##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended April 1, 2006
 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
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)
 1400 Division Road, West Warwick, RI 02893-1008  (Address of principal executive offices)
 (401) 884-6300
 o þ
  o o þ
 o þ




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##### 



AMTROL INC. AND SUBSIDIARIES
 FORM 10-Q FOR THE QUARTER ENDED APRIL 1, 2006
 INDEX
 PAGEPART I
    
    Financial InformationItem 1.
    
    Condensed Consolidated Balance Sheets  April 1, 2006 and December 31, 2005
    
    
    3Condensed Consolidated Statements of Operations  For the Quarters Ended April 1, 2006 and April 2, 2005
    
    
    4Condensed Consolidated Statements of Shareholders Equity (Deficit)  For the Quarters Ended April 1, 2006 and April 2, 2005
    
    
    5Condensed Consolidated Statements of Cash Flows  For the Quarters Ended April 1, 2006 and April 2, 2005
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    22Item 4.
    
    Controls and Procedures
    
    
    22PART II
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    23Item 1A.
    
    Risk Factors
    
    
    23Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3.
    
    Defaults Upon Senior Securities
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    23Signature
    
    
    24Certifications
    
    
    25EX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO
  2




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AMTROL INC. AND SUBSIDIARIES
 
 Condensed Consolidated Balance Sheets
 (Unaudited  In thousands)
 April 1,
    
    
    December 31,2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    9,339
    
    
    $
    7,470Accounts receivable, less allowance for doubtful accounts, credits and returns
    
    
    37,079
    
    
    
    37,375Inventories
    
    
    27,726
    
    
    
    24,895Tax refund receivable
    
    
    1,910
    
    
    
    1,477Deferred income taxes  short-term
    
    
    132
    
    
    
    132Prepaid expenses and other
    
    
    3,431
    
    
    
    566Total current assets
    
    
    79,617
    
    
    
    71,915Property, plant and equipment, net
    
    
    28,618
    
    
    
    29,385Other assets:Goodwill
    
    
    119,205
    
    
    
    119,205Deferred financing costs
    
    
    710
    
    
    
    960Deferred income taxes  long-term
    
    
    680
    
    
    
    680Other
    
    
    440
    
    
    
    306Total other assets
    
    
    121,035
    
    
    
    121,151$
    229,270
    
    
    $
    222,451Liabilities and Shareholders EquityCurrent liabilities:Current maturities of long-term debt
    
    $
    184,085
    
    
    $
    179,332Notes payable to banks
    
    
    3,100
    
    
    
    5,611Accounts payable
    
    
    26,249
    
    
    
    21,117Accrued volume rebates
    
    
    1,450
    
    
    
    4,650Accrued expenses
    
    
    10,710
    
    
    
    9,749Accrued interest
    
    
    2,870
    
    
    
    226Accrued income taxes
    
    
    1,268
    
    
    
    641Total current liabilities
    
    
    229,732
    
    
    
    221,326Other noncurrent liabilities
    
    
    6,070
    
    
    
    6,067Shareholders Deficit:Capital stock $.01 par value  authorized 1,000 shares,
100 shares issued
    
    
    
    
    
    
    Additional paid-in capital
    
    
    99,273
    
    
    
    99,273Accumulated deficit
    
    
    (109,613
    )
    
    
    (107,529
    )Accumulated other comprehensive income
    
    
    3,808
    
    
    
    3,314Total shareholders deficit
    
    
    (6,532
    )
    
    
    (4,942
    )$
    229,270
    
    
    $
    222,451
  3




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AMTROL INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Operations
 (Unaudited  in thousands)
 Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005Net sales
    
    $
    56,732
    
    
    $
    54,990Cost of goods sold
    
    
    45,663
    
    
    
    43,699Gross profit
    
    
    11,069
    
    
    
    11,291Operating expenses:Selling, general and administrative
    
    
    7,005
    
    
    
    7,137Income from operations
    
    
    4,064
    
    
    
    4,154Other income (expense):Interest expense
    
    
    (5,694
    )
    
    
    (5,536
    )Interest income
    
    
    145
    
    
    
    43Other, net
    
    
    (37
    )
    
    
    70Loss before provision for income taxes
    
    
    (1,522
    )
    
    
    (1,269
    )Provision for income taxes
    
    
    562
    
    
    
    258Net loss
    
    $
    (2,084
    )
    
    $
    (1,527
    )
  4




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AMTROL INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Shareholders Equity (Deficit)
 (Unaudited  in thousands)
 Quarter Ended April 1, 2006
 Accumulated OtherAdditional Paid-
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ComprehensiveCommon Stock
    
    
    in Capital
    
    
    Deficit
    
    
    Income
    
    
    Income/(Loss)Balance, December 31, 2005
    
    $
    
    
    
    $
    99,273
    
    
    $
    (107,529
    )
    
    $
    3,314
    
    
    $
    Net loss
    
    
    
    
    
    
    
    
    
    
    (2,084
    )
    
    
    
    
    
    
    (2,084
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    494
    
    
    
    494Balance, April 1, 2006
    
    $
    
    
    
    $
    99,273
    
    
    $
    (109,613
    )
    
    $
    3,808
    
    
    $
    (1,590
    )
 Quarter Ended April 2, 2005
 Accumulated OtherAdditional Paid-
    
    
    Accumulated
    
    
    Comprehensive
    
    
    ComprehensiveCommon Stock
    
    
    in Capital
    
    
    Deficit
    
    
    Income/(Loss)
    
    
    IncomeBalance, December 31, 2004
    
    $
    
    
    
    $
    99,273
    
    
    $
    (105,339
    )
    
    $
    5,846
    
    
    $
    Net loss
    
    
    
    
    
    
    
    
    
    
    (1,527
    )
    
    
    
    
    
    
    (1,527
    )Currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (970
    )
    
    
    (970
    )Balance, April 2, 2005
    
    $
    
    
    
    $
    99,273
    
    
    $
    (106,866
    )
    
    $
    4,876
    
    
    $
    (2,497
    )
  5




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AMTROL INC. AND SUBSIDIARIES
 
 Condensed Consolidated Statements of Cash Flows
 (Unaudited  in thousands)
 Quarter EndedApril 1,
    
    
    April 2,2006
    
    
    2005Cash Flows Provided by (Used in) Operating Activities:Net loss
    
    $
    (2,084
    )
    
    $
    (1,527
    )Adjustments to reconcile net loss to net cashDepreciation and amortization
    
    
    2,215
    
    
    
    1,953Provision for losses on accounts receivable
    
    
    17
    
    
    
    17Deferred interest
    
    
    1,780
    
    
    
    1,594Changes in operating assets and liabilities
    
    
    786
    
    
    
    (6,834
    )Net cash provided by (used in) operating activities
    
    
    2,714
    
    
    
    (4,797
    )Cash Flows Used in Investing Activities:Capital expenditures
    
    
    (1,029
    )
    
    
    (1,629
    )Net cash used in investing activities
    
    
    (1,029
    )
    
    
    (1,629
    )Cash Flows Provided by (Used in) Financing Activities:Repayment of debt
    
    
    (20,963
    )
    
    
    (37,702
    )Issuance of debt
    
    
    21,132
    
    
    
    38,084Net cash provided by financing activities
    
    
    169
    
    
    
    382Net increase (decrease) in cash and cash equivalents
    
    
    1,854
    
    
    
    (6,044
    )Effect of exchange rate changes on cash and cash
equivalents
    
    
    15
    
    
    
    (175
    )Cash and cash equivalents, beginning of period
    
    
    7,470
    
    
    
    12,378Cash and cash equivalents, end of period
    
    $
    9,339
    
    
    $
    6,159
  6




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AMTROL INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 1. Basis of Presentation
       7




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##### Table of Contents



2. Use of Estimates
  3. Significant Accounting Policies
 Revenue Recognition and Related Costs
  Accounting for Points and Certain Other Time-Based or Volume-Based
Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future
 Cash and Cash Equivalents
  Allowance for Doubtful Accounts
  8




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Concentration of Credit Risk
   Depreciable Property and Equipment
  Building and improvements
    
    10-40 yearsMachinery and equipment
    
    3-12 yearsFurniture and fixtures
    
    5-20 yearsOther
    
    3-10 years
 Inventories
  Warranty
  9




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##### Table of Contents



Three Months Ended
    
    
    Year EndedApril 1,
    
    
    December 31,(in thousands)
    
    2006
    
    
    2005Balance, beginning of period
    
    $
    3,729
    
    
    $
    3,662Warranties issued during the period
    
    
    787
    
    
    
    2,182Claims during the period
    
    
    (781
    )
    
    
    (2,392
    )Change in estimate
    
    
    
    
    
    
    277Balance, end of period
    
    $
    3,735
    
    
    $
    3,729
 Goodwill and Long-Lived Assets
 Goodwill and Other Intangible Assets,
   Accounting for the Impairment or Disposal of Long-Lived Assets
 10




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Deferred Financing Costs
  Foreign Currency Translation
   Recent Accounting Pronouncements
 Accounting Changes and Error Corrections Accounting Changes Reporting
Accounting Changes in Interim Financial Statements
 11




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4. Long-Term Debt
 Revolving Credit and Term Loans
      12




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Senior Subordinated Notes
   5. Inventories
  April 1,
    
    
    December 31,2006
    
    
    2005Raw materials and work in process
    
    $
    15,304
    
    
    $
    15,511Finished goods
    
    
    12,422
    
    
    
    9,384$
    27,726
    
    
    $
    24,895
 6. Provision for Income Taxes
   7. Business Segment Information
   13




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14




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April 1,
    
    
    April 2,2006
    
    
    2005Net Sales to external customersNorth AmericaUSWater technologies
    
    $
    23,563
    
    
    $
    23,997Cylinders
    
    
    6,672
    
    
    
    7,134OtherWater technologies
    
    
    2,088
    
    
    
    2,042EuropePortugalCylinders
    
    
    24,006
    
    
    
    21,476OtherCylinders
    
    
    403
    
    
    
    341Consolidated
    
    $
    56,732
    
    
    $
    54,990Income from operationsNorth America
    
    $
    1,647
    
    
    $
    2,473Europe
    
    
    2,417
    
    
    
    1,681Consolidated
    
    $
    4,064
    
    
    $
    4,154EBITDANorth America
    
    $
    2,628
    
    
    $
    3,506Europe
    
    
    3,510
    
    
    
    2,464Consolidated
    
    $
    6,138
    
    
    $
    5,970
 April 1,
    
    
    December 31,2006
    
    
    2005Long-Lived assetsNorth AmericaUS
    
    $
    113,019
    
    
    $
    113,430Other
    
    
    11
    
    
    
    11EuropePortugal
    
    
    33,282
    
    
    
    33,569Other
    
    
    1,511
    
    
    
    1,580Consolidated
    
    $
    147,823
    
    
    $
    148,590
 15




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April 1,
    
    
    April 2,(in thousands)
    
    2006
    
    
    2005Net loss
    
    $
    (2,084
    )
    
    $
    (1,527
    )Interest expense
    
    
    5,694
    
    
    
    5,536Depreciation (a)
    
    
    1,966
    
    
    
    1,703Income taxes
    
    
    562
    
    
    
    258EBITDA
    
    $
    6,138
    
    
    $
    5,970
 
 (a)
    
    Statement of Cash flows denotes $2,215 and $1,953 for the above periods presented.
These amounts include deferred financing costs which are presented as part of interest expense
on the Companys Condensed Consolidated Statement of Operations. 8. Commitments and Contingencies
     
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  16




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Overview
   Forward Looking Statements
    17




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Results of Operations
 Three Months Ended April 1, 2006 Compared to Three Months Ended April 2, 2005.
 Consolidated Operations
  April 1, 2006
    
    
    April 2, 2005% of Net
    
    
    
    
    
    
    
    
    
    
    % of NetIn millions of dollars
    
    Actual
    
    
    Sales
    
    
    % Change
    
    
    Actual
    
    
    SalesNet sales
    
    $
    56.7
    
    
    
    100.0
    %
    
    
    3.1
    %
    
    $
    55.0
    
    
    
    100.0
    %Cost of goods sold
    
    
    45.6
    
    
    
    80.5
    %
    
    
    4.3
    %
    
    
    43.7
    
    
    
    79.5
    %Gross profit
    
    
    11.1
    
    
    
    19.5
    %
    
    
    -1.8
    %
    
    
    11.3
    
    
    
    20.5
    %Selling, general
and administrative
expenses
    
    
    7.0
    
    
    
    12.4
    %
    
    
    -1.3
    %
    
    
    7.1
    
    
    
    12.9
    %Income from
operations
    
    
    4.1
    
    
    
    7.2
    %
    
    
    -2.5
    %
    
    
    4.2
    
    
    
    7.7
    %Other income
(expense), netInterest expense,
net
    
    
    (5.6
    )
    
    
    -9.8
    %
    
    
    0.9
    %
    
    
    (5.5
    )
    
    
    -10.0
    %Other, net
    
    
    
    
    
    
    0.2
    %
    
    
    100.0
    %
    
    
    0.1
    
    
    
    0.2
    %Loss before
provision for
income taxes
    
    
    (1.5
    )
    
    
    -2.4
    %
    
    
    21.2
    %
    
    
    (1.2
    )
    
    
    -2.2
    %Provision for
income taxes
    
    
    0.6
    
    
    
    1.1
    %
    
    
    116.0
    %
    
    
    0.3
    
    
    
    0.5
    %Net loss
    
    $
    (2.1
    )
    
    
    -3.7
    %
    
    
    -40.2
    %
    
    $
    (1.5
    )
    
    
    -2.7
    %
 Net Sales .
 Gross Profit .
 Selling, General and Administrative Expenses .
 Interest Expense.
 Other Income (Expense), Net .
 Income Taxes.
 18




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Net Loss .
 Segment Operations
 North America
  April 1, 2006
    
    
    April 2, 2005% of Net
    
    
    
    
    
    
    % of NetIn millions
    
    Actual
    
    
    Sales
    
    
    % Change
    
    
    Actual
    
    
    SalesNet sales
    
    $
    32.3
    
    
    
    100.0
    %
    
    
    -2.7
    %
    
    $
    33.2
    
    
    
    100.0
    %Cost of goods sold
    
    
    25.1
    
    
    
    77.7
    %
    
    
    0.4
    %
    
    
    25.0
    
    
    
    75.3
    %Gross profit
    
    
    7.2
    
    
    
    22.3
    %
    
    
    -12.2
    %
    
    
    8.2
    
    
    
    24.7
    %Selling, general and
administrative
expenses
    
    
    5.6
    
    
    
    17.3
    %
    
    
    -1.8
    %
    
    
    5.7
    
    
    
    17.2
    %Income from operations
    
    $
    1.6
    
    
    
    5.0
    %
    
    
    -36.0
    %
    
    $
    2.5
    
    
    
    7.5
    %Units shipped
    
    
    1.38
    
    
    
    
    
    
    
    
    
    
    
    1.29
  Europe
  April 1, 2006
    
    
    April 2, 2005% of Net
    
    
    
    
    
    
    
    
    
    
    % of NetIn millions
    
    Actual
    
    
    Sales
    
    
    % Change
    
    
    Actual
    
    
    SalesNet sales
    
    $
    24.4
    
    
    
    100.0
    %
    
    
    11.7
    %
    
    $
    21.8
    
    
    
    100.0
    %Cost of goods sold
    
    
    20.5
    
    
    
    84.0
    %
    
    
    9.4
    %
    
    
    18.7
    
    
    
    85.8
    %Gross profit
    
    
    3.9
    
    
    
    16.0
    %
    
    
    25.5
    %
    
    
    3.1
    
    
    
    14.2
    %Selling, general and
administrative
expenses
    
    
    1.4
    
    
    
    5.9
    %
    
    
    3.0
    %
    
    
    1.4
    
    
    
    6.4
    %Income from operations
    
    $
    2.5
    
    
    
    10.1
    %
    
    
    49.9
    %
    
    $
    1.7
    
    
    
    7.8
    %Units shipped
    
    
    1.08
    
    
    
    
    
    
    
    
    
    
    
    1.00
  19




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Liquidity and Capital Resources
         20




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21




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Inflation
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls
  22




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AMTROL INC. AND SUBSIDIARIES
 
 PART II
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity 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
 31.1
    
    Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.31.2
    
    Certification of Chief Financial Officer
pursuant to Rule 13a-14 (a) under the Securities Exchange Act of 1934.32.1
    
    Certification of Chief Executive Officer
pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer
pursuant to 18 U.S.C., Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
 23




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AMTROL INC. AND SUBSIDIARIES
 
 SIGNATURES
  AMTROL INC.Date: May 15, 2006
    By:
    /s/ JOSEPH L. DEPAULAJoseph L. DePaula,Executive Vice President,
Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and

Accounting Officer) 24