<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended: October 3, 1998
---------------
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 October 3, 1998
<PAGE> 2
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
FORM 10-Q FOR THE QUARTER ENDED OCTOBER 3, 1998
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets -
October 3, 1998 and December 31, 1997 2
Consolidated Statements of Operations -
For the Quarter and Nine Months Ended
October 3, 1998 and October 4, 1997 3
Consolidated Statement of Shareholders' Equity -
For the Nine Months Ended October 3, 1998 4
Consolidated Statements of Cash Flows -
For the Nine Months Ended October 3, 1998
and October 4, 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
1
<PAGE> 3
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED - IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
OCTOBER 3, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 506 $ 544
Accounts receivable, less allowance for doubtful accounts 39,425 30,180
Inventories 28,720 31,285
Prepaid income taxes 2,455 2,495
Prepaid expenses and other 2,746 1,412
Assets held for sale 489 1,533
-------- --------
Total current assets 74,341 67,449
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 52,156 45,687
OTHER ASSETS:
Goodwill 174,863 169,784
Financing costs 7,025 7,762
Deferred income taxes 3,611 419
Other 739 1,899
-------- --------
186,238 179,864
-------- --------
$312,735 $293,000
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 1,984 $ 3,498
Notes payable to banks 8,401 4,397
Accounts payable 25,912 15,718
Accrued expenses 15,489 15,779
Accrued interest 4,199 608
Accrued income taxes 879 3,073
-------- --------
Total current liabilities 56,864 43,073
-------- --------
LONG TERM DEBT, LESS CURRENT MATURITIES 177,817 184,164
OTHER NONCURRENT LIABILITIES 9,005 6,659
SHAREHOLDERS' EQUITY
Capital stock $.01 par value - authorized 1,000 shares,
100 shares issued - -
Additional paid-in capital 89,823 69,326
Retained deficit (21,837) (9,937)
Accumulated other comprehensive gain (loss) 1,063 (285)
-------- --------
Total shareholders' equity 69,049 59,104
-------- --------
$312,735 $293,000
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE> 4
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
------------------------- --------------------------
OCTOBER 3, OCTOBER 4, OCTOBER 3, OCTOBER 4,
1998 1997 1998 1997
------- ------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $55,573 $48,166 $154,924 $136,711
Cost of goods sold 43,820 35,905 120,849 101,788
Provision for abnormal warranty costs - - 4,500 -
------- ------- -------- --------
TOTAL COST OF GOODS SOLD 43,820 35,905 125,349 101,788
GROSS PROFIT 11,753 12,261 29,575 34,923
OPERATING EXPENSES
Selling, general and
administrative 6,442 6,648 19,806 19,323
Plant closing and
reorganization costs - 2,500 4,450 2,500
Management restructuring 671 - 4,171 -
Amortization of goodwill 1,136 1,035 3,348 2,910
------- ------- -------- --------
Income (loss) from operations 3,504 2,078 (2,200) 10,190
OTHER INCOME (EXPENSE):
Interest expense (5,289) (4,949) (15,755) (13,896)
Interest income 43 55 117 345
License and distributorship fees 72 80 170 190
Other, net 172 297 696 286
------- ------- -------- --------
Loss before (benefit)
provision for income taxes (1,498) (2,439) (16,972) (2,885)
(BENEFIT) PROVISION FOR
INCOME TAXES (110) 456 (5,072) 1,253
------- ------- -------- --------
NET LOSS $(1,388) $(2,895) $(11,900) $ (4,138)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 5
AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID - IN RETAINED COMPREHENSIVE
STOCK CAPITAL DEFICIT GAIN (LOSS)
------- ---------- -------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 - $69,326 $ (9,937) $ (285)
Capital Contribution 20,497
Net Loss - - (11,900) -
Currency Translation Adjustment - - - 1,348
--- ------- -------- ------
BALANCE, October 3, 1998 - $89,823 $(21,837) $1,063
=== ======= ======== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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AMTROL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------
OCTOBER 3, OCTOBER 4,
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(11,900) $ (4,138)
Adjustments to reconcile net loss to net cash provided by
operating activities -
Depreciation and amortization 9,399 8,176
Provision for losses on accounts receivable 177 207
Loss on sale of fixed assets - 2
Non-cash charges 11,600 -
Changes in operating assets and liabilities (9,069) 1,178
-------- --------
Net cash provided by operating activities 207 5,425
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of NOVA, net of cash acquired (5,855) -
Acquisition of Alfa, net of cash acquired - (25,500)
Proceeds from sale of assets held for sale 2,025 681
Capital expenditures (9,358) (6,061)
-------- --------
Net cash used in investing activities (13,188) (30,880)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (43,048) (1,292)
Issuance of debt 35,486 20,000
Capital Contribution 20,497 -
Deferred installment finance and acquisition costs - 7,000
-------- --------
Net cash provided by financing activities 12,935 25,708
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (46) 253
Effect of exchange rate changes on cash and cash equivalents 8 -
CASH AND CASH EQUIVALENTS, beginning of period 544 6,383
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 506 $ 6,636
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
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AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited 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 10-K.
2. 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.
3. SIGNIFICANT ACCOUNTING POLICIES
GOODWILL
Goodwill represents the excess of purchase price over the fair value of
net assets acquired in connection with the 1996 acquisition of the
Company by affiliates of the Cypress Group L.L.C. (approximately $145
million), the 1997 acquisition of Petroleo Mecanica Alfa, S.A. ("Alfa")
(approximately $23 million) and the 1998 acquisition of NOVA
Wassererwarmer GmbH ("NOVA") (approximately $7 million) and is included
in other assets. Goodwill is being amortized up to 40 years.
DEFERRED FINANCING COSTS
Deferred financing costs are stated at cost as a component of other
assets and are amortized over the life of the related debt using the
effective interest method. Amortization of deferred financing costs is
included in interest expense.
6
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AMTROL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONT.
(UNAUDITED)
4. INVENTORIES
Inventories are stated at the lower of cost or market and were as
follows:
OCTOBER 3, 1998 DECEMBER 31, 1997
--------------- -----------------
(in thousands)
Raw Materials and Work in Process $18,421 $13,670
Finished Goods 10,299 17,615
------- -------
$28,720 $31,285
======= =======
Inventories valued under the last-in, first-out (LIFO) cost method
comprised approximately 44.0% of the October 3, 1998 totals and 68.2%
of the December 31, 1997 totals.
5. LONG-TERM DEBT AND NOTES PAYABLE TO BANKS
The Bank Credit Agreement (the "Agreement") between the Company and a
syndicate of lenders provides for secured borrowings 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 consisting of a five and one-half year Tranche A Term
Loan and a seven and one-half year Tranche B Term Loan (collectively,
the Term Loans). In addition, the Company has 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.
On July 31, 1998, the Company amended the Agreement to allow for an
early repayment of a portion of the principal outstanding and to modify
certain loan agreement covenants to be more in line with the Company's
business plans. In connection with this amendment, the Company repaid
borrowings of $20.5 million.
Under the terms of the Agreement, as amended on July 31, AMTROL is
required to comply, and is in compliance, with certain financial
covenants and restrictions as of October 3, 1998.
6. SHAREHOLDERS' EQUITY
On July 31, 1998, the Cypress Group L.L.C. and members of senior
management contributed an additional $20.5 million of new equity into
the Company's parent, AMTROL Holdings Inc. In turn, AMTROL Holdings
Inc. contributed a like amount to the Company. The additional capital
contribution primarily was used to pay down Revolving Loans and
outstanding Term A Loans under the Credit Agreement.
7
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AMTROL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONT.
(UNAUDITED)
7. PLANT CLOSINGS, REORGANIZATION AND RESTRUCTURING CHARGES
The Company closed its Nashville, Tennessee production facility in
December 1997 and transferred certain production lines to its West
Warwick, Rhode Island facility. Costs involved in closing the Nashville
facility and starting production in West Warwick have been higher than
anticipated due to unexpected retrofitting and reconditioning required
for the relocated equipment, damage to equipment during shipment, and
delays in preparing the Nashville building for sale. During the second
quarter of 1998, the Company recorded charges relating to the
incremental costs associated with the Nashville closure and production
relocation approximating $6.0 million (including $1.5 million of
production inefficiencies included in cost of goods sold). An
additional $1.1 million of production inefficiencies was included in
cost of goods sold in the third quarter. In addition, the Company
recorded management restructuring charges of $4.2 million, including
$0.7 million recorded in the third quarter, in connection with the
discontinuation and reduction of certain product lines and a
reorganization of its management group.
The Company has been experiencing an unusually high level of warranty
claims for a particular product relating to a 1995-1996 manufacturing
problem which has since been corrected. Actions taken by the Company
to mitigate the level of returns for products manufactured during that
time period have not reduced the return rate to the extent expected.
Accordingly, the Company recorded an additional loss provision in the
second quarter of $4.5 million for abnormal warranty costs relating to
this product.
In September 1997, the Company ceased operations at its Singapore
facility. The Company relocated its production of non-returnable
chemical containers to the Alfa facility in Guimaraes, Portugal. In
connection with the closure, the Company recorded a pre-tax charge to
operating expenses of $2.5 million in the third quarter.
8. 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 1998 between
the provision computed using the 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.
8
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AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONT.
(UNAUDITED)
9. COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income. Statement
130 establishes new rules for the reporting and display of
comprehensive income and its components. The adoption of this Statement
had no impact on the Company's net loss or shareholders' equity.
Statement 130 requires certain items which previously had been reported
separately in shareholders' equity to be included in other
comprehensive income. For the Company, the only such item was the
foreign currency cumulative translation adjustment. Prior year
financial statements have been reclassified to conform to the
requirements of Statement 130. The total comprehensive gain (loss),
which is comprised of the net loss and the foreign currency translation
adjustment, was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
-------------------- -----------------------
OCTOBER 3 OCTOBER 4 OCTOBER 3 OCTOBER 4
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total Comprehensive Gain (Loss) $230 $(2,895) $(10,552) $(4,138)
</TABLE>
10. SALE OF ASSETS
In May 1997, the Company sold all of the assets 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. For the nine month period ended October
4, 1997, American Granby generated net sales of $7.6 million but did
not generate any operating income. Also 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.
11. ACQUISITIONS
On June 9, 1998, the Company acquired NOVA Wassererwarmer GmbH ("NOVA")
located in Donaueschingen, Germany for approximately $6.0 million
(United States Dollars) plus assumed debt of $2.0 million. NOVA
manufactures high-end residential and commercial water heaters which
are marketed primarily in Germany, Switzerland and Austria. This
acquisition provides AMTROL with expanded manufacturing and
distribution capabilities in central Europe, in addition to the
opportunity to offer many of AMTROL's complementary hydronic heating
and water systems products in the European market. AMTROL assumed
immediate management control of NOVA and, accordingly, the operating
results and financial position of NOVA are included in the consolidated
results of operations and consolidated balance sheets of AMTROL from
the acquisition date.
9
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AMTROL INC. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONT.
(UNAUDITED)
On June 30, 1997, the Company acquired all the outstanding capital
shares of Petroleo Mecanica Alfa, S.A. ("Alfa"), a corporation
organized under the laws of Portugal, for $25.5 million (United States
Dollars) plus assumed debt of $8.7 million (the "Acquisition"). Alfa is
a leading designer and manufacturer of reusable steel cylinders used
for the storage and transportation of heating and refrigerant gases and
maintains a production facility in Guimaraes, Portugal. Alfa provides
AMTROL with a significant low cost manufacturing base from which to
serve Europe and the Far East. AMTROL assumed immediate management
control of Alfa and, accordingly, the operating results and financial
position of Alfa are included in the consolidated results of operations
and consolidated balance sheets of AMTROL from July 1, 1997.
The combined operating results of Alfa and NOVA included in third
quarter and year-to-date 1998 operating results in the accompanying
consolidated statement of operations are as follows in millions:
NET OPERATING
SALES INCOME
----- ---------
Quarter ended October 3, 1998 $16.6 $0.9
Nine months ended October 3, 1998 $42.0 $4.0
10
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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 rationalize its
manufacturing operations and improve plant productivity will be successful.
Other significant potential risks and uncertainties include the following: risks
associated with indebtedness; uncertainties of its acquisition strategy,
including the successful integration of the NOVA and Alfa Acquisitions; 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.
PLAN OF RESTRUCTURING AND REORGANIZATION
During the second quarter of 1998, the Company adopted a plan of restructuring
and reorganization (the "Plan") to address several adverse developments in its
North American operations. The Plan addresses necessary changes in the Company's
West Warwick, Rhode Island facility to improve the productivity of the
production lines transferred from its Nashville, Tennessee facility in 1997,
discontinuance of certain product lines and recognition of the resulting decline
in inventory value for the products impacted, and replacement of certain senior
executives and others on the management team. The Company also determined that
mitigating actions intended to reduce the level of warranty returns associated
with a 1995/1996 manufacturing problem have not reduced warranty claims relating
to this product to the extent expected and that an additional warranty provision
is required. Costs associated with the Plan, manufacturing inefficiencies
related to the relocated production lines, and the additional warranty provision
aggregate $16.3 million and have been reflected in the accompanying financial
statements, including $1.8 million recorded in the third quarter.
11
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AMTROL INC. AND SUBSIDIARIES
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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>
QUARTER ENDED NINE MONTHS ENDED
------------------------ -------------------------
OCTOBER 3, OCTOBER 4, OCTOBER 3, OCTOBER 4,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Goods Sold 78.9 74.5 78.0 74.5
Provision for Abnormal Warranty Costs - - 2.9 -
----- ------ ------ ------
Total Cost of Goods Sold 78.9 74.5 80.9 74.5
Gross Profit 21.1 25.5 19.1 25.5
Selling, General and
Administrative Expenses 11.6 13.8 12.8 14.1
Plant Closing and Reorganization Costs - 5.2 2.9 1.8
Management Restructuring 1.2 - 2.7 -
Amortization of Goodwill 2.0 2.1 2.1 2.1
----- ------ ------ ------
(Loss) Income from Operations 6.3 4.4 (1.4) 7.5
Interest Expense (9.5) (10.3) (10.2) (10.2)
Interest Income 0.1 0.1 0.1 0.3
Other Income, net 0.4 0.8 0.5 0.3
----- ------ ------ ------
Loss before (Benefit) Provision
for Income Taxes (2.7) (5.0) (11.0) (2.1)
(Benefit) Provision for Income
Taxes (0.2) 1.0 (3.3) 0.9
----- ------ ------ ------
Net Loss (2.5)% (6.0)% (7.7)% (3.0)%
===== ====== ====== ======
</TABLE>
Results for the quarter and year-to-date periods were impacted by: (i) the
recognition of various charges (see Plan of Restructuring and Reorganization
above); (ii) the acquisition of Alfa on June 30, 1997 (see Note 11) as operating
results from this subsidiary are included in the nine months ended October 3,
1998, but are only included in 1997 from July 1; (iii) the acquisition of NOVA
on June 9, 1998 (see Note 11) as operating results of this subsidiary are
included in the quarter and nine months ended October 3, 1998, but are not
included in the comparable periods in 1997; and (iv) the divestiture of the
American Granby accessory business in May 1997 (see Note 10) as 1998 does not
include the accessory business operating results which are included in the
comparable nine month period in 1997.
12
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AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THIRD QUARTER ENDED OCTOBER 3, 1998
Net sales for the third quarter increased $7.4 million or 15.4% compared to the
same period in 1997. The quarter-to-quarter comparison is favorably impacted by
the acquisition of NOVA in 1998. Excluding NOVA, third quarter 1998 net sales
would have increased approximately $3.4 million or 7.0%. Net sales in North
America, adjusted for certain markets transferred to Alfa in 1998, increased
2.3% in the 1998 third quarter compared to 1997, while Alfa sales increased
31.5% in 1998 compared to 1997.
The gross margin percentage for the third quarter of 1998 declined to 21.1% from
25.5% in the third quarter of 1997. The decline in the gross margin percentage
is mainly attributable to increased production costs of approximately $1.1
million resulting from difficulties in achieving efficient production levels on
the production lines relocated to West Warwick from Nashville. Increased
production costs include higher labor, maintenance and scrap, as well as factory
overhead. Significant efforts are underway to increase productivity and decrease
costs on the relocated lines; however, the Company does not expect to completely
eliminate these inefficiencies until the second quarter of 1999.
Selling, General and Administrative expenses for the 1998 third quarter declined
approximately $0.2 million from 1997 mainly due to cost reductions initiated in
the quarter, off-set by the inclusion of NOVA in 1998 but not 1997. As a
percentage of net sales, excluding the NOVA acquisition, third quarter 1998
selling, general and administrative expenses declined to 12.0% from 13.8% in
1997.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
in the third quarter of 1998, adjusted for costs associated with the
restructuring and reorganization plan and incremental production inefficiencies,
amounted to $8.4 million, compared to $7.7 million in the 1997 third quarter, an
increase of $0.7 million or 9.1%.
Goodwill amortization expense of $1.1 million for the third quarter of 1998
increased from $1.0 million in 1997 due to the acquisition of Nova in 1998.
The pretax loss for the third quarter was $1.5 million, a decrease of
approximately $0.9 million from the third quarter 1997 pretax loss. The decrease
was largely the result of the inclusion in 1997 of the $2.5 million pre-tax
charge relating to the closure of the Singapore facility, off-set in 1998 by the
lower gross profit and management restructuring charges as discussed above.
13
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AMTROL INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
NINE MONTHS ENDED OCTOBER 3, 1998
Net sales for the nine months ended October 3, 1998 increased $18.2 million or
13.3% compared to the same period in 1997. The year-to-year comparison is
favorably impacted by the acquisition of NOVA and the full year inclusion of
Alfa. Excluding the impact of Alfa, NOVA, and American Granby (sold in May 1997)
and the impact of certain markets transferred to Alfa from North America in
1998, net sales would have decreased approximately 3.6%. The unseasonably warm
winter negatively impacted sales of products to the plumbing and heating
industry while the wet weather delayed the installation of new water wells. In
addition, sales of certain products were adversely impacted by a manufacturing
process problem, which has since been corrected, and by a supply problem
resulting from the relocation of certain production lines from the Company's
Nashville, Tennessee production facility to its West Warwick, R.I. facility.
During the second quarter of 1998, the Company recorded a provision for abnormal
warranty costs of $4.5 million to reflect the incremental warranty costs
associated with a 1995/1996 production problem. The problem has since been
corrected but the Company is still experiencing higher than normal warranty
claims for some products manufactured during the 1995/1996 production period.
Accordingly, the Company reassessed its potential future liability associated
with this product and determined that an additional warranty provision of $4.5
million was required.
Excluding the provision for abnormal warranty costs, gross profit for the nine
months ended October 3, 1998 declined by $0.8 million or 2.4% in comparison to
the same period in 1997. The decline in the gross margin is mainly attributable
to increased production costs of approximately $2.8 million resulting from
difficulties in achieving efficient production levels on the production lines
relocated to West Warwick from Nashville. Increased production costs include
higher labor, maintenance and scrap, as well as factory overhead. The gross
profit percentage decreased to 22.0% in 1998 from 25.5% in 1997 primarily due to
the inclusion of sales by Alfa and NOVA which generate lower average margins
than other Company products and the production inefficiencies associated with
the relocated production lines.
As previously noted, the Company transferred certain production lines from its
Nashville facility to its West Warwick, Rhode Island facility in December 1997.
In connection with the relocation, the Company incurred incremental plant
closing costs in the 1998 second quarter of $4.5 million resulting from
unexpected retrofitting and reconditioning required for the relocated equipment,
damage to equipment during shipment, and delays in preparing the Nashville
building for sale. This amount has been reflected in the accompanying financial
statements.
14
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AMTROL INC. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Also as noted above, the Company, in connection with its Plan of Restructuring
and Reorganization, has discontinued certain product lines and has taken actions
to reduce the number of variations offered on many of its products, thereby
reducing inventory levels. Certain members of senior management have left the
Company in connection with the Plan. The unrecoverable cost of discontinued
inventory and the cost of programs to reduce the number of product offerings,
combined with the cost of post employment benefits for departing executives,
aggregates approximately $4.6 million and has been reflected in the accompanying
financial statements.
Selling, General and Administrative expenses for the nine months ended October
3, 1998 increased approximately $0.5 million from 1997 mainly due to $0.4
million of expenses incurred in 1998 relating to an acquisition which was not
completed; and the inclusion of NOVA in 1998 but not 1997. As a percentage of
net sales (excluding the cost of the abandoned acquisition), selling, general
and administrative expenses declined to 12.5% in 1998 from 14.1% for the same
period in 1997.
Earnings before interest expense, taxes, depreciation and amortization (EBITDA)
for the nine months ended October 3, 1998, before costs associated with the
restructuring and reorganization plan, incremental production inefficiencies and
the abnormal warranty provision, amounted to $23.6 million, compared to $20.8
million for the nine months ended October 4, 1997, an increase of $2.8 million
or 13.6%.
For the nine months ended October 3, 1998, goodwill amortization expense
increased $0.4 million over the comparable period in 1997 to $3.3 million and
interest expense increased $1.9 million over 1997 to $15.8 million. The increase
in both amortization and interest expense primarily relates to the acquisition
and financing of Alfa and NOVA and short-term working capital needs earlier in
1998.
The year-to-date pretax loss is $17.0 million, an increase of approximately
$14.1 million over the year-to-date 1997 pretax loss. The increase was largely
the result of the costs of the restructuring and reorganization plan, abnormal
warranty provision and manufacturing inefficiencies associated with the
relocated production lines.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital at October 3, 1998 was $17.5 million and the ratio of current
assets to current liabilities was 1.31 to 1.0. This compares with working
capital of $24.4 million and a current ratio of 1.57 to 1.0 at December 31,
1997.
15
<PAGE> 17
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Company's accounts receivable increased $9.2 million since December 31,
1997, reflecting seasonal demand, the inclusion of Nova, and increases at Alfa
due to higher sales and the weaker dollar compared to the Portuguese Escudo.
Inventory declined approximately $2.6 million. North American inventories
decreased $10.9 million, offset by combined Alfa and Nova inventory increases of
$8.3 million. Inventory levels in North America, particularly water systems,
were temporarily increased at the end of 1997 in order to assure uninterrupted
supply to customers during the relocation of the Company's Nashville production
lines to its West Warwick, R.I. facility. In addition, inventory in North
America decreased in connection with an inventory reduction program initiated in
the third quarter. The inventory increase at Alfa relates to the higher level of
production at that facility. Accounts payable and accrued expenses combined
increased from the previous year-end by approximately $9.9 million primarily due
to the addition of NOVA, increases at Alfa associated with higher inventory at
that location, and the weaker dollar compared to the Portuguese Escudo.
The Company's cash balance remained unchanged at $0.5 million as compared to the
end of 1997. During this same period, the Company invested approximately $9.4
million in capital assets and decreased net borrowings by $3.9 million.
The Company's total capital expenditures for 1998 are projected to approximate
$10.5 million. The projection reflects planned capital investments at the Alfa
facility intended to improve productivity at that location and expenditures at
the Company's West Warwick, Rhode Island facility to improve productivity on
relocated production lines.
On July 31, 1998, the Cypress Group L.L.C. and members of senior management
contributed an additional $20.5 million of new equity into the Company's parent,
AMTROL Holdings Inc. In turn, AMTROL Holdings Inc. contributed a like amount to
the Company. The additional capital contribution primarily was used to repay
borrowings under the Company's Bank Credit Agreement.
16
<PAGE> 18
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The Bank Credit Agreement (the "Agreement") between the Company and a syndicate
of lenders was amended on July 31, 1998 to allow for the early repayment of a
portion of the principal outstanding and to modify certain loan agreement
covenants to be more in line with the Company's business plans. The Agreement,
as amended, provides for senior term loans (the "Term Loans") and a Revolving
Credit Facility. In connection with the amendment to the Agreement, the company
repaid $20.5 million on August 3, 1998. A portion ($10.2 million) of the Term
Loans (the "Tranche A Term Loans") will mature five and one-half years after the
effective date, November 13, 1996, with quarterly amortization payments during
the term of such loans. As a result of the August 3, 1998 repayment, no further
amortization payments on Tranche A term loans will be required in 1998. The
remainder ($44.5 million) of the Term Loans (the "Tranche B Term Loans") will
mature seven and one-half years after the effective date, 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 of $30.0 million includes a sublimit providing for up to $20.0
million of availability on a revolving credit basis to finance permitted
acquisitions. 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. The Revolving Credit
Facility will mature five and one-half years after the effective date. The Bank
Credit Agreement is secured by substantially all assets of the Company and its
domestic subsidiaries.
The Company issued $115.0 million of Senior Subordinated Notes due 2006 (the
"Notes") 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 which is 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 Company intends to fund its future working capital expenditures and debt
service requirements through cash flows generated from operations, borrowings
under the revolving credit facility (the "Revolving Credit Facility") provided
under the Bank Credit Agreement and through the use of available cash balances
($0.5 million at October 3, 1998).
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.
17
<PAGE> 19
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INFLATION
In recent years, inflation has been modest and has not had a material impact
upon the results of the Company's operations.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the Year 1900 rather than the Year 2000. The Company is in the process
of implementing a new Enterprise Resource Planning System ("ERP") which, in
addition to providing the Company with a wide-range of operational and
administrative efficiencies, should ensure that virtually all of the Company's
core business systems are year 2000 compliant. A portion of this system was
implemented during the third quarter of 1998. The Company anticipates completion
of the project before the end of the 1999 first quarter. The date on which the
Company believes it will complete the ERP Project is based on management's best
estimate. However, there can be no guarantee that this estimate will be achieved
and actual results could differ materially from those anticipated. The Company
will develop a contingency plan in the first quarter of 1999 if it appears that
the ERP will not be completed as planned. The cost of Year 2000 compliance
cannot be separated from the overall cost of the ERP, but the company believes
that such incremental costs are not material. All remaining business software
programs are expected to be made Year 2000 compliant by mid-1999, including
those supplied by vendors, or they will be retired.
The Company has begun to initiate formal communications with its most
significant suppliers to determine the extent to which the Company's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company will initiate formal communications with its large
customers by the end of 1998 to assess the same issue. While there can be no
guarantee that the systems of other companies on which the Company's system rely
will be timely converted and will not have an adverse effect on the Company's
systems, the Company does not believe that its operations are materially
vulnerable to the failure of any vendor or customer to properly address the Year
2000 issue. The Company has determined it has no exposure to contingencies
related to the Year 2000 issue for the products it has sold.
The Company has also begun to initiate formal communications with the vendors
supplying manufacturing equipment utilizing hardware, software and associated
embedded computer chips. It estimates that this portion of its Year 2000
compliance program will be completed by the end of 1998.
18
<PAGE> 20
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The aforementioned steps being
undertaken by the Company are expected to significantly reduce the Company's
level of uncertainty about the Year 2000 problem and, in particular, about the
Year 2000 compliance and readiness of its material suppliers and customers. The
Company believes that, with the implementation of ERP and the other steps being
taken, the possibility of significant interruptions of normal operations should
be reduced.
19
<PAGE> 21
AMTROL INC. AND SUBSIDIARIES
- - --------------------------------------------------------------------------------
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
10.1.4 Fourth Amendment to the Credit Agreement dated July 13, 1998.
REPORTS ON FORM 8-K
No reports on form 8-K were filed during the period covered by this
report.
20
<PAGE> 22
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: November 16, 1998 By: /s/ Albert D. Indelicato
----------------- ----------------------------------------
Albert D. Indelicato
President,
Chief Executive Officer and Director
Date: NOVEMBER 16, 1998 By: /s/ Donald W. Reilly
----------------- ----------------------------------------
Donald W. Reilly,
Vice President,
Chief Financial Officer and Treasurer
21
<PAGE> 1
EXHIBIT 10.1.4
FOURTH AMENDMENT TO CREDIT AGREEMENT
FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of July 13, 1998 (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.
W I T N E S S E T H :
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"); 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. AMENDMENT TO CREDIT AGREEMENT.
1. Section 4.02(A)(c) of the Credit Agreement is hereby amended by (x)
inserting the text "(i)" immediately following the text "PROVIDED that"
appearing in the first sentence of said Section and (y) inserting the text "and
(ii) up to an additional $3,000,000 of the Net Cash Proceeds from the sales of
Designated Assets constituting Asset Sales" immediately following the text "from
Asset Sales" appearing in the first sentence of said Section. --------
2. Notwithstanding anything to the contrary contained in Sections
3.03(e), 4.02(A)(e) and 4.02(B)(a) of the Credit Agreement, $10,250,000 of the
proceeds from the issuance by Holdings of Holdings Common Stock and $10,250,000
of the proceeds from the issuance by Holdings of Holdings Preferred Stock, in
each case to Cypress and certain Management Investors on the Fourth Amendment
Effective Date (as defined below), shall not be required to be applied as a
mandatory repayment of principal of the then outstanding Term Loans or to
permanently reduce the Total Revolving Commitment as otherwise required by the
relevant terms of said Sections, so long as (i) at least $8,700,000 of the
aggregate proceeds of such issuances are applied as a mandatory repayment of
principal of outstanding A Term Loans on the
<PAGE> 2
EXHIBIT 10.1.4
Fourth Amendment Effective Date, (ii) $11,800,000 of the aggregate proceeds of
such issuances are utilized to repay outstanding Revolving Loans on the Fourth
Amendment Effective Date and (iii) the mandatory repayment of A Term Loans
required pursuant to clause (i) above is applied (x) FIRST, to reduce the then
remaining Scheduled Repayments of the A Term Facility in direct order of
maturity for the fiscal quarters ended September 30, 1998 and December 31, 1998
and (y) SECOND, to reduce the then remaining Scheduled Repayments of the A Term
Facility on a PRO RATA basis (based upon the then remaining Scheduled Repayments
of the A Term Facility).
3. Section 7.01(e) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing immediately prior to the text "(y) in the
case" in said Section and inserting a comma in lieu thereof and (ii) inserting
the following new clause (z) at the end of said Section:
"and (z) in the case of the certificate delivered pursuant to
Sections 7.01(a) and (b) for any fiscal year or quarter, as the case
may be, ended on or prior to the fiscal quarter ended March 31, 2000,
shall set forth the amount and type of each permitted non-recurring
charge (as set forth in Annex X) taken in each fiscal quarter
constituting a part of the Test Period ending on the last day of the
fiscal year or quarter covered by such financial statements and applied
to reduce Consolidated EBITDA for such Test Period".
4. Section 8.02(f) of the Credit Agreement is hereby amended by
deleting the date "December 31, 1998" appearing in said Section and inserting
the date "December 31, 2000" in lieu thereof.
5. Section 8.09(a) of the Credit Agreement is hereby amended by (i)
deleting the word "and" appearing at the end of clause (v) of said Section, (ii)
deleting the period at the end of clause (vi) of said Section and inserting the
text ";and" at the end of said clause and (iii) inserting the following new
clause (vii) at the end of said Section:
"(vii) Holdings may pay regularly scheduled Dividends on the
Holdings Preferred Stock pursuant to the terms thereof and the
certificate of designation therefor through the issuance of additional
shares of Holdings Preferred Stock."
6. Section 8.11 of the Credit Agreement is hereby amended by deleting
the table appearing in said Section in its entirety and inserting in lieu
thereof the following new table:
"Fiscal Quarter Ending Closest To: Ratio
---------------------------------- -----
December 31, 1996 1.60:1.0
March 31, 1997 1.60:1.0
June 30, 1997 1.60:1.0
September 30, 1997 1.60:1.0
December 31, 1997 1.55:1.0
-2-
<PAGE> 3
EXHIBIT 10.1.4
March 31, 1998 1.55:1.0
June 30, 1998 1.35:1.0
September 30, 1998 1.35:1.0
December 31, 1998 1.35:1.0
March 31, 1999 1.35:1.0
June 30, 1999 1.35:1.0
September 30, 1999 1.45:1.0
December 31, 1999 1.50:1.0
March 31, 2000 1.50:1.0
June 30, 2000 1.55:1.0
September 30, 2000 1.60:1.0
December 31, 2000 1.65:1.0
March 31, 2001 1.70:1.0
June 30, 2001 1.75:1.0
September 30, 2001 1.80:1.0
December 31, 2001 1.85:1.0
March 31, 2002 1.85:1.0
June 30, 2002 1.90:1.0
September 30, 2002 1.95:1.0
December 31, 2002 2.00:1.0
March 31, 2003 2.10:1.0
June 30, 2003 2.15:1.0
September 30, 2003 2.25:1.0
December 31, 2003 2.30:1.0
March 31, 2004 2.35:1.0
June 30, 2004 2.50:1.0".
7. Section 8.12 of the Credit Agreement is hereby amended by deleting
the table appearing in said Section in its entirety and inserting in lieu
thereof the following new table:
"Fiscal Quarter Ending Closest To: Ratio
---------------------------------- -----
December 31, 1996 6.25:1.0
March 31, 1997 6.25:1.0
June 30, 1997 6.25:1.0
September 30, 1997 6.25:1.0
December 31, 1997 6.40:1.0
March 31, 1998 6.60:1.0
June 30, 1998 7.80:1.0
-3-
<PAGE> 4
EXHIBIT 10.1.4
September 30, 1998 7.80:1.0
December 31, 1998 7.80:1.0
March 31, 1999 7.80:1.0
June 30, 1999 7.75:1.0
September 30, 1999 7.25:1.0
December 31, 1999 6.75:1.0
March 31, 2000 6.50:1.0
June 30, 2000 6.50:1.0
September 30, 2000 6.25:1.0
December 31, 2000 5.85:1.0
March 31, 2001 5.85:1.0
June 30, 2001 5.85:1.0
September 30, 2001 5.50:1.0
December 31, 2001 5.25:1.0
March 31, 2002 5.25:1.0
June 30, 2002 5.25:1.0
September 30, 2002 4.75:1.0
December 31, 2002 4.50:1.0
March 31, 2003 4.50:1.0
June 30, 2003 4.50:1.0
September 30, 2003 4.40:1.0
December 31, 2003 4.20:1.0
March 31, 2004 3.80:1.0
June 30, 2004 3.25:1.0".
8. Section 8.13 of the Credit Agreement is hereby amended by deleting
the table appearing in said Section in its entirety and inserting in lieu
thereof the following new table:
"Fiscal Quarter Ending Closest To: Amount
---------------------------------- ------
December 31, 1996 $27,800,000
March 31, 1997 $26,640,000
June 30, 1997 $26,640,000
September 30, 1997 $26,640,000
December 31, 1997 $26,640,000
March 31, 1998 $27,330,000
June 30, 1998 $25,000,000
September 30, 1998 $25,000,000
December 31, 1998 $25,000,000
-4-
<PAGE> 5
EXHIBIT 10.1.4
March 31, 1999 $25,000,000
June 30, 1999 $25,000,000
September 30, 1999 $26,000,000
December 31, 1999 $27,000,000
March 31, 2000 $27,000,000
June 30, 2000 $28,000,000
September 30, 2000 $28,500,000
December 31, 2000 $29,500,000
March 31, 2001 $30,000,000
June 30, 2001 $31,000,000
September 30, 2001 $32,000,000
December 31, 2001 $33,000,000
March 31, 2002 $33,000,000
June 30, 2002 $34,000,000
September 30, 2002 $34,500,000
December 31, 2002 $35,000,000
March 31, 2003 $36,000,000
June 30, 2003 $37,000,000
September 30, 2003 $37,500,000
December 31, 2003 $38,500,000
March 31, 2004 $39,000,000
June 30, 2004 $39,500,000".
9. The definition of "Consolidated EBITDA" appearing in Section 10 of
the Credit Agreement is hereby amended by inserting the following proviso at the
end of said definition:
", PROVIDED FURTHER that Consolidated EBITDA for each Test Period
ending on or prior to March 31, 2000 shall mean the sum of (x)
Consolidated EBITDA for such Test Period as determined without regard
to this proviso PLUS (y) to the extent Consolidated EBITDA for any such
Test Period has been reduced (whether directly or through reductions to
Consolidated Net Income) by an amount not to exceed the remainder of
(x) the sum of the permitted non-recurring charges as set forth in
Annex X hereto LESS (y) the sum of the relevant non-recurring charges
(or portion thereof) taken or to be taken in a fiscal quarter not
constituting a part of such Test Period, the amount of each such
reduction for each such Test Period".
-5-
<PAGE> 6
EXHIBIT 10.1.4
10. Section 10 of the Credit Agreement is hereby further amended by
inserting the following new definition in said Section in appropriate
alphabetical order:
"Holdings Preferred Stock" shall mean Holdings' Preferred
Stock , par value $.01 per share, issued pursuant to the Certificate of
Designations, dated as of July 31, 1998, as the same may be amended,
modified or supplemented from time to time in accordance with the terms
hereof and thereof, which Preferred Stock shall not be mandatorily
redeemable prior to the twelfth anniversary of its initial date of
issuance.
11. Notwithstanding anything to the contrary contained in Section 8.15
of the Credit Agreement or in the Pledge Agreement, the Banks hereby agree that
Holdings and its Subsidiaries shall not be required to pledge to the Pledgee
under the Pledge Agreement the stock of AMTROL Holding Portugal, SGPS,
Unipessoal, Lda., AMTROL Holding Netherlands B.V., AMTROL Europe Ltd. or AMTROL
Holding GmbH until 60 days following the Fourth Amendment Effective Date and
then only to the extent required to be pledged pursuant to the terms of the
Pledge Agreement. The Banks hereby waive any Event of Default which may have
arisen under Section 9.03 or 9.07 of the Credit Agreement as a result of the
failure by Holdings and its Subsidiaries to pledge the stock of AMTROL Holding
Portugal, SGPS, Unipessoal, Lda., AMTROL Europe Ltd. and AMTROL Holding GmbH to
the Pledgee pursuant to, and in accordance with the terms of, the Pledge
Agreement prior to the Fourth Amendment Effective Date.
12.. Annex VII to the Credit Agreement is hereby amended by deleting
said Annex in its entirety and replacing the same with new Annex VII in the form
attached hereto as Annex VII.
13. The Credit Agreement is hereby amended by adding Annex X in the
form attached hereto immediately after Annex IX appearing in the Credit
Agreement.
II. MISCELLANEOUS PROVISIONS.
1. In order to induce the Banks to enter into this Amendment, each of
Holdings and the Borrower hereby represents and warrants that:
(a) no Default or Event of Default exists as of the Fourth
Amendment Effective Date, 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 Fourth Amendment Effective Date, after
giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Fourth
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).
-6-
<PAGE> 7
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 "Fourth
Amendment Effective Date") when (i) Holdings, 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 and (ii)
Holdings shall have issued Holdings Preferred Stock and Holdings Common Stock to
Cypress and certain Management Investors generating cash proceeds of
$20,500,000.
6. From and after the Fourth 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.
* * *
-7-
<PAGE> 8
EXHIBIT 10.1.4
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:
--------------------------------------
Name:
Title:
AMTROL INC.
By:
--------------------------------------
Name:
Title:
BANKERS TRUST COMPANY, Individually
and as Administrative Agent
By:
--------------------------------------
Name:
Title:
MORGAN STANLEY SENIOR FUNDING, INC.,
Individually and as Documentation Agent
By:
--------------------------------------
Name:
Title:
-8-
<PAGE> 9
EXHIBIT 10.1.4
BANKBOSTON, N.A.
By:
--------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
--------------------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA
By:
--------------------------------------
Name:
Title:
CITIZENS FINANCIAL GROUP INC
By:
--------------------------------------
Name:
Title:
FIRST SOURCE FINANCIAL LLP
By First Source Financial Inc.,
Its manager
By:
--------------------------------------
Name:
Title:
-9-
<PAGE> 10
EXHIBIT 10.1.4
FLEET NATIONAL BANK
By:
--------------------------------------
Name:
Title:
SOCIETE GENERALE
By:
--------------------------------------
Name:
Title:
AMARA-1 FINANCE LTD.
By:
--------------------------------------
Name:
Title:
-10-
<PAGE> 11
EXHIBIT 10.1.4
CERES FINANCE LTD.
By:
--------------------------------------
Name:
Title:
KZH HOLDING CORPORATION III
By:
--------------------------------------
Name:
Title:
-11-
<PAGE> 12
EXHIBIT 10.1.4
DESIGNATED ASSETS
Designated Assets % of Cash Proceeds
----------------- ------------------
Plano, Texas Facility 100%
Peru, Indiana At least 60%
Houses and land assets with 100%
a fair market value not in
excess of $2,500,000
Real property in Nashville, 100%
Tennessee with a fair market value
not in excess of $1,500,000
<PAGE> 13
EXHIBIT 10.1.4
NON-RECURRING CHARGES/CONSOLIDATED EBITDA ADJUSTMENTS
Non-Recurring Charges
---------------------
Production relocation costs
not to exceed: $ 4,500,000
Workers compensation
costs not to exceed: $ 600,000
Management
reorganization costs not to
exceed: $ 4,000,000
Incremental HotWater
Maker returns not to
exceed: $ 4,500,000
Failed acquisition costs not
to exceed: $ 150,000
Obsolete inventory write-down
not to exceed: $ 2,000,000
Costs and expenses relating
to product liability lawsuit
not to exceed: $ 250,000
Incremental plant closing
costs not to exceed: $ 4,450,000
-----------
$20,450,000
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-03-1998
<EXCHANGE-RATE> 1
<CASH> 506
<SECURITIES> 0
<RECEIVABLES> 40,798
<ALLOWANCES> (1,373)
<INVENTORY> 28,720
<CURRENT-ASSETS> 74,341
<PP&E> 64,830
<DEPRECIATION> (12,674)
<TOTAL-ASSETS> 312,735
<CURRENT-LIABILITIES> 56,864
<BONDS> 179,801
0
0
<COMMON> 89,823
<OTHER-SE> (20,774)
<TOTAL-LIABILITY-AND-EQUITY> 312,735
<SALES> 0
<TOTAL-REVENUES> 154,924
<CGS> 125,349
<TOTAL-COSTS> 125,349
<OTHER-EXPENSES> 28,427
<LOSS-PROVISION> 3,348
<INTEREST-EXPENSE> 15,755
<INCOME-PRETAX> (16,972)
<INCOME-TAX> (5,072)
<INCOME-CONTINUING> (11,900)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,900)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
