UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 0-20328

AMTROL Inc.

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

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

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

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

State the aggregate market value of the Registrant’s voting and non-voting common equity held by non-affiliates as of the last business day of the Registrant’s most recently completed second fiscal quarter: $0

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: $0.01 Par Value: 100 shares outstanding as of March 29, 2004.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Background

AMTROL Inc., together with its subsidiaries (“AMTROL” or the “Company”), is a leading international designer, manufacturer and marketer of expansion and pressure control products used in water systems applications and selected sectors of the Heating, Ventilation and Air Conditioning (“HVAC”) market. The Company’s principal products include well water accumulators, hot water expansion controls, water treatment products, indirect-fired water heaters and returnable and non-returnable pressure-rated cylinders used primarily to store, transport and dispense refrigerant, heating and cooking gases. Many of these products are based on a technology originated and developed by the Company, involving a pre-pressurized vessel with an internal diaphragm to handle fluids under pressure.

The Company was incorporated in Rhode Island in 1973, and is the successor of a Rhode Island corporation which was incorporated in 1946. On November 12, 1996, as a result of a merger agreement with AMTROL Holdings Inc. (“Holdings Inc.”) and its wholly owned subsidiary, AMTROL Acquisition Inc., the Company became a wholly-owned subsidiary of Holdings Inc., a Delaware corporation controlled by The Cypress Group L.L.C. (“Cypress”). The Company’s principal executive offices are located at 1400 Division Road, West Warwick, Rhode Island 02893 (telephone number: (401) 884-6300).

Operations

AMTROL is the market leader in the manufacture of its principal products. The Company’s prominence is attributable to the strength of its brand names, product breadth, quality and innovation, as well as its marketing, distribution and manufacturing expertise. In addition, AMTROL’s principal markets are highly replacement oriented, with more than 50% of the Company’s core business coming from replacement sales. Sales can be affected by extreme weather conditions, as well as significant changes in economic circumstances.

One of the Company’s strengths is its brand names, which are among the most widely recognized in its markets. For example, the Company’s EXTROL^® brand is widely recognized by customers as the leading hot water expansion control tank. Other well-known brand names of the Company include Well-X-Trol^®, Therm-X-Trol^®, BoilerMate™, CHAMPION^® and Water Worker^®. The Company is a recognized technology leader in virtually all of its core product lines. In fact, many of the Company’s major product lines are considered the industry benchmark, a key strategic marketing advantage.

During its 58-year history, AMTROL has established a strong partnership with wholesalers, supporting a broad distribution network serving approximately 1,800 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

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Company’s customers to consolidate their purchases with the Company and manage inventory more efficiently. These factors have established AMTROL’s products as preferred brands and allow the Company to realize premium pricing on most of its premium branded products.

AMTROL ALFA Metalomecânica, S.A. (“AMTROL ALFA”), located in Guimaraes, Portugal, is Europe’s largest manufacturer of reusable steel gas cylinders, distributed worldwide and used principally for the storage of cooking and heating gases. AMTROL ALFA also produces non-returnable gas cylinders supplied to European and Asian customers which are used principally for the storage of refrigerant gases. AMTROL ALFA provides the Company with the potential for a low-cost international manufacturing base for all of the Company’s cylinder products and is an important source of supply for the Company’s international customers.

AMTROL NOVA GmbH & Co. K.G. (“AMTROL NOVA”), located in Donaueschingen, Germany, manufactures high-end residential and commercial water heaters which are marketed primarily in Germany, Switzerland and Austria. On February 27, 2004 AMTROL NOVA was sold to DTT NOVA Beteiligungen GmbH & Co. KG. See Footnote 12 in the Company’s Notes to Consolidated Financial Statements for further discussion.

AMTROL Poland Sp z.o.o. (“AMTROL Poland”), located in Swarzedz, Poland refurbishes returnable gas cylinders, primarily for the Polish market. AMTROL Poland also sells new gas cylinders that are fabricated by AMTROL ALFA and shipped in an unfinished condition to AMTROL Poland for finishing and distribution. AMTROL Poland provides the Company with both a favorable manufacturing cost structure and close proximity to the gas cylinder markets in Central and Eastern Europe.

Net sales in geographic regions outside of the United States and Canada, primarily Europe, the Middle East, Africa and the Far East, accounted for 32.0%, 29.0% and 38.2% of the Company’s total net sales in fiscal years 2001, 2002 and 2003, respectively.

The Company continues to review potential acquisitions that may represent good strategic fits with the Company’s lines of business.

Products And Markets

HVAC Products

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

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EXTROLs^®. The EXTROL^® expansion accumulator, the first of the Company’s products for handling fluid under pressure, redefined the standards for controlling the expansion of water in hydronic heating systems. Earlier systems consisted simply of a vessel containing air, resulting in excessive pressure and corrosion. The Company developed a technology which uses a flexible diaphragm inside a pre-pressurized vessel to maintain the separation of air and water and has applied this technology in other HVAC and water system products. This technology controls pressure in the heating system and minimizes problems related to hot water expansion by allowing the volume of water to increase as the temperature of the water increases within a closed system, thereby substantially reducing operating problems.

Therm-X-Trols^®. Therm-X-Trols^® accumulate expanded hot water from potable water heaters where flow back into the public water supply is prohibited due to the presence of backflow prevention devices. In response to the Clean Water Act of 1984, certain jurisdictions established local codes to require owners of commercial and residential buildings to install backflow prevention devices in order to prevent the contamination of the public water supply. Codes adopted by organizations that set standards for most of the United States also require a separate device to handle the expanded water and prevent it from flowing back into the public water supply. The principal alternatives are relief valves, which permit water to drain inside the building, and thermal expansion accumulators, such as the Therm-X-Trol^®, which capture the water. Therm-X-Trol^® satisfies these code requirements, as well as the codes of certain localities that specifically require a thermal expansion accumulator. Additionally, certain domestic water heater manufacturers specify that their warranties are void if thermal expansion accumulators are not used in conjunction with their products where backflow prevention devices are installed.

Indirect-Fired Water Heaters. In response to market demands for both an abundant supply of hot water and energy conservation, the Company offers a line of indirect-fired residential and commercial water heaters, which it manufactures and distributes under the brand name Boiler Mate™. Used in conjunction with a new or existing boiler installed to heat living and work areas, these water heaters offer an alternative to conventional gas and electric potable water heaters and tankless coils. Hot water is generated through the use of heat exchangers and circulators which circulate heated water from the boiler through a coil in the core of the water heater’s reservoir. The Boiler Mate Classic Series™, available in 26 and 41 gallon models, is sold primarily for residential applications. The Boiler Mate Premier Series™, a line of stainless steel models, offers sizes ranging from 60 to 120 gallons for light commercial applications and residential customers who require large amounts of hot water and rapid recovery time. A recent addition to the Company’s offerings, The Boiler Mate Top Down Series™, was the direct result of continuing communication with key customers and installers. These 41 gallon models have the heat exchanger and all piping connections placed at the top for fast installation and easy maintenance.

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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 refrigerant cylinder production line previously located in Singapore and began supplying its European and Asian non-returnable refrigerant cylinder customers from AMTROL ALFA. The transfer of this production line enhanced the Company’s worldwide presence in non-returnable cylinder markets and its ability to provide optimum production and delivery solutions to its major multi-national customers. The Company is also one of the world’s two largest manufacturers of non-returnable pressure-rated cylinders used in the storage, transport and dispensing of refrigerant gases for air conditioning and refrigeration systems.

In 1999, the Company established AMTROL Poland which refurbishes returnable gas cylinders, primarily for the Polish market. AMTROL Poland also sells new gas cylinders that are fabricated by AMTROL ALFA and shipped in an unfinished condition to AMTROL Poland for finishing and distribution. AMTROL Poland provides the Company with both a favorable manufacturing cost structure and close proximity to the gas cylinder markets in Central and Eastern Europe.

Water Systems Products

AMTROL’s sales of its water systems products consist primarily of water accumulators for residential and commercial well water systems and products for residential water softening and purification.

Well Water Systems. The Company produces and sells well water accumulators for both residential and commercial applications under the brand names Well-X-Trol^®, CHAMPION^® and VALUE-WELL, as well as under several other brand and private label programs. Virtually all of the well water accumulators sold by the Company incorporate an internally mounted rubber diaphragm that seals an air charge and allows pressure to increase as water fills the plastic-lined vessel. This design serves to control pressure while maintaining the separation of air and water in the vessel, thereby eliminating water logging (absorption of air into water) as well as reducing wear on switches, pump motors and other system components caused by more frequent on/off cycling. A typical well water system consists of a submersible or jet pump located in the well that pumps water to an AMTROL well water accumulator.

The well water accumulator is connected to the plumbing system in order to provide water on demand within a specific range of pressure as controlled by a pressure switch. As the water level and pressure in the vessel decreases, the diaphragm relaxes and the pressure switch causes the pump to cycle until a certain pressure is achieved in the system.

Water Treatment/Filtration Products. The Company offers a range of products to meet increasing global demand for improved water quality and water pressure. The Company manufactures and markets water softeners under the Water Soft™ brand. Other products such as reverse osmosis accumulators and related systems distributed by the Company can improve the quality of both municipal-supplied water and well water. A recent supplement to this product line is the Odor Oxidizer™ hydrogen sulfide removal system. This patented system removes offensive sulfur odor from potable water systems via a proprietary method that uses no chemicals or media. The Company also manufactures and markets products under the brand name AMTROL Pressuriser^® that boosts water pressure where available pressure is not adequate.

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Distribution and Marketing

The Company’s principal channel of distribution is plumbing, heating and pump specialty wholesalers. The Company maintains its presence in the United States and Canadian wholesale markets through a network of approximately 45 independent manufacturer’s representatives arranging sales on a commission basis, as well as 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 retail channel through its salaried direct sales force.

At its Education Center, which is an integral part of the Company’s marketing organization, and at Company sponsored seminars throughout the United States and selected international locations, the Company provides education and training to wholesalers, contractors and engineers, independent sales representatives and their employees to assist them in understanding the technical aspects of their respective customers’ requirements and the Company’s product lines. As the Company educates contractors and engineers about the benefits of the Company’s products, its products are more effectively “pulled” through its distribution system.

Non-returnable refrigerant pressure-rated cylinders are sold to major chemical companies, which produce and package refrigerant gases, and to independent contractors that purchase bulk refrigerants and fill the cylinders. The Company’s major customers for reusable refrigerant gas cylinders are wholesale distributors who sell the products to service providers and refrigerant recovery equipment manufacturers. AMTROL ALFA’s major customers for reusable cylinders are major European gas companies or their distributors.

With the exception of one cylinder customer to whom global sales were approximately 6.2% of total consolidated net sales, no individual customer represented more than five percent of the Company’s net sales in 2003.

Manufacturing, Raw Materials and Suppliers

The Company manufactures its products primarily at its own facilities, many of which depend on the Company’s expertise in pressure vessel construction. The Company takes advantage of the material economies and precision inherent in deep-draw stamping technology to manufacture products of superior performance and life.

During the second half of 2003, the Company experienced increasing costs for several key raw materials (steel, copper, brass and rubber), energy and freight. The Company acted aggressively to mitigate cost increases whenever possible by developing new sources and through contracted purchases. The Company anticipates that mitigating the impact of rising steel prices and steel availability issues will require active management in 2004.

Emphasis on productivity improvements continued in 2003 via capital expenditures and continuous improvement activities such as Kaizen, Visual Control and One-Piece Flow Initiatives. These techniques allow the Company to identify and eliminate waste in its cost structure.

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Quality levels at the Company improved in 2003. Field failures and sales returns experienced notable reductions attributable to the revision of rework policies, stringent enforcement of supplier quality protocols and continuous improvement programs.

In 2003, the Company achieved ISO 9000-2000 certification. This revision to the 1994 ISO standard places heavy emphasis on customer feedback. Many of the new products introduced in 2003 and planned for introduction in 2004 have been derived from the Company’s heightened emphasis on reacting to customer feedback and building customer loyalty.

Emphasis on safety continues to be a primary focus of the Company’s management. In 2003, OSHA Frequency and Severity rates remained stable with three of the four facilities in the Company’s North America segment reporting zero lost time injuries.

The condition at the Company’s facilities and capital equipment are considered good. Capital expenditures in 2003 are anticipated to yield further productivity improvement. As a result, the Company does not anticipate any capacity restraints.

Seasonality and Backlog

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

Patents, Trademarks And Licenses

While the Company owns a number of patents, the Company believes that its position in its markets depends primarily on factors such as manufacturing expertise, technological leadership, superior service and quality and strong brand name recognition, rather than on patent protection. The Company believes that foreign and domestic competitors have been unable to match the quality of the Company’s branded products.

The Company also holds a number of registered and unregistered trademarks for its products. The Company believes the following registered trademarks, which appear on its products and are widely recognized in its markets, are among those of strategic importance to its business: Well-X-Trol^®, Therm-X-Trol^®, EXTROL^®, Boiler Mate™, CHAMPION^® and Water Worker^®.

Competition

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

Employees

As of December 31, 2003, the Company had 550 employees in the United States, none of who were represented by collective bargaining units. In addition, the Company had 1,172 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.

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Environmental Matters

Some of the Company’s operations generate or have in the past generated waste materials that are regulated under environmental laws. In the past, certain of the Company’s operations have been named parties in litigation associated with off-site hazardous waste treatment and disposal. Based upon the Company’s experience in matters that have been resolved and the amount of hazardous waste shipped to off-site disposal facilities, the Company believes that any share of costs attributable to it will not be material should any litigation arise or any claims be made in the future. However, there can be no assurance that any liability arising from, for example, contamination at facilities the Company owns or operates or formerly owned or operated (or an entity or business the Company has acquired or disposed of), or locations at which waste or contaminants generated by the Company have been deposited (or deposited by an entity or business the Company has acquired or disposed of) will not arise or be asserted against the Company or entities for which the Company may be responsible in a manner that could materially and adversely affect the Company.

The Company monitors and reviews its procedures and policies for compliance with environmental laws. Based upon the Company’s experience to date, the Company operates in substantial compliance with environmental laws, and the cost of compliance with existing regulations is not expected to have a material adverse effect on the Company’s results of operations, financial condition or competitive position. However, future events, including changes in existing laws and regulations or enforcement policies, may give rise to additional compliance costs which could have a material adverse effect on the Company’s results of operations, financial condition or competitive position.

ITEM 2. PROPERTIES

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

	(a)		Leased facilities
	(b)		Sold as of February 27, 2004

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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 material adverse effect on the Company’s results of operations, financial condition or competitive position.

ITEM 3. LEGAL PROCEEDINGS

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

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

Not applicable.

PART II

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

All of the common stock of the Company is owned by Holdings Inc. and no trading market exists for the stock. All of the common stock of Holdings Inc. is held by affiliates of Cypress Merchant Banking Partners, L.P. and certain officers, directors and employees of the Company, and likewise there is no trading market for Holdings’ stock. For more information, see Item 12, “Security Ownership of Certain Beneficial Owners and Management”.

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for and as of each of the years in the five-calendar-year period ended December 31, 2003 have been derived from the Consolidated Financial Statements of the Company, including the related notes thereto. The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the Consolidated Financial Statements of the Company, including the related notes thereto, appearing elsewhere in this Form 10-K.

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

This section should be read in conjunction with the Consolidated Financial Statements of the Company and related thereto included elsewhere herein.

Business Overview

AMTROL Inc., together with its subsidiaries (“AMTROL” or the “Company”), is a leading international designer, manufacturer and marketer of expansion and pressure control products used in water systems applications and selected sectors of the Heating, Ventilation and Air Conditioning (“HVAC”) market. The Company is the market leader in the manufacture of its principal products. The Company’s prominence is attributable to the strength of its brand names, product breadth, quality and innovation, as well as its marketing, distribution and manufacturing expertise. The Company’s two business segments include North America and Europe.

In the North America segment, the Company’s principal markets are highly replacement oriented, with more than 50% of the Company’s core business coming from replacement sales. Sales can be affected by extreme weather conditions, as well as significant changes in economic circumstances. During 2003, the Company experienced a decline in net sales due to the reduced well drilling activity as a result of above average rainfall and flooding in the mid-Atlantic and Midwestern regions and a temporary customer facility shutdown. Competitive pricing pressures within the Company’s principal markets and the increased cost of key raw materials have also caused gross profit to decline.

During the second half of 2003, the Company experienced increasing costs for several key raw materials (steel, copper, brass and rubber), energy and freight. The Company acted aggressively to mitigate cost increases whenever possible by developing new sources and through contracted purchases. The Company anticipates that mitigating the impact of rising steel prices and steel availability issues will require active management in 2004.

Emphasis on productivity improvements continued in 2003 via capital expenditures and continuous improvement activities such as Kaizen, Visual Control and One-Piece Flow Initiatives. These techniques allow the Company to identify and eliminate waste in its cost structure. In addition, management continues to explore and implement strategies in order to reduce its selling, general and administrative expenses.

The Company’s liquidity position improved during 2003 through the proceeds of an additional $15 million in Term B Loans. The proceeds will be used for capital investment programs and general working capital purposes. In addition, the Company was able to extend the maturity date on the Term B Loan by one year to December 2005, and revise certain covenants to be more consistent with the Company’s business plans.

Forward Looking Statements

The Company and its 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.

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

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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Fiscal Year Ended December 31, 2003 Compared to Fiscal Year Ended December 31, 2002.

Net Sales. Net sales in 2003 increased $9.4 million or 5.0% to $196.2 million from $186.8 million in 2002. In North America, net sales decreased $5.2 million or 4.2% as compared to 2002 due principally to a decline in well drilling caused by above average rainfall and flooding in the mid-Atlantic and Midwestern regions of the U.S., and a decline in cylinder sales as a result of a temporary shut-down at a major customer’s facility. Net sales in Europe increased $14.6 million or 22.5% as compared to 2002 due principally to the strengthening of the Euro against the U.S. dollar and stronger sales performance. If the value of the Euro had remained at the average level of 2002, reported net sales in Europe for 2003 would have increased $2.2 million or 3.3% from 2002.

Gross Profit. Gross profit decreased approximately $2.6 million in 2003 to $40.0 million from $42.6 million in 2002. As a percentage of net sales, gross profit in 2003 decreased to 20.4% from 22.8% in 2002. This decrease was due principally to the higher proportion of net sales from the Company’s European operations which have lower gross profit margins and increased steel costs in North America and Europe.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.4 million or 1.3% in 2003 to $28.2 million from $28.6 million in 2002. The strengthening of the Euro versus the U.S. dollar in 2003 largely offset a decline in expense attributable to certain one-time compensation costs incurred during the second quarter of 2002.

Gain (loss) on Extinguishment of Debt, Net. The increase of $6.8 million was principally the result of a gain of $7.2 million recorded on the purchase of $17.2 million of the Company’s outstanding Senior Subordinated Notes offset by a loss of $0.5 million on the extinguishment of debt for unamortized financing costs associated with the execution of the First and Second Amendments to the Loan and Security Agreement and Cypress Agreement.

Other Income (Expense), Net. Other income (expense), net for 2003 was $0.4 million as compared to 2002 of $(0.4) million. The increase of $0.8 million was principally attributable to the reduction in currency exchange losses of $0.7 million in 2003 versus 2002.

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Income Taxes. Income tax expense increased $0.3 million in 2003 as compared to 2002 reflecting increased withholding taxes paid by AMTROL ALFA. During 2002, management decided to discontinue the recognition of tax benefits associated with pre-tax losses from the Company’s U.S. operations. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount expected to be realized is based upon estimates derived from tax planning strategies which the Company believes are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards as it is more likely than not that the related deferred tax assets for these carryforwards will not be realized. Additions to the valuation allowance may be required in the event that estimates are changed. The total change in valuation allowance was a $3.6 million increase for the year December 31, 2002, and a $1.0 million increase for the year December 31, 2003.

Net Income (Loss). The net loss in 2003 of $1.7 million compares to a net loss in 2002 of $45.3 million. The reduction was principally due to the goodwill impairment charge of $38.1 million recorded in 2002 combined with a gain of $7.2 million recorded in 2003 on the extinguishment of a portion of the Company’s senior subordinated notes.

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

Net Sales. Net sales in 2002 increased $4.5 million or 2.5% to $186.8 million from $182.3 million in 2001. In North America, net sales decreased $1.3 million or 1.0% as compared to 2001 due principally to the continuing weakness of the North American economy. Net sales in Europe increased $5.8 million or 9.8% as compared to 2001 due principally to the addition of significant new business and the strengthening of the Euro against the U.S. dollar. If the value of the Euro had remained at the average level of 2001, reported net sales in Europe for 2002 would have increased $2.2 million or 3.7% from 2001.

Gross Profit. Gross profit increased approximately $1.6 million in 2002 to $42.6 million from $41.0 million in 2001. As a percentage of net sales, gross profit in 2002 increased to 22.8% from 22.5% in 2001. Several factors contributed to the margin increase including price increases in certain product lines and shifts in product mix. In Europe, new business combined with a stronger Euro also contributed to the increase. In addition, favorable results from continuing cost reduction efforts and improvements in labor productivity were realized at all of the Company’s manufacturing locations.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $0.7 million or 2.8% in 2002 to $28.6 million from $27.9 million in 2001. The increase was principally due to new marketing initiatives of $0.2 million and increased compensation costs of $1.2 million offset by cost cutting initiatives implemented at all the Company’s operating units.

Gain (loss) on Extinguishment of Debt, Net. The increase of $0.6 million was principally the result of a loss of $0.6 million associated with unamortized financing costs due to the refinancing of its Senior debt in 2001.

Other Income (Expense), Net. Other income (expense), net for 2002 was $(0.4) million as compared to 2001 of $0.1 million. The decrease of $0.5 million was principally

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attributable to currency exchange losses of $1.3 million recorded by the Company’s European operations as a result of the strengthening of the Euro versus the U.S. Dollar, partially offset by government grants of $0.6 million awarded to the Company’s Portuguese subsidiary.

Income Taxes. Income tax expense increased $1.9 million in 2002 as compared to 2001 reflecting management’s decision to discontinue the recognition of tax benefits associated with pre-tax losses from the Company’s U.S. operations. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount expected to be realized is based upon estimates derived from tax planning strategies which the Company believes are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards as it is more likely than not that the related deferred tax assets for these carryforwards will not be realized.

Net Income (Loss). The net loss in 2002 of $45.3 million compares to a net loss in 2001 of $9.4 million. The change was principally due to the goodwill impairment charge of $38.1 million (see Note 4 to the accompanying Consolidated Financial Statements).

Liquidity and Capital Resources

The Company is a party to two credit facilities: a $52.5 million ($42.5 million prior to the November 18, 2003 amendments discussed below) senior first-priority secured credit facility arranged by Foothill Capital Corporation (the “Foothill Facility”) and a $35.0 million ($25.0 million prior to the November 18, 2003 amendments discussed below) senior second-priority secured credit facility with affiliates of The Cypress Group L.L.C. (the “Cypress Facility”).

The Foothill Facility provides the Company (i) a term loan facility consisting of a five-year Term A Loan, $7.3 million outstanding at December 31, 2003, bearing cash interest at LIBOR plus 3.5% (4.75%), and a four-year Term B Loan, $20.3 million outstanding as of December 31, 2003, bearing cash interest at the Wells Fargo Reference Rate (approximating the prime rate) plus 3.5%, and Paid-In-Kind (“PIK”) interest at 3.5% (11.0%) (collectively the “Term Loans”) and (ii) a five-year Revolving Credit Facility, bearing interest at LIBOR plus 2.5% (4.50%) or the Wells Fargo Reference Rate plus 0.5%, providing the lesser of (a) $30.0 million less the aggregate outstanding principal amount of the Term A Loan less letter of credit usage and (b) borrowing base less letter of credit usage. At December 31, 2003, total availability and aggregate borrowings under the Revolving Credit Facility were $7.3 million and $4.7 million, respectively.

On November 18, 2003, the Company amended its Foothill Facility by entering into the First Amendment and Waiver to Loan and Security Agreement (the “First Amendment”) and also amended its Cypress Facility by entering into the Second Amendment to Loan and Security Agreement (the “Second Amendment”). The First Amendment increased the Term B Loan by $15.0 million to $20.3 million and extended the maturity date of the Term B Loan to December 26, 2005. Commitments under the Revolving Credit Facility and Term A Loan were reduced in the aggregate from $35.0 million to $30.0 million. The additional funds provided by the First Amendment will be used for capital investment programs, general working capital purposes and may also be used to purchase the Company’s Senior Subordinated Notes. The First Amendment also revised certain covenants to be more consistent with the Company’s business plans. The amendments did not effect the maturity date (December 26, 2006) of the Revolving Credit Facility, Term A Loan and the Cypress Facility.

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The Cypress Facility consists of term loans totalling $35.0 million (the “Term C Loan”). The Term C Loan, $39.8 million outstanding as of December 31, 2003, has a five-year maturity, December 26, 2006, and bears PIK interest fixed at 12% per annum paid quarterly, which at the lenders option can be paid in common stock of the Company. In addition, 60,000 warrants with an exercise price of $0.01 were issued under the Cypress Facility. The Company expects that the effective interest rate will be greater than 12% given the additional interest expense associated with the warrants.

The Foothill Facility and Cypress Facility contain certain affirmative and negative covenants and restrictions. As of December 31, 2003, the Company was in compliance with all of these covenants and restrictions.

As of December 31, 2003, the Company’s operating capital (defined as accounts receivable and inventory, less accounts payable) increased $6.6 million from $23.3 million at December 31, 2002 to $29.9 million. Accounts receivable and inventories increased $0.7 million and $3.5 million, respectively while accounts payable decreased $2.4 million.

Accounts receivable increased $0.7 million in 2003. The increase was due principally to the impact of the strengthening Euro on the translation of the Company’s European operations offset by improved collections at all operating units. The Company did not experience any significant changes in credit terms, credit utilization or delinquency in accounts receivable in 2003 as compared to 2002.

The Company’s inventories increased $3.5 million. The increase was due principally to the impact of the strengthening Euro on the translation of the Company’s European operations.

Accounts payable decreased $2.4 million. The decrease in accounts payable was due principally to the timing of vendor payments offset by the impact of the strengthening Euro on the translation of the Company’s European operations.

Net cash used in operating activities in 2003 of $1.2 million contrasts with net cash provided by operations in 2002 of $5.1 million. The change was due principally to increased losses (income from operations less interest expense and other income/(expense), and working capital requirements partially offset by lower cash interest. Cash provided by financing activities increased $17.2 million principally due to the additional Term B Loan issuance.

Capital expenditures were $4.2 million, $3.3 million and $3.4 million for the years ended December 31, 2001, 2002 and 2003, respectively. Substantially all of the expenditures in 2001, 2002 and 2003 related to ongoing maintenance and upgrading of the Company’s manufacturing technology at all of its production facilities.

In November 1996, the Company issued, under a Note Indenture Agreement (the “Agreement”), $115.0 million of Senior Subordinated Notes due 2006 (the “Notes”) of which $97.8 million was outstanding as of December 31, 2003. The Notes are unsecured obligations of the Company. The Notes bear interest at the rate of 10.625% per annum payable semi-annually on each June 30 and December 31. The Notes are redeemable at the option of the Company on or after December 31, 2003, in whole or in part, at par. Upon a “Change of Control” (as defined in the Indenture), each Note holder has

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the right to require the Company to repurchase such holder’s Notes at a purchase price of 101% of the principal amount plus accrued interest. The Notes Indenture contains certain affirmative and negative covenants and restrictions. As of December 31, 2003, the Company is in compliance with the various covenants.

During 2003, the Company purchased a portion of the Notes with a face value of $17.2 million from The Cypress Group, LLC (“Cypress”). The purchase was facilitated by Cypress and financed through the issuance of additional Term C debt of $10.0 million. The extinguishment resulted in a gain of $7.2 million that was included in Gain (loss) on extinguishment of debt, net in the Company’s Consolidated Statement of Operations. The Company and/or affiliates of the Company, including entities related to Cypress may continue, from time to time, to purchase the Notes previously issued by the Company in the open market or by other means.

The following table represents the Company’s contractual obligations for future payments:

(in thousands)

The Company intends to fund its future working capital, capital expenditures and debt service requirements with cash flow from operations, cash and cash equivalents on hand and borrowings under the Foothill Facility. Management believes that cash generated from the above resources will be sufficient to meet the Company’s working capital and capital expenditure needs in the foreseeable future. In addition, the cash flow position of the Company is anticipated to improve given the sale of its German subsidiary which hampered cash flow as a result of its continued operating losses (see Footnote 12 to the Consolidated Financial Statements). Finally, the Company may consider other options available to it in connection with funding future working capital and capital expenditure needs, including the issuance of additional debt and equity securities.

The Company anticipates being able to refinance its senior secured debt and senior subordinated notes which mature in 2006. When appropriate, the Company currently anticipates refinancing the senior secured debt with its existing lenders or other sources and expects to seek additional unsecured debt to cover the maturing Senior Subordinated Notes. However, there can be no assurance that the Company will be able to refinance the maturing debt.

The Company will continue to selectively pursue strategic acquisitions. The Company believes that strategic acquisitions, both domestic and international, provide an effective means of increasing or establishing a market presence in targeted markets and a means of identifying and introducing new products and technologies in markets where it

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already has a strong presence. The Company also believes that establishing local manufacturing and distribution facilities in international markets significantly enhances its ability to build strong customer relationships, understand local product preferences and be price competitive.

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

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (Interpretation 46). In December 2003, the FASB issued a revision to Interpretation 46 to make certain technical corrections and address certain implementation issues that had arisen. Interpretation 46, as revised, provides a new framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. Interpretation 46 was effective immediately for VIEs created after January 31, 2003. The provisions of Interpretation 46, as revised, will be adopted by the Company during 2004. It is expected that the adoption of this Interpretation will have no impact on the Company’s overall financial position and results of operations.

SFAS No. 145 “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections” (“SFAS No. 145”), was issued in April 2002 and addresses the reporting of gains and losses resulting from the extinguishment of debt, accounting for sale-leaseback transactions and rescinds or amends other existing authoritative pronouncements. SFAS No. 145 requires that any gain or loss on extinguishment of debt that does not meet the criteria of APB 30 for classification as an extraordinary item shall not be classified as extraordinary and shall be included in earnings from continuing operations. The provisions of this statement related to the extinguishment of debt are effective for financial statements issued in fiscal years beginning after May 15, 2002 with early application encouraged. The Company adopted SFAS No. 145 on January 1, 2003. Accordingly, the Company’s $0.4 million loss from debt retirement recorded in 2001 (net of tax effect of $0.2 million) was reclassified from extraordinary to earnings from continuing operations in the Company’s Consolidated Statements of Operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” The provisions of SFAS No. 146 are effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. Adoption of SFAS 146 did not have an effect on the Company’s Consolidated Financial Statements.

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN 45”). Along with new disclosure requirements, FIN 45 requires guarantors to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee. This differs from the prior practice to record a liability only when a loss is probable and reasonably estimable. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The Company adopted the disclosure provisions of FIN 45 as of December 31, 2002 and adopted the entire

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interpretation on January 1, 2003. Adoption of FIN 45 was not material to the Company’s Consolidated Financial Statements (see Note 2 of the Notes to the Consolidated Financial Statements).

In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (“SFAS No. 149”), which clarifies the financial accounting and reporting proscribed by SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) for derivative instruments, including certain derivative instruments embedded in other contracts. Certain provisions of SFAS No. 149 related to implementation issues of SFAS No. 133 are already effective and other provisions related to forward purchases or sales are effective for both existing contracts and new contracts entered into after June 30, 2003. The Company has previously adopted SFAS No. 133, including the implementation issues addressed in SFAS No. 149, and the adoption of the new provisions of SFAS No. 149 on July 1, 2003 did not have an impact on the Company’s Consolidated Financial Statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (“SFAS No. 150”), which addresses the accounting and reporting for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for all financial instruments entered into or modified after May 31, 2003 and for all existing financial instruments beginning in the first interim period after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities, which are subject to the provisions for the first fiscal period beginning after December 15, 2004. The Company adopted SFAS No. 150 on July 1, 2003. Adoption of this accounting standard did not have an impact on the Company’s Consolidated Financial Statements.

Critical Accounting Policies

Certain of the Company’s accounting policies require the application of judgment in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. The Company periodically evaluates the judgments and estimates used for its critical accounting policies to ensure that such judgments and estimates are reasonable for its interim and year-end reporting requirements. These judgments and estimates are based on the Company’s historical experience, current trends and information available from other sources, as appropriate. If different conditions result from those assumptions used in the Company’s judgments, the results could be materially different from the Company’s estimates. The Company’s critical accounting policies include:

Goodwill and Other Long-Lived Assets

On January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). As a result, the Company accounts for acquired goodwill and goodwill impairment in accordance with SFAS No. 142. This pronouncement requires considerable judgment and, where necessary, the Company utilizes appraisals to assist in the Company’s valuation of acquired goodwill and evaluation of goodwill impairment. The Company primarily utilizes a discounted cash flow approach in order to value the Company’s operating segments required to be tested for impairment by SFAS No. 142, which requires that the Company forecast

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future cash flows of the operating segments and discount the cash flow stream based upon a weighted average cost of capital that is derived from comparable companies within similar industries. The discounted cash flow calculations also include a terminal value calculation that is based upon an expected long-term growth rate for the applicable operating segment. The Company believes that its procedures for applying the discounted cash flow methodology, including the estimates of future cash flows, the weighted average cost of capital and the long-term growth rate, are reasonable and consistent with market conditions at the time of the valuation. The Company has evaluated the carrying value of goodwill and determined that an impairment existed at the date of adoption of the standard, January 1, 2002. Accordingly, the Company recorded a goodwill impairment charge for the cumulative effect of a change in accounting principle of $38.1 million in 2002, as further described in Footnote 4 to the Company’s Notes to Consolidated Financial Statements.

The Company performs an annual evaluation for the impairment of long-lived assets, other than goodwill, based on expectations of non-discounted future cash flows compared to the carrying value of the subsidiary in accordance with SFAS No. 144. The Company’s cash flow estimates are based upon historical cash flows, as well as future projected cash flows received from subsidiary management in connection with the annual Company wide planning process, and include a terminal valuation for the applicable subsidiary based upon a multiple of earnings before interest expense, net, depreciation and amortization expense and income taxes (“EBITDA”). The Company estimates the EBITDA multiple by reviewing comparable company information and other industry data. The Company believes that its procedures for estimating gross future cash flows, including the terminal valuation, are reasonable and consistent with current market conditions. The Company historically has not had any material impairment adjustments for long-lived assets other than goodwill.

Revenue Recognition

In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 104, the Company recognizes revenue only when there is a valid contract or purchase order which includes a fixed price, the goods have been delivered in accordance with the shipping terms; and there is an expectation that the collection of the revenue is reasonably assured. Determination of the criteria is based upon management’s judgments regarding the fixed nature of the price and the ability to collect revenue.

Allowances for cash discounts, volume rebates, and other customer incentive programs, as well as gross customer returns, among others, are recorded as a reduction of sales at the time of sale based upon the estimated future outcome. Cash discounts, volume rebates and other customer incentive programs are based upon certain percentages agreed to with the Company’s various customers, which are typically earned by the customer over an annual period. The Company records periodic estimates for these amounts based upon the historical results to date, estimated future results through the end of the contract

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period and the contractual provisions of the customer agreements. For calendar year customer agreements, the Company is able to adjust its periodic estimates to actual amounts as of December 31 each year based upon the contractual provisions of the customer agreements. As a result, at the end of any given reporting period, the amounts recorded for these allowances are based upon estimates of the likely outcome of future sales with the applicable customers and may require adjustment in the future if the actual outcome differs. The Company believes that its procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to the actual amounts.

Provisions for the estimated costs for future product warranty claims and bad debts are recorded in cost of sales and selling, general and administrative expense, respectively, at the time a sale is recorded. The amounts recorded are generally based upon historically derived percentages while also factoring in any new business conditions that might impact the historical analysis such as new product introduction for warranty and bankruptcies of particular customers for bad debts. The Company also periodically evaluates the adequacy of its reserves for warranty and bad debts recorded in its consolidated balance sheet as a further test to ensure the adequacy of the recorded provisions. Warranty claims can extend far into the future and bad debt analysis often involves subjective analysis of a particular customer’s ability to pay. As a result, significant judgment is required by the Company in determining the appropriate amounts to record and such judgments may prove to be incorrect in the future. The Company believes that its procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to the actual amounts.

Inventory Valuation

The Company’s inventories are stated at the lower of cost or market including material, labor and manufacturing overhead. The Company records provisions, as appropriate, to write-down obsolete and excess inventory to estimated net realizable value. The process for evaluating obsolete and excess inventory often requires the Company to make subjective judgments and estimates concerning future sales levels, quantities and prices at which such inventory will be able to be sold in the normal course of business. Accelerating the disposal process or incorrect estimates of future sales potential may cause the actual results to differ from the estimates at the time such inventory is disposed or sold. The Company believes that its procedures for estimating such amounts are reasonable and historically have not resulted in material adjustments in subsequent periods when the estimates are adjusted to the actual amounts.

Income Taxes

The Company accounts for income taxes using the liability method in accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS No. 109”), which requires that the deferred tax consequences of temporary differences between the amounts recorded in the Company’s Consolidated Financial Statements and the amounts included in the Company’s federal and state income tax returns be recognized in the balance sheet. As the Company generally does not file their income tax returns until well after the closing process for the December 31 financial statements is complete, the amounts recorded at December 31 reflect estimates of what the final amounts will be when the actual income tax returns are filed for that fiscal year. In addition, estimates are often required with respect to, among other things, the appropriate state income tax rates to use in the various states that the Company and its subsidiaries are required to file, the potential

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utilization of operating and capital loss carry-forwards for both federal and state income tax purposes and valuation allowances required, if any, for tax assets that may not be realizable in the future. SFAS No. 109 requires balance sheet classification of current and long-term deferred income tax assets and liabilities based upon the classification of the underlying asset or liability that gives rise to a temporary difference. Net deferred tax assets recognized on the Company’s balance sheet continue to require management’s evaluation as to their realization. Although realization is not assured, management believes it is more likely than not that the net deferred tax assets will be realized. The amount expected to be realized is based upon estimates derived from tax planning strategies which the Company believes are currently prudent and feasible. A valuation allowance has been provided for certain net operating loss carryforwards, as it is more likely than not that the related deferred tax assets for these carryforwards will not be realized. Additions to the valuation allowance may be required in the event that estimates are changed. The Company believes the procedures and estimates used in its accounting for income taxes are reasonable and in accordance with established tax law. The income tax estimates used have historically not resulted in material adjustments to income tax expense in subsequent periods when the estimates are adjusted to the actual filed tax return amounts, although there may be reclassifications between the current and long-term portion of the deferred tax accounts.

The Company is subject to the examinations of its income tax returns by the Internal Revenue Service and other tax authorities. The Company evaluates the likelihood of unfavorable adjustments arising from the examinations and believes adequate provisions have been made in the income tax provision.

Contingencies

The Company is subject to contingencies, including legal proceedings and claims arising out of its businesses that cover a wide range of matters, including, among others, environmental matters, contract and employment claims, workers compensation claims, product liability, and warranty.

The Company provides accruals for direct costs associated with the estimated resolution of contingencies at the earliest date at which it is deemed probable that a liability has been incurred and the amount of such liability can be reasonably estimated. Costs accrued have been estimated and are based upon an analysis of potential results.

While it is impossible to ascertain the ultimate legal and financial liability with respect to contingent liabilities, including lawsuits, the Company believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated financial position or results of operations of the Company. It is possible, however, that future results of operations for any particular future period could be materially affected by changes in our assumptions or strategies related to these contingencies or changes out of the Company’s control.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK

Foreign Currency Risk

The Company is exposed to market risk related to foreign currency exchange rates. A portion of revenues in 2003 from the Company’s Portuguese operations were denominated in U.S. dollars and British Pounds. As a result of the strengthening of the Euro versus the U.S. dollar by 19.8% in 2003, the Company recorded approximately $0.6 million in foreign exchange losses in 2003 as the corresponding receivables lost value. During 2003, the Company did use forward contracts, which are generally three months in duration, to hedge its foreign currency exposures. At December 31, 2003, the Company’s Portuguese operations had forward contracts for the purchase of $200,000 and £600,000 with maturity dates through February 2004. The value of these forward contracts was immaterial to the balance sheet of AMTROL. The Company believes that by the continued use of forward contracts in 2004, no material foreign currency exchange losses will be incurred.

Interest Rate Market Risk

With respect to fluctuating interest rates, the impact on 2003 operating results was not material and the expected impact on 2004 operating results is not anticipated to be material. The Company has an interest rate swap contract and an interest rate cap (the “Contract”) outstanding as of December 31, 2003, with an initial notional amount of $15 million, decreasing on a consistent basis with repayment terms of the underlying debt. Under this arrangement, which will mature on June 30, 2004, the Company receives the 90-day LIBOR rate and pays a fixed rate of 4.6% 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 would pay the 90-day LIBOR rate for all subsequent periods capped at a maximum of 7.1%. The LIBOR rate has not exceeded 7.1% since inception of the Contract and it was treated, prior to adoption of SFAS No. 133, as a hedge agreement and accounted for as such. The Contract was designated as a cash flow hedge of variable future cash flows associated with the interest on the previous Bank Credit Agreement, Tranche B Long Term Debt, through May 13, 2004 (the maturity date of the debt). However, the swap was redesignated to the Term A and B Loans upon entering into the Foothill Facility.

The following sensitivity analysis summarizes the potential impact on the Company of additional interest expense resulting from a hypothetical 100 basis point increase in the interest rate indices upon which AMTROL’s floating rate debt instruments are based (000):

The Company believes that the potential effects of a hypothetical 100-basis point increase in its floating rate debt instruments are not material to cash flows or net income.

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The Company’s Term C Loan and Senior Subordinated Notes are not subject to interest rate risk since the rate of interest on these securities is fixed until their respective maturities.

Commodity Risk

The Company is subject to market risk with respect to the pricing of its principal raw materials (steel, rubber, corrugate and paint) and utilities. If prices of these raw materials and utilities were to increase dramatically, the Company might not be able to pass such increases on to its customers and, as a result, gross margins could decline. The Company manages its exposure to commodity pricing risk by continuing to diversify its product mix, strategic buying programs and vendor partnering. At December 31, 2003, the Company had not entered into any derivative financial instruments to manage its exposure to higher prices.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements are included in a separate section beginning on page 36 of this report.

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 2003, the Company, under the supervision and with the participation of its management, including its principal executive officer and principal financial officer, performed an evaluation of the Company’s disclosure controls and procedures, as required by Securities Exchange Act Rule 13a-15. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that such disclosure controls and procedures are effective to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to them, particularly during the period for which the periodic reports are being prepared.

Changes in Internal Controls

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

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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:

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

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

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

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

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

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

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

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

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

Audit Committee Financial Expert

The Finance Committee performs similar functions as an audit committee (the “Committee”), which comprises a member of the Board of Directors (the “Board”), is designated to oversee the financial reporting process of the Board. The Board has determined that David Spalding, a member of the Committee, qualifies as an audit committee financial expert as defined by SEC rules. Mr. Spalding is not independent of the Company. Because the Company is not listed on an exchange, the Company has chosen to use the definition of “independence” for audit committee members as such term is used by the New York Stock Exchange listing standards.

Code of Ethics

The Company has adopted a Code of Ethics, within the meaning of applicable SEC rules, applicable to its principal executive, financial and accounting officers, or persons performing similar functions. The Company has filed its Code of Ethics as an exhibit to this Annual Report on Form 10-K.

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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 2003 in each case for services rendered in all capacities to the Company during the three year period ended December 31, 2003:

Summary Compensation Table

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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 2003 include the Company’s contributions under the Company’s 401(k) Plan in the amount of $10,200, $10,200, $10,125, $8,948 and $9,685 for Mssrs. Indelicato, Guillemette, Laus, Pape, and DePaula, respectively, premiums paid by the Company with respect to term life and long-term disability insurance purchased for such executive officers in the amount of $2,510, $1,579, $1,369, $1,233 and $1,452 for Mssrs. Indelicato, Guillemette, Laus, Pape and DePaula, respectively and an automobile allowance received by Messrs. Indelicato, Pape and DePaula in the amount of $4,100, $8,100 and $8,100, respectively. Mr. Indelicato received $54,593 in connection with his employment agreement.
(d)		Mr. Pape retired from the Company effective January 1, 2004.

Option Plans

The following table sets forth certain information regarding currently outstanding options to buy the common stock of Holdings held by the directors and named executive officers as of December 31, 2003.

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

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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 two former officers. In the event a participant in either Supplemental Plan dies after retirement, the participant’s beneficiary will receive any remaining benefits which such participant was entitled to receive at the time of the participant’s death.

Employment Agreements and Other Transactions

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

Directors’ Compensation

The Company has a total of five directors, four of who are non-employees, that sit on various committees. For 2003, two non-employee directors, Mr. Cashman and Mr. Massimilla, were paid $2,500 per committee meeting attended plus out-of-pocket expenses associated with travel. The two remaining non-employee directors, Mr. Spalding and Mr. Stern, do not receive any remuneration for any of the committee meetings attended, except for out-of-pocket travel expenses, given their association to Cypress.

Compensation and Benefits Committee

The Compensation and Benefits Committee held one meeting in 2003. Messrs. Spalding and Stern are the current members of this committee. This committee has functions that include reviewing the salary system with regard to external competitiveness and reviewing incentive compensation plans to ensure that they continue to be effective incentive and reward systems. The Compensation and Benefits Committee also determines the CEO’s compensation and considers and, if appropriate, approves the CEO’s recommendations with respect to the compensation of executive officers who report to him.

Compensation Committee Interlocks and Insider Participation

No member of the Committee has any interlocking or insider relationship with the Company which is required to be reported under the applicable rules and regulations of the Securities and Exchange Commission.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The Company is a direct, wholly-owned subsidiary of Holdings Inc. The following table sets forth information with respect to the beneficial ownership of Holdings common stock or preferred stock as of March 29, 2004 by (i) each person known to the Company to beneficially own more than 5% of Holdings Inc.’s outstanding common stock, (ii) each of the Company’s directors and named executive officers and (iii) all directors and executive officers of the Company as a group. Each share of Holdings Inc. preferred stock is convertible at any time into one share of Holdings Inc. common stock. Unless otherwise indicated below, the persons and entities named in the table have sole voting and investment power with respect to all shares beneficially owned.

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

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

A director of the Company, Mr. Massimilla, provides management consulting services to the Company for which he is paid by the Cypress Group L.L.C. The Company reimburses Cypress for its payments to Mr. Massimilla. During 2003, the amount of such payments was $32,211.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees:

The Company during the years 2002 and 2003 were billed audit fees of $367,000 and $408,500, respectively.

Audit Related Fees:

The Company during the years 2002 and 2003 were billed audit related fees of $15,000 and $15,000, respectively.

Tax Fees:

The Company during the years 2002 and 2003 were billed tax fees of $74,230 and $136,115, respectively.

All Other Fees:

The Company during the years 2002 and 2003 were billed no other fees.

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

(a) (1) Financial Statements

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

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 58.

(b) Reports filed on Form 8-K

On November 25, 2003, a Form 8-K was filed in connection with the First Amendment and Second Amendment to the Foothill and Cypress Facilities.

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Report of Independent Auditors

To the Board of Directors of
AMTROL Inc.

We have audited the accompanying consolidated balance sheets of AMTROL Inc. (the “Company”) as of December 31, 2003 and 2002, and the related consolidated statements of operations, comprehensive loss, shareholders’ equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. The consolidated financial statements of the Company for the year ended December 31, 2001, were audited by other auditors who have ceased operations and whose report dated March 1, 2002, expressed an unqualified opinion on those statements before the revisions described in Note 4.

We conducted our audits 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMTROL Inc. at December 31, 2003 and 2002, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

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

As discussed above, the financial statements of AMTROL Inc. for the year ended December 31, 2001 were audited by other auditors who have ceased operations. As described in Note 4, these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, “Goodwill and Other Intangible Assets”, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 4 with respect to 2001 included (a) agreeing the previously reported net loss to the previously issued financial statements and the adjustments to reported net loss representing amortization expense (including any related tax effects) recognized in that period related to goodwill to the Company’s underlying records obtained from management, and (b) testing the mathematical accuracy of the reconciliation of adjusted net loss to reported net loss. In our opinion, the disclosures for 2001 in Note 4 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 financial statements taken as a whole.

ERNST & YOUNG LLP

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