW plans to adopt SFAS No. 153 on
July 1, 2005. The adoption of SFAS No. 153 is not
expected to have a significant impact on NWW's consolidated
financial statements.
In December 2004, the FASB issued SFAS No. 123
(Revised 2004),
Share-Based Payment: an Amendment of FASB
Statements No. 123 and 95
(SFAS No. 123R).
SFAS No. 123R requires the recognition in the income
statement of the grant-date fair value of stock options and
other equity-based compensation issued to employees.
SFAS No. 123R is effective for most public
companies' interim or annual periods beginning after
June 15, 2005. NWW plans to adopt SFAS No. 123R
prospectively on July 1, 2005. The adoption of
SFAS No. 123R is not expected to have a significant
impact on NWW's consolidated financial statements.
(3)
Acquisitions and Divestitures
On February 9, 2004, NWW acquired substantially all of the
assets and certain liabilities of Midstate Utility Supply, Inc.
for an aggregate purchase price of approximately
$2.0 million. This acquisition was accounted for as a
purchase under SFAS No. 141,
Business
Combinations
. Accordingly, the purchase price was allocated
to the net assets acquired based upon their estimated fair
values as of the date of acquisition. The allocation of the
purchase price resulted in the recognition of approximately
$1.1 million of goodwill. As this acquisition is immaterial
to the consolidated financial statements, pro forma results of
operations are not presented.
On November 22, 2002, NWW acquired substantially all of the
assets and certain liabilities of USFDG. The acquisition was
accounted for as a business combination under
SFAS No. 141 and as a taxable transaction for federal
and state income tax purposes. The aggregate purchase price,
prior to post-closing purchase price adjustments, was
$643.8 million. In addition, NWW incurred
$15.3 million in financing fees of which $12.8 million
was capitalized as deferred financing fees and $2.5 million
expensed as interest expense. During 2003, NWW recorded
additional deferred financing fees of $8.9 million which
were initially considered direct costs of the acquisition. These
fees will be amortized over the remaining life of the related
debt.
F-11
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table summarizes the estimated fair value of the
assets acquired and the liabilities assumed as of the date of
acquisition (in thousands):
Assets:
Current assets
$
312,684
Property and equipment
21,953
Goodwill
465,662
Total assets acquired
800,299
Liabilities:
Current liabilities
156,546
Total liabilities
156,546
Net assets acquired
$
643,753
The goodwill acquired is deductible for income tax purposes.
Current assets includes a $13.0 million inventory valuation
adjustment pursuant to SFAS No. 141 of which
$4.0 million and $9.0 million was recognized as an
increase in cost of goods sold for the year ended
December 31, 2003 and the period of November 22, 2002
through December 31, 2002, respectively.
The acquisition agreement provided for a post-closing purchase
price adjustment based on working capital at the closing date.
The purchase price adjustment was finalized and resulted in an
additional cash payment of $3.1 million paid in the first
quarter of 2003. The $3.1 million payment was recorded as
an adjustment to goodwill.
The pro forma results of operations for 2002 (in thousands) as
though the business combination had been completed as of
January 1, 2002 would have resulted in revenue of
$1,153,018 and net income of $25,259.
On March 29, 2002, USFDG acquired substantially all of the
assets and certain liabilities of Utility Piping Systems, Inc.
for an aggregate purchase price of $19.6 million. This
acquisition was accounted for by the purchase method, and
accordingly, the purchase price was allocated to the net assets
acquired based upon their estimated fair values as of the date
of acquisition. The allocation of purchase price resulted in
approximately $14.3 million of goodwill acquired. As this
acquisition is immaterial to USFDG's consolidated financial
statements, pro forma results of operations are not presented.
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(4)
Goodwill
The changes in the carrying amount of goodwill for the years
ended December 31, 2004 and 2003, are as follows (in
thousands):
Year Ended
Year Ended
December 31,
December 31,
2004
2003
Balance at beginning of period
$
456,080
$
465,662
Midstate Utility Supply, Inc. acquisition
1,141
—
Additional goodwill related to the NWW acquisition of USFDG:
Additional transaction costs
—
84
Working capital purchase price adjustment
—
3,140
Purchase accounting adjustment-change in tax basis of assets
    acquired
—
(3,886
)
Additional financing fees initially considered direct
    acquisition costs
—
(8,920
)
Balance at end of period
$
457,221
$
456,080
During 2003, NWW recorded additional deferred financing fees of
$8.9 million that will be amortized over the remaining life
of the related debt. Also, additional deferred tax assets of
$3.9 million were recorded based on management's best
estimate of the acquired assets that will ultimately be accepted
by the taxing authorities.
Effective with the acquisition of USFDG, NWW adopted the
provisions of SFAS No. 142,
Goodwill and Other
Intangible Assets
, which requires goodwill be tested for
impairment on an annual basis at the reporting unit level. NWW
identified and assigned goodwill to its six reporting units as
described in note 2. NWW reviewed goodwill for impairment
at the beginning of fourth quarter 2004 and 2003. Based on the
results of these impairment tests, NWW determined there was no
impairment of goodwill to any of the reporting units.
In accordance with SFAS No. 142, effective
January 1, 2002, USFDG completed the transition assessment
of whether there was an indication that goodwill was impaired
and concluded that it was probable that goodwill assigned to its
reporting units was impaired. The fair value of USFDG's
reporting units was estimated using, among other factors, the
sales price included in the sale agreement by USFC and USFDG to
sell substantially all of USFDG's assets, net of certain
liabilities, for a cash purchase price of $620.0 million.
USFDG's management estimated an impairment loss of
approximately $459.0 million. The goodwill impairment loss
was reported as a cumulative effect of a change in accounting
principle.
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(5)
Earnings per Share
The following table sets forth the computation of NWW's
basic and diluted earnings per share (in thousands except per
share information):
Period of
November 22,
Year Ended
Year Ended
2002 through
December 31,
December 31,
December 31,
2004
2003
2002
Net income (loss):
Class A common stock
$
366
$
—
$
—
Class B common stock
47,266
33,641
(5,894
)
Total
$
47,632
$
33,641
$
(5,894
)
Weighted average number of common shares:
Class A common stock — Basic
231
103
3
Dilutive effect of unvested restricted shares
276
—
—
Class A common stock — Diluted
507
103
3
Class B common stock
4,220
4,220
4,200
Earnings per share
Class A common stock:
Basic earnings per share
$
1.59
$
—
$
—
Diluted earnings per share
0.72
—
—
Class B common stock:
Basic and diluted earnings (loss) per share
11.20
7.97
(1.40
)
In accordance with SFAS No. 128, net income (loss) was
allocated to the holders of Class A and Class B common
stock based upon their respective liquidation and distribution
rights. Accordingly, all earnings were allocated to Class B
common stock prior to the satisfaction of the Class B
common stock liquidation preference on October 29, 2004.
Subsequently, each share of Class A and Class B common
stock was allocated an equal amount of NWW's net income.
(6)
Stockholders' Equity (Deficit)
At December 31, 2004, the authorized capital of NWW
consists of 0.8 million shares of $0.01 par value
Class B common stock and 4.22 million shares of
$0.01 par value Class B common stock. The owners of
Class A common stock and Class B common stock
generally vote together as a single class on all matters
requiring a vote of the stockholders, with each share of
Class A and Class B common stock entitled to one vote.
The owners of Class B common stock are entitled to certain
preferences with respect to the membership of the board of
directors and the committees thereof.
Following the incorporation of NWW, each share of Class B
common stock had a liquidation preference equal to the total
investment by Class B stockholders plus an amount equal to
accrued and unpaid distributions at a rate of 9% per annum,
compounded daily. On October 29, 2004, NWW paid an
aggregate $260.0 million to its Class A and
Class B stockholders, including $197.2 million to
satisfy the liquidation preference on Class B common stock
at that date. Class A and Class B stockholders share
equally in all subsequent distributions, including the remaining
$62.8 million paid on October 29, 2004, based on their
pro rata portion of total outstanding shares of Class A and
Class B common stock. In the event of an initial public
offering, each share of Class B common stock will convert
into one share of Class A common stock, as adjusted to
reflect applicable stock dividends or other adjustments.
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Additionally, in the event of an initial public offering, all
unvested shares of restricted Class A common stock will
vest immediately.
(7)
Allocations and Other Services
USFDG participated in certain services provided by USFC, as
described below:
(a)
Cash Management
Prior to November 2002, USFDG participated in USFC's
centralized cash management system and, as such, USFDG's
cash funding requirements including interest and tax
obligations, were met by USFC and cash received by USFDG was
transferred to USFC on a daily basis.
(b)
Allocations
The statement of operations for the period of January 1,
2002 through November 21, 2002 includes all direct costs of
USFDG as well as $45.1 million of corporate costs allocated
by USFC. Allocated costs include general liability insurance,
workers' compensation insurance, employee health and dental
insurance, 401(k) plan matching contributions, legal fees,
income taxes and certain other costs. In the opinion of
management, these allocations were made on a basis believed to
be reasonable based on USFDG operating within the structure of a
larger parent organization. However, the allocations are not
necessarily indicative of the level of expenses which might have
been incurred by USFDG if it had operated as a stand-alone
entity.
(8)
Property and Equipment
Property and equipment consists of the following (in thousands):
December 31,
December 31,
2004
2003
Land
$
6,146
$
6,295
Buildings and improvements
9,839
9,694
Office furniture, fixtures and equipment
3,454
2,821
Transportation equipment
3,418
3,420
Machinery and equipment
990
830
23,847
23,060
Less accumulated depreciation and amortization
(4,578
)
(2,537
)
$
19,269
$
20,523
(9)
Leases
NWW has certain noncancelable operating leases primarily for
transportation equipment and office space. These leases
generally contain automatic renewal options until terminated by
either party and require the lessee to pay all executory costs
such as maintenance and insurance. Rental expense for operating
leases was $15.6 million and $14.6 million for years
ended December 31, 2004 and 2003, respectively, and
$1.2 million and $12.6 million for the period of
November 22, 2002 through December 31, 2002 and the
period of January 1, 2002 through November 21, 2002,
respectively.
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Future minimum lease payments under noncancelable operating
leases (with initial or remaining lease terms in excess of one
year) as of December 31, 2004 are (in thousands):
Total
2005
$
12,048
2006
9,430
2007
6,370
2008
4,005
2009
2,135
Thereafter
3,597
$
37,585
(10)
Long-Term Debt
Long-term debt at December 31, 2004 and 2003 consists of
the following (in thousands):
2004
2003
Unsecured 10.5% senior subordinated notes due
    December 1, 2012, interest payable semi-annually
$
200,000
$
200,000
Secured borrowings under financing agreement; for 2004, LIBOR
    interest (no floor) plus a spread of 2.50%; for 2003, LIBOR
    interest (no floor) plus a spread of 2.75%; interest rates were
    5.06% and 3.92% at December 31, 2004 and 2003,
    respectively; principal payments due quarterly plus annual
    payments based on excess cash flow provisions as defined in the
    agreement; matures November 22, 2009; secured by the assets
    of NWW
210,000
240,000
Unsecured 12.5% senior subordinated notes due
    January 1, 2014, interest payable quarterly
250,000
—
Total long-term debt
660,000
440,000
Less current installments
15,000
15,000
Long-term debt, excluding current installments
$
645,000
$
425,000
In November 2002, NWW issued $200.0 million principal
amount of 10.5% senior subordinated notes pursuant to
Rule 144A of the Securities Act of 1933. Before
December 1, 2005, 35% of the senior subordinated notes can
be redeemed with net cash proceeds of certain equity offerings
at a redemption price of 110.50%. In addition, prior to
December 1, 2007, all or a portion of the notes may be
redeemed at a price equal to 100% of the principal amount plus a
make whole premium. On or after December 1 of the years
indicated, NWW may redeem the notes at the following redemption
prices (expressed in percentages): 105.25% in 2007, 103.50% in
2008, 101.75% in 2009, and 100% in 2010 and thereafter.
In November 2002, NWW entered into a financing agreement with a
syndicate of lenders under which NWW borrowed
$250.0 million under a term loan bearing an interest rate
of LIBOR (floor of 2.5%) plus 4.0% or alternatively Prime plus
3.0%. The spread decreases upon attaining certain financial
targets and ratios. The financing agreement allows for
additional revolver borrowings through November 22, 2008 in
the amount of $75.0 million. The revolver had an interest
rate of LIBOR (floor 2.5%) plus 3% or alternatively Prime plus
2%. NWW has the option to elect 30, 60, 90, or 180 day
interest periods and must pay an annual commitment fee of 1/2 of
1% on the unused portion of the commitment. The spread and
commitment fee decrease based on attaining certain financial
targets and ratios. The agreement allows NWW to utilize up to
$35.0 million of the $75.0 million revolver borrowings
for letters of credit, bearing an interest rate of 3% and
upfront fees of .25%. NWW utilized $4.4 million and
$3.8 million of the
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
revolver borrowings to cover outstanding letters of credit at
December 31, 2004 and 2003, respectively. The
$75.0 million revolver capacity was reduced accordingly at
these dates.
In August 2003, NWW amended the senior credit facility in
connection with the refinancing of the outstanding term loan
portion thereof. The amendment, among other things, provided for
lower applicable margins for both LIBOR rate and Prime rate term
loan under the refinanced facility. In addition, the minimum
LIBOR rate of 2.50% for the term loan that existed prior to the
amendment was removed. The amendment also permits NWW to issue,
without the consent of lenders under the senior credit facility,
an incremental $50.0 million of credit facilities in
addition to the $50.0 million permitted prior to the
amendment, contingent upon meeting certain covenants. In
connection with the amendment, NWW paid approximately
$6.0 million of financing fees, including a
$4.9 million call premium. The call premium was recorded as
deferred financing fees. The remaining financing fees were
charged to interest expense.
In December 2003, NWW executed a Second Amendment to the senior
credit facility in connection with a distribution to its
shareholders. The amendment permits National Waterworks, Inc. to
pay a dividend to NWW from time to time, contingent upon meeting
certain financial covenants and ratios. In addition, the
aggregate amount of distributions paid pursuant to this
amendment may not exceed $110.0 million in total, and may
not exceed $45.0 million for the year ended
December 31, 2003 and $40.0 million for any year
thereafter, provided that any amount not paid in the year for
which it is permitted may be carried over to any succeeding
year. In connection with the amendment, NWW paid approximately
$2.3 million in financing fees which were charged to
interest expense.
On October 29, 2004, NWW issued $250.0 million of
unsecured senior notes for the purpose of returning capital to
its existing equity holders. These notes, which bear interest at
12.5%, mature January 1, 2014 and provide for quarterly
interest payments with payment in kind provisions, as defined in
the underlying indenture, at NWW's option. Before
October 29, 2005, 35% of the senior subordinated notes can
be redeemed with net cash proceeds of certain equity offerings
at a redemption price of 112.50%. In addition, prior to
October 29, 2009, all or a portion of the notes may be
redeemed at a price equal to 100% of the principal amount plus a
make whole premium. On or after October 29 of the years
indicated, NWW may redeem the notes at the following redemption
prices (expressed in percentages): 105.00% in 2005, 103.75% in
2006, 102.50% in 2007, 101.25% in 2008 and 100% in 2009 and
thereafter.
In connection with the issuance of these senior subordinated
notes, NWW executed a Third Amendment to its senior credit
facility on October 26, 2004. This amendment, among other
things, provides for reduced pricing on the term loan and
increases the amount of limited dividends and distributions that
National Waterworks, Inc. may pay to NWW. Though not obligated
to do so, National Waterworks, Inc. anticipates paying such
dividends and distributions to NWW to service the interest
payments on its senior subordinated notes. The reduced pricing
includes a reduction in the applicable margin of the term loan
with a step-down provision upon National Waterworks, Inc.
achieving certain financial ratios. Based on the satisfaction of
certain financial covenants and ratios and other conditions, the
aggregate amount of dividends that National Waterworks, Inc. can
pay to NWW refreshed to an aggregate of $125.0 million on
January 1, 2005. The $40.0 million per-fiscal-year
restriction, with the provision that any amount not paid in the
fiscal year for which it is permitted may be carried over to any
succeeding fiscal year, remains unchanged. The financing
agreement and the indenture related to the senior subordinated
notes contain various covenants including limitations on
additional indebtedness, restricted payments, the incurrence of
liens, transactions with affiliates and sales of assets. In
addition, the financing agreement requires NWW to satisfy
certain financial covenants, including leverage and interest
coverage ratios and capital expenditure limitations. NWW was in
compliance with all of the covenants of the financing agreement
and the indenture at December 31, 2004 and 2003. In
connection with the amendment, NWW paid approximately
$5.6 million of financing fees, which will be amortized
over the life of the related debt.
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The aggregate maturities of long-term debt for each of the five
years subsequent to December 31, 2004 are (in thousands):
Total
2005
$
15,000
2006
20,000
2007
25,000
2008
25,000
2009
125,000
Thereafter
450,000
$
660,000
In addition, NWW is required to repay the term loan under the
financing agreement in an amount equal to 75% of excess cash
flow (as defined in the financing agreement) each fiscal year
and with 100% of the net proceeds of certain asset dispositions
and debt issuances and 75% of the net proceeds of certain equity
issuances. The prepayment percentages with respect to excess
cash flow and equity issuances were reduced to 50% after
December 31, 2003 based on NWW's attainment of certain
financial ratios. NWW made an optional prepayment of
$15.0 million in December 2004. NWW was not required to
make an excess cash flow payment for the year ended
December 31, 2004 or 2003.
(11)
Income Taxes
Income tax expense (benefit) attributable to income (loss) from
continuing operations for each of the periods presented consists
of the following (in thousands):
Period of
Period of
November 22,
January 1,
Year Ended
Year Ended
2002 through
2002 through
December 31,
December 31,
December 31,
November 21,
2004
2003
2002
2002
Current:
Federal
$
17,795
$
4,547
$
—
$
23,547
State
3,627
649
—
3,541
21,422
5,196
—
27,088
Deferred:
Federal
9,359
15,831
(3,098
)
1,869
State
1,887
2,262
(590
)
281
11,246
18,093
(3,688
)
2,150
Income tax expense (benefit)
$
32,668
$
23,289
$
(3,688
)
$
29,238
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Income tax expense (benefit) attributable to income (loss) from
continuing operations differs from the amounts computed by
applying the U.S. federal income tax rate of 35% to pretax
income from continuing operations as a result of the following
(in thousands):
Period of
Period of
November 22,
January 1,
Year Ended
Year Ended
2002 through
2002 through
December 31,
December 31,
December 31,
November 21,
2004
2003
2002
2002
Expected income tax expense (benefit)
$
28,105
$
19,925
$
(3,354
)
$
26,387
Increase (decrease) resulting from:
Permanent differences:
Meals and entertainment
508
511
50
364
Stock compensation
197
—
—
—
Other
274
7
—
3
State and local income taxes
3,584
2,846
(384
)
2,484
Actual income tax expense (benefit)
$
32,668
$
23,289
$
(3,688
)
$
29,238
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2004 and 2003 are presented
below (in thousands):
December 31,
December 31,
2004
2003
Deferred tax assets:
Inventories
$
1,286
$
759
Allowance for doubtful accounts
814
—
Deferred financing fees
1,006
1,339
Start-up costs
2,174
3,886
Other accruals
488
33
Total deferred tax assets
5,768
6,017
Deferred tax liabilities:
Depreciation and amortization
26,343
15,235
Prepaid expenses
1,190
1,252
Other
—
49
Total deferred tax liabilities
27,533
16,536
Net deferred tax liabilities
$
21,765
$
10,519
Current income taxes payable of $2.9 million and
$2.1 million are included in other accrued expenses at
December 31, 2004 and 2003, respectively. Current deferred
tax liability of $0.5 million is included in other accrued
expenses at December 31, 2003.
The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods
in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income and tax planning
strategies in making this assessment. Based upon the level of
historical taxable income and projections of future taxable
income over the periods in which the deferred tax assets will be
deductible, management believes it is more likely than not that
NWW will realize the benefits of these temporary differences at
December 31, 2004 and, therefore, has not established a
valuation allowance.
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
At December 31, 2002, NWW had a net operating loss
carryforward for Federal and state income tax purposes of
approximately $15.6 million which was available to offset
Federal taxable income through 2022 and future taxable income in
various states through 2007. The entire net operating loss
carryforward was utilized during 2003 for both Federal and state
income tax purposes.
(12)
Completion Bonuses and Restricted Stock Agreements
In April 2002, USFC entered into agreements with certain members
of management and other key employees of USFDG, to provide them
with an opportunity to earn cash incentive "completion
bonuses" in connection with the anticipated sale of USFDG.
Completion bonus payments were made by USFC following
consummation of the acquisition to each employee with such an
agreement, unless such individual's employment was
terminated voluntarily or for cause prior thereto. Payments by
USFC pursuant to these arrangements totaled $6.2 million
for the period of January 1, 2002 through November 21,
2002.
In November 2002, certain employees of NWW purchased shares of
Class A and Class B Common Stock and entered into a
restricted stock agreement related to the shares of Class A
common stock. Under the terms of the restricted stock agreement,
NWW has the option to repurchase the Class A shares at the
lower of the then current fair value of the stock or the
employees' purchase price. Certain shares subject to
repurchase by NWW are reduced over a four-year period
("time based shares") with the remaining shares being
reduced over a four-year period if certain financial measures,
as defined in the restricted stock agreement, are met by
National Waterworks, Inc. ("performance based
shares"). If the employee remains employed by NWW, and if
the performance based targets are not met, NWW ceases to have
the right to repurchase such shares on the eighth anniversary of
the date of the restricted stock agreement.
In the event the employee ceases employment with NWW, there is
no further reduction in the shares then subject to repurchase.
If an employee is terminated without cause within one year of a
sale of NWW or National Waterworks, Inc., NWW ceases to have the
right to repurchase any time-based shares then subject to
repurchase. In addition, if there is a sale of NWW or National
Waterworks, Inc. or a public offering of the equity securities
of either company, NWW ceases to have the right to repurchase
any performance based shares then subject to repurchase if
J.P. Morgan Partners, LLC and Thomas H. Lee Partners, L.P.
and their affiliates realize a specified return on their
original investments as defined in the restricted stock
agreement. In the event the employee is terminated for cause,
all shares purchased by the employee are subject to repurchase
by NWW.
As of December 31, 2004 and 2003, respectively, 248,962 and
376,860 outstanding shares of Class A common stock were
unvested.
(13)
Employee Benefit Plans
Retirement Savings Plan.
NWW adopted a 401(k) retirement
savings plan on January 1, 2003 which is available to full
time and full time equivalent employees. The plan allows
employees to contribute a portion of their compensation on a
pretax basis, subject to statutory limits. NWW matches 50% of up
to 7% of participant contributions. Expenses charged to
operations related to this plan were $2.1 million and
$1.9 million for the years ended December 31, 2004 and
2003, respectively.
Management Deferred Compensation Plan.
NWW established a
non-qualified management deferred compensation plan on
January 1, 2003. The plan allows eligible employees to
defer up to 50% of their regular taxable earnings and up to 100%
of their annual bonus, as described in the plan. The
participants' contributions are not matched by NWW.
Although there are no specific funding requirements under the
plan, NWW has elected to fund the plan through contributions to
a rabbi trust. The fair value of the assets held in the rabbi
trust was $2.9 million and $1.6 million at
December 31, 2004 and 2003, respectively, and is included
in other assets. The fair value of the participant accounts was
$3.1 million and $1.7 million at December 31,
2004 and 2003, respectively, and is included in other long-term
liabilities.
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(14)
Commitments and Contingencies
Certain of USFDG's predecessors distributed or may have
distributed cement pipe containing asbestos. Except for one
predecessor, the cement pipe distributed was primarily used in
water and sewage application where the pipe was typically buried
underground. Management believes that the nature of the
asbestos-containing pipe distributed by the predecessors and the
uses of such pipe makes it unlikely that a large number of
plaintiffs would be exposed to friable asbestos emanating from
the pipe. Management is not aware of any predecessor
manufacturing or fabricating asbestos containing products of any
type or assuming any product liability for such products.
As discussed in Note 3, USFC and USFDG completed an
agreement to sell substantially all of USFDG's assets, net
of certain liabilities as defined in the sales agreement, to
NWW. The November 2002 acquisition was structured as an asset
purchase and NWW did not assume any existing or future
asbestos-related liabilities relating to USFC or its
predecessors. USFC and USFDG retained these liabilities and
jointly and severally agreed to indemnify and defend NWW from
and against these liabilities on an unlimited basis with no
termination date. USFC and USFDG also agreed that, until
November 22, 2012, USFC will cause USFDG to maintain
USFDG's corporate existence and ensure that USFDG has
sufficient funds to pay any and all of its debts and other
obligations, including liabilities retained by USFDG and its
indemnification obligations, as and when they become due. In
addition, Veolia has guaranteed all obligations of USFC and
USFDG under the asset purchase agreement, including the
indemnity discussed above, up to an aggregate of
$50.0 million through the period ending November 22,
2017. Historically, courts have not held the acquirer of an
entity's assets liable for liabilities that are not assumed
as part of the transaction unless the asset buyer is found to be
a "successor" to the asset seller. Accordingly, we
could become subject to asbestos liabilities in the future to
the extent we are found to be a successor to USFDG and to the
extent USFDG, USFC and Veolia are unable to fulfill their
contractual obligations. As the asbestos claims were retained by
USFDG and USFC and in view of the indemnity by USFDG and USFC
with respect to retained liabilities and the Veolia guarantee,
discussed above, management of NWW believes that it has no
liability related to asbestos claims at December 31, 2004
and 2003.
USFDG and its predecessor companies have been named as
defendants in 1,172 asbestos related lawsuits, of which 960 have
been dismissed, 143 have been settled and 69 remain open at
December 31, 2004. The majority of these suits have related
to one location and have either been dismissed or settled for
nominal amounts. USFDG's insurers have paid the majority of
the settlement and defense costs related to these suits. As of
December, 31, 2004, USFDG has made aggregate settlement
payments of $0.1 million and paid aggregate defense costs
of $0.5 million related to settled claims.
NWW is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not
have a material adverse effect on NWW's financial position
or results of operations.
(15)
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents and
long-term debt as of December 31, 2004 and 2003. The
carrying amount of cash and cash equivalents approximates the
fair value because of the short-term nature of these
instruments. The aggregate fair value of the senior subordinated
notes long-term debt is estimated at $475.0 million and
$228.0 million at December 31, 2004 and 2003,
respectively, based on quoted market prices and NWW's
estimates as of those dates, compared to the aggregate carrying
value of $450.0 million and $200.0 million,
respectively. The carrying value of the term loan under
NWW's financing agreement approximates the fair value as
the interest rates float with market interest rates.
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(16)
Related Party Transactions
In November 2002, NWW entered into a management agreement with
J.P. Morgan Partners, LLC and Thomas A. Lee Partners, L.P.
("Sponsors"). Each of the Sponsors and its affiliates
owns 43.3% of the outstanding common stock of NWW. Under the
agreement, the Sponsors agreed to provide NWW with financial
advisory and other services. Beginning July 1, 2004, NWW
pays each Sponsor an annual management fee of $0.5 million
for these services. The management agreement continues until
terminated by a Sponsor as provided in the management agreement.
Upon termination under certain conditions, each Sponsor will be
entitled to receive a termination fee equal to the net present
value of the fees that would have been paid to the Sponsor for
the 10-year period commencing on the date of termination.
In connection with the Acquisition, NWW paid each Sponsor a
transaction fee in the amount of $8.0 million
($16.0 million in the aggregate). NWW also paid all
expenses of the Sponsors and their controlled affiliates,
including the fees and expenses of their respective counsel and
other advisors and consultants, in connection with the
Acquisition. These arrangements with the Sponsors also contain
standard indemnification provisions by NWW of the Sponsors.
Additionally, in connection with the Acquisition, NWW entered
into the senior credit facility with J.P. Morgan Securities
Inc. as a co-syndication agent and as a joint lead arranger and
Chase Lincoln First Commercial Corp., an affiliate of JPMorgan
Chase Bank, as a lender. J.P. Morgan Securities Inc. was
also an initial purchaser of NWW's senior subordinated
notes. Both J.P. Morgan Securities Inc. and Chase Lincoln
First Commercial Corp. are affiliates of J.P. Morgan
Partners, LLC. In connection with the senior credit facility,
J.P. Morgan Securities Inc. and Chase Lincoln First
Commercial Corp. received customary fees for acting in such
capacities. J.P. Morgan Securities Inc. also received a
proportionate share of the initial purchasers discount in
connection with the offering of NWW's senior subordinated
notes. In addition, J.P. Morgan Securities also received a
customary fee in respect of a bridge financing commitment which
was not utilized. J.P. Morgan Securities Inc. was also paid
usual and customary arrangement fees in connection with the
execution of the First, Second and Third amendments to
NWW's senior credit facility.
In January 2003, one of the directors of NWW and National
Waterworks, Inc. who had not made an investment in NWW at the
time the acquisition was consummated made a $1.0 million
cash equity investment in NWW in exchange for the issuance of
shares of NWW common stock. The investment was made at the same
price per share as the original investment made by the Sponsors
and management on November 22, 2002.
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
(17)
Valuation and Qualifying Accounts
Activity related to NWW's valuation and qualifying accounts
is summarized as follows (in thousands):
Beginning
Ending
Balance
Additions
Deductions
Balance
Period of January 1, 2002
through November 21, 2002:
Accounts receivable allowance
$
3,941
$
1,252
$
(1,634
)
$
3,559
Inventory allowance
2,830
389
(3,219
)
—
Period of November 22, 2002
through December 31, 2002:
Accounts receivable allowance
—
3,441
(47
)
3,394
Year ended December 31, 2003:
Accounts receivable allowance
3,394
953
(1,134
)
3,213
Year ended December 31, 2004:
Accounts receivable allowance
3,213
1,076
(797
)
3,492
(18)
Parent Company Only Financial Statements
NWW generates all of its cash from the operations of National
Waterworks, Inc. As discussed in note 10, the senior credit
facility of National Waterworks, Inc. restricts the total
dividends that may be paid to NWW. Accordingly, substantially
all of National Waterworks, Inc.'s net assets of
$219.8 million were restricted as to distribution to NWW as
of December 31, 2004.
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following condensed parent company only financial statements
of NWW account for the investment in National Waterworks, Inc.
under the equity method of accounting. These condensed financial
statements should be read in conjunction with the consolidated
financial statements of NWW and notes thereto.
National Waterworks Holdings, Inc. (Parent Company Only)
Condensed Balance Sheets
(in thousands)
December 31,
December 31,
2004
2003
Assets
Current assets:
Cash and cash equivalents
$
3,006
$
—
Other current assets
6
—
Total current assets
3,012
—
Deferred financing fees, less accumulated amortization of $101
    at December 31, 2004
5,469
—
Investment in National Waterworks, Inc.
219,800
199,473
Total assets
$
228,281
$
199,473
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Trade accounts payable
$
20
$
—
Other accrued expenses
1,445
—
Total current liabilities
1,465
—
Long-term debt, excluding current installments
250,000
—
Total liabilities
251,465
—
Total stockholders' equity (deficit)
(23,184
)
199,473
Total liabilities and stockholders' equity (deficit)
$
228,281
$
199,473
Condensed Statements of Operations
(in thousands)
Period of
November 22,
Year Ended
Year Ended
2002 through
December 31,
December 31,
December 31,
2004
2003
2002
Equity in net income (loss) of National Waterworks, Inc.
$
51,163
$
33,641
$
(5,894
)
Interest expense
5,560
—
—
Total expenses
5,560
—
—
Income (loss) before income taxes
45,603
33,641
(5,894
)
Income tax benefit
2,029
—
—
Net income (loss)
$
47,632
$
33,641
$
(5,894
)
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Condensed Statements of Cash Flows
(in thousands)
Period of
November 22,
Year Ended
Year Ended
2002 through
December 31,
December 31,
December 31,
2004
2003
2002
Cash flows from operating activities:
Net income (loss)
$
47,632
$
33,641
$
(5,894
)
Adjustments to reconcile net income to net cash from operating
    activities:
Amortization of deferred financing fees
101
—
—
Non-cash stock compensation expense
562
—
—
Undistributed net income (loss) of National Waterworks,
    Inc.
(20,327
)
—
5,894
Change in other current assets
(6
)
—
—
Change in trade accounts payable and accrued expenses
1,465
—
—
Net cash from operating activities
29,427
33,641
—
Cash flows from investing activities:
Contributions to National Waterworks, Inc.
—
(1,000
)
(209,999
)
Return of capital from National Waterworks, Inc.
—
5,632
—
Net cash from investing activities
—
4,632
(209,999
)
Cash flows from financing activities:
Proceeds from long-term debt
250,000
—
—
Financing fees
(5,570
)
—
—
Stockholder contributions
—
1,000
209,999
Distributions to stockholders
(270,851
)
(39,273
)
—
Net cash from financing activities
(26,421
)
(38,273
)
209,999
Net increase in cash and cash equivalents
3,006
—
—
Cash and cash equivalents at beginning of period
—
—
—
Cash and cash equivalents at end of period
$
3,006
$
—
$
—
F-25
Table of Contents
National Waterworks Holdings, Inc.
Table of Contents
Part II — Information Not Required in
Prospectus
Item 13.
Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other
than underwriting discounts and commissions, payable by National
Waterworks Holdings, Inc. in connection with the issuance and
sale of the securities being registered. All amounts are
estimates except the SEC registration and NYSE filing fees.
SEC registration fee
$
47,080
NASD filing fee
40,500
NYSE filing fee*
Transfer agent's fee*
Printing and engraving expenses*
Legal and accounting fees and expenses*
Miscellaneous*
Total*
$
*
To be completed by amendment.
Item 14.
Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law
("DGCL") provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or
proceeding whether civil, criminal or investigative (other than
an action by or in the fight of the corporation) by reason of
the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit
or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his
conduct was unlawful. Section 145 further provides that a
corporation similarly may indemnify any such person serving in
any such capacity who was or is a party or is threatened to be
made a party to any threatened, pending or completed action or
suit by or in the fight of the corporation to procure a judgment
in its favor, against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense
or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the
Delaware Court of Chancery or such other court in which such
action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
Section 102(b)(7) of the DGCL permits a corporation to
include in its certificate of incorporation a provision
eliminating or limiting the personal liability of a director to
the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a
director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for
acts or omission not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (relating to unlawful payment of
dividends and unlawful stock purchase and redemption) or
(iv) for any transaction from which the director derived an
improper personal benefit.
II-1
Table of Contents
In accordance with the provisions of the Amended and Restated
Certificate of Incorporation and Amended and Restated By-laws of
National Waterworks Holdings, Inc., National Waterworks
Holdings, Inc. shall indemnify, to the fullest extent permitted
by law, any person who is or was a party, or is threatened to be
made a party to, any threatened, pending or contemplated action,
suit or other type of proceeding (other than an action by or in
our right), whether civil, criminal, administrative,
investigative or otherwise, and whether formal or informal, by
reason of the fact that such person is or was National
Waterworks Holdings, Inc.'s director, officer or employee
or is or was serving at National Waterworks Holdings,
Inc.'s request (as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise) against judgments, amounts paid in settlement,
penalties, fines (including an excise tax assessed with respect
to any employee benefit plan) and expenses (including counsel
fees) actually and reasonably incurred in connection with any
such action, suit or other proceeding, including any appeal
thereof, if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, National
Waterworks Holdings, Inc.'s best interests and, with
respect to any criminal action or proceeding, had no reasonable
cause to believe such person's conduct was unlawful. In
addition, National Waterworks Holdings, Inc. also carries
insurance on behalf of its directors, officers, employees or
agents that may cover liabilities under the Securities Act.
National Waterworks Holdings, Inc. provides its directors and
officers with additional director and officer liability
insurance.
Item 15.
Recent Sales of Unregistered Securities
Set forth below in chronological order is certain information
regarding securities issued by the Registrant in the last three
years in transactions that were not registered under the
Securities Act, including the consideration, if any, received by
the Registrant for such issuances.
1. On November 22, 2002, the Registrant issued
    2,059,351 shares of Class B common stock to entities
    affiliated with JPMP for an aggregate purchase price of
    $102,967,550.
2. On November 22, 2002, the Registrant issued
    2,059,351 shares of Class B common stock to entities
    affiliated with TH Lee for an aggregate purchase price of
    $102,967,550.
3. On November 22, 2002, the Registrant issued
    511,590.36 shares of Class A common stock to certain
    of its executives for an aggregate purchase price of $9,152.
4. On November 22, 2002, the Registrant issued
    61,098 shares of Class B common stock to certain of
    its executives for an aggregate purchase price of $3,054,900.
5. On November 22, 2003, the Registrant issued
    20,000 shares of Class B common stock to one of its
    directors for an aggregate purchase price of $1,000,000.
6. On January 29, 2003, the Registrant issued
    20,000 shares of Class B common stock to entities
    affiliated with one of its directors for an aggregate purchase
    price of $1,000,000.
7. On October 29, 2004, the Registrant issued
    $250,000,000 of 12.50% senior subordinated notes due 2012
    to certain private investors, including affiliates of Goldman,
    Sachs & Co.
8. On March 1, 2005, the Registrant granted stock
    options to one of its executive officers to
    purchase 95,628 shares of its Class A common
    stock for an aggregate exercise price of $9,754,056.
Each of the above-described transactions were exempt from
registration (i) pursuant to Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, as
transactions not involving a public offering or (ii) in the
case of stock options, as transactions not involving a sale of
securities. With respect to each transaction listed above, no
general solicitation was made by either the Registrant or any
person acting on its behalf; the securities sold are subject to
transfer restrictions; and the certificates for the shares
contained an appropriate legend stating such securities have not
been registered under the Securities Act and may not be offered
or sold absent, registration or pursuant to an exemption
therefrom.
II-2
Table of Contents
Item 16.
Exhibits and Financial Statement Schedules
(a)
Exhibits
Exhibit
Number
Exhibit
1
.1
Form of Underwriting Agreement.**
2
.1
Asset Purchase Agreement dated September 12, 2002 by and
    among United States Filter Corporation, U.S. Filter
    Distribution Group, Inc. and National Waterworks, Inc.
    (Incorporated by reference to Exhibit 2.1 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
3
.1
Form of Amended and Restated Certificate of Incorporation of
    National Waterworks Holdings, Inc.**
3
.2
Form of Amended and Restated By-laws of Incorporation of
    National Waterworks Holdings, Inc.**
4
.1
Indenture, dated as of November 22, 2002, between National
    Waterworks, Inc. and Wells Fargo Bank, Minnesota, National
    Association, as Trustee (Incorporated by Reference to
    Exhibit 4.1 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
4
.2
Form of Senior Subordinated Note, Series B, due 2012 (a
    form of which is incorporated by reference to an exhibit to the
    Indenture filed as Exhibit 4.1 to National Waterworks,
    Inc.'s Registration Statement on Form S-4, File
    No. 333-102430).
4
.3
Exchange and Registration Rights Agreement, dated as of
    November 22, 2002, among National Waterworks, Inc.,
    Goldman, Sachs & Co., J.P. Morgan Securities Inc.
    and UBS Warburg LLC (Incorporated by reference to
    Exhibit 4.3 of National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
5
.1
Opinion of O'Melveny & Myers LLP.**
10
.1
Credit Agreement, dated as of November 22, 2002, among
    National Waterworks Holdings, Inc., National Waterworks, Inc.,
    as Borrower, the several lenders from time to time parties
    thereto, J.P. Morgan Securities Inc., as Co-Syndication
    Agent, Goldman Sachs Credit Partners L.P., as Co-Syndication
    Agent, General Electric Capital Corporation, as Co-Documentation
    Agent, Antares Capital Corporation, as Co-Documentation Agent
    and UBS AG, Stamford Branch, as Administrative Agent
    (Incorporated by Reference to Exhibit 10.1 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.2
Guarantee and Collateral Agreement, dated as of
    November 22, 2002, among National Waterworks Holdings,
    Inc., and National Waterworks, Inc. as Borrower in favor of UBS
    AG, Stamford branch, as Administrative Agent (Incorporated by
    Reference to Exhibit 10.2 to National Waterworks,
    Inc.'s Registration Statement on Form S-4, File
    No. 333-102430).
10
.3
Deed of Trust, Assignment of Rents and Leases and Security
    Agreement, dated as of November 22, 2002, made by National
    Waterworks, Inc for the use and benefit of UBS AG, Stamford
    Branch, as Administrative Agent. (St. Louis, MO)
    (Incorporated by Reference to Exhibit 10.3 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.4
Deed of Trust, Assignment of Rents and Leases, Fixture Filing
    and Security Agreement, dated as of November 22, 2002, made
    by National Waterworks, Inc for the use and benefit of UBS AG,
    Stamford Branch, as Administrative Agent (Puyallup, WA)
    (Incorporated by Reference to Exhibit 10.4 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.5
Employee Leasing Agreement between United States Filter
    Corporation, U.S. Filter Distribution Group, Inc. and
    National Waterworks, Inc., dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.5 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.6
Reimbursement Agreement between United States Filter Corporation
    and National Waterworks, Inc., dated as of November 22,
    2002 (Incorporated by Reference to Exhibit 10.6 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
II-3
Table of Contents
Exhibit
Number
Exhibit
10
.7
Stockholders Agreement among National Waterworks Holdings, Inc.,
    THL Managers V, LLC and certain of its affiliates,
    J.P. Morgan Partners, LLC and certain of its affiliates,
    and the other parties thereto, dated as of November 22,
    2002 (Incorporated by Reference to Exhibit 10.7 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.8
Registration Rights Agreement among National Waterworks
    Holdings, Inc. and its stockholders, dated as of
    November 22, 2002 (Incorporated by Reference to
    Exhibit 10.8 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.9
Subscription and Stock Purchase Agreement by and among National
    Waterworks Holdings, Inc. and each of Thomas H. Lee Equity
    Fund V, L.P., Thomas H. Lee Parallel Fund V, L.P.,
    Thomas H. Lee Equity (Cayman) Fund V, L.P., Putnam
    Investments Holdings, LLC, Putnam Investments Employees'
    Securities Company I LLC, Putnam Investments Employees'
    Securities Company II LLC, 1997 Thomas H. Lee Nominee
    Trust, Thomas H. Lee Investors Limited Partnership,
    J.P. Morgan Partners (BHCA), L.P., J.P. Morgan
    Partners Global Investors, L.P., J.P. Morgan Partners
    Global Investors (Cayman), L.P., J.P. Morgan Partners
    Global Investors A, L.P., J.P. Morgan Partners Global
    Investors (Cayman) II, L.P. and Latona NW Investment, LLC,
    dated as of November 22, 2002 (Incorporated by Reference to
    Exhibit 10.9 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.10
Subscription and Stock Purchase Agreement by and among National
    Waterworks Holdings, Inc. and each of Harry Hornish, Mechelle
    Slaughter, Terry Howell, Rob Hickson, Ed Maczko, Ron Hood, Jerry
    Webb, Irving Welchons, Jack Schaller, Joe Walker, Phil Keipp and
    Jack Olson, dated as of November 22, 2002 (Incorporated by
    Reference to Exhibit 10.10 to National Waterworks,
    Inc.'s Registration Statement on Form S-4, File
    No. 333-102430).
10
.11
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Harry Hornish, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.11 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.12
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Mechelle Slaughter, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.12 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.13
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Terry Howell, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.13 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.14
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Rob Hickson, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.14 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.15
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Ed Maczko dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.15 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.16
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Ron Hood, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.16 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.17
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jerry Webb, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.17 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.18
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Irving Welchons, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.18 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.19
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jack Schaller, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.19 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.20
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Joe Walker, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.20 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
II-4
Table of Contents
Exhibit
Number
Exhibit
10
.21
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Philip Keipp, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.21 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.22
Restricted Stock Agreement between National Waterworks Holdings,
    Inc. and Jack Olson, dated as of November 22, 2002
    (Incorporated by Reference to Exhibit 10.22 to National
    Waterworks, Inc.'s Registration Statement on Form S-4,
    File No. 333-102430).
10
.23
Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Harry Hornish, dated as of
    November 22, 2002 (Incorporated by Reference to
    Exhibit 10.23 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.24
Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Mechelle Slaughter, dated as of
    November 22, 2002 (Incorporated by Reference to
    Exhibit 10.24 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.25
Amended and Restated Employment Agreements between National
    Waterworks, Inc. and Terry Howell, dated as of November 22,
    2002 (Incorporated by Reference to Exhibit 10.25 to
    National Waterworks, Inc.'s Registration Statement on
    Form S-4, File No. 333-102430).
10
.26
Management Agreement between National Waterworks, Inc., THL
    Managers V, LLC and certain of its affiliates and
    J.P. Morgan Partners, LLC and certain of its affiliates,
    dated as of November 22, 2002 (Incorporated by Reference to
    Exhibit 10.26 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.27
Fee Agreement between National Waterworks, Inc., THL
    Managers V, LLC and certain of its affiliates and
    J.P. Morgan Partners, LLC and certain of its affiliates,
    dated September 30, 2002 (Incorporated by Reference to
    Exhibit 10.27 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.28
Tax Sharing Agreement between National Waterworks, Inc. and
    National Waterworks Holdings, Inc., dated as of
    November 22, 2002 (Incorporated by Reference to
    Exhibit 10.28 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.29
Real property lease covering premises located at 200 Highway 6
    West, Suite 620, Waco, TX (Incorporated by Reference to
    Exhibit 10.29 to National Waterworks, Inc.'s
    Registration Statement on Form S-4, File
    No. 333-102430).
10
.30
First Amendment, dated as of August 7, 2003, with respect
    to the Credit Agreement, dated as of November 22, 2002,
    among National Waterworks Holdings, Inc., National Waterworks,
    Inc., the several banks and other financial institutions or
    entities from time to time parties to the Credit Agreement,
    J.P. Morgan Securities Inc. and Goldman Sachs Credit
    Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent. (Incorporated by reference to
    Exhibit 10.32 to National Waterworks, Inc.'s Quarterly
    Report on Form 10-Q for the quarter ended June 27,
    2003).
10
.31
Second Amendment, dated as of December 2, 2003, with
    respect to the Credit Agreement, dated as of November 22,
    2002, among National Waterworks Holdings, Inc., National
    Waterworks, Inc., the several banks and other financial
    institutions or entities from time to time parties to the Credit
    Agreement, J.P. Morgan Securities Inc. and Goldman Sachs
    Credit Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent (Incorporated by reference to
    Exhibit 10.31 to National Waterworks, Inc.'s Annual
    Report on Form 10-K for the fiscal year ended
    December 31, 2003).
10
.32
Third Amendment, dated as of October 26, 2004, with respect
    to the Credit Agreement, dated as of November 22, 2002,
    among National Waterworks Holdings, Inc., National Waterworks,
    Inc., the several banks and other financial institutions or
    entities from time to time parties to the Credit Agreement,
    J.P. Morgan Securities Inc. and Goldman Sachs Credit
    Partners L.P., as co-syndication agents, General Electric
    Capital Corporation and Antares Capital Corporation, as
    co-documentation agents, and UBS AG, Stamford Branch, as
    administrative agent (Incorporated by reference to
    Exhibit 10.32 to National Waterworks, Inc.'s Current
    Report on Form 8-K dated October 26, 2004).
II-5
Table of Contents
Exhibit
Number
Exhibit
10
.33
Employment Agreement between National Waterworks, Inc. and
    Philip Keipp, dated as of March 1, 2005 (Incorporated by
    reference to Exhibit 10.31 to National Waterworks,
    Inc.'s Annual Report on Form 10-K for the fiscal year
    ended December 31, 2004).
10
.34
Stock Option Agreement between National Waterworks Holdings,
    Inc. and Philip Keipp, dated as of March 1, 2005
    (Incorporated by reference to Exhibit 10.32 to National
    Waterworks, Inc.'s Annual Report on Form 10-K for the
    fiscal year ended December 31, 2004).
21
.1
List of Subsidiaries.**
23
.1
Consent of KPMG LLP
23
.2
Consent of O'Melveny & Myers LLP (included in
    Exhibit 5.1).
24
.1
Powers of Attorney (included on signature page).
**
To be filed by Amendment.
Item 17.
Undertakings
1. The undersigned registrant hereby undertakes to provide
to the underwriters at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriters to permit prompt
delivery to each purchaser.
2. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is therefore
unenforceable. In the event that a claim for indemnification by
the registrant against such liabilities, other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding, is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
3. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act of 1933 shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-6
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Waco, State of Texas, on the
4th day of April, 2005.
NATIONAL WATERWORKS HOLDINGS, INC.
By:
/s/
Harry K.
    Hornish, Jr.
Harry K. Hornish, Jr.
Chief Executive Officer
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints HARRY K.
HORNISH, JR. and PHILIP KEIPP, or either of them, his or her
true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities to sign any and
all amendments (including post-effective amendments) to the
registration statement, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said
attorney-in-fact and agent, and each of them, full power and
authority to do and perform each and every act and thing
requisite or necessary to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all
that each said attorney-in-fact and agent or any of them or
their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons
in the capacities and on the dates indicated:
Signature
Title
Date
/s/
Harry K.
    Hornish, Jr.
Harry
    K. Hornish, Jr.
President, Chief Executive Officer and Director
(Principal Executive Officer)
April 4, 2005
/s/
Philip Keipp
Philip
    Keipp
Chief Financial Officer (Principal Financial and Accounting
    Officer)
April 4, 2005
/s/
Todd M. Abbrecht
Todd
    M. Abbrecht
Director
April 4, 2005
/s/
Anthony J. DiNovi
Anthony
    J. DiNovi
Director
April 4, 2005
/s/
Stephen V. McKenna
Stephen
    V. McKenna
Director
April 4, 2005
/s/
Paul M. Meister
Paul
    M. Meister
Director
April 4, 2005
II-7
Table of Contents
Signature
Title
Date
/s/
C. Dean Metropoulos
C.
    Dean Metropoulos
Director
April 4, 2005
/s/
Stephen P. Murray
Stephen
    P. Murray
Director
April 4, 2005
/s/
Kevin G.
    O'Brien
Kevin
    G. O'Brien
Director
April 4, 2005
/s/
Soren L. Oberg
Soren
    L. Oberg
Director
April 4, 2005
/s/
Andrew D. Seidel
Andrew
    D. Seidel
Director
April 4, 2005
II-8