SECURITIES AND EXCHANGE COMMISSION ~~WASHINGTON, D.C. 20549~~

WASHINGTON, D.C. 20549

FORM 10-Q

~~[X]~~x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~ June 30, ~~2002~~ 2003

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


		For the Transition period from _______________ to ________________

Commission ~~File~~file ~~Number~~ number 0-20328

AMTROL ~~INC~~Inc.

(Exact Name of Registrant as Specified in its Charter)

Rhode Island		05-0246955
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

1400 Division Road, West Warwick, RI 02893-1008

(Address of principal executive offices)

Registrant’s telephone number, including area code: (401) 884-6300

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X x No o.

Indicate ~~the~~by ~~number~~check ofmark ~~shares~~whether ~~outstanding~~the ofRegistrant ~~each~~is ofan ~~the~~accelerated ~~issuer’s~~filer ~~classes of~~(as ~~common~~defined ~~stock,~~in asRule 12b-2 of the ~~latest~~Exchange ~~practicable date: $~~Act).01 ~~Par Value: 100 shares of Common stock as of November~~Yes ~~13, 2002~~o No x.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: $.01 Par Value: 100 shares of Common stock as of August 13, 2003.

TABLE OF CONTENTS

Consolidated Balance Sheets (In Thousands)
	Condensed Consolidated Balance Sheets
Consolidated Statements of Operations (Unaudited — in Thousands)
	Condensed Consolidated Statements of Operations
Consolidated Statements of Shareholders’ Equity
	Condensed Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
	Condensed Consolidated Statements of Cash Flows
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
	ITEM 2.
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	Item 4. Controls and Procedures
	ITEM 4. CONTROLS AND PROCEDURES
PART II
	ITEM 1. LEGAL PROCEEDINGS
	Item 1. Legal Proceedings
	ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 2. Changes in Securities and Use of Proceeds
	ITEM 3. DEFAULTS UPON SENIOR SECURITIES
	Item 3. Defaults Upon Senior Securities
	ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 4. Submission of Matters to a Vote of Security Holders
	ITEM 5. OTHER INFORMATION
	Item 5. Other Information
	ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Signatures
CERTIFICATIONS
EX-31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATIONS
EX-31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER
EX-32.1 CERTIFICATION TO SECT. 906 (CEO)
EX-32.2 CERTIFICATION TO SECT. 906 (CFO)

~~FORM~~AMTROL ~~10-Q~~INC. ~~FOR~~AND ~~THE QUARTER ENDED SEPTEMBER 30, 2002~~SUBSIDIARIES

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2003

INDEX

		~~PAGE~~	PAGE
PART I	FINANCIAL INFORMATION
PART I.		Financial Information
Item 1.	~~Consolidated Balance Sheets — September 30, 2002 and December 31, 2001~~	3Condensed Consolidated Balance Sheets - June 30, 2003 and December 31, 2002		3
	Consolidated Statements of Operations — For the Quarter and Nine Months Ended September 30, 2002 and September 30, 2001	4
		Condensed Consolidated Statements of Operations - For the Quarter and Six Months Ended June 30, 2003 and June 30, 2002		4
	Consolidated Statements of Shareholders’ Equity — For the Nine Months Ended September 30, 2002 and September 30, 2001	5
		Condensed Consolidated Statements of Shareholders’ Equity - For the Six Months Ended June 30, 2003 and June 30, 2002		5
	Consolidated Statements of Cash Flows — For the Nine Months Ended September 30, 2002 and September 30, 2001	6
		Condensed Consolidated Statements of Cash Flows - For the Six Months Ended June 30, 2003 and June 30, 2002		6
	Notes to Consolidated Financial Statements	7
		Notes to Condensed Consolidated Financial Statements		7
Item 2.	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	14Management’s Discussion and Analysis of Financial Condition and Results of Operations		15
Item 3.	~~Quantitative and Qualitative Disclosures About Market Risk~~	19Quantitative and Qualitative Disclosures About Market Risk		21
Item 4.	~~Controls and Procedures~~	19Controls and Procedures		21
PART II	OTHER INFORMATION
PART II.		Other Information
Item 1.	~~Legal Proceedings~~	21Legal Proceedings		22
Item 2.	~~Changes in Securities and Use of Proceeds~~	21Changes in Securities and Use of Proceeds		22
Item 3.	~~Defaults Upon Senior Securities~~	21Defaults Upon Senior Securities		22
Item 4.	~~Submission of Matters to a Vote of Security Holders~~	21Submission of Matters to a Vote of Security Holders		22
Item 5.	~~Other Information~~	21Other Information		22
Item 6.	~~Exhibits and Reports on Form 8-K~~	21Exhibits and Reports on Form 8-K		22
	~~Signatures~~	22Signatures		23
	~~Certifications~~	23Certifications		24

AMTROL INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (In thousands) ASSETS

				Unaudited	~~Unaudited~~				~~Audited~~
					September 30, 2002				December 31, 2001
				June 30, 2003				December 31, 2002
ASSETS
Current Assets:
Current Assets:
		Cash and cash equivalents		$	592			$	1,797
	Cash and cash equivalents				$	—			$	983
		Accounts receivable, less allowance for doubtful accounts			33,069				29,765
	Accounts receivable, less allowance for doubtful accounts					30,026				28,456
		Inventories			23,538				22,445
	Inventories					23,435				19,785
		Tax refund receivable			2,979				2,233
	~~Deferred income taxes — short-term~~	Deferred income taxes — short-term			1,681	~~1,739~~			1,681	~~1,739~~
	Tax refund receivable					1,522				1,623
		Prepaid expenses and other			1,762				1,357
	Prepaid expenses and other					556				680
			Total current assets		63,621				59,278
		Total current assets				57,278				53,266
Property, Plant and Equipment, Net					36,529				38,501
Property, Plant and Equipment, Net						38,340				41,192
Other Assets:
Other Assets:
		Goodwill			119,205				119,205
	Goodwill					157,624				157,292
		Deferred financing costs			3,687				4,186
	Deferred financing costs					4,521				4,233
		Deferred income taxes — long-term			7,267				7,267
	Deferred income taxes — long-term					7,209				7,209
		Other			1,463				1,227
	Other					1,544				1,263
			Total other assets		131,622				131,885
		Total other assets				170,898				169,997
				$	231,772			$	229,664
					$	266,516			$	264,455
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Current Liabilities:
		Current maturities of long-term debt		$	2,957			$	2,957
	Current maturities of long-term debt				$	2,957			$	2,218
		Notes payable to banks			7,468				6,923
	Notes payable to banks					7,320				7,930
		Accounts payable			27,727				23,826
	Accounts payable					22,882				20,949
		Accrued expenses			11,591				16,773
	Accrued expenses					11,686				10,856
		Accrued interest			90				203
	Accrued interest					3,193				752
		Accrued income taxes			1,316				719
	Accrued income taxes					2,083				1,959
			Total current liabilities		51,149				51,401
		Total current liabilities				50,121				44,664
Other Noncurrent Liabilities					3,744				4,023
Other Noncurrent Liabilities						3,831				4,061
Long Term Debt, Less Current Maturities					160,912				158,391
Long Term Debt, Less Current Maturities						157,252				157,511
Shareholders’ Equity:
Shareholders’ Equity:
		Capital stock $.01 par value — authorized 1,000 shares, 100 shares issued			—				—
	Capital stock $.01 par value — authorized 1,000 shares, 100 shares issued					—				—
		Additional paid-in capital			99,273				99,273
	Additional paid-in capital					99,273				99,273
		Retained deficit			(82,890	)			(81,393	)
	Retained deficit					(40,888	)			(36,064	)
		Accumulated other comprehensive loss			(416	)			(2,031	)
	Accumulated other comprehensive loss					(3,073	)			(4,990	)
			Total shareholders’ equity		15,967				15,849
		Total shareholders’ equity				55,312				58,219
				$	231,772			$	229,664
					$	266,516			$	264,455

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

AMTROL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations ~~(Unaudited — in Thousands)~~

	QUARTER ENDED						NINE MONTHS ENDED
	September 30,			September 30,			September 30,			September 30,
	2002			2001			2002			2001
Net sales	$	47,381		$	45,417		$	141,046		$	140,636
Cost of goods sold		35,881			34,418			107,967			108,770
Gross profit		11,500			10,999			33,079			31,866
Operating expenses:
Selling, general and administrative		7,043			6,715			21,077			20,391
Amortization of goodwill		—			1,112			—			3,338
Income from operations		4,457			3,172			12,002			8,137
Other income (expense):
Interest expense		(4,983	)		(4,911	)		(14,906	)		(14,737	)
Interest income		14			22			43			96
License and distributorship fees		—			73			40			219
Other, net		8			(255	)		(668	)		352
Loss before provision for income taxes		(504	)		(1,899	)		(3,489	)		(5,933	)
Provision (benefit) for income taxes		526			(311	)		1,335			(595	)
Net loss	$	(1,030	)	$	(1,588	)	$	(4,824	)	$	(5,338	)

(Unaudited — in thousands)

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


	QUARTER ENDED						SIX MONTHS ENDED

	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Net sales	$	50,162		$	51,123		$	101,277		$	93,665
Cost of goods sold		38,953			39,464			79,803			72,086

Gross profit		11,209			11,659			21,474			21,579
Operating expenses:
Selling, general and administrative		6,686			7,309			13,821			14,034

Income from operations		4,523			4,350			7,653			7,545
Other income (expense):
Interest expense		(4,960	)		(5,115	)		(9,686	)		(9,923	)
Interest income		7			8			34			29
Other, net		(8	)		(649	)		1,442			(636	)

Loss before provision for income taxes		(438	)		(1,406	)		(557	)		(2,985	)
Provision for income taxes		277			348			940			809

Loss before cumulative effect of a change in accounting principle		(715	)		(1,754	)		(1,497	)		(3,794	)
Cumulative effect of a change in accounting principle		—			—			—			(38,087	)

Net loss		($715	)		($1,754	)		($1,497	)		($41,881	)

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

AMTROL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited — in ~~Thousands~~ thousands)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2002~~2003

									Accumulated Other
				Additional		Retained			Comprehensive			Comprehensive
				Additional Paid-					Comprehensive			Comprehensive
		Common Stock		~~Paid-~~in Capital		Retained Deficit			Income (Loss)			Income (Loss)
Balance, December 31, 2001		$	—	$	99,273	$	(36,064	)	$	(4,990	)	$	—
Balance, December 31, 2002		$	—	$	99,273	$	(81,393	)	$	(2,031	)	$	—
	Net loss		—		—		(~~2,040~~782	)		—			(~~2,040~~782	)
	Derivative instrument valuation adjustment		—		—		—			~~304~~73			~~304~~73
	Currency translation adjustment		—		—		—			~~(262~~185	)		~~(262~~185	)
Balance, March 31, 2002			—		99,273		(38,104	)		(4,948	)		(1,998	)
Balance, March 31, 2003			—		99,273		(82,175	)		(1,773	)		(524	)
	Net loss		—		—		(~~1,754~~715	)		—			(~~1,754~~715	)
	Derivative instrument valuation adjustment		—		—		—			~~204~~78			~~204~~78
	Currency translation adjustment		—		—		—			21,~~394~~279			21,~~394~~279
Balance, June 30, 2002			—		99,273		(39,858	)		(2,350	)		(1,154	)
Balance, June 30, 2003		$	—	$	99,273	$	(82,890	)	$	(416	)	$	118
	Net loss		—		—		(1,030	)		—			(1,030	)
	Derivative instrument valuation adjustment		—		—		—			(407	)		(407	)
	Currency translation adjustment		—		—		—			(316	)		(316	)
Balance, September 30, 2002		$	—	$	99,273	$	(40,888	)	$	(3,073	)	$	(2,907	)

~~Nine~~Six Months Ended ~~September~~June 30, ~~2001~~2002

										Accumulated Other
				Additional			Retained			Comprehensive			Comprehensive
				Additional Paid-						Comprehensive			Comprehensive
		Common Stock		~~Paid-~~in Capital			Retained Deficit			Income (Loss)			Income (Loss)
Balance, December 31, 2000		$	—	$	89,903		$	(26,649	)	$	(3,382	)	$	—
Balance, December 31, 2001		$	—	$	99,273		$	(36,064	)	$	(4,990	)	$	—
	Net loss		—		—			(240,~~455~~127	)		—			(240,~~455~~127	)
	Repurchase of options and common stock		—		(141	)		—			—			—
	Derivative instrument valuation adjustment		—		—			—			304			304
	Derivative instrument valuation adjustment		—		—			—			(372	)		(372	)
	Currency translation adjustment		—		—			—			(262	)		(262	)
	Currency translation adjustment		—		—			—			(1,194	)		(1,194	)
Balance, March 31, 2002			—		99,273			(76,191	)		(4,948	)		(40,085	)
Balance, March 31, 2001			—		89,762			(29,104	)		(4,948	)		(4,021	)
	Net loss		—		—			(1,754	)		—			(1,754	)
	Net loss		—		—			(1,295	)		—			(1,295	)
	Derivative instrument valuation adjustment		—		—			—			204			204
	Repurchase of common stock		—		(100	)		—			—			—
	Currency translation adjustment		—		—			—			2,394			2,394
	Derivative instrument valuation adjustment		—		—			—			(440	)		(440	)
Balance, June 30, 2002		$	—	$	99,273		$	(77,945	)	$	(2,350	)	$	(39,241	)
	Currency translation adjustment		—		—			—			31			31
Balance, June 30, 2001			—		89,662			(30,399	)		(5,357	)		(5,725	)
	Net loss		—		—			(1,588	)		—			(1,588	)
	Repurchase of common stock		—		(33	)		—			—			—
	Issuance of common stock		—		6,000			—			—			—
	Derivative instrument valuation adjustment		—		—			—			(265	)		(265	)
	Currency translation adjustment		—		—			—			1,011			1,011
Balance, September 30, 2001		$	—	$	95,629		$	(31,987	)	$	(4,611	)	$	(6,567	)

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

AMTROL INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(Unaudited — in thousands)

					NINE MONTHS ENDED
				SIX MONTHS ENDED
					September 30,				September 30,
				June 30, 2003				June 30, 2002
					2002				2001
Cash Flows Provided by (Used in) Operating Activities:
Cash Flows Provided by (Used in) Operating Activities:
	Net loss			$	(1,497	)		$	(41,881	)
	Net loss				$	(4,824	)		$	(5,338	)
	Cumulative effect of a change in accounting principle				—				38,087
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities — Depreciation and amortization					6,622				10,388
	Adjustments to reconcile net loss to net cash provided by (used in) operating activities -
		Provision for losses on accounts receivable				95				116
		Depreciation and amortization			4,637				4,450
			Changes in operating assets and liabilities			320				(8,504	)
		Provision for losses on accounts receivable			36				32
			Net cash provided by (used in) operating activities			2,213				(3,338	)
		Gain on purchase of senior subordinated notes			(1,513	)			—
Cash Flows Provided by (Used in) Investing Activities:
		Changes in operating assets and liabilities			(5,619	)			(5,597	)
	Proceeds from sale of property, plant & equipment					—				70
		Net cash used in operating activities			(3,956	)			(4,909	)
	Capital expenditures					(1,924	)			(2,767	)
Cash Flows Provided by (Used in) Investing Activities:
			Net cash (used in) investing activities			(1,924	)			(2,697	)
	Capital expenditures				(1,020	)			(1,006	)
Cash Flows Provided by (Used in) Financing Activities:
		Net cash used in investing activities			(1,020	)			(1,006	)
	Repayment of debt					(113,505	)			(54,669	)
Cash Flows Provided by (Used in) Financing Activities:
	Issuance of debt					112,193				54,452
	Repayment of debt				(73,640	)			(72,218	)
	Proceeds from issuance of common stock					—				6,000
	Issuance of debt				77,267				78,064
	Repurchase of options and common stock					—				(274	)
		Net cash provided by financing activities			3,627				5,846
			Net cash provided by (used in) financing activities			(1,312	)			5,509
Net Decrease in Cash and Cash Equivalents					(1,349	)			(69	)
Net Decrease in Cash and Cash Equivalents						(1,023	)			(526	)
Effect of exchange rate changes on cash and cash equivalents					144				107
						—
Cash and Cash Equivalents, beginning of period					1,797				983
Effect of exchange rate changes on cash and cash equivalents						40				(20	)
Cash and Cash Equivalents, end of period				$	592			$	1,021
						—
Cash and Cash Equivalents, beginning of period						983				704
Cash and Cash Equivalents, end of period					$	—			$	158

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

AMTROL INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (~~UNAUDITED~~Unaudited)

1. ~~BASIS~~ Basis OFof ~~PRESENTATION~~Presentation

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly, in accordance with generally accepted accounting principles ~~and with the instructions to Form 10-Q and Article 10 of Regulation S-X~~, the financial position, results of operations and cash flows of AMTROL Inc. and its subsidiaries (“the “Company”) for the interim periods presented. Such adjustments consisted of only normal recurring items. The results of operations for the interim periods shown in this report are not necessarily indicative of results for any future interim period or for the entire year. These condensed consolidated financial statements do not include all disclosures associated with annual consolidated financial statements and accordingly should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K.

2. ~~USE~~ Use OFof ~~ESTIMATES~~Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure 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 those estimates.

3. ~~ADOPTION~~ Significant OFAccounting ~~NEW ACCOUNTING STANDARDS~~Policies

~~The~~Revenue ~~Company~~Recognition ~~adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill~~ and ~~Other~~Related Intangible Assets on January 1, 2002. This statement addresses financial and reporting for goodwill and other intangible assets. Prior to January 1, 2002, generally accepted accounting principles required that goodwill be amortized over its useful life, not to exceed 40 years. SFAS No. 142 now requires that goodwill no longer be amortized. Instead, companies are required to apply a fair market value-based impairment test to its goodwill. The Company has completed its fair market value-based impairment testing in accordance with the first phase impairment testing required by SFAS No. 142. The results of the impairment testing indicate that the goodwill on the Company’s balance sheet may be impaired and that an impairment loss may need to be recognized. The second phase of SFAS No. 142 impairment testing, measurement of the impairment loss, is expected to be completed prior to the Company’s fiscal year end. Any resulting impairment loss will be recognized as the cumulative effect of a change in accounting principle. In addition, the Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets on January 1, 2002. This statement supersedes SFAS No.Costs

In accordance with Staff Accounting Bulletin (“SAB”) No. 101, the Company recognizes revenue only when there is a valid contract or purchase order, which includes a fixed price; the goods have been delivered in accordance with the shipping terms; and there is an expectation that the collection of the revenue is reasonably assured.

The Company generally recognizes revenue upon shipment of its products to customers net of applicable provisions for discounts and allowances. Allowances for cash discounts and volume rebates, among others, are recorded as a reduction to revenue at the time of sale based upon the estimated future outcome. Cash discounts and volume rebates are based upon certain percentages and sales targets agreed to with the Company’s customers, which are typically earned by the customers over an annual period. At June 30, 2003 and 2002, the Company had accrued $2.1 million and $2.1 million, respectively, for such volume allowances. These amounts are included in accrued expenses in the accompanying condensed consolidated balance sheets.

Inventories

The Company’s inventories are stated at the lower of cost or market including material, labor and manufacturing overhead (see Note 6). The Company records provisions, as appropriate, to write-

~~121,~~down ~~Accounting~~obsolete ~~for~~and ~~the~~excess ~~Impairment~~inventory ofto estimated ~~Long-Lived~~net ~~Assets~~realizable ~~and~~value. The process for ~~Long-Lived~~evaluating ~~Assets~~obsolete toand Beexcess inventory ~~Disposed~~often Ofrequires the Company to make subjective judgments and ~~APB~~estimates ~~No.~~concerning 30future sales levels, ~~Reporting~~quantities ~~the~~and ~~Results~~prices at ofwhich ~~Operations~~such —inventory ~~Reporting~~will ~~the~~be ~~Effects~~able ofto ~~Disposal~~be ofsold ain ~~Segment~~the normal course of business. aAccelerating ~~Business,~~the ~~and~~disposal ~~Extraordinary,~~process ~~Unusual~~or ~~and~~incorrect ~~Infrequently~~estimates ~~Occurring~~of ~~Events~~future sales ~~and~~potential ~~Transactions.~~may ~~SFAS~~cause ~~No.~~the ~~144~~actual ~~amends~~results ~~accounting~~to ~~and~~differ ~~reporting~~from ~~standards~~the ~~for~~estimates at the ~~disposal~~time ofsuch ~~segments~~inventory ofis adisposed ~~business~~or ~~and~~sold. ~~the~~The ~~accounting~~Company believes that its procedures for ~~the~~estimating ~~impairment~~such oramounts ~~disposal~~are ofreasonable ~~long-lived~~and ~~assets.~~historically ~~The~~have ~~adoption~~not resulted ofin ~~SFAS~~material ~~No.~~adjustments ~~144~~in ~~did~~subsequent ~~not~~periods ~~impact~~when the ~~Company’s~~estimates ~~condensed~~are adjusted ~~consolidated~~to ~~financial~~the ~~statements~~actual amounts.

4. Warranty ~~SIGNIFICANT ACCOUNTING POLICIES~~

The Company extends various warranties covering most of its products ranging ~~Revenue~~from ~~Recognition~~a limited one-year warranty to a limited lifetime warranty against defects in materials and workmanship. The specific terms and conditions of the warranties depend on the type of product that is sold. The Company’s warranties are generally limited to the replacement of the defective parts or products at the Company’s option. The Company estimates the costs that may be incurred under its warranty program and records a liability at the time of sale. Factors that influence the Company’s warranty liability include the amount of production, manufactured cost of the product, historical warranty returns and anticipated returns based upon engineering and material improvements. The Company periodically assesses the adequacy of its warranty reserve through a detailed analysis and adjusts the reserve accordingly.

The ~~Company~~following ~~adopted~~chart ~~Staff~~illustrates ~~Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as of January 1, 2001. In accordance with SAB No. 101,~~ the ~~Company~~changes ~~recognizes revenue only when there is a valid contract or purchase order, which includes a fixed price; the goods have been delivered~~ in ~~accordance with~~ the shipping terms; and there is an expectation that the collection of the revenue is reasonably assured. The cumulative effect of this adoption had no net effect on the accompanying consolidated statements of operations. The Company’s ~~generally~~warranty ~~recognizes~~reserve during ~~revenue upon shipment of its products to customers. The Company classifies shipping/handling fees and costs to revenue consistent with~~ the ~~presentation~~latest ~~required~~six bymonth ~~Emerging Issues Task Force (“EITF”) 00-10.~~period:


(in thousands)
	Consolidated

Balance, December 31, 2002	$	2,367
Warranties issued during 2003		894
Claims		(894	)

Balance, June 30, 2003	$	2,367

Goodwill

Goodwill represents the excess of acquisition costs over the estimated fair value of the net assets acquired and was amortized through year-end 2001 using the straight-line method principally over 40 years. In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that amortization of goodwill cease and that the Company

evaluate the recoverability of goodwill and other intangible assets annually, or more frequently if events or changes in circumstances, such as a decline in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established using a discounted cash flow methodology (specifically, the income approach). The determination of discounted cash flows is based on the Company’s strategic plans and long-range forecasts. The revenue growth rates included in the forecasts are the Company’s best estimates based on current and anticipated market conditions, and the profit margin assumptions are projected based on the current and anticipated costs structures. In accordance with the SFAS No. 142 transition procedures, the Company recorded a goodwill impairment charge in the first quarter of 2002 for the cumulative effect of a change in accounting principle of $38.1 million upon adoption of SFAS No. 142, as further described in Note 5.

Deferred Financing Costs

Deferred financing costs are stated at cost as a component of other assets and ~~are~~ amortized over the life of the related debt using the effective interest method. Amortization of deferred financing costs is included in interest expense.

Foreign Currency Translation

Assets and liabilities of non-U.S. operations have been translated into United States dollars atusing the quarter-end rate of exchange. Shareholders’ equity has been converted using historical rates, ~~while~~and revenues and expenses ~~have been converted~~ at the average exchange rates prevailing during the three and ~~nine~~six month periods. The cumulative effect of the resulting translation was reflected as a separate component of shareholders’ equity.

During the six months ended June 30, 2003, the Company purchased forward contracts to hedge its foreign currency exposures, which relate primarily to its operations in Portugal. A portion of revenues from the Company’s Portuguese operations were denominated in non-Euro based currencies so as the Euro strengthened, the non-Euro denominated receivables lost value. In order to mitigate any currency exchange losses against future receivables, the Company’s Portuguese operations expanded its use of forward contracts, which are generally three months in duration, to hedge against the currency movements of U.S. Dollar and British Pound currencies. At June 30, 2003, the Company’s Portuguese operations had forward contracts for the purchase of $2.0 million (1.8 million in U.S. dollars and 0.2 million in British Pounds) with due dates ranging from early July 2003 through September 2003. The value of these forward contracts was immaterial to the balance sheet of the Company.

Recent Accounting Pronouncements

InAs ~~July~~of ~~2001~~January 1, ~~the FASB issued SFAS No. 143~~2003, ~~Accounting~~the ~~for~~Company ~~Asset~~adopted ~~Retirement~~the ~~Obligations.~~provisions of SFAS No. 145 “Rescission ~~143~~of ~~addresses~~FASB ~~financial~~Statements ~~accounting~~No. 4, 44 and ~~reporting~~64, ~~for~~Amendment ~~obligations associated with the retirement~~ of ~~tangible~~FASB ~~long-lived~~Statement No. 13 ~~assets~~ and ~~the~~Technical ~~associated~~Corrections” ~~retirement costs.~~ (“SFAS No. 145”), ~~143~~issued ~~requires that the fair value of a liability for an asset retirement obligation be recognized~~ in ~~the~~April ~~period in which it is incurred if a reasonable estimate of fair value can be made~~2002. ~~The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset.~~ SFAS No. 145 ~~143~~addresses isthe ~~effective~~reporting ~~for financial statements issued for fiscal years beginning after June 15, 2002 with early adoption~~of

~~permitted.~~gains ~~The~~and ~~Company~~losses isresulting ~~currently~~from ~~assessing~~ the extinguishment ~~impact, if any,~~ of ~~adopting SFAS No. 143 on its consolidated financial statements. In June 2002~~debt, ~~the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 addresses financial~~ accounting ~~and reporting~~ for ~~costs associated with exit or disposal activities and nullifies EITF Issue No. 94~~sale-3,leaseback ~~Liability~~transactions ~~Recognition for Certain Employee Termination Benefits~~ and ~~Other~~rescinds or ~~Costs~~amends toother ~~Exit~~existing anauthoritative ~~Activity (including Certain Costs Incurred in a Restructuring)~~pronouncements. SFAS No. 145 ~~146~~ requires that aany ~~liability~~gain ~~for costs associated with an exit~~ or ~~disposal~~loss ~~activity~~on beextinguishment ~~recognized~~of ~~when~~debt ~~the~~that ~~liability~~does isnot ~~incurred~~meet ~~rather than when a company commits to such an activity and also establishes fair value as~~ the ~~objective for initial measurement~~ criteria of ~~the~~APB ~~liability.~~30 ~~SFAS No. 146 will be adopted by the Company~~ for ~~exit~~classification oras ~~disposal~~an ~~activities~~extraordinary ~~that~~item ~~are~~shall ~~initiated after December 31, 2002. The Company anticipates at this time that adoption of SFAS No. 146 will~~ not ~~have~~be aclassified as ~~material~~extraordinary ~~impact~~and onshall ~~the~~be ~~consolidated~~included ~~financial~~in ~~statements~~earnings offrom ~~the~~continuing ~~Company~~operations.

5In January 2003, the FASB issued Interpretation No. 46, “Consolidation of ~~Long-Term~~Variable ~~Debt~~Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 clarifies the application of ARB No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to existing variable interest entities no later than the end of the first annual reporting period beginning after June 15, 2003. The Company is currently evaluating the impact of adopting FIN 46 on its consolidated financial statements.

4. Long-Term Debt

Revolving Credit and Term Loans

The Company, onis ~~December 26, 2001, completed~~ a ~~refinancing~~party ofto ~~its senior secured credit facility. In its place, the Company entered into~~ two ~~new~~ credit facilities: a $42.5 million senior first-priority secured credit facility arranged by Foothill Capital Corporation (the “Foothill Facility”) and a $25.0 million senior second-priority secured credit facility with affiliates of The Cypress Group L.L.C. (the “Cypress Facility”). Proceeds from the refinancing were used to repay in full the Company’s existing credit facility and to pay fees and expenses related to the refinancing. The Foothill Facility consists of senior term loans (the “Term Loans”) and a revolving credit facility (the “Revolving Credit Facility”) which are secured by a first priority lien on all the domestic assets of the Company and a stock pledge of all its subsidiaries. A portion of the Term Loans (the “Term Loan A”) had an original principal balance of $10.2 million and a remaining principal balance of $9.4 million as of September 30, 2002. The remaining portion of the Term Loans (the “Term Loan B”) had an original principal balance of $7.5 million and a remaining principal balance of $6.9 million as of September 30, 2002. Aggregate borrowings under the Revolving Credit Facility are limited to the lesser of (a) $35.0 million less the aggregate outstanding principal amount of the Term Loan A less letter of credit usage and (b) the borrowing base less letter of credit usage. At September 30, 2002, total availability and aggregate borrowings under the Revolving Credit Facility were $13.4 million and $8.9 million, respectively. Term Loan A has a five-year maturity with quarterly principal payments of $426,757, which commenced on April 1, 2002. The outstanding unpaid principal shall be due and payable on the date of termination of the Foothill Facility, whether by its terms, by prepayment, or by acceleration and bears interest at LIBOR plus 3.5%, paid monthly. Term Loan B has a three-year maturity with quarterly principal payments of $312,500, which commenced on April 1, 2002. The outstanding unpaid principal shall be due and payable on the date of termination of the Foothill Facility, whether by its terms, by prepayment, or by acceleration and bears interest at the greater of the Wells Fargo

The Foothill Facility provides the Company with (i) a term loan facility consisting of a five-year Term A loan, $8.1 million at June 30, 2003, bearing interest at LIBOR plus 3.5%, and a three-year Term B loan, $5.9 million as of June 30, 2003, bearing interest at the greater of the Wells Fargo Reference Rate (approximates the prime rate) plus 3.5% or 9.25%, (collectively the “Term Loans”) and (ii) a five-year Revolving Credit Facility, bearing interest at LIBOR plus 2.5% or the Wells Fargo Reference Rate plus 0.5%, providing the lesser of (a) $35.0 million less the aggregate outstanding principal amount of the Term A loan less letter of credit usage and (b) borrowing base less letter of credit usage. At June 30, 2003, total availability and aggregate borrowings under the Revolving Credit Facility were $12.3 million and $8.8 million, respectively.

The Cypress Facility consists of a single original issue term loan of $25.0 million (the “Term Loan C”). The Term Loan C, $28.7 million as of June 30, 2003, has a five-year maturity and bears Pay-In-Kind (PIK) interest fixed at 12% per annum paid quarterly, which at the lenders option can be paid in common stock of the Company. In addition, 60,000 warrants with an exercise price of $0.01 were issued under the Cypress facility. The Company expects that the effective interest rate will be greater than 12% given the additional interest expense associated with the warrants.

Under the terms of the Foothill Facility and Cypress Facility, the Company, as of June 30, 2003, was required to comply, and was in compliance, with the affirmative and negative covenants and restrictions.

Reference Rate (approximates the prime rate) plus 3.5% or 9.25%, paid monthly. The Revolving Credit Facility has a five-year maturity. Amounts borrowed under the Revolving Credit Facility may be repaid and reborrowed at any time during the term of the Foothill Facility and bear interest at LIBOR plus 2.5% for LIBOR based borrowings and the Wells Fargo Reference Rate plus 0.5% for non-LIBOR based borrowings. The Foothill Facility contains certain affirmative and negative covenants and restrictions. As of September 30, 2002, the Company was in compliance with the various covenants of the Foothill Facility. The Cypress Facility consists of a single $25.0 million term loan (the “Term Loan C”). Term Loan C has a five-year maturity and bears Pay-In-Kind (PIK) interest fixed at 12% per annum paid quarterly, which at the lenders option can be paid in common stock of the Company. In connection with the Cypress Facility, Amtrol Holdings, Inc., which wholly owns the Company, issued the lenders under the Cypress Facility 60,000 warrants to purchase approximately 5.2% of its common stock on a fully diluted basis. The 60,000 warrants, which have an exercise price of $.01, were valued at $3.4 million using the Black-Scholes model. This amount was recorded as an offset to the Term Loan C debt and included in the Company’s equity section. This discount is being accreted to the face value of the Term Loan C over the life of the Cypress Facility. The Company expects that the effective interest rate associated with the Term Loan C will be greater than 12% given the additional compensation associated with the issuance of the warrants. The Cypress Facility contains certain affirmative and negative covenants and restrictions. As of September 30, 2002, the Company was in compliance with the various covenants of the Cypress Facility.

Senior Subordinated Notes

The Company issued $115.0 million of Senior Subordinated Notes due 2006 (the “Notes”). ~~The Notes are unsecured obligations~~ of ~~the~~which ~~Company~~$112.4 million ~~The~~was ~~Notes~~outstanding ~~bear~~as ~~interest at a rate~~ of ~~10.625% per annum that is payable semi-annually on each~~ June 30, ~~and December 31~~2003. The Notes ~~became~~are ~~redeemable~~unsecured atobligations ~~the option~~ of the Company onissued ~~December~~pursuant ~~31, 2001. The Notes are subject~~ to ~~redemption, in whole or in part, at various redemption prices, declining from 105.313% of~~ the ~~principal~~Note Indenture ~~amount~~Agreement ~~to par on December 31, 2003. Upon a “Change of Control”~~ (~~as defined in~~ the “Indenture”),. ~~each~~The ~~Note~~Notes ~~holder~~bear ~~has~~interest ~~the right to require the Company to repurchase such holder’s Notes~~ at a ~~purchase~~rate ~~price~~ of ~~101~~ 10.625% ofper ~~the~~annum ~~principal~~that ~~amount~~is ~~plus~~payable ~~accrued~~semi-annually ~~interest.~~on ~~The~~each ~~Notes Indenture contains certain affirmative and negative covenants and restrictions. As of September~~ June 30, ~~2002, the Company was in compliance with the various covenants. The Company~~ and~~/or~~ ~~affiliates of the Company, including entities related to Cypress may, from time to time, purchase the Notes previously issued by the Company in the open market or by other means~~December 31.

10The Notes are redeemable at the option of the Company on or after December 31, 2001. The Notes will be subject to redemption, in whole or in part, at various redemption prices, declining from 105.313% of the principal amount to par on and after December 31, 2003. Upon a “Change of Control” (as defined in the Indenture), each Note holder has the right to require the Company to repurchase such holder’s Notes at a purchase price of 101% of the principal amount plus accrued interest.

In March 2003, the Company purchased a portion of the Notes with a face value of $2.6 million. The purchase was financed through the issuance of additional Term C debt of $1.1 million. The extinguishment resulted in a gain of $1.5 million that was included in Other, net on the Company’s Condensed Consolidated Statement of Operations. The Company and/or affiliates of the Company, including entities related to Cypress may continue, from time to time, to purchase the Notes previously issued by the Company in the open market or by other means.

The Indenture contains certain affirmative and negative covenants and restrictions. As of June 30, 2003, the Company was in compliance with the various covenants.

5. Cumulative Effect of Change in Accounting Principle

Effective January 1, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires that amortization of goodwill cease and that the Company evaluate the recoverability of goodwill and other intangible assets annually, or more frequently if events or changes in circumstances indicate that the carrying value of an asset might be impaired.

Under SFAS No. 142, the Company was required to test all existing goodwill for impairment (using a two-step method) as of January 1, 2002, on a “reporting unit” basis. The Company determined the reporting units to be AMTROL North America, AMTROL ALFA, AMTROL NOVA and AMTROL Poland. In step 1, goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. The fair values of the reporting units were determined utilizing a discounted cash flow methodology and considered such assumptions as weighted average cost of capital, revenue growth, profitability, capital expenditures and premium for control. For reporting units that failed step 1, the Company proceeded to step 2. In step 2, the Company calculated the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as determined in step 1. The Company then compared the implied fair value of goodwill as determined in step 2 above to the carrying value of goodwill.

As a result of the impairment review, the Company recorded an after-tax goodwill impairment charge of $38.1 million, which was recorded as a cumulative effect of a change in accounting principle in the first quarter of 2002. This charge consists of $34.5 million at the AMTROL North America unit and $3.6 million at AMTROL NOVA. The impairment charge was principally due to the change in the methodology from the undiscounted cash flow method used earlier under the Company’s previous accounting policy, to the discounted cash flow method used in accordance with SFAS No. 142.

6. Inventories

Inventories are stated at the lower of cost or market and were as follows (in thousands):

	SEPTEMBER 30,		DECEMBER 31,
	June 30,		December 31,
	2002		2001
	2003		2002
Raw materials and work in process	$	1314,~~197~~426	$	1112,~~120~~860
Finished goods		109,~~238~~112		89,~~665~~585
	$	23,~~435~~538	$	1922,~~785~~445

7. Accounting for Derivative Instruments and Hedging Activities

Effective January 1, 2001, the Company adopted SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities, SFAS No. 137 Accounting for Derivative Instruments and Hedging Activities — Deferral of the Effective Date of FASB Statement No. 133 — an Amendment of FASB Statement No. 133 and SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities — an Amendment of FASB Statement No. 133 (collectively SFAS No. 133 as amended). SFAS No. 133 as amended is required to be adopted no later than the beginning of the first fiscal year beginning on or after June 15, 2000. These standards are to be adopted as a change in accounting principle and cannot be applied retroactively to financial statements of prior periods. The Company has ~~one derivative contract consisting of~~ an interest rate swap contract and an interest rate cap (the “Contract”) outstanding as of ~~September~~ June 30, ~~2002~~2003, with an initial notional amount of $15 million. Under this arrangement, which will mature on June 30, 2004, the Company receives the 90-day LIBOR rate and pays a fixed rate of 4.60% for the period from ~~March 31~~January 1, ~~2002~~2001 through maturity, unless LIBOR increases to 7.1%. If LIBOR increases to 7.1%, then the Company continues to receive the 90-day LIBOR rate but now pays the 90-day LIBOR rate for all subsequent periods capped at a maximum of 7.1%. The LIBOR rate has not exceeded 7.1% since inception of the Contract ~~and it was treated, prior to adoption of SFAS No~~. ~~133,~~The ~~as a hedge agreement and accounted for as such. As a result of the refinancing of its senior debt with the Foothill Facility, the~~ Contract was ~~redesignated~~designated as a cash flow hedge of variable future cash flows associated with the Foothill Facility Term Loan A and ~~Term Loan~~ B Debt. As of September 30, 2002, the fair value of the instrument ($0.4 million) was recorded in other noncurrent liabilities with a corresponding entry to accumulated other comprehensive loss. Subsequent changes in the fair value of the swap will be recorded through accumulated other comprehensive loss (except for changes related to ineffectiveness, which will be recorded through net income). The Company did not realize any material ineffectiveness during the current quarter and does not anticipate any material ineffectiveness under the hedge for the remainder of 2002.

11As of June 30, 2003, the fair value of the instrument ($0.2 million) was recorded in other noncurrent liabilities with a corresponding entry to accumulated other comprehensive loss. Subsequent changes in the fair value of the swap will be recorded through accumulated other comprehensive loss (except for changes related to ineffectiveness, which will be recorded through net income). The Company does not currently anticipate any material ineffectiveness under the hedge for 2003.

8. PROVISION FOR INCOME TAXES

The effective income tax rates used in the interim condensed financial statements are estimates of the full year’s rates. The provision for income taxes recorded in the financial statements differs from the statutory rate principally due to management’s decision to discontinue the recognition of tax benefits associated with losses generated by the US operations. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount realized is based upon estimates derived from tax planning strategies which the Company believes is currently prudent and feasible. Additions to the valuation allowance may be required in the event that estimates are changed.

9. BUSINESS SEGMENT INFORMATION

The Company adopted SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, in 1998. The Company’s reportable segments are delineated geographically. In addition to the geographic delineation, the segments are managed separately because of their different product offerings, markets served and cost structures. The Company’s North American segment operates manufacturing facilities in Rhode Island, Kentucky, Maryland and Ohio, and operates a distribution facility in Ontario, Canada. This segment manufactures and markets products used principally in flow control, storage, heating and other treatment of fluids in the water system and HVAC markets. These products are marketed throughout the world but primarily in North America, Western Europe, Asia and Mexico. The Company’s European segment includes the Company’s facilities in Guimaraes, Portugal, Donaueschingen, Germany and Swarzedz, Poland. The Guimaraes facility manufactures returnable and non-returnable steel gas cylinders for storing cooking, heating and refrigerant gases that are marketed worldwide. The Donaueschingen facility manufactures residential and commercial water heaters marketed primarily in Switzerland, Austria and Germany. The Swarzedz facility refurbishes gas cylinders.

~~The primary criteria by which financial performance is evaluated and resources are allocated include net sales and EBITDA~~8. Provision ~~The~~for ~~following~~Income ~~is a summary of key financial data by segment:~~Taxes

			Quarter Ended				Nine Months Ended
			September 30,		September 30,		September 30,		September 30,
			2002		2001		2002		2001
NET SALES TO EXTERNAL CUSTOMERS
North America
	US		$	30,315	$	30,488	$	90,318	$	91,101
	Other			1,451		1,448		4,026		4,153
Europe
	Portugal			13,084		11,019		39,946		37,274
	Other			2,531		2,462		6,756		8,108
Consolidated			$	47,381	$	45,417	$	141,046	$	140,636
INCOME FROM OPERATIONS
	North America		$	3,310	$	2,319	$	8,724	$	5,051
	Europe			1,147		853		3,278		3,086
	Consolidated		$	4,457	$	3,172	$	12,002	$	8,137
EBITDA
		North America	$	4,528	$	4,845	$	12,497	$	12,715
		Europe		1,895		1,290		4,864		5,620
		Consolidated	$	6,423	$	6,135	$	17,361	$	18,335

The effective income tax rates used in the interim consolidated financial statements are estimates of the full year’s rates. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount expected to be realized is based upon estimates derived from tax planning strategies which the Company believes are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards, as it is more likely than not that the related deferred tax assets for these carryforwards will not be realized. Additions to the valuation allowance may be required in the event that estimates are changed.

		September 30,		December 31,
		2002		2001
LONG-LIVED ASSETS
North America
	US	$	154,583	$	156,998
	Other		6		9
Europe
	Portugal		31,866		32,304
	Other		9,509		9,173
Consolidated		$	195,964	$	198,484

9. Business Segment Information

~~Income~~The ~~from~~Company’s ~~operations~~reportable ~~for~~segments ~~the~~are ~~North~~delineated ~~America business segment above is reduced by goodwill amortization for 2001~~geographically. ~~EBITDA~~In isaddition to ~~earnings (net income/loss) before interest, taxes, depreciation and amortization. The method of calculating EBITDA is consistent with~~ the ~~definition~~geographic ~~contained in the Foothill Facility~~delineation, ~~Cypress Facility and~~ the ~~Notes.~~segments ~~Readers~~are ofmanaged ~~financial~~separately ~~statements~~because ~~frequently consider EBITDA a useful tool in evaluating a company’s performance. Therefore, the Company believes that inclusion~~ of their ~~EBITDA~~different isproduct ~~useful supplemental information. However~~offerings, ~~EBITDA~~markets isserved not a measure of true cash flow since it does not incorporate changes of other assets or liabilities that may generate or require cash. EBITDA is not a generally accepted accounting measure. Long-Lived assets include property, plant and ~~equipment~~cost ~~and goodwill~~structures.

The Company’s North American segment operates manufacturing facilities in Rhode Island, Kentucky, Maryland and Ohio, and operates a distribution facility in Ontario, Canada. This segment manufactures and markets products used principally in flow control, storage, heating and other treatment of fluids in the water system and HVAC markets. These products are marketed throughout the world but primarily in North America, Western Europe and Asia.

The Company’s European segment includes the Company’s facilities in Guimaraes, Portugal, Donaueschingen, Germany and Swarzedz, Poland. The Guimaraes facility manufactures returnable and non-returnable steel gas cylinders for storing cooking, heating and refrigerant gases that are marketed worldwide. The Donaueschingen facility manufactures residential and commercial water heaters marketed primarily in Switzerland, Austria and Germany. The Swarzedz facility refurbishes gas cylinders.

The primary criteria by which financial performance is evaluated and resources are allocated include net sales and income from operations. The following is a summary of key financial data by segment:


		Quarter Ended				Six Months Ended

		June 30, 2003		June 30, 2002		June 30, 2003		June 30, 2002

Net Sales to external customers
	North America
	US	$	29,321	$	31,793	$	57,195	$	60,003
	Other		1,130		1,340		2,850		2,575
Europe
	Portugal		16,439		15,831		35,317		26,862
	Other		3,272		2,159		5,915		4,225

Consolidated		$	50,162	$	51,123	$	101,277	$	93,665

Income from operations
	North America	$	3,249	$	3,093	$	5,361	$	5,414
	Europe		1,274		1,257		2,292		2,131

	Consolidated	$	4,523	$	4,350	$	7,653	$	7,545

EBITDA
	North America	$	4,511	$	4,365	$	9,445	$	7,969
	Europe		2,058		1,349		3,821		2,969

	Consolidated	$	6,569	$	5,714	$	13,266	$	10,938

						June 30,		December 31,
Long-lived assets							2003		2002

	North America
	US					$	117,311	$	119,266
	Other						3		4
Europe
	Portugal						32,248		32,441
	Other						6,172		5,995

Consolidated						$	155,734	$	157,706

EBITDA is earnings (net income/loss) before interest, taxes, depreciation and amortization. The method of calculating EBITDA is consistent with the definition contained in the Foothill Facility and the Indenture. Readers of financial statements frequently consider EBITDA a useful tool in evaluating a company’s performance. Therefore, the Company believes that inclusion of EBITDA is useful supplemental information. However, EBITDA is not a measure of true cash flow since it does not incorporate changes of other assets or liabilities that may generate or require cash. EBITDA is not a generally accepted accounting measure. See Management’s Discussion and Analysis of Financial Condition and Results of Operations for reconciliation of a GAAP financial measure to EBITDA per the requirements of Regulation G. Long-Lived assets include property, plant and equipment and goodwill.

10. Commitments and Contingencies

At ~~September~~ June 30, ~~2002~~2003, the Foothill Facility contained a sublimit to support the issuance of letters of credit in the amount of $3.0 million. At ~~September~~ June 30, ~~2002~~2003, letters of credit outstanding amounted to $0.7 4 million. ~~The Company is involved in various legal proceedings that, in the opinion of management, will not result in a material adverse effect on its financial condition or results of operations.~~

The Company is involved in various legal proceedings that, in the opinion of management, will not result in a material adverse effect on its financial condition or results of operations.

AMTROL INC. AND SUBSIDIARIES

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

This section should be read in conjunction with the ~~condensed~~Condensed Consolidated Financial Statements of the Company included elsewhere herein and the Company’s Form 10-K for ~~2001~~2002.

The Company and its ~~subsidiaries and their~~ representatives may from time to time make written or oral statements, including statements contained in the Company’s filings with the Securities and Exchange Commission (“SEC”) and in its reporting to customers, which constitute or contain “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995 or the SEC in its rules, regulations and releases.

All statements other than statements of historical fact included in this Form 10-Q and elsewhere relating to the Company’s financial position, strategic initiatives and statements addressing industry developments are forward-looking statements. When incorporated in this discussion, the words “expect(s)”, “feel(s)”, “believe(s)”, “anticipate(s)” and similar expressions are intended to to identify some of these forward-looking statements. Forward-looking ~~statements~~ statements include those containing these phrases but also any other statements that are not references to historical fact. Although the Company believes that ~~the~~ the expectations reflected in such forward-looking statements are expressed in ~~good~~ good faith and are believed to have a reasonable basis, there can be no ~~assurance~~ assurance that such expectations or beliefs will result or be achieved or accomplished. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The following are some of the important factors that can vary or change or involve substantial risk and cause actual results to differ materially from such expectations: the Company’s ability to successfully implement its business strategy; the availability and cost of raw materials; changes in domestic or foreign government regulation or enforcement policies, particularly related to refrigerant gases or cylinders and building and energy efficiency requirements or restrictions or limitations or general reduction in the use of domestic wells; significant weather conditions adverse to the Company’s business; development of competing technologies; acceptance of the Company’s existing and planned new products in international markets; competition in the Company’s markets, particularly price competition; the rate of growth of developing economies and demand for the Company’s products; the ultimate cost of future warranty and other claims relating to the Company’s products and business; whether the Company succeeds in acquiring new businesses; availability of capital; foreign exchange rates; increases in interest rates; the business abilities and judgment of personnel; and general economic, financial and business conditions, both domestically and internationally.

international markets; competition in the Company’s markets, particularly price competition; the rate of growth of developing economies and demand for the Company’s products; the ultimate cost of future warranty and other claims relating to the Company’s products and business; whether the Company succeeds in acquiring new businesses; availability of capital; foreign exchange rates; increases in interest rates; the business abilities and judgment of personnel; general economic, financial and business conditions, both domestically and internationally; and acts of war and terrorist activities.

Results of Operations

The following table sets forth, for the periods indicated, the percentages of the Company’s net sales represented by certain income and expense items in the Company’s Consolidated Statements of Operations.

	QUARTER ENDED						NINE MONTHS ENDED
	September 30,			September 30,			September 30,			September 30,
	2002			2001			2002			2001
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		75.7			75.8			76.5			77.3
Gross profit		24.3			24.2			23.5			22.7
Selling, general and administrative expenses		14.9			14.8			14.9			14.5
Amortization of goodwill		—			2.4			—			2.4
Income from operations		9.4			7.0			8.6			5.8
Interest expense		(10.5	)		(10.8	)		(10.6	)		(10.5	)
Interest income		—			—			—			0.1
Other income (expense), net		—			(0.4	)		(0.4	)		0.4
Loss before provision for income taxes		(1.1	)		(4.2	)		(2.4	)		(4.2	)
Provision (benefit) for income taxes		1.1			(0.7	)		1.0			(0.4	)
Net loss		(2.2	)%		(3.5	)%		(3.4	)%		(3.8	)%

Three Months Ended September 30, 2002

Net sales for the current quarter increased $2.0 million or 4.3% compared to the third quarter of 2001, reflecting sales growth in Europe, as well as the impact of the strengthening Euro on the translation of results at the Company’s European operations.

In North America, net sales in the third quarter of 2002 were comparable to third quarter net sales of 2001. Net sales from the Company’s European operations increased $2.1 million or 15.8% in the third quarter of 2002 compared to the third quarter last year due primarily to the strengthening of the

~~Euro~~Results ~~versus the U.S. dollar and the addition~~ of ~~a major new customer. The strengthening of the Euro contributed approximately $1.6 million to the increase in net sales.~~Operations

InThe ~~order~~following totable ~~mitigate~~sets ~~any~~forth, ~~impact~~for onthe ~~its~~periods ~~North America~~indicated, ~~net~~the ~~sales~~percentages ~~from domestic steel industry capacity shortfalls~~of ~~and~~the ~~imposition~~Company’s ofnet ~~tariffs~~sales onrepresented ~~imported~~by ~~steel~~certain byincome ~~the~~and ~~U.S.~~expense ~~government~~items in ~~March~~ ~~of 2002,~~ the Company’s ~~implemented~~Condensed anConsolidated ~~expanded~~Statements ~~resourcing program to safeguard its supply~~ of ~~steel~~Operations. ~~The Company believes that this~~ ~~resourcing program has been successful.~~

Gross profit for the third quarter of 2002 increased $0.5 million or 4.6% compared to the third quarter of 2001, due principally to increased volumes in the Company’s European operations. As a percentage of net sales, gross profit increased to 24.3% in the third quarter of 2002 versus 24.2% in the same period last year.


	QUARTER ENDED						SIX MONTHS ENDED

	June 30, 2003			June 30, 2002			June 30, 2003			June 30, 2002

Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Cost of goods sold		77.7			77.2			78.8			77.0

Gross profit		22.3			22.8			21.2			23.0
Selling, general and administrative expenses		13.3			14.3			13.6			15.0

Income from operations		9.0			8.5			7.6			8.0
Interest expense		(9.9	)		(10.0	)		(9.6	)		(10.6	)
Interest income		—			—			—			—
Other income (expense), net		—			(1.3	)		1.4			(0.7	)

Loss before provision for income taxes		(0.9	)		(2.8	)		(0.6	)		(3.3	)
Provision for income taxes		0.6			0.6			0.9			0.8

Loss before cumulative effect of a change in accounting principle		(1.5	)		(3.4	)		(1.5	)		(4.1	)
Cumulative effect of a change in accounting principle		—			—			—			(40.7	)

Net loss		(1.5	)%		(3.4	)%		(1.5	)%		(44.8	)%

~~Selling,~~Three ~~General~~Months ~~and~~Ended ~~Administrative expenses for the current quarter of 2002 of $7.0~~June ~~million~~30, ~~increased $0.3 million or 4.9% compared to the third quarter of~~2003 ~~2001. The increase is principally the result of increased European selling~~ ~~expenses associated with the increase in sales.~~

~~Income~~Net ~~taxes~~sales ~~during~~for the ~~current~~second quarter of ~~2002~~2003 ~~increased~~decreased $01.80 million asor 1.9% compared to ~~2001~~the same period in 2002. ~~The~~In ~~increase~~North ~~was~~America, net sales decreased $2.7 million or 8.1% compared to the ~~result~~net sales in the second quarter of ~~management’s~~2002 due ~~decision~~principally to a decline in well drilling activity as a result of above ~~discontinue~~average rainfall and flooding experienced in the ~~recognition~~mid-Atlantic and mid-Western regions of ~~tax~~the ~~benefits~~U.S. ~~associated~~Net ~~with~~sales ~~pre-tax~~in ~~losses~~Europe ~~from~~increased $1.7 million or 9.6% due ~~its~~principally to the strengthening of the Euro against the U.S. ~~operations~~dollar. If the value of the Euro had remained at the average level of the second quarter of 2002, reported net sales in Europe for the second quarter of 2003 would have decreased $2.0 million or 11.1% from the second quarter of 2002.

~~Other~~Gross ~~income,~~profit ~~net~~for ~~increased~~the second quarter of 2003 decreased $0.35 million ~~when~~or ~~compared~~3.9% tofrom the ~~2001~~second quarter of 2002. ~~During~~As ~~2001~~a percentage of net sales, ~~currency~~ ~~exchange~~the ~~losses~~gross ofprofit percentage $0decreased to 22.3 ~~million~~% ~~were~~in ~~recorded~~2003 byfrom ~~the~~22.8% ~~Company’s~~in ~~European operations~~2002. asThis adecrease ~~result~~was ofdue principally to the ~~strengthening~~higher proportion of ~~the~~net ~~Euro~~sales ~~versus~~from the ~~U.S.~~Company’s ~~dollar~~European operations and increased steel costs in Europe.

~~The~~Selling, ~~net~~general ~~loss~~and administrative expenses for the ~~current~~second quarter of ~~2002~~2003 decreased ofby $1.0.6 million ~~compares~~or ~~favorably to~~8.5% acompared ~~net~~to ~~loss~~2002. inThe ~~the~~decrease ~~third~~is principally ~~quarter~~attributable ofto ~~2001~~one-time ofcompensation ~~$1.6 million,~~costs anincurred ~~absolute~~in ~~change~~the second quarter of $02002.~~6 million.~~

~~Earnings before interest expense~~Other, ~~taxes,~~net ~~depreciation and amortization (EBITDA) for the third quarter of 2002~~ increased $0.36 million towhen ~~$6.4 million~~compared ~~from~~to $62002.~~1 million~~ inDuring the ~~third~~ second quarter of ~~2001~~2002, ~~principally~~currency asexchange alosses ~~result~~ of ~~currency exchange~~$0.7 million ~~losses~~were ~~incurred~~recorded by the Company’s European operations ~~during 2001.~~

Nine Months Ended September 30, 2002

Net sales for the first nine months of 2002 increased $0.4 million or 0.3% as compared to the first nine months of 2001. In North America, net sales declined $0.9 million or 1.0% due to weaker first quarter results in comparison to 2001, offset by improved sales performance in the second quarter. Net sales in Europe increased $1.3 million or 2.9% compared to the first nine months of 2001 due to weaker first quarter results in comparison to 2001, offset by stronger sales performance in the second and third quarters and a strengthening Euro.

Gross profit for the first nine months of 2002 increased by $1.2 million or 3.8% as compared to the same period in 2001. Gross profit as a percentage to net sales increased to 23.5% in 2002 from 22.7% in 2001. Manufacturing efficiency improvements, lower energy costs and lower commodity costs contributed to the increase in gross profit and gross profit percentage.

Selling, General and Administrative expenses for the first nine months of 2002 of $21.1 million increased by $0.7 million or 3.4% compared to the first nine months of 2001. The increase is principally attributable to one-time compensation costs incurred during the second quarter of 2002.

Other income, net decreased $1.0 million in comparison to 2001. Currency exchange losses of $0.7 million were recorded by the Company’s European operations as a result of the

as a result of the strengthening of the Euro versus ~~during~~the ~~2002~~U.S. Indollar. ~~contrast~~By comparison, during the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2001~~2003, the Company recorded currency exchange ~~gains~~losses of $0.1 million.

Income taxes during the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2002~~2003 ~~increased~~decreased $10.91 million as compared to ~~2001.~~2002 ~~The~~reflecting ~~increase~~estimated ~~was~~full ~~the~~year ~~result~~tax ofrates ~~management~~in the Company’s European ~~decision~~operations. During 2002, management decided to discontinue the recognition of tax benefits associated with pre-tax losses from ~~its~~ the Company’s U.S. operations. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount expected to be realized is based upon estimates derived from tax planning strategies which the Company believes are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards, as it is more likely than not that the related deferred tax assets for these carryforwards will not be realized.

The net loss for the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2002~~2003 of $40.87 million compares ~~favorably~~ to a net loss ~~for~~in the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2001~~2002 of $51.38 million,. ~~an absolute~~The change ofwas $0principally due to the one-time compensation costs and the currency exchange losses incurred in the second quarter last year that did not occur in 2003.~~5 million.~~

Earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the ~~first~~second ~~nine~~quarter ~~months~~ of ~~2002~~2003 ~~decreased~~were $06.96 million, toan increase of $170.49 million, compared to ~~$18~~the second quarter of 2002.~~3 million~~ ~~for~~As a percentage of net sales, EBITDA increased to 13.1 % in 2003 from 11.2 % in 2002. The method of calculating EBITDA is consistent with the ~~first~~definition ~~nine~~contained ~~months~~in the Foothill Facility and the Indenture. Readers of ~~2001~~financial ~~principally~~statements asfrequently consider EBITDA a ~~result~~useful tool in evaluating a company’s performance. Therefore, the Company believes that inclusion of ~~currency~~EBITDA ~~exchange~~is ~~losses~~useful ~~and~~supplemental ~~one-time~~information. ~~compensation~~However, EBITDA ~~costs~~is ~~offset~~not bya measure of true cash flow since it does not incorporate changes ~~manufacturing~~of ~~efficiency~~other ~~improvements~~assets ~~and~~or ~~higher~~liabilities ~~European~~that ~~gross~~may ~~profit~~generate or require cash. EBITDA is not a generally accepted accounting measure. The following table illustrates the calculation of EBITDA (in thousands):

Liquidity and Capital Resources

The Company’s operating working capital (defined as accounts receivable and inventory, less accounts payable) increased $3.3 million from $27.3 million at December 31, 2001 to $30.6 million at September 30, 2002. Accounts receivable and inventories increased $1.6 million and $3.6 million, respectively while accounts payable increased $1.9 million, all consistent with seasonal operating requirements of the Company’s water systems and plumbing/heating product lines.

For the first nine months of 2002, net cash provided by operating activities of $2.2 million was $5.6 million higher than the first nine months of 2001 due principally to an improved working capital position and lower cash interest expense. Capital expenditures of $1.9 million in the first nine months of 2002 were $0.8 million lower than in 2001. The Company funded these requirements principally by utilizing its credit facilities including the Revolving Credit Facility described below. As a result of the net cash provided by operating activities, the Company was able to pay down its debt by $1.3 million during 2002.

The Company, on December 26, 2001 completed a refinancing of its senior secured credit facility. In its place, the Company entered into two new credit facilities: a $42.5 million senior first-priority secured credit facility arranged by Foothill Capital Corporation (the “Foothill Facility”) and a $25.0 million senior second-priority secured credit facility with affiliates of The Cypress Group L.L.C. (the “Cypress Facility”). Proceeds from the refinancing were used to repay in full the Company’s existing credit facility and to pay fees and expenses related to the refinancing.

The Foothill Facility consists of senior term loans (the “Term Loans”) and a revolving credit facility (the “Revolving Credit Facility”) which are secured by a first priority lien on all of the domestic assets of the Company and a stock pledge of all of its subsidiaries. A portion of the Term Loans (the “Term Loan A”) had an original principal balance of $10.2 million and a remaining principal balance of $9.4 million as of September 30, 2002. The remaining portion of the Term Loans (the “Term Loan B”) had an original principal balance of $7.5 million and a remaining principal balance of $6.9 million as of September 30, 2002. Aggregate borrowings under the Revolving Credit Facility are limited to the lesser of (a) $35.0 million less the

aggregate outstanding principal amount of the Term Loan A less letter of credit usage, and (b) the borrowing base less letter of credit usage. At September 30, 2002, total availability and aggregate borrowings under the Revolving Credit Facility were $13.4 million and $8.9 million, respectively.


	Quarter Ended						Six Months Ended

	June 30,			June 30,			June 30,			June 30,
	2003			2002			2003			2002

Net loss	$	(715	)	$	(1,754	)	$	(1,497	)(B)	$	(41,881	)
Cumulative effect of a change in accounting principle		—			—			—			38,087
Interest expense		4,960			5,115			9,686			9,923
Depreciation and amortization (A)		2,047			2,005			4,137			4,000
Provision for income taxes		277			348			940			809

EBITDA	$	6,569		$	5,714		$	13,266		$	10,938

Term Loan A has a five-year maturity with quarterly principal payments of $426,757 that commenced on April 1, 2002. The outstanding unpaid principal shall be due and payable on the date of termination of the Foothill Facility, whether by its terms, by prepayment, or by acceleration and bears interest at LIBOR plus 3.5%, paid monthly. Term Loan B has a three-year maturity with quarterly principal payments of $312,500 that commenced on April 1, 2002. The outstanding unpaid principal shall be due and payable on the date of termination of the Foothill Facility, whether by its terms, by prepayment, or by acceleration and bears interest at the greater of the Wells Fargo Reference Rate (approximates the prime rate) plus 3.5% or 9.25%, paid monthly. The Revolving Credit Facility has a five-year maturity. Amounts borrowed under the Revolving Credit Facility may be repaid and reborrowed at any time during the term of the Foothill Facility and bear interest at LIBOR plus 2.5% for LIBOR based borrowings and the Wells Fargo Reference Rate plus 0.5% for non-LIBOR based borrowings. The Foothill Facility contains certain affirmative and negative covenants and restrictions. As of September 30, 2002, the Company was in compliance with the various covenants of the Foothill Facility.

(A)		Cash flow statement denotes $4,637 and $4,450 for the six months 2003 and 2002, respectively. These amounts include amortization of deferred finance costs which are presented as part of interest expense on the Company’s Condensed Consolidated Statement of Operations.

(B)		Includes gain on purchase of senior subordinated notes of $1,513.

~~The~~Six ~~Cypress~~Months ~~Facility~~Ended ~~consists of a single $25.0~~June million term loan (the “Term Loan C”). Term Loan C has a five-year maturity and bears Pay-In-Kind (PIK) interest fixed at 12% per annum paid quarterly, which at the lenders option can be paid in common stock of the Company. In connection with the Cypress Facility, Amtrol Holdings, Inc., which wholly owns the Company, issued the lenders under the Cypress Facility 60,000 warrants to purchase approximately 5.2% of its common stock on a fully diluted basis. The 60,000 warrants, which have an exercise price of $.01, were valued at $3.4 million using the Black-Scholes model. This amount was recorded as an offset to the Term Loan C debt and included in the Company’s equity section. This discount is being accreted to the face value of the Term Loan C over the life of the agreement. The Company expects that the effective interest rate associated with the Term Loan C will be greater than 12% given the additional compensation associated with the issuance of the warrants. The Cypress Facility contains certain affirmative and negative covenants and restrictions. As of September 30, ~~2002, the Company was in~~2003 ~~compliance with the various covenants of the Cypress Facility.~~

InNet ~~November~~sales ~~1996,~~for the ~~Company~~first ~~issued,~~six ~~under~~months anof ~~Indenture,~~2003 increased $~~115~~7.06 million ~~of Senior~~or ~~Subordinated Notes due 2006 (the “Notes”)~~8.1% ~~The Notes are unsecured~~as ~~obligations~~compared ofto the ~~Company.~~first ~~The~~six ~~Notes~~months ~~bear interest at the rate~~ of 102002.~~625%~~ ~~per annum~~In ~~payable~~North ~~semi-annually on each June 30 and December 31 commencing on June 30~~America, ~~1997.~~net ~~The~~sales ~~Notes became redeemable at the option of the Company on December~~declined ~~31, 2001~~$2. ~~From and after December~~5 ~~31,~~million ~~2001,~~or ~~the~~4.0% ~~Notes~~due ~~are~~principally ~~subject~~ to ~~redemption at~~ the ~~option~~second ofquarter ~~the~~decline ~~Company,~~ in ~~whole~~well drilling oractivity. inNet ~~part,~~sales atin ~~various~~Europe ~~redemption~~increased ~~prices, declining~~$10.1 million ~~from~~or ~~105~~32.~~313~~6% compared ofto the ~~principal~~first ~~amount~~six tomonths ~~par~~of on2002 ~~December 31,~~due ~~2003. Upon~~to athe ~~“Change~~strengthening of ~~Control” (as defined in~~ the ~~Indenture),~~Euro and ~~each~~stronger ~~Note~~sales ~~holder~~performance. ~~has~~ If the ~~right~~value toof ~~require~~ the ~~Company~~Euro tohad ~~repurchase~~remained ~~such holder’s Notes~~ at ~~a purchase~~the ~~price~~average oflevel ~~101%~~ of ~~the~~2002, ~~principal~~reported ~~amount~~net ~~plus~~sales ~~accrued~~in ~~interest.~~Europe ~~The~~for ~~Notes~~the ~~Indenture contains~~six ~~certain~~month ~~affirmative~~period ~~and~~of 2003 ~~negative~~would ~~covenants~~have ~~and~~increased ~~restrictions~~$2. ~~As of September~~6 ~~30,~~million ~~2002,~~or ~~the Company is in compliance with the various covenants~~8.4%.

~~The~~Gross ~~Company~~profit ~~intends~~for the first six months of 2003 decreased by $0.1 million or 0.5% as compared to ~~fund~~the ~~its~~same ~~future~~period ~~working~~in ~~capital,~~2002. ~~capital~~Gross ~~expenditures~~profit ~~and~~as a percentage to net ~~debt~~sales ~~service~~decreased ~~requirements~~to ~~through~~21.2% ~~cash~~in ~~flows~~2003 ~~generated~~from 23.0% in 2002. This decrease was due principally to the higher proportion of net sales from the Company’s European operations and ~~borrowings~~ ~~under~~increased ~~the~~steel ~~Revolving~~costs in North America and Europe.

Selling, General and Administrative expenses for the first six months of 2003 of $13.8 million decreased modestly by $0.2 million or 1.5% compared to the first six months of 2002. The strengthening of the Euro versus the U.S. dollar in 2003 largely offset the one-time compensation costs incurred during the second quarter of 2002.

Other income, net increased $2.1 million in comparison to 2002. The increase was principally due to the gain of $1.5 million recorded on the extinguishment of a portion of the Company’s

~~Credit~~senior ~~Facility.~~subordinated ~~Management~~notes ~~believes~~and ~~that cash generated from operations, together with borrowings available under~~ the ~~Revolving Credit Facility, will be~~currency ~~sufficient~~exchange tolosses ~~meet~~incurred ~~the Company’s working capital and capital expenditure needs~~ in ~~the~~2002 ~~foreseeable~~that ~~future.~~did ~~The~~not ~~Company~~occur ~~may consider other options available to it~~ in ~~connection with funding future working capital and capital expenditure needs, including the issuance of additional debt and equity securities~~2003.

~~The~~Income ~~Company~~taxes ~~and/or~~during ~~affiliates~~the first six months of ~~the~~2003 increased $0.1 million as compared to 2002 reflecting estimated full year effective tax rates in the Company,’s ~~including~~European ~~entities~~operations. ~~related~~During 2002, management decided to discontinue ~~Cypress~~the ~~may,~~recognition of tax benefits associated with pre-tax losses from ~~time~~the Company’s toU.S. ~~time,~~operations. ~~depending~~Net deferred tax assets recognized on ~~market~~the ~~conditions~~Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, ~~purchase~~management believes it is more likely than not that the net deferred tax assets will be realized. The ~~Senior~~amount ~~Subordinated~~expected ~~Notes~~to ~~previously~~be ~~issued~~realized byis based upon estimates derived from tax planning strategies which the Company inbelieves are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards, as it is more likely than not that the ~~open~~related ~~market~~deferred ortax byassets ~~other~~for ~~means~~these carryforwards will not be realized.

The ~~Company~~net ~~will~~loss ~~continue~~for tothe ~~selectively~~first ~~pursue~~six ~~strategic~~months ~~acquisitions,~~of ~~such~~2003 ~~as the acquisitions~~ of ~~AMTROL ALFA and AMTROL NOVA~~$1.5 million ~~The~~compares ~~Company~~to ~~believes~~a ~~that~~net ~~strategic~~loss ~~acquisitions,~~in ~~both~~the ~~domestic~~first ~~and~~six ~~international,~~months ~~provide an effective means~~ of ~~increasing~~2002 ~~or establishing a market presence in targeted markets and a means~~ of ~~identifying and introducing new products and technologies in markets where it already has a strong presence~~$41.9 million. The ~~Company~~change ~~also believes that~~was ~~establishing~~principally ~~local~~due ~~manufacturing~~to ~~and~~the ~~distribution~~goodwill ~~facilities~~impairment incharge ~~international markets~~of ~~significantly~~$38.1 million ~~enhances~~recorded ~~its ability to build strong customer~~in ~~relationships,~~the ~~understand~~first ~~local~~quarter ~~product~~of ~~preferences and be price competitive~~2002.

Earnings before interest expense, taxes, depreciation and amortization (EBITDA) for the first six months of 2003 increased $2.4 million to $13.3 million compared to $10.9 million for the first six months of 2002. The increase was principally the result of the gain of $1.5 million recorded on the extinguishment of a portion of the Company’s senior subordinated notes and $0.7 million of currency exchange losses incurred by the Company’s European operations in 2002.

Liquidity and Capital Resources

As of June 30, 2003, the Company’s operating capital (defined as accounts receivable and inventory, less accounts payable) increased $0.5 million from $28.4 million at December 31, 2002 to $28.9 at June 30, 2003. Accounts receivable and inventories increased $3.3 million and $1.1 million, respectively while accounts payable increased $3.9 million consistent with seasonal operating levels principally in the Company’s water systems and cylinder businesses as well as the impact of the strengthening Euro on the translation of results at the Company’s European operations.

For the six months of 2003, net cash used in operations of $4.0 million was $1.0 million less than the first six months of 2002 due principally to a lower net loss and lower cash interest expense. Cash provided by financing activities during the six months ended June 2003 decreased approximately $2.2 million due to a lower working capital (defined as current assets less current liabilities) position.

The Company is a party to two credit facilities: a $42.5 million senior first-priority secured credit facility arranged by Foothill Capital Corporation (the “Foothill Facility”) and a $25.0 million senior second-priority secured credit facility with affiliates of The Cypress Group L.L.C. (the “Cypress Facility”).

The Foothill Facility provides the Company (i) a term loan facility consisting of a five-year Term A loan, $8.1 million at June 30, 2003, bearing interest at LIBOR plus 3.5%, and a three-year Term B loan, $5.9 million as of June 30, 2003, bearing interest at the greater of the Wells Fargo

Reference Rate (approximates the prime rate) plus 3.5% or 9.25%, (collectively the “Term Loans”) and (ii) a five-year Revolving Credit Facility, bearing interest at LIBOR plus 2.5% or the Wells Fargo Reference Rate plus 0.5%, providing the lesser of (a) $35.0 million less the aggregate outstanding principal amount of the Term A loan less letter of credit usage and (b) borrowing base less letter of credit usage. At June 30, 2003, total availability and aggregate borrowings under the Revolving Credit Facility were $12.3 million and $8.8 million, respectively.

In November 1996, the Company issued, under a Note Indenture Agreement (the “Agreement”), $115.0 million of Senior Subordinated Notes due 2006 (the “Notes”) of which $112.4 million was outstanding as of June 30, 2003. The Notes are unsecured obligations of the Company. The Notes bear interest at the rate of 10.625% per annum payable semi-annually on each June 30 and December 31. The Notes are redeemable at the option of the Company on or after December 31, 2001. From and after December 31, 2001, the Notes will be subject to redemption at the option of the Company, in whole or in part, at various redemption prices, declining from 105.313% of the principal amount to par on and after December 31, 2003. Upon a “Change of Control” (as defined in the Indenture), each Note holder has the right to require the Company to repurchase such holder’s Notes at a purchase price of 101% of the principal amount plus accrued interest. The Notes Indenture contains certain affirmative and negative covenants and restrictions. As of June 30, 2003, the Company is in compliance with the various covenants.

The Company intends to fund its future working capital, capital expenditures and debt service requirements through cash flows generated from operations and borrowings under the Foothill Facility. Management believes that cash generated from operations, together with borrowings available under the Foothill Facility, will be sufficient to meet the Company’s working capital and capital expenditure needs in the foreseeable future. The Company may consider other options available to it in connection with funding future working capital and capital expenditure needs, including the issuance of additional debt and equity securities.

The Company will continue to selectively pursue strategic acquisitions. The Company believes that strategic acquisitions, both domestic and international, provide an effective means of increasing or establishing a market presence in targeted markets and a means of identifying and introducing new products and technologies in markets where it already has a strong presence. The Company also believes that establishing local manufacturing and distribution facilities in international markets significantly enhances its ability to build strong customer relationships, understand local product preferences and be price competitive.

Inflation

The Company believes that anticipated inflation rates ~~would~~will not have a materially adverse effect on its results of operations or its financial condition in ~~2002~~2003. However, there can be no assurance that sharply increasing raw material or fuel costs will not adversely affect the Company’s financial condition or results of operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in information relating to market risk ~~since~~ since the Company’s disclosure included in Item 7A of ~~SEC~~ Form 10-K as filed with ~~the~~ ~~SEC~~the Securities and Exchange Commission on March 2928, ~~2002~~2003.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Within~~On ~~the 90~~June ~~day~~30, ~~period prior to the filing date of this Quarterly Report on Form 10-Q~~2003, the Company, under the supervision and with the participation of its management, including its principal executive officer and principal ~~financial~~ financial officer, performed an evaluation of the Company’s disclosure controls ~~and~~ and procedures, as required by Securities Exchange Act Rule 13a-15. Based on ~~that~~ that evaluation, the Company’s principal executive officer and principal ~~financial~~ financial officer concluded that such disclosure controls and procedures are effective to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to them, particularly during the period for which the periodic reports are being prepared.

Changes in Internal Controls

No significant changes were made in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation performed pursuant to Securities Exchange Act Rule 13a-15.

2021

AMTROL INC. AND SUBSIDIARIES

PART II

Item 1. Legal Proceedings

No material legal proceedings were terminated or filed against the Company during the period covered by this report.

Item 2. Changes in Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits and Reports on Form 8-K

Exhibits


(a)	Exhibits:

	31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

	31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14 (a) under the Securities Exchange Act of 1934.

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

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

(b)	Reports on Form 8-K:

		No reports on Form 8-K were filed during the period covered by this report.

~~None.~~22

Reports on Form 8-K

On August 14, 2002, the Company filed a Current Report on a Form 8-K reporting under Item 9 — Regulation FD Disclosure, in connection with required certifications by its Chief Executive and Chief Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

AMTROL INC. AND SUBSIDIARIES

Signatures

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

	AMTROL INC.
Date: November 13, 2002	By: /s/ Albert D. Indelicato
Date: August 13, 2003	By:	/s/ALBERT D. INDELICATO
	Albert D. Indelicato, President, Chairman of the Board, Chief Executive Officer and Director
			Albert D. Indelicato,
Date: November 13, 2002	By: /s/ Larry T. Guillemette
			President, Chairman of the Board,
	Larry T. Guillemette, Executive Vice President, Chief Financial Officer and Treasurer
			Chief Executive Officer and Director
Date: August 13, 2003	By:	/s/LARRY T. GUILLEMETTE
			Larry T. Guillemette,
			Executive Vice President,
			Chief Financial Officer and
			Treasurer

CERTIFICATIONS

I, Albert D. Indelicato, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AMTROL Inc; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report; 4. The Registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

a. Designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and c. Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The Registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent function):

a. All significant deficiencies in the design or operation of internals controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6. The Registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 13, 2002 By: /s/ Albert D. Indelicato Albert D. Indelicato President, Chairman of the Board Chief Executive Officer and Director

CERTIFICATIONS

I, Larry T. Guillemette, certify that:

Date: November 13, 2002 By: /s/ Larry T. Guillemette Larry T. Guillemette Executive Vice President, Chief Financial Officer and Treasurer

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Filing Compare · AMTROL INC /RI/