SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 2003
Commission file number: 1- 448
MESTEK, INC.
Pennsylvania Corporation
I.R.S. Employer Identification No.
25 - 0661650
260 North Elm Street
Westfield, Massachusetts 01085
Telephone: (413) 568-9571
The Registrant 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 and has
been subject to such filing requirements for the past 90 days.
The number of shares of Common Stock outstanding as of March 31, 2003 was
8,721,603.
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2003
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
Item 1 - Financial Statements
Condensed consolidated balance sheets at March 31, 2003 (unaudited)
and December 31, 2002 (audited) 3-4
Condensed consolidated statements of operations for the three
months ended March 31, 2003 and 2002 (unaudited) 5
Condensed consolidated statements of cash flows for the three
months ended March 31, 2003 and 2002 (unaudited) 6
Condensed consolidated statement of changes in shareholders' equity for the
period from January 1, 2002 (audited)
through March 31, 2003 (unaudited) 7
Notes to the condensed consolidated financial statements (unaudited) 8-18
Item2- Management's Discussion and Analysis of Financial Condition
and Results of Operations 18-26
Item 3 - Quantitative and Qualitative Information About Market Risks 26-29
Item 4 - Controls and Procedures 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 5. Other Information
o Certification Under Sarbanes-Oxley Act 30
Item 6. Exhibits and Reports on Form 8-K 31
Schedule of Computation of Per Share Earnings 31
SIGNATURE 31
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, Dec. 31,
2003 2002
---- ----
(Unaudited) (Audited)
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $985 $2,675
Accounts Receivable - less allowances of,
$3,452 and $3,230 respectively 48,439 53,503
Inventories 63,445 60,587
Other Current Assets 10,830 11,372
--------- ---------
Total Current Assets 123,699 128,137
Property and Equipment - net 56,861 56,605
Other Assets and Deferred Charges - net 9,470 9,487
Excess of Cost over Net Assets of Acquired Companies 26,147 26,072
-------- ----------
Total Assets $216,177 $220,301
======== ========
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
March 31, Dec. 31,
2003 2002
--------- ---------
(Unaudited) (Audited)
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $6,047 $6,775
Accounts Payable 18,225 16,643
Accrued Compensation 4,753 8,614
Accrued Commissions 1,643 2,011
Reserve for Equity Investment Losses 6,000 6,000
Customer Deposits 5,962 6,763
Accrued Employee Benefits 8,875 8,456
Environmental Reserves 6,644 7,700
Other Accrued Liabilities 12,588 13,034
------ -------
Total Current Liabilities 70,737 75,996
Long-Term Debt 4,775 4,891
Other Liabilities 690 603
------ ------
Total Liabilities 76,202 81,490
------ -------
Minority Interests 1,109 1,097
------ -------
Shareholders' Equity
Common Stock - no par, stated value $0.05
per share, 9,610,135 shares issued 479 479
Paid in Capital 15,434 15,434
Retained Earnings 134,638 133,796
Treasury Shares, at cost,(888,532 common shares) (10,101) (10,101)
Other Comprehensive Loss (1,584) (1,894)
-------- ---------
Total Shareholders' Equity 138,866 137,714
------- --------
Total Liabilities, and Shareholders' Equity $216,177 $220,301
======== ========
See the Notes to Condensed Consolidated Financial Statements.
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
2003 2002 *
---- ----
(In thousands, except
earnings per common share)
Net Sales $86,156 $89,061
Cost of Goods Sold 61,182 64,094
------- -------
Gross Profit 24,974 24,967
Selling Expense 12,501 13,299
General and Administrative Expense 5,837 5,183
Engineering Expense 3,710 3,474
Environmental Charges 1,213 ---
------- --------
Operating Profit 1,713 3,011
Interest Income (Expense) - net (118) (275)
Other Income (Expense) - net (101) (205)
------- -------
Income Before Income Taxes and Cumulative Effect
of a Change in Accounting Principle 1,494 2,531
Income Taxes 652 1,015
------- ------
Income Before Cumulative
Effect of a Change in Accounting Principle 842 1,516
Cumulative Effect of a Change in Accounting Principle:
Gross Impairment (Expense) --- (31,633)
Tax Benefit --- 2,299
-------- ---------
Net Impairment (Expense) --- (29,334)
-------- --------
Net Income (Loss) $842 ($27,818)
===== ======
Basic Earnings (Loss) Per Common Share
Income Before Cumulative Effect
of a Change in Accounting Principle $0.10 $ 0.17
Cumulative Effect of a Change in Accounting Principle --- (3.36)
----- -------
Net (Loss) Income $0.10 ($3.19)
===== =======
Basic Weighted Average Shares Outstanding 8,722 8,722
===== =====
Diluted Earnings (Loss) Per Common Share
Income Before Cumulative Effect
of a Change in Accounting Principle $0.10 $0.17
Cumulative Effect of a Change in Accounting Principle --- (3.36)
----- ------
Net Income $0.10 ($3.19)
===== =======
Diluted Weighted Average Shares Outstanding 8,742 8,722
===== =====
* restated to give effect to 2002 goodwill impairment as of January 1, 2002 (See
Note 1) and to give effect in 2002 to subsidiary stock options (See Note 5).
See the Notes to Condensed Consolidated Financial Statements.
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
2003 2002 *
---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $842 ($27,818)
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Cumulative Effect of Change in Accounting Principle --- 29,334
Depreciation and Amortization 2,277 1,602
Provision for Losses on Accounts Receivable 222 436
Change in Assets & Liabilities:
Accounts Receivable 4,842 3,606
Inventory (2,858) 3,569
Accounts Payable 1,582 (630)
Accrued Expenses (3,810) (2,188)
Other Liabilities (2216) 88
Other Assets 441 (3,634)
------- -------
Net Cash Provided by Operating Activities 1,322 4,365
------- -------
Cash Flows from Investing Activities:
Capital Expenditures (2,490) (1,527)
------- -------
Net Cash (Used in) Investing Activities (2,490) (1,527)
------ -------
Cash Flows from Financing Activities:
Net Payments
Under Revolving Credit Agreements (763) (2,467)
Principle Payments Under
Long-term Debt Obligations (81) ---
Increase in Minority Interests 12 24
------- -------
Net Cash (Used in) Financing Activities (832) (2,443)
------- -------
Net (Decrease) Increase in Cash and Cash Equivalents (2,000) 395
Translation Effect on Cash 310 ---
Cash and Cash Equivalents - Beginning of Period 2,675 2,315
------- -------
Cash and Cash Equivalents - End of Period $985 $2,710
====== =======
* restated to give effect to 2002 goodwill impairment as of January 1, 2002 (See
Note 1) and to give effect in 2002 to subsidiary stock options (See Note 5).
See the Notes to Condensed Consolidated Financial Statements.
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the period January 1, 2002 through March 31, 2003
(dollars in thousands)
Cumulative
Common Paid In Retained Treasury Translation
Stock Capital Earnings Shares Adjustment Total
Balance - January 1, 2002 $479 $15,434 $164,201 ($10,101) ($1,390) $168,623
Net (Loss) (30,405) (30,405)
Additional Minimum Liability
Defined Benefit Plan--Net of tax (559) (559)
Cumulative Translation Adjustment 55 55
---- -------- -------- --------- -------- -----------
Balance -December 31, 2002 (audited) 479 15,434 133,796 (10,101) (1,894) 137,714
Cumulative Translation Adjustment 310 310
Net Income 842 842
---- -------- -------- ---------- -------- --------
Balance - March 31, 2003 (unaudited) $479 $15,434 $134,638 ($10,101) ($1,584) $138,866
==== ======= ======== ========== ======== ========
See the Notes to Condensed Consolidated Financial Statements.
MESTEK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of Mestek,
Inc. (Mestek) and its wholly owned subsidiaries (collectively the "Company").
The financial statements as reported in Form 10-Q reflect all adjustments,
including those of a normal recurring nature, which are, in the opinion of
management, necessary to a fair statement of results for the three-month periods
ended March 31, 2003 and 2002.
These financial statements should be read in conjunction with the
Annual Report on Form 10-K, and in particular the audited financial statements,
for the fiscal year ended December 31, 2002. Accordingly, footnote disclosures
that would substantially duplicate the disclosures contained in the latest
audited financial statements have been omitted from this filing.
Excess of Cost Over Net Assets of Acquired Companies (Goodwill)
Through December 31, 2001, the Company amortized Goodwill on the
straight-line basis over the estimated period to be benefited, typically 25
years. The Company continually evaluated the carrying value of Goodwill in
accordance with FAS 121 prior to January 1, 2002 and continues to do so in
accordance with FAS 142. Any impairments are recognized in accordance with the
appropriate accounting standards.
Earnings per Common Share
Basic earnings per share have been computed using the weighted average
number of common shares outstanding. Common stock options are considered in the
computation of diluted earnings per share except when the effect would be
antidilutive.
Had the fair value method of accounting been applied to the Company's
stock option plan, with compensation cost for the Plan determined on the basis
of the fair value of the options at the grant date, the Company's net income and
earnings per share would have been as follows :
Three months ended
March 31, March 31,
2003 2002
---- ----
(In thousands, except
earnings per common share)
Net income (loss) - as reported $842 ($27,818)*
Compensation expense 18 34
----- ----------
Net income (loss) - pro forma $824 ($27,852)
Basic Earnings (Loss) per share - as reported $0.10 ($3.19)
Compensation expense 0.01 0.00
----- ------
Basic Earnings (Loss) per share - pro-forma $0.09 ($3.19)
* restated to give effect to subsidiary stock options (see Note 5) and to give
effect to 2002 goodwill impairment in the first quarter of 2002 (see Note 1)
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Cash paid for income taxes was $216,000
and $277,000 during the three-month periods ended March 31, 2003 and 2002,
respectively.
Other Comprehensive Income
For the three-month period ended March 31, 2003 and 2002, respectively,
the components of other comprehensive (loss) income consisted of foreign
currency translation adjustments. Comprehensive income (loss) was $1,152,000,
and ($27,818,000) for the three months ended March 31, 2003 and 2002,
respectively.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
Adoption of SFAS 141, SFAS 142 and SFAS 144
The Financial Accounting Standards Board (FASB) issued FAS 141,
Business Combinations and FAS 142, Goodwill and Intangible Assets in 2001. FAS
141 was effective for all business combinations completed after June 30, 2001.
FAS 142 was effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement applied also to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of FAS
142. Major provisions of these Statements and their effective dates for the
Company are as follows: (i) all business combinations initiated after June 30,
2001 must use the purchase method of accounting (the pooling of interest method
of accounting is prohibited except for transactions initiated before July 1,
2001), (ii) intangible assets acquired in a business combination must be
recorded separately from goodwill if they arise from contractual or other legal
rights or are separable from the acquired entity and can be sold, transferred,
licensed, rented or exchanged, either individually or as part of a related
contract, asset or liability, (iii) goodwill and intangible assets with
indefinite lives acquired after June 30, 2001, will not be amortized, (iv)
effective January 1, 2002, all previously recognized goodwill and intangible
assets with indefinite lives are no longer subject to amortization, (v)
effective January 1, 2002, goodwill and intangible assets with indefinite lives
will be tested for impairment annually and whenever there is an impairment
indicator and (vi) all acquired goodwill must be assigned to reporting units for
purposes of impairment testing and segment reporting.
Accordingly, the Company ceased recording amortization of goodwill and
intangible assets with indefinite lives effective January 1, 2002. The Company's
analysis under Step Two of FAS 142 indicated its the Metal Forming segment's
goodwill was impaired as of January 1, 2002 in the amount of $31,633,000. The
effect of the impairment is treated in the accompanying financial statements as
relating to the three-month period ending March 31, 2002. The related tax
benefit, $2,299,000, is substantially lower than what would be expected on the
basis of statutory rates due to the fact that the majority of the goodwill
impaired has a zero basis for tax purposes as a result of having been acquired
in stock rather than asset purchase transactions.
On October 3, 2001, FASB issued FAS 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," that replaced FAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
The primary objectives of this pronouncement were to develop one accounting
model based on the framework established in FAS 121 for long-lived assets to be
disposed of by sales and to address significant implementation issues. The
accounting model for long-lived assets to be disposed of by sale applies to all
long-lived assets, including discontinued operations, and replaces the
provisions of Account Principles Board (APB) Opinion No. 30, Reporting Results
of Operations-Reporting the Effects of Disposal of a Segment of a Business, for
the disposal of segments of a business. FAS 144 requires that those long-lived
assets be measured at the lower of carrying amount or fair value less cost to
sell, whether reported in continuing operations or in discontinued operations.
The provisions of FAS 144 became effective January 1, 2002 and did not have a
material effect upon the Company's Financial Statement.
New Accounting Pronouncements
In July 2002, the FASB issued FAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which relates to accounting for
plant shutdowns, restructuring and other such costs. FAS No. 146 is based on the
fundamental principle that a liability for a cost associated with an exit or
disposal activity should be recorded when it (1) is incurred, that is, when it
meets the definition of a liability in FASB Concepts Statement No. 6, Elements
of Financial Statements, and (2) can be measured at fair value. The principal
reason for issuing FAS No. 146 is the Board's belief that some liabilities for
costs associated with exit or disposal activities that entities record under
current accounting pronouncements, in particular EITF Issue 94-3, do not meet
the definition of a liability. FAS No. 146 nullifies EITF Issue 94-3; thus, it
will have a significant effect on practice because commitment to an exit or
disposal plan no longer will be a sufficient basis for recording a liability for
costs related to those activities. FAS No. 146 is effective for exit and
disposal activities initiated after December 31, 2002. Early application is
encouraged; however, previously issued financial statements may not be restated.
An entity would continue to apply the provisions of EITF Issue 94-3 to an exit
activity that is initiated under an exit plan that met the criteria of EITF
Issue 94-3 before the entity initially applied FAS No. 146. The Company
announced the shutdown of two manufacturing facilities in April 2003, as more
fully described in Note 6, and is accounting for the related costs in accordance
with FAS No 146.
In December 2002, the FASB issued FAS No. 148, Accounting for Stock
Based Compensation--Transition and Disclosure, an amendment to FASB Statement
No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of FASB Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Finally, FAS No. 148 amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
reporting. For entities that voluntarily change to the fair value based method
of accounting for stock-based employee compensation, the transition provisions
are effective for fiscal years ending after December 15, 2002. For all other
companies, the disclosure provisions and the amendment to APB No. 28 are
effective for interim periods beginning after December 15, 2002.
The Company has elected to account for stock based compensation,
effective with the 2003 year, in accordance with FAS No 148, under the "fair
value method". The Company has further elected to account for the change in
accounting principle under the "Prospective method" as described in amended
paragraph 52b of FASB Statement 123. The Company made no option grants,
modifications of option grants, or settlement of option grants in either the
three month period ended March 31, 2003 or the three month period ended March
31, 2002 and accordingly the change to the fair value method had no effect in
either period on Net Income, Basic earnings per share or Diluted earnings per
share.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns, or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company is currently evaluating the impact
of FIN 46 on its equity investments.
It is reasonably possible that the Company's investment in CareCentric, which is
described in more detail in Note 6 to the Company's 2002 financial statements,
may be subject to consolidation under the requirements of FIN 46. The Company
has not reached a conclusion on this matter however due to the technical
complexities posed by the interpretation of FIN 46.
Note 2 - Inventories
March 31, December 31
2003 2002
---- ----
(dollars in thousands)
Finished Goods $16,129 $16,699
Work-in-progress 22,983 18,908
Raw materials 31,592 32,236
------ ------
70,704 67,843
Less provision for LIFO
method of valuation (7,259) (7,256)
------ -------
$63,445 $60,587
======= =======
Note 3 - Long-Term Debt
March 31, December 31,
2003 2002
(dollars in thousands)
Revolving Loan Agreement $0 $763
Notes Payable 5,500 5,500
Industrial Development Bonds 5,292 5,403
Other Bonds and Notes Payable 30 ---
----- -------
10,822 11,666
Less Current Maturities (6,047) 6,775)
------- -------
$4,775 $4,891
====== =======
Revolving Loan Agreement - The Company has a Revolving Loan Agreement
and Letter of Credit Facility (the Agreement) with Fleet Bank. The Agreement has
been amended and extended through April 30, 2004. The Agreement's terms are
substantially unchanged from those described in Note 8 to the Company's 2002
Consolidated Financial Statements. The Company expects to renew the Agreement on
substantially equivalent terms before its expiration. The Company has
outstanding at March 31, 2003 $6,502,000 in standby letters of credit issued
principally in connection with its commercial insurance programs.
Notes Payable - The Company has an unsecured uncommitted Demand Loan
Facility with a second commercial bank, JP Morgan Chase, under which the Company
can borrow up to $25,000,000 on a LIBOR basis. The facility has been renewed
through June 30, 2003. The Company expects to renew the facility on
substantially equivalent terms before its expiration. The Company's subsidiary,
Met-Coil Systems Corporation, borrowed $5.5 million from MB Financial
Corporation, a commercial bank, on July 26, 2002 in connection with the
settlement of an environmental litigation matter. Fleet Bank has provided a
letter of credit in support of this loan. The note bears interest at Prime minus
one-half percent (0.5%) and matures on July 26, 2003
Cash paid for interest was $174,000 and $219,000 during the three
months ended March 31, 2003 and 2002, respectively.
Note 4 - Interim Segment Information
Description of the types of products and services from which each reportable
segment derives its revenues:
The Company has two reportable segments: the manufacture of heating,
ventilating and air-conditioning equipment (HVAC) and the manufacture of metal
handling and metal forming machinery (Metal Forming).
The Company's HVAC Segment manufactures and sells a variety of complementary
residential, commercial and industrial heating, cooling and air control and
distribution products. Collectively, the HVAC Segment's products provide
heating, cooling, ventilating, or some combination thereof, for residential,
commercial and/or industrial building applications.
The Metal Forming Segment, operating under the umbrella name "Formtek,"
is comprised of four closely related subsidiaries, all manufacturers of
equipment used in the Metal Forming industry (the uncoiling, straightening,
leveling, feeding, forming, bending, notching, stamping, cutting, stacking,
bundling or moving of metal in the production of metal products, such as steel
sheets, office furniture, appliances, vehicles, buildings, and building
components, among many others).
The HVAC and Metal Forming Segments are described in greater detail in Note 14
to the Company's 2002 Consolidated Financial Statements.
Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on
profit or loss from operations before interest expense and income taxes (EBIT),
not including non-operating gains and losses. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales and transfers are recorded
at prices substantially equivalent to the Company's cost; inter-company profits
on such inter-segment sales or transfers are not material.
Factors management used to identify the enterprise's reportable segments:
The factors which identify the HVAC and Metal Forming Segments as
reportable segments are described in detail in Note 14 to the Company's 2002
Consolidated Financial Statement.
Information presented in the following tables relates to continuing
operations only.
Three Months ended
March 31, 2003:
----------------------
(in thousands)
Metal All
HVAC Forming Other Totals
Revenues from External Customers $70,101 $15,940 $115 $86,156
Segment Operating Profit (Loss) $2,808 ($889)* ($206) $1,713
* Includes $1,213 in Environmental charges - See Note 7.
Three Months ended
March 31, 2002:
----------------------
(in thousands)
Metal All
HVAC Forming Other Totals
Revenues from External Customers $72,732 $16,213 $116 $89,061
Segment Operating Profit (Loss) $3,816* ($680) ($125) $3,011
* restated to give effect to subsidiary stock options - see Note 5.
HVAC Segment Revenues by HVAC Product Group:
2003 2002
---- ----
(dollars in thousands)
Hydronic Products $25,888 $24,904
Air Distribution and Cooling Products 21,331 23,313
Gas and Industrial Products 22,882 24,515
-------- --------
Total HVAC Segment Revenues $70,101 $72,732
======= =======
Note 5 - Stock Option Plans
On March 20, 1996, the Company adopted a stock option plan, the Mestek,
Inc. 1996 Stock Option Plan, (the Plan), which provides for the granting of
options to purchase 500,000 shares of the Company's common stock. The Plan
provides for the awarding of incentive and non-qualified stock options to
certain employees of the Company and other persons, including directors, for the
purchase of the Company's common stock at fair market value on the grant date.
The Plan was approved by the Company's shareholders on May 22, 1996. Options
granted under the plan vest over a five-year period and expire at the end of ten
years.
Effective July 1, 1996, the Company's subsidiary, Omega Flex, Inc.
(Omega) adopted a stock option plan (Plan) which provides for the granting of
both Incentive and Non-Qualified Stock Options (as those terms are defined in
the Internal Revenue Code) of up to 200 shares of stock to certain employees of
Omega for the purchase of Omega's common stock at fair market value as of the
date of grant. Options to purchase an aggregate of 140 shares of the common
stock of Omega, representing a 14% equity share were granted to two Omega
executives effective July 1, 1996. The options vest over a five-year period
commencing May 1, 1999 and ending on May 1, 2003 and expire on July 1, 2006.
None of the options granted have been exercised. Through a separate agreement,
the option holders currently have a put right after exercise which allows them
to sell their option shares to Omega at a figure based upon book value and Omega
currently has a corresponding call option at a figure based upon of book value.
In accordance with APB 25, the Company has reflected a pre-tax charge to
earnings in the three-month periods ended March 31, 2003 and (via restatement)
March 31, 2002 of $95,000 and $102,000, respectively, for the compensation value
in those periods of the options granted.
Note 6 - Plant Shutdowns
On April 9, 2003, the Company announced plans to close its Scranton,
Pennsylvania (Anemostat East) manufacturing operations and relocate the products
made in Scranton to several of the Company's existing facilities including those
in Florence KY, Wrens GA, and the Anemostat West facility in Carson, CA. This
reflects our strategy of regional manufacturing to serve our air distribution
customers better throughout the United States. On April 8, 2003, the Company
announced plans to close its Bishopville, South Carolina (King Company)
manufacturing operations and relocate the products made in Bishopville to the
Company's Dallas, Texas facility. The Company will account for the costs related
to these product relocations in accordance with FAS 146, Accounting for Costs
Associated With Exit or Disposal Activities (FAS 146). Accordingly, no costs
have been accrued in the accompanying financial statements in relation to these
activities. Management expects that the costs incurred in relation to these
activities will be reflected in the Company's results of operations for the
second and third quarters of 2003. As we begin this process, after planning the
physical moves and having discussions with our independent sales
representatives, the Company does not expect that the sum of any such costs will
materially adversely effect the Company's financial position or results of
operations. The Company has estimated the "exit and termination costs", as
defined in accordance with FAS 146, which will be incurred in connection with
these activities at approximately $350,000.
Note 7 - Commitments & Contingencies
As previous disclosed, the Company is obligated as a guarantor with
respect to certain debt of CareCentric, Inc. (formerly Simione Central Holdings,
Inc.) to its primary commercial bank, Wainwright Bank & Trust Company, in the
amount of $6 million which amount was accrued as of December 31, 2001 and
remains on the Company's balance sheet as of March 31, 2003. The $6 million
Wainwright credit line is secured by substantially all of CareCentric's assets.
The balance outstanding under CareCentric's credit line with Wainwright Bank &
Trust Company as of March 31, 2003 was $4,125,000.
The Company has been named in 27 outstanding asbestos-related products
lawsuits. All of these suits seek to establish liability against the Company as
successor to companies that may have manufactured, sold or distributed products
containing asbestos materials, and who are currently defending thousands of
asbestos related cases, or because the Company currently sells and distributes
boilers, an industry that has been historically associated with asbestos-related
products. However, the Company has never manufactured, sold or distributed any
product containing asbestos materials. In addition, the Company believes it has
valid defenses to all of the pending claims and vigorously contests that it is a
successor to companies that may have manufactured, sold or distributed any
product containing asbestos materials. However, the results of asbestos
litigation have been unpredictable, and accordingly, an adverse decision or
adverse decisions in these cases, individually or in the aggregate, could
materially adversely affect the financial position and results of operation of
the Company and could expose the Company to substantial additional asbestos
related litigation. The total requested damages of these cases is approximately
$3.2 billion. Thus far, however, the Company has had over 30 asbestos-related
cases dismissed without any payment and it settled a group of ten
asbestos-related cases for a de minimis value. Through March 31, 2003, the total
costs of defending the approximately 50 current and previously dismissed cases
has totaled less than $250,000
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Except as described
below, the Company is not aware, at present, of any material administrative or
judicial proceedings against the Company arising under any federal, state or
local environmental protection laws or regulations ("Environmental Laws").
Claims Alleging Releases of Hazardous Materials
As disclosed in previous filings, the Lockformer Company
("Lockformer"), a division of the Company's second tier subsidiary, Met-Coil
Systems Corporation ("Met-Coil"), and the Company are defendants in various
actions relating to the release and presence of trichloroethylene (TCE)
contamination on and in the vicinity of Lockformer's manufacturing facility in
Lisle, Illinois.
As disclosed in previous filings, a class of residents south of the
Lockformer facility has filed a class action complaint against Mestek and its
subsidiary, Met-Coil, (Mejdrech, et al. v. The Lockformer Company, filed in the
United States District Court for the Northern District of Illinois) alleging
property damage by reason of groundwater contamination of soils and in some
cases private drinking water wells. Based upon the evidence currently available
to them, Mestek and Met-Coil believe they have valid defenses to the above
action and are therefore vigorously contesting the Mejdrech claim. The Mejdrech
class has been certified and seeks damages for diminution of property values and
nuisance, as well as punitive damages, and both Mestek and Met-Coil expect to be
able to present expert testimony refuting allegations of significant property
damages or nuisance, as well as lack of punitive conduct. Other than an
allegation of damages in excess of the Federal Court diversity jurisdictional
amount of $75,000, no specific demand for monetary relief has been made.
In another action, owners of eight homes not included in a prior class
action or the Mejdrech action have filed suit against Met-Coil, alleging
property damage and nuisance by reason of alleged contamination of their
properties and drinking water wells and seeking punitive damages as well. On
each of these properties, with the exception of one, no TCE has, to management's
knowledge, been detected in any of plaintiffs' wells, and in the single case of
TCE detection (in a well serving a home a considerable distance away from the
other plaintiffs' residences) it is management's understanding that the detected
TCE concentrations were below the maximum TCE contamination level specified by
the Environmental Protection Agency ("EPA"). In addition, Met-Coil expects to be
able to present expert testimony refuting allegations of significant property
damages or nuisance or punitive conduct. Other than an allegation of damages in
excess of the State Superior Court jurisdictional amount of $50,000, no specific
demand for monetary relief has been made in any pleading.
In six separate actions, ten individual plaintiffs have filed suits
against Mestek and Met-Coil (collectively, the "Defendants") alleging in each
case personal injury and/or fear of future illness (and, in one case, wrongful
death) related to the release of TCE into drinking water and seeking punitive
damages as well. In each of these cases, TCE concentrations in alleged sources
of ingestion allegedly causing illness were to the best of management's
knowledge, either not detected at all (with respect to three plaintiffs) or
detected in low concentrations below the maximum TCE contamination level
specified by the EPA. Also, in all of these cases, Defendants' initial
discussions with scientific experts (toxicologists and physicians) lead
Defendants to the conclusion that valid and persuasive defenses as to a lack of
causal connection between the TCE exposure, if any, and the alleged illnesses of
plaintiffs can be presented. None of these lawsuits, except for Schreiber v. The
Lockformer Company, et al, described below, contain any "ad damnum" or specific
damages demands, other than to state that the amount in controversy exceeds the
statutory requirement of $75,000 in the Federal court cases, and in those cases
initially brought in state court, in excess of an Illinois statutory requirement
of damages in excess of $50,000 to gain access to the jurisdiction of the
Superior Court of DuPage County. The case of Schreiber v. The Lockformer
Company, et al, alleges compensatory damages "in excess of $1,000,000" and asks
for punitive damages "in excess of $1,000,000".
In accordance with SAB Topic 5Y, with respect to all of the above
described pending cases, management believes that a material loss, while
possible, cannot be estimated in amount at this time, due to the complexity and
uncertainty of the litigation proceedings and remediation procedures. As
additional information becomes available to the Company, the Company may be
better able to either estimate a range of exposure, with appropriate reserves
taken, or continue to believe that no such estimation is either appropriate or
possible.
In general, with respect to all of the above described pending cases
Mestek, to the extent that it is a defendant, and Met-Coil believe they have
valid defenses to all of the pending claims and are contesting them vigorously.
However, the results of litigation are inherently unpredictable, and
accordingly, in any of the above actions, if the plaintiffs were to obtain a
verdict of liability against Met-Coil or Mestek from a court of competent
jurisdiction and assessments of significant damages, including punitive damages,
such decisions, or settlements to avoid such decisions, could, individually or
in the aggregate, materially adversely affect the financial position and results
of operations of Met-Coil, and, conceivably, the financial position and results
of operations of the Company.
In the three month period ended March 31, 2003, Met-Coil incurred
$1,213,000 in legal and other defense related costs in connection with the above
matters, including defense costs paid on behalf of Honeywell, Inc., a
co-defendant in these cases, pursuant to an indemnification agreement for
damages and defense costs relating to the Lisle, IL property, previously entered
into between Met-Coil (Lockformer) and Honeywell.
In addition, there can be no assurance that future claims for personal
injury or property damage will not be asserted by other plaintiffs against
Met-Coil and Mestek with respect to the Lockformer site and facility.
Met-Coil has limited insurance coverage for defense costs and liability
associated with these environmental actions. To date approximately 40% of the
cost of these litigations has been reimbursed by insurance carriers. Many of
these carriers have negotiated a complete settlement with Met-Coil and are no
longer liable for payment of either defense costs or indemnification expense.
While several insurers remain as potential sources of partial recovery for
Met-Coil, there is no assurance that this 40% level, or any level, of insurance
contribution will be sustained going forward. Consistent with EITF 93-5, the
Company has treated insurance recoveries, whether of defense costs or in
relation to indemnity obligations, on a cash basis except where settlements that
are not subject to further litigation have been reached with insurance carriers
as of quarter end or year end, in which cases receivables have been
appropriately accrued.
Potentially Responsible Parties (PRP) Actions
Lisle, Illinois:
Met-Coil has received final approval of the Work Plan for remediation
of the Lisle, Illinois site ("on-site remediation") from the United State
Environmental Protection Agency ("EPA") and awaits approval from the Illinois
Environmental Protection Agency ("IEPA"). The IEPA has not agreed to any
specific target level of remediation. On the basis of the EPA approved Work Plan
and a better understanding of the costs related to achieving that Plan, Met-Coil
added $3.5 million to its remediation reserve in relation to this matter, as of
December 31, 2002, bringing the balance to $7,700,000 as of that date. Met-Coil
has incurred specific costs in implementing the Work Plan in the three month
period ended March 31, 2003 of approximately $ 1.1 million which have been
charged against the remediation reserve. In light of the remaining uncertainties
surrounding the effectiveness of the available remediation technologies and the
future potential changes in remedial objectives and standards, still further
reserves may be needed in the future with respect to the on-site remediation of
the Lisle facility. The complexity of aforementioned factors makes it impossible
to further estimate any additional costs.
Any additional costs of remediation off of the Lisle site ("off-site
remediation" are not determinable at this time and remain a contingency pending
the resolution of the issue of whether Met-Coil has liability for TCE
contamination beyond areas for which settlements have already been reached.
Met-Coil is presently pursuing additional bank financing to fund the
remediation efforts required at its Lisle, Illinois site. While such efforts are
being undertaken, Mestek has made available to Met-Coil a $4,500,000 secured
term credit facility for purposes of site remediation and a $2,500,000 secured
revolving line of credit for operational requirements. There can be no assurance
however, that Met-Coil will be able to meet its obligations in relation to the
remediation Work Plan or to fund other costs related to the various actions
described herein as they occur without additional financing. There can be no
assurance that Met-Coil will be able to obtain such financing on terms that are
acceptable to it, or at all.
The Illinois Attorney General, in an action disclosed in previous
filings and brought in the Superior Court of DuPage County, Illinois, on behalf
of the State of Illinois, the IEPA and other governmental agencies, is seeking
to have Met-Coil pay for the cost of connecting approximately 175 households in
the Mejdrech class action area (discussed above) to public water supplies, and
pay for the State's response and investigatory costs in this action and civil
penalties. No specific monetary claim for damages or relief is made in the
pleadings in this action. Met-Coil is in negotiations with the Illinois Attorney
General on this matter. There is insufficient information available to
management at this time to provide an opinion as to the outcome of these
discussions. In accordance with SAB Topic 5Y, and based on recent discussions
and estimations by the Attorney General's office as to its current and future
costs of litigation (which Met-Coil agreed to reimburse in an Agreed Order),
Met-Coil reserved $1,000,000, as of December 31, 2002, which reserve remains
unchanged in the accompanying Consolidated Financial Statements. As additional
information and expert opinions become available to Met-Coil, it may be better
able to either revise its estimate of the range of exposure, with appropriate
revision to reserves taken, or continue to believe that no such revision is
either required or estimate possible.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operation
FORWARD LOOKING INFORMATION
This report contains forward-looking statements, which are subject to
inherent uncertainties. These uncertainties include, but are not limited to,
variations in weather, changes in the regulatory environment, customer
preferences, general economic conditions, and increased competition. All of
these are difficult to predict, and many are beyond the ability of the Company
to control.
Certain statements in this Quarterly Report on Form 10-Q constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes", "expects", "intends", "plans", "anticipates", "hopes",
"likely", "will", and similar expressions identify such forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other important factors that could cause the actual results,
performance or achievements of the Company (or entities in which the Company has
interests), or industry results, to differ materially from future results,
performance or achievements expressed or implied by such forward-looking
statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements which reflect management's view only as of the date
of this Form 10-Q. The Company undertakes no obligation to publicly release the
result of any revisions to these forward-looking statements which may be made to
reflect events or circumstance after the date hereof or to reflect the
occurrence of unanticipated events, conditions or circumstances.
Total Revenues in the Company's HVAC segment decreased 3.6% during the
first quarter of 2003 relative to the first quarter of 2002 due primarily to
weakness in certain of the segment's industrial products and air distribution
products as well as comparatively weak sales in certain commercial hydronic
products. Operating income for this segment was accordingly reduced from
$3,816,000 in the first quarter of 2002 to $2,808,000 in the first quarter of
2003.
The Company continues to focus its efforts on overhead reduction in all
areas in order to adapt to present conditions in the HVAC industry. In this
connection, as explained more fully in Note 7, Plant Shutdowns, the Company
announced in April the consolidation of its Bishopville, South Carolina based
King National industrial heating products business into the Company's Applied
Air industrial products business in Dallas, Texas, and the consolidation of its
Scranton, Pennsylvania based Anemostat East air distribution products
manufacturing operations into certain of the Company's existing air distribution
sales, engineering and manufacturing locations. Management believes the overhead
savings from consolidated operations will allow the King National and Anemostat
franchises to operate more competitively in furtherance of the Company's plan to
support and rebuild these established HVAC businesses.
Total Revenues in the Company's Metal Forming segment decreased only
1.7% during the first quarter of 2003, reflecting potentially a bottoming of the
cyclical decline in demand for this segment's products which began in 2001 and
was exacerbated by the events of September 11, 2001. The Company believes that
the mutually reinforcing franchises it has acquired under the Formtek name,
including Cooper-Weymouth Peterson, Rowe, CoilMate/Dickerman, Yoder,
Krasny-Kaplan, Mentor AGVS, Lockformer, Iowa Precision, Hill Engineering, B&K,
and Dahlstrom, will allow it to maintain and expand its core competencies,
positioning this segment very well for the next cyclical upturn in the machine
tool industry. Operating profits for the segment for the quarter, excluding
environmental charges of $1,213,000 related to a matter discussed in more detail
below in Commitments and Contingencies, increased from a loss of $680,000 in the
quarter ended March 31, 2002 to a profit of $324,000 in the quarter ended March
31, 2003, despite slightly reduced sales, as a result primarily of the segment's
ongoing efforts to rationalize overhead at all levels in the face of the
cyclical downturn in the demand for machine tools.
The Company is pursuing, for all of its businesses, initiatives in Asia
aimed at sourcing component parts for use in its North American factories, and
assembling subcomponents on a limited basis, with ultimate plans to manufacture
and sell products in Asian markets and throughout the world. The company expects
to invest approximately $750,000 over the next 18 months to provide
infrastructure and support for these initiatives. It is unclear what, if any,
effect the developing SARS (severe acute respiratory syndrome) epidemic will
have on the Company's plans in this regard. Management believes, nonetheless,
that the continuing effects of globalization on manufacturing costs present the
Company with critical challenges and opportunities.
For the Company as a whole, Sales, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, increased
from 24.6% to 25.6% due principally to the drop off in revenues described above.
Operating income, excluding the environmental charges of $1,213,000
which relate to a matter discussed in more detail below in Commitments and
Contingencies, for the first quarter of 2003 for the Company as a whole was up
slightly at $2,926,000, despite reduced revenues reflecting the Company's
ongoing efforts aimed at overhead reduction.
Income Tax Expense, as a percentage of pretax income (loss), increased
from 40.1% in the three months ended March 31, 2002 to 43.6% in the three months
ended March 31, 2003 due principally to the effects of minimum taxes in states
where losses were incurred.
The Company's total debt (long-term debt plus current portion
of long-term debt) was reduced in the first quarter of 2003 from $11,666,000 to
$10,822,000, reflecting positive cash flow from operations, as reflected in the
Statement of Cash Flows for the quarter. Reduced investments in accounts
receivable and inventory were offset by net reductions in trade and accrued
payables. Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid dividends on its common stock since 1979. The Company remains
significantly underleveraged with a debt to equity ratio of less than 5% as of
March 31, 2003 and management believes it is well positioned to benefit from the
current unsettled conditions in both the HVAC and Metal Forming industries in
which it operates.
The Company's Annual Meeting of Shareholders will be held 11 a. m.,
June 3, 2003 at the Reed Institute adjacent to the Company's headquarters in
Westfield, Massachusetts.
New Accounting Pronouncements
In July 2002, the FASB issued FAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities, which relates to accounting for
plant shutdowns, restructuring and other such costs. FAS No. 146 is based on the
fundamental principle that a liability for a cost associated with an exit or
disposal activity should be recorded when it (1) is incurred, that is, when it
meets the definition of a liability in FASB Concepts Statement No. 6, Elements
of Financial Statements, and (2) can be measured at fair value. The principal
reason for issuing FAS No. 146 is the Board's belief that some liabilities for
costs associated with exit or disposal activities that entities record under
current accounting pronouncements, in particular EITF Issue 94-3, do not meet
the definition of a liability. FAS No. 146 nullifies EITF Issue 94-3; thus, it
will have a significant effect on practice because commitment to an exit or
disposal plan no longer will be a sufficient basis for recording a liability for
costs related to those activities. FAS No. 146 is effective for exit and
disposal activities initiated after December 31, 2002. Early application is
encouraged; however, previously issued financial statements may not be restated.
An entity would continue to apply the provisions of EITF Issue 94-3 to an exit
activity that is initiated under an exit plan that met the criteria of EITF
Issue 94-3 before the entity initially applied FAS No. 146. The Company
announced the shutdown of two manufacturing facilities in April 2003, as more
fully described in Note 6, and is accounting for the related costs in accordance
with FAS No 146.
In December 2002, the FASB issued FAS No. 148, Accounting for Stock
Based Compensation--Transition and Disclosure, an amendment to FASB Statement
No. 123. This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, this Statement amends the disclosure
requirements of FASB Statement 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. Finally, FAS No. 148 amends APB Opinion No. 28, Interim Financial
Reporting, to require disclosure about those effects in interim financial
reporting. For entities that voluntarily change to the fair value based method
of accounting for stock-based employee compensation, the transition provisions
are effective for fiscal years ending after December 15, 2002. For all other
companies, the disclosure provisions and the amendment to APB No. 28 are
effective for interim periods beginning after December 15, 2002.
The Company has elected to account for stock based compensation,
effective with the 2003 year, in accordance with FAS No 148, under the "fair
value method". The Company has further elected to account for the change in
accounting principle under the "Prospective method" as described in amended
paragraph 52b of FASB Statement 123. The Company made no option grants,
modifications of option grants, or settlement of option grants in either the
three month period ended March 31, 2003 or the three month period ended March
31, 2002 and accordingly the change to the fair value method had no effect in
either period on Net Income, Basic earnings per share or Diluted earnings per
share.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation
of Variable Interest Entities ("FIN 46"). FIN 46 requires a variable interest
entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entity's activities or entitled
to receive a majority of the entity's residual returns, or both. FIN 46 also
requires disclosures about variable interest entities that a company is not
required to consolidate, but in which it has a significant variable interest.
The consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements apply to
existing entities in the first fiscal year or interim period beginning after
June 15, 2003. Certain of the disclosure requirements apply in all financial
statements issued after January 31, 2003, regardless of when the variable
interest entity was established. The Company is currently evaluating the impact
of FIN 46 on its equity investments.
The Company is currently evaluating the impact of FIN 46 on its equity
investments. It is reasonably possible that the Company's investment in
CareCentric, which is described in more detail in Note 6 to the Company's 2002
financial statements, may be subject to consolidation under the requirements of
FIN 46. The Company has not reached a conclusion on this matter however due to
the technical complexities posed by the interpretation of FIN 46.
Commitments and Contingencies
As previous disclosed, the Company is obligated as a guarantor with
respect to certain debt of CareCentric, Inc. (formerly Simione Central Holdings,
Inc.) to its primary commercial bank, Wainwright Bank & Trust Company, in the
amount of $6 million which amount was accrued as of December 31, 2001 and
remains on the Company's balance sheet as of March 31, 2003. . The $6 million
Wainwright credit line is secured by substantially all of CareCentric's assets.
The balance outstanding under CareCentric's credit line with Wainwright Bank &
Trust Company as of March 31, 2003 was $4,125,000.
The Company has been named in 27 outstanding asbestos-related products
lawsuits. All of these suits seek to establish liability against the Company as
successor to companies that may have manufactured, sold or distributed products
containing asbestos materials, and who are currently defending thousands of
asbestos related cases, or because the Company currently sells and distributes
boilers, an industry that has been historically associated with asbestos-related
products. However, the Company has never manufactured, sold or distributed any
product containing asbestos materials. In addition, the Company believes it has
valid defenses to all of the pending claims and vigorously contests that it is a
successor to companies that may have manufactured, sold or distributed any
product containing asbestos materials. However, the results of asbestos
litigation have been unpredictable, and accordingly, an adverse decision or
adverse decisions in these cases, individually or in the aggregate, could
materially adversely affect the financial position and results of operation of
the Company and could expose the Company to substantial additional asbestos
related litigation. The total requested damages of these cases is approximately
$3.2 billion. Thus far, however, the Company has had over 30 asbestos-related
cases dismissed without any payment and it settled a group of ten
asbestos-related cases for a de minimis value. Through March 31, 2003, the total
costs of defending the approximately 50 current and previously dismissed cases
has totaled less than $250,000
The Company is subject to numerous laws and regulations that govern
the discharge and disposal of materials into the environment. Except as
described below, the Company is not aware, at present, of any material
administrative or judicial proceedings against the Company arising under any
federal, state or local environmental protection laws or regulations
("Environmental Laws").
Claims Alleging Releases of Hazardous Materials
As disclosed in previous filings, the Lockformer Company
("Lockformer"), a division of the Company's second tier subsidiary, Met-Coil
Systems Corporation ("Met-Coil"), and the Company are defendants in various
actions relating to the release and presence of trichloroethylene (TCE)
contamination on and in the vicinity of Lockformer's manufacturing facility in
Lisle, Illinois.
As disclosed in previous filings, a class of residents south of the
Lockformer facility has filed a class action complaint against Mestek and its
subsidiary, Met-Coil, (Mejdrech, et al. v. The Lockformer Company, filed in the
United States District Court for the Northern District of Illinois) alleging
property damage by reason of groundwater contamination of soils and in some
cases private drinking water well. Based upon the evidence currently available
to them, Mestek and Met-Coil believe they have valid defenses to the above
action and are therefore vigorously contesting the Mejdrech claim. The Mejdrech
class has been certified and seeks damages for diminution of property values and
nuisance, as well as punitive damages, and both Mestek and Met-Coil expect to be
able to present expert testimony refuting allegations of significant property
damages or nuisance, as well as lack of punitive conduct. Other than an
allegation of damages in excess of the Federal Court diversity jurisdictional
amount of $75,000, no specific demand for monetary relief has been made.
In another action, owners of eight homes not included in a prior
class action or the Mejdrech action have filed suit against Met-Coil, alleging
property damage and nuisance by reason of alleged contamination of their
properties and drinking water wells and seeking punitive damages as well. On
each of these properties with the exception of one, no TCE has, to management's
knowledge, been detected in any of plaintiffs' wells, and in the single case of
TCE detection (in a well serving a home a considerable distance away from the
other plaintiffs' residences) it is management's understanding that the detected
TCE concentrations were below the maximum TCE contamination level specified by
the Environmental Protection Agency ("EPA"). In addition, Met-Coil expects to be
able to present expert testimony refuting allegations of significant property
damages or nuisance or punitive conduct. Other than an allegation of damages in
excess of the State Superior Court jurisdictional amount of $50,000, no specific
demand for monetary relief has been made in any pleading.
In six separate actions, ten individual plaintiffs have filed suits
against Mestek and Met-Coil (collectively, the "Defendants") alleging in each
case personal injury and/or fear of future illness (and, in one case, wrongful
death) related to the release of TCE into drinking water and seeking punitive
damages as well. In each of these cases, TCE concentrations in alleged sources
of ingestion allegedly causing illness were to the best of management's
knowledge, either not detected at all (with respect to three plaintiffs) or
detected in low concentrations below the maximum TCE contamination level
specified by the EPA. Also, in all of these cases, Defendants' initial
discussions with scientific experts (toxicologists and physicians) lead
Defendants to the conclusion that valid and persuasive defenses as to a lack of
causal connection between the TCE exposure, if any, and the alleged illnesses of
plaintiffs can be presented. None of these lawsuits, except for Schreiber v. The
Lockformer Company, et al, described below, contain any "ad damnum" or specific
damages demands, other than to state that the amount in controversy exceeds the
statutory requirement of $75,000 in the Federal court cases, and in those cases
initially brought in state court, in excess of an Illinois statutory requirement
of damages in excess of $50,000 to gain access to the jurisdiction of the
Superior Court of DuPage County. The case of Schreiber v. The Lockformer
Company, et al, alleges compensatory damages "in excess of $1,000,000" and asks
for punitive damages "in excess of $1,000,000."
In accordance with SAB Topic 5Y, with respect to all of the above
described pending cases, management believes that a material loss, while
possible, cannot be estimated in amount at this time, due to the complexity and
uncertainty of the litigation proceedings and remediation procedures. As
additional information becomes available to the Company, the Company may be
better able to either estimate a range of exposure, with appropriate reserves
taken, or continue to believe that no such estimation is either appropriate or
possible.
In general, with respect to all of the above described pending cases
Mestek, to the extent that it is a defendant, and Met-Coil believe they have
valid defenses to all of the pending claims and are contesting them vigorously.
However, the results of litigation are inherently unpredictable, and
accordingly, in any of the above actions, if the plaintiffs were to obtain a
verdict of liability against Met-Coil or Mestek from a court of competent
jurisdiction and assessments of significant damages, including punitive damages,
such decisions, or settlements to avoid such decisions, could, individually or
in the aggregate, materially adversely affect the financial position and results
of operations of Met-Coil, and, conceivably, the financial position and results
of operations of the Company.
In the three month period ended March 31, 2003, Met-Coil incurred
$1,213,000 in legal and other defense related costs in connection with above
matters, including defense costs paid on behalf of Honeywell, Inc., a
co-defendant in these cases, pursuant to an indemnification agreement for
damages and defense costs relating to the Lisle, IL property, previously entered
into between Met-Coil (Lockformer) and Honeywell.
In addition, there can be no assurance that future claims for personal
injury or property damage will not be asserted by other plaintiffs against
Met-Coil and Mestek with respect to the Lockformer site and facility.
Met-Coil has limited insurance coverage for defense costs and liability
associated with these environmental actions. To date approximately 40% of the
cost of these litigations has been reimbursed by insurance carriers. Many of
these carriers have negotiated a complete settlement with Met-Coil and are no
longer liable for payment of either defense costs or indemnification expense.
While several insurers remain as potential sources of partial recovery for
Met-Coil, there is no assurance that this 40% level, or any level, of insurance
contribution will be sustained going forward. Consistent with EITF 93-5, the
Company has treated insurance recoveries, whether of defense costs or in
relation to indemnity obligations, on a cash basis - except where settlements
that are not subject to further litigation have been reached with insurance
carriers as of quarter end or year end, in which cases receivables have been
appropriately accrued.
Potentially Responsible Parties (PRP) Actions
Lisle, Illinois:
Met-Coil has received final approval of the Work Plan for
remediation of the Lisle, Illinois site ("on-site remediation") from the United
State Environmental Protection Agency ("EPA") and awaits approval from the
Illinois Environmental Protection Agency ("IEPA"). The IEPA has not agreed to
any specific target level of remediation. On the basis of the EPA approved Work
Plan and a better understanding of the costs related to achieving that Plan,
Met-Coil added $3.5 million to its remediation reserve in relation to this
matter, as of December 31, 2002, bringing the balance to $7,700,000 as of that
date. Met-Coil has incurred specific costs in implementing the Work Plan in the
three month period ended March 31, 2003 of approximately $ 1.1 million which
have been charged against the remediation reserve. In light of the remaining
uncertainties surrounding the effectiveness of the available remediation
technologies and the future potential changes in remedial objectives and
standards, still further reserves may be needed in the future with respect to
the on-site remediation of the Lisle facility. The complexity of aforementioned
factors makes it impossible to further estimate any additional costs.
Any additional costs of remediation off of the Lisle site ("off-site
remediation" are not determinable at this time and remain a contingency pending
the resolution of the issue of whether Met-Coil has liability for TCE
contamination beyond areas for which settlements have already been reached.
Met-Coil is presently pursuing additional bank financing to fund the
remediation efforts required at its Lisle, Illinois site. While such efforts are
being undertaken, Mestek has made available to Met-Coil a $4,500,000 secured
term credit facility for purposes of site remediation and a $2,500,000 secured
revolving line of credit for operational requirements. There can be no assurance
however, that Met-Coil will be able to meet its obligations in relation to the
remediation Work Plan or to fund other costs related to the various actions
described herein as they occur without additional financing. There can be no
assurance that Met-Coil will be able to obtain such financing on terms that are
acceptable to it, or at all.
The Illinois Attorney General, in an action disclosed in previous
filings and brought in the Superior Court of DuPage County, Illinois, on behalf
of the State of Illinois, the IEPA and other governmental agencies, is seeking
to have Met-Coil pay for the cost of connecting approximately 175 households in
the Mejdrech class action area (discussed above) to public water supplies, and
pay for the State's response and investigatory costs in this action and civil
penalties. No specific monetary claim for damages or relief is made in the
pleadings in this action. Met-Coil is in negotiations with the Illinois Attorney
General on this matter. There is insufficient information available to
management at this time to provide an opinion as to the outcome of these
discussions. In accordance with SAB Topic 5Y, and based on recent discussions
and estimations by the Attorney General's office as to its current and future
costs of litigation (which Met-Coil agreed to reimburse in an Agreed Order),
Met-Coil reserved $1,000,000, as of December 31, 2002, which reserve remains
unchanged in the accompanying Consolidated Financial Statements. As additional
information and expert opinions become available to Met-Coil, it may be better
able to either revise its estimate of the range of exposure, with appropriate
revision to reserves taken, or continue to believe that no such revision is
either required or estimate possible.
Critical Accounting Policies
Financial Reporting Release No. 60, released by the Securities and
Exchange Commission, requires all companies to include a discussion of critical
accounting policies or methods used in the preparation of financial statements.
Note 1 of the Notes to the Consolidated Financial Statements includes a summary
of the significant accounting policies and methods used in the preparation of
our Consolidated Financial Statements. The following is a brief discussion of
the Company's critical accounting policies.
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 the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. The most significant estimates and assumptions related to
revenue recognition, accounts receivable valuations, inventory valuations,
goodwill valuation, intangible asset valuations, warranty costs, product
liability costs, environmental reserves, investments, and accounting for income
taxes. Actual amounts could differ significantly from these estimates.
Our critical accounting policies are described in more detail as
follows:
Revenue Recognition
The company's revenue recognition activities relate almost
entirely to the manufacture and sale of heating, ventilating and air
conditioning (HVAC) equipment and metal forming equipment. Under generally
accepted accounting principles, revenues are considered to have been earned when
the company has substantially accomplished what it must do to be entitled to the
benefits represented by the revenues. With respect to sales of the Company's
HVAC or metal forming equipment, the following criteria represent preconditions
to the recognition of revenue:
Persuasive evidence of an arrangement must exist. Delivery has
occurred or services rendered. The sales price to the customer
is fixed or determinable. Collection is reasonably assured.
Environmental Reserves
As discussed more fully in Note 7 to the Consolidated
Financial Statements, Mestek and its subsidiary, Met-Coil Systems Corporation
(Met-Coil), are defendants in various environmental litigation matters relating
to alleged releases of pollutants by Met-Coil prior to its acquisition by the
Company on June 3, 2000. These matters require the Company to establish
estimates related to the outcome of various litigation matters as well as
estimates related to soil and groundwater remediation costs, both of which are
inherently judgmental and subject to change on an ongoing basis.
Investments
As discussed more fully in Note 6 to the Consolidated Financial Statements for
2002, the Company has certain investments in CareCentric, Inc. (CareCentric)
which it has historically accounted for on the equity method. On March 29, 2002,
the Company transferred certain voting rights to John E. Reed, its Chairman and
CEO, in the context of a refinancing transaction under which both the Company
and John E. Reed invested additional monies in CareCentric. As a result of the
transfer of votes the Company determined that it no longer had "significant
influence" relative to CareCentric, as defined in APB 18 and EITF 98-13, and,
accordingly, adopted the cost method of accounting for its investments in
CareCentric subsequent to that date.
Accounts Receivable
Accounts receivable are reduced by an allowance for amounts that may become
uncollectible in the future. The estimated allowance for uncollectible amounts
is based primarily on specific analysis of accounts in the receivable portfolio
and historical write-off experience. While management believes the allowance to
be adequate, if the financial condition of the Company's customers were to
deteriorate, resulting in impairment of their ability to make payments,
additional allowances may be required.
Product Liability Reserves
As explained in more detail in Note 13 to the Consolidated Financial Statements
for 2002, the Company has absorbed significantly higher levels of insurance risk
subsequent to September 11, 2001 due to the effects of September 11, 2001 on
pricing in the commercial insurance marketplace. As a result, the Company must
establish estimates relative to the outcome of various product liability and
general liability matters which are inherently judgmental and subject to ongoing
change.
Inventory
The Company values its inventory at the lower of cost to purchase and/or
manufacture the inventory, principally determined on the LIFO method, or the
current estimated market value of the inventory. The Company periodically
reviews inventory quantities on hand and records a provision for excess and/or
obsolete inventory based primarily on its estimated forecast of product demand,
as well as based on historical usage. A significant decrease in demand for the
Company's products or technological changes in the industries in which the
Company operates could result in an increase of excess or obsolete inventory
quantities on hand requiring adjustments to the value of the Company's
inventories.
Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted the provisions of FAS No. 142,
"Goodwill and Other Intangible Assets". This statement affects the Company's
treatment of goodwill and other intangible assets. The statement required that
goodwill existing at the date of adoption be reviewed for possible impairment
and that impairment tests be periodically repeated, with impaired assets written
down to fair value. Additionally, existing goodwill and intangible assets must
be assessed and classified within the statement's criteria. Intangible assets
with finite useful lives will continue to be amortized over those periods.
Amortization of goodwill and intangible assets with indeterminable lives will
cease.
The Company completed the first step of the transitional
goodwill impairment test during the six months ended June 30, 2002 based on the
amount of goodwill as of the beginning of fiscal year 2002, as required by FAS
No. 142. The Company performed a valuation to determine the fair value of each
of the reporting units. Based on the results of the first step of the
transitional goodwill impairment test, the Company determined that goodwill
impairment existed as of January 1, 2002, in the Company's Metal Forming
segment, which the Company has determined constitutes a "reporting unit" under
FAS 142. The Company completed undertaking the second step of the transitional
goodwill impairment test and reported a charge for goodwill impairment as
explained more fully in Note 1 to the accompanying Consolidated Financial
Statements, net of a related tax benefit, of $29,334,000.
Warranty
The Company provides for the estimated cost of product warranties at the time
revenue is recognized based upon estimated costs historical and industry
experience, and anticipated in-warranty failure rates. While the Company engages
in product quality programs and processes, the Company's warranty obligation is
affected by product failure rates, and repair or replacement costs incurred in
correcting a product failure. Should actual product failure rates and repair or
replacement costs differ from estimates based on historical experience,
revisions to the estimated warranty liability may be required.
Accounting for Income Taxes
The preparation of the Company's Consolidated Financial
Statements requires it to estimate its income taxes in each of the jurisdictions
in which it operates, including those outside the United States which may be
subject to certain risks that ordinarily would not be expected in the United
States. The income tax accounting process involves estimating its actual current
exposure together with assessing temporary differences resulting from differing
treatment of items, such as depreciation and equity method gains and losses, for
tax and accounting purposes. These differences result in the recognition of
deferred tax assets and liabilities. The Company must then record a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized. Significant management judgment is required in
determining its provision for income taxes, its deferred tax assets and
liabilities and any valuation allowance recorded against deferred tax assets. In
the event that actual results differ from these estimates or the company adjusts
these estimates in future periods it may need to adjust its valuation allowance
which could materially impact its financial position and results of operations.
Item 3. - Quantitative and Qualitative Information about Market Risks
The Company's operations are sensitive to a number of market factors,
any one of which could materially adversely effect its results of operations in
any given year:
Construction activity--the Company's largest segment, its Heating,
Ventilating, and Air Conditioning (HVAC) segment, is directly affected and its
other segment, Metal Forming, is indirectly affected by commercial construction
projects and residential housing starts. Relatively lower interest rates in
2002, and 2003 to date, and strong institutional activity helped prevent what
might otherwise have been a more pronounced recessionary effect. Significant
increases in interest rates or reductions in construction activity in future
periods, however, could be expected to adversely effect the Company's revenues,
possibly materially.
Manufacturing Activity-- The Company's Metal Forming segment, as a
manufacturer of capital goods used in other manufacturing processes, is subject
to significant cyclicality. The Company's Metal Forming segment provides
equipment used to hold, uncoil, straighten, form, bend, cut and otherwise handle
metal used in manufacturing operations; all activities likely to be adversely
effected in recessionary periods. The level of manufacturing activity in the
automotive, steel processing, metal furniture, and stamping industries, are
particularly relevant to this segment since its products are typically purchased
to upgrade or expand existing equipment or facilities. Expectations of future
business activity are also particularly relevant. Activity in this segment was
significantly effected by events of September 11, 2001 and the continuing
downturn in capital spending, especially in the manufacturing sector.
Credit Availability--Although interest rates trended lower in 2002, and
2003 to date, reflecting the Federal Reserve's monetary policy during this
period, credit availability has, reportedly, somewhat tightened for marginal
business borrowers. As the Company's customer base includes many small to medium
sized business, a further credit tightening through the commercial banking
system could be expected, at some point, to adversely effect the Company's
sales, as was the case in the "credit crunch" of 1990-1991.
Technological changes--Although the HVAC industry has historically been
impacted by technology changes in a relatively incremental manner, it cannot be
discounted that radical changes--such as might be suggested by fuel cell
technology, burner technology and/or other developing technologies--could
materially adversely effect the Company's results of operations and/or financial
position in the future.
Environmental Laws Affecting Operations and Product Design--The
Company's operations and its HVAC products that involve combustion as currently
designed and applied entail the risk of future noncompliance with the evolving
landscape of Environmental Laws. The cost of complying with the various
Environmental Laws is likely to increase over time, and there can be no
assurance that the cost of compliance, including changes to manufacturing
processes and design changes to current HVAC product offerings that involve the
creation of carbon dioxide or other currently unregulated compounds emitted in
atmospheric combustion, will not over the long-term and in the future have a
material adverse effect on the Company's results of operations.
Weather Conditions--The Company's core HVAC segment manufactures
heating, ventilating and air conditioning equipment with heating products
representing the bulk of the segment's revenues. As such, the demand for its
products depends upon colder weather and benefits from extreme cold. Severe
climatic changes, such as those suggested by the "global warming" phenomenon,
could over time adversely effect the Company's results of operation and
financial position.
Purchasing Practices--It has been the Company's policy in recent years
for high value commodities to aggregate volumes with a sole source to achieve
maximum cost reductions while maintaining quality and service. This policy has
been effective in reducing costs but has introduced additional risk which could
potentially result in short-term supply disruptions or cost increases from time
to time in the future.
Supply Disruptions--The Company uses a wide variety of materials in the
manufacture of its products, such as copper, aluminum and steel, as well as
electrical and mechanical components, controls, motors and other products.
Management believes at present that it has adequate sources of supply for its
raw materials and components (subject to the "sole source" risks described above
under Purchasing Practices) and has not had significant difficulty in obtaining
the raw materials, component parts or finished goods from its suppliers. No
industry segment of the Company is dependent on a single supplier, the loss of
which would have a material adverse effect on its business.
Commodity Risks--The purchase raw material commodities and is at risk
for fluctuations in the market price of those commodities. In connection with
the purchase of major commodities, principally copper and aluminum for
manufacturing requirements, The Company enters into commodity forward agreements
to effectively hedge the cost of the commodity. This forward approach is done
for a portion of the Company's requirements, while the balance of the
transactions required for these two commodities are conducted in the cash
market. The forward agreements require the Company to accept delivery of the
commodity in the quantities committed, at the agreed upon forward price, and
within the timeframe specified. The cash market transactions are executed at the
Company's discretion and at current market prices. In addition to the raw
material cost strategy described above, the Company enters into fixed pricing
agreements for the fabrication charges necessary to convert these commodities
into useable product
Interest Rate Sensitivity--The Company's borrowings are largely Libor
or Prime Rate based. The Company believes that a 100 basis-point increase in its
cost of funds would not have a material affect on the Company's financial
statements taken as a whole.
Item 4 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Subsequent to the enactment in 2002 of the Sarbanes-Oxley Act, the
Company established a Disclosure Committee comprised of its Chief
Legal Officer, Chief Operating Officer and Chief Financial
Officer. The Disclosure Committee on a quarterly basis reviews
written sub-attestations obtained from key financial and operating
personnel, consults with outside technical advisers as needed, and
meets with the Company's CEO, among other steps. Within the 90-day
period prior to the filing of this report, Company Management,
including the Chief Executive Officer and Chief Financial Officer,
conducted an evaluation of the effectiveness of the design and
operation of the Company's Disclosure Controls and procedures as
defined in the Securities Exchange Act of 1934 Rule 13 Section
14(c). Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective as of the date of that
evaluation.
(b) Changes in Internal Controls.
Subsequent to the enactment in 2002 of the Sarbanes-Oxley Act, the
Company undertook a review of its internal controls, including its
internal accounting controls. This process resulted in an expanded
Internal Control & Accounting Policy & Procedures Manual which has
now been widely disseminated within the Company. While numerous
policies were clarified as a result, and some formerly informal
policies were formalized, the Company does not believe that any
such changes represented corrective actions taken with regard to
significant deficiencies and material weaknesses. Accordingly, the
Company believes there have been no significant changes in
internal controls or in factors that could significantly affect
internal controls, subsequent to the date the Chief Executive
Officer and Chief Financial Officer completed their evaluation.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
There have been no material changes in the matters previously identified
under Item 2, Legal Proceedings in the Company's Form 10-K for 2002. See Part I
to this Form 10 Q, Management's Discussion and Analysis, and Note 7 to these
Condensed Consolidated Financial Statements for a discussion of material
contingencies.
Item 5 - Other Information:
Certifications under Sarbanes-Oxley Act:
(see following)
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings ... Page 36
(b) The Company filed one Form 8 K during the quarter ended March 31, 2003
dated January 22, 2003 under Item 5 - Other Events disclosing certain
contractual commitments made in relation to previously disclosed
environmental remediation liabilities.
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended March 31,
2003 2002*
---------------------
(In thousands, except
earnings per common share)
Income Before Cumulative Effect of
a Change in Accounting Principle $842 $1,516
Cumulative Effect of a Change in Accounting Principle --- (29,334)
------ ---------
Net Income $842 ($27,818)
====== =========
Basic Earnings per Common Share:
Income Before Cumulative Effect of
a Change in Accounting Principle $0.10 $0.17
Cumulative Effect of a Change in Accounting Principle --- (3.36)
------ ------
Net Income $0.10 ($3.19)
===== =======
Basic Weighted Average Shares Outstanding 8,722 8,722
===== =======
Diluted Earnings Per Common Share:
Income Before Cumulative Effect of
a Change in Accounting Principle $0.10 $0.17
Cumulative Effect of a Change in Accounting Principle --- (3.36)
------ ------
Net Income $0.10 ($3.19)
===== ======
Diluted Weighted Average Shares Outstanding 8,742 8,722
====== =======
* restated to give effect to 2002 goodwill impairment as of January 1, 2002 (See
Note 1) and to give effect in 2002 to subsidiary stock options (See Note 5).
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.
MESTEK, INC.
(Registrant)
Date: May 15, 2003 By: /S/ Stephen M. Shea
----------------------------------------------------
Stephen M. Shea, Senior Vice President - Finance
and CFO (Chief Financial Officer)
Mestek, Inc.
260 North Elm Street
Westfield, Massachusetts 01085
(Certification Issued Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, John E. Reed, Chief Executive Officer of Mestek, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mestek, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/S/ John E. Reed
--------------------------------------------------
John E. Reed
Chief Executive Officer
Mestek, Inc.
Mestek, Inc.
260 North Elm Street
Westfield, Massachusetts 01085
(Certification Issued Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002)
I, Stephen M. Shea, Chief Financial Officer of Mestek, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mestek, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14)
for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
d) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of the registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
e) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant
changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/S/ Stephen M. Shea
-------------------------------------------------
Stephen M. Shea
Chief Financial Officer
Mestek, Inc.
Mestek, Inc.
260 North Elm Street
Westfield, Massachusetts 01085
(Certification Issued Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, John E. Reed, certify that:
1. I am the Chief Executive Officer of Mestek, Inc.
2. I have read the quarterly report of Mestek, Inc. filed on Form
10-Q for the quarter ending March 31, 2003 (the "Report"),
including the financial statements contained in the Report.
3. The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and the
information contained in this quarterly report fairly presents, in
all material respects, the financial condition and results of
operations of Mestek, Inc. for and as of the period described.
Date: May 15, 2003
/S/ John E. Reed
--------------------------------------------------
John E. Reed
Chief Executive Officer
Mestek, Inc.
Mestek, Inc.
260 North Elm Street
Westfield, Massachusetts 01085
(Certification Issued Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)
I, Stephen M. Shea, certify that:
1. I am the Chief Financial Officer of Mestek, Inc.
2. I have read the quarterly report of Mestek, Inc. filed on Form
10-Q for the quarter ending March 31, 2003 (the "Report"),
including the financial statements contained in the Report.
3. The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934 and the
information contained in this quarterly report fairly presents, in
all material respects, the financial condition and results of
operations of Mestek, Inc. for and as of the period described.
Date: May 15, 2003
/S/ Stephen M. Shea
--------------------------------------------------
Stephen M. Shea
Chief Financial Officer
Mestek, Inc.