##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

|                                           
|-------------------------------------------
|For the fiscal year ended December 31, 2002

OR

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

|                                      
|--------------------------------------
|For the Transition period from      to

Commission file number 0-20328

AMTROL 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.)

|                                         |  |           
|---------------------------------------- |  | ----------
|1400 Division Road, West Warwick, RI     |  | 02893     
|                                         |  |           
|(Address of Principal Executive Offices) |  | (Zip Code)

Registrants telephone number, including area code: (401) 884-6300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None

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] No [   ].

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [  
] No [X].

State the aggregate market value of the Registrants voting and non-voting
common equity held by non-affiliates as of March 28, 2003: $0

Indicate the number of shares outstanding of each of the Registrants classes
of common stock, as of the latest practicable date: $0.01 Par Value: 100
shares outstanding as of March 28, 2003.

Documents Incorporated by Reference: None





---

TABLE OF CONTENTS



|                                                                           |                                                                                              |                                            |  |  |  |  |  | 
|-------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I                                                                    
|                                                                           | ITEM 1. BUSINESS                                                                            
|                                                                           |                                                                                              | Background                                
|                                                                           |                                                                                              | Operations                                
|                                                                           |                                                                                              | Products And Markets                      
|                                                                           |                                                                                              | Distribution and Marketing                
|                                                                           |                                                                                              | Manufacturing, Raw Materials and Suppliers
|                                                                           |                                                                                              | Seasonality and Backlog                   
|                                                                           |                                                                                              | Patents, Trademarks And Licenses          
|                                                                           |                                                                                              | Competition                               
|                                                                           |                                                                                              | Employees                                 
|                                                                           |                                                                                              | Environmental Matters                     
|                                                                           | ITEM 2. PROPERTIES                                                                          
|                                                                           | ITEM 3. LEGAL PROCEEDINGS                                                                   
|                                                                           | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                 
|PART II                                                                   
|                                                                           | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS               
|                                                                           | ITEM 6. SELECTED FINANCIAL DATA                                                             
|                                                                           | ITEM 7.MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                                           | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK                            
|                                                                           | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                         
|                                                                           | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|PART III                                                                  
|                                                                           | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                 
|                                                                           | ITEM 11. EXECUTIVE COMPENSATION                                                             
|                                                                           | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                     
|                                                                           | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                     
|                                                                           | ITEM 14. CONTROLS AND PROCEDURES                                                            
|                                                                           | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                    
|Report of Independent Auditors                                            
|Item 14(a)(2) SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
|SIGNATURES                                                                
|EXHIBIT INDEX                                                             
|CERTIFICATIONS                                                            
|Ex-10.13.1 First Amendment to Loan & Security                             
|EX-21 SUBSIDIARIES OF AMTROL INC.                                         



---



##### Table of Contents



TABLE OF CONTENTS

|                                                                           |                                                                                                                      |  |    |    |  |      |  | 
|-------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- |  | -- | -- |  | ---- |  | 
|                                                                           |                                                                                                                      |  |    |    |  | Page
|PART I                                                                     |                                                                                                                      |  |    |   
|                                                                           | Item 1 -  Business                                                                                                   |  |    |   
|                                                                           | Background                                                                                                           |  |    | 3  | 
|                                                                           | Operations                                                                                                           |  |    | 3  | 
|                                                                           | Products and Markets                                                                                                 |  |    | 4  | 
|                                                                           | Distribution and Marketing                                                                                           |  |    | 6  | 
|                                                                           | Manufacturing, Raw Materials and Suppliers                                                                           |  |    | 7  | 
|                                                                           | Seasonality and Backlog                                                                                              |  |    | 8  | 
|                                                                           | Patents, Trademarks and Licenses                                                                                     |  |    | 8  | 
|                                                                           | Competition                                                                                                          |  |    | 8  | 
|                                                                           | Employees                                                                                                            |  |    | 8  | 
|                                                                           | Environmental Matters                                                                                                |  | 8  |   
|                                                                           | Item 2 -  Properties                                                                                                 |  |    | 9  | 
|                                                                           | Item 3 -  Legal Proceedings                                                                                          |  |    | 10 | 
|                                                                           | Item 4 -  Submission of Matters to a Vote of Security Holders                                                        |  |    | 10 | 
|PART II                                                                    |                                                                                                                      |  |    |   
|                                                                           | Item 5 -  Market for Registrants Common Equity and Related
Stockholder Matters                                      |  |    | 10 | 
|                                                                           | Item 6 -  Selected Financial Data                                                                                    |  |    | 11 | 
|                                                                           | Item 7 -  Managements Discussion and Analysis of Financial Condition
and Results
of           Operations            |  |    | 12 | 
|                                                                           | Item 7A- Quantitative and Qualitative Disclosures of Market Risk                                                     |  |    | 20 | 
|                                                                           | Item 8 -  Financial Statements and Supplementary Data                                                                |  |    | 21 | 
|                                                                           | Item 9 -  Changes in and Disagreements with Accountants on
Accounting and Financial           Disclosure             |  |    | 21 | 
|PART III                                                                   |                                                                                                                      |  |    |   
|                                                                           | Item 10 - Directors and Executive Officers of the Registrant                                                         |  |    | 22 | 
|                                                                           | Item 11 - Executive Compensation                                                                                     |  |    | 24 | 
|                                                                           | Item 12 - Security Ownership of Certain Beneficial Owners and
Management and Related             Stockholder Matters |  |    | 27 | 
|                                                                           | Item 13 - Certain Relationships and Related Transactions                                                             |  |    | 28 | 
|                                                                           | Item 14 - Controls and Procedures                                                                                    |  |    | 28 | 
|                                                                           | Item 15 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K                                           |  |    | 29 | 
|Report
of Independent Auditors                                             |                                                                                                                      |  | 30 |   
|Item 14 (a)(2) Schedule II- Valuation and Qualifying Accounts and Reserves |                                                                                                                      |  | 51 |   
|Signatures                                                                 |                                                                                                                      |  | 52 |   
|Exhibit Index                                                              |                                                                                                                      |  | 53 |   
|Subsidiaries of Registrant                                                 |                                                                                                                      |  | 55 |   
|Certifications                                                             |                                                                                                                      |  | 57 |   

2



---



##### Table of Contents






PART I




ITEM 1. BUSINESS




Background



| |  | AMTROL Inc., together with its subsidiaries (AMTROL or the Company),
is a leading international designer, manufacturer and marketer of
expansion and pressure control products used in water systems
applications and selected sectors of the Heating, Ventiliation and Air
Conditioning (HVAC) market. The Companys principal products include
well water accumulators, hot water expansion controls, water treatment
products, indirect-fired water heaters and returnable and non-returnable
pressure-rated cylinders used primarily to store, transport and dispense
refrigerant, heating and cooking gases. Many of these products are based
on a technology originated and developed by the Company, involving a
pre-pressurized vessel with an internal diaphragm to handle fluids under
pressure.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company was incorporated in Rhode Island in 1973, and is the
successor of a Rhode Island corporation which was
incorporated in 1946. On November 12, 1996, as a result of a merger
agreement with AMTROL Holdings Inc. (Holdings Inc.) and its wholly
owned subsidiary, AMTROL Acquisition Inc., the Company became a
wholly-owned subsidiary of Holdings Inc., a Delaware corporation
controlled by The Cypress Group L.L.C. (Cypress). The Companys
principal executive offices are located at 1400 Division Road, West
Warwick, Rhode Island 02893 (telephone number: (401) 884-6300).                                                                                                                                                                                                              




Operations



| |  | AMTROL is a market leader in the manufacture of its principal products
and a significant participant in certain European, Middle Eastern,
African and Asian cylinder markets. The Companys prominence is
attributable to the strength of its brand names, product breadth, quality
and innovation, as well as its marketing, distribution and manufacturing
expertise. In addition, AMTROLs principal markets are highly replacement
oriented, with more than 50% of the Companys core business coming from
replacement sales. Sales can be affected by extreme weather conditions,
as well as significant changes in economic circumstances.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | One of the Companys strengths is its brand names, which are among the
most widely recognized in its markets. For example, the Companys
EXTROL® brand is widely recognized by customers as the leading hot
water expansion control tank. Other well-known brand names of the
Company include Well-X-Trol®,
Therm-X-Trol®, Boiler Mate, CHAMPION® and Water Worker®. The Company is a recognized technology
leader in virtually all of its core product lines. In fact, many of the
Companys major product lines are considered the industry benchmark, a
key strategic marketing advantage.                                                  
|
| |  | During its 57-year history, AMTROL has established a strong partnership
with wholesalers, supporting a broad distribution network serving
approximately 2,000 customers throughout North America. The Companys
strong brand recognition and reputation for quality ensure that nearly
every significant plumbing, pump specialty and HVAC wholesaler carries at
least one line of its products. This facilitates new product
introduction, effectively pulling the Companys new products through
its                                                                                                                                        

3



---



##### Table of Contents





| |  | distribution system. The Company also offers a broad range of products,
which allows the Companys customers to consolidate their purchases with
the Company and manage inventory more efficiently. These factors have
established AMTROLs products as preferred brands and allow the Company
to realize premium pricing on most of its premium branded products.                                                                                                                                                                                                                                                                                                                                                               
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | AMTROL-ALFA Metalomecânica, S.A. (AMTROL ALFA), located in Guimaraes,
Portugal, is Europes largest manufacturer of reusable steel gas
cylinders, distributed worldwide and used principally for the storage of
cooking and heating gases. AMTROL ALFA also produces non-returnable gas
cylinders supplied to European and Asian customers which are used
principally for the storage of refrigerant gases. AMTROL ALFAs sales
presence within the United States continues to increase as well. AMTROL
ALFA provides the Company with the potential for a low-cost international
manufacturing base for all of the Companys cylinder products and is an
important source of supply for the Companys international customers.
|
| |  | AMTROL NOVA GmbH & Co. K.G. (AMTROL NOVA), located in Donaueschingen,
Germany, manufactures high-end residential and commercial water heaters
which are marketed primarily in Germany, Switzerland and Austria.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | AMTROL Poland Sp z.o.o. (AMTROL Poland), located in Swarzedz, Poland
refurbishes returnable gas cylinders primarily for the Polish
market. AMTROL Poland also sells new gas cylinders that are
fabricated by AMTROL ALFA and shipped in an unfinished condition to
AMTROL Poland for finishing and distribution. AMTROL Poland provides
the Company with both a favorable
manufacturing cost structure and close proximity to gas cylinder markets in
central and eastern Europe.                                                                                                                                                                                                                                              
|
| |  | Net sales in geographic regions outside of the United States and Canada,
primarily Europe, the Middle East, Africa and the Far East, accounted
for 31.4%, 32.0% and 29.0% of the Companys total net sales in fiscal
years 2000, 2001 and 2002, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company continues to review potential acquisitions that may represent
good strategic fits with the Companys lines of business.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              




Products And Markets



| |  | HVAC Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys sales to selected sectors of the HVAC market include
products such as expansion accumulators, water heaters and pressure-rated
cylinders for heating and refrigerant gases. The Companys residential
HVAC products include expansion vessels for heated water, potable water
heaters and other accessories used in residential HVAC systems. The
Companys commercial HVAC products are substantially identical in
function to those used in residential applications, but may be modified
for design codes and the higher operating pressures of larger systems.
The Companys pressure-rated cylinders for refrigerant gases are used
mainly in the storage, transportation and dispensing of gases used
principally in air conditioning and refrigeration systems. In addition,
the AMTROL ALFA facility produces returnable pressure-rated cylinders for
storing gas used in residential and commercial heating and cooking
applications.

4



---



##### Table of Contents





| |  | EXTROLs®.The EXTROL® expansion accumulator, the first of the
Companys products for handling fluid under pressure, redefined the
standards for controlling the expansion of water in hydronic heating
systems. Earlier systems consisted simply of a vessel containing air,
resulting in excessive pressure and corrosion. The Company developed a
technology which uses a flexible diaphragm inside a pre-pressurized
vessel to maintain the separation of air and water and has applied this
technology in other HVAC and water system products. This technology
controls pressure in the heating system and minimizes problems related to
hot water expansion by allowing the volume of water to increase as the
temperature of the water increases within a closed system, thereby
substantially reducing operating problems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Therm-X-Trols®.Therm-X-Trols® accumulate expanded hot water from
potable water heaters where flow back into the public water supply is
prohibited due to the presence of backflow prevention devices. In
response to the Clean Water Act of 1984, certain jurisdictions
established local codes to require owners of commercial and residential
buildings to install backflow prevention devices in order to prevent the
contamination of the public water supply. Codes adopted by
organizations that set standards for most of the United States also
require a separate device to handle the expanded water and prevent it
from flowing back into the public water supply. The principal
alternatives are relief valves, which permit water to drain inside the
building, and thermal expansion accumulators, such as the
Therm-X-Trol®, which capture the water. Therm-X-Trol® satisfies
these code requirements, as well as the codes of certain localities that
specifically require a thermal expansion accumulator. Additionally,
certain domestic water heater manufacturers specify that their warranties
are void if thermal expansion accumulators are not used in conjunction
with their products where backflow prevention devices are installed.                                                              
|
| |  | Indirect-Fired Water Heaters.In response to market demands for both an
abundant supply of hot water and energy conservation, the Company has
introduced a line of indirect-fired residential and commercial water
heaters, which it manufactures and distributes under the brand name
Boiler Mate. Used in conjunction with a new or existing boiler,
installed to heat living and work areas, these water heaters offer an
alternative to conventional gas and electric potable water heaters and
tankless coils. Hot water is generated through the use of heat exchangers
and circulators which circulate heated water from the boiler through a
coil in the core of the water heaters reservoir. The Boiler Mate
Classic Series, available in 26 and 41 gallon models, is sold
primarily for residential applications. The Boiler Mate Premier
Series, a line of stainless steel models, offers sizes ranging from
60 to 120 gallons for light commercial applications and residential
customers who require large amounts of hot water and rapid recovery time.
In addition, the Companys AMTROL NOVA subsidiary specializes in
designing, engineering and manufacturing a wide range (55 liters to
5,000 liters) of high-end indirect-fired water heaters for the European
residential and commercial marketplace.
|
| |  | Pressure-Rated Cylinders.The AMTROL ALFA subsidiary produces and
distributes reusable liquid propane gas (LPG) cylinders and reusable
and non-returnable refrigerant cylinders. AMTROL ALFA is the largest
producer of reusable steel gas cylinders in Europe. Reusable LPG
cylinders are typically purchased by major gas companies or their
distributors who fill the cylinders for customers who use the gas for
heating and cooking in residential and commercial applications. In 1998,
the Company transferred to AMTROL ALFA a non-returnable
refrigerant cylinder production line previously located in Singapore
and began supplying its European and Asian non-returnable refrigerant
cylinder customers from AMTROL ALFA. The transfer of this                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

5



---



##### Table of Contents





| |  | production
line enhanced the Companys worldwide presence in non-returnable cylinder
markets and its ability to provide optimum production and delivery
solutions to its major multi-national customers. The Company is also one
of the worlds two largest
manufacturers of non-returnable pressure-rated cylinders used in the
storage, transport and dispensing of refrigerant gases for air
conditioning and refrigeration systems.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In 1999, the Company established AMTROL Poland which refurbishes
returnable gas cylinders primarily for the Polish market. AMTROL
Poland also sells new gas cylinders that are fabricated by AMTROL
ALFA and shipped in an unfinished condition to AMTROL Poland for
finishing and distribution. AMTROL Poland provides the Company with
both a favorable manufacturing cost structure and close proximity to
the gas cylinder markets in central and eastern Europe.                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Water Systems Products                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | AMTROLs sales of its water systems products consist primarily of water
accumulators for residential and commercial well water systems and
products for residential water softening and purification.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Well Water Systems.The Company produces and sells well water
accumulators for both residential and commercial applications under the
brand names Well-X-Trol® Professional® and CHAMPION®, as well as
under several other brand and private label programs. Virtually all of
the well water accumulators sold by the Company incorporate an internally
mounted rubber diaphragm that seals an air charge and allows pressure to
increase as water fills the plastic-lined vessel. This design serves to
control pressure while maintaining the separation of air and water in the
vessel, thereby eliminating water logging (absorption of air into water)
as well as reducing wear on switches, pump motors and other system
components caused by more frequent on/off cycling. A typical well water
system consists of a submersible or jet pump located in the well that
pumps water to an AMTROL well water accumulator.
|
| |  | The well water accumulator is connected to the plumbing system in order
to provide water on demand within a specific range of pressure as
controlled by a pressure switch. As the water level and pressure in the
vessel decreases, the diaphragm relaxes and the pressure switch causes
the pump to cycle until a certain pressure is achieved in the system.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Water Treatment/Filtration Products.The Company offers a range of products to
meet increasing global demand for improved water quality and water pressure.
The Company manufactures and markets water softeners under the Water Soft
brand. Other products such as reverse osmosis accumulators and related systems
distributed by the Company can improve the quality of both municipal-supplied
water and well water. The Company also manufactures and markets products under
the brand name AMTROL Pressuriser® that boosts water pressure where
available pressure is not adequate.                                                                                                                                                                                                                                                                                                                                   




Distribution and Marketing



| |  | The Companys principal channel of distribution is plumbing, heating and pump
specialty wholesalers. The Company maintains its presence in the United States
and Canadian wholesale markets through a network of approximately 45
independent manufacturers representatives arranging sales on a commission
basis, as well as approximately eight salaried direct sales professionals. To
service its customers with greater efficiency, the Company has streamlined its
representative network and, through consolidation of
multiple lines of business has brought a broader range of products to its wholesalers.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6



---



##### Table of Contents





| |  | The Company also provides certain of its products to the rapidly growing retail
channel through a separate sales force.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | At its Education Center, which is an integral part of the Companys marketing
organization, and at Company-sponsored seminars throughout the United States
and selected international locations, the Company provides education and
training to wholesalers, contractors and engineers, independent sales
representatives and their employees to assist them in understanding the
technical aspects of their respective customers requirements and the Companys
product lines. As the Company educates contractors and engineers about the
benefits of the Companys products, its products are more effectively pulled
through its distribution system.
|
| |  | Non-returnable refrigerant pressure-rated cylinders are sold to major
chemical companies, which produce and package refrigerant gases, and to
independent contractors that purchase bulk refrigerants and fill the
cylinders. The Companys major customers for reusable refrigerant gas
cylinders are wholesale distributors who sell the products to service
providers and refrigerant recovery equipment manufacturers. AMTROL ALFAs
major customers for reusable LPG cylinders are major European gas
companies or their distributors.                                                                                                                 
|
| |  | With the exception of one cylinder customer to whom global sales were
approximately 7.5% of total consolidated net sales, no individual
customer represented more than five percent of the Companys net sales in
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                     




Manufacturing, Raw Materials and Suppliers



| |  | The Company manufactures its products primarily at its own facilities,
many of which depend on the Companys expertise in pressure vessel
construction. The Company takes advantage of the material economies and
precision inherent in deep-draw stamping technology to manufacture
products of superior performance and life.                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | During 2002, weakness in the U.S. steel industry, including the
bankruptcy of certain steel companies and the imposition of tariffs on
imported steel in March 2002 (the Section 201 tariffs) created the potential
for supply disruptions and raised steel prices paid by the Company. The
diversity of the Companys U.S. steel vendor base and the timely
development of foreign sources of value-added steel products exempt from
the Section 201 tariffs mitigated potential supply disruptions and the
impact of steel price increases on the Companys financial performance.                    
|
| |  | In 2002, the Company continued to realize savings as a result of its
various lean manufacturing initiatives. Programs such as Kaizen,
one-piece flow, advanced quality planning and visualized controls have
helped AMTROL find and eliminate waste in its cost structure. In
addition, the Company anticipates that these initiatives will be further
leveraged by modest capital expenditure projects that will take advantage
of design-for-manufacture concepts.                                                                                                                                    
|
| |  | Quality assurance continues to be a principal focus of the Companys
management. Scrap expense was reduced by 10% in 2002, marking the fourth
consecutive year of decline in this expense category. The Company
believes that continued communications with customers play an
integral role in developing product design enhancements that improve duty
life. With respect to improving its quality culture and awareness,
AMTROL is seeking certification for ISO 9001-2000, the latest revision to
the ISO 9000-1994 standard. Preliminary audits by the Companys third
party registrar indicate that

7



---



##### Table of Contents





| |  | AMTROL can achieve certification by June
2003, six months ahead of industry expectation.                                                                                                                                                                     
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Plant safety performance continued to show substantial year-to-year
improvement resulting from a safety overhaul initiated in 1999. Records
indicate that the Company enjoyed the best safety performance in its
history.                                    
|
| |  | The condition at the Companys facilities and capital equipment is
considered good. Capital expenditures in 2002 are anticipated to yield
further plant and manufacturing efficiencies. As a result, the Company
does not anticipate any capacity restraints.




Seasonality and Backlog



| |  | Although the Companys sales fluctuate with general economic activity, the
effect of significant economic volatility is mitigated by the fact that many of
the Companys markets are highly replacement oriented. While sales of certain
of its products are seasonal in nature, the Companys overall business is not
highly seasonal. Due to the generally short lead time of its orders, the
Company historically has not carried any material backlog.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Patents, Trademarks And Licenses



| |  | While the Company owns a number of
patents, the Company believes that its
position in its markets depends primarily
on factors such as manufacturing
expertise, technological leadership,
superior service and quality and strong
brand name recognition, rather than on
patent protection. The Company believes
that foreign and domestic competitors have
been unable to match the quality of the
Companys branded products.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company also holds a number of
registered and unregistered trademarks for
its products. The Company believes the
following registered trademarks, which
appear on its products and are widely
recognized in its markets, are among those
of strategic importance to its business:
Well-X-Trol®, Therm-X-Trol®,
EXTROL®, Boiler
Mate, CHAMPION® and Water Worker®.                                                         




Competition



| |  | The Company is experiencing increasing
competition from a number of foreign and
U.S. competitors in each of its markets.
AMTROL and its competitors in the water
systems products and HVAC markets compete
principally on the basis of technology,
quality, service and price.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Employees



| |  | As of December 31, 2002, the Company had 538 employees in the United
States, none of who were represented by collective bargaining units. In
addition, the Company had 1,180 employees in its international
operations. Some of the Companys international employees are represented
by unions. The Company considers relations with its employees to be
good.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Environmental Matters



| |  | Some of the Companys operations generate or have in the past generated waste
materials that are regulated under environmental laws. In the past, certain of
the Companys operations have been named parties in litigation associated with
off-site hazardous
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8



---



##### Table of Contents





| |  | waste treatment and disposal. Based upon the Companys
experience in matters that have been resolved and the amount of hazardous waste
shipped to off-site disposal facilities, the Company believes that any share of
costs attributable to it will not be material should any litigation arise or
any claims be made in the future. However, there can be no assurance that any
liability arising from, for example, contamination at facilities the Company
owns or operates or formerly owned or operated (or an entity or business the
Company has acquired or disposed of), or locations at which waste or contaminants
generated by the Company have been deposited (or deposited by an entity or
business the Company has acquired or disposed of) will not arise or be asserted
against the Company or entities for which the Company may be responsible in a
manner that could materially and adversely affect the Company.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company monitors and reviews its
procedures and policies for
compliance with environmental laws.
Based upon the Companys experience
to date, the Company operates in
substantial compliance with
environmental laws, and the cost of
compliance with existing regulations
is not expected to have a material
adverse effect on the Companys
results of operations, financial
condition or competitive position.
However, future events, including
changes in existing laws and
regulations or enforcement policies,
may give rise to additional
compliance costs which could have a
material adverse effect on the
Companys results of operations,
financial condition or competitive
position.                                                                                                                                                                                                                               




ITEM 2. PROPERTIES



| |  | The following table sets forth information regarding the Companys
principal properties each of which is owned by the Company unless
otherwise indicated:
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------

|                        |  |                |  |                                      
|----------------------- |  | -------------- |  | -------------------------------------
|Location                |  | Square Footage |  | Principal Use                        
|                        |  |                |  |                                      
|                        |  | (approximate)  |  |                                      
|West Warwick, RI        |  | 270,000        |  | Corporate Headquarters,              
|                        |  |                |  | Manufacturing, and Education Center  
|Guimaraes, Portugal     |  | 196,000        |  | Manufacturing                        
|North Kingstown, RI (a) |  | 206,000        |  | Distribution Center                  
|Donaueschingen, Germany |  | 70,000         |  | Manufacturing and Distribution       
|Paducah, KY             |  | 46,300         |  | Manufacturing                        
|Mansfield, OH (a)       |  | 45,000         |  | Manufacturing and Distribution Center
|Baltimore, MD           |  | 37,000         |  | Manufacturing                        
|Swarzedz, Poland (a)    |  | 29,000         |  | Manufacturing                        
|Kitchener, Ontario(a)   |  | 18,400         |  | Sales Office and Distribution        
|                        |  |                |  |                                      
|Total                   |  | 917,700        |  |                                      
|                        |  |                |  |                                      



|(a) |  | Leased facilities
|--- |  | -----------------



| |  | The Company believes that its properties and equipment generally are well
maintained, in good operating condition and adequate for its present
needs. The Company regularly evaluates its manufacturing requirements
and believes that it has sufficient capacity to meet its current and
anticipated future needs. The inability to renew any short-term
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9



---



##### Table of Contents





| |  | real
property lease would not have a material adverse effect on the Companys
results of operations, financial condition or competitive position.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 3. LEGAL PROCEEDINGS



| |  | From time to time, the Company is named as a defendant in legal actions.
These legal actions include commercial disputes, agency proceedings and product
liability, personal injury and other claims. However, management
believes, after review of insurance coverage and consultation with legal
counsel, that the ultimate resolution of the current pending legal
actions to which it is a party will not likely have a material adverse
effect on the Companys results of operations or financial condition.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



| |  | Not applicable.
| |  | ---------------




PART II




ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



| |  | All of the common stock of the Company is owned by Holdings Inc.
and no trading market exists for the stock. All of the
common stock of Holdings Inc. is held by affiliates of Cypress and
certain officers, directors and employees of the Company, and
likewise there is no trading market for Holdings stock. For more
information, see Item 12, Security Ownership of Certain Beneficial
Owners and Management.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



---



##### Table of Contents






ITEM 6. SELECTED FINANCIAL DATA



| |  | The selected consolidated financial data presented below for and as of each of
the years and periods in the five-calendar-year period ended December 31, 2002
have been derived from the Consolidated Financial Statements of the Company,
including the related notes thereto. The information set forth below should be
read in conjunction with Managements Discussion and Analysis of Financial
Condition and Results of Operations and with the Consolidated Financial
Statements of the Company, including the related notes thereto, appearing
elsewhere in this Form 10-K.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | ---- |  | ---- | ------- | - |  | - | ------- | - |  | - | ------- | -
|                                    |                                                                                                                                       |  | Year Ended December 31,
|                                    |                                                                                                                                       |  |                        
|                                    |                                                                                                                                       |  | 1998(b)                 |         | 1999 |  | 2000 |         | 2001 |  | 2002
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |     
|                                    |                                                                                                                                       |  | (in thousands)         
|Statement of Operations Data:       |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                    | Net sales                                                                                                                             |  | $                       | 212,890 |      |  | $    | 222,053 |      |  | $    | 197,472 |   |  | $ | 182,325 |   |  | $ | 186,803 |  
|                                    | Cost of goods sold                                                                                                                    |  |                         | 169,355 |      |  |      | 164,617 |      |  |      | 151,483 |   |  |   | 141,278 |   |  |   | 144,217 |  
|                                    | Provision for abnormal warranty costs                                                                                                 |  |                         | 4,500   |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Total cost of goods sold                                                                                                              |  |                         | 173,855 |      |  |      | 164,617 |      |  |      | 151,483 |   |  |   | 141,278 |   |  |   | 144,217 |  
|                                    | Gross profit                                                                                                                          |  |                         | 39,035  |      |  |      | 57,436  |      |  |      | 45,989  |   |  |   | 41,047  |   |  |   | 42,586  |  
|                                    | Selling, general and
administrative expenses                                                                                          |  |                         | 27,827  |      |  |      | 28,492  |      |  |      | 25,821  |   |  |   | 27,878  |   |  |   | 28,646  |  
|                                    | Plant closing and reorganization costs                                                                                                |  |                         | 4,450   |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                    | Management restructuring                                                                                                              |  |                         | 3,693   |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   |        |  
|                                    | Amortization of goodwill                                                                                                              |  |                         | 4,446   |      |  |      | 4,463   |      |  |      | 4,463   |   |  |   | 4,451   |   |  |   |        |  
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income (loss) from operations                                                                                                         |  |                         | (1,381  | )    |  |      | 24,481  |      |  |      | 15,705  |   |  |   | 8,718   |   |  |   | 13,940  |  
|                                    | Interest (expense), net                                                                                                               |  |                         | (20,344 | )    |  |      | (19,083 | )    |  |      | (19,070 | ) |  |   | (19,101 | ) |  |   | (20,009 | )
|                                    | License and distributorship fees                                                                                                      |  |                         | 242     |      |  |      | 234     |      |  |      | 210     |   |  |   | 291     |   |  |   | 40      |  
|                                    | Other income (expense), net                                                                                                           |  |                         | 1,384   |      |  |      | 353     |      |  |      | 1,713   |   |  |   | 95      |   |  |   | (374    | )
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income (loss) before provision
(benefit) for income taxes,
extraordinary item and cumulative effect of change in accounting
principle |  |                         | (20,099 | )    |  |      | 5,985   |      |  |      | (1,442  | ) |  |   | (9,997  | ) |  |   | (6,403  | )
|                                    | Provision (benefit) for income taxes                                                                                                  |  |                         | (6,728  | )    |  |      | 4,125   |      |  |      | 2,704   |   |  |   | (1,026  | ) |  |   | 839     |  
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Income
(loss) before extraordinary item and cumulative effect of change in
accounting principle                                       |  |                         | (13,371 | )    |  |      | 1,860   |      |  |      | (4,146  | ) |  |   | (8,971  | ) |  |   | (7,242  | )
|                                    | (Loss) on extraordinary item, net of tax                                                                                              |  |                         |        |      |  |      |        |      |  |      |        |   |  |   | (444    | ) |  |   |        |  
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Loss
before cumulative effect of change in accounting
principle                                                                       |  |                         | (13,371 | )    |  |      | 1,860   |      |  |      | (4,146  | ) |  |   | (9,415  | ) |  |   | (7,242  | )
|                                    | Cumulative effect of a change in accounting
principle                                                                                 |  |                         |        |      |  |      |        |      |  |      |        |   |  |   |        |   |  |   | (38,087 | )
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|                                    | Net income (loss)                                                                                                                     |  | $                       | (13,371 | )    |  | $    | 1,860   |      |  | $    | (4,146  | ) |  | $ | (9,415  | ) |  | $ | (45,329 | )
|                                    |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |         |  
|Other Data:                         |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                    | Depreciation and amortization                                                                                                         |  | $                       | 13,147  |      |  | $    | 14,003  |      |  | $    | 14,005  |   |  | $ | 13,882  |   |  | $ | 9,093   |  
|                                    | Capital expenditures                                                                                                                  |  |                         | 9,858   |      |  |      | 5,798   |      |  |      | 8,375   |   |  |   | 4,199   |   |  |   | 3,321   |  
|                                    | EBITDA (a)                                                                                                                            |  |                         | 12,454  |      |  |      | 38,346  |      |  |      | 29,963  |   |  |   | 21,972  |   |  |   | 21,709  |  
|Balance Sheet Data (at period end): |                                                                                                                                       |  |                         |         |      |  |      |         |      |  |      |         |   |  |   |         |   |  |   |        
|                                    | Working capital                                                                                                                       |  | $                       | 6,642   |      |  | $    | 9,001   |      |  | $    | 5,101   |   |  | $ | 8,602   |   |  | $ | 7,877   |  
|                                    | Total assets                                                                                                                          |  |                         | 300,667 |      |  |      | 281,745 |      |  |      | 271,104 |   |  |   | 264,455 |   |  |   | 229,664 |  
|                                    | Long-term debt, less current maturities                                                                                               |  |                         | 173,023 |      |  |      | 163,385 |      |  |      | 159,469 |   |  |   | 157,511 |   |  |   | 158,391 |  
|                                    | Shareholders equity                                                                                                                  |  |                         | 65,948  |      |  |      | 65,303  |      |  |      | 59,872  |   |  |   | 58,219  |   |  |   | 15,849  |  



|(a) |  | EBITDA represents income (loss) from operations before plant closing
charges, depreciation and amortization. EBITDA is frequently considered
by readers of financial statements and therefore the Company believes that
inclusion of EBITDA is useful supplemental information. The method of
calculating consolidated EBITDA is consistent with the Companys Loan and Security
Agreement and Senior Subordinated Notes Agreement. However, EBITDA is
not a measure of true cash flow since it does not incorporate changes of
other assets and liabilities that may generate or require cash. EBITDA is
not a generally accepted accounting measure.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Adjusted to reflect a change in the method of determining inventory cost
from the LIFO method to the FIFO method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

11



---



##### Table of Contents






ITEM 7.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
                OF OPERATIONS



| |  | This section should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere herein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company and its subsidiaries and their representatives may from time
to time make written or oral statements, including statements contained
in AMTROL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-K 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 identify some of these forward-looking
statements. Forward looking statements include those containing these
phrases but also any other statements that are not references to
historical fact. Although the Company believes that the expectations
reflected in such forward-looking statements are expressed in good faith
and are believed to have a reasonable basis, there can be no 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. 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.

Critical Accounting Policies



| |  | In December 2001, the SEC issued Financial Reporting Release No. 60
requiring that all registrants provide additional disclosure and
commentary on those accounting policies considered most critical. The
SEC indicated that a critical accounting policy is one which is both
important to the portrayal of the Companys financial condition and
results of operations and requires managements most difficult subjective
or complex judgments, often as a need to make estimates about the effect
of matters that are inherently uncertain. The Company believes that the
following accounting policies fit this definition.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12



---



##### Table of Contents





| |  | 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
SFAS No. 142, Goodwill and Other Intangible Assets. The Company adopted
SFAS No. 142 effective January 1, 2002. 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 for the cumulative
effect of change in accounting principle of $38.1 million upon adoption
of SFAS No. 142, as further described in Note 5.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Through year-end 2001, the
Company, under SFAS No. 121, assessed the future useful life and
recoverability of goodwill and other noncurrent assets whenever events or
changes in circumstances indicated that the current useful life had
diminished, or the carrying value had been impaired. The Company
assessed the recoverability of the assets by determining whether the
amortization of such intangibles over their remaining lives can be
recovered through projected undiscounted future cash flows. The amount
of impairment, if any, is measured based on the fair value of the
impaired asset. At December 31, 2001, no goodwill impairment existed
under this method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Revenue Recognition.The Company recognizes revenue in accordance with
SEC Staff Accounting Bulletin (SAB) No. 101 Revenue Recognition in
financial statements as amended by SAB No. 101A and SAB No. 101B.In
accordance with 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. Determination of the criteria is based upon managements
judgments regarding the fixed nature of the price and the ability to
collect revenue.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | 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
on certain percentages and sales targets agreed to with the Companys
customers, which are typically earned by the customers over an annual
period. The allowance for volume rebates is consistent with the
provisions of EITF 00-22, Accounting for Points and Certain Other
Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free
Products or Services to Be Delivered in the Future.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

13



---



##### Table of Contents





| |  | Long-Lived Assets.AMTROL periodically evaluates its long-lived assets,
other than goodwill, for events or changes in circumstances that might
indicate the carrying amount of the assets may not be recoverable in
accordance with SFAS No. 144. This statement provides for use of
the accounting model for long-lived assets to be disposed of by sale,
whether previously held and used or newly acquired. At December 31,
2002, no such impairment exists.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Warranty.The Company extends various warranties covering all of its products ranging from a 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 generally provide for the replacement of 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.  
|
| |  | Inventory Valuation.The
Company values inventories at the lower of cost or market. The
Company records provisions, as appropriate, to write-down obsolete
and excess inventory to estimated net realizable value. The process
for evaluating obsolete and excess inventory often requires the
Company to make subjective judgments and estimates concerning future
sales levels, quantities and prices at which such inventory will be
able to be sold in the normal course of business. Accelerating the
disposal process or incorrect estimates of future sales potential may
cause the actual results to differ from the estimates at the time
such inventory is disposed or sold. The Company believes that its
procedures for estimating such amounts are reasonable and
historically have not resulted in material adjustments in subsequent
period when the estimates are adjusted to the actual amounts.

Results of Operations



| |  | The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Companys
statement of operations:
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|---------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                     |  | Year Ended December 31
|                                                                                                     |  |                       
|                                                                                                     |  | 2000                   |       | 2001 |  | 2002
|                                                                                                     |  |                        |       |      |  |     
|Net sales                                                                                            |  |                        | 100.0 | %    |  |      | 100.0 | % |  |  | 100.0 | %
|Cost of goods sold                                                                                   |  |                        | 76.7  |      |  |      | 77.5  |   |  |  | 77.2  |  
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Gross profit                                                                                         |  |                        | 23.3  |      |  |      | 22.5  |   |  |  | 22.8  |  
|Selling, general and administrative expenses                                                         |  |                        | 13.1  |      |  |      | 15.3  |   |  |  | 15.3  |  
|Amortization of goodwill                                                                             |  |                        | 2.2   |      |  |      | 2.4   |   |  |  |      |  
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Income from operations                                                                               |  |                        | 8.0   |      |  |      | 4.8   |   |  |  | 7.5   |  
|Interest expense, net                                                                                |  |                        | (9.7  | )    |  |      | (10.5 | ) |  |  | (10.7 | )
|Other income (expense), net                                                                          |  |                        | 1.0   |      |  |      | 0.2   |   |  |  | (0.2  | )
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Loss before income taxes, extraordinary item and cumulative effect of change in accounting principle |  |                        | (0.7  | )    |  |      | (5.5  | ) |  |  | (3.4  | )
|Provision (benefit) for income taxes                                                                 |  |                        | 1.4   |      |  |      | (0.5  | ) |  |  | (0.5  | )
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Loss
before extraordinary item and cumulative effect of change in accounting principle               |  |                        | (2.1  | )    |  |      | (5.0  | ) |  |  | (3.9  | )
|Loss on extraordinary item, net                                                                      |  |                        |      |      |  |      | (0.2  | ) |  |  |      |  
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Loss before cumulative effect of a change in
accounting principle                                    |  |                        | (2.1  | )    |  |      | (5.2  | ) |  |  | (3.9  | )
|Cumulative effect of a change in accounting principle                                                |  |                        |      |      |  |      |      |   |  |  | (20.4 | )
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  
|Net loss                                                                                             |  |                        | (2.1  | )    |  |      | (5.2  | ) |  |  | (24.3 | )
|                                                                                                     |  |                        |       |      |  |      |       |   |  |  |       |  

Fiscal Year Ended
December 31, 2002 Compared to Fiscal Year Ended December 31,
2001.



| |  | Net Sales.Net sales in 2002 increased $4.5 million or 2.5% to $186.8
million from $182.3 million in 2001. In North America, net sales
decreased $1.3 million or 1.0% as compared to 2001 due principally to the
continuing weakness of the North American economy. Net sales in Europe
increased $5.8 million or 9.8% as compared to
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14



---



##### Table of Contents





| |  | 2001 due principally to the
addition of significant new business and the strengthening of the Euro
against the U.S. dollar. If the value of the Euro had remained at the
average level of 2001, reported net sales in Europe for 2002 would have
increased $2.2 million or 3.7% from 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Gross Profit.Gross profit increased approximately $1.6 million in 2002
to $42.6 million from $41.0 million in 2001. As a percentage of net
sales, gross profit in 2002 increased to 22.8% from 22.5% in 2001.
Several factors contributed to the margin increase including price
increases in certain product lines and shifts in product mix. In Europe,
new business combined with a stronger Euro also contributed to the
increase. In addition, favorable results from continuing cost reduction
efforts and improvements in labor productivity were realized at all of
the Companys manufacturing locations.                                                                                                                                                                                                                                                                    
|
| |  | Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $0.7 million or 2.8% in 2002 to $28.6
million from $27.9 million in 2001. The increase was principally due to
new marketing initiatives of $0.2 million and increased
compensation costs of $1.2 million offset by cost cutting
initiatives at all the Companys operating units.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Other Income (Expense), Net.Other income (expense), net for 2002 was
$(0.4) million as compared to 2001 of $0.1 million. The decrease of $0.5
million was principally attributable to currency exchange losses of $1.3 million recorded by the
Companys European operations as a result of the strengthening of the
Euro versus the U.S. Dollar, partially offset by government grants of
$0.6 million
awarded to the Companys Portuguese subsidiary.                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Income Taxes.Income tax expense increased $1.9 million in 2002 as
compared to 2001 reflecting managements decision to discontinue the
recognition of tax benefits associated with pre-tax losses from 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 expect 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.
|
| |  | Net Income (Loss).The net loss in 2002 of $45.3 million compares to a
net loss in 2001 of $9.4 million. The change was principally due to the
goodwill impairment charge of $38.1 million (see Note 5 to the
accompanying consolidated financial statements).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Earnings Before Interest Expense, Taxes, Depreciation and Amortization
(EBITDA).
EBITDA in 2002 was $21.7 million compared to $22.0 million in 2001, a
decrease of $0.3 million or 1.4%. As a percentage of sales, EBITDA
decreased from 12.1% in 2001 to 11.6% in 2002. The decline was
principally the result of currency exchange losses incurred in the
Companys European operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Fiscal Year Ended December 31, 2001 Compared to Fiscal Year Ended December 31, 2000.



| |  | Net Sales.Net sales in 2001 decreased $15.2 million or 7.7% to $182.3
million from $197.5 million in 2000. In North America, net sales
decreased $11.9 million or 8.7% as compared to 2000 due principally to a
decline in volume attributable to a continuing weakness in the North
American economy, pricing pressures and shifts in product mix. Net
sales in Europe decreased $3.3 million or 5.3% as compared to 2000 due
principally to the weakening of the Euro against the U.S. dollar. If the
value of the Euro had
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

15



---



##### Table of Contents





|                                |  | remained at the average level of 2000, reported net
sales in Europe for 2001 would have decreased $1.5 million or 2.4% from
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                               
|                                |  | Gross Profit.Gross profit decreased approximately $5.0 million in 2001
to $41.0 million from $46.0 million in 2000. As a percentage of net
sales, gross profit in 2001 decreased to 22.5% from 23.3% in 2000.
Several factors contributed to the margin decrease, including lower
volume, lower selling prices and shifts in product mix. Partially
offsetting these decreases were the favorable results of continuing cost
reduction efforts and improvements in labor productivity at all of the
Companys manufacturing locations.                                                                                                                                                                                                                                      
|                               
|                                |  | Selling, General and Administrative Expenses.Selling, general and
administrative expenses increased $2.1 million or 8.0% in 2001 to $27.9
million from $25.8 million in 2000. The increase was principally due to
one-time marketing initiatives in the Companys principal North American
markets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|                               
|                                |  | Other Income, Net.Other income, net for 2001 was $0.1 million as
compared to 2000 of $1.7 million. The decrease of $1.6 million was
principally attributable to the sale of a parcel of land in 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|                               
|                                |  | Income Taxes.Income tax expense decreased $3.7 million in 2001 as
compared to 2000 reflecting lower pre-tax earning levels.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|                               
|                                |  | Net Income (Loss).The net loss in 2001 of $9.4 million compares to a
net loss in 2000 of $4.1 million, an absolute change of $5.3 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|                               
|                                |  | Earnings Before Interest Expense, Taxes, Depreciation and Amortization
(EBITDA).
EBITDA in 2001 was $22.0 million compared to $30.0 million in 2000, a
decrease of $8.0 million or 26.7%. The decline was the result of a
decline in net sales, higher selling, general and administrative expenses
mitigated by the favorable impacts of cost reduction efforts and improved
labor productivity. As a percentage of sales, EBITDA decreased three
percentage points, from 15.2% in 2000 to 12.1% in 2001.                                                                                                                                                                                                                                                                  
|                               
|Liquidity and Capital Resources
|                               
|                                |  | 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
Amtrol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). A
portion ($10.2 million) of the Term Loans (the Term Loan A) is the
lower of (a) $10.5 million and (b) the sum of (i) 80% of the net
liquidation percentage of eligible equipment located in North America and
(ii) 60% of the fair market value of real property located in North
America. A second portion of the Term Loans (Term Loan B) with an original principle amount of
$7.5 million was also created. The Revolving Credit Facility is secured by North American
accounts receivable and inventories. Aggregate borrowings under the
Revolving Credit Facility are limited to the lesser of (a) $35.0 million
less

16



---



##### Table of Contents





| |  | 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. The Foothill Facility is secured by a lien on all of the
Companys personal property and assets. At December 31, 2002, total
availability and aggregate borrowings under the Revolving Credit Facility
were $10.3 million and $5.4 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 which commenced April 1, 2002. The outstanding unpaid principal
shall be due and payable on the date of termination of the Agreement,
whether by its terms, by prepayment, or by acceleration and bears
interest at LIBOR plus 3.5%. Term Loan B has a three-year maturity with
quarterly principal payments of $312,500 which commenced April 1, 2002.
The outstanding unpaid principal shall be due and payable on the date of
termination of the Agreement, 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%. 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 Agreement 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 Agreement contains certain
affirmative and negative covenants and restrictions. As of December 31,
2002, the Company was in compliance with the various covenants of the
Foothill Agreement.
|
| |  | 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 AMTROL, has 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 and are exercisable immediately,
were valued at approximately $3.4 million using the Black-Scholes model.
This amount was recorded as a contra-liability against the Term Loan C
debt and included in the Companys equity section. The Company expects
that the effective interest rate associated with the Term Loan C will be
greater than the 12% given the additional interest expense associated
with the warrants. The Cypress Loan Agreement contains certain
affirmative and negative covenants and restrictions. As of December 31,
2002, the Company was in compliance with the various covenants of the
Cypress Agreement.                                           
|
| |  | Net cash provided by operating activities in 2002 of $5.1 million was
$7.8 million higher than 2001 due principally to a reduced operating loss
and a reduction in total working capital. Capital expenditures of $3.3
million in 2002 were $0.9 million lower than in 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Accounts receivable increased $1.3 million in 2002. The increase was
principally due to higher European sales offset by improved collections
at all the Companys operating units. The Company did not experience any
significant changes in credit terms, credit utilization or delinquency in
accounts receivable in 2002 as compared to 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Companys inventories increased $2.7 million. The increase was
principally due to the procurement of steel in the fourth quarter in
anticipation of large near-term                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

17



---



##### Table of Contents





| |  | customer orders in the Companys European
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Accounts payable increased $2.9 million. The increase was principally
due to the steel purchases described above and higher sales in the
Companys European operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Capital expenditures were $8.4 million, $4.2 million and $3.3 million for
the years ended December 31, 2000, 2001 and 2002, respectively.
Substantially all of the expenditures in 2002 and 2001 related to ongoing
maintenance and upgrading of the Companys manufacturing technology at
all of its production facilities. In 2000, $2.2 million was used to
acquire AMTROL Polands production line which was previously leased and
$1.0 million was used to enhance and complete the implementation of the
Companys ERP system in its North American and Portuguese operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In November 1996 the Company issued, under an Indenture, $115.0 million
of Senior Subordinated Notes due 2006 (the Notes). 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, 2002, 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 Indenture contains certain
affirmative and negative covenants and restrictions. As of December 31,
2002, the Company was in compliance with the various covenants of the
Indenture.
|
| |  | The Company intends to fund future working capital, capital expenditures
and debt service requirements through cash flows generated from
operations and borrowings through its Revolving Credit Facility.
Management believes that cash generated from operations, together with
borrowings available under the Revolving Credit 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 and/or affiliates of the Company, including entities related
to Cypress may, from time to time, depending on market conditions,
purchase the Senior Subordinated Notes previously issued by the Company
in the open market or by other means.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | The Company believes that anticipated inflation rates will not have a
material adverse effect on its results of operations or financial
condition. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

18



---



##### Table of Contents





| |  | In July 2001, SFAS No. 143, Accounting for Asset Retirement Obligations
was released. SFAS No. 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived
assets and the associated retirement costs. SFAS No. 143 requires that
the fair value of a liability for an asset retirement obligation be
recognized in the period in which it is incurred if a reasonable estimate
of fair value can be made. The associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset. The
Company does not expect the adoption of this statement will have an
impact on its consolidated financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | In addition, the Company adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assetson January 1, 2002. This
statement supersedes SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Ofand APB No.
30, Reporting the Results of Operations  Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions. SFAS No. 144 amends
accounting and reporting standards for the disposal of segments of a
business and the accounting for the impairment or disposal of long-lived
assets. The adoption of SFAS No. 144 did not impact the Companys
consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | SFAS No. 145 Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections (SFAS
No. 145), was issued in April 2002 and addresses the reporting of gains
and losses resulting from the
extinguishment of debt, accounting for sale-leaseback transactions
and rescinds or amends other existing authoritative pronouncements. SFAS No. 145
requires that any gain or loss on extinguishment of debt that does
not meet the criteria of APB 30 for classification as an extraordinary
item shall not be classified as extraordinary and shall be included in earnings
from continuing operations. The provisions of this statement related to the
extinguishment of debt are effective for financial statements issued
in fiscal years beginning after May 15, 2002 with early
application encouraged. Upon adoption of SFAS No. 145, all prior periods presented will be required to be restated.
The Company plans to adopt SFAS No. 145 on January 1, 2003.
Accordingly, the Companys $0.4 million extraordinary loss from debt retirement recorded in 2001 will be
reclassified to earnings from continuing operations when the standard
is adopted in 2003.
|
| |  | In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which addresses financial
accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force Issue No. 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). The provisions of SFAS No.
146 are effective for exit or disposal activities that are initiated
after December 31, 2002, with earlier application encouraged. The
Company will adopt SFAS No. 146 for exit or disposal activities that are
initiated after December 31, 2002, and it does not expect that the
adoption of the Statement will have a significant impact on the Companys
financial position or results of operations.                                                                                                                                                                                                                                                                                                                                  
|
| |  | In November 2002, FASB Interpretation No. 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Otherswas issued. This interpretation requires certain
guarantees to be recorded at fair value as opposed to the current
practice of recording a liability only when a loss is probable and
reasonably estimable. It also requires a guarantor to make enhanced
disclosures concerning guarantees, even when the likelihood of making any
payments under the guarantee is remote. The initial recognition and
initial measurement provisions are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, while the enhanced
disclosure requirements are effective after December 15, 2002. The
Company does not expect the adoption of this interpretation will have an
impact on its consolidated financial position or results of operations.                                                                                                                                                                                                                                                              

19



---



##### Table of Contents






ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK



| |  | Foreign Currency Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is exposed to market risk related to foreign currency
exchange rates and changes in interest rates. With respect to interest
rates, the impact on 2002 operating results was not material and the
expected impact on 2003 operating results is not anticipated to be
material. However, as a result of the strengthening of the Euro versus
the U.S. dollar by 18.3%, the Company recorded approximately $1.3 million
in foreign exchange losses in 2002. During 2002, the Company did use forward
contracts to hedge its foreign currency exposures, which relate primarily to its operations
in Portugal. A portion of revenues in 2002 from the Companys Portuguese
operations were denominated in U.S. dollars. As the Euro strengthened,
the corresponding U.S. dollar denominated receivables lost value. In order to mitigate
any future currency exchange losses against future receivables, the
Companys Portuguese operation 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
December 31, 2002, the Companys Portuguese operations had forward
contracts for the purchase of $500,000 in early January 2003. The value
of these forward contracts was not material to the balance sheet of AMTROL.
The Company anticipates that by using forward contracts more routinely
during 2003, no material foreign currency exchange losses will be
incurred.
|
| |  | Interest Rate Market Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | In addition, the Company has an interest rate swap contract and an
interest rate cap (the Contract) outstanding as of December 31, 2002,
with an initial notional amount of $15 million, decreasing on a
consistent basis with repayment terms of the underlying debt. 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
January 1, 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, as a hedge agreement and accounted for as such. The Contract
was designated as a cash flow hedge of variable future cash flows
associated with the interest on the previous Bank Credit Agreement,
Tranche B Long Term Debt, through May 13, 2004 (the maturity date of the
debt). However, the swap was redesignated to the Term Loans A and B upon
entering into the Foothill Agreement.                                                                                                                                                                                                                                                                                            
|
| |  | The following sensitivity analysis summarizes the potential impact on the
Company of additional interest expense resulting from a hypothetical 100 basis
point increase in the interest rate indices upon which AMTROLs floating rate
debt instruments are based                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

(000):


20



---



##### Table of Contents



|            |  |             |        |              |  |           |  |   |     |  |  | 
|----------- |  | ----------- | ------ | ------------ |  | --------- |  | - | --- |  |  | 
|            |  | Y/E 2002    |        |              |  |           |  |   |     | 
|            |  | Exposure    |        | Hypothetical |  | Effect on
|Variable    |  | to Interest |        | Change in    |  | Amtrol   
|Rate Debt   |  | Rate Risk   |        | Rate Index   |  | Interest 
|            |  |             |        |              |  |          
|Revolver    |  | $           | 5,373  |              |  | 100 bps   |  | $ | 54  | 
|Term Loan A |  |             | 8,962  |              |  | 100 bps   |  |   | 90  | 
|Term Loan B |  |             | 6,563  |              |  | 100 bps   |  |   | 66  | 
|            |  |             |        |              |  |           |  |   |     | 
|            |  | $           | 20,898 |              |  | 100 bps   |  | $ | 210 | 
|            |  |             |        |              |  |           |  |   |     | 



| |  | The Company believes that the potential effects of a hypothetical
100-basis point increase in its floating rate debt instruments are not
material to cash flows or net income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys Term Loan C and Senior Subordinated Notes are not subject
to interest rate risk since the rate of interest on these securities is
fixed until their respective maturities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Commodity Risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Company is subject to significant market risk with respect to the
pricing of its principal raw materials, which include steel, rubber,
corrugate, utilities and paint. If prices of these raw materials were to
increase dramatically, the Company might not be able to pass such increases
on to its customers and, as a result, gross margins could decline. The
Company manages its exposure to commodity pricing risk by continuing to
diversify its product mix, strategic buying programs and vendor
partnering. At December 31, 2002, the Company had not entered into any
derivative financial instruments to manage its exposure to higher prices.
|
| |  | On March 5, 2002, the United States government imposed tariffs and quotas
on a wide range of steel imports for a three-year period. Many of the
Companys products are made from steel or contain steel parts. While the
Company has certain purchase orders in place which set the price of
steel, these purchase orders do not extend through the period the quotas
and tariffs are imposed. Should price increases result from the
imposition of these quotas and tariffs, net income and cash flows of the
Company could decline.                                                                                                                          




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



| |  | The index to financial statements is included on page 29 of this report.
| |  | ------------------------------------------------------------------------




ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                 FINANCIAL DISCLOSURE



| |  | The Board of Directors of AMTROL Inc., as recommended by its Audit
Committee, decided to no longer engage Arthur Andersen LLP (Andersen)
as the Companys independent certified public accountants. Also
recommended by the Audit Committee and approved by the Board of Directors
was the engagement of Ernst & Young as the Companys independent
certified public accountants for 2002.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

21



---



##### Table of Contents






PART III




ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information regarding each of the
directors and executive officers of the Company:

|                     |  |     |    |          |  |                                                                       
|-------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------
|Name                 |  | Age |    | Position
|                     |  |     |    |         
|Albert D. Indelicato |  |     | 52 |          |  | President, Chairman of
the Board, Chief
Executive Officer and
Director
|                     |  |     |    |          |  |                                                                       
|Larry T. Guillemette |  |     | 47 |          |  | Executive Vice
President, Chief
Financial Officer and
Treasurer       
|                     |  |     |    |          |  |                                                                       
|Joseph L. DePaula    |  |     | 48 |          |  | Vice President-Finance
& Corporate Controller                         
|                     |  |     |    |          |  |                                                                       
|Patricia A. Pickrel  |  |     | 52 |          |  | Secretary                                                             
|                     |  |     |    |          |  |                                                                       
|John P. Cashman      |  |     | 62 |          |  | Director                                                              
|                     |  |     |    |          |  |                                                                       
|Andrew M. Massimilla |  |     | 61 |          |  | Director                                                              
|                     |  |     |    |          |  |                                                                       
|David P. Spalding    |  |     | 48 |          |  | Director                                                              
|                     |  |     |    |          |  |                                                                       
|James A. Stern       |  |     | 52 |          |  | Director                                                              

Albert D. Indelicato became President, Chairman of the Board and Chief
Executive Officer in June 2000. Previously, Mr. Indelicato served as President
and Chief Executive Officer since joining the Company in July 1998. From 1996
to 1998, he was President of Litorale Holdings, Inc., a consulting firm
specializing in acquisitions. From 1970 to 1996, Mr. Indelicato served in
various managerial capacities of Power Control Technologies and its predecessor
companies, including most recently as Chief Executive Officer and Director.

Larry T. Guillemette became Executive Vice President, Chief Financial Officer
and Treasurer in August 2000. Previously, Mr. Guillemette served as Executive
Vice President-Marketing and Business Development since joining the Company in
1998. From 1991 to 1998, Mr. Guillemette was President and Chief Executive
Officer of Balcrank Products, Inc.

Joseph L. DePaula became Vice President-Finance & Corporate Controller in April
2001. For the previous five-year period thereto, Mr. DePaula served as Chief
Financial Officer of Semi-Alloys Co.

Patricia A. Pickrel, Secretary joined the Company as General Counsel in 1998
and became Secretary in 1999. Previously, Ms. Pickrel was engaged in the
private practice of law.

John P. (Jack) Cashman became a Director upon the Merger in November, 1996.
In addition, Mr. Cashman served as Chairman of the Board, Chief Executive
Officer and President

22



---



##### Table of Contents



upon the Merger until Mr. Indelicato joined the Company
in July 1998. From 1989 until March 1996, Mr. Cashman served as Chairman and Co-Chief Executive Officer of R.
P. Scherer Corporation.

Andrew M. Massimilla became a Director of the Company in June 1998. Mr.
Massimilla has been the sole proprietor of a consulting firm providing
management consulting services to various businesses since 1991. Mr.
Massimilla is also a director of the Republic National Cabinet Corporation.

David P. Spalding became a Director of the Company upon the Merger. Mr.
Spalding has been Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress, Mr. Spalding was Managing Director in the Merchant
Banking Group of Lehman Brothers Inc. since February 1991. Mr. Spalding is
also a director of Lear Corporation, William Scotsman, Inc., and Republic
National Cabinet Corporation.

James A. Stern became a Director of the Company upon the Merger. Mr. Stern has
been Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. Mr. Stern is a director of
Lear Corporation, Cinemark USA, Inc, and Wesco International Inc.

23



---



##### Table of Contents



Compliance with Section 16(a) of the Securities Exchange Act of 1934.

Not applicable




ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes the compensation paid or accrued by the Company
to its Chief Executive Officer and the four other most highly compensated
executive officers who earned more than $100,000 in salary and bonus in 2002 in
each case for services rendered in all capacities to the Company during the
three year period ended December 31, 2002:

Summary Compensation Table

|                                      |  |      |      |            |  |                  |         |                                  |  |                           |         |  |  |  |   |  |  |   |        | 
|------------------------------------- |  | ---- | ---- | ---------- |  | ---------------- | ------- | -------------------------------- |  | ------------------------- | ------- |  |  |  | - |  |  | - | ------ | 
|                                      |  |      |      |            |  |                  |         | Long Term                        |  |                           |         | 
|                                      |  |      |      |            |  |                  |         |                                  |  |                           |         | 
|                                      |  |      |      |            |  | Annual           |         | Compensation                     |  |                           |         | 
|                                      |  |      |      |            |  |                  |         |                                  |  |                           |         | 
|                                      |  |      |      |            |  | Compensation
(a) |         | Awards                           |  |                           |         | 
|                                      |  |      |      |            |  |                  |         |                                  |  |                           |         | 
|Name and Principal Position           |  | Year |      | Salary (b) |  | Bonus            |         | SecuritiesUnderlyingOptions/SARs |  | All
OtherCompensation (c)
|                                      |  |      |      |            |  |                  |         |                                  |  |                          
|Albert D. Indelicato (d)              |  |      | 2002 |            |  | $                | 350,000 |                                  |  | $                         | 217,000 |  |  |  |  |  |  | $ | 76,617 | 
|Chairman, President and               |  |      | 2001 |            |  |                  | 350,000 |                                  |  |                           |        |  |  |  |  |  |  |   | 12,970 | 
|Chief Executive Officer               |  |      | 2000 |            |  |                  | 350,000 |                                  |  |                           |        |  |  |  |  |  |  |   | 10,424 | 
|Larry T. Guillemette (d)              |  |      | 2002 |            |  |                  | 190,457 |                                  |  |                           | 67,000  |  |  |  |  |  |  |   | 30,783 | 
|Executive Vice President,             |  |      | 2001 |            |  |                  | 185,000 |                                  |  |                           |        |  |  |  |  |  |  |   | 9,911  | 
|Chief Financial Officer
and Treasurer |  |      | 2000 |            |  |                  | 185,000 |                                  |  |                           |        |  |  |  |  |  |  |   | 9,878  | 
|Christopher A. Laus (d)               |  |      | 2002 |            |  |                  | 159,855 |                                  |  |                           | 70,000  |  |  |  |  |  |  |   | 29,596 | 
|Vice President - Operations           |  |      | 2001 |            |  |                  | 152,250 |                                  |  |                           |        |  |  |  |  |  |  |   | 7,390  | 
|                                      |  |      | 2000 |            |  |                  | 152,250 |                                  |  |                           |        |  |  |  |  |  |  |   | 9,820  | 
|Robert R. Pape (d)                    |  |      | 2002 |            |  |                  | 149,216 |                                  |  |                           | 50,000  |  |  |  |  |  |  |   | 19,210 | 
|Vice President -                      |  |      | 2001 |            |  |                  | 146,058 |                                  |  |                           |        |  |  |  |  |  |  |   | 8,010  | 
|Sales & Marketing                     |  |      | 2000 |            |  |                  | 127,413 |                                  |  |                           |        |  |  |  |  |  |  |   | 1,868  | 
|Joseph L. DePaula (d)                 |  |      | 2002 |            |  |                  | 171,961 |                                  |  |                           | 35,000  |  |  |  |  |  |  |   | 14,053 | 
|Vice
President - Finance              |  |      | 2001 |            |  |                  | 124,231 |                                  |  |                           |        |  |  |  |  |  |  |   | 2,853  | 
|and Corporate Controller              |  |      | 2000 |            |  |                  |        |                                  |  |                           |        |  |  |  |  |  |  |   |       | 

24



---



##### Table of Contents





|(a) |  | Any perquisites or other personal benefits received from the Company by
any of the named executives were substantially less than the reporting
thresholds established by the Securities and Exchange Commission (the
lesser of $50,000 or 10% of the individuals cash compensation).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes portion of salary deferred under the Companys 401(k) Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   
|(c) |  | Amounts paid in 2002 include the Companys contributions under the
Companys 401(k) Plan in the amount of $9,901, $9,901, $8,033, $9,877 and
$9,901 for Mssrs. Indelicato, Guillemette, Laus, Pape, and DePaula,
respectively, premiums paid by the Company with respect to term life and
long-term disability insurance purchased for such executive officers in
the amount of $2,350, $1,550, $1,304, $1,233 and $1,452 for Mssrs.
Indelicato, Guillemette, Laus, Pape and DePaula, respectively and an
automobile allowance received by Messrs. Indelicato, Pape and DePaula in
the amount of $4,100, $8,100 and $2,700, respectively. Amounts paid in
2002 also include compensation paid to Mssrs. Indelicato, Guillemette and
Laus of $60,266, $19,332 and $20,259, respectively related to tax
obligations of each executive related to their respective Second Amendment
to the Management Stockholders Agreement and their respective Second
Amendment to the Manager Stock Purchase Agreement.
|   
|(d) |  | Mr. Indelicato, Mr. Guillemette, Mr. Laus, Mr. Pape and Mr. DePaula
joined the Company in July 1998, September 1998, September 1998, January
2000 and April 2001, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Option Plans

The following table sets forth certain information regarding currently
outstanding options held by the directors and named executive officers as of
December 31, 2002.

Aggregated Option/SAR Exercises in Last Fiscal Year and Year-End Option/SAR Values

|                     |  |                                                    |   |                   |  |                                                                                                      |   |                                               |  |  |               |  |  |  |     | 
|-------------------- |  | -------------------------------------------------- | - | ----------------- |  | ---------------------------------------------------------------------------------------------------- | - | --------------------------------------------- |  |  | ------------- |  |  |  | --- | 
|Name                 |  | Number
ofsecuritiesUnderlyingOptions/SARsExercised |   | Value Realized($) |  | Number
ofSecuritiesUnderlyingUnexercisedOption/SARs
atCalendar YearEnd 2002Exercisable/Unexercisable |   | Value
ofUnexercisedin-the-MoneyOptions/SAR($)
|                     |  |                                                    |   |                   |  |                                                                                                      |   |                                              
|John P. Cashman      |  |                                                    | 0 |                   |  |                                                                                                      | 0 |                                               |  |  | 44,796/0      |  |  |  | 0/0 | 
|Albert D. Indelicato |  |                                                    | 0 |                   |  |                                                                                                      | 0 |                                               |  |  | 15,250/15,250 |  |  |  | 0/0 | 
|Larry T. Guillemette |  |                                                    | 0 |                   |  |                                                                                                      | 0 |                                               |  |  | 5,500/5,500   |  |  |  | 0/0 | 
|Andrew M. Massimilla |  |                                                    | 0 |                   |  |                                                                                                      | 0 |                                               |  |  | 10,520/10,519 |  |  |  | 0/0 | 
|Robert R. Pape       |  |                                                    | 0 |                   |  |                                                                                                      | 0 |                                               |  |  | 1,500/1,500   |  |  |  | 0/0 | 

25



---



##### Table of Contents



Supplemental Retirement Plans



| |  | The Company maintains two Supplemental Retirement Plans: Supplemental
Retirement Plan I which covers a former officer and director and
Supplemental Retirement Plan II which covers two former officers. In the
event a participant in either Supplemental Plan dies after retirement,
the participants beneficiary will receive any remaining benefits which
such participant was entitled to receive at the time of the participants
death.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Employment Agreements and Other Transactions



| |  | The Company has entered into an employment agreement (Employment
Agreement) with Mr. Indelicato to secure his continued employment with
the Company. The Employment Agreement provides for an annual base
salary, subject to annual adjustments. In addition, Mr. Indelicato is
entitled to participate in incentive compensation plans and all employee
benefit arrangements generally appropriate to his responsibilities. In
the event Mr. Indelicatos employment is terminated without cause by the
Company, he would be entitled (for a period of 18 months after
termination) to continuation of monthly salary, including the pro rata
portion of any bonus or other incentive compensation otherwise payable
for the fiscal period in which such termination occurs, and maintenance
of all life, disability, medical and health insurance benefits to which
Mr. Indelicato was entitled immediately prior to termination.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

26



---



##### Table of Contents






ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT



| |  | The Company is a direct, wholly-owned subsidiary of Holdings Inc. The
following table sets forth information with respect to the beneficial
ownership of Holdings common stock or preferred stock as of March 15,
2003 by (i) each person known to the Company to beneficially own more
than 5% of Holdings Inc. outstanding common stock, (ii) each of the
Companys directors and named executive officers and (iii) all directors
and executive officers of the Company as a group. Each share of Holdings
Inc. preferred stock is convertible at any time into one share of
Holdings Inc. common stock. Unless otherwise indicated below, the
persons and entities named in the table have sole voting and investment
power with respect to all shares beneficially owned.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                          |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|------------------------------------------------------------------------- |  | ---------------- | ------- | ------------------- |  | ---------------- | ---- | ------------------- |  |  | ------ |  |  |  | ---- | 
|                                                                          |  | Common Stock     |         | Preferred Stock    
|                                                                          |  |                  |         |                    
|Name and Address of Beneficial Owner                                      |  | Number
of Shares |         | Percentage of Total |  | Number of Shares |      | Percentage
of Total
|                                                                          |  |                  |         |                     |  |                  |      |                    
|Cypress Merchant Banking Partners L.P.(a) (c)                             |  |                  | 847,127 |                     |  |                  | 80.9 |                     |  |  | 95,076 |  |  |  | 93.0 | 
|c/o The Cypress Group L.L.C                                               |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|65
East 55th Street, 28th Floor                                           |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|New York, NY 10022                                                        |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|Cypress Offshore Partners L.P. (a) (c)                                    |  |                  | 43,873  |                     |  |                  | 4.2  |                     |  |  | 4,924  |  |  |  | 4.8  | 
|c/o The Cypress Group L.L.C                                               |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|65 East 55th Street, 28th Floor                                           |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|New York, NY 10022                                                        |  |                  |         |                     |  |                  |      |                     |  |  |        |  |  |  |      | 
|John P. Cashman (b)                                                       |  |                  | 62,032  |                     |  |                  | 5.9  |                     |  |  | 2,235  |  |  |  | 2.2  | 
|Larry T. Guillemette (b)                                                  |  |                  | 11,666  |                     |  |                  | 1.1  |                     |  |  |       |  |  |  |     | 
|Albert D. Indelicato (b)                                                  |  |                  | 32,666  |                     |  |                  | 3.1  |                     |  |  |       |  |  |  |     | 
|Andrew M. Massimilla (b)                                                  |  |                  | 21,705  |                     |  |                  | 2.1  |                     |  |  |       |  |  |  |     | 
|Robert R. Pape (b)                                                        |  |                  | 3,000   |                     |  |                  | 0.3  |                     |  |  |       |  |  |  |     | 
|Christopher A. Laus                                                       |  |                  | 5,700   |                     |  |                  | 0.6  |                     |  |  |       |  |  |  |     | 
|Joseph L. DePaula                                                         |  |                  |        |                     |  |                  |     |                     |  |  |       |  |  |  |     | 
|David P. Spalding(a)                                                      |  |                  |        |                     |  |                  |     |                     |  |  |       |  |  |  |     | 
|James A. Stern(a)                                                         |  |                  |        |                     |  |                  |     |                     |  |  |       |  |  |  |     | 
|All directors and executive officers as a
group (consisting of 9 persons) |  |                  | 136,769 |                     |  |                  | 13.1 |                     |  |  | 2,235  |  |  |  | 2.2  | 



|(a) |  | Cypress Merchant Banking Partners L.P. and
Cypress Offshore Partners L.P. are affiliates of The Cypress
Group L.L.C. Messrs. Spalding and Stern are executives of
The Cypress Group L.L.C. and may be deemed to share beneficial
ownership of the shares shown as beneficially owned by such
Cypress entities. Each of such individuals disclaims
beneficial ownership of such shares. See Item 10, Directors
and Executive Officers of the Company.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes 44,796, 11,000, 30,500, 21,039, and
3,000 shares of Common Stock issuable upon exercise of options
granted to Messrs. Cashman, Guillemette, Indelicato,
Massimilla, and Pape, respectively. See Item 11, Executive
Compensation.                                                                                                                                                                                                           
|   
|(c) |  | Includes 57,046 and 2,954 shares of common stock
issuable upon exercise of warrants granted to Cypress Merchant
Banking Partners, L.P. and Cypress Offshore Partners, L.P.                                                                                                                                                                                                                                                                            

27



---



##### Table of Contents






ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



| |  | A director of the Company, Mr. Massimilla, provides management consulting
services to the Company for which he is paid by the Cypress Group L.L.C.
The Company reimburses Cypress for its payments to Mr. Massimilla. During
2002, the amount of such payments was $33,245.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




ITEM 14. CONTROLS AND PROCEDURES



| |  | Evaluation of Disclosure Controls and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Within the 90 day period prior to the filing date of this Annual Report
on Form 10-K, the Company, under the supervision and with the
participation of its management, including its principal executive
officer and principal financial officer, performed an evaluation of the
Companys disclosure controls and procedures, as required by Securities
Exchange Act Rule 13a-15. Based on that evaluation, the Companys
principal executive officer and principal 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

28



---



##### Table of Contents






ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) Financial Statements



| |  | The following financial statements are included in a separate section of
this Report commencing on the page numbers specified below:
| |  | ------------------------------------------------------------------------------------------------------------------------------------

|                                       |                                                                                                                   |  |  |      |  | 
|-------------------------------------- | ----------------------------------------------------------------------------------------------------------------- |  |  | ---- |  | 
|                                       |                                                                                                                   |  |  | Page
|                                       |                                                                                                                   |  |  |     
|                                       | Report
of Independent Auditors                                                                                    |  |  | 30   | 
|                                       | Consolidated Balance Sheets as of December 31, 2001 and 2002                                                      |  |  | 32   | 
|                                       | Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 2000, 2001 and 2002 |  |  | 33   | 
|                                       | Consolidated Statements of Shareholders Equity for the years
ended December 31, 2000, 2001 and 2002              |  |  | 34   | 
|                                       | Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 2001 and 2002                        |  |  | 35   | 
|                                       | Notes to Consolidated Financial Statements                                                                        |  |  | 36   | 
|(a)
(2)   Financial Statement Schedule |                                                                                                                   |  |  |     
|                                       | Schedule II - Valuation and Qualifying Accounts and Reserves for the
years ended December 31, 2000, 2001 and 2002 |  |  | 51   | 

All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.

(a) (3) Exhibits



| |  | See List of Exhibits,
Page 53.
| |  | ------------------------------

(b)      Reports filed on Form 8-K



| |  | No reports were filed on Form 8-K for the period.
| |  | -------------------------------------------------

29



---



##### Table of Contents






Report of Independent Auditors

To the Board of Directors of
AMTROL Inc.

We have audited the accompanying consolidated balance sheet of AMTROL Inc. (the
Company) as of December 31, 2002, and the related consolidated statements of
operations, comprehensive loss and changes in shareholders
equity, and cash
flows for the year then ended. Our audit also included the financial statement
schedule listed in the Index at Item 15(a). These financial statements and
schedule are the responsibility of the Companys management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audit. The consolidated financial statements of the Company as of December
31, 2001 and for the years ended December 31, 2001 and 2000, were audited by
other auditors who have ceased operations and whose report dated March 1, 2002,
expressed an unqualified opinion on those statements before the revisions
described in Note 5.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the 2002 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of AMTROL Inc. at
December 31, 2002, and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.

As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets.

As discussed above, the financial statements of AMTROL Inc. as of December 31,
2001 and 2000 and for the years then ended were audited by other auditors who
have ceased operations. As described in Note 5, these financial statements
have been revised to include the transitional disclosures required by Statement
of Financial Accounting Standards (Statement) No. 142, Goodwill and Other
Intangible Assets, which was adopted by the Company as of January 1, 2002.
Our audit procedures with respect to the disclosures in Note 5 with respect to
2001 and 2000 included (a) agreeing the previously reported net loss to the
previously issued financial statements and the adjustments to reported net loss
representing amortization expense (including any related tax effects)
recognized in those periods related to goodwill to the Companys underlying
records obtained from management, and (b) testing the mathematical accuracy of
the reconciliation of adjusted net income (loss) to reported net loss. In our
opinion, the disclosures for 2001 and 2000 in Note 5 are appropriate. However,
we were not engaged to audit, review, or apply any procedures to the 2001 and
2000 financial statements of the Company other than with respect to such
disclosures and, accordingly, we do not express an opinion or any other form of
assurance on the 2001 and 2000 financial statements taken as a whole.

| |                  
| | -----------------
| | ERNST & YOUNG LLP

Providence, Rhode Island
March 14, 2003

30



---



##### Table of Contents



To the Board of Directors of
AMTROL Inc.

We have audited the accompanying consolidated balance sheets of AMTROL Inc. and
subsidiaries as of December 31, 2001 and 2000, and the related consolidated
statements of operations, comprehensive loss, shareholders equity and cash
flows for the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMTROL Inc. and subsidiaries
as of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.

Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Companys
management and is presented for purposes of complying with the Securities and
Exchange Commissions rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our
audit of the basic financial statements and, in our opinion, fairly states in
all material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.

| |                    
| | -------------------
| | ARTHUR ANDERSEN LLP

Boston, Massachusetts
March 1, 2002

Note: This report of Independent
Certified Public Accountants is a copy of a previously issued Arthur
Andersen LLP (Andersen) report and has not been reissued
by Andersen. The inclusion of this previously issued Andersen report
is made pursuant to Section 2.02(e) of regulation S-X. Note
that this previously issued Andersen report includes references to
certain fiscal years which are not required to be presented in the
accompanying consolidated financial statements as of and for the year
ended December 31, 2002.

31



---



##### Table of Contents



AMTROL INC. AND SUBSIDIARIES
Consolidated Balance Sheets(In thousands)

|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |        |  | 
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | ------- | ----------- | - | ------- | ------- | ------ |  | 
|                                                 |                                                                                                               |                            |                                      |         | December 31
|                                                 |                                                                                                               |                            |                                      |         |            
|                                                 |                                                                                                               |                            | Assets                               |         | 2001        |   | 2002   
|                                                 |                                                                                                               |                            |                                      |         |             |   |        
|Current Assets:                                  |                                                                                                               |                            |                                      |         |             |   |         |        
|                                                 | Cash and cash equivalents                                                                                     |                            | $                                    | 983     |             |   | $       | 1,797   |       
|                                                 | Accounts receivable, less allowance for doubtful accounts of
$1,365 and $1,149 in 2001 and 2002, respectively |                            |                                      | 28,456  |             |   |         | 29,765  |       
|                                                 | Inventories (Note 3)                                                                                          |                            |                                      | 19,785  |             |   |         | 22,445  |       
|                                                 | Tax refund receivable                                                                                         |                            |                                      | 1,623   |             |   |         | 2,233   |       
|                                                 | Deferred
income taxes-short-term (Note 7)                                                                     |                            |                                      | 1,739   |             |   |         | 1,681   |       
|                                                 | Prepaid expenses and other                                                                                    |                            |                                      | 680     |             |   |         | 1,357   |       
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               | Total current assets       |                                      |         | 53,266      |   |         |         | 59,278 | 
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|Property, Plant and Equipment, at cost           |                                                                                                               |                            |                                      |         |             |   |         |        
|                                                 | Land                                                                                                          |                            |                                      | 4,856   |             |   |         | 5,260   |       
|                                                 | Buildings and improvements                                                                                    |                            |                                      | 12,462  |             |   |         | 13,485  |       
|                                                 | Machinery and equipment                                                                                       |                            |                                      | 51,783  |             |   |         | 57,083  |       
|                                                 | Furniture and fixtures                                                                                        |                            |                                      | 1,229   |             |   |         | 1,343   |       
|                                                 | Information
system software and other                                                                         |                            |                                      | 5,243   |             |   |         | 6,254   |       
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               |                            | 75,573                               |         |             |   | 83,425  |        
|                                                 | Less: accumulated depreciation and amortization                                                               |                            |                                      | 34,381  |             |   |         | 44,924  |       
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               |                            | 41,192                               |         |             |   | 38,501  |        
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|Other Assets:                                    |                                                                                                               |                            |                                      |         |             |   |         |        
|                                                 | Goodwill (Note 5)                                                                                             |                            |                                      | 157,292 |             |   |         | 119,205 |       
|                                                 | Deferred financing costs                                                                                      |                            |                                      | 4,233   |             |   |         | 4,186   |       
|                                                 | Deferred
income taxes-long-term (Note 7)                                                                      |                            |                                      | 7,209   |             |   |         | 7,267   |       
|                                                 | Other                                                                                                         |                            |                                      | 1,263   |             |   |         | 1,227   |       
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               |                            | 169,997                              |         |             |   | 131,885 |        
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               | $                          | 264,455                              |         |             | $ | 229,664 |        
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               |                            | Liabilities
and Shareholders Equity |         |             |   |         |         |        |  | 
|Current Liabilities:                             |                                                                                                               |                            |                                      |         |             |   |         |        
|                                                 | Current maturities of long-term debt (Note 6)                                                                 |                            | $                                    | 2,218   |             |   | $       | 2,957   |       
|                                                 | Notes payable to banks                                                                                        |                            |                                      | 7,930   |             |   |         | 6,923   |       
|                                                 | Accounts payable                                                                                              |                            |                                      | 20,949  |             |   |         | 23,826  |       
|                                                 | Accrued expenses                                                                                              |                            |                                      | 10,856  |             |   |         | 16,773  |       
|                                                 | Accrued interest                                                                                              |                            |                                      | 752     |             |   |         | 203     |       
|                                                 | Accrued income taxes                                                                                          |                            |                                      | 1,959   |             |   |         | 719     |       
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               | Total current liabilities  |                                      |         | 44,664      |   |         |         | 51,401 | 
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|Other Noncurrent Liabilities                     |                                                                                                               |                            | 4,061                                |         |             |   | 4,023   |        
|Long-Term Debt, less current maturities (Note 6) |                                                                                                               |                            | 157,511                              |         |             |   | 158,391 |        
|Commitments and Contingencies (Note 10)          |                                                                                                               |                            |                                     |         |             |   |        |        
|Shareholders Equity (Note 11)                   |                                                                                                               |                            |                                      |         |             |   |         |        
|                                                 | Capital
stock $.01 par value - authorized 1,000 shares,
100 shares issued                                     |                            |                                      |        |             |   |         |        |       
|                                                 | Additional paid-in capital                                                                                    |                            |                                      | 99,273  |             |   |         | 99,273  |       
|                                                 | Retained deficit                                                                                              |                            |                                      | (36,064 | )           |   |         | (81,393 | )     
|                                                 | Accumulated other comprehensive loss                                                                          |                            |                                      | (4,990  | )           |   |         | (2,031  | )     
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               | Total shareholders equity |                                      |         | 58,219      |   |         |         | 15,849 | 
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       
|                                                 |                                                                                                               | $                          | 264,455                              |         |             | $ | 229,664 |        
|                                                 |                                                                                                               |                            |                                      |         |             |   |         |         |       

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

32



---



##### Table of Contents



AMTROL INC. AND SUBSIDIARIES

Consolidated Statements of Operations(In thousands)

|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |         |  
|---------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | - | ---------------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                                             |                                      |   | Year Ended December 31
|                                                                                                                             |                                      |   |                       
|                                                                                                                             |                                      |   | 2000                   |         | 2001 |   | 2002   
|                                                                                                                             |                                      |   |                        |         |      |   |        
|Net sales (Note 1)                                                                                                           |                                      | $ | 197,472                |         |      | $ | 182,325 |         |   | $ | 186,803 |        
|Cost of goods sold (Note 1)                                                                                                  |                                      |   | 151,483                |         |      |   | 141,278 |         |   |   | 144,217 |        
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|                                                                                                                             | Gross profit                         |   |                        | 45,989  |      |   |         | 41,047  |   |   |         | 42,586  |  
|Operating expenses:                                                                                                          |                                      |   |                        |         |      |   |         |         |   |   |         |        
|                                                                                                                             | Selling                              |   |                        | 10,991  |      |   |         | 11,400  |   |   |         | 11,565  |  
|                                                                                                                             | General and administrative           |   |                        | 14,830  |      |   |         | 16,478  |   |   |         | 17,081  |  
|                                                                                                                             | Amortization of goodwill             |   |                        | 4,463   |      |   |         | 4,451   |   |   |         |        |  
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|Income from operations                                                                                                       |                                      |   | 15,705                 |         |      |   | 8,718   |         |   |   | 13,940  |        
|Other income (expense):                                                                                                      |                                      |   |                        |         |      |   |         |         |   |   |         |        
|                                                                                                                             | Interest expense                     |   |                        | (19,298 | )    |   |         | (19,235 | ) |   |         | (20,061 | )
|                                                                                                                             | Interest income                      |   |                        | 228     |      |   |         | 134     |   |   |         | 52      |  
|                                                                                                                             | License and distributorship fees     |   |                        | 210     |      |   |         | 291     |   |   |         | 40      |  
|                                                                                                                             | Other
income (expense), net (Note 4) |   |                        | 1,713   |      |   |         | 95      |   |   |         | (374    | )
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|Loss
before provision (benefit) for income taxes, extraordinary item and cumulative effect of change
in accounting principle |                                      |   | (1,442                 | )       |      |   | (9,997  | )       |   |   | (6,403  | )      
|Provision (benefit)  for income taxes                                                                                        |                                      |   | 2,704                  |         |      |   | (1,026  | )       |   |   | 839     |        
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|Loss
before extraordinary item and cumulative effect of change in
accounting principle                                       |                                      |   | (4,146                 | )       |      |   | (8,971  | )       |   |   | (7,242  | )      
|Extraordinary item, net of tax (Note 2)                                                                                      |                                      |   |                       |         |      |   | (444    | )       |   |   |        |        
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|Loss before cumulative effect of a change in accounting
principle                                                            |                                      |   | (4,146                 | )       |      |   | (9,415  | )       |   |   | (7,242  | )      
|Cumulative effect of a change in accounting principle                                                                        |                                      |   |                        |         |      |   |         |         |   |   | (38,087 | )      
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        
|Net Loss                                                                                                                     |                                      | $ | (4,146                 | )       |      | $ | (9,415  | )       |   | $ | (45,329 | )      
|                                                                                                                             |                                      |   |                        |         |      |   |         |         |   |   |         |        

Consolidated Statements of Comprehensive Loss(In thousands)

|                                         |  |                        |        |      |  |      |         |   |  |   |         |  
|---------------------------------------- |  | ---------------------- | ------ | ---- |  | ---- | ------- | - |  | - | ------- | -
|                                         |  | Year Ended December 31
|                                         |  |                       
|                                         |  | 2000                   |        | 2001 |  | 2002
|                                         |  |                        |        |      |  |     
|Net Loss                                 |  | $                      | (4,146 | )    |  | $    | (9,415  | ) |  | $ | (45,329 | )
|Foreign currency translation adjustments |  |                        | (1,032 | )    |  |      | (382    | ) |  |   | 2,799   |  
|Derivative instrument valuation          |  |                        |       |      |  |      | (511    | ) |  |   | 160     |  
|                                         |  |                        |        |      |  |      |         |   |  |   |         |  
|Comprehensive loss                       |  | $                      | (5,178 | )    |  | $    | (10,308 | ) |  | $ | (42,370 | )
|                                         |  |                        |        |      |  |      |         |   |  |   |         |  

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

33



---



##### Table of Contents



AMTROL INC. AND SUBSIDIARIES

Consolidated Statements of Shareholders Equity(In thousands)

|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|------------------------------------------ |  | ------- | - | ------- |  | ---------- | ------ | ------------- |  | - | ------- | ----- |  | ----------- | ------ | -
|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  | Accumulated
|                                           |  |         |   |         |  | Additional |        |               |  |   |         | Other
|                                           |  | Capital |   | Paid-in |  | Retained   |        | Comprehensive
|                                           |  | Stock   |   | Capital |  | (Deficit)  |        | Income (Loss)
|                                           |  |         |   |         |  |            |        |              
|Balance, December 31, 1999                 |  | $       |  |         |  | $          | 90,156 |               |  | $ | (22,503 | )     |  | $           | (2,350 | )
|Capital contribution                       |  |         |  |         |  |            | 310    |               |  |   |        |       |  |             |       |  
|Repurchase of options and common stock     |  |         |   |         |  |            | (563   | )             |  |   |        |       |  |             |       |  
|Net loss                                   |  |         |  |         |  |            |       |               |  |   | (4,146  | )     |  |             |       |  
|Currency translation adjustment            |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (1,032 | )
|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 2000                 |  |         |  |         |  |            | 89,903 |               |  |   | (26,649 | )     |  |             | (3,382 | )
|Capital contribution                       |  |         |  |         |  |            | 6,016  |               |  |   |        |       |  |             |       |  
|Repurchase of options and common stock     |  |         |  |         |  |            | (93    | )             |  |   |        |       |  |             |       |  
|Net loss                                   |  |         |  |         |  |            |       |               |  |   | (9,415  | )     |  |             |       |  
|Warrant valuation                          |  |         |  |         |  |            | 3,447  |               |  |   |        |       |  |             |       |  
|Derivative instrument valuation            |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (511   | )
|Currency translation adjustment            |  |         |  |         |  |            |       |               |  |   |        |       |  |             | (1,097 | )
|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 2001                 |  |         |  |         |  |            | 99,273 |               |  |   | (36,064 | )     |  |             | (4,990 | )
|Net loss                                   |  |         |  |         |  |            |       |               |  |   | (45,329 | )     |  |             |       |  
|Derivative instrument valuation adjustment |  |         |  |         |  |            |       |               |  |   |        |       |  |             | 160    |  
|Currency translation adjustment            |  |         |  |         |  |            |       |               |  |   |        |       |  |             | 2,799  |  
|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  
|Balance, December 31, 2002                 |  | $       |  |         |  | $          | 99,273 |               |  | $ | (81,393 | )     |  | $           | (2,031 | )
|                                           |  |         |   |         |  |            |        |               |  |   |         |       |  |             |        |  

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

34



---



##### Table of Contents



AMTROL INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows(In thousands)


|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |          |        |        |        |  
|------------------------------------------------------------ | ----------------------------------------------------------------------------------------- | ---------------------------------------------- | --------------------------------------------------- | --------------------------------------------------- | ------ | ---------------------- | ------ | ------- | ------ | ----- | ------ | -------- | ------ | ------ | ------ | -
|                                                             |                                                                                           |                                                |                                                     |                                                     |        | Year Ended December 31
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                       
|                                                             |                                                                                           |                                                |                                                     |                                                     |        | 2000                   |        | 2001    |        | 2002 
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |      
|Cash Flows Provided by (Used in) Operating Activities:       |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             | Net loss                                                                                  |                                                | $                                                   | (4,146                                              | )      |                        | $      | (9,415  | )      |       | $      | (45,329  | )     
|                                                             | Cumulative effect of a change in accounting principle (Note 5)                            |                                                |                                                     |                                                    |        |                        |        |        |        |       |        | 38,087   |       
|                                                             | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities- |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |          |       
|                                                             |                                                                                           | Depreciation                                   |                                                     |                                                     | 8,297  |                        |        |         | 8,271  |       |        |          | 8,046  |       
|                                                             |                                                                                           | Amortization                                   |                                                     |                                                     | 5,708  |                        |        |         | 5,611  |       |        |          | 1,047  |       
|                                                             |                                                                                           | Provision for losses on accounts receivable    |                                                     |                                                     | 13     |                        |        |         | 628    |       |        |          | 143    |       
|                                                             |                                                                                           | Loss (gain) on sale of fixed assets            |                                                     |                                                     | (1,180 | )                      |        |         | 12     |       |        |          | 5      |       
|                                                             | Changes in operating assets and liabilities:                                              |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |          |       
|                                                             |                                                                                           | Accounts receivable, net                       |                                                     |                                                     | 2,210  |                        |        |         | (2,330 | )     |        |          | 1,042  |       
|                                                             |                                                                                           | Tax refund receivable                          |                                                     |                                                     | (888   | )                      |        |         | (52    | )     |        |          | (309   | )     
|                                                             |                                                                                           | Inventory                                      |                                                     |                                                     | 1,222  |                        |        |         | 238    |       |        |          | (1,218 | )     
|                                                             |                                                                                           | Deferred
income taxes-short-term               |                                                     |                                                     | 359    |                        |        |         | (708   | )     |        |          | 58     |       
|                                                             |                                                                                           | Prepaid expenses and other current assets      |                                                     |                                                     | (80    | )                      |        |         | 289    |       |        |          | (601   | )     
|                                                             |                                                                                           | Other assets                                   |                                                     |                                                     | (936   | )                      |        |         | (738   | )     |        |          | 572    |       
|                                                             |                                                                                           | Accounts payable                               |                                                     |                                                     | 2,024  |                        |        |         | (2,224 | )     |        |          | 798    |       
|                                                             |                                                                                           | Accrued expenses and other current liabilities |                                                     |                                                     | (6,579 | )                      |        |         | 1,014  |       |        |          | 2,788  |       
|                                                             |                                                                                           | Other noncurrent liabilities                   |                                                     |                                                     | (1,105 | )                      |        |         | (859   | )     |        |          | 31     |       
|                                                             |                                                                                           | Deferred
income taxes-long-term                |                                                     |                                                     | 337    |                        |        |         | (2,454 | )     |        |          | (58    | )     
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             |                                                                                           |                                                |                                                     | Net cash provided by (used in) operating activities |        |                        | 5,256  |         |        |       | (2,717 | )        |        |        | 5,102  |  
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|Cash Flows Used in Investing Activities:                     |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             | Proceeds from sale of property, plant and equipment                                       |                                                |                                                     | 2,278                                               |        |                        |        | 70      |        |       |        | 7        |       
|                                                             | Capital expenditures                                                                      |                                                |                                                     | (8,375                                              | )      |                        |        | (4,199  | )      |       |        | (3,321   | )     
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             |                                                                                           |                                                |                                                     | Net cash used in investing activities               |        |                        | (6,097 | )       |        |       | (4,129 | )        |        |        | (3,314 | )
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|Cash Flows Provided by (Used in) Financing Activities:       |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             | Repayment of long term debt                                                               |                                                |                                                     | (21,496                                             | )      |                        |        | (37,662 | )      |       |        | (125,867 | )     
|                                                             | Issuance of long term debt                                                                |                                                |                                                     | 18,700                                              |        |                        |        | 42,550  |        |       |        | 126,829  |       
|                                                             | Repayment of short term debt                                                              |                                                |                                                     | (19,528                                             | )      |                        |        | (29,156 | )      |       |        | (27,191  | )     
|                                                             | Issuance of short term debt                                                               |                                                |                                                     | 23,454                                              |        |                        |        | 29,444  |        |       |        | 25,120   |       
|                                                             | Extinguishment of senior credit facility (Note 6)                                         |                                                |                                                     |                                                    |        |                        |        | (52,836 | )      |       |        |         |       
|                                                             | Issuance of new senior debt and warrants (Note 6)                                         |                                                |                                                     |                                                    |        |                        |        | 48,876  |        |       |        |         |       
|                                                             | Capital contribution                                                                      |                                                |                                                     | 310                                                 |        |                        |        | 6,016   |        |       |        |         |       
|                                                             | Repurchase of options and common stock                                                    |                                                |                                                     | (563                                                | )      |                        |        | (93     | )      |       |        |         |       
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|                                                             |                                                                                           |                                                | Net cash provided by (used in) financing activities |                                                     |        | 877                    |        |         |        | 7,139 |        |          |        | (1,109 | )     
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|Net increase in cash and cash equivalents                    |                                                                                           |                                                | 36                                                  |                                                     |        |                        | 293    |         |        |       | 679    |         
|Effect of exchange rate changes on cash and cash equivalents |                                                                                           |                                                | (6                                                  | )                                                   |        |                        | (14    | )       |        |       | 135    |         
|Cash and cash equivalents, beginning of period               |                                                                                           |                                                | 674                                                 |                                                     |        |                        | 704    |         |        |       | 983    |         
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |         
|Cash and cash equivalents, end of period                     |                                                                                           | $                                              | 704                                                 |                                                     |        | $                      | 983    |         |        | $     | 1,797  |         
|                                                             |                                                                                           |                                                |                                                     |                                                     |        |                        |        |         |        |       |        |          |       

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

35



---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)      Basis of Presentation



| |  | AMTROL Inc., a Rhode Island corporation, and its wholly-owned subsidiaries
(collectively referred to herein as the Company), designs, manufactures
and markets products used principally in flow control, storage, heating and
other treatment of fluids in the water systems market and selected sectors
of the heating, ventilating and air conditioning (HVAC) market. The
Company offers a broad product line of quality fluid handling products and
services marketed under widely recognized brand names.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is a wholly-owned subsidiary of AMTROL Holdings, Inc.
(Holdings Inc.), a Delaware corporation formed by The Cypress Group,
L.L.C. in 1996 to effect the acquisition of all of the outstanding common
stock of the Company. Holdings Inc. has no other material assets,
liabilities or operations other than those that result from its ownership
of the common stock of the Company.                                                                                                                 

(2)      Summary of Significant Accounting Policies



| |  | Principles of Consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Use of 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 financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.                                                                                                                                                                                                                                                                    
|
| |  | Fiscal year                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | The Company uses a calendar fiscal year and three quarterly interim periods
ending on Saturday of the thirteenth week of the quarter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Revenue Recognition and Related Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The Company adopted Staff Accounting Bulletin (SAB) No. 101, Revenue
Recognition in Financial Statements,as of January 1, 2001. In accordance
with 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
cumulative effect of this adoption had no net effect on the accompanying
consolidated statements of operations. The Company has reclassed
shipping/handling fees and costs to revenue consistent with the
presentation required by Emerging Issues Task Force (EITF) 00-10.
|
| |  | 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                                                                                                                                                                                                                                                                                                                                                                    





---



##### Table of Contents





|(2) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | upon certain percentages and sales targets agreed to with the Companys
customers, which are typically earned by the customers over an annual
period. The allowance for volume rebates is consistent with the provisions
of EITF 00-22, Accounting for Points and Certain Other Time-Based or
Volume-Based Sales Incentive Offers, and Offers for Free Products or
Services to Be Delivered in the Future. At December 31, 2001 and 2002, the
Company had accrued $3.8 million and $3.9 million, respectively, for such
volume allowances. These amounts are included in accrued expenses in the
accompanying consolidated balance sheets.
|   
|    |  | Cash and Cash Equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Cash and cash equivalents include cash on hand and short-term investments
that are readily convertible into cash with an original maturity to the
Company of three months or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Depreciable Property and Equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Property, plant, and equipment are stated on the basis of cost. The
Company provides for depreciation by charges to income (computed on the
straight-line method) in amounts estimated to depreciate the cost of
properties over their estimated useful lives which generally fall within
the following ranges:                                                                                                                                                                                                                                                                                                                             

|                          |  |             |  | 
|------------------------- |  | ----------- |  | 
|Building and improvements |  | 10-40 years
|Machinery and equipment   |  | 3-12 years 
|Furniture and fixtures    |  | 5-20 years 
|Other                     |  | 3-10 years 



| |  | Leasehold improvements are amortized over the life of the lease or the
estimated useful life of the improvement, whichever is shorter.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Interest costs, during the construction period, on borrowings used to
finance construction of buildings and related property are included in the
cost of the constructed property. As of December 31, 2002, the Company had
no capitalized interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The Companys inventories are stated at the lower of cost or market
including material, labor and manufacturing overhead (see Note 3).
The Company records provisions, as appropriate, to write-down
obsolete and excess inventory to estimated net realizable value. The
process for evaluating obsolete and excess inventory often requires
the Company to make subjective judgments and estimates concerning
future sales levels, quantities and prices at which such inventory
will be able to be sold in the normal course of business.
Accelerating the disposal process or incorrect estimates of future
sales potential may cause the actual results to differ from the
estimates at the time such inventory is disposed or sold. The Company
believes that its procedures for estimating such amounts are
reasonable and historically have not resulted in material adjustments
in subsequent period when the estimates are adjusted to the actual
amounts.
|
| |  | Warranty                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Company extends various
warranties covering all of its products ranging from a 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 generally
provide for the replacement of 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.                                                               

37



---



##### Table of Contents





|(2) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                    
|--- |  | ------------------------------------------------------------------------------------------
|   
|    |  | The following chart illustrates the changes in the Companys warranty
reserve during 2002:
|   

|                                                 |  |              |        |  
|------------------------------------------------ |  | ------------ | ------ | -
|                                                 |  | Consolidated
|(in thousands)                                   |  |             
|Balance, December 31, 2001                       |  | $            | 2,198  |  
|Warranties issued during 2002                    |  |              | 689    |  
|Claims                                           |  |              | (1,185 | )
|Changes in liability for pre-existing warranties |  |              | 665    |  
|                                                 |  |              |        |  
|Balance, December 31, 2002                       |  | $            | 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 SFAS No. 142,
Goodwill and Other Intangible Assets. The Company adopted SFAS No. 142
effective December 31, 2001. 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 for the cumulative effect of change in accounting principle of $38.1
million upon adoption of SFAS No. 142, as further described in Note 5.
|
| |  | Through year-end 2001, the Company assessed the future useful life and
recoverability of goodwill and other noncurrent assets whenever events or
changes in circumstances indicated that the current useful life had
diminished, or the carrying value had been impaired. The Company assessed
the recoverability of the assets by determining whether the amortization of
such intangibles over their remaining lives can be recovered through
projected undiscounted future cash flows. The amount of impairment, if
any, is measured based on the fair value of the impaired asset. At
December 31, 2001, no goodwill impairment existed under this method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

38



---



##### Table of Contents





|(2) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Fair Value of Financial Instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | In accordance with the requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using appropriate market
information and valuation methodologies. Considerable judgment is required
to develop the estimates of fair value; thus, the estimates are not necessarily indicative of the amounts that could be
realized in a current market exchange. The Companys financial instruments
consist of cash, accounts receivable, accounts payable, senior subordinated
notes and bank debt. Based upon information provided by an independent
financial advisor, the Company believes that the fair value of the
senior subordinated notes is
approximately $50 to $55 on a par value of $100. The carrying value of the
remaining assets and liabilities is a reasonable estimate of their fair
market value at December 31, 2002.
|   
|    |  | Research and Development Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | All costs for research and development, which amounted to approximately
$1.0 million, $0.8 million, and $0.8 million for the years ended December
31, 2000, 2001, and 2002, respectively, are charged to general and
administrative expenses as incurred.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | Deferred Financing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|    |  | Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective
interest method. Amortization of deferred financing costs is included in
interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | As a result of the Companys refinancing its senior debt in 2001, $0.4
million, net of tax, was written off and recorded as a loss on
extraordinary item in the accompanying consolidated statement of
operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    |  | Assets and liabilities of non-U.S. operations have been translated into
United States dollars using the year-end rate of exchange. Shareholders
equity has been converted using historical rates, and revenues and expenses
at the average exchange rates prevailing during the year. The cumulative
effect of the resulting translation was reflected as a separate component
of shareholders equity. $1.3 million in foreign currency exchange losses
were recorded in the consolidated statement of operations during 2002. The effect of foreign exchange activity
during 2000 and 2001 was not material to the results of operations or
liquidity of the Company.                                                                                                                                                                                                                                                                    
|   
|    |  | During 2002, the Company did use
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
U.S. dollars so as the Euro strengthened, the U.S. dollar
denominated receivables lost value. In order to mitigate any future
currency exchange losses against future receivables, the Companys
Portuguese operation 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
December 31, 2002, the Company's Portuguese operations had
forward contracts for the purchase of $500,000 in early January 2003.
The value of these forward contracts was immaterial to the balance
sheet of the Company.                                                                            
|   
|    |  | Stock Options                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   
|    |  | The Company accounts for employee stock options in accordance with SFAS No.
123, Accounting for Stock Based Compensation. As permitted under SFAS No.
123, the Company applies Accounting Principles Board (APB) Opinion No.
25, Accounting for Stock Issued to Employees and related
interpretations to account for its stock
option plans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | 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. 133and
SFAS No. 138, Accounting for Certain                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            





---



##### Table of Contents





|(2) |  | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | 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
were adopted as a change in accounting principle and do not apply
retroactively to financial statements of prior periods.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   
|    |  | The Company has an interest rate swap contract and an interest rate cap (the
Contract) outstanding as of December 31, 2002, 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 January 1, 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, as a hedge agreement and accounted for as such. The Contract
was redesignated as a cash flow hedge of variable future cash flows
associated with the Foothill Agreement Term Loan A and B Debt.                                                                                                                                                                                                                                                                                           
|   
|    |  | As of December 31, 2002, the fair value of the instrument ($0.4 million)
was recorded in other non-current 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
currently through net income). The Company did not realize any material
ineffectiveness during 2002 and does not currently anticipate any material
ineffectiveness under the hedge for 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    |  | In July 2001, SFAS No. 143, Accounting for Asset Retirement Obligationswas
released. SFAS No. 143 addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated retirement costs. SFAS No. 143 requires that the fair
value of a liability for an asset retirement obligation be recognized in
the period in which it is incurred if a reasonable estimate of fair value
can be made. The associated asset retirement costs are capitalized as part
of the carrying amount of the long-lived asset. The Company does not
expect the adoption of this statement will have an impact on its
consolidated financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   
|    |  | During 2002, SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assetsbecame effective. This statement supersedes SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Ofand APB No. 30, Reporting the Results of
Operations - Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions. SFAS No. 144 amends accounting and reporting standards for
the disposal of segments of a business and the accounting for the
impairment or disposal of long-lived assets. There was no impact on the
Companys consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | SFAS No. 145 Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13 and Technical Corrections (SFAS No. 145),
was issued in April 2002 and addresses the reporting of gains and
losses resulting from the extinguishment of debt, accounting for
sale-leaseback transactions and rescinds or amends other existing
authoritative pronouncements. SFAS No. 145 requires that any gain or loss on extinguishment of debt that does not
meet the criteria of APB 30 for classification as an extraordinary item shall not be classified as extraordinary and shall be
included in earnings from continuing operations. The provisions of this statement related to the
extinguishment of debt are effective for financial statements issued in fiscal years beginning
after May 15, 2002 with early application encouraged. Upon adoption
of SFAS No. 145, all prior periods presented will be required to be restated. The Company plans to adopt
SFAS No. 145 on January 1, 2003. Accordingly, the Companys $0.4 million
extraordinary loss from debt retirement recorded in 2001 will be reclassified to earnings from
continuing operations when the standard is adopted in 2003.
|   
|    |  | In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated
with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       





---



##### Table of Contents





|    |  | The
provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002, with earlier application
encouraged. The Company will adopt SFAS No. 146 for exit or disposal
activities that are initiated after December 31, 2002, and it does not
expect that the adoption of the Statement will have a significant impact on
the Companys financial position or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | In November 2002, FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Otherswas issued. This interpretation requires certain
guarantees to be recorded at fair value as opposed to the current practice
of recording a liability only when a loss is probable and reasonably
estimable. It also requires a guarantor to make enhanced disclosures
concerning guarantees, even when the likelihood of making any payments
under the guarantee is remote. The initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002, while the enhanced disclosure
requirements are effective after December 15, 2002. The Company does not
expect the adoption of this interpretation will have an impact on its
consolidated financial position or results of operations.
|   
|(3) |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following at December 31 (in thousands):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

|                                  |  |      |        |      |  |   |        | 
|--------------------------------- |  | ---- | ------ | ---- |  | - | ------ | 
|                                  |  | 2001 |        | 2002
|                                  |  |      |        |     
|Raw materials and work in process |  | $    | 11,120 |      |  | $ | 12,860 | 
|Finished goods                    |  |      | 8,665  |      |  |   | 9,585  | 
|                                  |  |      |        |      |  |   |        | 
|                                  |  | $    | 19,785 |      |  | $ | 22,445 | 
|                                  |  |      |        |      |  |   |        | 



|(4) |  | Sale of Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | On December 18, 2000, the Company sold a parcel of land totaling 11.5 acres
adjacent to the Companys headquarters in West Warwick, Rhode Island. The
gross sale price of $2.1 million resulted in the Company recording a net
book pre-tax gain of $1.1 million which is included in Other Income (expense), net on the Consolidated Statement of Operations.                                                                                                                                                                                                                                                                                                                                      
|   
|(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 units 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

41



---



##### Table of Contents





| |  | that failed step 1, the Company proceeded
to step 2. In step 2, the Company calculated the implied fair value of
goodwill be 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 change in accounting principle in its restated results
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 recorded in 2002 was principally due to the change in the
methodology from the undiscounted cash flow method used in 2001 under the
Companys previous accounting policy to the discounted cash flow method
used in accordance with SFAS No. 142. Under the Companys previous
accounting policy, no goodwill impairment existed at December 31, 2001.
|
| |  | The unaudited quarterly results reflecting the adoption of SFAS No. 142
have been restated as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

|                                |                        |  |                    |         |  
|------------------------------- | ---------------------- |  | ------------------ | ------- | -
|                                |                        |  | Three Months Ended
|                                |                        |  | March 30, 2002    
|(in thousands)                  |                        | 
|Net loss
as previously reported |                        |  |                    |        
|                                | As previously reported |  | $                  | (2,040  | )
|                                | As adjusted            |  |                    | (40,127 | )



| |  | Pro forma results as if SFAS No. 142 had been adopted at the beginning of
2000 are as follows:
| |  | ----------------------------------------------------------------------------------------------
|
| |  |                                                                                               

|                                |  |                   |        |                   |  |   |        |  
|------------------------------- |  | ----------------- | ------ | ----------------- |  | - | ------ | -
|                                |  | December
31, 2000 |        | December
31, 2001
|(in thousands)                  |  |                   |       
|Net loss as reported            |  | $                 | (4,146 | )                 |  | $ | (9,415 | )
|Add back: goodwill amortization |  |                   | 4,463  |                   |  |   | 4,451  |  
|                                |  |                   |        |                   |  |   |        |  
|Adjusted net income/(loss)      |  | $                 | 317    |                   |  | $ | (4,964 | )
|                                |  |                   |        |                   |  |   |        |  



| |  | The changes in the carrying amount of goodwill for 2002 are as follows:
| |  | -----------------------------------------------------------------------
|
| |  |                                                                        

|                                                                               |  |         |         |      |  |      |        |        |  |              |        |   |  |   |   |  |  |   |         |  
|------------------------------------------------------------------------------ |  | ------- | ------- | ---- |  | ---- | ------ | ------ |  | ------------ | ------ | - |  | - | - |  |  | - | ------- | -
|                                                                               |  | North   |         |      |  |      |        |        |  |              |        |   |  |   |   |  |  |  
|                                                                               |  | America |         | Alfa |  | Nova |        | Poland |  | Consolidated
|(in thousands)                                                                 |  |         |         |      |  |      |        |        |  |             
|Balance, December 31, 2001                                                     |  | $       | 129,797 |      |  | $    | 23,900 |        |  | $            | 3,595  |   |  | $ |  |  |  | $ | 157,292 |  
|Cumulative effect of change in
accounting principle -
adoption of SFAS No. 142 |  |         | (34,492 | )    |  |      |       |        |  |              | (3,595 | ) |  |   |  |  |  |   | (38,087 | )
|                                                                               |  |         |         |      |  |      |        |        |  |              |        |   |  |   |   |  |  |   |         |  
|Balance, December 31, 2002                                                     |  | $       | 95,305  |      |  | $    | 23,900 |        |  | $            |       |   |  | $ |  |  |  | $ | 119,205 |  
|                                                                               |  |         |         |      |  |      |        |        |  |              |        |   |  |   |   |  |  |   |         |  

42



---



##### Table of Contents





|(6) |  | Long-term Debt and Notes Payable to Banks                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | Revolving Credit and Term Loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | 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 AMTROL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). A portion
($10.2 million) of the Term Loans (the Term Loan A) is the lower of (a)
$10.5 million and (b) the sum of (i) 80% of the net liquidation percentage
of eligible equipment located in North America and (ii) 60% of the fair
market value of real property located in North America. A second portion of the Term Loans (Term Loan B)
with an original principle amount of $7.5 million was also created. The Revolving Credit
Facility is secured by North American accounts receivable and inventories.
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 December 31, 2002, total availability and
aggregate borrowings under the Revolving Credit Facility were $10.3 million
and $5.4 million, respectively.                                                                                                                                                                  
|   
|    |  | Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 which commenced April 1, 2002. The outstanding unpaid principal
shall be due and payable on the date of termination of the Agreement,
whether by its terms, by prepayment, or by acceleration and bears interest
at LIBOR plus 3.5%. Term Loan B has a three-year maturity with quarterly
principal payments of $312,500 which commenced April 1, 2002. The
outstanding unpaid principal shall be due and payable on the date of
termination of the Agreement, whether by its terms, by prepayment, or by
acceleration and bears interest at the greater of the Well Fargo Reference
Rate (approximates the prime rate) plus 3.5% or 9.25%. 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 Agreement 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 Agreement contains certain affirmative and negative
covenants and restrictions. As of December 31, 2002, the Company was in
compliance with the various covenants of the Agreement.
|   
|    |  | 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 credit facility, Amtrol Holdings, Inc., which
wholly owns Amtrol, has 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 and are exercisable immediately, were valued at $3.4 million using the
Black-Scholes model. This amount was recorded as a discount to the Term
Loan C debt and included as a component of shareholders equity. The Company
expects that the effective interest rate associated with the Term Loan C
will be greater than 12% given the additional interest expense associated
with the warrants. The Cypress Facility contains certain affirmative and
negative covenants and restrictions. As of December 31, 2002, the Company
was in compliance with the various covenants of the                                                                           

43



---



##### Table of Contents





| |  | Cypress Facility and
Foothill Facility. Long-term debt consisted of the following at December
31, (in thousands):
| |  | -----------------------------------------------------------------------------------------------------------------

|                                             |  |      |         |      |  |   |         | 
|-------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                             |  | 2001 |         | 2002
|                                             |  |      |         |     
|Revolving Credit Facility                    |  | $    | 5,435   |      |  | $ | 5,373   | 
|Term Loan A                                  |  |      | 10,241  |      |  |   | 8,962   | 
|Term Loan B                                  |  |      | 7,500   |      |  |   | 6,563   | 
|Term Loan C                                  |  |      | 21,553  |      |  |   | 25,450  | 
|Senior subordinated notes, due 2006, 10.625% |  |      | 115,000 |      |  |   | 115,000 | 
|                                             |  |      |         |      |  |   |         | 
|                                             |  |      | 159,729 |      |  |   | 161,348 | 
|Less: Current maturities of long-term debt   |  |      | 2,218   |      |  |   | 2,957   | 
|                                             |  |      |         |      |  |   |         | 
|                                             |  | $    | 157,511 |      |  | $ | 158,391 | 
|                                             |  |      |         |      |  |   |         | 



| |  | Long-term debt repayable in each of the next five years is as follows (in
thousands):
| |  | -------------------------------------------------------------------------------------

|     |  |   |         | 
|---- |  | - | ------- | 
|2004 |  | $ | 7,020   | 
|2005 |  |   | 1,707   | 
|2006 |  |   | 149,664 | 
|2007 |  |   |        | 
|2008 |  |   |        | 
|     |  |   |         | 
|     |  | $ | 158,391 | 
|     |  |   |         | 



| |  | Senior Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company has $115.0 million of Senior Subordinated Notes due 2006
(the Notes). The Notes are unsecured obligations of the Company. The
Notes bear interest at a rate of 10.625% per annum which is 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. 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. The Indenture contains certain
affirmative and negative covenants and restrictions. As of December 31,
2002, the Company was in compliance with the various covenants of the
Notes.
|
| |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

44



---



##### Table of Contents





| |  | Short-Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | AMTROL ALFA has available revolving credit facilities with local banks
providing for short-term working capital loans of up to the equivalent of
approximately $9.5 million. Borrowings under these agreements accrue
interest at EURIBOR plus a premium ranging from 0.725% to 1.50%
(3.625% - 4.4%)
at December 31, 2002. The balance outstanding at December 31, 2002 was
approximately $6.9 million. The highest amount outstanding under these
facilities in 2002 was approximately $8.8 million.
|
| |  | Cash paid for interest amounted to approximately $18.1 million, $18.7 million,
and $14.9 million for the years ended December 31, 2000, 2001 and
2002, respectively.                                                                                                                                                                                                                                                                                                                                  

(7)      Income Taxes



| |  | The components of the provision (benefit) for income taxes are as follows
(in thousands):
| |  | -----------------------------------------------------------------------------------------

|          |         |   |       |       |      |   |        |        |   |   |     |     | 
|--------- | ------- | - | ----- | ----- | ---- | - | ------ | ------ | - | - | --- | --- | 
|          |         |   | 2000  |       | 2001 |   | 2002  
|          |         |   |       |       |      |   |       
|Current:  |         |   |       |       |      |   |        |        |   |   |     |    
|          | Federal |   | $     | 48    |      |   | $      |       |   |   | $   |    | 
|          | State   |   |       | 8     |      |   |        | 50     |   |   |     |    | 
|          | Foreign |   |       | 1,861 |      |   |        | 1,751  |   |   |     | 839 | 
|          |         |   |       |       |      |   |        |        |   |   |     |     | 
|          |         |   | 1,917 |       |      |   | 1,801  |        |   |   | 839 |    
|Deferred: |         |   |       |       |      |   |        |        |   |   |     |    
|          | Federal |   |       | 704   |      |   |        | (2,151 | ) |   |     |    | 
|          | State   |   |       | 83    |      |   |        | (435   | ) |   |     |    | 
|          | Foreign |   |       |      |      |   |        | (241   | ) |   |     |    | 
|          |         |   |       |       |      |   |        |        |   |   |     |     | 
|          |         |   | 787   |       |      |   | (2,827 | )      |   |   |    |    
|          |         |   |       |       |      |   |        |        |   |   |     |     | 
|          |         | $ | 2,704 |       |      | $ | (1,026 | )      |   | $ | 839 |    
|          |         |   |       |       |      |   |        |        |   |   |     |     | 

45



---



##### Table of Contents





| |  | The income tax rate reconciliation of the difference between actual and
statutory effective tax rates is as follows:
| |  | --------------------------------------------------------------------------------------------------------------------

|                                                       |  |                         |       |      |  |      |        |   |  |   |        |  
|------------------------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                       |  | Year Ended December 31,
|                                                       |  |                        
|                                                       |  | 2000                    |       | 2001 |  | 2002
|Benefit for income taxes at
the Federal statutory rate |  | $                       | (490  | )    |  | $    | (3,398 | ) |  | $ | (2,177 | )
|State taxes, net of Federal
tax effect                 |  |                         | (58   | )    |  |      | (254   | ) |  |   |       |  
|Goodwill amortization not
deductible for tax purposes  |  |                         | 1,517 |      |  |      | 1,512  |   |  |   |       |  
|Foreign losses not benefited                           |  |                         | 762   |      |  |      | 1,044  |   |  |   | 570    |  
|Foreign taxes                                          |  |                         | 870   |      |  |      | 302    |   |  |   | 4      |  
|Increase in valuation
allowance                        |  |                         |      |      |  |      |       |   |  |   | 2,373  |  
|Other, net                                             |  |                         | 103   |      |  |      | (232   | ) |  |   | 69     |  
|                                                       |  |                         |       |      |  |      |        |   |  |   |        |  
|Recorded provision (benefit)                           |  | $                       | 2,704 |      |  | $    | (1,026 | ) |  | $ | 839    |  
|                                                       |  |                         |       |      |  |      |        |   |  |   |        |  

46



---



##### Table of Contents





| |  | Significant items giving rise to
deferred tax assets (liabilities) are as follows (in thousands):
| |  | -------------------------------------------------------------------------------------------------

|                                 |                                 |   |              |       |      |   |       |       | 
|-------------------------------- | ------------------------------- | - | ------------ | ----- | ---- | - | ----- | ----- | 
|                                 |                                 |   | December 31,
|                                 |                                 |   |             
|                                 |                                 |   | 2001         |       | 2002
|                                 |                                 |   |              |       |     
|Deferred Income Taxes short-term |                                 |   |              |       |      |   |       |      
|                                 | Warranty reserves current       |   | $            | 136   |      |   | $     | 145   | 
|                                 | Allowance for doubtful accounts |   |              | 154   |      |   |       | 189   | 
|                                 | Accrued vacation                |   |              | 61    |      |   |       | 48    | 
|                                 | UNICAP adjustment               |   |              | 234   |      |   |       | 110   | 
|                                 | Other                           |   |              | 1,154 |      |   |       | 1,189 | 
|                                 |                                 |   |              |       |      |   |       |      
|                                 |                                 | $ | 1,739        |       |      | $ | 1,681 |      
|                                 |                                 |   |              |       |      |   |       |      

|                                |                                 |   |       |        |      |   |       |        |  
|------------------------------- | ------------------------------- | - | ----- | ------ | ---- | - | ----- | ------ | -
|                                |                                 |   | 2001  |        | 2002
|                                |                                 |   |       |        |     
|Deferred Income Taxes long-term |                                 |   |       |        |      |   |       |       
|                                | Net operating loss carryforward |   | $     | 10,821 |      |   | $     | 14,485 |  
|                                | Accelerated depreciation        |   |       | (2,690 | )    |   |       | (2,576 | )
|                                | Warranty
reserves - long-term   |   |       | 689    |      |   |       | 617    |  
|                                | Deferred compensation           |   |       | 504    |      |   |       | 449    |  
|                                | NOL valuation allowance         |   |       | (2,115 | )    |   |       | (5,708 | )
|                                |                                 |   |       |        |      |   |       |       
|                                |                                 | $ | 7,209 |        |      | $ | 7,267 |       
|                                |                                 |   |       |        |      |   |       |       



| |  | The net deferred tax assets are included in the accompanying consolidated
balance sheets in deferred income taxes-long-term and deferred income
taxes-short-term. 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. The total change in valuation allowance was $3.6 million for the
year December 31, 2002. The increase in valuation allowance relates to
continuing operations and cumulative effect of a change in accounting
principle of $2.4 million and $1.2 million, respectively.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Cash paid for income taxes amounted to $0.8 million, $0.5 million, and $0.9
million for the years ended December 31, 2000, 2001 and 2002, respectively.
At December 31, 2002, the Company had net operating loss carryforwards in
the United States of approximately $29.5 million expiring in 2012 through
2020.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

(8)     Pension and Profit Sharing Plans



| |  | The Company has a defined contribution 401(k) plan covering substantially
all of its U.S. employees. Under the Plan, eligible employees are
permitted to contribute up to 15% of gross pay, not to exceed the maximum
allowed under the Internal Revenue Code. The Company matches each employee
contribution up to 6% of gross pay at a rate of $0.25
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47



---



##### Table of Contents





| |  | per $1 of employee contribution. The Company also contributes 3% of each
employees gross pay up to the Social Security taxable wage base and 4% of
amounts in excess of that level up to approximately $0.2 million of wages.
Company contributions to the 401(k) plan totaled approximately $0.7
million, $0.6 million and $0.6 million for the years ended December 31,
2000, 2001 and 2002, respectively.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(9)    Lease Commitments



| |  | The Company leases certain plant facilities and equipment. Total rental
expenses charged to operations approximated $1.5 million, $1.7 million and
$1.6 million for the years ended December 31, 2000, 2001 and 2002,
respectively. Minimum rental commitments under all non-cancelable
operating leases are as follows (in thousands):
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|     |  |   |      
|---- |  | - | -----
|2003 |  | $ | 666  
|2004 |  |   | 277  
|2005 |  |   | 142  
|2006 |  |   | 24   
|2007 |  |   |     
|     |  |   |      
|     |  | $ | 1,109
|     |  |   |      



| |  | Certain of the leases provide for renewal options.
| |  | --------------------------------------------------

(10)    Commitments and Contingencies



| |  | At December 31, 2002, the Foothill Agreement contained a sublimit to
support the issuance of letters of credit in the amount of $3.0 million.
At December 31, 2002, letters of credit outstanding amounted to $0.4
million.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company is involved in various legal proceedings which, in the opinion
of management, will not result in a material adverse effect on its
financial condition or results of operations.                                

(11)   Stock Plans



| |  | The stock option plan includes both time vesting and performance-based
vesting options. The options which vest over time are subject to fixed
plan accounting under APB 25. Under fixed plan accounting, compensation is
measured as the intrinsic value of the option at date of grant. The
performance-based plans are accounted for as variable plans under APB 25.
Under variable plan accounting, the compensation is measured as the
intrinsic value of the actual number of shares that are awarded at the then
current fair market value of the stock when the performance conditions are
satisfied.                                                    
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain key employees and directors have been granted options to purchase
common shares of the Companys parent, AMTROL Holdings Inc, under the
AMTROL Holdings 1997 Incentive Stock Plan. As of December 31, 2002,
options to purchase 131,335 shares under the 1997 Plan were outstanding.
The outstanding options include 44,796 non-qualified options which are
exercisable immediately, provided that purchased shares are subject to
repurchase by Holdings Inc. at fair market value until such shares vest under
certain circumstances. The remaining 86,539 options are non-qualified
options issued in 1999 and 2000, 48,770 of which are exercisable.

48



---



##### Table of Contents





| |  | The Company applies APB opinion No. 25 to account for its stock option
plans. Accordingly, pursuant to the terms of the AMTROL Holdings 1997
Incentive Stock Plan, no compensation cost related to the issuance of stock
options has been recognized in the Companys financial statements. During
2002, no options were granted or vested under this plan. If the Company
had determined compensation cost for options under the provisions of SFAS
No. 123 in 2001 and 2000, the Companys net loss would have
increased
approximately $0.2 million and $0.1 million, respectively. The fair value
of the options granted or vested in 2001 and 2000 was estimated using the
Black-Scholes option pricing model. The following key assumptions were
used to value the options granted: volatility, 20% in 2001 and 0% in 2000;
weighted average risk free rate, 5.00% for all periods; average expected
life, 3 years for all periods. The weighted average fair value per share
of the stock options vested or granted in 2001 and 2000 amounted to $3.42
and $13.92, respectively. It should be noted that the option pricing model
used was designed to value readily tradeable stock options with relatively
short lives. The options granted are not tradeable. However, management
believes that the assumptions used and the model applied to value the
awards yield a reasonable estimate of the fair value of the options under
the circumstances.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(12)   Business Segment Information



| |  | AMTROL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 and Asia.                                
|
| |  | The Companys European segment includes its 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 which 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 revenues and EBITDA. The following is a
summary of key financial data by segment:                                                                                                                                                                                                                                                                                                        

49



---



##### Table of Contents



|                                |               |          |   |         |         |      |   |         |         |  |   |         |         | 
|------------------------------- | ------------- | -------- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- | 
|                                |               |          |   | 2000    |         | 2001 |   | 2002   
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|Net
Sales to external customers |               |          |   |         |         |      |   |         |         |  |   |        
|                                | North America |          |   |         |         |      |   |         |         |  |   |         |        
|                                |               | US       |   | $       | 129,991 |      |   | $       | 117,898 |  |   | $       | 116,887 | 
|                                |               | Other    |   |         | 5,415   |      |   |         | 5,671   |  |   |         | 5,412   | 
|                                | Europe        |          |   |         |         |      |   |         |         |  |   |         |        
|                                |               | Portugal |   |         | 51,060  |      |   |         | 48,489  |  |   |         | 55,101  | 
|                                |               | Other    |   |         | 11,006  |      |   |         | 10,267  |  |   |         | 9,403   | 
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|                                | Consolidated  |          | $ | 197,472 |         |      | $ | 182,325 |         |  | $ | 186,803 |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|Income
from operations          |               |          |   |         |         |      |   |         |         |  |   |        
|                                | North America |          | $ | 14,731  |         |      | $ | 7,717   |         |  | $ | 12,149  |        
|                                | Europe        |          |   | 974     |         |      |   | 1,001   |         |  |   | 1,791   |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|                                | Consolidated  |          | $ | 15,705  |         |      | $ | 8,718   |         |  | $ | 13,940  |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|EBITDA                         
|                                | North America |          | $ | 24,668  |         |      | $ | 17,539  |         |  | $ | 17,336  |        
|                                | Europe        |          |   | 5,295   |         |      |   | 4,433   |         |  |   | 4,373   |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|                                | Consolidated  |          | $ | 29,963  |         |      | $ | 21,972  |         |  | $ | 21,709  |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|Long-Lived
assets               |               |          |   |         |         |      |   |         |         |  |   |        
|                                | North America |          |   |         |         |      |   |         |         |  |   |         |        
|                                |               | US       |   | $       | 164,496 |      |   | $       | 156,998 |  |   | $       | 119,266 | 
|                                |               | Other    |   |         | 13      |      |   |         | 9       |  |   |         | 4       | 
|                                | Europe        |          |   |         |         |      |   |         |         |  |   |         |        
|                                |               | Portugal |   |         | 33,982  |      |   |         | 32,304  |  |   |         | 32,441  | 
|                                |               | Other    |   |         | 9,715   |      |   |         | 9,173   |  |   |         | 5,995   | 
|                                |               |          |   |         |         |      |   |         |         |  |   |        
|                                | Consolidated  |          | $ | 208,206 |         |      | $ | 198,484 |         |  | $ | 157,706 |        
|                                |               |          |   |         |         |      |   |         |         |  |   |        



| |  | Income from operations is reduced by goodwill amortization for 2000 and
2001. EBITDA is earnings (net income/loss) before interest, taxes,
depreciation and amortization. The method of calculating consolidated EBITDA is
consistent with the definition contained in the Foothill Agreement 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.
Long-Lived assets include property, plant and equipment and goodwill.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50



---



##### Table of Contents






Item 14(a)(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

|                                                             |  |              |       |           |  |            |     |            |  |           |   |              |  |                |  |  |  |   |      |   |  |   |       | 
|------------------------------------------------------------ |  | ------------ | ----- | --------- |  | ---------- | --- | ---------- |  | --------- | - | ------------ |  | -------------- |  |  |  | - | ---- | - |  | - | ----- | 
|(in thousands)                                               |  |              |       |           |  |            |     |            |  |           |   |              |  |                |  |  |  |   |      |   |  |   |       | 
|                                                             |  | Balance at   |       |           |  |            |     |            |  |           |   |              |  |                |  |  |  |   |      |   |  |  
|                                                             |  | Beginning of |       |           |  |            |     |            |  |           |   | Adjustments/ |  | Balance
at End
|Consolidated                                                 |  | Period       |       | Provision |  | Recoveries |     | Write-Offs |  | of Period
|                                                             |  |              |       |           |  |            |     |            |  |          
|Year ended December 31, 2000
Allowance for doubtful accounts |  | $            | 1,188 |           |  | $          | 13  |            |  |           |  |              |  |                |  |  |  | $ | (368 | ) |  | $ | 833   | 
|Year ended December 31, 2001
Allowance for doubtful accounts |  |              | 833   |           |  |            | 628 |            |  |           |  |              |  |                |  |  |  |   | (96  | ) |  |   | 1,365 | 
|Year ended December 31, 2002
Allowance for doubtful accounts |  |              | 1,365 |           |  |            | 143 |            |  |           |  |              |  |                |  |  |  |   | (359 | ) |  |   | 1,149 | 

51



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in West Warwick, Rhode
Island, on the 28th day of March 2003.

| |             |                          
| | ----------- | -------------------------
| | AMTROL Inc.
| |             |                          
| | By:         | /s/  Larry T. Guillemette
| |             | Larry T. Guillemette     
| |             | Chief Financial Officer  
| |             |                          
| | Date:       | March 28, 2003           

Pursuant to the requirements of the Securities Act of 1934, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.

|                                               |  |                                                                                                      |  |               
|---------------------------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                                |  | Date          
|                                               |  |                                                                                                      |  |               
|                                               |  |                                                                                                      |  |               
|/s/   Albert D. IndelicatoAlbert D. Indelicato |  | President, Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer) |  | March 28, 2003
|                                              
|/s/   Larry T. GuillemetteLarry T. Guillemette |  | Exec. Vice President, Chief Financial
Officer, and Treasurer (Principal
Financial Officer)           |  | March 28, 2003
|                                              
|/s/   John P. CashmanJohn P. Cashman           |  | Director                                                                                             |  | March 28,
2003
|                                              
|/s/   Andrew M. MassimillaAndrew M. Massimilla |  | Director                                                                                             |  | March 28, 2003
|                                              
|/s/   David P. SpaldingDavid P. Spalding       |  | Director                                                                                             |  | March 28, 2003
|                                              
|/s/   James A. SternJames A. Stern             |  | Director                                                                                             |  | March 28, 2003




52



---



##### Table of Contents



EXHIBIT INDEX

|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit
# |  | Document
Description                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.1       |  | Restated Articles of Incorporation of AMTROL Inc. (incorporated by
reference from the Companys Registration Statement on Form S-4,
Registration No. 333-18075, declared effective by the Securities and
Exchange Commission on January 2, 1997).                                                                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|3.2       |  | Bylaws of AMTROL Inc. (incorporated by reference from the Companys
Registration Statement on Form S-4, Registration No. 333-18075, declared
effective by the Securities and Exchange Commission on January 2, 1997).                                                                                                                                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.1       |  | Indenture, dated as of November 1, 1996 between AMTROL Acquisition, Inc.
and The Bank of New York (incorporated by reference from the Companys
Registration Statement on Form S-4, Registration No. 333-18075, declared
effective by the Securities and Exchange Commission on January 2, 1997).                                                                                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.2       |  | Form of 10-5/8% Senior Subordinated Notes due 2006 (included in Exhibit
4.1) (incorporated by reference from the Companys Registration Statement
on Form S-4, Registration No. 333-18075, declared effective by the
Securities and Exchange Commission on January 2, 1997).                                                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|4.3       |  | First Supplemental Indenture, dated as of November 13, 1996, between
AMTROL Inc. and The Bank of New York (incorporated by reference from the
Companys Registration Statement on Form S-4, Registration No. 333-18075,
declared effective by the Securities and Exchange Commission on January 2,
1997).                                                                                                                                                            
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1      |  | Credit Agreement, dated as of November 13, 1996, among AMTROL
Acquisition, Inc. and AMTROL Holdings, Inc., various lending institutions
party thereto, Morgan Stanley Senior Funding, Inc. as documentation agent,
and Bankers Trust Company, as administrative agent (incorporated by
reference from the Companys Registration Statement on Form S-4,
Registration No. 333-18075, declared effective by the Securities and
Exchange Commission on January 2, 1997).
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1.1    |  | First Amendment to Credit Agreement, dated as of June 24, 1997
(incorporated by reference to the Companys Quarterly Report on Form 10-Q
for the quarter ended July 5, 1997).                                                                                                                                                                                                                                                                                        
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1.2    |  | Second Amendment to Credit Agreement, dated as of December 12, 1997
(incorporated by reference to Exhibit 7(c) in the Companys Current Report
on Form 8-K dated December 22, 1997).                                                                                                                                                                                                                                                                                 
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1.3    |  | Third amendment to the Credit Agreement dated as of June 24, 1998
(incorporated by reference to the Companys Quarterly report on Form 10-Q
for the quarter ended July 4, 1998).                                                                                                                                                                                                                                                                                     
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1.4    |  | Fourth amendment to the Credit Agreement dated as of July 13, 1998
(incorporated by reference to the Companys Quarterly report on Form 10-Q
for the third quarter ended October 3, 1998).                                                                                                                                                                                                                                                                           
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.1.5    |  | Fifth amendment to the Credit Agreement dated as of March 30, 2001
(incorporated by reference to the Companys Annual Report of Form 10-K for
the fiscal year ended December 31, 2000).                                                                                                                                                                                                                                                                              
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.2      |  | AMTROL Inc. Pension Plan and Trust (incorporated by reference from the
Companys Registration Statement on Form S-1, Registration No. 33-48413,
declared effective by the Commission on March 18, 1993).*                                                                                                                                                                                                                                                            
|          |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|10.3      |  | Amendments to AMTROL Inc. Pension Plan and Trust (incorporated by
reference from the Companys Registration Statement on Form S-1,
Registration No. 33-48413, declared effective by the Securities and
Exchange Commission on March 18, 1993).*                                                                                                                                                                                                                      

53



---



##### Table of Contents



|          |  |                                                                                                                                                                                                                                                                                                                       
|--------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit # |  | Document Description                                                                                                                                                                                                                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.4      |  | AMTROL Inc. Executive Cash Bonus Plan (incorporated by reference from the
Companys Annual Report on Form 10-K for the fiscal year ended December
31, 1994).*                                                                                                                                                         
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.5      |  | AMTROL Inc. Supplemental Retirement Plan II (incorporated by reference
from the Companys Registration Statement on Form S-1, Registration No.
33-48413, declared effective by the Commission on March 18, 1993).*                                                                                                    
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.6      |  | First Amendment to AMTROL Inc. Supplemental Retirement Plan II
(incorporated by reference from the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).*                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.10     |  | Employment Agreement dated June 24, 1998 by and between AMTROL Inc. and
Albert D. Indelicato (incorporated by reference from the Companys Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).*                                                                                                  
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.11     |  | AMTROL Holdings Inc. 1997 Incentive Stock Plan dated December 16, 1997.
(incorporated by reference to the Companys Annual Report on Form 10-K for
the year ended December 31, 1997).*                                                                                                                                
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.12     |  | Loan and Security Agreement dated December 26, 2001 among Amtrol
Holdings, Inc., Amtrol Inc. and WaterSoft Inc. and Foothill Capital
Corporation as the Arranger and Administrative Agent (incorporated by
reference from the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).      
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.13     |  | Loan and Security Agreement dated December 26, 2001 among Amtrol
Holdings, Inc., Amtrol Inc. and WaterSoft Inc. and Cypress Merchant
Banking Partners, L.P. and Cypress Offshore Partners, L.P. (incorporated
by reference from the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.13.1   |  | First Amendment to Loan and Security Agreement dated
December 31, 2002 among AMTROL Holdings Inc., AMTROL Inc.,
WaterSoft Inc., AMTROL Canada LTD., Cypress Merchant Banking Partners,
L.P. and Cypress Offshore Partners, L.P.                                                                                       
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.14     |  | Subsidiary Guaranty Agreement dated December 26, 2001 among Amtrol
International Investments, Inc. and Cypress Merchant Banking Partners,
L.P. and Cypress Offshore Partners, L.P. (incorporated by reference from
the Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2001).             
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.15     |  | Contribution Agreement dated December 26, 2001 among Amtrol Holdings,
Inc., Amtrol Inc. and WaterSoft Inc. and Cypress Merchant Banking
Partners, L.P. and Cypress Offshore Partners, L.P. (incorporated by
reference from the Companys Annual Report on Form 10-K for the fiscal
year ended December 31, 2001).     
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.16     |  | Subsidiary Guaranty Agreement dated December 26, 2001 among Amtrol
International Investments, Inc. and Foothill Capital Corporation
(incorporated by reference from the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2001).                                                            
|          |  |                                                                                                                                                                                                                                                                                                                       
|10.17     |  | Contribution Agreement dated December 26, 2001 among Amtrol Holdings,
Inc., Amtrol Inc. and WaterSoft Inc. and Foothill Capital Corporation
(incorporated by reference from the Companys Annual Report on Form 10-K
for the fiscal year ended December 31, 2001).                                                    
|          |  |                                                                                                                                                                                                                                                                                                                       
|18        |  | Preferability letter regarding change in accounting policy from LIFO to
FIFO (incorporated by reference from the Companys Annual Report on Form
10-K for the fiscal year ended December 31, 1998).                                                                                                                   
|          |  |                                                                                                                                                                                                                                                                                                                       
|21        |  | Subsidiaries of AMTROL Inc.                                                                                                                                                                                                                                                                                           



|* |  | Management contract or compensatory plan arrangement.
|- |  | -----------------------------------------------------

54



---



##### Table of Contents



CERTIFICATIONS

I, Albert D. Indelicato, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of AMTROL Inc;                                                                                                                                                                                                                                                          
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual 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 annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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
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 annual 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 annual report (the Evaluation
Date); and                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                             
|c. |  | Presented in this annual 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 annual report whether 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:  March 28, 2003 |  | By: |  | /s/ALBERT D. INDELICATO
|                      |  |     |  |                         |  |                                  
|                      |  |     |  |                         |  | Albert D. Indelicato             
|                      |  |     |  |                         |  | President, Chairman
of the Board,
|                      |  |     |  |                         |  | Chief Executive Officer and      
|                      |  |     |  |                         |  | Director                         

55



---



##### Table of Contents






CERTIFICATIONS

I, Larry T. Guillemette, certify that:



| | 1. |  | I have reviewed this annual report on Form 10-K of AMTROL Inc;                                                                                                                                                                                                                                                          
| | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 2. |  | Based on my knowledge, this annual 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 annual report;
|
| | 3. |  | Based on my knowledge, the financial statements, and other
financial information included in this annual 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 annual 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
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 annual 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 annual report (the Evaluation
Date); and                                                                                                  
|   |  |                                                                                                                                                                                                                                                                                             
|c. |  | Presented in this annual 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
annual report whether 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:  March 28, 2003 |  | By: |  | /s/LARRY T. GUILLEMETTE
|                      |  |     |  |                         |  |                            
|                      |  |     |  |                         |  | Larry T. Guillemette       
|                      |  |     |  |                         |  | Executive Vice President,  
|                      |  |     |  |                         |  | Chief Financial Officer and
|                      |  |     |  |                         |  | Treasurer                  

56