<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: JULY 5, 1997
--------------
Commission file number: 0-20328
--------------
AMTROL INC.
(exact name of registrant as specified in its charter)
Rhode Island 05-0246955
- --------------- -------------
1400 Division Road, West Warwick, RI 02893-1008
-----------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (401) 884-6300
-----------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
100 SHARES OF COMMON STOCK $.01 PAR VALUE
as of July 5, 1997
<PAGE> 2
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
FORM 10-Q FOR THE QUARTER AND SIX MONTHS ENDED JULY 5, 1997
INDEX
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Consolidated Balance Sheets -
July 5, 1997 and December 31, 1996 1
Consolidated Statements of Operations -
For the Quarter and Six Months Ended July 5, 1997
(Successor Company) and June 29, 1996
(Predecessor Company) 2
Consolidated Statement of Shareholders' Equity --
For the Six Months Ended July 5, 1997 3
Consolidated Statements of Cash Flows --
For the Six Months Ended July 5, 1997 (Successor Company)
and June 29, 1996 (Predecessor Company) 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K 16
Signatures 17
<PAGE> 3
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
ASSETS
July 5, December 31,
1997 1996
-------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 2,056 $ 6,383
Accounts receivable, less allowance for doubtful accounts ... 35,319 21,861
Accounts receivable - tax refund ............................ 938 2,000
Inventories ................................................. 25,995 24,783
Prepaid income taxes ........................................ 1,734 1,734
Prepaid expenses and other .................................. 858 691
Assets held for sale ........................................ 846 1,500
-------- --------
Total current assets ..................................... 67,746 58,952
-------- --------
Net Property, Plant and Equipment .............................. 49,211 36,889
OTHER ASSETS:
Cash surrender value of officers' life insurance ............ 491 1,614
Goodwill .................................................... 168,857 147,756
Financing Costs ............................................. 7,970 8,387
Other ....................................................... 1,592 1,285
-------- --------
178,910 159,042
-------- --------
$295,867 $254,883
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long term debt ........................ $ 4,999 $ 825
Accounts payable ............................................ 12,397 5,794
Accrued expenses ............................................ 14,648 14,472
Accrued interest ............................................ 906 2,232
Accrued income taxes ........................................ 1,330 582
-------- --------
Total current liabilities ................................ 34,280 23,905
-------- --------
LONG TERM DEBT, LESS CURRENT INSTALLMENTS ...................... 183,390 159,175
-------- --------
OTHER NONCURRENT LIABILITIES ................................... 12,179 4,544
-------- --------
DEFERRED INCOME TAXES .......................................... 224 222
-------- --------
SHAREHOLDERS' EQUITY:
Common stock $.01 par value- Authorized-1,000 shares
Issued-100 shares ......................................... -- --
Additional paid-in capital .................................. 69,326 69,326
Retained earnings ........................................... (3,532) (2,289)
-------- --------
Total shareholders' equity ............................... 65,794 67,037
-------- --------
$295,867 $254,883
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(1)
<PAGE> 4
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED FOR THE SIX MONTHS ENDED
-------------------------- --------------------------
JULY 5, JUNE 29, JULY 5, JUNE 29,
1997 1996 1997 1996
(Successor (Predecessor (Successor (Predecessor
Company) Company) Company) Company)
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
NET SALES ....................................... $43,510 $48,254 $88,545 $89,416
COST OF GOODS SOLD .............................. 32,524 34,729 65,883 65,166
------- ------- ------- -------
Gross profit ................................. 10,986 13,525 22,662 24,250
OPERATING EXPENSES:
Selling ...................................... 3,319 4,203 6,887 8,057
General and administrative ................... 2,938 3,407 5,788 7,244
Amortization of Goodwill ..................... 937 -- 1,875 --
------- ------- ------- -------
Income from operations .................... 3,792 5,915 8,112 8,949
OTHER INCOME (EXPENSE):
Interest expense ............................. (4,418) (10) (8,947) (44)
Interest income .............................. 56 39 290 160
License and distributorship fees ............. 60 50 110 106
Other, net ................................... (184) 45 (11) 47
------- ------- ------- -------
Income before provision for income taxes .. (694) 6,039 (446) 9,218
PROVISION FOR INCOME TAXES ...................... 209 2,310 797 3,549
------- ------- ------- -------
NET (LOSS) INCOME ............................... $ (903) $ 3,729 $(1,243) $ 5,669
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(2)
<PAGE> 5
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited - in thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-in Retained
Stock Capital Earnings
------- ------ ------
<S> <C> <C> <C>
BALANCE, December 31, 1996 ...................... -- 69,326 (2,289)
Net Loss .................................... -- -- (1,243)
------- ------ ------
BALANCE, July 5, 1997 ........................... -- 69,326 (3,532)
======= ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(3)
<PAGE> 6
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited - in thousands)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
JULY 5, JUNE 29,
1997 1996
(SUCCESSOR (PREDECESSOR
COMPANY) COMPANY)
---------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income ................................................. $(1,243) $ 5,669
------- --------
Adjustments to reconcile net (loss) income to net cash used by
operating activities -
Depreciation and amortization ............................... 5,170 2,609
Provision for losses on accounts receivable ................. 105 109
(Gain)Loss on sale of fixed assets .......................... 2 30
Change in assets and liabilities -
(Increase)decrease in assets -
Accounts receivable, net ............................... (6,905) (10,410)
Income tax receivable .................................. 2,000 --
Inventory .............................................. 4,073 (153)
Prepaid income taxes ................................... 0 (57)
Prepaid expenses and other ............................. (92) (790)
Cash surrender value of officers' life insurance ....... 1,123 1,448
Other assets ........................................... (778) 252
Increase(decrease) in liabilities -
Accounts payable ....................................... 882 3,317
Accrued expenses ....................................... (5,678) (2,961)
Accrued income taxes ................................... 748 743
Deferred income taxes .................................. 2 --
Other noncurrent liabilities ........................... (119) (236)
------- --------
533 (6,099)
------- --------
Net cash used by operating activities .................. (710) (430)
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Alfa ................................................ (22,786) --
Investment in Alfa net non-cash assets ............................ (4,173) --
Proceeds from sale of fixed assets ................................ 681 1,968
Capital expenditures .............................................. (4,041) (5,145)
------- --------
Net cash used in investing activities .................. (30,319) (3,177)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long term debt ....................................... (298) --
Issuance of short term debt ....................................... 20,000 3,500
Deferred installment finance and acquisition costs ................ 7,000 --
Cash dividends .................................................... -- (5,950)
Issuance of common stock - exercise of stock options .............. -- 94
Repurchase of treasury stock ...................................... -- (15)
Net cash used in financing activities .................. 26,702 (2,371)
------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................. (4,327) (5,978)
CASH AND CASH EQUIVALENTS, beginning of period ........................ 6,383 9,078
------- --------
CASH AND CASH EQUIVALENTS, end of period .............................. $ 2,056 $ 3,100
------- --------
CASH PAID FOR:
Interest .......................................................... $ 8,343 $ 57
Income taxes ...................................................... $ 11 $ 2,733
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
(4)
<PAGE> 7
AMTROL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary to present fairly,
in accordance with generally accepted accounting principles, the Company's
financial position, results of operations and cash flows for the interim
periods presented. Such adjustments consisted of only normal recurring
items. The results of operations for the interim periods shown in this
report are not necessarily indicative of results for any future interim
period or for the entire year. These consolidated financial statements do
not include all disclosures associated with annual financial statements and
accordingly should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on
Form 10K.
2. BASIS OF PRESENTATION
For periods prior to November 13, 1996, the accompanying consolidated
financial statements represent the consolidated results and financial
position of AMTROL Inc. and Subsidiaries (the Predecessor). On November 13,
1996, the Predecessor merged with AMTROL Acquisition, Inc., a wholly-owned
subsidiary of AMTROL Holdings Inc., a Delaware corporation organized by The
Cypress Group L.L.C. as more fully described in Note 3 (the Merger).
Financial statements for periods subsequent to November 12, 1996 represent
the consolidated financial statements of AMTROL Inc. and Subsidiaries (the
Successor) after giving effect to the Merger. References to the Company
refer to the Predecessor prior to the Merger and the Successor post-Merger.
3. MERGER AND FINANCING
AMTROL Acquisition Inc. ("Acquisition") and AMTROL Holdings Inc.
("Holdings") were formed by The Cypress Group L.L.C. ("Cypress") in 1996 to
effect the acquisition of all of the outstanding common stock of the
Predecessor through the Merger of Acquisition with and into the Successor.
Upon consummation of the Merger on November 13, 1996, all of the
outstanding common stock of Acquisition was converted into common stock of
the Successor and the Successor became a wholly-owned subsidiary of
Holdings. The Successor, as the surviving entity, continues to be named
AMTROL Inc. Holdings has no other material assets, liabilities or
operations other than those that result from its ownership of the common
stock of the Successor.
(5)
<PAGE> 8
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
(UNAUDITED)
3. MERGER AND FINANCING (CONT'D.)
The Merger has been accounted for as a purchase transaction effective as of
November 13, 1996, in accordance with Accounting Principles Board Opinion
No. 16, Business Combinations, and EITF Issue No. 88-16, Basis in Leveraged
Buyout Transactions and, accordingly, the consolidated financial statements
for the periods subsequent to November 12, 1996 reflect the purchase price,
including transaction costs, allocated to tangible and intangible assets
acquired and liabilities assumed, based on their estimated fair values as
of November 12, 1996, which may be revised at a later date. The excess of
the purchase price over the fair value of net assets acquired has been
allocated to goodwill.
4. ACQUISITION
On June 30, 1997, the Company entered into a Promissory Agreement and a
Complementary Document to the Promissory Agreement (collectively, the
"Purchase Agreements") to acquire all the outstanding capital shares of
Petroleo Mecanica Alfa, S.A., a corporation organized under the laws of
Portugal ("Alfa").
Alfa is a leading designer and manufacturer of reusable steel gas cylinders
used for heating and refrigerant gases and maintains a production facility
in Guimaraes, Portugal. Following the Acquisition, AMTROL will integrate
Alfa into its existing business of manufacturing and distributing water and
HVAC systems. This will provide a significant low cost manufacturing base
for AMTROL products for distribution in Europe and the Far East.
Under the Purchase Agreements the Company agreed to purchase Alfa for an
aggregate purchase price of $25,500,000 (in United States dollars) and
assumed immediate management control of Alfa (the "Acquisition").
Accordingly, the consolidated balance sheet of AMTROL as of July 5, 1997
reflects the balances of Alfa as of such date. AMTROL paid $20 million of
the purchase price on June 30, 1997 from borrowings out of availability
under AMTROL's existing credit facility. The balance of $5.5 million, which
is reflected in Other Non-current Liabilities on the balance sheet, is
expected to be paid in December 1997 and will be funded by cash provided
from working capital. The Acquisition is subject to the filing and approval
requirements imposed by Portuguese laws governing concentration of
industries and free competition.
(6)
<PAGE> 9
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
(UNAUDITED)
5. 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.
6. SIGNIFICANT ACCOUNTING POLICIES
GOODWILL
Goodwill represents the excess of purchase price over the fair value of net
assets acquired in connection with the Merger (approximately $146 million)
and the Alfa Acquisition (approximately $22 million) and is included in
other assets. Goodwill is being amortized over 40 years.
INCOME TAXES
The Company utilizes an asset and liability approach to determine income
tax liabilities in accordance with SFAS No. 109. The standard recognizes
tax assets and liabilities for the cumulative effect of all temporary
differences between financial statement carrying amounts and the tax basis
of assets and liabilities. The standard also requires the adjustment of
deferred tax liabilities or assets for an enacted change in tax laws or
rates.
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.
(7)
<PAGE> 10
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.)
(UNAUDITED)
7. INVENTORIES
Inventories are stated at the lower of cost or market and were as
follows:
<TABLE>
<CAPTION>
July 5, 1997 December 31, 1996
------------ -----------------
(in thousands)
<S> <C> <C>
Raw Materials and Work in Process $ 8,414 $ 9,429
Finished Goods 17,581 15,354
------- -------
$25,995 $24,783
======= =======
</TABLE>
Inventories valued under the last-in, first-out (LIFO) cost method
comprised approximately 62.5% of the July 5, 1997 totals and 60.5%
of the 1996 totals.
8. LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
In November 1996, the Company entered into a Bank Credit Agreement
(the "Agreement") that provides for secured borrowings from a
syndicate of lenders consisting of (i) a five and one-half year
revolving credit facility providing for up to $30 million in revolving
loans, $5.0 million of which may be used for letters of credit (the
"Revolving Credit Facility") and (ii) a term loan facility providing
for $45.0 million in term loans, consisting of a five and one-half
year Tranche A Term Loan of $20.0 million and a seven and one-half
year Tranche B Term Loan for $25.0 million (collectively, the Term
Loans).
On June 30, 1997, the Company borrowed $20.0 million under the
Revolving Credit Facility to finance the Alfa Acquisition (see
Note 4).
In connection with the Merger, the Company issued $115.0 million of
Senior Subordinated Notes due in 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.
Under the terms of both the Agreement and the Note indenture, AMTROL
is required to comply with certain financial covenants and
restrictions with which AMTROL was in compliance at July 5, 1997.
(8)
<PAGE> 11
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AMTROL INC. AND SUBSIDIARIES
9. PROVISION FOR INCOME TAXES
The effective income tax rates used in the interim financial
statements are estimates of the full year's rates. The difference for
1997 between a provision computed using the respective statutory U.S.
federal income tax rate and the provision for income taxes in the
accompanying consolidated financial statements is primarily the result
of goodwill amortization and certain foreign operating losses for
which there is no tax benefit.
10. SALE OF ASSETS
In May 1997, the Company sold all of the assets, subject to
substantially all liabilities, of its American Granby Inc. subsidiary.
Accordingly, the results of American Granby are included in the
accompanying consolidated statements of operations for the first five
months of 1997 as compared to the entire six month period in 1996. Net
sales and operating income included in the accompanying consolidated
statements are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
----------------- ------------------
July 5, June 29, July 5, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $2.9 $5.9 $7.6 $10.6
Operating Income -- .3 -- .2
</TABLE>
In May 1997, the Company sold its Peru, Indiana production facility
and the related pump business. AMTROL transferred certain production
activities performed in Peru to the Company's West Warwick, RI
facility. The Company believes that the operational efficiencies
gained through production consolidation will offset lost contribution
from the pump business.
The Company utilized the net proceeds of the sales of approximately
$6.0 million to fund seasonal working capital demands as well as the
Alfa Acquisition.
(9)
<PAGE> 12
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AMTROL INC. AND SUBSIDIARIES
ITEM 2.
- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The following discussion should be read in conjunction with the consolidated
Financial Statements and Notes thereto appearing elsewhere in this report. This
report contains forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Such statements involve risks and uncertainties that could cause actual
results to differ materially from those set forth in such forward-looking
statements. Among other things, expectations for upcoming periods are based on
assumptions which management believes to be reasonable at this time, including
assumptions concerning the volume and product mix of sales. Moreover, there can
be no assurances when initiatives undertaken by the Company to improve plant
productivity will be successful. Other significant potential risks and
uncertainties include the following: risks associated with indebtedness;
uncertainties of acquisition strategy including the successful integration of
the Alfa Acquisition; high level of competition in the Company's markets;
importance and costs of product innovation; risks associated with international
operations; product liability exposure and the risk of adverse effects of
economic and regulatory conditions on sales; and risks associated with
environmental matters.
The consolidated balance sheet of the Company at July 5, 1997 reflects
allocation of the purchase price to the assets acquired in the Merger and
reflects the balances of Alfa as of such date. Operating results subsequent to
the Merger are comparable to prior periods, with the exception of depreciation,
interest expense and amortization of intangible assets and the sale of the
Company's American Granby accessory business.
(10)
<PAGE> 13
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AMTROL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentages of
the Company's net sales represented by certain income and expense items in the
Company's Consolidated Statements of Operations.
<TABLE>
<CAPTION>
For The Quarter Ended For the Six Months Ended
--------------------------- ----------------------------
July 5, 1997 June 29, 1996 July 5, 1997 June 29, 1996
Successor Predecessor Successor Predecessor
Company Company Company Company
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Good Sold 74.8 72.0 74.4 72.9
----- ----- ----- -----
Gross Profit 25.2 28.0 25.6 27.1
Selling, General and
Administrative Expenses 14.4 15.7 14.3 17.1
Amortization of Goodwill 2.1 -- 2.1 --
----- ----- ----- -----
Income from Operations 8.7 12.3 9.2 10.0
Interest Expense (10.0) -- (10.1) --
Interest Income .1 .1 .1 .1
Other Income, net (.3) .1 .1 .1
----- ----- ----- -----
Income before provision
for income taxes (1.5) 12.5 (.5) 10.3
Provision for Income Taxes .5 4.8 .9 4.0
----- ----- ----- -----
Net (Loss) Income (1.0)% 7.7% (1.4)% 6.3%
===== ===== ===== =====
</TABLE>
Company results for the quarter were impacted by the divestiture of its American
Granby accessory business in May 1997 (see Note 10) as June did not include
sales and income from the accessory business which were included in the
comparable period in 1996. In addition, in the chemical container business,
competitive pricing actions as well as the movement of chemical container
customers towards long-term single source contracts, have adversely affected
margins. However, the Company believes it has successfully maintained market
volume and position. Sales of the Company's water systems products in June were
not as strong as anticipated due to ongoing slow industry-wide market
conditions. As a result, the Company increased its marketing and promotion costs
to maintain its market leadership in its water systems market. The plumbing and
heating sector continues to show strength.
(11)
<PAGE> 14
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (con't)
- ------------------------------
Due primarily to the divestiture of the Company's American Granby accessory
business in May 1997, which resulted in no accessory sales being included for
June 1997 as compared to $2.6 million for June 1996, net sales for the second
quarter of 1997 decreased by $4.7 million, or 9.7%, from the same period in
1996, which was the highest sales quarter in Company history.
In addition, while sales in the first two months of the 1997 second quarter were
consistent with the Company's expectations, sales in June were not as strong as
anticipated due to slow industry-wide market conditions in the water systems
market. This resulted in a shortfall of $1.1 million in sales when compared to
the strong performance in the second quarter of 1996. Also, despite stable unit
volumes, the Company experienced a $ 0.8 million decrease in sales of domestic
disposable containers from the comparable period in 1996 due to the
aforementioned competitive pricing actions.
Net sales for the six months ended July 5, 1997 decreased by $0.9 million or 1.0
% when compared to 1996 due primarily to the divestiture of the Company's
accessory business. Excluding the impact of the divestiture of American Granby,
sales for the six months ended July 5, 1997 increased $1.7 million or 2% when
compared to 1996, primarily due to increased sales of the Company's plumbing and
heating products.
The gross profit in the second quarter decreased by $2.5 million or 18.5% from
the previous year and the margin percentage decreased to 25.2% of net sales in
1997 from 28.0% in 1996. The gross profit percentage was unfavorably affected by
unanticipated high costs associated with the new Singapore production facility.
In addition, during 1997, the Company experienced higher product returns than
normal, due to a manufacturing process problem which has since been corrected.
The Company believes these incremental product returns will be resolved by the
end of 1997.
As previously discussed, pricing and promotion costs due to competitive market
conditions in the Company's water systems and chemical container markets
decreased gross profit. Increased raw material costs also adversely affected the
gross margin as well as incremental depreciation expenses of $0.3 million for
the six months ended July 5, 1997 from the comparable period in 1996.
For the six months ended July 5, 1997, gross profit decreased by $1.5 million or
6.2% as compared to the same period in 1996, and the gross profit percentage
decreased to 25.6% of net sales in 1997 from 27.0% in 1996.
The Company's acquisition of Alfa in Portugal provides it with a low-cost
international manufacturing facility. With the continuing operating losses at
its Singapore production facility, the Alfa Acquisition provides the Company
with the flexibility to reevaluate its international manufacturing strategy. The
Company expects to complete this review in the third quarter.
(12)
<PAGE> 15
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (con't)
- -----------------------------
Selling, General and Administrative expenses decreased $1.3 million or 16.9% to
$6.3 million in the second quarter of 1997, and as a percentage of net sales was
14.4% in 1997 and 15.7% in 1996. Expenses decreased primarily due to reductions
in corporate overhead and restructuring of the Company's general and
administrative staff, as part of the Company's new business strategy. For the
first six months of 1997, Selling, General and Administrative Expenses decreased
by $2.6 million to $12.7 million, or 14.3% of net sales in 1997 from $15.3
million or 17.1% of net sales in 1996.
Amortization expense of $0.9 million for the second quarter and $1.9 million for
the first six months of 1997 results from amortization of goodwill recorded as
part of purchase accounting in connection with the Merger.
Earnings before interest, taxes, depreciation and amortization (EBITDA) in the
second quarter of 1997 decreased to $6.1 million from $7.2 million in the
comparable period of 1996. For the six months, EBITDA increased by $1.5 million
to $13.1 million from $11.6 million in 1996. Excluding the impact of the
divestiture of the accessory business, EBITDA would have increased by $1.7
million or 15% for the six month period and would have decreased by $0.8 million
for the quarter.
Interest expense of $4.4 million for the second quarter and $8.9 million for the
six month period reflects the Company's higher levels of debt related to the
financing of the Merger.
Net (loss) for the second quarter was $0.9 million, a decrease in income of $4.6
million reflecting the $2.1 million decrease in operating income together with
the increase in interest expense.
Due to the timing of the Acquisition, the results of operation of Alfa will be
included with the consolidated results of AMTROL commencing with the third
quarter.
INFLATION
In recent years, inflation has been modest and has not had a material impact
upon the results of the Company's operations.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital at July 5, 1997 was $33.5 million and the ratio of current
assets to current liabilities was 1.98 to 1.0. This compares with working
capital of $35.2 million and a current ratio of 2.5 to 1.0 at December 31, 1996.
The Company experienced an increase in its Accounts Receivable balance due to
the increased level of sales activity, reflecting seasonal demand, when compared
to the fourth quarter of 1996. Inventories increased from year end due to
seasonality and increased inventory service levels to provide improved customer
service.
(13)
<PAGE> 16
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (con't.)
- -----------------------------------------
During the six months ended July 5, 1997, the Company used cash flows from
operating activities of $ .7 million. During this same period, the Company
invested $3.3 million, net, in machinery and equipment and repaid debt of $.3
million. As a result of the foregoing, the Company's cash balance decreased by
$4.3 million.
The Company's total capital expenditures for 1997 are projected to be $7.0
million.
In connection with the Merger, AMTROL issued $115.0 million of Senior
Subordinated Notes due 2006 (the "Notes") issued under an Indenture dated as of
November 13, 1996. The Notes are unsecured obligations of AMTROL. The Notes bear
interest at a rate of 10.625% per annum and are payable semi-annually on each
June 30 and December 31 commencing on June 30, 1997. In addition, on or prior to
December 31, 1999, the Company may use the net cash proceeds of one or more
public 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 Indenture contains
affirmative and negative covenants and restrictions similar to those required
under the terms of the Bank Credit Agreement discussed below. As of July 5,
1997, AMTROL is in compliance with the various covenants of the Indenture.
The Company has a substantial amount of indebtedness. The Company intends to
fund its future working capital expenditures and debt service requirements
through cash flows generated from operations (including the results of
initiatives to significantly reduce operating expenses) and borrowings under the
revolving credit facility (the "Revolving Credit Facility") provided under the
Bank Credit Agreement. Upon consummation of the Merger on November 13, 1996, the
Company became party to the Bank Credit Agreement. The Bank Credit Agreement
provides for $45.0 million of senior term loans (the "Term Loans") and a $30.0
million Revolving Credit Facility. A portion ($20.0 million) of the Term Loans
(the "Tranche A Term Loans") will mature five and one-half years after the
effective date of the Merger, with quarterly amortization payments during the
term of such loans. The remainder ($25.0 million) of the Term Loans (the
"Tranche B Term Loans") will mature seven and one-half years after the effective
date of the Merger, 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 includes a sublimit
providing for up to $20.0 million of availability on a revolving credit basis to
finance permitted acquisitions. On June 30, 1997, the Company borrowed $20
million, representing the entire acquisition sublimit under the Revolving Credit
Facility, to fund the acquisition of Alfa. The commitments under the Revolving
Credit Facility and the acquisition sublimit will reduce by $5.0 million in the
fourth year and $10.0 million in the fifth year after the effective date of the
Merger, November 13, 1996. The Revolving Credit Facility will mature five and
one-half years after the effective date of the Merger. The Bank Credit Facility
is secured by substantially all assets of the Company and its subsidiaries.
(14)
<PAGE> 17
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES (con't.)
- -----------------------------------------
Management believes that cash generated from operations, together with
borrowings available under the Revolving Credit Facility, will be sufficient to
meet the Company's working capital and capital expenditure needs in the
foreseeable future. The Company may consider other options available to it in
connection with funding future working capital and capital expenditure needs,
including the issuance of additional debt and equity securities.
The Company has sold all of the assets, subject to substantially all
liabilities, of its American Granby Inc. subsidiary. In May 1997, the Company
sold its Peru, Indiana production facility and the related pump business. AMTROL
transferred certain production activities performed in Peru into the Company's
West Warwick, RI facility. The Company believes that the operational
efficiencies gained through production consolidation will offset lost
contribution from the pump business. It expects to apply the net proceeds of the
sales, approximately $6.0 million, to fund seasonal working capital demands as
well as the acquisition of Alfa.
(15)
<PAGE> 18
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
2. Promissory Agreement dated as of June 30, 1997 between
AMTROL Inc. and Seller together with annexes thereto and
Complementary Document to the Promissory agreement dated
June 30, 1997 between AMTROL Inc. and Seller incorporated by
reference to Exhibit 2 to Form 8-K dated June 30, 1997.
10.1(a) First Amendment to Credit Agreement dated June 30, 1997.
27 Financial Data Schedule
REPORTS ON FORM 8-K
(1) On July 15, 1997, the Company filed a Form 8-K concerning
entering into an agreement to acquire all of the outstanding
capital shares of Petroleo Mecanica Alfa, S.A., a
corporation organized under the laws of Portugal.
(16)
<PAGE> 19
AMTROL INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMTROL INC.
Date: AUGUST 18, 1997 By: S\S JOHN P. CASHMAN
---------------------------------- -------------------------
John P. Cashman
Chairman, President and
Chief Executive Officer
Date: AUGUST 18, 1997 By: S\S EDWARD J. COONEY
---------------------------------- -------------------------
Edward J. Cooney
Senior Vice President
Chief Financial Officer
(17)
<PAGE> 1
EXHIBIT 10.1(a)
FIRST AMENDMENT TO CREDIT AGREEMENT
FIRST AMENDMENT TO CREDIT AGREEMENT, dated as of June 24, 1997 (this
"Amendment"), among AMTROL HOLDINGS, INC., a Delaware corporation ("Holdings"),
AMTROL, INC., a Rhode Island corporation (the "Borrower"), the various financial
institutions party to the Credit Agreement referred to below (the "Banks"),
MORGAN STANLEY SENIOR FUNDING, INC., as Documentation Agent (in such capacity,
the "Documentation Agent"), and BANKERS TRUST COMPANY, as Administrative Agent
(in such capacity, the "Administrative Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement referred to below.
WITNESSETH:
----------
WHEREAS, Holdings, the Borrower, the Banks, the Documentation Agent and the
Administrative Agent are parties to a Credit Agreement, dated as of November 13,
1996 (as amended, modified or supplemented to the date hereof, the "Credit
Agreement");
WHEREAS, the Borrower desires to acquire, through a corporation ("Alfa
Holdings") to be organized under the laws of Portugal and to become a
Wholly-Owned Subsidiary of AMTROL Investment Inc., a corporation organized under
the laws of Rhode Island, which, in turn, is a Wholly-Owned Subsidiary of the
Borrower, all of the capital stock of Petroleo Mecanica Alfa, S.A., a
corporation organized under the laws of Portugal, pursuant to (x) the Promissory
Agreement of Sale and Purchase of Shares, dated as of June 27, 1997, between Mr.
Antonio Brandao Miranda, a Portuguese citizen (the "Seller") and the Borrower or
(y) a share purchase agreement to be entered into by the Seller, the Borrower
and Alfa Holdings (the "Alfa Acquisition");
WHEREAS, Holdings and the Borrower have requested certain amendments to the
Credit Agreement in connection with the Alfa Acquisition: and
WHEREAS, subject to the terms and conditions of this Amendment, the parties
hereto wish to amend the Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
I. AMENDMENTS TO CREDIT AGREEMENT.
1. Section 2.01(b) of the Credit Agreement is hereby amended by deleting
the amount "$5,000,000" appearing in said Section and inserting in lieu thereof
the text "the L/C Sublimit".
2. Section 8.02 of the Credit Agreement is hereby amended by (i) deleting
the word "and" appearing at the end of clause (h) of said Section, (ii) deleting
the period appearing at the
1
<PAGE> 2
end of clause (i) of said Section and inserting in lieu thereof the text ";and"
and (iii) inserting the following new clause (j) immediately after clause (i) of
said Section:
"(j) the Borrower and Alfa Holdings may effect the Alfa Acquisition in
accordance with the terms of the Alfa Share Purchase Agreement or the Alfa
Promissory Contract, as the case may be, so long as (i) the aggregate
consideration paid to the Seller for such acquisition consists solely of cash in
an amount not to exceed $25,500,000, (ii) the existing Indebtedness of Alfa that
will remain outstanding after the consummation of the Alfa Acquisition will not
in the aggregate exceed $9,200,000 (on a Dollar equivalent basis), (iii)
concurrently with the creation of Alfa Holdings, AMTROL Investment shall have
duly authorized, executed and delivered to the Collateral Agent a pledge
agreement governed by Portuguese law in respect of 65% of the capital stock of
Alfa Holdings in form and substance satisfactory to the Collateral Agent, (iv)
within two Business Days following the formation of Alfa Holdings, the
Collateral Agent and the Banks shall have received an opinion of Portuguese
counsel reasonably acceptable to the Collateral Agent covering the validity and
perfection of the security interest of the Collateral Agent in the pledged
shares of Alfa Holdings, which opinion shall be in form and substance
satisfactory to the Collateral Agent, (v) prior to the consummation of the Alfa
Acquisition, the Borrower shall have made the capital contribution described in
Section 8.06(j)(I) to Alfa Holdings, (vi) on or prior to December 28, 1997, the
Alfa Acquisition shall have been consummated and (vii) to the extent Alfa
Holdings is entitled to a reduction in the purchase price paid (or to be paid)
in connection with the Alfa Acquisition and receives from the Seller or the
Escrow Agent an amount representing any such reduction, Alfa Holdings shall have
paid within two Business Days following receipt thereof a cash Dividend in
Dollars equal to such received amount to AMTROL Investment, which, in turn,
shall have paid the full amount of the proceeds thereof as a Dividend to the
Borrower, which, in turn, shall have used the full amount of the proceeds of
such Dividend to repay outstanding Revolving Loans."
3. Section 8.04 of the Credit Agreement is hereby amended by (i) deleting
the text "8.06(j)" appearing in clause (i) of said Section and inserting the
text "8.06(k)" in lieu thereof and (ii) deleting clause (j) of said Section in
its entirety and inserting the following new clauses (j) and (k) in lieu
thereof:
"(j) on and after the Alfa Acquisition Date, Indebtedness (x) of Alfa
Holdings under lines of credit extended by a Portuguese financial institution
acceptable to the Administrative Agent, the proceeds of which Indebtedness are
used (I) for the working capital purposes of Alfa Holdings and its Subsidiaries,
(II) to finance a portion of the purchase price of the Alfa Acquisition and/or
(III) to pay a Dividend (all such Indebtedness incurred pursuant to this clause
(j)(x) in excess of that specifically to be used for the purposes described in
clause (I), the "Alfa Acquisition Indebtedness"), provided that the aggregate
principal amount of all Indebtedness permitted by this clause (j) that may be
outstanding at any time shall not exceed $15,000,000 (on a Dollar equivalent
basis), provided further, that to the extent Alfa Holdings incurs Alfa
Acquisition Indebtedness as permitted by this clause (j), Alfa Holdings shall
have paid within two Business Days following such incurrence a cash Dividend in
Dollars in an amount equal to the principal amount of the Alfa Acquisition
Indebtedness so incurred to AMTROL Investment, which, in turn shall have paid
the full amount of the proceeds thereof as a Dividend to the
2
<PAGE> 3
Borrower, which, in turn, shall have used the full amount of the proceeds of
such Dividend to repay outstanding Revolving Loans, (y) of Alfa consisting of a
secured guaranty of Permitted Alfa Indebtedness and (z) of the Borrower
consisting of an unsecured guaranty of Permitted Alfa Indebtedness; and
(k) additional Indebtedness of the Borrower, the Subsidiary Guarantors
and/or Foreign Subsidiaries not to exceed at any time outstanding an aggregate
principal amount of (x) prior to the Alfa Acquisition Date, $10,000,000 and (y)
on and after the Alfa Acquisition Date, $15,000,000."
4. Section 8.05 of the Credit Agreement is hereby amended by deleting the
amount "$7,000,000" appearing in the proviso to clause (a) of said Section and
inserting the amount "$9,000,000" in lieu thereof.
5. On and after the Alfa Acquisition Date, Section 8.05 of the Credit
Agreement is hereby further amended by (i) deleting the amount "6,000,000"
appearing in the proviso to clause (a) of said Section and inserting the amount
"8,000,000" in lieu thereof and (ii) inserting the following new clause (c) at
the end of said Section:
"(c) Notwithstanding the foregoing, the Borrower and/or Alfa Holdings may
make Consolidated Capital Expenditures in connection with the Alfa Acquisition
to the extent constituting the purchase price therefor and such Consolidated
Capital Expenditures will not be included in any determination under the
preceding clauses (a) and (b)."
6. Section 8.06 of the Credit Agreement is hereby amended by (i) deleting
the text "(j)" in each place it appears in clause (j) of said Section and
inserting the text "(k)" in lieu thereof, (ii) redesignating clause (j) of said
Section as clause (k) of said Section and (iii) inserting the following new
clause (j) immediately following clause (i) of said Section:
"(j) from and after the date of the execution of the Alfa Promissory
Contract, the Borrower may (I) contribute all of its rights, interest and
obligations under the Alfa Promissory Contract and the Alfa Escrow Agreement as
a capital contribution to AMTROL Investment and (II) make a capital contribution
in an aggregate amount not to exceed $5,500,000 to AMTROL Investment, which in
turn shall immediately use the full amount of the proceeds of such capital
contribution to make a capital contribution to Alfa Holdings, so long as (x)
Alfa Holdings uses (i) not more than $5,500,000 (or $4,500,000, in the event
Alfa Holdings is required to fund the Alfa Indemnification Escrow Account as
described in clause (ii) below) of the proceeds of such capital contribution to
pay the purchase price owing to the Seller in connection with the Alfa
Acquisition and (ii) to the extent required by the terms of the Alfa Promissory
Contract or the Alfa Sale Agreement, as the case may be, not more than
$1,000,000 of the proceeds of such capital contribution to fund the Alfa
Indemnification Escrow Account and (y) the Alfa Acquisition is consummated on or
prior to December 28, 1997, it being understood and agreed that in the event
that the condition described in preceding clause (y) is not satisfied, Alfa
Holdings shall have paid not later than January 1, 1998 (or such later date as
an arbitration tribunal shall have finally determined the liabilities of the
Seller and Alfa Holdings under the Alfa
3
<PAGE> 4
Promissory Contract) a cash Dividend in Dollars equal to the sum of $20,000,000
plus the aggregate amount of all capital contributions, if any, theretofore made
by AMTROL Investment to Alfa Holdings, to AMTROL Investment, which, in turn,
shall have paid the full amount of the proceeds thereof as a Dividend to the
Borrower, which, in turn, shall have used the full amount of the proceeds of
such Dividend to repay outstanding Revolving Loans; and".
7. Section 8.09(i) of the Credit Agreement is hereby amended by (i)
inserting the text "(x)" immediately after the text "(i)" appearing in said
Section and (ii) inserting the text "(y)" any Foreign Subsidiary of the Borrower
may pay Dividends to any Foreign Subsidiary that is a Wholly-Owned Subsidiary of
the Borrower" at the end of said Section.
8. The definition of "Consolidated EBITDA" appearing in Section 10 of the
Credit Agreement is hereby amended by (i) deleting the date "1997" appearing in
said definition and inserting the date "1998" in lieu thereof and (ii) deleting
the text "Annex X" appearing in said definition and inserting the text "Annex
IX" in lieu thereof.
9. Section 10 of the Credit Agreement is hereby further amended by
inserting in the appropriate alphabetical order the following new definitions:
"Alfa" shall mean Petroleo Mecanica Alfa, S.A., a corporation
organized under the laws of Portugal.
"Alfa Acquisition" shall mean the acquisition by Alfa Holdings of all of
the capital stock of Alfa from the Seller pursuant to, and in accordance with
the terms of, the Alfa Share Purchase Agreement or the Alfa Promissory Contract,
as the case may be, and all applicable law.
"Alfa Acquisition Date" shall mean the date of the consummation of the
Alfa Acquisition in compliance with the terms of Section 8.02(j).
"Alfa Acquisition Indebtedness" shall have the meaning provided in
Section 8.04(j).
"Alfa Escrow Agreement" shall mean the Escrow Agreement, dated as of
June 27, 1997, between the Seller, the Borrower, and the Escrow Agent, as
in effect on June 27, 1997.
"Alfa Indemnification Escrow Account" shall mean the escrow account
established pursuant to the Alfa Escrow Agreement to hold funds for
indemnification obligations under the Alfa Promissory Contract and/or Alfa
Share Purchase Agreement, as the case may be.
"Alfa Purchase Price Escrow Account" shall mean the escrow account
established pursuant to the Alfa Escrow Agreement to hold a portion of the
purchase price to be paid for the Alfa Acquisition.
4
<PAGE> 5
"Alfa Holdings" shall mean a corporation to be formed under the laws
of Portugal after June 27, 1997, which corporation shall at all times be a
Wholly-Owned Subsidiary of AMTROL Investment.
"Alfa Promissory Contract" shall mean the Promissory Agreement of Sale
and Purchase of Shares, dated as of June 27, 1997, between the Borrower and
the Seller, without giving effect to any amendments or modifications
thereto unless same (x) are immaterial in nature and could not be adverse
in any respect to the Banks or (y) are otherwise approved by the Required
Banks.
"Alfa Share Purchase Agreement" shall mean a share purchase agreement
relating to the acquisition by Alfa Holdings of all the capital stock of
Alfa entered into by the Seller, Alfa Holdings and the Borrower after June
27, 1997, which share purchase agreement (i) shall contain the same
representations and warranties, covenants, indemnification provisions and
defaults as the Alfa Promissory Contract, (ii) shall not contain any terms
in respect of the Borrower or Alfa Holdings that are less favorable from
the perspective of the Banks than those contained in the Alfa Promissory
Contract, (iii) shall have been delivered to the Administrative Agent prior
to the consummation of the Alfa Acquisition and (iv) shall otherwise be
reasonably satisfactory to the Administrative Agent.
"AMTROL Investment" shall mean AMTROL Investment Inc., a corporation
organized under the laws of Rhode Island.
"Dollars" and the sign "$" shall mean freely transferable lawful
currency of the United States of America.
"Escrow Agent" shall mean a Portuguese financial institution
satisfactory to the Administrative Agent, as escrow agent under the Alfa
Escrow Agreement.
"L/C Sublimit" shall mean the sum of (x) $5,000,000 plus (y) the
aggregate Stated Amount up to $15,000,000 of the Letter of Credit or,
Letters of Credit, if any, requested by the Borrower to be issued in
support of the obligations of the Borrower or Alfa as guarantor of, or of
Alfa Holdings in respect of, Permitted Alfa Indebtedness.
"Permitted Alfa Indebtedness" shall mean all indebtedness of Alfa
Holdings permitted by Section 8.04(j).
"Seller" shall mean Mr. Antonio Brandao Miranda, a Portuguese citizen.
10. Annex IX to the Credit Agreement is hereby amended by deleting same in
its entirety and inserting in lieu thereof the new Annex IX as it appears as
attached hereto, PROVIDED that in the event the Alfa Acquisition has not been
consummated on or prior to December 28, 1997, the foregoing amendment to Annex
IX shall cease to have any force and effect and Annex
5
<PAGE> 6
IX to the Credit Agreement (as in effect prior to this Amendment) shall
thereafter be reinstated and continue in full force and effect.
II. Miscellaneous Provisions.
1. In order to induce the Banks to enter into this Amendment, the Borrower
hereby represents and warrants that:
(a) no Default or Event of Default exists as of the First Amendment
Effective Date both before and after giving effect to this Amendment; and
(b) all of the representations and warranties contained in the Credit
Agreement or the other Credit Documents are true and correct in all
material respects on the First Amendment Effective Date both before and
after giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the First
Amendment Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all
material respects as of such specific date).
2. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
3. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
4. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF
NEW YORK.
5. This Amendment shall become effective on the date (the "First Amendment
Effective Date") when each of the Borrower and the Required Banks shall have
signed a counterpart hereof (whether the same or different counterparts) and
shall have delivered (including by way of facsimile transmission) the same to
the Administrative Agent at its Notice Office.
6. From and after the First Amendment Effective Date, all references in the
Credit Agreement and each of the other Credit Documents to the Credit Agreement
shall be deemed to be references to the Credit Agreement as modified hereby.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Amendment as of the date first above
written.
AMTROL HOLDINGS, INC.
By: __________________________________________
Title: _______________________________________
AMTROL INC.
By: __________________________________________
Title: _______________________________________
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: __________________________________________
Title: _______________________________________
MORGAN STANLEY SENIOR FUNDING, INC.,
Individually and as Documentation Agent
By: __________________________________________
Title: _______________________________________
THE BANK OF NEW YORK
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
THE BANK OF NOVA SCOTIA
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
7
<PAGE> 8
THE FIRST NATIONAL BANK OF BOSTON
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
CITIZENS FINANCIAL GROUP INC.
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
FIRST SOURCE FINANCIAL LLP
By First Source Financial Inc.,
its manager
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
FLEET NATIONAL BANK
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
SOCIETE GENERALE
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
AMARA-1 FINANCE LTD.
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
8
<PAGE> 9
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.
BY: CHANCELLOR SENIOR SECURED
MANAGEMENT, INC., as Portfolio
Advisor
By: __________________________________________
Name: ________________________________________
Title: _______________________________________
9
<PAGE> 10
ANNEX IX
CONSOLIDATED EBIDTA/INTEREST EXPENSE ADJUSTMENTS
<TABLE>
<CAPTION>
Test Period Ended Closest To: Consolidated Interest
EBIDTA Expense
------------ --------
<S> <C> <C>
December 31, 1996 $28,244 $14,306
March 31, 1997 $21,794 $10,195
June 30, 1997 $17,630 $ 6,084
September 30, 1997 $ 8,525 $ 1,973
December 31, 1997 $ 3,650
March 31, 1998 $ 2,790
June 30, 1998 $ 1,870
September 30, 1998 $ 820
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUL-05-1997
<CASH> 2,056
<SECURITIES> 0
<RECEIVABLES> 36,313
<ALLOWANCES> 994
<INVENTORY> 25,995
<CURRENT-ASSETS> 67,746
<PP&E> 52,360
<DEPRECIATION> 3,149
<TOTAL-ASSETS> 295,867
<CURRENT-LIABILITIES> 34,280
<BONDS> 188,389
0
0
<COMMON> 69,326
<OTHER-SE> 65,794
<TOTAL-LIABILITY-AND-EQUITY> 295,867
<SALES> 88,545
<TOTAL-REVENUES> 88,545
<CGS> 65,883
<TOTAL-COSTS> 14,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,947
<INCOME-PRETAX> (446)
<INCOME-TAX> 797
<INCOME-CONTINUING> 8,112
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,243)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
