UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT
TO SECTIONS 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

OR

Commission file number 0-20328

AMTROL Inc.

Registrant’s telephone number, including area code: (401) 884-6300
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None

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

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

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

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

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date: $0.01 Par Value: 100 shares outstanding as of March 31, 2005.

Documents Incorporated by Reference: None

TABLE OF CONTENTS

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PART I

ITEM 1. BUSINESS

Background

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

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

Operations

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

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

During its 59-year history, AMTROL has established a strong partnership with wholesalers, supporting a broad distribution network serving approximately 1,600 customers throughout North America. The Company’s strong brand recognition and reputation for quality ensure that nearly every significant plumbing, pump specialty and HVAC wholesaler carries at least one line of its products. This facilitates new product introduction, effectively “pulling” the Company’s new products through its distribution system. The Company also offers a broad range of products, which allows the

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

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

AMTROL Poland Sp z.o.o. (“AMTROL Poland”), located in Swarzedz, Poland refurbishes returnable gas cylinders, primarily for the Polish market. AMTROL Poland provides the Company with both a favorable manufacturing cost structure and close proximity to the gas cylinder markets in Central and Eastern Europe.

Net sales in geographic regions outside of the United States and Canada, primarily Europe, the Middle East, Africa and the Far East, accounted for 26.1%, 34.7% and 34.2% of the Company’s total net sales in fiscal years 2002, 2003 and 2004, respectively.

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

Products And Markets

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

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

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reducing operating problems.

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

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

The AMTROL ALFA subsidiary produces and distributes reusable liquid propane gas (“LPG”) cylinders and reusable and non-returnable refrigerant cylinders. AMTROL ALFA is the largest producer of reusable steel gas cylinders in Europe. Reusable LPG cylinders are typically purchased by major gas companies or their distributors who fill the cylinders for customers who use the gas for heating and cooking in residential and commercial applications. In 1998, the Company transferred to AMTROL ALFA a non-returnable refrigerant cylinder production line previously located in Singapore and began supplying its European and Asian non-returnable refrigerant cylinder customers from AMTROL ALFA. The transfer of this production line enhanced the Company’s worldwide presence in non-returnable cylinder markets and its ability to provide optimum production and delivery solutions to its major multi-national customers. The Company is also one of the world’s two largest manufacturers of non-returnable pressure-rated cylinders used in the storage, transport and dispensing of refrigerant gases for air conditioning and refrigeration systems.

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In 1999, the Company established AMTROL Poland which refurbishes returnable gas cylinders, primarily for the Polish market. AMTROL Poland provides the Company with both a favorable manufacturing cost structure and close proximity to the gas cylinder markets in Central and Eastern Europe.

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

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

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

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

Distribution and Marketing

The Company’s principal channel of distribution is plumbing, heating and pump specialty wholesalers. The Company maintains its presence in the United States and Canadian wholesale markets through a network of approximately 60 independent manufacturer’s representatives arranging sales on a commission basis, as well as 11 salaried direct sales professionals. To service its customers with greater efficiency, the Company has streamlined its representative network and, through consolidation of multiple lines of

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business, has brought a broader range of products to its wholesalers. The Company also provides certain of its products to the retail channel through its salaried direct sales force.

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

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

With the exception of one cylinder customer to whom global sales were approximately 5.6% of total consolidated net sales, no individual customer represented more than five percent of the Company’s net sales in 2004.

Manufacturing, Raw Materials and Suppliers

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

In 2004, the Company experienced significant price increases for several key raw materials, energy and freight. Some raw materials such as steel were allocated, which exacerbated the cost pressures experienced throughout the year. In 2005, the Company anticipates upward cost pressure in these same categories, but the magnitude of these cost increases is anticipated to decline considerably. The Company anticipates that mitigating the impact of rising raw material costs and availability issues will require active management in 2005.

Capital expenditures in 2004 yielded significant material utilization and labor content reductions in nearly all product lines. Emphasis has been placed on low risk, basic automation, as well as, process and product variation reduction. In addition, productivity improvement techniques such as Kaizen, Visual Control and One-Piece Flow initiatives will continue to allow the Company to identify and eliminate waste in its cost structure.

During 2004, quality levels continued to improve. Field failures and sales returns experienced reductions over 2003 attributable to revision of rework policies and stringent enforcement of supplier quality protocols begun in 2003 that were further enhanced in 2004.

Emphasis on safety continues to be the primary focus at all of the Company's locations. During 2004, the Company’s OSHA frequency and severity rates were below industry standards set by the Bureau of Labor Statistics at each of its four manufacturing locations. Two of the Company’s facilities reported zero lost time injuries while the Rhode Island facility

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decreased its frequency rates by nearly 30% and its severity rates by approximately 50%.

The condition at the Company’s facilities and capital equipment are considered good. Capital expenditures in 2004 yielded further productivity improvements. As a result, the Company does not anticipate any capacity constraints.

Seasonality and Backlog

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

Patents, Trademarks And Licenses

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

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

Competition

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

Employees

As of December 31, 2004, the Company had 569 employees in the United States, none of who were represented by collective bargaining units. In addition, the Company had 749 employees in its international operations. Some of the Company’s international employees are represented by a works council. The Company considers relations with its employees to be good.

Environmental Matters

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

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an entity or business the Company has acquired or disposed of) will not arise or be asserted against the Company or entities for which the Company may be responsible in a manner that could materially and adversely affect the Company.

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

ITEM 2. PROPERTIES

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

The Company believes that its properties and equipment generally are well maintained, in good operating condition and adequate for its present needs. The Company regularly evaluates its manufacturing requirements and believes that it has sufficient capacity to meet its current and anticipated future needs. The inability to renew any short-term real property lease would not have a material adverse effect on the Company’s results of operations, financial condition or competitive position.

ITEM 3. LEGAL PROCEEDINGS

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

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

Not applicable.

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PART II

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS OF EQUITY SECURITIES

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

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ITEM 6. SELECTED FINANCIAL DATA

The selected consolidated financial data presented below for and as of each of the years in the five-calendar-year period ended December 31, 2004 have been derived from the Consolidated Financial Statements of the Company, including the related notes thereto (fiscal years 2002 through 2004 have been audited by Ernst and Young). The information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and with the Consolidated Financial Statements of the Company, including the related notes thereto, appearing elsewhere in this Form 10-K.

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

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

Business Overview

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

In the North America segment, the Company’s principal markets are highly replacement oriented, with a substantial portion of the Company’s core business coming from replacement sales. Sales can be affected by extreme weather conditions, as well as significant changes in economic circumstances. During 2004, the Company experienced an increase in net sales due principally to implemented price increases during the year to offset rising steel costs, the impact of the strengthening of the Euro against the U.S. Dollar and volume increases. As a result of the combination of volume, foreign exchange rates and productivity improvements, the Company’s gross profit increased over 2003.

During 2004, the Company experienced increasing costs for several key raw materials (steel, copper, brass and rubber), energy and freight. The Company reacted to these higher raw material costs by implementing price increases throughout 2004. The Company acted aggressively to keep these price increases in check by developing new sources and through contracted purchases. The Company anticipates that mitigating the impact of rising steel prices and steel availability issues will require continued active management in 2005.

Emphasis on productivity improvements continued in 2004 via capital expenditures and continuous improvement activities such as Kaizen, Visual Control and One-Piece Flow Initiatives. These techniques allow the Company to identify and eliminate waste in its cost structure. In addition, management continues to explore and implement strategies in order to reduce its selling, general and administrative expenses.

Forward Looking Statements

The Company and its representatives may from time to time make written or oral statements, including statements contained in AMTROL’s filings with the Securities and Exchange Commission (“SEC”) and in its reporting to customers, which constitute or contain “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995 or the SEC in its rules, regulations and releases.

All statements other than statements of historical fact included in this Form 10-K and elsewhere relating to the Company’s financial position, strategic initiatives and statements addressing industry developments are forward-looking statements. When incorporated in this discussion, the words “expect(s)”, “feel(s)”, “believe(s)”, “anticipate(s)” and similar expressions are intended to identify some of these forward-

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

 Results of Operations

Fiscal 2004 Compared to Fiscal 2003

Consolidated Operations

The following table sets forth consolidated operating results for the fiscal years indicated:

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Fiscal Year Ended December 31, 2004 Compared to Fiscal Year Ended December 31, 2003.

Net Sales. Net sales in 2004 increased $13.4 million or 7.2% to $198.4 million from $185.0 million in 2003. In North America, net sales increased $10.7 million or 9.1% as compared to 2003 due principally to implemented price increases during the year to offset rising steel costs, combined with volume increases. The volume increases were realized from its core product offering and a variety of new product introductions. Net sales in Europe increased $2.7 million or 4.0% as compared to 2003 due principally to the strengthening of the Euro against the U.S. dollar, mitigated by a reduction in volume. If the value of the Euro had remained at the average level of 2003, reported net sales in Europe for 2004 would have decreased $4.0 million or 5.9% from 2003.

Gross Profit. Gross profit increased $6.0 million in 2004 to $46.3 million from $40.3 million in 2003. As a percentage of net sales, gross profit in 2004 increased to 23.3% from 21.8% in 2003. This increase was due principally to the combination of volume, foreign exchange rates and productivity improvements discussed above.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $1.6 million or 6.0% in 2004 to $28.3 million from $26.7 million in 2003. The increase was primarily due to accrued performance-based compensation, higher commission expenses and the strengthening of the Euro versus the U.S. dollar, offset by a decline in expense attributable to personnel reductions and marketing expenses.

Interest Expense. Interest expense increased $2.1 million in 2004 as compared to 2003. The increase is primarily attributable to the additional Term B loan and increases in interest rates.

Gain on Extinguishment of Debt, Net. The decrease of $6.7 million was principally the result of a gain of $7.2 million recorded in 2003 on the purchase of $17.2 million of the Company’s outstanding Senior Subordinated Notes offset by a loss of $0.5 million on the extinguishment of debt for unamortized financing costs associated with the execution of the First Amendment and Second Amendment to the Loan and Security Agreement and Cypress Agreement.

Other Income (Expense), Net. Other income (expense), net for 2004 of $(0.1) million was unchanged as compared to 2003 of $(0.1) million.

Income Taxes. Income tax expense increased $8.6 million in 2004 as compared to 2003. The Company determined that an increase in the valuation allowance associated with its deferred tax assets of $8.9 million was required during 2004, as a result of the uncertainty surrounding the future utilization of the net operating loss carryforwards.

Net Loss. The net loss in 2004 of $22.2 million compares to a net loss in 2003 of $1.7 million. The reduction was principally due to increased North America earnings offset by the loss of $8.9 million incurred on the sale of the discontinued subsidiary in February 2004, the tax valuation allowance of $8.9 million and the gain of $6.8 million recorded in 2003 on the extinguishment of a portion of the Company’s senior subordinated notes.

Segment Operations

North America

The following table presents a summary of operating results for the fiscal years indicated:

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In North America, net sales increased $10.7 million or 9.1% as compared to 2003 due principally to implemented price increases during the year to mitigate rising steel costs combined with volume increases. The Company’s average selling price increased 8.9% in 2004 to $25.98 versus $23.85 as a function of both the implemented price increases and unit volume increases that reflect a mix shift to higher value products. The volume increases were realized from its core product offering and a variety of new product introductions. Gross profit increased $4.6 million in 2004 to $37.3 million from $32.7 million in 2003. As a percentage of net sales, gross profit in 2004 increased to 29.2% from 27.9% in 2003. This increase was due principally to the combination of additional volume, better product mix and productivity improvements totaling $0.7 million. Selling, general and administrative expenses increased $1.8 million or 8.9% to $22.1 million from $20.3 million in 2003. The increase was primarily due to accrued performance-based compensation of $1.7 million. Increased commission expenses of $0.5 million resulting from increased sales were offset by a decline in marketing expenses of $0.5 million.

Europe

The following table presents a summary of operating results for the fiscal years indicated: