##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q



| | x |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 
| | - |  | -----------------------------------------------------------------------------------------
|
| |   |  | For the quarterly period ended June 30, 2002                                             
|
| |   |  | OR                                                                                       
|
| | o |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
| |   |  | For the Transition period from
____________ to ____________                              

Commission file number 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 02893-1008

---

(Address of principal executive offices)


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

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  
Yesx
Noo
.

Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: $.01 Par Value: 100 shares
of Common stock as of August 14, 2002.





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TABLE OF CONTENTS



|        |                                                                                               |                                                 |  |  |  |  |  | 
|------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|        |                                                                                               | Consolidated Balance Sheets                    
|        |                                                                                               | Consolidated Statements of Operations          
|        |                                                                                               | Consolidated Statements of Shareholders Equity
|        |                                                                                               | Consolidated Statements of Cash Flows          
|        |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|        | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|        | Item 3.    Quantitative and Qualitative Disclosures About Market Risk                        
|PART II
|        | Item 1.    Legal Proceedings                                                                 
|        | Item 2.    Changes in Securities and Use of Proceeds                                         
|        | Item 3.    Defaults Upon Senior Securities                                                   
|        | Item 4.    Submission of Matters to a Vote of Security Holders                               
|        | Item 5.    Other Information                                                                 
|        | Item 6.    Exhibits and Reports on Form 8-K                                                  
|        | Signatures                                                                                   



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2002

INDEX

|         |                       |                                                                                                               |  |      |    | 
|-------- | --------------------- | ------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|         |                       |                                                                                                               |  | PAGE
|         |                       |                                                                                                               |  |     
|        
|PART I.  | Financial Information |                                                                                                               |  |      |   
|        
|         | Item 1.               | Consolidated Balance Sheets  
June 30, 2002 and December 31, 2001                                            |  |      | 3  | 
|        
|         |                       | Consolidated Statements of Operations  
For the Quarter and Six Months Ended June 30, 2002
and June 30, 2001 |  |      | 4  | 
|        
|         |                       | Consolidated Statements of Shareholders Equity 
For the Six Months Ended June 30, 2002 and June 30, 2001    |  |      | 5  | 
|        
|         |                       | Consolidated Statements of Cash Flows 
For the Six Months Ended June 30, 2002 and June 30, 2001              |  |      | 6  | 
|        
|         |                       | Notes to Consolidated Financial Statements                                                                    |  |      | 7  | 
|        
|         | Item 2.               | Managements Discussion and Analysis of Financial
Condition and Results of Operations                         |  |      | 14 | 
|        
|         | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                                                    |  |      | 19 | 
|        
|PART II. | Other Information     |                                                                                                               |  |      |   
|        
|         | Item 1.               | Legal Proceedings                                                                                             |  |      | 20 | 
|        
|         | Item 2.               | Changes in Securities and Use of Proceeds                                                                     |  |      | 20 | 
|        
|         | Item 3.               | Defaults Upon Senior Securities                                                                               |  |      | 20 | 
|        
|         | Item 4.               | Submission of Matters to a Vote of Security Holders                                                           |  |      | 20 | 
|        
|         | Item 5.               | Other Information                                                                                             |  |      | 20 | 
|        
|         | Item 6.               | Exhibits and Reports on Form 8-K                                                                              |  |      | 20 | 
|        
|         |                       | Signatures                                                                                                    |  |      | 21 | 

2



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##### Table of Contents






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

|                                        |                                                                           |                            |         |         |               |   |                   |         |         |  | 
|--------------------------------------- | ------------------------------------------------------------------------- | -------------------------- | ------- | ------- | ------------- | - | ----------------- | ------- | ------- |  | 
|                                        |                                                                           |                            |         |         | Unaudited     |   | Audited          
|                                        |                                                                           |                            |         |         | June 30, 2002 |   | December 31, 2001
|                                        |                                                                           |                            |         |         |               |   |                  
|ASSETS                                 
|Current Assets:                         |                                                                           |                            |         |         |               |   |                   |        
|                                        | Cash and cash equivalents                                                 |                            | $       | 1,021   |               |   | $                 | 983     |        
|                                        | Accounts receivable, less allowance for doubtful accounts                 |                            |         | 33,705  |               |   |                   | 28,456  |        
|                                        | Inventories                                                               |                            |         | 21,856  |               |   |                   | 19,785  |        
|                                        | Deferred income taxes  short-term                                        |                            |         | 1,739   |               |   |                   | 1,739   |        
|                                        | Prepaid expenses and other                                                |                            |         | 3,132   |               |   |                   | 2,303   |        
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | Total current assets       |         |         | 61,453        |   |                   |         | 53,266  | 
|                                        |                                                                           |                            |         |         |               |   |                   |        
|Property, Plant and Equipment, Net      |                                                                           |                            | 39,528  |         |               |   | 41,192            |        
|Other Assets:                           |                                                                           |                            |         |         |               |   |                   |        
|                                        | Goodwill                                                                  |                            |         | 157,673 |               |   |                   | 157,292 |        
|                                        | Deferred financing costs                                                  |                            |         | 4,399   |               |   |                   | 4,233   |        
|                                        | Deferred income taxes  long-term                                         |                            |         | 7,209   |               |   |                   | 7,209   |        
|                                        | Other                                                                     |                            |         | 1,697   |               |   |                   | 1,263   |        
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | Total other assets         |         |         | 170,978       |   |                   |         | 169,997 | 
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | $                          | 271,959 |         |               | $ | 264,455           |        
|                                        |                                                                           |                            |         |         |               |   |                   |        
|LIABILITIES AND SHAREHOLDERS EQUITY   
|Current Liabilities:                    |                                                                           |                            |         |         |               |   |                   |        
|                                        | Current maturities of long-term debt                                      |                            | $       | 2,985   |               |   | $                 | 2,218   |        
|                                        | Notes payable to banks                                                    |                            |         | 10,568  |               |   |                   | 7,930   |        
|                                        | Accounts payable                                                          |                            |         | 24,541  |               |   |                   | 20,949  |        
|                                        | Accrued expenses                                                          |                            |         | 10,316  |               |   |                   | 10,856  |        
|                                        | Accrued interest                                                          |                            |         | 112     |               |   |                   | 752     |        
|                                        | Accrued income taxes                                                      |                            |         | 1,584   |               |   |                   | 1,959   |        
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | Total current liabilities  |         |         | 50,106        |   |                   |         | 44,664  | 
|                                        |                                                                           |                            |         |         |               |   |                   |        
|Other Noncurrent Liabilities            |                                                                           |                            | 3,458   |         |               |   | 4,061             |        
|Long Term Debt, Less Current Maturities |                                                                           |                            | 161,330 |         |               |   | 157,511           |        
|Shareholders Equity:                   |                                                                           |                            |         |         |               |   |                   |        
|                                        | Capital stock $.01 par value  authorized 1,000 shares,
100 shares issued |                            |         |        |               |   |                   |        |        
|                                        | Additional paid-in capital                                                |                            |         | 99,273  |               |   |                   | 99,273  |        
|                                        | Retained deficit                                                          |                            |         | (39,858 | )             |   |                   | (36,064 | )      
|                                        | Accumulated other comprehensive loss                                      |                            |         | (2,350  | )             |   |                   | (4,990  | )      
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | Total shareholders equity |         |         | 57,065        |   |                   |         | 58,219  | 
|                                        |                                                                           |                            |         |         |               |   |                   |        
|                                        |                                                                           | $                          | 271,959 |         |               | $ | 264,455           |        
|                                        |                                                                           |                            |         |         |               |   |                   |        

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

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AMTROL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited  in thousands)

|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |        |  
|------------------------------------ | -------------------------- | - | ------------- | ------ | ---------------- | - | ------------- | ------ | ------------- | - | ------- | ------ | - | - | ------- | ------ | -
|                                     |                            |   | QUARTER ENDED |        | SIX MONTHS ENDED
|                                     |                            |   |               |        |                 
|                                     |                            |   | June 30, 2002 |        | June 30, 2001    |   | June 30, 2002 |        | June 30, 2001
|                                     |                            |   |               |        |                  |   |               |        |              
|Net sales                            |                            | $ | 51,123        |        |                  | $ | 48,785        |        |               | $ | 93,665  |        |   | $ | 95,219  |       
|Cost of goods sold                   |                            |   | 39,464        |        |                  |   | 37,512        |        |               |   | 72,086  |        |   |   | 74,352  |       
|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Gross profit                         |                            |   | 11,659        |        |                  |   | 11,273        |        |               |   | 21,579  |        |   |   | 20,867  |       
|Operating expenses:                  |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Selling, general and
administrative  |                            |   | 7,309         |        |                  |   | 6,745         |        |               |   | 14,034  |        |   |   | 13,676  |       
|Amortization of goodwill             |                            |   | 0             |        |                  |   | 1,113         |        |               |   | 0       |        |   |   | 2,226   |       
|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Income from operations               |                            |   | 4,350         |        |                  |   | 3,415         |        |               |   | 7,545   |        |   |   | 4,965   |       
|Other income (expense):              |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Interest expense                     |                            |   | (5,115        | )      |                  |   | (4,944        | )      |               |   | (9,923  | )      |   |   | (9,826  | )     
|Interest income                      |                            |   | 8             |        |                  |   | 41            |        |               |   | 29      |        |   |   | 74      |       
|License and distributorship fees     |                            |   | 15            |        |                  |   | 73            |        |               |   | 40      |        |   |   | 146     |       
|Other, net                           |                            |   | (664          | )      |                  |   | 293           |        |               |   | (676    | )      |   |   | 607     |       
|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Loss before provision                |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|                                     | (benefit) for income taxes |   |               | (1,406 | )                |   |               | (1,122 | )             |   |         | (2,985 | ) |   |         | (4,034 | )
|Provision (benefit) for income
taxes |                            |   | 348           |        |                  |   | 173           |        |               |   | 809     |        |   |   | (284    | )     
|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       
|Net loss                             |                            |   | ($1,754       | )      |                  |   | ($1,295       | )      |               |   | ($3,794 | )      |   |   | ($3,750 | )     
|                                     |                            |   |               |        |                  |   |               |        |               |   |         |        |   |   |         |       

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

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AMTROL INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders Equity
(Unaudited  in thousands)

Six Months Ended June 30, 2002

|                           |                                            |   |              |   |            |   |                  |   |               |   |               |        |               |   |                   |       |   |   |        |        |  
|-------------------------- | ------------------------------------------ | - | ------------ | - | ---------- | - | ---------------- | - | ------------- | - | ------------- | ------ | ------------- | - | ----------------- | ----- | - | - | ------ | ------ | -
|                           |                                            |   |              |   |            |   |                  |   |               |   |               |        |               |   | Accumulated Other |       |   |   |       
|                           |                                            |   |              |   |            |   | Additional Paid- |   |               |   |               |        | Comprehensive |   | Comprehensive    
|                           |                                            |   | Common Stock |   | in Capital |   | Retained Deficit |   | Income (Loss) |   | Income (Loss)
|                           |                                            |   |              |   |            |   |                  |   |               |   |              
|Balance, December 31, 2001 |                                            | $ |             |   |            | $ | 99,273           |   |               | $ | (36,064       | )      |               | $ | (4,990            | )     |   | $ |       |       
|                           | Net loss                                   |   |              |  |            |   |                  |  |               |   |               | (2,040 | )             |   |                   |      |   |   |        | (2,040 | )
|                           | Derivative instrument valuation adjustment |   |              |  |            |   |                  |  |               |   |               |       |               |   |                   | 304   |   |   |        | 304    |  
|                           | Currency translation adjustment            |   |              |  |            |   |                  |  |               |   |               |       |               |   |                   | (262  | ) |   |        | (262   | )
|                           |                                            |   |              |   |            |   |                  |   |               |   |               |        |               |   |                   |       |   |   |        |       
|Balance, March 31, 2002    |                                            |   |             |   |            |   | 99,273           |   |               |   | (38,104       | )      |               |   | (4,948            | )     |   |   | (1,998 | )     
|                           | Net loss                                   |   |              |  |            |   |                  |  |               |   |               | (1,754 | )             |   |                   |      |   |   |        | (1,754 | )
|                           | Derivative instrument valuation adjustment |   |              |  |            |   |                  |  |               |   |               |       |               |   |                   | 204   |   |   |        | 204    |  
|                           | Currency translation adjustment            |   |              |  |            |   |                  |  |               |   |               |       |               |   |                   | 2,394 |   |   |        | 2,394  |  
|                           |                                            |   |              |   |            |   |                  |   |               |   |               |        |               |   |                   |       |   |   |        |       
|Balance, June 30, 2002     |                                            | $ |             |   |            | $ | 99,273           |   |               | $ | (39,858       | )      |               | $ | (2,350            | )     |   | $ | (1,154 | )     
|                           |                                            |   |              |   |            |   |                  |   |               |   |               |        |               |   |                   |       |   |   |        |       

Six Months Ended June 30, 2001

|                           |                                            |   |              |   |            |   |                  |      |               |   |               |        |               |   |                   |        |   |   |        |        |  
|-------------------------- | ------------------------------------------ | - | ------------ | - | ---------- | - | ---------------- | ---- | ------------- | - | ------------- | ------ | ------------- | - | ----------------- | ------ | - | - | ------ | ------ | -
|                           |                                            |   |              |   |            |   |                  |      |               |   |               |        |               |   | Accumulated Other |        |   |   |       
|                           |                                            |   |              |   |            |   | Additional Paid- |      |               |   |               |        | Comprehensive |   | Comprehensive    
|                           |                                            |   | Common Stock |   | in Capital |   | Retained Deficit |      | Income (Loss) |   | Income (Loss)
|                           |                                            |   |              |   |            |   |                  |      |               |   |              
|Balance, December 31, 2000 |                                            | $ |             |   |            | $ | 89,903           |      |               | $ | (26,649       | )      |               | $ | (3,382            | )      |   | $ |       |       
|                           | Net loss                                   |   |              |  |            |   |                  |     |               |   |               | (2,455 | )             |   |                   |       |   |   |        | (2,455 | )
|                           | Repurchase of options and common stock     |   |              |  |            |   |                  | (141 | )             |   |               |       |               |   |                   |       |   |   |        |       |  
|                           | Derivative instrument valuation            |   |              |  |            |   |                  |     |               |   |               |       |               |   |                   | (372   | ) |   |        | (372   | )
|                           | Currency translation adjustment            |   |              |  |            |   |                  |     |               |   |               |       |               |   |                   | (1,194 | ) |   |        | (1,194 | )
|                           |                                            |   |              |   |            |   |                  |      |               |   |               |        |               |   |                   |        |   |   |        |       
|Balance, March 31, 2001    |                                            |   |             |   |            |   | 89,762           |      |               |   | (29,104       | )      |               |   | (4,948            | )      |   |   | (4,021 | )     
|                           | Net loss                                   |   |              |  |            |   |                  |     |               |   |               | (1,295 | )             |   |                   |       |   |   |        | (1,295 | )
|                           | Repurchase of common stock                 |   |              |  |            |   |                  | (100 | )             |   |               |       |               |   |                   |       |   |   |        |       |  
|                           | Derivative instrument valuation adjustment |   |              |  |            |   |                  |     |               |   |               |       |               |   |                   | 31     |   |   |        | 31     |  
|                           | Currency translation adjustment            |   |              |  |            |   |                  |     |               |   |               |       |               |   |                   | (440   | ) |   |        | (440   | )
|                           |                                            |   |              |   |            |   |                  |      |               |   |               |        |               |   |                   |        |   |   |        |       
|Balance, June 30, 2001     |                                            | $ |             |   |            | $ | 89,662           |      |               | $ | (30,399       | )      |               | $ | (5,357            | )      |   | $ | (5,725 | )     
|                           |                                            |   |              |   |            |   |                  |      |               |   |               |        |               |   |                   |        |   |   |        |       

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

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AMTROL INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited  in thousands)

|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |         |        |        |  
|------------------------------------------------------------ | ------------------------------------------------------------------------------------------ | ------------------------------------------- | ----------------------------------------- | ------- | ---------------- | ------ | ------------- | ------- | ------ | ------ | -
|                                                             |                                                                                            |                                             |                                           |         | SIX MONTHS ENDED
|                                                             |                                                                                            |                                             |                                           |         |                 
|                                                             |                                                                                            |                                             |                                           |         | June 30, 2002    |        | June 30, 2001
|                                                             |                                                                                            |                                             |                                           |         |                  |        |              
|Cash Flows Provided by (Used in) Operating Activities:       |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             | Net loss                                                                                   |                                             | $                                         | (3,794  | )                |        | $             | (3,750  | )     
|                                                             | Adjustments to reconcile net loss to net cash
provided by (used in) operating activities  |                                             |                                           |         |                  |        |               |         |       
|                                                             |                                                                                            | Depreciation and amortization               |                                           |         | 4,450            |        |               |         | 6,915  |       
|                                                             |                                                                                            | Provision for losses on accounts receivable |                                           |         | 32               |        |               |         | 69     |       
|                                                             |                                                                                            | Changes in operating assets and liabilities |                                           |         | (5,597           | )      |               |         | (7,690 | )     
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             |                                                                                            |                                             | Net cash (used in) operating activities   |         |                  | (4,909 | )             |         |        | (4,456 | )
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|Cash Flows Provided by (Used in) Investing Activities:       |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             | Capital expenditures                                                                       |                                             |                                           | (1,006  | )                |        |               | (1,543  | )     
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             |                                                                                            |                                             | Net cash (used in) investing activities   |         |                  | (1,006 | )             |         |        | (1,543 | )
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|Cash Flows Provided by (Used in) Financing Activities:       |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             | Repayment of debt                                                                          |                                             |                                           | (72,218 | )                |        |               | (30,550 | )     
|                                                             | Issuance of debt                                                                           |                                             |                                           | 78,064  |                  |        |               | 36,460  |       
|                                                             | Repurchase of options and common stock                                                     |                                             |                                           |        |                  |        |               | (241    | )     
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|                                                             |                                                                                            |                                             | Net cash provided by financing activities |         |                  | 5,846  |               |         |        | 5,669  |  
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|Net Decrease in Cash and Cash Equivalents                    |                                                                                            |                                             | (69                                       | )       |                  |        | (330          | )      
|Effect of exchange rate changes on cash and cash equivalents |                                                                                            |                                             | 107                                       |         |                  |        | (22           | )      
|Cash and Cash Equivalents, beginning of period               |                                                                                            |                                             | 983                                       |         |                  |        | 704           |        
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        
|Cash and Cash Equivalents, end of period                     |                                                                                            | $                                           | 1,021                                     |         |                  | $      | 352           |        
|                                                             |                                                                                            |                                             |                                           |         |                  |        |               |        

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

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AMTROL INC. AND SUBSIDIARIES

---




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)



|1. |  | Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly, in accordance with generally accepted accounting
principles, the financial position, results of operations and cash flows
of AMTROL Inc. and its subsidiaries (the Company) for the interim
periods presented. Such adjustments consisted of only normal recurring
items. The results of operations for the interim periods shown in this
report are not necessarily indicative of results for any future interim
period or for the entire year. These condensed consolidated financial
statements do not include all disclosures associated with annual
consolidated financial statements and accordingly should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K.
|  
|2. |  | Use 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|3. |  | Adoption of New Accounting Standards                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | The Company adopted Statement of Financial Accounting Standard (SFAS)
No. 142, Goodwill and Other Intangible Assetson January 1, 2002. This
statement addresses financial and reporting for goodwill and other
intangible assets. Prior to January 1, 2002, generally accepted
accounting principles required that goodwill be amortized over its useful
life, not to exceed 40 years. SFAS No. 142 now requires that goodwill no
longer be amortized. Instead, companies are required to apply a fair
market value-based impairment test to its goodwill.                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company has completed its fair market value-based impairment testing
in accordance with the first phase impairment testing required by SFAS
No. 142. The results of the impairment testing indicate that the
goodwill on the Companys balance sheet may be impaired and that an
impairment loss may need to be recognized. The second phase of SFAS No.
142 impairment testing, measurement of the impairment loss, is expected
to be completed prior to the Companys fiscal year end. Any resulting
impairment loss will be recognized as the cumulative effect of a change
in accounting principle.                                                                                                                                                                                                                                                                                                            

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|   |  | 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
condensed consolidated financial statements.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|4. |  | Significant Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | 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 generally recognizes revenue upon shipment of its products to
customers. The Company classifies shipping/handling fees and costs to revenue
consistent with the presentation required by Emerging Issues Task Force
(EITF) 00-10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | Deferred Financing Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|   |  | Deferred financing costs are stated at cost as a component of other
assets and are amortized over the life of the related debt using the
effective interest method. Amortization of deferred financing costs was
included in interest expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Foreign Currency Translation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | Assets and liabilities of non-U.S. operations have been translated into
United States dollars at the quarter-end rate of exchange. Shareholders
equity has been converted using historical rates while revenues and
expenses have been converted at the average exchange rates prevailing
during the three and six month periods. The cumulative effect of the
resulting translation was reflected as a separate component of
shareholders equity.                                                                                                                                                                                                                                                                                                      
|  
|   |  | Reclassifications                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | Certain amounts in prior periods have been reclassified to permit
comparison to the current year presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |  | Recent Accounting Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | In July 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. 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                                                                                                                                                                                                                                                                                                                                                                                                     

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|   |  | 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. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002 with early adoption
permitted. The Company is currently assessing the impact, if any, of
adopting SFAS No. 143 on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. SFAS No. 146 addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies EITF Issue No. 94-3, Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring).
SFAS No. 146 requires that a liability for costs associated with an exit
or disposal activity be recognized when the liability is incurred rather
than when a company commits to such an activity and also establishes fair
value as the objective for initial measurement of the liability. SFAS No.
146 will be adopted by the Company for exit or disposal activities that
are initiated after December 31, 2002. Adoption will not have a material
impact on the consolidated financial statements of the Company.                                                                                                             
|  
|5. |  | Long-Term Debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | 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 the
Companys existing credit facility and to pay fees and expenses related
to the refinancing.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The Foothill Facility consists of senior term loans (the Term Loans)
and a revolving credit facility (the Revolving Credit
Facility) which are secured by a first priority lien on all
the domestic assets of the Company and a stock pledge of all of its
subsidiaries. A
portion of the Term Loans (the Term Loan A) had an
original principal balance of $10.2 million and a remaining principal
balance of $9.8 million as of June 30, 2002.
The remaining portion of the Term Loans (the Term Loan B)
had an original principal balance of $7.5 million and a remaining principal
balance of $7.2 million as of June 30, 2002.
Aggregate borrowings under the
Revolving Credit Facility are limited to the lesser of (a) $35.0 million
less the aggregate outstanding principal amount of the Term Loan A less
letter of credit usage and (b) the borrowing base less letter of credit
usage. At June 30, 2002, total availability and aggregate borrowings
under the Revolving Credit Facility were $13.4 million and $8.8 million,
respectively.
|  
|   |  | Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 which commenced on April 1, 2002. The outstanding unpaid principal
shall be due and payable on the date of termination of the Foothill
Facility, whether by its terms, by prepayment, or by acceleration and
bears interest at LIBOR plus 3.5%, paid monthly. Term Loan B has a
three-year maturity with quarterly principal payments of $312,500
which commenced on                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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|   |  | April 1, 2002. The outstanding unpaid principal shall be due
and payable on the date of termination of the Foothill Facility, whether
by its terms, by prepayment, or by acceleration and bears interest at the
greater of the Wells Fargo Reference Rate (approximates the prime rate)
plus 3.5% or 9.25%, paid monthly. The Revolving Credit Facility has a
five-year maturity. Amounts borrowed under the Revolving Credit Facility
may be repaid and reborrowed at any time during the term of the Foothill
Facility and bear interest at LIBOR plus 2.5% for LIBOR based borrowings
and the Wells Fargo Reference Rate plus 0.5% for non-LIBOR based
borrowings. The Foothill Facility contains certain affirmative and
negative covenants and restrictions. As of June 30, 2002, the Company
was in compliance with the various covenants of the Foothill Facility.                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The Cypress Facility consists of a single $25.0 million term loan (the
Term Loan C). Term Loan C has a five-year maturity and bears
Pay-In-Kind (PIK) interest fixed at 12% per annum paid quarterly, which
at the lenders option can be paid in common stock of the Company. In
connection with the Cypress Facility, Amtrol Holdings, Inc., which wholly
owns the Company, issued the lenders under the Cypress Facility
60,000 warrants to purchase approximately 5.2% of its common stock on a
fully diluted basis. The 60,000 warrants, which have an exercise price
of $.01, were valued at $3.4 million using the Black-Scholes model. This
amount was recorded as an offset to the Term Loan C debt and included in
the Companys equity section. This discount is being accreted to the
face value of the Term Loan C over the life of the Cypress Facility. The
Company expects that the effective interest rate associated with the Term
Loan C will be greater than 12% given the additional compensation
associated with the issuance of the warrants. The Cypress Facility
contains certain affirmative and negative covenants and restrictions. As
of June 30, 2002, the Company was in compliance with the various
covenants of the Cypress Facility.
|  
|   |  | Senior Subordinated Notes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Company issued $115.0 million of Senior Subordinated Notes due 2006
(the Notes). The Notes are unsecured obligations of the Company. The
Notes bear interest at a rate of 10.625% per annum that is payable
semi-annually on each June 30 and December 31.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Notes became redeemable at the option of the
Company on December 31, 2001. The Notes are subject to redemption, in whole or
in part, at various redemption prices, declining from 105.313% of the
principal amount to par on December 31, 2003. Upon a Change
of Control (as defined in the Indenture), each Note holder has the right
to require the Company to repurchase such holders Notes at a purchase
price of 101% of the principal amount plus accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  
|   |  | The Notes Indenture contains certain affirmative and negative covenants
and restrictions. As of June 30, 2002, the Company was in compliance
with the various covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|  
|   |  | The Company and/or affiliates of the Company, including entities related
to Cypress may, from time to time, purchase the Notes previously issued
by the Company in the open market or by other means.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|  
|6. |  | Inventories                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

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

|                                  |  |          |        |              |  |   |        | 
|--------------------------------- |  | -------- | ------ | ------------ |  | - | ------ | 
|                                  |  | June 30, |        | December 31,
|                                  |  | 2002     |        | 2001        
|                                  |  |          |        |             
|Raw materials and work in process |  | $        | 12,204 |              |  | $ | 11,120 | 
|Finished goods                    |  |          | 9,652  |              |  |   | 8,665  | 
|                                  |  |          |        |              |  |   |        | 
|                                  |  | $        | 21,856 |              |  | $ | 19,785 | 
|                                  |  |          |        |              |  |   |        | 



|7. |  | Accounting for Derivative Instruments and Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective January 1, 2001, the Company adopted SFAS No. 133 Accounting
for Derivative Instruments and Hedging Activities,SFAS No. 137
Accounting for Derivative Instruments and Hedging Activities  Deferral
of the Effective Date of FASB Statement No. 133  an Amendment of FASB
Statement No. 133and SFAS No. 138 Accounting for Certain Derivative
Instruments and Certain Hedging Activities  an Amendment of FASB
Statement No. 133(collectively SFAS No. 133 as amended). SFAS No. 133
as amended is required to be adopted no later than the beginning of the
first fiscal year beginning on or after June 15, 2000. These standards
are to be adopted as a change in accounting principle and cannot be
applied retroactively to financial statements of prior periods.                                                                                                                                                                                                                                                             
|  
|   |  | The Company has one derivative contract consisting of an interest rate
swap contract and an interest rate cap (the Contract) outstanding as of
June 30, 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 March 31, 2002 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. As a result of the refinancing of its senior debt with the
Foothill Facility, the Contract was redesignated as a cash flow hedge of
variable future cash flows associated with the Foothill Facility Term
Loan A and Term Loan B Debt.
|  
|   |  | As of June 30, 2002, the
fair value of the instrument, approximately three thousand dollars, was recorded
in other noncurrent liabilities with a corresponding entry to accumulated
other comprehensive loss. Subsequent changes in the fair value of the
swap will be recorded through accumulated other comprehensive loss
(except for changes related to ineffectiveness, which will be recorded
through net income). The Company did not realize any material
ineffectiveness during the current quarter and does not anticipate any
material ineffectiveness under the hedge for the remainder of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|  
|8. |  | Provision for Income Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | The effective income tax rates used in the interim condensed financial
statements are estimates of the full years rates. The provision
for income taxes recorded in the financial statements differs from
the statutory rate principally due to managements decision to
discontinue the recognition of tax benefits associated with losses
generated by the U.S. operations. Net deferred tax
assets recognized on the Companys                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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|   |  | balance sheet continue to require
managements evaluation as to their realization. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets will be realized. The amount realized is based upon
estimates derived from tax planning strategies which the Company believes
is currently prudent and feasible. Additions to the valuation allowance
may be required in the event that estimates are changed.                                 
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|9. |  | Business Segment Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   |  | The Company adopted SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information,in 1998. The Companys reportable
segments are delineated geographically. In addition to the geographic
delineation, the segments are managed separately because of their
different product offerings, markets served and cost structures.                                                                                                                                                        
|  
|   |  | The Companys North American segment operates manufacturing facilities in
Rhode Island, Kentucky, Maryland and Ohio, and operates a distribution
facility in Ontario, Canada. This segment manufactures and markets
products used principally in flow control, storage, heating and other
treatment of fluids in the water system and HVAC markets. These products
are marketed throughout the world but primarily in North America, Western
Europe, Asia and Mexico.                                  
|  
|   |  | The Companys European segment includes the Companys facilities in
Guimaraes, Portugal, Donaueschingen, Germany and Swarzedz, Poland. The
Guimaraes facility manufactures returnable and non-returnable steel gas
cylinders for storing cooking, heating and refrigerant gases that are
marketed worldwide. The Donaueschingen facility manufactures residential
and commercial water heaters marketed primarily in Switzerland, Austria
and Germany. The Swarzedz facility refurbishes gas cylinders.
|  
|   |  | The primary criteria by which financial performance is evaluated and
resources are allocated include net sales and EBITDA. The following is a
summary of key financial data by segment:                                                                                                                                                                                                                                                                                                                

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|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |        |         | 
|------------------------------- | ------------- | ------------- | ------ | ------------- | ----- | ---------------- | ------ | ------------- | ----- | ------------- | ------- | ------------ | ------- | - | ------- | ------ | ------- | 
|                                |               |               |        | Quarter Ended |       | Six Months Ended
|                                |               |               |        |               |       |                 
|                                |               |               |        | June 30, 2002 |       | June 30, 2001    |        | June 30, 2002 |       | June 30, 2001
|                                |               |               |        |               |       |                  |        |               |       |              
|Net Sales to external customers |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                | North America |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |        |        
|                                | US            |               | $      | 31,793        |       |                  | $      | 31,320        |       |               | $       | 60,003       |         |   | $       | 60,591 |        
|                                | Other         |               |        | 1,340         |       |                  |        | 1,517         |       |               |         | 2,575        |         |   |         | 2,727  |        
|Europe                          |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                | Portugal      |               |        | 15,831        |       |                  |        | 13,120        |       |               |         | 26,862       |         |   |         | 26,255 |        
|                                | Other         |               |        | 2,159         |       |                  |        | 2,828         |       |               |         | 4,225        |         |   |         | 5,646  |        
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|Consolidated                    |               | $             | 51,123 |               |       | $                | 48,785 |               |       | $             | 93,665  |              |         | $ | 95,219  |       
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|Income from operations          |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                | North America |               | $      | 3,093         |       |                  | $      | 2,180         |       |               | $       | 5,414        |         |   | $       | 2,732  |        
|                                | Europe        |               |        | 1,257         |       |                  |        | 1,235         |       |               |         | 2,131        |         |   |         | 2,233  |        
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                | Consolidated  |               | $      | 4,350         |       |                  | $      | 3,415         |       |               | $       | 7,545        |         |   | $       | 4,965  |        
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|EBITDA                          |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                |               | North America |        | $             | 4,365 |                  |        | $             | 4,794 |               |         | $            | 7,969   |   |         | $      | 7,870   | 
|                                |               | Europe        |        |               | 1,349 |                  |        |               | 2,205 |               |         |              | 2,969   |   |         |        | 4,330   | 
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                |               | Consolidated  |        | $             | 5,714 |                  |        | $             | 6,999 |               |         | $            | 10,938  |   |         | $      | 12,200  | 
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                               
|                                |               |               |        |               |       |                  |        |               |       | June 30,      |         | December 31,
|Long-lived assets               |               |               |        |               |       |                  |        |               |       | 2002          |         | 2001        
|                                |               |               |        |               |       |                  |        |               |       |               |         |             
|                                |               | North America |        |               |       |                  |        |               |       |               |         |              |         |   |         |        |         | 
|                                |               | US            |        |               |       |                  |        |               |       |               |         | $            | 155,148 |   |         | $      | 156,998 | 
|                                |               | Other         |        |               |       |                  |        |               |       |               |         |              | 7       |   |         |        | 9       | 
|Europe                          |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|                                |               | Portugal      |        |               |       |                  |        |               |       |               |         |              | 32,288  |   |         |        | 32,304  | 
|                                |               | Other         |        |               |       |                  |        |               |       |               |         |              | 9,758   |   |         |        | 9,173   | 
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       
|Consolidated                    |               |               |        |               |       |                  |        |               |       | $             | 197,201 |              |         | $ | 198,484 |       
|                                |               |               |        |               |       |                  |        |               |       |               |         |              |         |   |         |       



|    |  | Income from operations for the North America business segment above is
reduced by goodwill amortization for 2001. EBITDA is earnings (net income/loss) before interest, taxes, depreciation and amortization. The
method of calculating EBITDA is consistent with the definition contained
in the Foothill Facility, Cypress Facility and the Notes. 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.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|10. |  | Commitments and
Contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|    |  | At June 30, 2002, the Foothill Facility contained a sublimit to support
the issuance of letters of credit in the amount of $3.0 million. At June
30, 2002, letters of credit outstanding amounted to $0.7 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | The Company is involved in various legal proceedings that, in the opinion
of management, will not result in a material adverse effect on its
financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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AMTROL INC. AND SUBSIDIARIES

---

Item 2.

MANAGEMENTS DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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

All statements other than statements of historical fact included in this Form
10-Q and elsewhere relating to the Companys financial position, strategic
initiatives and statements addressing industry developments are forward-looking
statements. When incorporated in this discussion, the words expect(s),
feel(s), believe(s), anticipate(s) and similar expressions are intended
to 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, which speak only as of the date hereof. The
following are some of the important factors that can vary or change or involve
substantial risk and cause actual results to differ materially from such
expectations: the Companys ability to successfully implement its business
strategy; the availability and cost of raw materials; changes in domestic or
foreign government regulation or enforcement policies, particularly related to
refrigerant gases or cylinders and building and energy efficiency requirements
or restrictions or limitations or general reduction in the use of domestic
wells; significant weather conditions adverse to the Companys business;
development of competing technologies; acceptance of the Companys existing and
planned new products in international markets; competition in the Companys
markets, particularly price competition; the rate of growth of developing
economies and demand for the Companys products; the ultimate cost of future
warranty and other claims relating to the Companys products and business;
whether the Company succeeds in acquiring new businesses; availability of
capital; foreign exchange rates; increases in interest rates; the business
abilities and judgment of personnel; and general economic, financial and
business conditions, both domestically and internationally.

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Results of Operations

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

|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   
|-------------------------------------------- |  | ------------- | ----- | ---------------- |  | ------------- | ----- | ------------- |  |  | ----- | -- |  |  | ----- | --
|                                             |  | QUARTER ENDED |       | SIX MONTHS ENDED
|                                             |  |               |       |                 
|                                             |  | June 30, 2002 |       | June 30, 2001    |  | June 30, 2002 |       | June 30, 2001
|                                             |  |               |       |                  |  |               |       |              
|Net sales                                    |  |               | 100.0 | %                |  |               | 100.0 | %             |  |  | 100.0 | %  |  |  | 100.0 | % 
|Cost of goods sold                           |  |               | 77.2  |                  |  |               | 76.9  |               |  |  | 77.0  |    |  |  | 78.1  |   
|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   
|Gross profit                                 |  |               | 22.8  |                  |  |               | 23.1  |               |  |  | 23.0  |    |  |  | 21.9  |   
|Selling, general and
administrative expenses |  |               | 14.3  |                  |  |               | 13.8  |               |  |  | 15.0  |    |  |  | 14.4  |   
|Amortization of goodwill                     |  |               |      |                  |  |               | 2.3   |               |  |  |      |    |  |  | 2.3   |   
|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   
|Income from operations                       |  |               | 8.5   |                  |  |               | 7.0   |               |  |  | 8.0   |    |  |  | 5.2   |   
|Interest expense                             |  |               | (10.0 | )                |  |               | (10.1 | )             |  |  | (10.6 | )  |  |  | (10.3 | ) 
|Interest income                              |  |               |      |                  |  |               | 0.1   |               |  |  |      |    |  |  | 0.1   |   
|Other income (expense), net                  |  |               | (1.3  | )                |  |               | 0.7   |               |  |  | (0.7  | )  |  |  | 0.8   |   
|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   
|Loss before provision
for income taxes       |  |               | (2.8  | )                |  |               | (2.3  | )             |  |  | (3.3  | )  |  |  | (4.2  | ) 
|Provision (benefit) for
income taxes         |  |               | 0.6   |                  |  |               | 0.4   |               |  |  | 0.8   |    |  |  | (0.3  | ) 
|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   
|Net loss                                     |  |               | (3.4  | )%               |  |               | (2.7  | )%            |  |  | (4.1  | )% |  |  | (3.9  | )%
|                                             |  |               |       |                  |  |               |       |               |  |  |       |    |  |  |       |   

Three Months Ended June 30, 2002

Net sales for the current quarter increased $2.3 million or 4.8% compared to
the second quarter of 2001, reflecting sales growth in both North America and
Europe, as well as the impact of the strengthening Euro on the translation of
results at the Companys European operations.

In North America, net sales in the second quarter of 2002 increased $0.3
million or 0.9% compared to the second quarter of 2001, due principally to
modestly increased sales of water systems and cylinder products. Customer
orders in North America during the same period increased $1.3 million or 3.6%
compared to 2001. Strong orders late in the second quarter of 2002 resulted in
an above average unfilled order position at the end of the quarter. As a
result of steel industry capacity shortfalls and the imposition of tariffs on
imported steel by the U.S. government in March of 2002, certain domestic steel
suppliers rescheduled deliveries and increased prices, necessitating the
resourcing of certain steel purchases by the Company both to insure
availability and minimize prospective cost increases.

Net sales from the Companys European operations increased $2.0 million or
12.8% in the second quarter of 2002 due primarily to the addition of a major
new customer and the strengthening of the Euro versus the U.S. dollar. The
strengthening of the Euro contributed approximately $0.7 million to the
increase in net sales.

Gross profit for the second quarter of 2002 increased $0.4 million or 3.4%
compared to the second quarter of 2001, due principally to increased volume.
As a percentage of net sales, gross

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profit declined to 22.8% in the second
quarter of 2002 versus 23.1% in the same period last year, due principally to a
higher mix of lower-margin cylinder sales in the second quarter of 2002.

Selling, General and Administrative expenses for the current quarter of 2002 of
$7.3 million increased $0.6 million or 8.4% compared to the second quarter of
2001. The increase is principally the result of one-time compensation costs.

Other income, net decreased $1.0 million when compared to 2001.
Currency exchange losses of $0.7 million were recorded by the
Companys European operations as a result of the strengthening of the Euro
versus the U.S. dollar in the second quarter of 2002. In contrast, during
the second quarter of 2001, the Company recorded currency
exchange gains of $0.2 million.

The net loss for the current quarter of 2002 of $1.8 million compares to a net
loss in the second quarter of 2001 of $1.3 million, an absolute change of $0.5
million.

Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the second quarter of 2002 decreased $1.3 million to
$5.7 million from $7.0 million
in the second quarter of 2001 principally as a result of currency exchange
losses incurred by the Companys European operations. Excluding the impact of
currency translation, EBITDA in 2002 would have been comparable to 2001.

Six Months Ended June 30, 2002

Net sales for the first six months of 2002 decreased $1.6 million or 1.6% as
compared to the first six months of 2001. In North America, net sales declined
$0.8 million or 1.2% due to weaker first quarter results in comparison to 2001
offset by improved sales performance in the second quarter. Net sales in
Europe decreased $0.8 million or 2.6% compared to the first six months of 2001
due to weaker first quarter results in comparison to 2001 offset by stronger
sales performance and a strengthening Euro in the second quarter.

Gross profit for the first six months of 2002 increased by $0.7 million or 3.4%
as compared to the same period in 2001. Gross profit as a percentage to net
sales increased to 23.0% in 2002 from 21.9% in 2001. Manufacturing efficiency
improvements, lower energy costs and lower commodity costs, partially offset by
the impact of a higher mix of cylinder sales, contributed to the increase in
gross profit and gross profit percentage.

Selling, General and Administrative expenses for the first six months of 2002
of $14.0 million increased modestly by $0.3 million or 2.6% compared to the
first six months of 2001. One-time compensation costs during the second quarter
of 2002 were largely offset by reduced selling expense attributable to one-time
marketing investments made in the first quarter of 2001.

Other income, net decreased $1.3 million in
comparison to 2001. Currency exchange losses of $0.7 million
were recorded by the
Companys European operations as a result of the strengthening of the Euro in
the first half of 2002. In contrast, during the first six months of 2001, the Company recorded
currency exchange gains of $0.4 million.

Income taxes during the first six months of 2002 increased $1.1 million as
compared to 2001. The increase was the result of managements decision to
discontinue the recognition of tax benefits associated with pre-tax losses from
its U.S. operations.

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The net loss for the first six months of 2002 of $3.8 million was substantially
unchanged in comparison to the first six months of 2001.

Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the first six months of 2002 decreased $1.3 million to $10.9 million,
compared to $12.2 million for the first six months of 2001 principally as a
result of currency exchange losses incurred by the Companys European
operations. Excluding the impact of currency translation, EBITDA in 2002 would
have been comparable to 2001.

Liquidity and Capital Resources

The Companys operating working capital (defined as accounts receivable and
inventory, less accounts payable) increased $3.7 million from $27.3 million at
December 31, 2001 to $31.0 million at June 30, 2002. Accounts receivable and
inventories increased $5.2 million and $2.1 million, respectively while
accounts payable increased $3.6 million, all consistent with seasonal operating
requirements of the Companys water systems and cylinder product lines.

For the first six months of 2002, net cash used in operating activities of $4.9
million was $0.5 million higher than the first six months of 2001 due
principally to higher seasonal growth in operating working capital offset by
lower cash interest expense. Capital expenditures of $1.0 million in the first
six months of 2002 were $0.5 million lower than in 2001. The Company funded
these requirements principally by utilizing its credit facilities including the
Revolving Credit Facility described below. Net cash provided by financing
activities in the first six months of 2002 was $5.8 million, $0.2 million
higher than in 2001.

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

The Foothill Facility consists of senior term loans (the Term Loans) and a
revolving credit facility (the Revolving Credit
Facility) which are secured by a first priority lien on all of
the domestic assets of the Company and a stock pledge of all of its
subsidiaries. A portion of the Term Loans (the Term Loan
A) had an original principal balance of $10.2 million and a
remaining principal balance of $9.8 million as of June 30, 2002. The remaining portion of the
Term Loans (the Term Loan B) had an original principal
balance of $7.5 million and a remaining principal balance of
$7.2 million as of June 30, 2002. Aggregate
borrowings under the Revolving Credit Facility are limited to the lesser of (a)
$35.0 million less the aggregate outstanding principal amount of the Term Loan
A less letter of credit usage, and (b) the borrowing base less letter of credit
usage. At June 30, 2002, total availability and aggregate borrowings under the
Revolving Credit Facility were $13.4 million and $8.8 million, respectively.

Term Loan A has a five-year maturity with quarterly principal payments of
$426,757 which commenced on April 1, 2002. The outstanding unpaid principal shall be
due and payable on the date of termination of the Foothill Facility, whether by
its terms, by prepayment, or by acceleration and bears interest at LIBOR plus
3.5%, paid monthly. Term Loan B has a three-year

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

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

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 commencing on June
30, 1997. The Notes became redeemable at the option of the Company on
December 31, 2001. From and after December 31, 2001, the
Notes are 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
December 31, 2003. Upon a Change of Control (as defined in the
Indenture), each Note holder has the right to require the Company to repurchase
such holders Notes at a purchase price of 101% of the principal amount plus
accrued interest. The Notes Indenture contains certain affirmative and
negative covenants and restrictions. As of June 30, 2002, the Company is in
compliance with the various covenants.

The Company intends to fund its future working capital, capital expenditures
and debt service requirements through cash flows generated from operations and
borrowings under the 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.

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

Inflation

The Company believes that anticipated inflation rates will not have a
materially adverse effect on its results of operations or its financial
condition in 2002, except for domestic steel purchases. The Company, based
upon discussions with domestic steel vendors, expects steel prices to further
increase during the third quarter of 2002. The Company, to the extent
possible, will attempt to mitigate the anticipated price increases by securing
lower priced steel wherever possible. However, there can be no assurance that
sharply increasing raw material or fuel costs will not adversely affect the
Companys financial condition or results of operations.




Item 3.    Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in information relating to market risk
since the Companys disclosure included in Item 7A of SEC Form 10-K as filed
with the SEC on March 29, 2002.

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AMTROL INC. AND SUBSIDIARIES




PART II




Item 1.    Legal Proceedings

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




Item 2.    Changes in Securities and Use of Proceeds

None.




Item 3.    Defaults Upon Senior Securities

None.




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

None.




Item 5.    Other Information

None.




Item 6.    Exhibits and Reports on Form 8-K

(b)    On April 12, 2002, the Company filed a Current Report on a Form 8-K
reporting under Item 4  Changes in Registrants Certifying Public Accountants,
that the Board of Directors of AMTROL Inc., as recommended by its Audit
Committee, decided to no longer engage Arthur Andersen LLP as AMTROLs
independent public accountants and did approve the engagement of Ernst & Young
LLP as AMTROLs independent public accountants.

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AMTROL INC. AND SUBSIDIARIES




Signatures

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

|                      |  |             |  |                                                                                                                     
|--------------------- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------
|                      |  | AMTROL INC.
|                     
|Date: August 14, 2002 |  | By:         |  | /s/ ALBERT D. INDELICATOAlbert D. Indelicato,
President, Chairman of the Board,
Chief Executive Officer and Director
|                     
|Date: August 14, 2002 |  | By:         |  | /s/ LARRY T. GUILLEMETTELarry T. Guillemette,
Executive Vice President,
Chief Financial Officer
and Treasurer       

21