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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT
For the Transition period from ___________ to ____________
COMMISSION FILE NUMBER 0-20328
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AMTROL INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RHODE ISLAND 05-0246955
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1400 DIVISION ROAD, WEST WARWICK, RI 02893
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (401) 884-6300
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act: NONE
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
State the aggregate market value of the Registrant's voting and non-voting
common equity held by non-affiliates as of April 2, 2001: $0
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: $0.01 Par Value: 100 shares
outstanding as of April 2, 2001.
Documents Incorporated by Reference: NONE
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TABLE OF CONTENTS
PART I PAGE
Item 1 - Business
Background 3
Operations 3
Products and Markets 4
Distribution and Marketing 7
Manufacturing, Raw Materials and Suppliers 7
Seasonality and Backlog 9
Patents, Trademarks and Licenses 9
Competition 9
Employees 9
Environmental Matters 9
Item 2 - Properties 10
Item 3 - Legal Proceedings 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 - Market for Registrant's Common Equity and Related
Stockholder Matters 11
Item 6 - Selected Financial Data 12
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7A - Quantitative and Qualitative Disclosures of Market Risk 18
Item 8 - Financial Statements and Supplementary Data 19
Item 9 - Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10 - Directors and Executive Officers of the Registrant 20
Item 11 - Executive Compensation 22
Item 12 - Security Ownership of Certain Beneficial Owners and
Management 24
Item 13 - Certain Relationships and Related Transactions 25
PART IV
Item 14 - Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 26
Report of Independent Public Accountants 27
Item 14 (a)(2) Schedule II - Valuation and Qualifying Accounts and
Reserves 45
Signatures 46
Exhibit Index 47
Subsidiaries of Registrant 49
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PART I
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ITEM 1. BUSINESS
BACKGROUND
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AMTROL Inc., together with its subsidiaries ("AMTROL" or the "Company"), is
a leading international designer, manufacturer and marketer of expansion
and pressure control products used in the water systems markets and
selected sectors of the HVAC market. The Company's principal products
include well water accumulators, hot water expansion controls, water
treatment products, indirect-fired water heaters, and returnable and
non-returnable pressure-rated cylinders used primarily to store, transport
and dispense refrigerant, heating and cooking gases. Many of these products
are based on a technology originated and developed by the Company,
involving a pre-pressurized vessel with an internal diaphragm to handle
fluids under pressure.
The Company was incorporated in Rhode Island in 1973, and is the successor
of a predecessor Rhode Island corporation which was incorporated in 1946.
On November 12, 1996, as a result of a merger agreement with AMTROL
Holdings Inc. and its wholly owned subsidiary AMTROL Acquisition Inc. (the
"Merger"), the Company became a wholly-owned subsidiary of AMTROL Holdings
Inc., a Delaware corporation controlled by The Cypress Group L.L.C.
("Cypress"). The Company's principal executive offices are located at 1400
Division Road, West Warwick, Rhode Island 02893 (telephone number: (401)
884-6300).
OPERATIONS
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The Company is a leading North American manufacturer of its principal
products and a prominent participant in certain European, Middle Eastern
and Asian cylinder markets. The Company's market prominence is attributable
to the strength of its brand names, product breadth, quality and
innovation, as well as its marketing, distribution and manufacturing
expertise. In addition, the Company's principal markets are highly
replacement oriented, with more than 50% of the Company's core business
coming from replacement sales. However, sales can be affected by extreme
weather conditions, as well as significant changes in economic
circumstances.
One of the Company's strengths is its brand names, which are among the most
widely recognized in its markets. For example, the Company's EXTROL(R)
brand is widely recognized by customers as the leading hot water expansion
control tank. Other well-known brand names of the Company include
Well-X-Trol(R), Therm-X-Trol(R), Hot Water Maker(R), CHAMPION(R) and Water
Worker(R). The Company also believes that it is a recognized technology
leader in virtually all of its core product lines. In fact, many of the
Company's major product lines are considered the industry benchmark, a key
strategic marketing advantage.
During its 55-year history, the Company has established a strong
partnership with wholesalers, resulting in a broad distribution network
serving approximately 2,000
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customers throughout North America. The Company's strong brand recognition
and reputation for quality ensure that nearly every significant plumbing,
pump specialty and HVAC wholesaler carries at least one line of its
products. This facilitates new product introduction, effectively "pulling"
the Company's new products through its distribution system. The Company
also offers a broad range of products, which allows the Company's customers
to consolidate their suppliers and to purchase and manage inventory more
efficiently. These factors have established the Company's products as
preferred brands and allow the Company to realize premium pricing on most
of its premium branded products. In addition, the Company continues to
increase its sales to the rapidly growing retail channel of distribution,
primarily through private label arrangements.
AMTROL ALFA Metalomecanica, S.A. ("AMTROL ALFA"), located in Guimaraes,
Portugal, is Europe's largest manufacturer of reusable steel gas cylinders
and supplies Europe, the Middle East and Africa, as well as the Far East,
with cylinders used principally for the storage of cooking and heating
gases. AMTROL ALFA also produces non-returnable gas cylinders supplied to
European and Asian customers which are used principally for the storage of
refrigerant gases. AMTROL ALFA provides the Company with the potential for
a low-cost international manufacturing base for all of the Company's
container products and is an important source of supply for the Company's
international customers.
AMTROL NOVA GmbH & Co. K.G. ("AMTROL NOVA"), located in Donaueschingen,
Germany, manufactures high-end residential and commercial water heaters
which are marketed primarily in Germany, Switzerland and Austria.
AMTROL Poland Sp z.o.o. ("AMTROL Poland"), located in Swarzedz, Poland
refurbishes returnable gas cylinders primarily for the Polish market.
AMTROL Poland also provides AMTROL with a favorable manufacturing cost
structure and proximity to gas cylinder markets in eastern Europe.
Net sales in geographic regions outside of the United States and Canada,
primarily Western Europe, Mexico and Asia, accounted for 35.8%, 39.7% and
38.3% of the Company's total net sales in fiscal years 1998, 1999 and 2000
respectively. The significant increase in foreign sales after 1996 was
driven largely by the 1997 acquisition of AMTROL ALFA, the 1998 acquisition
of AMTROL NOVA and the formation of AMTROL Poland in 1999.
The Company continues to review potential acquisitions that represent good
strategic fits with the Company's lines of business.
PRODUCTS AND MARKETS
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HVAC PRODUCTS
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The Company's sales to selected sectors of the HVAC market include products
such as expansion accumulators, water heaters and pressure-rated cylinders
for heating and
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refrigerant gases. The Company's residential HVAC products include
expansion vessels for heated water, potable water heaters and other
accessories used in residential HVAC systems. The Company's commercial HVAC
products are substantially identical in function to those used in
residential applications, but may be modified for design codes and the
higher operating pressures of larger systems. The Company's pressure-rated
cylinders for refrigerant gases are used mainly in the storage,
transportation and dispensing of gases used principally in air conditioning
and refrigeration systems. In addition, the AMTROL-ALFA facility produces
returnable pressure-rated cylinders for storing gas used in residential and
commercial heating and cooking applications.
EXTROLs(R). The EXTROL(R) expansion accumulators, the first of the
Company's products for handling fluid under pressure, redefined the
standards for controlling the expansion of water in hydronic heating
systems. Earlier systems consisted simply of a vessel containing air,
resulting in excessive pressure and corrosion. The Company developed a
technology which uses a flexible diaphragm inside a pre-pressurized vessel
to maintain the separation of air and water in the vessel, and has applied
this technology in other HVAC products and water systems products. This
technology controls pressure in the heating system and minimizes problems
related to hot water expansion by allowing the volume of water to increase
as the temperature of the water increases within a closed system, thereby
substantially reducing operating problems.
THERM-X-TROLs(R). Therm-X-Trols(R) accumulate expanded hot water from
potable water heaters that cannot flow back into the public water supply
when backflow prevention devices are present. In response to the Clean
Water Act of 1984, certain jurisdictions established local codes to require
owners of commercial and residential buildings to install backflow
prevention devices in order to prevent the contamination of the public
water supply. Local codes adopted by organizations that set standards for
most of the United States also require a separate device to handle the
expanded water prevented from flowing back into the public water supply.
The principal alternatives are relief valves, which permit water to drain
inside the building, and thermal expansion accumulators, such as the
Therm-X-Trol(R), which capture the water. Therm-X-Trol(R) satisfies these
code requirements, as well as the codes of certain localities that
specifically require a thermal expansion accumulator. Additionally, certain
domestic water heater manufacturers specify that their warranties are void
if thermal expansion accumulators are not used in conjunction with their
products where backflow prevention devices are installed.
INDIRECT-FIRED WATER HEATERS. In response to market demands for both an
abundant supply of hot water and energy conservation, the Company has
introduced a line of indirect-fired residential and commercial water
heaters, which it manufactures and distributes under the brand name Boiler
Mate(TM). Used in conjunction with a new or existing boiler installed to
heat living and work areas, these water heaters offer an alternative to
conventional gas and electric potable water heaters and tankless coils. Hot
water is generated through the use of heat exchangers and circulators which
circulate heated water from the boiler through a coil in the core of the
water heater's reservoir. The Boiler Mate Classic Series(TM), available in
26 and 41 gallon models, is sold primarily for residential applications.
The Boiler Mate Premier Series(TM), a line of stainless steel models,
offers sizes ranging from 60 to 120 gallons for light commercial
applications and residential customers who require large amounts of hot
water and rapid recovery time.
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PRESSURE-RATED CYLINDERS. The AMTROL ALFA subsidiary produces and
distributes reusable liquid propane gas ("LPG") cylinders and reusable and
non-returnable refrigerant cylinders. AMTROL ALFA is the largest producer
of reusable steel gas cylinders in Europe. Reusable LPG cylinders are
typically purchased by major gas companies or their distributors who fill
the cylinders for customers who use the gas for heating and cooking in
residential and commercial applications. In 1998, the Company transferred
to AMTROL ALFA a non-returnable cylinder production line previously located
in Singapore and began supplying its European and Asian non-returnable gas
cylinder customers from AMTROL ALFA. The Company is one of the world's two
largest manufacturers of non-returnable pressure-rated cylinders used in
the storage, transport and dispensing of refrigerant gases for air
conditioning and refrigeration systems.
In 1999, the Company established AMTROL Poland which refurbishes returnable
gas cylinders principally for the Polish market. The Company believes this
market offers many substantial growth opportunities for its products. In
addition, through the establishment of a cylinder manufacturing platform in
Poland, the Company anticipates supporting opportunities that exist in
Eastern Europe.
WATER SYSTEMS PRODUCTS
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The Company's sales of its water systems products consist primarily of
water accumulators for residential and commercial well water systems and
products for residential water softening and purification.
WELL WATER SYSTEMS. The Company produces and sells well water accumulators
for both residential and commercial applications under the brand names
Well-X-Trol Professional(R) and CHAMPION(R), as well as under several
other brands and private label programs. Virtually all of the water
accumulators sold by the Company incorporate an internally mounted rubber
diaphragm that seals an air charge and allows pressure to increase as water
fills the plastic-lined vessel. This design serves to control pressure
while maintaining the separation of air and water in the vessel, thereby
eliminating water logging (absorption of air into water) as well as
reducing wear on switches, pump motors and other system components caused
by more frequent on/off cycling. A typical well water system consists of a
submersible or jet pump located in the well that pumps water to an AMTROL
well water accumulator.
The well water accumulator is connected to the plumbing system in order to
provide water on demand within a specific range of pressure as controlled
by a pressure switch. As the water level and pressure in the vessel
decreases, the diaphragm relaxes and the pressure switch causes the pump to
cycle on until a certain pressure is achieved in the system.
WATER TREATMENT/FILTRATION PRODUCTS. The Company offers a range of products
to meet increasing global demand for improved water quality and water
pressure. The Company manufactures and markets water softeners under the
Water Soft(TM) brand. Other products such as reverse osmosis accumulators
and related systems distributed by the Company can improve the quality of
both municipal-supplied water and well water. The Company also manufactures
and markets products under the brand name AMTROL Pressuriser(R) that boosts
water pressure where available pressure is not adequate.
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DISTRIBUTION AND MARKETING
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The Company's principal channel of distribution is plumbing, heating and
pump specialty wholesalers. The Company maintains its presence in the
United States and Canadian wholesale markets through a network of
approximately 45 independent manufacturer's representatives arranging sales
on a commission basis, as well as approximately eight salaried direct sales
professionals. To service its customers with greater efficiency, the
Company has streamlined its representative network and, through
consolidation of multiple lines of business, has brought a broader range of
products to its wholesalers. The Company also provides certain of its
products to the rapidly growing retail channel through a separate sales
force.
At its Education Center, which is an integral part of the Company's
marketing organization, and at Company-sponsored seminars throughout the
United States and selected international locations, the Company provides
education and training to wholesalers, contractors and engineers,
independent sales representatives and their employees to assist them in
understanding the technical aspects of their respective customers'
requirements and the Company's product lines. By educating contractors and
engineers about the benefits of the Company's products, the Company's
products are more effectively "pulled" through its distribution system.
Non-returnable refrigerant pressure-rated cylinders are sold to major
chemical companies, which produce and package refrigerant gases, and to
independent contractors that purchase bulk refrigerants and fill the
cylinders. The Company's major customers for reusable refrigerant gas
cylinders are wholesale distributors who sell the products to service
providers and refrigerant recovery equipment manufacturers. AMTROL ALFA's
major customers for reusable LPG cylinders are major European gas companies
or their distributors.
With the exception of one cylinder customer to whom sales were
approximately 6.1% of total net sales, no individual customer represented
more than five percent of the Company's net sales in 2000.
MANUFACTURING, RAW MATERIALS AND SUPPLIERS
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The Company manufactures its water system and HVAC products primarily at
its own facilities. Many of its products depend on the Company's expertise
in pressure vessel construction. The Company takes advantage of the
material economies and precision inherent in deep-draw stamping technology
to manufacture products of superior performance and life.
The Company has significantly reduced its manufacturing cost base in recent
years by closing less-efficient plants or plants with redundant, excess
capacity. Production at the closed facilities has been transferred to other
existing production plants, which has lowered the Company's total cost
structure and increased the absorption of fixed manufacturing overhead
through higher production volume at the remaining plants.
The Company's production system is based on proven world-class
manufacturing practices, and all components of this platform receive
continuous updating and review for effectiveness. Principal building blocks
of the Company's production system include a
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visual factory philosophy, waste elimination through the Kaizen process
improvement methodology, a formal corrective action response system,
mistake-proofing and automatic source inspection, formal variation
reduction processes, total preventive maintenance and the promotion of
one-piece flow. Increasing proficiency in these manufacturing practices by
the organization produced dramatic results in both 1998 and 1999.
In 2000, the Company continued to refine and strengthen the manufacturing
platform established two years previously. The Company, through the
addition of personnel devoted to continuous improvement in manufacturing
practices, intensified training and implementation of the Kaizen
methodology in order to garner the maximum amount of efficiencies inherent
in one-piece flow and waste elimination. Several capital equipment upgrades
took place in the Water Systems product line that improved yield and
reduced dependency on overtime.
The Company continues to gain proficiency in supply chain management due to
a significant Enterprise Resource Planning ("ERP") investment made in 1999
and 2000. As a result, lead times were dramatically reduced in 2000 to an
average of five working days from 10 working days in 1997. It is
anticipated that sustained improvement in this area will strengthen the
Company's competitive advantage and minimize working capital requirements.
The Company's three principal North American manufacturing facilities and
its AMTROL ALFA Portugal facility have achieved ISO 9001 Certification, the
most complete certification in the ISO 9000 Series from the International
Organization for Standardization ("ISO"). ISO certification requires
periodic audits of the Company's systems for product design, development,
production, installation and servicing, and has become the international
standard of quality required for manufacturers serving the European
Economic Community, Southeast Asia, the Middle East and Latin America.
Raw material suppliers generally offer commodities used by the Company,
such as steel, synthetic rubber, corrugated paper and plastic resins, to
all manufacturers on substantially similar terms. Manufacturers of
component parts also generally offer their products to others on
substantially similar terms. Although certain components are only available
from a limited number of manufacturers, the Company anticipates that it
will be able to purchase all of the components it requires without
disruption. The Company believes that its relationships with its suppliers
are good.
Most raw material prices in North America were flat or declining in 2000.
It is anticipated that certain of these trends will continue in 2001 due to
efforts to expand a qualified supply base and to optimize material savings
through improved product designs. However, in 2000, the Company did
experience an increase in corrugated cardboard and energy costs in North
America. In Europe, the Company experienced a significant increase in steel
prices due to supply reductions and price increases in the European
marketplace.
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SEASONALITY AND BACKLOG
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Although the Company's sales fluctuate with general economic activity, the
effect of significant economic volatility is mitigated by the fact that
many of the Company's markets are highly replacement oriented. While sales
of certain of its products are seasonal in nature, the Company's overall
business is not highly seasonal. Due to the generally short lead time of
its orders, the Company historically has not carried any material backlog.
PATENTS, TRADEMARKS AND LICENSES
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While the Company owns a number of patents, the Company believes that its
position in its markets depends primarily on factors such as manufacturing
expertise, technological leadership, superior service and quality and
strong brand name recognition, rather than on patent protection. The
Company believes that foreign and domestic competitors have been unable to
match the quality of the Company's branded products.
The Company also holds a number of registered and unregistered trademarks
for its products. The Company believes the following registered trademarks,
which appear on its products and are widely recognized in its markets, are
among those of strategic importance to its business: Well-X-Trol(R),
Therm-X-Trol(R), EXTROL(R), Hot Water Maker(R), Boiler Mate(TM),
CHAMPION(R) and Water Worker(R).
COMPETITION
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The Company is experiencing increasing competition from a number of
competitors in each of its markets. The principal means of competition in
the water systems products and HVAC markets are technology, quality,
service and price. AMTROL competes primarily on the basis of technology,
quality, service and product line breadth, as well as price.
EMPLOYEES
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As of December 31, 2000, the Company had 665 employees in the United
States, none of whom were represented by collective bargaining units. In
addition, the Company had 1,049 employees in its international operations.
Some of the Company's international employees are represented by unions.
The Company considers relations with its employees to be good.
ENVIRONMENTAL MATTERS
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Some of the Company's operations generate waste materials that may give
rise to liability under environmental laws. Some risk of environmental and
other damage is inherent in these operations, and in the past, certain of
the Company's operations have been named parties in private actions
associated with hazardous waste. Based upon the Company's experience in
matters that have been resolved and the amount of hazardous waste shipped
to off-site disposal facilities by the Company, the Company believes that
any share of costs attributable to it will not be material. However, there
can be no assurance that any liability arising from, for example,
contamination at facilities the Company owns or operates or formerly owned
or operated (or an entity or business the Company has
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acquired or disposed of), or locations at which waste or contaminants
generated by the Company have been deposited (or deposit by an entity or
business the Company has acquired or disposed of), will not arise or be
asserted against the Company or entities for which the Company may be
responsible in a manner that could materially and adversely affect the
Company.
The Company monitors and reviews its procedures and policies for compliance
with environmental laws. Based upon the Company's experience to date, the
Company operates in substantial compliance with environmental laws, and the
cost of compliance with existing regulations is not expected to have a
materially adverse effect on the Company's results of operations, financial
condition or competitive position. However, future events, such as changes
in existing laws and regulations or enforcement policies, may give rise to
additional compliance costs which could have a materially adverse effect on
the Company's results of operations, financial condition or competitive
position.
ITEM 2. PROPERTIES
The following table sets forth information regarding the Company's principal
properties each of which is owned by the Company unless otherwise indicated:
LOCATION SQUARE FOOTAGE PRINCIPAL USE
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(approximate)
West Warwick, RI 270,000 Corporate Headquarters, Manufacturing,
Education Center
Guimaraes, Portugal 196,000 Manufacturing
North Kingstown, RI (a) 206,000 Distribution Center
Donaueschingen, Germany 70,000 Manufacturing and Distribution
Paducah, KY 46,300 Manufacturing
Mansfield, OH (a) 45,000 Manufacturing and Distribution Center
Baltimore, MD 37,000 Manufacturing
Swarzedz, Poland (a) 29,000 Manufacturing
Kitchener, Ontario(a) 18,400 Sales Office and Distribution
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TOTAL 917,700
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(a) Leased facilities
The Company believes that its properties and equipment generally are well
maintained, in good operating condition and adequate for its present needs. The
Company regularly evaluates its manufacturing requirements and believes that it
has sufficient capacity to meet its current and anticipated future needs. The
inability to renew any short-term real property lease would not have a
materially adverse effect on the Company's results of operations, financial
condition or competitive position.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is named as a defendant in legal actions.
These include commercial disputes, agency proceedings and product
liability and other claims. However, management believes, after review
of insurance coverage and consultation with legal counsel, that the
ultimate resolution of the pending legal actions to which it is or can
be, at the present time, reasonably expected to be a party, will not
have a material adverse effect on the Company's results of operations or
financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All of the common stock of the Company is owned by AMTROL Holdings Inc.
("Holdings") therefore, no trading market exists for such stock.
Similarly, all of the common stock of Holdings is held by affiliates of
Cypress and certain officers, directors and employees of the Company,
with no trading market for such stock. For more information, see Item
12, "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT".
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below for and as of each of
the years and periods in the five-calendar-year period ended December 31, 2000
have been derived from the Consolidated Financial Statements of the Company,
including the related notes thereto, which have been audited by Arthur Andersen
LLP, independent certified public accountants. The selected consolidated balance
sheet data for November 12, 1996 has been derived from unaudited consolidated
financial statements of the Company which, in the opinion of management,
represent all adjustments (consisting only of normal recurring items) necessary
for a fair and consistent presentation of such data. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and with the Consolidated
Financial Statements of the Company, including the related notes thereto,
appearing elsewhere in this Form 10-K.
PREDECESSOR
COMPANY SUCCESSOR COMPANY
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PERIOD PERIOD
ENDED ENDED YEAR ENDED DECEMBER 31,
NOVEMBER DECEMBER -----------------------------------------------
12, 1996 31, 1996(b) 1997 1998 1999 2000
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(IN THOUSANDS)
Statement of Operations Data:
Net sales $ 160,481 $ 19,888 $ 186,422 $ 212,890 $ 222,053 $ 197,472
Cost of goods sold 118,870 18,069 141,170 169,355 164,617 151,483
Provision for abnormal warranty costs -- -- -- 4,500 -- --
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Total cost of goods sold 118,870 18,069 141,170 173,855 164,617 151,483
Gross profit 41,611 1,819 45,252 39,035 57,436 45,989
Selling, general and
administrative expenses 25,796 3,508 25,723 27,827 28,492 25,821
Plant closing and reorganization costs -- -- 5,500 4,450 -- --
Management restructuring -- -- -- 3,693 -- --
Amortization of goodwill -- 313 3,995 4,446 4,463 4,463
Other operating expenses -- 1,000 -- -- -- --
---------- ----------- ----------- ----------- ---------- -----------
Income (loss) from operations 15,815 (3,002) 10,034 (1,381) 24,481 15,705
Interest (expense) income, net 53 (2,224) (18,256) (20,344) (19,083) (19,070)
License and distributorship fees 181 25 245 242 234 210
Other income (expense), net (175) (99) 299 1,384 353 1,713
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Income (loss) before provision
(benefit) for income taxes 15,874 (5,300) (7,678) (20,099) 5,985 (1,442)
Provision (benefit) for income taxes 6,152 (1,956) (30) (6,728) 4,125 2,704
---------- ----------- ----------- ----------- ---------- -----------
Net income (loss) $ 9,722 $ (3,344) $ (7,648) $ (13,371) $ 1,860 $ (4,146)
========== =========== =========== =========== ========== ===========
Other Data:
Depreciation and amortization $ 4,586 $ 598 $ 11,541 $ 13,147 $ 14,003 $ 14,005
Capital expenditures 9,260 1,662 8,489 9,858 5,798 8,375
EBITDA (a) 20,582 (2,379) 26,887 12,454 38,346 29,963
Balance Sheet Data (at period end):
Working capital $ 41,778 $ 33,346 $ 22,675 $ 6,642 $ 9,001 $ 5,101
Total assets 96,280 253,828 291,945 300,667 281,745 271,104
Long-term debt, less current maturities -- 159,175 184,164 173,023 163,385 159,469
Shareholders' equity 75,783 65,982 58,049 65,948 65,303 59,872
(a) EBITDA represents income (loss) from operations before plant closing
charges, depreciation and amortization and license and distributorship fees.
EBITDA is frequently considered by readers of financial statements and therefore
the Company believes that inclusion of EBITDA is useful supplemental information
by generally accepted profitability measures. EBITDA may be understood as one
measure of a company's ability to generate resources to grow. EBITDA is used to
determine compliance with certain covenants of the Company's Bank Credit
Agreement. However, EBITDA is not a measure of true cash flow since it does not
incorporate changes of other assets and liabilities that may generate or require
cash. EBITDA is not a generally accepted accounting measure.
(b) Adjusted to reflect a change in the method of determining inventory cost
from the LIFO method to the FIFO method.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion in this section should be read in conjunction with the
Consolidated Financial Statements of the Company included elsewhere herein.
The Company and its subsidiaries and their representatives may from time to
time make written or oral statements, including statements contained in
AMTROL's filings with the Securities and Exchange Commission (SEC) and in
its reporting to customers, which constitute or contain "forward-looking"
statements as that term is defined in the Private Securities Litigation
Reform Act of 1995 or the SEC in its rules, regulations and releases.
All statements other than statements of historical facts included in this
Form 10-K regarding 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 these forward-looking statements. 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 and
building and energy efficiency requirements; 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
claims; whether the Company succeeds in acquiring new businesses;
availability of capital; the business abilities and judgment of personnel;
and general economic, financial and business conditions, both domestically
and internationally.
RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
statement of operations:
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14
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1999 2000
----------- ---------- ----------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 81.7 74.1 76.7
----- ----- -----
Gross profit 18.3 25.9 23.3
Selling, general and administrative expenses 13.1 12.9 13.1
Plant closing and reorganization costs 2.1 -- --
Management restructuring 1.7 -- --
Amortization of goodwill 2.0 2.0 2.2
----- ----- -----
Income (loss) from operations (0.6) 11.0 8.0
Interest expense (9.6) (8.6) (9.7)
Other income, net 0.8 0.3 1.0
----- ----- -----
Income (loss) before provision (benefit)
for income taxes (9.4) 2.7 (0.7)
Provision (benefit) for income taxes (3.1) 1.9 1.4
----- ----- -----
Net income (loss) (6.3) 0.8 (2.1)
===== ===== =====
The comparability of results for the above years is impacted by certain
acquisitions and disposals, plant closings, restructuring and
reorganization, and commencement of new operations. Where possible, the
impact of these items on particular areas of operating results has been
explained in the remainder of this section.
FISCAL YEAR ENDED DECEMBER 31, 2000 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1999.
NET SALES. Net sales in 2000 decreased $24.6 million or 11.1% to $197.5
million from $222.1 million in 1999. In North America, net sales decreased
$14.1 million or 9.4% as compared to 1999 due principally to increased
competition and pricing pressures in the Company's Water Systems markets
and a generally weaker North American economy. Net sales in Europe
decreased $10.5 million or 14.4% as compared to 1999 due principally to the
weakening of the Euro against the U.S. dollar. If the value of the Euro had
remained at the average level of 1999, reported net sales for 2000 would
have been $8.9 million higher.
GROSS PROFIT. Gross profit decreased $11.4 million in 2000 to $46.0 million
from $57.4 million in 1999. As a percentage of net sales, gross profit in
2000 decreased to 23.3% from 25.9% in 1999. Several factors contributed to
the margin decrease, including lower volume, lower selling prices, and an
increase in certain material costs, most notably steel costs in the
Company's European operations. Partially offsetting these increases were
the favorable results of continuing cost reduction efforts and improvements
in labor productivity at all of the Company's manufacturing locations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses decreased $2.7 million or 9.5% in 2000 to $25.8
million from $28.5 million in 1999. The decrease was attributable to lower
sales, continuing cost-cutting efforts and substantially reduced accruals
for incentive compensation.
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INCOME (LOSS) FROM OPERATIONS. Income from operations decreased $8.8
million to $15.7 million in 2000 from $24.5 million in 1999.
EARNINGS BEFORE INTEREST EXPENSE, TAXES, DEPRECIATION AND AMORTIZATION
(EBITDA). EBITDA in 2000 was $30.0 million compared to $38.3 million in
1999, a decrease of $8.3 million or 21.7%. As a percentage of sales, EBITDA
decreased only two percentage points, from 17.3% in 1999 to 15.2% in 2000.
INTEREST INCOME (EXPENSE), NET. Net interest expense of $19.1 million for
2000 was flat when compared to $19.1 million in 1999.
INCOME TAXES. Income tax expense decreased $1.4 million in 2000 as
compared to 1999 reflecting lower pre-tax earning levels.
NET INCOME (LOSS). The net loss in 2000 of $4.1 million compares to a net
income in 1999 of $1.9 million, an absolute change of $6.0 million.
FISCAL YEAR ENDED DECEMBER 31, 1999 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1998.
NET SALES. Net sales in 1999 increased $9.2 million or 4.3% to $222.1
million from $212.9 million in 1998. This increase was partly the result of
the inclusion of AMTROL Nova, acquired in June 1998, for a full year in
1999, and to the commencement of operations in Poland in the second quarter
of 1999. Excluding AMTROL NOVA and AMTROL Poland, net sales in 1999 would
have increased $3.2 million or 2.0%. North American sales increased 3.0%,
adjusted for certain markets transferred to AMTROL ALFA in 1999. AMTROL
ALFA sales in 1999, adjusted for transferred markets, were even with 1998.
However, the weaker Escudo in 1999 as compared to 1998 deflated U.S.
dollar-reported AMTROL ALFA sales by approximately $2.7 million. In local
currency, AMTROL ALFA's sales increased approximately 4.5%.
GROSS PROFIT. Gross profit increased $18.4 million in 1999 to $57.4 million
from $39.0 million in 1998. As a percentage of sales, gross profit in 1999
increased to 25.9% from 18.3% in 1998. The comparison of gross profit from
1998 to 1999 is impacted by the acquisition of AMTROL NOVA and the
commencement of operations in AMTROL Poland. Excluding AMTROL Nova and
AMTROL Poland, gross profit would have increased $18.2 million and gross
margin would have increased 9 percentage points to 27.3%. Several factors
contributed to the margin increase, including net higher selling prices,
lower outgoing freight costs, lower scrap costs and significantly improved
labor productivity. Scrap and productivity improvements were the result of
the expansion of world-class manufacturing practices and ongoing capital
investments in all of the Company's manufacturing locations. Lower material
costs, particularly lower steel costs in Europe, contributed to higher 1999
margins. Cost of sales in 1998 included an abnormal warranty and product
claims charge of $4.5 million and incremental manufacturing inefficiencies
associated with a plant relocation of $3.3 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $0.7 million (or 2.5%) in 1999 to $28.5
million from $27.8 million in 1998. Without AMTROL NOVA and AMTROL Poland,
SG&A would have been essentially the same in both years, although 1999
administrative expenses included higher management incentive
15
16
compensation of approximately $2.4 million. Incentive compensation in 1999
was based entirely on earnings performance.
INCOME (LOSS) FROM OPERATIONS. Income from operations increased $25.9
million to $24.5 million in 1999 from a loss of $1.4 million in 1998.
Operating income in 1998 included certain non-recurring charges relating to
plant closures, management reorganization and restructuring of
approximately $17.4 million.
EARNINGS BEFORE INTEREST EXPENSE, TAXES, DEPRECIATION AND AMORTIZATION
(EBITDA). EBITDA in 1999 was $38.3 million compared to $12.5 million in
1998, an increase of $25.8 million. As a percentage of sales, EBITDA
increased from 5.9% in 1998 to 17.3% in 1999.
INTEREST INCOME (EXPENSE), NET. Net interest expense decreased $1.3 million
in 1999 from 1998 due to lower debt levels resulting from improved cash
collection.
INCOME TAXES. Income tax expense increased $10.9 million in 1999 as
compared to 1998.
NET INCOME (LOSS). The net income in 1999 of $1.9 million compares to a net
loss in 1998 of $13.4 million, an absolute change of $15.3 million.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company's cash flows from operating activities were approximately $1.5
million, $21.7 million and $5.3 million for the years ended December 31,
1998, 1999 and 2000, respectively.
The Company's cash balance at December 31, 2000 was $0.7 million versus
$0.7 million in 1999. There were no borrowings against the revolver at
December 31, 1999 and December 31, 2000. Amounts available under the
revolver approximated $23.9 million due to outstanding letters of credit
totaling $1.1 million at December 31, 1999 and 2000.
The Company's operating working capital (defined as accounts receivable and
inventory, less accounts payable) decreased approximately $6.0 million from
$30.2 million at December 31, 1999 to $24.2 million at December 31, 2000.
Accounts receivable decreased $2.7 million or 9.1% from $30.3 million at
December 31, 1999 to $27.6 million at December 31, 2000. The decrease in
accounts receivable is consistent with the decrease in net sales.
Additionally, the Company did not experience any significant changes in
credit terms, credit utilization or delinquency in accounts receivable in
2000 as compared to 1999.
The Company's inventories decreased $1.9 million or 8.4% from $22.4 million
at December 31, 1999 to $20.5 million at December 31, 2000. The decrease is
consistent with the Company's reduction in sales and efforts to reduce
inventories of low-volume products and maintain optimum levels of
high-volume products.
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17
Capital expenditures were $9.9 million, $5.8 million and $8.4 million in
the years ended December 31, 1998, 1999 and 2000, respectively.
Approximately $5.2 million of the 2000 expenditures related to ongoing
maintenance and upgrading of the Company's manufacturing technology at all
of its production facilities. In addition, $2.2 million was used to acquire
AMTROL Poland's production line which was previously leased. Furthermore,
approximately $1.0 million was expended in 2000 to enhance and complete the
implementation of the Company's Enterprise Resource Planning System ("ERP")
in North America and at AMTROL ALFA.
On December 18, 2000, the Company sold a parcel of land totaling 11.5 acres
adjacent to the Company's headquarters in West Warwick, Rhode Island. The
gross sale price of $2.1 million resulted in the Company recording a net
book pre-tax gain of $1.1 million. The net book pre-tax gain is not
included in the calculation of EBITDA for purposes of covenant compliance,
consistent with the terms of the Bank Credit Agreement.
The Company has obtained financing under a Bank Credit Agreement (the
"Agreement"), as amended on March 30, 2001, which consists of $47.7 million
of senior term loans (the "Term Loans") and a $15.0 million revolving
credit facility (the "Revolving Credit Facility"). A portion ($4.4 million)
of the Term Loans (the "Tranche A Term Loans") will mature on May 13, 2002,
with quarterly amortization payments during the term of such loans. The
remainder ($43.3 million) of the Term Loans (the "Tranche B Term Loans")
will mature on May 13, 2004, with nominal quarterly amortization prior to
the maturity of the Tranche A Term Loans and with the remaining amounts
amortizing on a quarterly basis thereafter. The Revolving Credit Facility
will mature on May 13, 2002. The Agreement is secured by substantially all
assets of the Company and its domestic subsidiaries.
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 semiannually on each June 30 and December 31 commencing
on June 30, 1997. The Notes are redeemable at the option of the Company on
or after December 31, 2001. From and after December 31, 2001, the Notes
will be subject to redemption at the option of the Company, in whole or in
part, at various redemption prices, declining from 105.313% of the
principal amount to par on and after December 31, 2003. Upon a "Change of
Control" (as defined in the Indenture), each Note holder has the right to
require the Company to repurchase such holder's Notes at a purchase price
of 101% of the principal amount plus accrued interest. The Indenture
contains certain affirmative and negative covenants and restrictions. As of
December 31, 2000, the Company is in compliance with the various covenants
of the Indenture.
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 provided
under the Agreement and through the use of available cash balances.
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
17
18
with funding future working capital and capital expenditure needs,
including the issuance of additional debt and equity securities.
The Company and/or affiliates of the Company, including entities related to
Cypress may, from time to time, depending on market conditions, purchase
the Senior Subordinated Notes previously issued by the Company in the
open market or by other means.
The Company will continue to selectively pursue strategic acquisitions,
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.
The Company believes that inflation does not have a materially adverse
effect on its results of operations or financial condition. However, there
can be no assurance that sharply increasing raw material or fuel costs will
not adversely affect the Company's financial condition or results of
operations. To minimize the impact of fluctuating prices, the Company has
negotiated annual contracts with suppliers of certain key raw materials
(primarily steel) for a significant percentage of its expected usage
through 2001.
Effective January 1, 2001, the Company will adopt Statement of Financial
Accounting Standards ("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 Financial
Accounting Standards Board ("FASB") Statement No. 133 - an Amendment of
FASB Statement No. 133 and SFAS No. 138 Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an Amendment of FASB Statement
No. 133 (collectively SFAS No. 133 as amended). SFAS No. 133 as amended is
required to be adopted no later than the beginning of the fiscal reporting
period beginning June 15, 2000, which for the Company is January 1, 2001.
These standards are to be adopted as a change in accounting principle and
cannot be applied retroactively to financial statements of prior periods.
For additional information relating to SFAS No. 133, please refer to Note 2
of the accompanying consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company is exposed to market risk related to foreign currency exchange
rates and changes in interest rates, but the impact on 2000 and the
expected impact on 2001 operating results is not anticipated to be
material. The Company did not use any material financial or other
derivative instruments to hedge its foreign currency exposures, which
relate primarily to its operations in Portugal and Germany. A significant
portion of revenues from the Registrant's Portuguese operations is
denominated in the Escudo and Euro, and when translated into U.S. dollars,
can result in higher or lower earnings due to currency fluctuations.
Similarly revenues from the Company's German operations are
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19
primarily denominated in German Marks which, when translated into U.S.
dollars, can cause an increase or decrease in earnings from currency
fluctuations. For both operations, a 10% fluctuation in the exchange rate
between these foreign currencies and the U.S. dollar would have less than a
5% impact on expected 2001 EBITDA, individually. The Company believes that
its cash flow exposure resulting from its net foreign-currency-denominated
asset positions in both Portugal, Germany and Poland is not material.
The Company has entered into an interest rate swap agreement in connection
with its Tranche B long-term debt ($43.3 million outstanding at December
31, 2000) to limit a portion of its exposure to fluctuating interest rates.
Under the agreement, the Company will pay or receive the difference between
the floating three month LIBOR rate and a fixed LIBOR rate, applied to a
notional amount of $15 million. The fixed LIBOR rate was 5.75% in 2000 and
will be 5.85% thereafter until maturity of the agreement on June 30, 2004.
The following sensitivity analysis expresses the potential impact on AMTROL
of additional interest expense resulting from a hypothetical 100 basis
point increase in the interest rate indices upon which AMTROL's floating
rate debt instruments are based (000):
Notional Variable Y/E 2001 Hypothetical Effect on
Variable Y/E 2000 to Fixed Exposure Change in Amtrol
Rate Debt Balance Interest Rate Swap Interest Rate Risk Rate Index Interest
--------- ------- ------------------ ------------------ ---------- --------
Tranche A $ 4,394 $ -- $ 4,394 100 bps $ 44
Tranche B 43,318 15,000 28,318 100 bps 283
-------- -------- -------- ------- -------
$ 47,712 $ 15,000 $ 32,712 100 bps $ 327
======== ======== ======== ======= =======
The Company believes that the potential effects of a hypothetical 100-basis
point increase in its floating rate debt instruments are not material to
EBITDA and cash flow.
The Company's $115 million of Senior Subordinated Debentures are not
subject to interest rate risk since the rate of interest on these
securities is fixed until maturity in 2006.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to financial statements is included on page 26 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding each of the
directors and executive officers of the Company:
NAME AGE POSITION
---- --- --------
Albert D. Indelicato 50 President, Chairman of the Board, Chief
Executive Officer and Director
Larry T. Guillemette 45 Executive Vice President, Chief Financial
Officer and Treasurer
Thomas Sturiale 64 Vice President and President AMTROL North
America
William C. Dailey 52 Vice President Finance & Corporate Controller
Phillip W. Colantonio 50 Vice President Human Resources and
Administration
Patricia A. Pickrel 50 Secretary and General Counsel
John P. Cashman 60 Director
Andrew M. Massimilla 59 Director
David P. Spalding 46 Director
James A. Stern 50 Director
Anthony D. Tutrone 36 Director
Albert D. Indelicato became President, Chairman of the Board and Chief Executive
Officer in June 2000. Previously, Mr. Indelicato served as President and Chief
Executive Officer since joining the Company in July 1998. From 1996 to 1998, he
was President of Litorale Holdings, Inc., a consulting firm specializing in
acquisitions. From 1970 to 1996, Mr. Indelicato served in various managerial
capacities of Power Control Technologies and its predecessor companies,
including most recently as Chief Executive Officer and Director.
Larry T. Guillemette became Executive Vice President, Chief Financial Officer
and Treasurer in August 2000. Previously, Mr. Guillemette served as Executive
Vice President-Marketing and Business Development since joining the Company in
1998. From 1991 to 1998, Mr. Guillemette was President and Chief Executive
Officer of Balcrank Products, Inc.
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Thomas Sturiale became Vice President and President, AMTROL North America, in
March 2000. Previously, Mr. Sturiale served as Executive Vice President -
Operations and Technology of AMTROL North America since joining the Company in
1999. From 1992 to 1998, Mr. Sturiale was President of Neles Jamesbury, Inc.
William C. Dailey became Vice President Finance and Corporate Controller in July
2000. Prior to that, Mr. Dailey was Vice President from March 1999 to June 2000.
In February 2001, Mr. Dailey left the Company to become Chief Financial Officer
of Trailmobile, Inc.
Phillip W. Colantonio, Vice President Human Resources and Administration, joined
the Company in January 1999. Previously, Mr. Colantonio was the sole proprietor
of a consulting services firm providing consulting services to various
businesses.
Patricia A. Pickrel, Secretary and General Counsel, joined the Company as
General Counsel in 1998 and became Secretary in 1999. Previously, Ms. Pickrel
was engaged in the private practice of law.
John P. ("Jack") Cashman became a Director in June 2000. Prior to this, Mr.
Cashman served as Chairman of the Board upon the Merger and served also as Chief
Executive Officer and President until Mr. Indelicato joined the Company in July
1998. From 1989 until March 1996, Mr. Cashman served as Chairman and Co-Chief
Executive Officer of R. P. Scherer Corporation.
Andrew M. Massimilla became a Director of the Company in June 1998. Mr.
Massimilla has been the sole proprietor of a consulting firm providing
management consulting services to various businesses since 1991.
David P. Spalding became a Director of the Company upon the Merger. Mr.
Spalding has been Vice Chairman of Cypress since its formation in April 1994.
Prior to joining Cypress, Mr. Spalding was Managing Director in the Merchant
Banking Group of Lehman Brothers Inc. since February 1991. Mr. Spalding is also
a director of Lear Corporation, William Scotsman, Inc., and Frank's Nursery &
Craft, Inc.
James A. Stern became a Director of the Company upon the Merger. Mr. Stern has
been Chairman of Cypress since its formation in April 1994. Prior to joining
Cypress, Mr. Stern spent his entire career with Lehman Brothers Inc., most
recently as head of the Merchant Banking Group. Mr. Stern is a director of Lear
Corporation, Cinemark USA, Inc, Wesco International Inc. and Frank's Nursery &
Craft, Inc.
Anthony D. Tutrone became a Director of the Company upon the Merger. Mr.
Tutrone is a managing director of Cypress and has been a member of the firm
since its formation in April 1994. Prior to joining Cypress, Mr. Tutrone was a
member of the Merchant Banking Group of Lehman Brothers, Inc. Mr. Tutrone is
also a director of Wesco International Inc. and Danka Business Systems PLC.
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934.
- --------------------------------------------------------------------------------
Not applicable
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the Company
to its Chief Executive Officer and the four other most highly compensated
executive officers who earned more than $100,000 in salary and bonus in 2000 in
each case for services rendered in all capacities to the Company during the
three year period ended December 31, 2000:
SUMMARY COMPENSATION TABLE
--------------------------
LONG TERM
ANNUAL COMPENSATION
COMPENSATION(a)(f) AWARDS
------------------ ------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY (b) BONUS OPTIONS/SARs COMPENSATION (c)
- --------------------------- ---- ---------- ----- ------------ ----------------
Albert D. Indelicato (e) 2000 $350,000 $ -- $ -- $ 3,441
Chairman, President and 1999 300,000 300,000 30,500(d) 1,698
Chief Executive Officer 1998 132,692 130,000 -- 1,406
Thomas Sturiale (e) 2000 200,000 -- -- 3,345
Vice President and President 1999 175,385 152,950 11,000(d) 4,835
AMTROL North America 1998 113,336 25,000 -- --
Larry T. Guillemette (e) 2000 185,000 -- -- 3,340
Executive Vice President, 1999 159,885 131,100 11,000(d) 128,480
Chief Financial Officer and 1998 43,269 80,000 -- 40,577
Treasurer
William C. Dailey (e) 2000 170,000 -- -- 1,201
Vice President - Finance 1999 115,385 92,250 5,000(d) --
and Corporate Controller 1998 -- -- -- --
Christopher Laus (e) 2000 152,150 -- -- 3,371
Vice President - Operations 1999 140,000 110,700 5,000(d) 54,301
1998 38,942 20,000 -- --
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(a) Any perquisites or other personal benefits received from the Company by any
of the named executives were substantially less than the reporting
thresholds established by the Securities and Exchange Commission (the
lesser of $50,000 or 10% of the individual's cash compensation).
(b) Includes portion of salary deferred under the Company's 401(k) Plan.
(c) Amounts paid in 2000 include the Company's contributions under the
Company's 401(k) Plan in the amount of $2,373, $2,584, $2,550, $475 and
$2,717 for Messrs. Indelicato, Sturiale, Guillemette, Dailey, and Laus
respectively, and premiums paid by the Company with respect to term life
insurance purchased for such executive officers in the amount of $1,068,
$859, $790, $726 and $654 for Messrs. Indelicato, Sturiale, Guillemette,
Dailey, and Laus respectively.
(d) These are non-qualified options to purchase common stock of Holdings, the
parent corporation of the Company. One half of such options are time based
and vest upon a triggering event. The remaining half of such options are
performance based and vest based upon annual and cumulative performance.
(e) Mr. Indelicato, Mr. Sturiale, Mr. Guillemette, Mr. Dailey and Mr. Laus
joined the Company in July 1998, January 1999, September 1998, March 1999,
and September 1998, respectively.
(f) Mr. Edward J. Cooney, a former officer of the Company, would have been
listed in this table had he not resigned. Mr. Cooney's 1998, 1999 and 2000
salary and other compensation totaled $185,400 and $13,940, $185,000 and
$165,605 and $185,400 and $3,443, respectively.
OPTION PLANS
- --------------------------------------------------------------------------------
The following table sets forth certain information regarding currently
outstanding options held by the directors and named executive officers as of
December 31, 2000.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR VALUES
----------------------------------------------------------------------------------
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED
NUMBER OF OPTION/SARs AT
SECURITIES CALENDAR YEAR VALUE OF
UNDERLYING END 2000 UNEXERCISED
NAME OPTIONS/SARs VALUE EXERCISABLE/ IN-THE-MONEY
- ---- EXERCISED REALIZED($) UNEXERCISABLE OPTIONS/SAR($)
--------- ----------- ------------- --------------
John P. Cashman 0 0 44,796/0 0/0
Phillip W. Colantonio 0 0 0/5,000 0/0
Albert D. Indelicato 0 0 0/30,500 0/0
William C. Dailey 0 0 0/5,000 0/0
Larry T. Guillemette 0 0 0/11,000 0/0
Andrew M. Massimilla 0 0 0/21,039 0/0
Thomas Sturiale 0 0 0/11,000 0/0
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SUPPLEMENTAL RETIREMENT PLANS
- --------------------------------------------------------------------------------
The Company maintains two Supplemental Retirement Plans: Supplemental
Retirement Plan I which covers a former officer and director and
Supplemental Retirement Plan II which covers three former officers. In the
event a participant in either Supplemental Plan dies after retirement, the
participant's beneficiary will receive any remaining benefits which such
participant was entitled to receive at the time of the participant's death.
EMPLOYMENT AGREEMENTS AND OTHER TRANSACTIONS
- --------------------------------------------------------------------------------
The Company, either directly or through its subsidiaries, has entered into
an employment agreement ("Employment Agreement") with Mr. Indelicato to
secure his continued employment with the Company. The Employment Agreement
provides for an annual base salary, subject to annual adjustments. In
addition, Mr. Indelicato is entitled to participate in incentive
compensation plans and all employee benefit arrangements generally
appropriate to his responsibilities. In the event Mr. Indelicato's
employment is terminated without cause by the Company, he would be entitled
(for a period of 18 months after termination) to continuation of monthly
salary, including the pro rata portion of any bonus or other incentive
compensation otherwise payable for the fiscal period in which such
termination occurs, and maintenance of all life, disability, medical and
health insurance benefits to which Mr. Indelicato was entitled immediately
prior to termination.
During calendar 2000, the Company and Mr. Edward J. Cooney entered into a
Separation Agreement. The Separation Agreement recognized that Mr. Cooney
had resigned as of the close of business on December 31, 2000. Certain
provisions of the Separation Agreement include: Payment by the Company of
Mr. Cooney's base salary of $185,000 per year for a period of nine months
commencing January 1, 2001 through September 30, 2001; entitlement of all
provisions and requirements set forth in the Company's Management Incentive
Plan for fiscal year 2000 and a non-solicitation/non-compete covenant for
the period July 1, 2000 through September 30, 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a direct, wholly-owned subsidiary of Holdings. The following
table sets forth information with respect to the beneficial ownership of
Holdings common stock or preferred stock as of March 15 by (i) each person
known to the Company to beneficially own more than 5% of Holdings'
outstanding common stock, (ii) each of the Company's directors and named
executive officers and (iii) all directors and executive officers of the
Company as a group. Each share of Holdings preferred stock is convertible
at any time into one share of Holdings common stock. Unless otherwise
indicated below, the persons and entities named in the table have sole
voting and investment power with respect to all shares beneficially owned.
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COMMON STOCK PREFERRED STOCK
------------ ---------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES OF TOTAL SHARES OF TOTAL
------------------------------------ ------ -------- ------ --------
Cypress Merchant Banking Partners L.P. (a) 733,033 75.7 95,076 92.8
c/o The Cypress Group L.L.C.
65 East 55th Street, 28th Floor
New York, NY 10022
Cypress Offshore Partners L.P. (a) 37,967 3.9 4,924 4.8
c/o The Cypress Group L.L.C.
65 East 55th Street, 28th Floor
New York, NY 10022
John P. Cashman (b) 62,032 6.4 2,235 2.2
Phillip W. Colantonio (b) 5,500 0.6 --
Edward J. Cooney (b) 10,300 1.1 250 .2
Larry T. Guillemette (b) 12,000 1.2 --
Albert D. Indelicato (b) 33,750 3.5 --
William C. Dailey (b) 5,000 0.5 --
Andrew M. Massimilla (b) 22,039 2.3 --
David M. Spalding(a) -- -- --
James A. Stern(a) -- -- --
Thomas Sturiale (b) 12,500 1.2 --
Anthony D. Tutrone -- -- --
All directors and executive officers as a
group (consisting of 11 persons) 163,121 16.8 2,485 2.4
(a) Cypress Merchant Banking Partners L.P. and Cypress Offshore
Partners L.P. are affiliates of The Cypress Group L.L.C. Messrs.
Spalding and Stern are executives of The Cypress Group L.L.C. and
may be deemed to share beneficial ownership of the shares shown
as beneficially owned by such Cypress entities. Each of such
individuals disclaims beneficial ownership of such shares. See
Item 10, "Directors and Executive Officers of the Company."
(b) Includes 44,796, 5,000, 10,050, 11,000, 30,500, 5,000, 21,039,
and 11,000 shares of Common Stock issuable upon exercise of
options granted to Messrs. Cashman, Colantonio, Cooney,
Guillemette, Indelicato, Dailey, Massimilla, and Sturiale,
respectively, which will become exercisable within 60 days. See
Item 11, "Executive Compensation".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A director of the Company, Mr. Massimilla, provides management consulting
services to the Company for which he is paid by the Cypress Group L.L.C.
The Company reimburses Cypress for its payments to Mr. Masimilla. During
2000, the amount of such payments was $130,298.
A director of AMTROL, Mr. Cashman, received $226,195 during 2000 related to
the calendar 1999 incentive compensation award which he elected to receive
in installments.
25
26
PART IV
- -------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
The following financial statements are included in a separate section
of this Report commencing on the page numbers specified below:
PAGE
----
Report of Independent Public Accountants 27
Consolidated Balance Sheets as of December 31, 1999 and 2000 28
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 31, 1998, 1999 and 2000 29
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1998, 1999 and 2000 30
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1999 and 2000 31
Notes to Consolidated Financial Statements 32
(A) (2) FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts and Reserves for
the years ended December 31, 1998, 1999 and 2000
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(A) (3) EXHIBITS
See List of Exhibits, Page 47.
(B) REPORTS FILED ON FORM 8-K
No reports were filed on Form 8-K for the period.
26
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO AMTROL INC.:
We have audited the accompanying consolidated balance sheets of AMTROL Inc. and
subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, comprehensive loss, shareholders' equity and cash
flows for the years ended December 31, 2000, 1999 and 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of AMTROL Inc. and subsidiaries as
of December 31, 2000 and 1999, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The financial statement
schedule listed in item 14(a)(2) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in our audit
of the basic financial statements and, in our opinion, fairly states in all
material respects, the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ Arthur Andersen LLP
Boston, Massachusetts
March 30, 2001
27
28
AMTROL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands)
ASSETS
DECEMBER 31,
--------------------------
1999 2000
--------- ---------
Current Assets:
Cash and cash equivalents $ 674 $ 704
Accounts receivable, less allowance for doubtful accounts of
$1,188 and $833 in 1999 and 2000, respectively 30,340 27,591
Inventories (Note 4) 22,346 20,461
Tax refund receivable 788 1,658
Deferred income taxes - short-term (Note 7) 1,390 1,031
Prepaid expenses and other 887 980
--------- ---------
Total current assets 56,425 52,425
--------- ---------
Property, Plant and Equipment, at cost
Land 5,765 4,988
Buildings and improvements 12,718 12,651
Machinery and equipment 42,708 48,604
Furniture and fixtures 1,175 1,210
Construction-in-progress and other 6,903 7,304
--------- ---------
69,269 74,757
Less: accumulated depreciation and amortization 22,169 28,431
--------- ---------
47,100 46,326
--------- ---------
Other Assets:
Goodwill 166,520 161,880
Deferred financing costs 5,704 4,572
Deferred income taxes - long-term (Note 7) 5,092 4,755
Other 904 1,146
--------- ---------
178,220 172,353
--------- ---------
$ 281,745 $ 271,104
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt (Note 6) $ 4,935 $ 3,873
Notes payable to banks 790 7,010
Accounts payable 22,535 23,869
Accrued expenses 15,804 10,538
Accrued interest 789 741
Accrued income taxes 2,571 1,293
--------- ---------
Total current liabilities 47,424 47,324
--------- ---------
Other Noncurrent Liabilities 5,633 4,439
Long-Term Debt, less current maturities (Note 6) 163,385 159,469
Commitments and Contingencies (Note 10) -- --
Shareholders' Equity (Note 11)
Capital stock $.01 par value - authorized 1,000 shares,
100 shares issued -- --
Additional paid-in capital 90,156 89,903
Retained deficit (22,503) (26,649)
Accumulated other comprehensive loss (2,350) (3,382)
--------- ---------
Total shareholders' equity 65,303 59,872
--------- ---------
$ 281,745 $ 271,104
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
28
29
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1999 2000
--------- --------- ---------
Net sales (Note 1) $ 212,890 $ 222,053 $ 197,472
Cost of goods sold (Note 1) 169,355 164,617 151,483
Provision for abnormal warranty costs 4,500 -- --
--------- --------- ---------
Total cost of goods sold 173,855 164,617 151,483
Gross profit 39,035 57,436 45,989
Operating expenses:
Selling 11,951 11,130 10,991
General and administrative 15,876 17,362 14,830
Plant closing and reorganization costs 4,450 -- --
Management restructuring 3,693 -- --
Amortization of goodwill 4,446 4,463 4,463
--------- --------- ---------
Income (loss) from operations (1,381) 24,481 15,705
Other income (expense):
Interest expense (20,554) (19,224) (19,298)
Interest income 210 141 228
License and distributorship fees 242 234 210
Other, net (Note 5) 1,384 353 1,713
--------- --------- ---------
Income (loss) before (benefit)
provision for income taxes (20,099) 5,985 (1,442)
(Benefit) provision for income taxes (6,728) 4,125 2,704
--------- --------- ---------
Net income (loss) $ (13,371) $ 1,860 $ (4,146)
========= ========= =========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
YEAR ENDED DECEMBER 31,
-------------------------------------------
1998 1999 2000
--------- --------- ---------
Net income (loss) $ (13,371) $ 1,860 $ (4,146)
Foreign currency translation adjustments 773 (2,838) (1,032)
--------- --------- ---------
Comprehensive loss $ (12,598) $ (978) $ (5,178)
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
29
30
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL (DEFICIT) INCOME (LOSS)
------------ --------------- --------------- ----------------
Balance, December 31, 1997 $ -- $ 69,326 $(10,992) $ (285)
Capital Contribution -- 20,497 -- --
Net (loss) -- -- (13,371) --
Currency translation adjustment -- -- -- 773
-------- -------- -------- --------
Balance, December 31, 1998 -- 89,823 (24,363) 488
Capital contribution -- 333 -- --
Net income -- -- 1,860 --
Currency translation adjustment -- -- -- (2,838)
-------- -------- -------- --------
Balance, December 31, 1999 -- 90,156 (22,503) (2,350)
Capital contribution -- 310 -- --
Repurchase of options and common stock -- (563) -- --
Net (loss) -- -- (4,146) --
Currency translation adjustment -- -- -- (1,032)
-------- -------- -------- --------
Balance, December 31, 2000 $ -- $ 89,903 $(26,649) $ (3,382)
======== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements.
30
31
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1999 2000
---------- ---------- ----------
Cash Flows Provided by Operating Activities:
Net income (loss) $ (13,371) $ 1,860 $ (4,146)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities -
Depreciation 7,554 8,369 8,297
Amortization 5,593 5,634 5,708
Provision for losses on accounts receivable 526 -- 13
Loss (gain) on sale of fixed assets -- 107 (1,180)
Non-cash charges 10,077 -- --
Changes in operating assets and liabilities:
Accounts receivable, net 2,753 (3,213) 2,210
Tax refund receivable (566) 14 (888)
Inventory 4,696 492 1,222
Deferred income taxes - short-term 224 881 359
Prepaid expenses and other current assets (135) 1,400 (80)
Other assets (3,963) (567) (936)
Accounts payable 3,661 3,009 2,024
Accrued expenses and other current liabilities (5,838) 2,263 (6,579)
Other noncurrent liabilities (2,575) (1,643) (1,105)
Deferred income taxes - long-term (7,140) 3,113 337
---------- ---------- ----------
Net cash provided by operating activities 1,496 21,719 5,256
---------- ---------- ----------
Cash Flows Used in Investing Activities:
Acquisition of NOVA, net of cash acquired (5,855) -- --
Proceeds from sale of property, plant and equipment 2,025 895 2,278
Capital expenditures (9,858) (5,798) (8,375)
---------- ---------- ----------
Net cash used in investing activities (13,688) (4,903) (6,097)
---------- ---------- ----------
Cash Flows Provided by (Used in) Financing Activities:
Repayment of long term debt (52,872) (25,074) (21,496)
Issuance of long term debt 40,600 16,800 18,700
Repayment of short term debt (16,476) (17,988) (19,528)
Issuance of short term debt 20,959 8,790 23,454
Capital contribution 20,497 333 310
Repurchase of options and common stock -- -- (563)
---------- ---------- ----------
Net cash provided by (used in) financing activities 12,708 (17,139) 877
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 516 (323) 36
Effect of exchange rate changes on cash and cash equivalents 28 (91) (6)
Cash and cash equivalents, beginning of period 544 1,088 674
---------- ---------- ----------
Cash and cash equivalents, end of period $ 1,088 $ 674 $ 704
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
31
32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
AMTROL Inc., a Rhode Island corporation, and its wholly-owned subsidiaries
(collectively referred to herein as the "Company"), designs, manufactures
and markets products used principally in flow control, storage, heating and
other treatment of fluids in the water systems market and selected sectors
of the heating, ventilating and air conditioning ("HVAC") market. The
Company offers a broad product line of quality fluid handling products and
services marketed under widely recognized brand names.
The Company is a wholly-owned subsidiary of AMTROL Holdings, Inc.
("Holdings"), a Delaware corporation formed by The Cypress Group, L.L.C. in
1996 to effect the acquisition of all of the outstanding common stock of
the Company. Holdings has no other material assets, liabilities or
operations other than those that result from its ownership of the common
stock of the Company.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FISCAL YEAR
The Company uses a calendar fiscal year and four quarterly interim periods
ending on Saturday of the thirteenth week of the quarter.
REVENUE RECOGNITION
The Company generally recognizes revenue upon shipment of its products to
customers. The Company has reclassed shipping/handling fees and costs to
revenue consistent with the presentation required of the Emerging Issues
Task Force (EITF) 00-10. These amounts were $10.7 million, $9.9 million and
$10.2 million for December 31, 1998, 1999 and 2000, respectively.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand and short-term investments
that are readily convertible into cash with an original maturity to the
Company of three months or less.
32
33
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
WARRANTY
The Company experienced an unusually high level of warranty claims for a
particular product manufactured in 1995-1996, the cause of which has since
been corrected. Actions taken by the Company to mitigate the level of
returns for products manufactured during that time period did not reduce
the return rate to the extent expected. Accordingly, the Company recorded
an additional loss provision in the second quarter of 1998 of $4.5 million
for abnormal warranty costs relating to this product.
DEPRECIABLE PROPERTY AND EQUIPMENT
Property, plant, and equipment are stated on the basis of cost. The Company
provides for depreciation by charges to income (computed on the
straight-line method) in amounts estimated to depreciate the cost of
properties over their estimated useful lives which generally fall within
the following ranges:
Building and improvements 10-40 years
Machinery and equipment 3-12 years
Furniture and fixtures 5-20 years
Other 3-10 years
Leasehold improvements are amortized over the life of the lease or the
estimated useful life of the improvement, whichever is shorter.
Interest costs, during the construction period, on borrowings used to
finance construction of buildings and related property are included in the
cost of the constructed property.
INVENTORIES
The Company's inventories are stated at the lower of cost or market
including material, labor and manufacturing overhead (see Note 4).
GOODWILL
The excess of purchase price over the fair value of net assets acquired is
allocated to goodwill and is included in other assets. Goodwill is being
amortized over 40 years. The Company accounts for long-lived and intangible
assets in accordance with Statement of Financing Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of. The Company continually reviews
its intangible assets for events or changes in circumstances which might
indicate the carrying amount of the assets may not be recoverable. The
Company assesses the recoverability of the assets by determining whether
the amortization of such intangibles over their remaining lives can be
recovered through projected undiscounted future cash flows. The amount of
impairment, if any, is measured based on the fair value of the impaired
asset. At December 31, 2000, no such impairment of assets was indicated.
33
34
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the requirements of SFAS No. 107, Disclosures About Fair
Value of Financial Instruments, the Company has determined the estimated
fair value of its financial instruments using appropriate market
information and valuation methodologies. Considerable judgment is required
to develop the estimates of fair value; thus, the estimates are not
necessarily indicative of the amounts that could be realized in a current
market exchange. The Company's financial instruments consist of cash,
accounts receivable, accounts payable, senior subordinated notes and bank
debt. As of December 31, 2000, the bid trading price of the Company's
senior subordinated notes was $74 of a par value of $100. The carrying
value of the remaining assets and liabilities is a reasonable estimate of
their fair market value at December 31, 2000.
RESEARCH AND DEVELOPMENT EXPENSES
All costs for research and development, which amounted to approximately
$0.9 million, $1.1 million, and $1.0 million for the years ended December
31, 1998, 1999 and 2000, respectively, are charged to general and
administrative expenses as incurred.
DEFERRED FINANCING COSTS
Deferred financing costs are stated at cost as a component of other assets
and amortized over the life of the related debt using the effective
interest method. Amortization of deferred financing costs is included in
interest expense.
ACCRUED EXPENSES
Certain customers are allowed a rebate if agreed upon sales targets are
achieved for a given year. At December 31, 1999 and 2000, the Company has
accrued $3.8 million and $3.6 million, respectively, for such volume
allowances. These amounts are included in accrued expenses in the
accompanying consolidated balance sheets.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of non-U.S. operations have been translated into
United States dollars at the year-end rate of exchange, shareholders'
equity at historical rates, and revenues and expenses at the average
exchange rates prevailing during the year. The cumulative effect of the
resulting translation is reflected as a separate component of shareholders'
equity.
STOCK OPTIONS
The Company accounts for employee stock options in accordance with SFAS
No. 123, Accounting for Stock Based Compensation. As permitted under SFAS
No. 123, the Company applies Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees to account for its stock
option plans.
34
35
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with the
current year presentation.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Effective January 1, 2001, the Company will adopt SFAS No. 133 Accounting
for Derivative Instruments and Hedging Activities, SFAS No. 137 Accounting
for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133 - an Amendment of FASB Statement
No. 133 and SFAS No. 138 Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an Amendment of FASB Statement No. 133
(collectively SFAS No. 133 as amended). SFAS No. 133 as amended is required
to be adopted no later than the beginning of the fiscal reporting period
beginning June 15, 2000, which for the Company is January 1, 2001. These
standards are to be adopted as a change in accounting principle and cannot
be applied retroactively to financial statements of prior periods.
SFAS No. 133 as amended requires that derivatives be recorded on the
balance sheet as an asset or liability at fair value. Derivatives that are
not hedges must be recorded at fair value through earnings, unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative instrument's gains and losses to offset related results
on the hedged item in the income statement, to the extent effective, and
requires that a company must formally document, designate and assess the
effectiveness of transactions that receive hedge accounting. SFAS No. 133
as amended, in part, allows special hedge accounting for fair value and
cash flow hedges. The statement provides that the gain or loss on a
derivative instrument designated and qualifying as a fair value hedging
instrument as well as the offsetting loss or gain on the hedged item
attributable to the hedged risk be recognized currently in earnings in the
same accounting period. SFAS No. 133 as amended provides that the effective
portion of the gain or loss on a derivative instrument designated and
qualifying as a cash flow hedging instrument be reported as a component of
other comprehensive income and be reclassified into earnings in the same
period or periods during which the hedged forecasted transaction affects
earnings. The ineffective portion of a derivative's change in fair value is
recognized currently through earnings regardless of whether the instrument
is designated as a hedge.
The Company has one derivative contract consisting of an interest rate swap
contract and an interest rate cap ("Contract") outstanding as of December
31, 2000, with an initial notional amount of $15 million, decreasing on a
consistent basis with repayment terms of the underlying debt. Under this
arrangement, which will be terminated June 30, 2004, the Company receives
the 90-day LIBOR rate and pays a fixed rate of 5.85% for the period from
January 1, 2001 through maturity, unless LIBOR increases to 7.1%. If LIBOR
increases to 7.1%, then the Company continues to receive the 90-day LIBOR
rate but now pays the 90-day LIBOR rate for all subsequent periods capped
at a maximum of 7.1%. The LIBOR rate has not exceeded 7.1% since inception
of the Contract and it has been treated, prior to adoption, as a hedge and
accounted for as such. No amounts were recorded on the Consolidated Balance
Sheet as of December 31, 2000 in connection with this instrument,
35
36
and the net effect of the hedges was to record interest expense at the
fixed rate on the first $15 million of Tranche B Long Term Debt. The
Contract has been designated as a cash flow hedge of variable future cash
flows associated with the interest on the Bank Credit Agreement, Tranche B
Long Term Debt, through May 13, 2004 (the maturity date of the debt). Upon
adoption, the fair value of this instrument will be recorded on the balance
sheet with a corresponding entry to other comprehensive income. Subsequent
changes in fair value of the swap will be recorded through other
comprehensive income (expect for changes related to ineffectiveness, which
will be recorded currently through net income). The Company does not
currently anticipate any material ineffectiveness under the hedge. The net
effect of the cash flow hedge will be to record interest expense at the
fixed rate of 5.85% on the first $15 million of Tranche B Long Term Debt
through the period until LIBOR increases to 7.1% and then cap interest
expense at not greater than 7.1% in the period after LIBOR increases to
7.1%.
(3) ACQUISITIONS
On June 9, 1998, the Company acquired NOVA Wassererwarmer GmbH ("AMTROL
NOVA") located in Donaueschingen, Germany for approximately $6.0 million
plus assumed debt of $2.0 million. AMTROL NOVA manufactures high-end
residential and commercial water heaters that are marketed primarily in
Germany, Switzerland and Austria. The Company assumed immediate management
control of AMTROL NOVA and, accordingly, the operating results and
financial position of AMTROL NOVA are included in the consolidated results
of operations and consolidated balance sheets of the Company from the
acquisition date. The Company's 1998 income from operations include
approximately $0.4 million relating to the operations of AMTROL NOVA. Pro
forma net sales and net loss as though the acquisition of AMTROL NOVA
occurred as of January 1, 1998 (in thousands) is $218,609 and $13,277,
respectively.
(4) INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist of the following at December 31 (in thousands):
1999 2000
------- -------
Raw materials and work in process $11,689 $10,322
Finished goods 10,657 10,139
------- -------
$22,346 $20,461
======= =======
(5) SALE OF PROPERTY
On December 18, 2000, the Company sold a parcel of land totaling 11.5 acres
adjacent to the Company's headquarters in West Warwick, Rhode Island. The
gross sale price of $2.1 million resulted in the Company recording a net
book pre-tax gain of $1.1 million. The net book pre-tax gain is not
included in the calculation of EBITDA for purposes of covenant compliance,
consistent with the terms of the Bank Credit Agreement.
36
37
(6) LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Long-term debt consisted of the following at December 31, (in thousands):
1999 2000
-------- --------
Revolving Credit Facility $ -- $ --
Tranche A Term Loan 7,180 4,394
Tranche B Term Loan 43,777 43,318
Senior subordinated notes, due 2006, 10.625% 115,000 115,000
Other 2,363 630
-------- --------
168,320 163,342
Less: Current maturities of long-term debt 4,935 3,873
-------- --------
$163,385 $159,469
======== ========
Long-term debt repayable in each of the next five years is as follows (in
thousands):
2001 $ 3,873
2002 11,067
2003 20,800
2004 12,602
2005 115,000
----------
$ 163,342
==========
REVOLVING CREDIT AND TERM LOANS
The Company is party to a Bank Credit Agreement ("Agreement"), which
provides for secured borrowings from a syndicate of lenders. The Agreement
was amended on March 30, 2001 ("Amendment") to modify certain covenants to
be more consistent with the Company's business plans. A portion ($4.4
million) of the Term Loans (the "Tranche A Term Loans") will mature on May
13, 2002, with quarterly amortization payments during the term of such
loans. The remainder ($43.3 million) of the Term Loans (the "Tranche B Term
Loans") will mature on May 13, 2004, with nominal quarterly amortization
prior to the maturity of the Tranche A Term Loans and with the remaining
amounts amortizing on a quarterly basis thereafter. Pursuant to the
Amendment, commitments under the Revolving Credit Facility were reduced to
$15.0 million on March 30, 2001. The highest amount outstanding under the
Revolving Credit Facility during 2000 was $6.9 million, however no
borrowings existed at yearend. The Revolving Credit Facility will mature on
May 13, 2002. The Agreement is secured by substantially all of the assets
of the Company and its domestic subsidiaries.
37
38
Pursuant to the Amendment, the loans under the Agreement bear interest, at
the Company's option, at either (A) a "base rate" equal to the higher of
(i) the federal funds rate plus 0.5% or (ii) the bank's prime lending rate
plus (x) in the case of Tranche A Term Loans and loans under the Revolving
Credit Facility, an applicable spread ranging from 1.75% to 2.50%
(determined based on the Company's leverage ratio) or (y) in the case of
Tranche B Term Loans, 3.00%; or (B) a "Eurodollar rate" plus (x) in the
case of Tranche A Term Loans and loans under the Revolving Credit Facility,
an applicable spread ranging from 2.75% to 3.50% (determined based on the
Company's leverage ratio), or (y) in the case of Tranche B Term Loans,
4.00%. Swingline Loans may only be "base rate" loans.
The Revolving Credit Facility also requires the Company to pay a commitment
fee on the average daily aggregate unutilized portion of the Revolving
Credit Facility at a rate of 0.5% per annum, payable quarterly in arrears,
as well as a commission on trade and standby letters of credit of 1.25% per
annum of the amount to be drawn under the Agreement. Amounts outstanding
under the Revolving Credit Facility are due on May 13, 2002.
The Agreement contains a number of covenants that, among other things,
restrict the ability of the Company and its subsidiaries to dispose of
assets, incur additional indebtedness, incur guaranty obligations, repay
other indebtedness or amend other debt instruments, pay dividends, create
liens on assets, enter into leases, make investments, make acquisitions,
engage in mergers or consolidations, make capital expenditures, engage in
certain transactions with subsidiaries and affiliates and otherwise
restrict corporate activities. In addition, the Agreement requires
compliance with certain financial covenants, including requiring the
Company to maintain a minimum level of earnings before income taxes,
depreciation and amortization ("EBITDA"), a minimum ratio of EBITDA to
interest expense and a maximum ratio of Indebtedness to EBITDA, in each
case tested at the end of each fiscal quarter of the Company. Under certain
circumstances, Cypress may contribute equity to the Company in order to
ensure compliance with certain covenants of the Agreement.
The Company's obligations under the Agreement are guaranteed by Holdings
and each direct and indirect domestic subsidiary of the Company. The
Company's obligations under the Agreement are secured by substantially all
assets of the Company and its subsidiaries.
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 which is payable
semi-annually on each June 30 and December 31 commencing on June 30, 1997.
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The Notes are redeemable at the option of the Company on or after December
31, 2001. The Notes will be subject to redemption, in whole or in part, at
various redemption prices, declining from 105.313% of the principal amount
to par on and after December 31, 2003. In addition, on or prior to December
31, 2000, the Company had the option to use the net cash proceeds of one or
more equity offerings to redeem up to 35% of the aggregate principal amount
of the Notes originally issued at a redemption price of 110.625% of the
principal amount thereof plus accrued interest to the date of redemption.
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
fair value of these Notes at December 31, 2000 approximated their face
value.
The Note Indenture contains certain affirmative and negative covenants and
restrictions.
As of December 31, 2000, the Company was in compliance with the various
covenants of the Agreement and the Notes.
OTHER LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
Other long-term debt represents borrowings assumed by the Company in
connection with the 1997 acquisition of AMTROL ALFA and 1998 acquisition of
AMTROL NOVA. The AMTROL ALFA debt is denominated in Escudos and includes
the equivalent of approximately million of loans payable to the Industrial
Development Fund of Portugal as well as several local Portuguese banks. The
loans amortize in roughly equal installments through 2001 and accrue
interest at LIBOR plus a premium ranging from 1.25% to 1.5%, adjusted
quarterly or semi-annually. The loans are secured by substantially all
property and equipment owned by AMTROL ALFA. AMTROL ALFA also has available
revolving credit facilities with local banks providing for short-term
working capital loans of up to the equivalent of approximately $7.5
million. Borrowings under these agreements accrue interest at LIBOR plus a
premium ranging from 0.375% to 1.375%. The balance outstanding at December
31, 2000 was approximately $0.03 million. The highest amount outstanding
under these facilities in 2000 was approximately $9.0 million. In Escudos,
the total outstanding long term debt and notes payable to banks amounted to
1,253,522,000 at December 31, 2000. The AMTROL NOVA long-term debt is
denominated in Deutsche Marks and includes the equivalent of approximately
$0.4 million of loans payable to two local German banks due in 2001. These
loans amortize in roughly equal installments through 2002 and accrue
interest at rates ranging from 6.0% to 6.5%. The loans are secured by
substantially all real property and certain equipment owned by AMTROL NOVA.
AMTROL NOVA also has available revolving credit facilities with a local
bank providing for short-term working capital loans of up to the equivalent
of approximately $1.9 million. Borrowings under the agreement accrue
interest at prevailing market rates which averaged approximately 6.25%
during the period ended December 31, 2000. The balance outstanding at
December 31, 2000 was approximately $1.4 million. The highest amount
outstanding under the facility in 2000 was approximately $1.6 million. In
Deutsche Marks, the amount of long term debt outstanding amounted to
3,628,836 at December 31, 2000.
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Cash paid for interest amounted to approximately $19.0 million, $18.1
million, and $18.1 million for the years ended December 31, 1998, 1999 and
2000, respectively.
(7) INCOME TAXES
The components of the provision (benefit) for income taxes are as follows
(in thousands):
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1999 2000
------- ------- -------
Current:
Federal $ -- $ 60 $ 48
State -- -- 8
Foreign 188 1,000 1,861
------- ------- -------
188 1,060 1,917
Deferred:
Federal (5,854) 2,581 704
State (1,062) 484 83
------- ------- -------
(6,916) 3,065 787
------- ------- -------
$(6,728) $ 4,125 $ 2,704
======= ======= =======
The income tax rate reconciliation of the difference between actual and
statutory effective tax rates is as follows:
YEAR ENDED DECEMBER 31,
----------------------------------------
1998 1999 2000
-------- -------- --------
Provision for income taxes at the
Federal statutory rate $ (6,834) $ 2,036 $ (490)
State taxes, net of Federal tax
effect (804) 239 (58)
Goodwill amortization not
deductible for tax purposes 1,512 1,517 1,517
Foreign losses not benefited 92 178 762
Foreign taxes (334) (74) 870
Other, net (360) 229 103
-------- -------- --------
Recorded (benefit) provision $ (6,728) $ 4,125 $ 2,704
======== ======== ========
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Significant items giving rise to deferred tax assets and deferred tax
liabilities at December 31, 1999 and 2000 are as follows (in thousands):
1999 2000
-------- --------
Deferred Income Taxes short-term
Warranty reserves - current $ 92 $ 78
Allowance for doubtful accounts 324 131
Plant closing reserve (62) 127
Accrued vacation 99 73
UNICAP adjustment 227 218
Accrued management restructuring 348 348
Other 362 56
-------- --------
$ 1,390 $ 1,031
======== ========
1999 2000
-------- --------
Deferred Income Taxes long-term
Net operating loss carryforward $ 5,640 $ 6,397
Accelerated depreciation (2,718) (2,880)
Warranty reserves - long-term 1,148 899
Deferred compensation and restricted stock plan 643 611
LIFO revaluation 250 375
NOL valuation -- (764)
Other 129 117
-------- --------
$ 5,092 $ 4,755
======== ========
The net deferred tax assets are included in the accompanying consolidated
balance sheets in deferred income taxes - long-term and deferred income
taxes - short-term. The valuation allowance has been provided for certain
foreign net operating loss carryforwards as it is more likely than not that
the related deferred tax assets for these carryforwards will not be
realizable.
Cash paid for income taxes amounted to $0, $0.3 million, and $0.8 million
for the years ended December 31, 1998, 1999 and 2000, respectively. At
December 31, 2000, the Company had net operating loss carryforwards of
approximately $15.3 million expiring in 2012 through 2018.
(8) PENSION AND PROFIT SHARING PLANS
The Company has a defined contribution 401(k) plan covering substantially
all of its domestic employees. Under the Plan, eligible employees are
permitted to contribute up to 15% of gross pay, not to exceed the maximum
allowed under the Internal Revenue Code. The Company matches each employee
contribution up to 6% of gross pay at a rate of $0.25 per $1 of employee
contribution. The Company also contributes 3% of each employee's gross pay
up to the Social Security taxable wage base and 4% of amounts in excess of
that level up to approximately $0.2 million of wages. Company contributions
to the 401(k) plan
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totaled approximately $1.0 million, $0.8 million and $0.7 million for the
years ended December 31, 1998, 1999 and 2000, respectively.
(9) LEASE COMMITMENTS
The Company leases certain plant facilities and equipment. Total rental
expenses charged to operations approximated $1.9 million, $1.4 million and
$1.3 million for the years ended December 31, 1998, 1999 and 2000,
respectively. Minimum rental commitments under all non-cancelable operating
leases are as follows (in thousands):
2001 $ 834
2002 473
2003 52
2004 28
2005 --
-------
$ 1,387
=======
Certain of the leases provide for renewal options.
(10) COMMITMENTS AND CONTINGENCIES
At December 31, 1999 and 2000, the Revolving Credit Facility contained a
sublimit to support the issuance of letters of credit in the amount of $5.0
million. At December 31, 1999 and 2000, letters of credit outstanding
amounted to $1.1 million.
The Company is involved in various legal proceedings which, in the opinion
of management, will not result in a material adverse effect on its
financial condition or results of operations.
(11) STOCK PLANS
Certain key employees and directors have been granted options to purchase
common shares of the Company's parent, AMTROL Holdings Inc, under the
AMTROL Holdings 1997 Incentive Stock Plan . As of December 31, 2000,
options to purchase 158,335 shares under the 1997 Plan were outstanding.
The outstanding options include 44,796 non-qualified options which are
exercisable immediately, provided that purchased shares are subject to
repurchase by Holdings at the exercise price until such shares vest under
certain circumstances. The remaining 113,539 options are non-qualified
options issued in 1999 and 2000, none of which are exercisable.
The Company applies APB opinion No. 25 to account for its stock option
plans. Accordingly, pursuant to the terms of the AMTROL Holdings 1997
Incentive Stock Plan, no compensation cost related to the issuance of stock
options has been recognized in the Company's financial statements. In 1998,
adjustments to compensation expense associated with the options issued in
1997 would have approximated $0.1 million as a result of forfeitures by
certain individuals who left the Company. If the Company had determined
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compensation cost for options under the provisions of SFAS No. 123, in
1999, the Company's net income would have decreased approximately $1.0
million. The fair value of the options granted in 1999 and 2000 was
estimated using the Black-Scholes option pricing model. The following key
assumptions were used to value the options granted: volatility, 0; weighted
average risk free rate, 5.00%; average expected life, 3 years. The weighted
average fair value per share of the stock options granted in 1999 amounted
to $13.92. It should be noted that the option pricing model used was
designed to value readily tradeable stock options with relatively short
lives. The options granted are not tradeable. However, management believes
that the assumptions used and the model applied to value the awards yield a
reasonable estimate of the fair value of the options under the
circumstances.
(12) BUSINESS SEGMENT INFORMATION
The Company adopted SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, in 1998. AMTROL's reportable segments
are delineated geographically. The segments are managed separately because
of their different product offerings, markets served, manufacturing
processes and cost structures. As the Company rationalizes its
manufacturing capacity and manages its markets, the frequency of overlap of
products and markets between segments has increased.
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 which are
marketed throughout Europe, the Middle East and Africa, as well as the Far
East. The Donaueschingen facility manufactures and distributes residential
and commercial water heaters which are marketed primarily in Switzerland,
Austria and Germany. The facility in Swarzedz refurbishes gas cylinders.
The primary criteria by which financial performance is evaluated and
resources are allocated include revenues and EBITDA. The following is a
summary of key financial data by segment:
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1998 1999 2000
---------- ---------- ----------
Net Sales to external customers
North America $ 151,659 $ 149,534 $ 135,406
Europe 61,231 72,519 62,066
---------- ---------- ----------
Consolidated $ 212,890 $ 222,053 $ 197,472
========== ========== ==========
INCOME FROM OPERATIONS
North America $ (4,801) $ 17,665 $ 14,731
Europe 3,420 6,816 974
---------- ---------- ----------
Consolidated $ (1,381) $ 24,481 $ 15,705
========== ========== ==========
DEPRECIATION AND AMORTIZATION
North America $ 10,143 $ 10,315 $ 10,747
Europe 3,004 3,688 3,258
---------- ---------- ----------
Consolidated $ 13,147 $ 14,003 $ 14,005
========== ========== ==========
EBITDA
North America $ 4,889 $ 29,130 $ 24,668
Europe 7,565 9,216 5,295
---------- ---------- ----------
Consolidated $ 12,454 $ 38,346 $ 29,963
========== ========== ==========
CAPITAL EXPENDITURES
North America $ 7,807 $ 4,571 $ 3,743
Europe 2,051 1,227 4,632
---------- ---------- ----------
Consolidated $ 9,858 $ 5,798 $ 8,375
========== ========== ==========
LONG-LIVED ASSETS
North America $ 173,590 $ 170,979 $ 164,509
Europe 49,359 42,641 43,697
---------- ---------- ----------
Consolidated $ 222,949 $ 213,620 $ 208,206
========== ========== ==========
Income from operations for the North America business segment above is
reduced by goodwill amortization for each year presented. In addition,
depreciation and amortization includes amortization relating to debt
finance costs. "EBITDA" is earnings (net income/loss) before interest,
taxes, depreciation and amortization, which amounts are as disclosed in the
statement of operations. EBITDA is frequently considered by readers of
financial statements and therefore the Company believes that inclusion of
EBITDA is useful supplemental information. EBITDA may be understood as one
measure of a company's ability to grow. 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.
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ITEM 14(a)(2) SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
BALANCE AT
BEGINNING OF ADJUSTMENTS/ BALANCE AT END
CONSOLIDATED PERIOD PROVISION RECOVERIES WRITE-OFFS OF PERIOD
- -------------------------------------- --------------- ------------- --------------- ---------------- ---------------
Year ended December 31, 1998
Allowance for doubtful accounts $ 1,088 $ 526 $ 42 $ (62) $ 1,594
Year ended December 31, 1999
Allowance for doubtful accounts 1,594 -- -- (406) 1,188
Year ended December 31, 2000
Allowance for doubtful accounts 1,188 13 -- (368) 833
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in West Warwick, Rhode
Island, on the 2nd day of April 2001.
AMTROL Inc.
By: /s/ Larry T. Guillemette
------------------------------------------
Larry T. Guillemette
Chief Financial Officer
Date: April 2, 2001
----------------------------------------
Pursuant to the requirements of the Securities Act of 1934, this registration
statement has been signed by the following persons in the capacities and on the
date indicated.
Signature Title Date
--------- ----- ----
/s/ Albert D. Indelicato President, Chairman of the Board, April 2, 2001
- ---------------------------------------- Chief Executive Officer and Director
Albert D. Indelicato (Principal Executive Officer)
/s/ Larry T. Guillemette Exec. Vice President, Chief Financial April 2, 2001
- ---------------------------------------- Officer, and Treasurer (Principal
Larry T. Guillemette Financial Officer)
/s/ John P. Cashman Director April 2, 2001
- ----------------------------------------
John P. Cashman
/s/ Andrew M. Massimilla Director April 2, 2001
- ----------------------------------------
Andrew M. Massimilla
/s/ David P. Spalding Director April 2, 2001
- ----------------------------------------
David P. Spalding
/s/ James A. Stern Director April 2, 2001
- ----------------------------------------
James A. Stern
/s/ Anthony D. Tutrone Director April 2, 2001
- ----------------------------------------
Anthony D. Tutrone
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EXHIBIT INDEX
EXHIBIT # DOCUMENT DESCRIPTION
- --------- --------------------
3.1 Restated Articles of Incorporation of AMTROL Inc. (incorporated by
reference from the Company's Registration Statement on Form S-4,
Registration No. 333-18075, declared effective by the Securities and
Exchange Commission on January 2, 1997).
3.2 Bylaws of AMTROL Inc. (incorporated by reference from the Company's
Registration Statement on Form S-4, Registration No. 333-18075,
declared effective by the Securities and Exchange Commission on
January 2, 1997).
4.1 Indenture, dated as of November 1, 1996 between AMTROL Acquisition,
Inc. and The Bank of New York (incorporated by reference from the
Company's Registration Statement on Form S-4, Registration No.
333-18075, declared effective by the Securities and Exchange
Commission on January 2, 1997).
4.2 Form of 10-5/8% Senior Subordinated Notes due 2006 (included in
Exhibit 4.1) (incorporated by reference from the Company's
Registration Statement on Form S-4, Registration No. 333-18075,
declared effective by the Securities and Exchange Commission on
January 2, 1997).
4.3 First Supplemental Indenture, dated as of November 13, 1996, between
AMTROL Inc. and The Bank of New York (incorporated by reference from
the Company's Registration Statement on Form S-4, Registration No.
333-18075, declared effective by the Securities and Exchange
Commission on January 2, 1997).
10.1 Credit Agreement, dated as of November 13, 1996, among AMTROL
Acquisition, Inc. and AMTROL Holdings, Inc., various lending
institutions party thereto, Morgan Stanley Senior Funding, Inc. as
documentation agent, and Bankers Trust Company, as administrative
agent (incorporated by reference from the Company's Registration
Statement on Form S-4, Registration No. 333-18075, declared effective
by the Securities and Exchange Commission on January 2, 1997).
10.1.1 First Amendment to Credit Agreement, dated as of June 24, 1997
(incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended July 5, 1997).
10.1.2 Second Amendment to Credit Agreement, dated as of December 12, 1997
(incorporated by reference to Exhibit 7(c) in the Company's Current
Report on Form 8-K dated December 22, 1997).
10.1.3 Third amendment to the Credit Agreement dated as of June 24, 1998
(incorporated by reference to the Company's Quarterly report on Form
10-Q for the quarter ended July 4, 1998).
10.1.4 Fourth amendment to the Credit Agreement dated as of July 13, 1998
(incorporated by reference to the Company's Quarterly report on Form
10-Q for the third quarter ended October 3, 1998).
10.1.5 Fifth amendment to the Credit Agreement dated as of March 30, 2001.
10.2 AMTROL Inc. Pension Plan and Trust (incorporated by reference from the
Company's Registration Statement on Form S-1, Registration No.
33-48413, declared effective by the Commission on March 18, 1993).*
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10.3 Amendments to AMTROL Inc. Pension Plan and Trust (incorporated by
reference from the Company's Registration Statement on Form S-1,
Registration No. 33-48413, declared effective by the Securities and
Exchange Commission on March 18, 1993).*
10.4 AMTROL Inc. Executive Cash Bonus Plan (incorporated by reference from
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994).*
10.5 AMTROL Inc. Supplemental Retirement Plan II (incorporated by reference
from the Company's Registration Statement on Form S-1, Registration
No. 33-48413, declared effective by the Commission on March 18,
1993).*
10.6 First Amendment to AMTROL Inc. Supplemental Retirement Plan II
(incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1995).*
10.10 Employment Agreement dated June 24, 1998 by and between AMTROL Inc.
and Albert D. Indelicato (incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1998).*
10.11 AMTROL Holdings Inc. 1997 Incentive Stock Plan dated December 16,
1997.* (incorporated by reference to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997).
18 Preferability letter regarding change in accounting policy from LIFO
to FIFO (incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998).
21 Subsidiaries of AMTROL Inc.
* Management contract or compensatory plan arrangement.
48