UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number: 1-448
December 31, 2001
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
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(State or other jurisdiction of (I. R. S Employer
incorporation or organization) Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO__
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The aggregate market value of voting common shares held by non-affiliates of the
registrant as of March 29, 2002, based upon the closing price for the
registrant's common stock as reported in The Wall Street Journal as of such date
was $61,623,005. The number of shares of the registrant's common stock issued
and outstanding as of March 20, 2002 was 8,721,603.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on May 28, 2002 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 46 through 49 of
Part IV hereof are incorporated by reference into Part IV hereof.
PART I
Item 1 - BUSINESS
GENERAL
Mestek, Inc. ("Mestek" or the "Company") was incorporated in the
Commonwealth of Pennsylvania in 1898 as Mesta Machine
Company. It changed its name to Mestek, Inc. in October 1984, and merged with
Reed National Corp. on July 31, 1986.
On January 31, 1997, the Company acquired ninety-one and one hundredths
percent (91.01%) of the issued and outstanding common stock of Hill Engineering,
Inc. (Hill) of Villa Park, Illinois and Danville, Kentucky. Hill is a leading
producer of precision tools and dies for the gasket manufacturing and roll
forming industries and other specialty equipment. The purchase price paid for
the acquired stock was $5,141,000. The Company has accounted for this
acquisition under the purchase method of accounting.
On November 3, 1997 the Company acquired one hundred percent (100%) of
the issued and outstanding common stock of CoilMate, Inc. (CoilMate) of
Southington, Connecticut. CoilMate is the leading producer of pallet de-coiling
equipment for the metal stamping and roll forming industries. The purchase price
paid was $3,521,000. The Company has accounted for this acquisition under the
purchase method of accounting.
On April 29, 1998, the Company, through a Canadian subsidiary, acquired
100 percent of the outstanding common stock of Ruscio Brothers Refractory Ltd.
(RBR) and 988721 Ontario, Inc. (988721), both of Mississauga, Ontario, Canada.
RBR and 988721 manufacture and distribute commercial and residential
copper-finned boilers and water heaters under the name Ruscio Brothers
Industries, (RBI), primarily in Canada. Copper-finned boilers and water heaters
are complementary to the Company's other hydronic products and the Company now
distributes RBI's products in the United States. The purchase price paid for the
acquired stock was approximately $2,877,000 (U.S.) and included goodwill of
approximately $1,807,000 (U.S.)
On November 2, 1998, the Company exchanged its forty-six and eight
tenths percent (46.8%) interest in Eafco, Inc. for ninety-three and six tenths
percent (93.6%) of the common stock of Boyertown Foundry Company (BFC) of
Boyertown, PA. BFC received one hundred percent (100%) of the foundry and
machining operations of Eafco on that same date pursuant to "a split-up" of
Eafco structured as a tax-free reorganization. The Company has accounted for
this transaction under the purchase method of accounting. Accordingly, the
carrying value of the Company's equity investment in Eafco, $8,778,000 at
November 2, 1998, was treated as the purchase price for accounting purposes. The
assets acquired by BFC included substantially all of the real estate and
equipment owned by Eafco in Boyertown and used in the foundry, machining and
boiler assembly operations and certain other assets and liabilities. BFC
operates principally as a cast-iron foundry, supplying cast iron sections and
related machining services to both the Company's Westcast subsidiary and to
various third parties, including Peerless Heater Company, Inc. In connection
with this transaction the Company loaned Eafco, Inc. $1,500,000 and also assumed
and paid $650,000 of Eafco's then outstanding bank indebtedness. The $1,500,000
loan bears interest at Fleet Bank's prime rate less one, is payable over 42
months beginning on May 1, 2000, and is secured by substantially all of Eafco's
assets. BFC has also leased a portion of its facilities in Boyertown to Eafco,
Inc. which will continue to assemble and warehouse boilers in Boyertown for
Peerless Heater Company, Inc.
On March 26, 1999, the Company acquired substantially all of the
operating assets of the Anemostat Products and Anemostat-West divisions of
Dynamics Corporation of America, (collectively, Anemostat), a wholly owned
subsidiary of CTS Corporation. Anemostat manufactures commercial air
distribution products (grilles, registers, diffusers and VAV boxes); security
air distribution products; and door and vision frame products for the HVAC and
commercial building industries at locations in Scranton, Pennsylvania (Anemostat
Products) and Carson, California (Anemostat-West). The Anemostat products are
complementary to the Company's existing louver and damper businesses. The
purchase price paid for the assets acquired was approximately $25,360,000,
including assumed liabilities of approximately $3,577,000. The Company accounted
for this acquisition under the purchase method of accounting and, accordingly,
recorded goodwill of approximately $6,800,000.
On April 26, 1999, an order was entered in the Bankruptcy Court for the
Southern District of Ohio, whereby the Company's offer to acquire certain of the
operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for $2,554,000. The Company has accounted
for this acquisition under the purchase method of accounting.
On January 28, 2000, the Company acquired substantially all of the
operating assets of Wolfram, Inc. d/b/a Cesco Products ("Cesco"), a manufacturer
of air distribution products for approximately $6,425,000, as more fully
explained in Note 2 to the accompanying Consolidated Financial Statements. The
Company has accounted for this acquisition under the purchase method of
accounting.
On February 10, 2000, the Company acquired certain assets of B & K
Rotary Machinery International Corporation, a manufacturer of metal
processing lines, for approximately $3,018,000, as more fully explained in Note
2 to the accompanying Consolidated Financial Statements.
On March 7, 2000, the Company completed the spin-off and subsequent
merger of its wholly owned subsidiary, MCS, Inc. with
and into Simione Central Holdings, Inc., as more fully explained in Note 3 to
the accompanying Consolidated Financial Statements.
On June 3, 2000, the Company acquired 100% of the stock of Met-Coil
Systems Corporation, (Met-Coil) for approximately $33.6 million, as more fully
explained in Note 2 to the accompanying Consolidated Financial Statements.
Met-Coil manufactures advanced sheet metal forming equipment, fabricating
equipment, and computer-controlled fabrication systems for the global market in
its Cedar Rapids, Iowa, and Lisle, Illinois, manufacturing facilities.
Met-Coil's products are complementary with those of the Company's Metal Forming
Segment. The Company accounted for the acquisition under the purchase method of
accounting and, accordingly recorded goodwill of approximately $23,000,000.
On June 30, 2000 the Company acquired substantially all of the
operating assets of Louvers and Dampers, Inc. (L & D) located in Florence,
Kentucky. L & D manufactures louver and damper products for the HVAC industry.
The purchase price paid for the assets acquired was $3,000,000 and included
$699,000 of goodwill. The Company accounted for the acquisition under the
purchase method of accounting.
On August 25, 2000 the Company, through a subsidiary, Airtherm, LLC,
acquired substantially all of the operating assets of Airtherm Manufacturing
Company, a Missouri corporation, and Airtherm Products, Inc., an Arkansas
corporation, except the real property owned by these companies, for
approximately $3,815,000, including assumed liabilities of
$101,000.Subsequently, in September 2001, the company exercised an option to
purchase the membership interest of a minority member of Airtherm, LLC for $2.0
million subject to certain adjustments. The Company now owns 100% of the
membership interests of Airtherm, LLC. The amount paid for the purchases of the
minority membership interest was recorded as goodwill in connection with the
acquisition of Airtherm assets.
On July 2, 2001 the Company, through its wholly owned subsidiary,
Formtek, Inc., acquired of 100% of the outstanding common stock of SNS
Properties, Inc. (SNS), an Ohio corporation based in Warrensville Heights, Ohio.
SNS, through its Yoder, Krasny Kaplan and Mentor AGVS businesses, manufactures
sophisticated metal forming equipment, tube mills, pipe mills, custom engineered
material handling equipment, and automated guided vehicle systems for the global
market. The purchase price paid for the stock was $12.5 million and included
$7.7 million in goodwill. The Company also acquired a related manufacturing
plant in Bedford Heights, Ohio for $1.1 million.
On December 31, 2001, the Company acquired substantially all of the
operating assets and certain liabilities of King Company, (King), a subsidiary
of United Dominion Industries, based in Bishopville, South Carolina, and
Owatonna, Minnesota. King manufactures industrial heating and specialty
refrigeration products complementary to certain of the Company's other
industrial HVAC product lines. The purchase price paid, net of liabilities
assumed, was $4 million and included no goodwill. The Company has accounted for
this acquisition under the purchase method of accounting.
The Company's executive offices are located at 260 North Elm Street,
Westfield, Massachusetts 01085. The Company's phone number is 413-568-9571.
OPERATIONS OF THE COMPANY
The Company operates in two continuing business segments: Heating,
Ventilating, and Air Conditioning ("HVAC") and Metal Forming equipment
manufacturing. Each of these segments is described below.
As further described in Note 3, the Company sold its subsidiary,
National Northeast Corporation, and the Company consolidated the remaining
businesses in its former Metal Products segment into its core HVAC segment for
2001.
The Company and its subsidiaries together employed approximately 3,135
persons as of December 31, 2001.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through certain divisions of Mestek, Inc. and various of
its wholly owned subsidiaries, (collectively, the "Reed Division") manufactures
and distributes products in the HVAC industry. These products include
residential, commercial and industrial hydronic heat distribution products,
gas-fired heating and ventilating equipment, louver and damper equipment,
commercial and residential gas and oil-fired boilers, air conditioning units,
refrigeration and ventilating equipment for the food processing industry, and
related products used in heating, ventilating and air conditioning systems.
The Hydronic, Gas-Fired Products, Cooling and Industrial business units
are part of the Reed Division that sells finned-tube and baseboard radiation
equipment under the names "Sterling", "Vulcan", "Heatrim", "Petite-7",
"Hydrotherm", and "Suntemp", and other hydronic heat distribution products under
the names "Sterling", "Beacon-Morris", and "Airtherm", gas-fired unit heaters
under the name "Sterling", commercial and industrial gas-fired indoor and
outdoor heating and ventilating equipment under the names "Alton", "Applied
Air", "Wing", "Temprite" and "King", and cooling and air conditioning equipment
under the "Alton", "Applied Air", "Space Pak", "Aztec Sensible Cooling",
"Koldwave" and "King" names. A number of these trade names are also registered
trademarks owned by the Company and its subsidiaries. These products may be used
to heat, ventilate and/or cool structures ranging in size from large office
buildings, industrial buildings, warehouses, stores and residences, down to such
small spaces as add-on rooms in residences. The division's products are
manufactured at plants in Westfield, Massachusetts; South Windsor, Connecticut;
Farmville, North Carolina, Dallas; Texas; Mississauga, Ontario, Canada; Dundalk,
Maryland; Wrens, Georgia; Bishopville, South Carolina, and Forrest City,
Arkansas. The Company closed its Skokie, Illinois and Ridgeville, Indiana plants
in 1996 and relocated these operations to Dundalk, Maryland and Farmville, North
Carolina, respectively.
Through its air distribution business unit, comprised of various
divisions and subsidiaries, the Reed Division sells many types of fire, smoke,
air control louvers and dampers and air distribution products, which are devices
designed to facilitate the ventilation of buildings, tunnels and other
structures or to control the movement of air through building duct-work in the
event of fire or smoke, under the names "Air Balance", "Phillips Aire",
"Anemostat", "Air Clean Dampers", "Pacific/Air Balance", "American Warming and
Ventilating", "Arrow", "Cesco", and "Louvers and Dampers". These products are
manufactured at the Company's plants in Wrens, Georgia; San Fernando,
California; Bradner, Ohio; Waldron, Michigan; Milford, Ohio; Wyalusing,
Pennsylvania; Carson, California; Scranton, Pennsylvania; and Florence,
Kentucky. The Company consolidated its Brooklyn Park, Minnesota Facility into
its Florence, Kentycky facility in 2001.
Gas and oil-fired boilers are sold primarily under the names "RBI",
"Hydrotherm", "Multi-Pulse", and "Multi-Temp" operated by subsidiaries of the
Company at facilities located in Dundalk, Maryland and Mississauga, Ontario,
Canada. Westcast, Inc., a wholly owned subsidiary, is a distributor of gas and
oil fired boilers in the commercial and residential markets under the name
"Smith Cast Iron Boilers".
Omega Flex, Inc. (Omega), a wholly owned subsidiary, manufactures
corrugated flexible stainless steel hose for use in a wide variety of industrial
applications. Its products include annular, helical and braided metal hose and
hose fabrications and are sold primarily through industrial hose distributors
and original equipment manufacturers. In January of 1997, Omega introduced Trac
Pipe(R), a corrugated stainless steel tubing developed for use in piping gas
appliances. The Company has realized significant synergies by distributing Trac
Pipe(R) through its extensive HVAC distribution network.
Boyertown Foundry Company (BFC), approximately 97% owned by the
Company, operates a cast-iron foundry in Boyertown, PA, which manufactures
products used principally in the HVAC industry.
Through its design and application engineering groups, the Reed
Division custom designs and manufactures many HVAC products to meet unique
customer needs or specifications not met by existing products. Such custom
designs often represent improvements on existing technology and often are
incorporated into the Reed Division's standard line of products.
The Reed Division sells its HVAC products primarily through a diverse
group of independent representatives throughout the United States and Canada,
many of whom sell several of Reed's products. These independent representatives
usually handle various HVAC products made by manufacturers other than the
Company. These representatives usually are granted an exclusive right to solicit
orders for specific Reed Division products from customers in a specific
geographic territory. Because of the diversity of the Reed Division's product
lines, there is often more than one representative in a given territory.
Representatives work closely with the Reed Division's sales managers and its
technical personnel to meet customers' needs and specifications. The independent
representatives are compensated on a commission basis and generally they neither
stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its
HVAC products primarily to contractors, installers, and end users in the
construction industry, wholesale distributors and original equipment
manufacturers.
While the Reed Division's HVAC products are distributed throughout the
United States and Canada, sales in the northeast, mid-Atlantic and upper
mid-west states are somewhat higher than would be suggested by unadjusted
construction statistics in any given year due to the relative popularity of
hydronic products in these areas.
The sale of heating and cooling products is inherently sensitive to
climatic trends in that relatively warm winters and/or cool summers can
adversely affect sales volumes.
The Reed Division sells gas-fired and hydronic heating and ventilating
products, boilers and other HVAC equipment in Canada and also sells its products
in other foreign markets from time to time. Total export sales did not exceed
ten percent of total revenues, nor did foreign assets exceed ten percent of
total assets, in any of the most recent five years ending December 31, 2001.
The Reed Division 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
that it has adequate sources of supply for its raw materials and components and
has not had significant difficulty in obtaining the raw materials, component
parts or finished goods from it 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.
The businesses of the HVAC segment are highly competitive. The Company
believes that it is the largest manufacturer of hydronic baseboard heating for
residential and commercial purposes and is one of the three leading
manufacturers of gas-fired heaters and fire and smoke dampers. The Company has
established a substantial market position in the cast-iron boiler business
through its acquisitions in 1991, 1992, and 1998. Nevertheless, in all of the
industries in which it competes, the Company has competitors with substantially
greater manufacturing, sales, research and financial resources than the Company.
Competition in these industries is based mainly on merchandising capability,
service, quality, price and ability to meet customer specifications. The Reed
Division believes that it has achieved and maintained its position as a
substantial competitor in the HVAC industry largely through the strength of its
extensive distribution network, the breadth of its product line and its ability
to meet customer delivery and service requirements. Most of its competitors
offer their products in some but not all of the industries served by the Reed
Division.
The quarterly results of the HVAC segment are affected by the
construction industry's demand for heating equipment, which generally peaks in
the last four months of each year (the "heating season"). Accordingly, sales are
usually higher during the heating season, and such higher levels of sales may in
some years continue into the following calendar year. As a result of these
seasonal factors, the Company's inventories of finished goods reach higher
levels during the heating season and are generally lower during the balance of
the year.
Management does not believe that backlog figures relating to the HVAC
segment are material to an understanding of its business because most equipment
is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents.
Although the Company usually seeks to obtain patents where appropriate, it does
not consider any segment materially dependent upon any single patent or group of
related patents.
The Reed Division has a number of trademarks important to its business,
including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Petit
7, L. J. Wing, Alton, Applied Air, Arrow, Hydrotherm, Temprite, Anemostat, Omega
Flex, Trac Pipe(R), Air Clean Damper Company, Cesco Products, Louvers and
Dampers, and Airtherm product lines.
Expenditures for research and development for the HVAC segment in 2001,
2000, and 1999, were $1,531,000, $2,551,000, and $1,735,000, respectively.
Product development efforts are necessary and ongoing in all product markets.
National Northeast Corporation (National), reported under Discontinued
Operations in accordance with APB30 in the accompanying Consolidated Financial
Statements, but formerly included in the Company's Metal Products segment,
extrudes aluminum shapes for the construction and other markets and extrudes and
fabricates aluminum based products and assemblies and high precision aluminum
heat sinks (heat dissipation devices) for use in a wide variety of power
control, communications and related electronic and computer systems
applications. National was sold on January 9, 2001, as explained more fully in
Note 3 to the Consolidated Financial Statements.
METAL FORMING
The Company's Metal Forming Segment designs, manufactures and sells a
variety of metal handling and metal forming products and repair parts for such
products through various divisions and subsidiaries under names such as
Cooper-Weymouth, Peterson (CWP), Dahlstrom, B & K, Hill Engineering,
CoilMate/Dickerman, Rowe, Lockformer, Iowa Precision (IPI), Yoder, Krasny-Kaplan
and Mentor AGVS (collectively, Formtek). The products are sold through factory
direct sales and independent dealers, in most cases to end-users and in some
cases to other original equipment manufacturers. The core technologies are
processing equipment for roll forming, coil processing (for stamping, forming
and cut-to-length applications), HVAC fabrication and tube and pipe systems. The
products include roll formers, roll forming systems, wing benders, presses,
servo-feeds, straighteners, cradles, reels, cut-to-length lines, specialty dies,
tube cut-off systems, hydraulic punching, blanking and cutoff systems, rotary
punching, flying cut-off saws, plasma cutting equipment, tube mills, pipe mills
and sophisticated material handling systems. The Segment's products are
manufactured in facilities having approximately 380,000 square feet of
manufacturing space, located in Clinton, Maine; Bedford Heights, Ohio;
Warrensville, Heights, Ohio; Villa Park, Illinois; Lisle, Illinois; Danville,
Kentucky and Cedar Rapids, Iowa. The Segment closed and consolidated into the
Cleveland, Ohio area facilities its Schiller Park, Illinois facility in 2001.
In 1997, this Segment added two additional units: Hill Engineering,
Inc. a leading producer of precision tools and dies for the gasket manufacturing
and roll forming industries, and CoilMate, Inc., a leading producer of pallet
de-coiling equipment for the metal stamping and roll forming industries. The
CoilMate product has been combined with a former CWP Division, Dickerman, and
this "low-end" line is now marketed as CoilMate/Dickerman.
In 2000, this Segment added Iowa Precision Industries and The
Lockformer Company (collectively, Met-Coil Systems Corporation), as more fully
explained in Note 2 to the accompanying Consolidated Financial Statements.
Met-Coil manufactures advanced sheet-metal-forming equipment, fabricating
equipment and computer-controlled fabrication systems for HVAC sheet metal
contractors, steel service centers and custom roll formers in the global market.
On July 2, 2001 the Company, through its wholly owned subsidiary,
Formtek, Inc., acquired 100% of the outstanding common stock of SNS Properties,
Inc. (SNS), an Ohio corporation based in Warrensville Heights, Ohio. SNS,
through its Yoder, Krasny Kaplan and Mentor AGVS businesses, manufactures
sophisticated metal forming equipment, tube mills, pipe mills, custom engineered
material handling equipment, and automated guided vehicle systems for the global
market. The purchase price paid for the stock was $12.5 million and included
$7.7 million in goodwill. The Company also acquired a related manufacturing
plant in Bedford Heights, Ohio for $1.1 million.
The Company believes it has improved its competitive position within
the metal forming marketplace by developing high quality equipment with
electronic and software controls, affording diagnostic, performance and
operational features, as well as by the strategic acquisitions made in 1996,
1997, 2000, and 2001, which broadened the Segment's overall product offerings,
created cross-selling opportunities, afforded synergies in sales/marketing and
field service and allows the Segment to offer sophisticated metal forming
solutions that reduce scrap, improve quality, increase throughput, shorten set
up or changeover time, reduce downtime, reduce operator involvement and allow a
wider variety of products to be processed.
Many products made by these units are custom designed and manufactured
to meet unique customer needs or specifications not currently met by existing
products. These products, developed by the Segment's design and application
engineering groups, often represent improvements on existing technology and are
often then incorporated into the standard product line.
The primary customers for such metal handling and metal forming
equipment include sheet metal and mechanical contractors, steel service centers,
contract metal stampers, contract roll formers, and manufacturers of large and
small appliances, commercial and residential lighting fixtures, automotive parts
and accessories, office furniture and equipment, tubing and pipe products, metal
construction products, doors, window and screens, electrical enclosures, shelves
and racks and HVAC equipment.
The businesses of Formtek are highly competitive and, due to the nature
of the products, are somewhat more cyclical (due to changes in manufacturing
capacity utilization and the cost and availability of financing) than the
Company's other operating segment. CWP, Rowe, CoilMate/Dickerman, and IPI have a
strong presence in the manufacture of coil processing equipment through their
broad and competitive product lines, together with Formtek's customer-driven
application engineering and ability to meet customer delivery and service
requirements through separate extensive distribution networks. Dahlstrom, B & K,
Yoder and Lockformer are well-established names in the roll-former market place.
The Company believes that the critical mass created by the recent acquisitions
of Met-Coil Systems Corporation and SNS Properties (now known as Formtek
Cleveland, Inc.) will allow it to more fully leverage its large installed
customer base in the sale of equipment and repair parts.
The units comprising this segment own a number of United States and
foreign patents, but the Segment does not consider itself materially dependent
upon any single patent or group of related patents. The Lockformer and IPI units
have lost in 2001 or will lose in 2002 certain patent protections, but do not
expect a significant decrease in sales. The B & K unit expects to capitalize on
recently issued patents for its Supermill, Rotary Punch and Rotary Shear
products that the Company believes will be a productivity breakthrough for the
steeling framing segment of the metal building market.
The Metal Forming Segment sells equipment in Canada, Mexico and other
foreign markets. Total export sales did not exceed ten percent (10%) of the
total revenues, nor did foreign assets exceed ten percent (10%) of total assets
in any of the most recent five years ending December 31, 2001.
The backlog relating to this segment at December 31, 2001 was
approximately $21,539,000, compared to approximately $39,372,000 at December 31,
2000, including the Formtek Cleveland backlog as if acquired on December 31,
2000.
Expenditures for research and development for this segment in 2001,
2000, and 1999, were $268,000, $931,000, and $610,000, respectively.
SEGMENT INFORMATION
Selected financial information regarding the operations of each of the
above segments, consistent with statement of Financial Accounting Standard No.
131 and Section 101 (d) of Regulations S-K, is presented in Note 13 to the
Consolidated Financial Statements.
Item 2 - PROPERTIES
The HVAC segment of the Company manufactures equipment at plants that
the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing, Pennsylvania;
Scranton, Pennsylvania; Dundalk, Maryland; Wrens, Georgia; Milford, Ohio;
Dallas, Texas; Boyertown, Pennsylvania and Bishopville, South Carolina. It
operates plants that it leases from entities owned directly or indirectly by
certain officers and directors of the Company in Westfield, Massachusetts;
Farmville, North Carolina; and South Windsor, Connecticut. The HVAC segment
leases manufacturing space from unrelated parties in Mississauga, Ontario,
Canada; Carson, California; San Fernando, California; Florence, Kentucky; St.
Louis, Missouri; Forrest City, Arkansas; and Exton, Pennsylvania; as well as a
regional distribution facility in Mississauga, Ontario, Canada.
The Metal Forming segment manufactures products at plants the Company
owns in Clinton, Maine; Villa Park, Illinois; Schiller Park, Illinois (now
closed and offered for sale); Danville, Kentucky; Cedar Rapids, Iowa; Lisle,
Illinois and Bedford Heights, Ohio and leases manufacturing space in
Warrensville Heights, Ohio.
The Company's principal executive offices in Westfield, Massachusetts
are leased from an entity owned by an officer and director of the Company. The
Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 5 to the
Consolidated Financial Statements.
Item 3 - LEGAL PROCEEDINGS
Except for the following proceedings which relate to the same matter,
which are discussed in Item 7 hereof, Management Discussion and Analysis and in
Note 12 to the Notes to the Consolidated Financial Statements, the Company is
not presently involved in any litigation that it believes could materially and
adversely affect its financial condition or results of operations. The following
proceedings involve claims related to the discharge of trichloroethylene (TCE)
onto the soil of The Lockformer Company site in Lisle, Illinois:
LeClercq, et al. v. The Lockformer Company - Case No. 00 C 7164
(U.S.D.C. for N.D. Ill.)
Filed November 14, 2000
Principal Defendants: The Lockformer Company, division of Met-Coil Systems
Corporation, Mestek, Inc., Allied Signal, Inc. and
Honeywell International, Inc.
Mejdrech, et al. v. The Lockformer Company - Case No. 01 C 6107
(U.S.D.C. for N.D. Ill.)
Filed August 9, 2001
Principal Defendants: The Lockformer Company, division of Met-Coil Systems
Corporation, Mestek, Inc., Allied Signal, Inc. and
Honeywell International, Inc.
DeVane, et al. v. The Lockformer Company - Case No. 01 L 377 (18th Judicial
Circuit Court, Dupage County, Ill.)
Filed April 12, 2001
Principal Defendants: The Lockformer Company, division of Met-Coil Systems
Corporation, Allied Signal, Inc. and Honeywell
International, Inc.
Daniel Pelzer, et al. v. Lockformer - Case No. 01 C 6485 (U.S.D.C.for N.D.Ill.)
Filed August 21, 2001
Principal Defendants: The Lockformer Company, division of Met-Coil Systems
Corporation, Mestek, Inc. and Honeywell International, Inc.
People of the State of Illinois, et al. v. The Lockformer Company - Case No. 00
CH 62 (18th Judicial Circuit Court, Dupage County, Ill.)
Filed January 19, 2001
Principal Defendants: The Lockformer Company, division of Met-Coil Systems
Corporation and Honeywell International, Inc.
In the Matter of: Lockformer Site, Docket No. V-W-02-C-665.
Administrative Order issued by the United States Environmental Protection
Agency, Region 5 on October 4, 2002.
Respondents: The Lockformer Company, division of Met-Coil Systems Corporation
For a discussion of these proceedings, see section entitled "Environmental
Disclosure" in Part II, Item 7 below.
Item 4 - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to the security holders of the Company for a
vote during the fourth quarter of 2001.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange,
under the symbol MCC. The number of shareholders of record as of March 20, 2002
based on inquiries of the registrant's transfer agent was 1,029. For this
purpose, shareholders whose shares are held by brokers on behalf of such
shareholders (shares held in "street name") are not separately counted. The
price range of the Company's common stock between January 1, 2002 and March 20,
2002 was between $22.18 and 23.55, and the closing price on March 20, 2002 was
$22.40.
The quarterly price ranges of the Company's common stock during 2001
and 2000 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
2001 2000
---- ----
First Quarter $19.80 $16.56 $20.25 $14.19
Second Quarter $27.13 $19.50 $18.06 $15.88
Third Quarter $26.02 $19.90 $17.82 $16.38
Fourth Quarter $24.60 $23.11 $17.00 $16.38
The Company has not paid any cash dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are
listed on a stock exchange or are publicly traded.
Item 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five
fiscal years is shown in the following table. Selected financial data reflecting
the operations of acquired businesses is shown only for periods following the
related acquisition.
SUMMARY OF FINANCIAL POSITION as of December 31,
(1) (dollars in thousands except per share data)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total Assets $259,511 $293,489 $242,253 $205,143 $191,117
Working capital 47,200 26,252 63,732 49,415 42,056
Long-term debt, including
current portion 30,182 63,658 34,791 13,188 19,329
Shareholders' equity 169,845 163,682 148,617 133,298 118,007
Shareholders' equity
per common share (1) $19.47 $18.72 $16.96 $14.99 $13.22
====================================================
SUMMARY OF OPERATIONS - for the year ended December 31,
(2) (dollars in thousands except per share data)
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenues from Continuing Operations $394,103 $375,987 $328,145 $291,164 $282,700
Income (Loss) from Continuing Operations (2,221) 16,402 17,666 13,560 11,757
Net income 6,726 17,068 17,917 16,064 14,405
Earnings (Loss) per common share:
Basic Earnings(Loss) per Common Share:
Continuing Operations ($0.25) $1.87 $1.99 $1.52 $1.31
Discontinued Operations 1.02 0.08 0.03 0.28 0.30
---------------------------------------------------------
Net Income $0.77 $1.95 $2.02 $1.80 $1.61
=========================================================
Diluted Earnings (Loss) Per Common Share
Continuing Operations ($0.25) $1.87 $1.99 $1.52 $1.31
Discontinued Operations 1.02 0.08 0.03 0.28 0.30
---------------------------------------------------------
Net Income $0.77 $1.95 $2.02 $1.80 $1.61
========================================================
(1) Equity per common share amounts are computed using the common shares and
common share equivalents outstanding as of December 31, 2001, 2000, 1999,
1998, and 1997.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* King Company from December 31, 2001
* Formtek Cleveland from July 2, 2001
* Airtherm LLC from August 25, 2000
* Louvers & Dampers, Inc. from June 30, 2000
* Met-Coil Systems Corporation from June 3, 2000
* B & K Rotary Machinery from February 10, 2000
* Cesco Products from January 29, 2000
* Air Clean Dampers from May 7, 1999
* Anemostat from March 26, 1999
* Boyertown Foundry Company from November 2, 1998
* Ruscio Brothers Industries, (RBI), from April 29, 1998
* CoilMate, Inc., from November 3, 1997
* Hill Engineering, Inc., from January 31, 1997
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 Annual Report on Form 10-K 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-K. 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.
RETURN ON AVERAGE NET ASSETS EMPLOYED
2001, 2000, 1999
The results of operations for the Company's National Northeast
Corporation and MCS, Inc. subsidiaries are reported under Discontinued
Operations in 2000 and 1999. National Northeast Corporation, an aluminum
extruder and heat-sink fabricator formerly included in the Company's Metal
Products segment, was sold on January 9, 2001, as more fully explained in Note 3
to the Consolidated Financial Statements, and had no material business
operations in the nine-day period in 2001. One hundred percent of the common
stock of MCS, Inc. was distributed to the Company's common shareholders on March
7, 2000. The discussion and analysis which follows, therefore, relates to the
Company's results of operations through the Operating Profit line only.
The Company's Return on Average Net Assets Employed, defined as
Operating Profits, over Average Net Assets Employed From Continuing Operations
(Total Assets less Current and Non Current Liabilities-other than Current and
Non Current Portions of Long-Term Debt-averaged over 12 months) for the years
2001, 2000, and 1999 was as follows:
2001 2000 1999
---- ---- ----
(in thousands)
Operating Profits $ 12,036 $ 27,105 $ 29,193
Average Net Assets Employed (as defined) $ 202,692 $ 186,999 $ 145,850
--------- --------- ---------
Return on Average Net Assets Employed 5.94% 14.49% 20.01%
========== ========== =========
The Year 2001 Return on Average Net Assets Employed From Continuing
Operations decreased significantly from 2000 as a result of a number of factors
which are presented here in the order of their significance to results of
operations in the opinion of the Company's management:
1. The cyclical down turn in capital spending, exacerbated by the
effects of "September 11, 2001", significantly affected the
performance of the Company's Metal Forming segment. Sales for this
segment, as explained more fully herein, dropped precipitously in
the fourth quarter of 2001 relative to the comparable quarter in
2000, adjusting for the effects of this segment's 2001 and 2000
acquisitions.
2. Significant legal and consulting costs were incurred in the
Company's Metal Forming segment relative to an environmental
matter at the Lisle, Illinois facility, as more fully described
herein.
3. As more fully described herein, the Air Products division of the
Company's HVAC segment, and the Dahlstrom unit of the Company's
Metal Forming segment, both undertook substantial manufacturing
relocation and product redesign efforts in 2001 which adversely
affected sales and margins in both cases in 2001.
4. The Company's HVAC segment experienced a downturn in sales for
certain air conditioning and gas-fired heating products reflecting
depressed conditions in these particular markets, which were
further exacerbated by the events of "September 11, 2001".
Coincident with the sale of National Northeast Corporation on January
9, 2001, the Company consolidated the remaining divisions in its former Metal
Products segment into its core HVAC segment for 2001. Segment results for 2000
and 1999 are correspondingly restated herein for purposes of comparability.
ANALYSIS: 2001 VS. 2000
The Company's core HVAC segment reported comparative results from
continuing operations for 2001 and 2000 as follows:
2001 2001 2000 2000
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $313,726 100.00% $311,734 100.00%
Gross Profit 89,226 28.44% 92,405 29.64%
Operating Income 21,464 6.84% 23,281 7.47%
For the year as a whole, excluding the effects of Airtherm LLC which
was acquired on August 25, 2000, the HVAC segment's revenues were up 1.3%,
from $305,453,000 in 2000 to $309,405,000 in 2001, reflecting flat sales in most
HVAC products,reduced sales of certain air conditioning, industrial and gas
fired heating products and increased sales in boiler and air distribution
products. Fourth quarter 2001 sales for the HVAC segment, however, were down
6.75%, reflecting the overall effect of "September 11, 2001" and underscoring
the fact that total revenues for the HVAC segment had been down only 1%,
excluding the effects of Airtherm, LLC, for the nine months ended
September 30, 2001. Reduced sales of certain industrial and commercial gas-fired
heating products reflected both a downturn in the market for these products--as
distributors worked to reduce inventory levels--and disruptions traceable to
technology changes in the design of gas-fired heating products.
The HVAC segment's Air Distribution Group undertook the consolidation
in 2001 of the manufacturing operations of its Cesco Products (acquired January
28, 2000) and Louvers and Dampers (acquired June 28, 2000) franchises into one
upgraded facility in Florence, Kentucky, as well as undertaking a number of
related product redesign initiatives, all in furtherance of its long term cost
reduction and product improvement goals. These efforts were necessarily
disruptive and contributed to reduced margins in 2001 in the Air Distribution
Group. Management believes the costs associated with these programs have been
substantially absorbed as of December 31, 2001, although additional training is
required to bring the Florence, Kentucky facility up to satisfactory
manufacturing efficiencies. Significant product development programs, including
laboratory work, remained ongoing in 2001 relative to the Anemostat and Applied
Air business units as well contributing to higher engineering costs in the HVAC
segment.
As a result of the factors mentioned above, the HVAC segment reported
operating income of $21,464,000 in 2001, down 7.9% from the comparable figure in
2000.
Sales of Omega Flex, Inc.'s TracPipe(R) flexible gas piping product and
its patented connection system continued to grow in 2001 sustained by relatively
strong single family and multi-family residential construction activity.
TracPipe(R) is a corrugated stainless steel tubing product developed especially
for use in the piping and installation of gas appliances.
The Company's Metal Forming segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Manufacturing, (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll-forming equipment, also
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll-forming industries acquired on January 31,
1997, CoilMate, Inc., (CoilMate), a leading producer of pallet de-coiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997 and The Lockformer Company (Lockformer) and Iowa Precision,
Inc. (IPI), the operating units of Met-Coil Systems Corporation, which was
acquired on June 3, 2000. This segment's results also include the operations of
SNS Properties, Inc. (SNS) (recently renamed Formtek Cleveland, Inc.) which was
acquired on July 2, 2001 and includes the Yoder, Krasny Kaplan and Mentor AGVS
businesses which manufacture sophisticated metal forming equipment, roll-forming
equipment, tube mills, pipe mills, custom engineered material handling
equipment, and automated guided vehicle systems.
<
The Company's Metal Forming segment reported comparative results from
continuing operations for 2001 and 2000 as follows:
2001 2001 2000 2000
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $79,755 100.00% $63,424 100.00%
Gross Profit 14,419 18.10% 16,408 25.86%
Operating Income (7,659) n/a 4,143 6.53%
The Metal Forming segment's products are capital goods used in the
handling and forming of metal in various manufacturing applications including
those in the auto, steel mill, steel service center, stamping and metal
appliance and metal office furniture manufacturing industries. As such, the
segment's products are particularly susceptible to cyclical economic downturns
such as that which occurred throughout 2001. In addition, the events of
September 11, 2001, in the opinion of management, exaggerated the normal
recessionary effects of the business cycle in an unprecedented way. Exclusive of
the effects of the Met-Coil and SNS acquisitions, revenues were down 31.8% for
the year and 58.6% in the fourth quarter of 2001, illustrating an effect of the
recession and the events of "September 11, 2001". Operating losses for the first
three quarters of 2001 accounted for only approximately 5% of the segment's full
year loss.
The Metal Forming segment's operating loss for 2001 includes
approximately $2,215,000 in charges related to legal expenses and environmental
remediation at the Lisle, Illinois facility, including $2 million in reserves
which remain outstanding as of December 31, 2001, as more fully described under
Item 7, Environmental Disclosure. In addition, non-cash charges, principally
goodwill amortization for the segment totaled approximately $1,643,000.
The segment's Met-Coil business unit, in contrast to the other business
units in this segment, reported only slightly reduced revenues in 2001 compared
with the 12 months ended December 31, 2000 but reported substantially reduced
gross profit margins reflecting in part significant pricing pressures in the
marketplace for its products.
During 2001, the Metal Forming segment undertook the consolidation of
its Dahlstrom and B & K roll-forming businesses into the newly acquired SNS
Properties, Inc. (recently renamed to Formtek Cleveland, Inc.) business. In
connection with the consolidation, the segment incurred direct equipment and
inventory moving expense, employee severance expense and other transition costs
of approximately $813,000 related to the consolidation. In addition, operating
losses (including effects related to the factors cited above, unexpected cost
overruns, loss related to disposal of excess inventory, warranty expenses,
employee incentive expense and unabsorbed burden and overhead) of approximately
$1,577,000 were recorded in the Dahlstrom business. The industrial building in
Schiller Park, Illinois formerly occupied by Dahlstrom has been placed with a
broker for sale. The Metal Forming segment does not expect further material
expenses related to this consolidation.
The Company's management believes, as a result principally of the
factors mentioned above, that over 72% of the segment's 2001 operating loss was
the result of non-recurring charges.
The segment's backlog of approximately $21.6 million at December 31,
2001, down from over approximately $39.0 million (including Formtek Cleveland as
if aquired at December 31, 2000) at December 31, 2000, had grown to
approximately $24.3 million by the end of February 2002.
As a whole, the Company reported comparative results as follows:
2001 2001 2000 2000
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $394,103 100.00% $375,987 100.00%
Gross Profit 103,676 26.3% 108,802 28.94%
Operating Income 12,036 3.1% 27,105 7.21%
Gross Profit and Operating Income margins overall reflect the various
negative effects of the product development, and factory relocation costs
described above, as well as the dampening effect on demand for the Company's
products resulting from the events of "September 11, 2001".
Sales expense for the Company as a whole, as a percentage of continuing
revenues, increased slightly from 13.24% to 13.62%. General and Administrative
expenses, as a percentage of continuing revenues, increased slightly from 5.39%
to 5.86% and Engineering expense, as a percentage of continuing revenues, also
increased slightly from 3.10% to 3.31%. In all three cost areas these relatively
small percentage increases are traceable to "top line" revenue shortfalls
connected with the events of "September 11, 2001", among other reasons, as
discussed above.
Interest Expense decreased substantially in 2001, reflecting
principally the effect of the divestiture of National Northeast Corporation on
January 9, 2001, as more fully described in Note 3 to the Consolidated Financial
Statements.
Income Tax Expense (Benefit) for 2001 on Income from Continuing
Operations, as a percentage of pretax income (loss), increased from 37.2% to
39.2% due to the effects of losses in certain subsidiaries where state tax
benefits from such losses are not available and also due to certain amortization
charges reported in 2001 which are not deductible for tax purposes, as more
fully explained in Note 9 to the Consolidated Financial Statements.
ANALYSIS: 2000 VS. 1999
The Company's core HVAC Segment reported comparative results from
continuing operations for 2000 and 1999 as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $311,734 100.00% $ 289,589 100.00%
Gross Profit 92,405 29.64% 87,336 30.16%
Operating Income 23,281 7.47% 27,258 9.41%
As explained above, the HVAC segment's results have been restated for
2000 and 1999 for comparative purposes to give effect to the absorption of the
Metal Products segment into the HVAC segment on January 1, 2001.
The reduced gross profit and operating income levels reflect
principally sub par results from the Company's Anemostat and Air Clean Damper
Company (ACDC) acquisitions as well as sub par results from certain hydronic
products. Significant product development and market development expenses were
incurred in 2000 as part of a long-term plan to strengthen and improve the
Anemostat franchise. These costs continued in 2001 and may result in substandard
returns on the Company's investment in Anemostat for some time. The Company
consolidated its two heavy-duty damper operations into one location in 2000
which adversely effected the results of operations for ACDC.
The Company's former Metal Products Segment included Omega Flex, Inc.
(Omega), an industrial metal hose fabricator acquired in 1996, and Boyertown
Foundry Company, (BFC), a ninety-three and six tenths percent (93.6%) owned
subsidiary which acquired the foundry and machining operations of Eafco, Inc. on
November 2, 1998. Prior to that date, the Company's forty-six and eight tenths
percent (46.8%) investment in Eafco was accounted for on the equity method and
was not included in this segment. BFC produces cast iron products and related
machining services for the Company's HVAC Segment and various third parties.
This segment originally included National Northeast Corporation, (National), an
eighty-nine and five tenths percent (89.5%) owned aluminum extruder and heat
sink fabricator acquired in 1995, which was sold on January 9, 2001, as more
fully explained in Note 3 to the Consolidated Financial Statements.
Sales of Omega's TracPipe(R) flexible gas piping product and its
patented connection system continued to grow at a rapid pace in 2000.
TracPipe(R) is a corrugated stainless steel tubing developed especially for use
in the piping and installation of gas appliances.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Manufacturing, (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll forming equipment,
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll forming industries acquired on January 31,
1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet de-coiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. This segment's results also include the operations of The
Lockformer Company (Lockformer) and Iowa Precision, Inc. (IPI), the operating
units of Met-Coil Systems Corporation, which was acquired on June 3, 2000.
The Company's Metal Forming segment reported comparative results from
continuing operations for 2000 and 1999 as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $63,424 100.00% $ 37,116 100.00%
Gross Profit 16,408 25.86% 10,168 27.39%
Operating Income 4,143 6.53% 1,727 4.65%
Exclusive of the effect of the Met-Coil acquisition, revenues were up
3.67%, gross profits were up 7.86% and operating profits were up 47.6%
reflecting improved results from the segment's CWP and Rowe units which more
than offset reduced operating results at Hill and Dahlstrom.
As a whole the Company reported comparative results as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $375,987 100.00% $328,145 100.00%
Gross Profit 108,802 28.94% 98,249 29.94%
Operating Income 27,105 7.21% 29,193 8.89%
Gross Profit and Operating Income margins overall reflect the negative
effects of the product development, market development and factory relocation
costs incurred in the HVAC segments, as described above, offset somewhat by the
positive results contributed by the Metal Forming segment's CWP and Rowe
divisions.
Sales Expense for the Company as a whole, as a percentage of continuing
revenues, increased slightly, from 12.97% to 13.24%. General and Administrative
Expenses, as a percentage of continuing revenues, increased very slightly from
5.24% to 5.39%. Engineering Expense, as a percentage of continuing revenues,
increased slightly also from 2.82% to 3.10%, owing to increased new product
development costs incurred in the Company's HVAC Segment.
Interest Expense increased substantially in 2000, reflecting
principally the effect of the Met-Coil and other acquisitions in that year.
Income Tax Expense for 2000, as a percentage of pretax income,
increased slightly from 37.1% to 37.2%.
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital increased significantly in 2001 from $26,252,000 at
December 31, 2000 to $51,899,000 at December 31, 2001, primarily as a result of
the sale of National Northeast Corporation on January 9, 2001, as more fully
described in Note 3 to the Consolidated Financial Statements.
The principal changes to the Company's Net Assets Employed during 2001
were approximately as follows:
(in thousands)
Net Assets Employed 12/31/00 $ 230,086
Sale of National Northeast January 9, 2001 (28,173)
Acquisition of SNS Properties, Inc. July 2, 2001 13,600
Acquisition of King Company, December 31, 2001 4,000
Capital equipment purchased 2,692
Cash flow in excess of net income and other effects (19,513)
------------
Net Assets Employed 12/31/01 $202,692
--------
Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid cash dividends on its common stock since 1979.
As of December 31, 2001, the Company had approximately $45 million in
remaining untapped credit capacity under its commercial bank lines of credit.
The Company's interest coverage ratio for 2001, defined as earnings before
interest, taxes, depreciation and amortization (EBITDA) divided by gross
interest expense was approximately 16.8 (23,457/1,396). The ratio of the
Company's Funded Debt (Long-Term Debt plus Current Portion of Long-Term Debt) to
Shareholders' Equity was 0.18 (30,182/169,845) at December 31, 2001. The ratio
of the Company's Funded Debt at December 31, 2001 to its EBITDA to was 1.29
(30,182/23,457).
The Company believes its liquidity position at December 31, 2001 is
adequate to meet any foreseeable future needs. Nonetheless, as more fully
explained in Note 7 to the Consolidated Financial Statements, the Company's
commercial bank lines are historically renewed on a one-year basis and will
therefore, mature during 2002. Based upon its earning power and balance sheet
position, however, the Company expects that it will renew its credit facilities
on favorable terms during 2002 as it has done annually in the past.
The Company has a number of contingent obligations not reflected on its
balance sheet, which can be summarized as follows:
The Company has guaranteed the obligations of CareCentric, Inc. to
Wainwright Bank under its credit line agreement with the bank, as more fully
described in Note 12 to the Consolidated Financial Statements. The outstanding
balance under CareCentric's credit line agreement at December 31, 2001 was
$5,572,000.
The Company is contingently liable under standby letters of credit
totaling $5,424,000 issued principally in connection with its commercial
insurance coverages. The level of insurance risk which the Company absorbs under
its workers compensation and comprehensive general liability (including products
liability) insurance programs increased substantially after October 1, 2001,
largely as a result of the effects of "September 11, 2001" on the commercial
insurance marketplace. For the policy year ending October 1, 2002 the Company
retained liability for the first $500,000 per occurrence of comprehensive
general liability claims (including products liability claims), subject to an
agreed aggregate. In addition, the Company retained liability for the first
$250,000 per occurrence of workers compensation coverage, subject to an agreed
aggregate. The Company also retained liability for the first $5,000,000 of
"excess" liability, on an occurrence and aggregate basis, with respect to both
comprehensive general liability (including products liability) and workers
compensation coverage.
Adverse developments in any of the areas mentioned above could
materially affect the Company's results of operations in any given year.
The Company leases several manufacturing facilities and its corporate
headquarters from Related Parties, as more fully disclosed in Note 10 to the
Consolidated Financial Statements.
Contractual Obligation and Commercial Commitments
The Company's contractual obligations under debt agreements and lease
agreements are summarized in the following table and are more fully explained in
Notes 7 and 10 to the Consolidated Financial Statements.
Payments Due by Period
Contractual Obligations Total Less than 1-3 4-5 After 5
1 year years years year
Long-Term Debt $30,182 $30,002 $100 $80 $0
Capital Lease Obligations 0 0 0 0 0
Operating Leases 15,458 3,416 5,920 3,751 2,371
------ ----- ----- ----- -----
Total Contractual Cash Obligations $45,640 $33,418 $6,020 $3,831 $2,371
======= ======= ====== ====== ======
The Company's commercial commitments under letters of credit and
guarantees are illustrated in the following table. The letters of credit
totaling $5,424,000 at December 31, 2001 related principally to the Company's
commercial insurance programs, as are more fully explained above and in Note 12
to the Consolidated Financial statements. The guarantee of $6,000,000 relates to
the Company's guarantee of the obligations of CareCentric, Inc., under its
commercial bank secured line of credit, as more fully explained in Note 12 to
the Consolidated Financial Statements. These Standby Letters of Credit are
reflected in the `Over 5 Years' column as they are open-ended commitments not
subject to a fixed expiration date. All guarantees may be extended by the
Company for longer periods.
Payments Due by Period
Other Commercial Commitments Total Less than 1-3 4-5 After 5
1 year years years year
Standby Letters of Credit $5,424,000 $0 $0 $0 $5,424,000
Guarantee 6,000,000 6,000,000 0 0 0
--------- --------- - - -
Total Commercial Commitments $11,424,000 $6,000,000 $0 $0 $5,424,000
=========== ========== == == ==========
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued (FAS) 141,
Business Combinations and FAS 142, Goodwill and Intangible Assets. FAS 141 is
effective for all business combinations completed after June 30, 2001. FAS 142
is effective for fiscal years beginning after December 15, 2001; however,
certain provisions of this Statement apply 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. Effective January 1, 2002,
all previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization. (iv) 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 (v) all
acquired goodwill must be assigned to reporting units for purposes of impairment
testing and segment reporting. The Company is currently evaluating the impact
the FAS 141 and 142 will have on its financial reporting requirements.
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 project 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.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. The
provisions of FAS 144 will apply to the Company effective January 1, 2002. The
Company is currently reviewing the impact of these provisions.
ENVIRONMENTAL DISCLOSURE
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").
Permitting Activities
The Company is engaged in various matters with respect to obtaining,
amending or renewing permits required under Environmental Laws to operate each
of its manufacturing facilities. Based on the information presently available to
it, management expects that all permit applications will be routinely handled
and management does not believe that the denial of any currently pending permit
application will have a material adverse effect on the Company's financial
position or the results of operations.
Potentially Responsible Parties (PRP) Actions
A. Lisle, Illinois
On June 26, 2001, the Company and one of its wholly owned subsidiaries
received a Notice letter from the United States Environmental Protection Agency
("EPA") regarding the Company's and its subsidiary's liability as potentially
responsible parties ("PRP"), and requesting that soil containing
trichloroethylene ("TCE") at the subsidiary's manufacturing facility in Lisle,
Illinois, be remediated. On October 4, 2001, the Company's subsidiary received
an Administrative Order directing the Company's subsidiary to submit a Work Plan
to address the remediation issue. The Company's subsidiary has since engaged in
extensive discussions with the EPA relative to the technical details of the Work
Plan. The Company's subsidiary anticipates submitting a second revised Work Plan
to EPA later in April 2002. The Company's subsidiary has begun the process of
managing the remediation and preparing specifications for the goods and services
required to achieve compliances.
Even after the Work Plan is approved by EPA, it will be sometime before
the costs of implementing the Work Plan can be quantified, because a budget must
still be developed and the remedial project described in the Work Plan put out
to bid. The Company's subsidiary, considering all the facts presently available
to it, has accrued $2 million as of December 31, 2001 in anticipation of the
remediation costs expected to be incurred, which amount was charged to the
operating earnings of the Company's Metal Forming segment. Completion of the
Work Plan may cost more than anticipated and the timing of completion of the
Work Plan is likewise uncertain. In addition, there is no assurance that the
proposed Work Plan will be effective without further supplementation.
While the Company's subsidiary plans to seek reimbursement for the
costs of remediation from its historic insurance carriers, to date those
carriers have denied coverage for such costs.
B. Additional Sites
In addition to the Lisle, Illinois site, the Company has been named or
contacted by state authorities and/or the EPA regarding the Company's liability
as a PRP for the remediation of two other sites. The potential liability of the
Company is based upon records that show the Company or other corporations from
whom the Company or its subsidiaries acquired assets used the sites for the
disposal of hazardous waste in compliance with regulations pursuant to third
party agreements with the operators of such sites. Such PRP actions generally
arise when the operator of a site lacks the financial ability to address
compliance with Environmental Laws and with decisions and orders affecting the
site in a timely and effective manner and the governmental authority responsible
for the site then looks to the past users of the facility and their successors
to address the costs of remediation of the site.
In High Point, North Carolina, the Company has been named as a PRP with
regard to the clean up of groundwater contamination allegedly due to disposal of
solid waste at a landfill. The Company believes that its activity at the site
represented less than one percent of all activity at the site. State authorities
have received for review a report on the Remedial Investigation of the site, a
base-line Risk Assessment, and a Feasibility Study of the alternative remedial
options for treating groundwater contamination at or near the site. Supplemental
remedial investigation has been requested and a remedial action plan has not yet
been selected. The Company continues to participate in a joint defense group to
help define and limit its liabilities and may be required to contribute to the
remediation of groundwater contamination.
The Company (along with many other corporations) is involved in PRP
actions for the remediation of a site in Southington, Connecticut, as a result
of the EPA's preliminary assignment of derivative responsibility for the
presence of hazardous materials attributable to two other corporations from whom
the Company purchased assets after the hazardous materials had been disposed of
at the Southington site. The Company participated as part of a joint defense
group in a "de minimis settlement" with EPA concerning soil remediation at the
Southington, Connecticut site, while the issue of further ground water
investigation at the site was postponed by EPA in 1998, pending the soil
remediation.
The Company continues to investigate both of these matters. Based on
the information presently available to it, the Company does not believe that
either matter will be material to the Company's financial position or results of
operations.
Claims Alleging Releases of Hazardous Materials
A. Lisle, Illinois
Residents of the neighborhood to the south of the aforementioned
manufacturing facility site in Lisle, Illinois, now owned by a Company
subsidiary, have been certified as a class in an action against the Company and
its subsidiary for alleged contamination of the neighbors' drinking water wells,
allegedly due to migration off-site of historic TCE contamination of soil at the
facility. Based on all available evidence, contamination of the subsidiary's
property, predates the Company's acquisition of the subsidiary in 2000. A second
group of residents in a neighborhood south of the certified class has filed a
second class action complaint on the same grounds. This second action has not
been certified as a class action. In another action, residents of six homes
outside the class areas have also filed suit against the Company and its
subsidiary for alleged contamination of their drinking water wells. In all of
these actions, the plaintiffs seek damages for property value diminution and
other relief, including punitive damages, and they are also seeking injunctions
ordering that the Company's subsidiary provide permanent alternative water
supplies to their neighborhoods One individual plaintiff has filed a claim
alleging personal injury.
In a separate action, the State of Illinois has also sued to compel the
Company's subsidiary to investigate the same site for the same contamination and
provide an interim supply of bottled water to certain neighborhood residents. In
this action, the Company's subsidiary entered into a consent agreement with the
State of Illinois pursuant to which it retained an environmental consultant to
conduct the investigation requested and institute delivery of bottled water to
certain residents.
The Company and its subsidiary are contesting all of these claims
vigorously. However, if the plaintiffs in these actions were to obtain findings
of liability from a court of competent jurisdiction and assessments of
significant damages, including punitive damages, such decisions could,
individually or in the aggregate, materially adversely affect the Company's
results of operations. Based on the information presently available to it,
management does not believe that the costs of addressing the potential liability
associated with these claims will have a material adverse effect on the
Company's financial position or the results of operation.
The Company's subsidiary has tendered all of these claims to its
historic insurance carriers, and five carriers are reimbursing the Company's
subsidiary for a substantial portion of the subsidiary's defense costs,
including the costs incurred by the subsidiary under the consent agreement.
However, the subsidiary's insurers have contested their liability, and the
Company and its subsidiary are in litigation with the insurers regarding
coverage. The insurers are seeking a declaratory judgment that they have no
liability and a reimbursement of the defense costs paid by the insurers.
Moreover, if any punitive damages were to be awarded to the plaintiffs in any of
these suits, those punitive damages, would not in any event be covered by
insurance.
B. Additional Sites
There have been releases of hazardous materials on a few parcels of
property which are presently or were formerly leased or operated by the Company.
The Company believes that all such releases occurred prior to the occupation of
the properties by the Company. All releases are in the process of assessment or
remediation.
Regarding a site in Westfield, Massachusetts leased by the Company from
a related party, the Lessor received notice from two abutters that activities on
the property prior to the Company's occupation might be the source of
groundwater contamination on the abutters' property. Based upon an investigation
by the Lessor and its advisors, the claims do not appear to be supportable.
Based on the information presently available to it, management does not believe
that the costs of addressing any of these releases will have a material adverse
effect on the Company's financial position or the results of operations.
The Company has also received notice from the owner of a formerly
leased property of a release of hazardous materials into the ground around and
under the Company's former manufacturing facility in Lawrence, Massachusetts The
owner, which is also a former operator of the facility, undertook to remove the
hazardous materials and has filed a report with the appropriate state agency
that no further action is necessary at the site. The Company has received a
claim for contribution with respect to this removal of hazardous substances, but
it expects that any contribution will not be material to the Company's financial
position or result of operations.
Equity Loss in Investee
The Equity Loss in Investee reported in the Consolidated Financial
Statements represents losses reported by the Company in accordance with the
Equity Method of Accounting for Equity Investments in relation to its preferred
equity and debt investments in CareCentric, Inc. (formerly Simione Central
Holdings, Inc.), an Atlanta, Georgia based software company. The Company has
invested $6,850,000 in certain preferred equity securities and $2,058,000 in
other notes receivable as of December 31, 2001 in CareCentric, Inc.,
(CareCentric). In addition, the Company has guaranteed CareCentric's obligations
under its $6,000,000 commercial bank line of credit, as more fully described in
Note 12 to the Consolidated Financial Statements. The commercial bank line of
credit extended to CareCentric is secured by substantially all of CareCentric's
assets. The Company's aggregate "at risk" investment therefore is $14,908,000 as
of December 31, 2001. Although the Company holds no common stock in CareCentric,
there is a presumption that application of the Equity Method is required in
accordance with generally accepted accounting principles since the preferred
equity securities include votes representing approximately 20.5% of all
outstanding votes of all CareCentric equity securities as of December 31, 2001.
The Company has reflected its share of CareCentric's net loss for 2001 in
accordance with the Equity Method in the accompanying Income Statement for 2001
under the heading Equity Loss in Investee, reducing the carrying value of the
above investments to zero as of December 31, 2001 and, in addition, reflecting a
liability of $6,000,000 on the Balance Sheet representing the Company's
contingent obligation arising from the aforementioned guarantee. The guarantee
has not been called upon as of the date of this report and the Company does not
believe it will be called upon in the future. The company believes that
CareCentric's commercial bank will renew its line of credit when it matures on
June 30, 2002 on substantially equivalent terms. The Company has no other
obligations to fund future CareCentric operating losses, except as more fully
explained in the Note 18 to the Consolidation Financial Statements. The
Company's application of the Equity Method of Accounting for Investments is
based upon Accounting Principles Board Opinion 18, The Equity Method of
Accounting for Investments in Common Stock and related authoritative guidance
contained in EITF 99-10, Percentage Used to Determine Amount of Equity Method
Losses and FIN 35, Criteria for Applying the Equity Method of Accounting for
Investments in Common Stock. The Equity Method is not intended, however, to
result, and does not necessarily result, in an accurate reflection of the
carrying value on a fair market value basis of the investments being accounted
for. As it relates to the Company's investments in preferred equity securities,
debts receivable and guarantees of CareCentric, reflected at December 31, 2001
in accordance with the Equity Method at effectively negative $6 million, the
Company's management believes such investments may be substantially understated
relative to their fair market value, though presented correctly in accordance
with generally accepted accounting principles. The Company's share of
CareCentric's underlying losses are largely non-cash charges reported in 2001 in
connection with the write down of CareCentric's intangible assets, as more fully
explained in CareCentric's separate audited financial statements. The Company
does not own, as of the date of this report, and has not owned in the past,
directly or indirectly, any common shares of CareCentric, Inc., formerly Simione
Central Holdings, Inc. The Company has no intercompany business with or other
obligations to CareCentric, except as noted above.
Item 7A. 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 2001
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 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, as mentioned earlier
herein, illustrating this point.
Credit Availability--Although interest rates trended lower in 2001,
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.
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.
Reference may also be made to certain risk factors as disclosed by the
Company in the Form 8-K filed in July 1, 1999.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
of Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three year period ended December 31, 2001. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mestek,
Inc. and subsidiaries as of December 31, 2001 and 2000, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three year period ended December 31, 2001 in conformity with
accounting principles generally accepted in the United States of America.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 2001 and for each of the years in the three-year period ended
December 31, 2001. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
Grant Thornton LLP
Boston, Massachusetts
March 1, 2002
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
2001 2000
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 2,315 $ 2,417
Accounts Receivable - less allowances of,
$4,239 and $3,746 respectively 57,944 64,832
Unbilled Accounts Receivable 537 27
Inventories 64,588 70,911
Deferred Tax Benefit 3,131 3,333
Other Current Assets 7,072 6,489
---------- -----------
Total Current Assets 135,587 148,009
Property and Equipment - net 58,334 73,489
Investments --- 6,850
Other Assets and Deferred Charges - net 8,158 8,476
Excess of Cost over Net Assets of Acquired Companies-net 57,432 56,665
---------- ----------
Total Assets $ 259,511 $ 293,489
========= =========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
2001 2000
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 30,002 $63,418
Accounts Payable 17,687 19,646
Accrued Compensation 5,585 6,903
Accrued Commissions 2,307 2,528
Reserve for Equity Investment Losses 6,000 ---
Progress Billings in Excess of Cost
and Estimated Earnings 286 283
Customer Deposits 5,177 9,321
Other Accrued Liabilities 21,343 19,658
-------- ---------
Total Current Liabilities 88,387 121,757
Long-Term Debt 180 240
Other Liabilities 14 5,064
------- ----------
Total Liabilities 88,581 127,061
-------- --------
Minority Interests 1,085 2,746
---------- ----------
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 165,423 158,697
Treasury Shares, at cost (888,532 and
867,032 common shares, respectively) (10,101) (9,733)
Cumulative Translation Adjustment (1,390) (1,195)
--------- ---------
Total Shareholders' Equity 169,845 163,682
-------- --------
Total Liabilities and Shareholders' Equity $ 259,511 $ 293,489
========= =========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
2001 2000 1999
---- ---- ----
(Dollars in thousands, Except Earnings Per Common Share)
Net Sales $ 393,479 $ 375,158 $ 326,705
Net Service Revenues 624 829 1,440
------------ ----------- ----------
Total Revenues 394,103 375,987 328,145
Cost of Goods Sold 290,003 266,585 229,228
Cost of Service Revenues 424 600 668
------------ ---------- ----------
Gross Profit 103,676 108,802 98,249
Selling Expense 53,693 49,782 42,571
General and Administrative Expense 21,105 20,257 17,207
Engineering Expense 13,068 11,658 9,278
Restructuring and Special Charges 3,774 --- ---
-------------- ----------- -----------
Operating Profit 12,036 27,105 29,193
Equity Loss in Investee (14,908) --- ---
Interest Income 674 792 378
Interest Expense (1,396) (1,912) (426)
Other Income (Expense), Net (60) 149 (1,050)
--------- -------- ---------
Income (Loss) from Continuing
Operations Before Income Taxes (3,654) 26,134 28,095
Income Taxes (Expense) Benefit 1,433 (9,732) (10,429)
------- --------- ----------
Income (Loss) from Continuing Operations (2,221) 16,402 17,666
--------- ------ ------
Discontinued Operations (see Note 3):
Gain on Sale of Discontinued Operation 16,446 --- ---
Applicable Income Tax Expense (7,499) --- ---
--------- ----------- -----------
Net Gain on Sale of Discontinued Operation 8,947 --- ---
-------- ----------- -----------
Income from Operations of
Discontinued Segments Before Taxes --- 1,227 615
Applicable Income Tax Expense --- (561) (364)
------- ----- -----
Income from Operations
of Discontinued Segments --- 666 251
------- --- ---
Net Income $ 6,726 $ 17,068 $ 17,917
======== ========= =========
Basic Earnings per Common Share:
Continuing Operations ($ 0.25) $ 1.87 $ 1.99
Discontinued Operations 1.02 0.08 0.03
------- ----------- ------------
Net Income $ 0.77 $ 1.95 $ 2.02
========= ========= ==========
Basic Weighted Average Shares Outstanding 8,723 8,744 8,857
========= ========= ==========
Diluted Earnings Per Common Share
Continuing Operations ($ 0.25) $ 1.87 $ 1.99
Discontinued Operations 1.02 0.08 0.03
---------- ----------- ------------
Net Income $ 0.77 $ 1.95 $ 2.02
========= ========= ==========
Diluted Weighted Average Shares Outstanding 8,765 8,760 8,887
========= ========== ==========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2001, 2000, and 1999
Cumulative
Common Paid In Retained Treasury Translation
(Dollars in Thousands) Stock Capital Earnings Shares Adjustment Total
---------------------- -------- ------- -------- ------- ---------- -----
Balance - December 31, 1998 $479 $15,434 $125,263 ($6,790) ($1,088) $133,298
Net Income 17,917 17,917
Common Stock Repurchased (2,603) (2,603)
Cumulative Translation Adjustment 5 5
----- ------- -------- -------- -------- -----------
Balance - December 31, 1999 $479 $15,434 $143,180 ($9,393) ($1,083) $148,617
Net Income 17,068 17,068
Dividends Paid in MCS, Inc. Common Stock (1,551) (1,551)
Common Stock Repurchased (340) (340)
Cumulative Translation Adjustment (112) (112)
----- ------- -------- -------- -------- ----------
Balance - December 31, 2000 $479 $15,434 $158,697 ($9,733) ($1,195) $163,682
Net Income 6,726 6,726
Common Stock Repurchased (368) (368)
Cumulative Translation Adjustment (195) (195)
----- ------- -------- --------- -------- ---------
Balance - December 31, 2001 $479 $15,434 $165,423 ($10,101) ($1,390) $169,845
===== ======= ======== ========= ======== =========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
2001 2000 1999
---- ---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 6,726 $ 17,068 $ 17,917
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 9,269 12,779 10,631
Provision for Losses on Accounts
Receivable, net of write-offs 735 119 184
Net Change in Minority Interests net of
effects of acquisitions and dispositions 47 (171) 54
Equity Loss in Investee 14,908 --- ---
Gain on Sale of National Northeast (16,446) --- ---
Changes in assets and liabilities net of
effects of acquisitions and dispositions:
Accounts Receivable 4,788 5,909 (7,207)
Unbilled Accounts Receivable 1,533 420 (161)
Inventory 5,708 (2,922) 2,076
Accounts Payable (2,928) (166) (2,805)
Other Liabilities (10,426) 1,421 (745)
Progress Billings 3 240 107
Other Assets (2,669) 40 (1,595)
------------- ----- ------------
Net Cash Provided by Operating Activities 11,248 34,737 18,456
--------- ---------- ---------
Cash Flows from Investing Activities:
Disposition of National Northeast, Inc. (see Note 3) 44,619 --- ---
Capital Expenditures (2,692) (6,979) (12,437)
Acquisition of Businesses and Other
Assets, Net of Cash Acquired (17,600) (45,636) (24,333)
Investment in CareCentric, Inc. (1,638) (6,850) ---
--------- ---------- -----------
Net Cash Provided by (Used in) Investing Activities 22,689 (59,465) (36,770)
-------- ---------- ----------
Cash Flows from Financing Activities:
Net (Payments) Borrowings Under
Revolving Credit Agreement (33,454) 28,959 1,739
Principal Payments Under Long
Term Debt Obligations (22) (5,830) (136)
Proceeds from Issuance of Long Term Debt --- --- 20,000
Repurchase of Common Stock (368) (340) (2,603)
--------- ---------- -----------
Net Cash (Used In) Provided by Financing Activities (33,844) 22,789 19,000
----------- --------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 93 (1,939) 686
Translation Effect on Cash (195) (112) 5
Cash and Cash Equivalents - Beginning of Year 2,417 4,468 3,777
-------- --------- -----------
Cash and Cash Equivalents - End of Year $ 2,315 $ 2,417 $ 4,468
========= ========= =========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Mestek,
Inc. and its subsidiaries, collectively referred to as the Company. All material
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition and Unbilled Receivables
Revenue from product sales is recognized at the time of shipment.
Revenue from the licensing of software applications and software systems
development is recognized on the basis of completed contracts in accordance with
the "residual value method" provided in SOP 98-9 and 97-2.
Unbilled receivables represent revenue earned in the current period but
not billed to the customer until future dates, usually within one month.
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents include investments in an institutional money market fund, which
invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements,
backed by such obligations.
Inventories
Inventories are valued at the lower of cost or market. Approximately
eighty-two percent (82%) and eighty-nine percent (89%) of the cost of
inventories were determined by the last-in, first-out (LIFO) method for the
years ended December 31, 2001 and 2000, respectively.
Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line and accelerated methods over
the estimated useful lives of the assets or the life of the lease, if shorter.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged to income as incurred; significant improvements are capitalized.
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 December 31, 2001 and will do so in accordance
with FAS 142 thereafter. Any impairments are recognized in accordance with the
appropriate accounting standards. The acquisition of the stock of SNS
Properties, Inc., as more fully described in Note 2, resulted in Goodwill of
approximately $7,668,000, which, in accordance with Financial Accounting
Statement (FAS) 142, (see Recent Accounting Pronouncements) is not being
amortized. Accumulated amortization of goodwill and other intangibles was
$8,098,000 and $7,288,000 at December 31, 2001 and 2000, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $5,198,000, $4,337,000, and $4,794,000, for the years ended December
31, 2001, 2000, and 1999, respectively.
Research and Development Expense
Research and development expenses are charged to operations as
incurred. Such charges aggregated $1,799,000, $3,826,000, and $2,939,000, for
the years-ended December 31, 2001, 2000, and 1999, respectively.
Treasury Shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per Common Share
Basic earnings per share have been computed using the weighted average
number of common shares outstanding. Common stock options, as more fully
described in Note 16, were considered in the computation of diluted earnings per
share.
Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at exchange rates prevailing on the balance sheet date. Net
foreign currency transactions are reported in the results of operations in U.S.
dollars at average exchange rates. Adjustments resulting from balance sheet
translations are excluded from the determination of income and are accumulated
in a separate component of shareholders' equity.
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.
Comprehensive Income
For the years ended December 31, 2001, 2000, and 1999, respectively,
the components of other comprehensive income were immaterial and consisted
solely of foreign currency translation adjustments. Other comprehensive income
was $6,531,000, $16,956,000, and $17,922,000 for the years ended December 31,
2001, 2000, and 1999, respectively.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued FAS 141,
Business Combinations and FAS 142, Goodwill and Intangible Assets in 2001. FAS
141 is effective for all business combinations completed after June 30, 2001.
FAS 142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply 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 (effective January 1, 2002,
all previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization), (iv) 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 (v) all
acquired goodwill must be assigned to reporting units for purposes of impairment
testing and segment reporting. The Company is currently evaluating the impact
the FAS 141 and 142 will have on its financial reporting requirements.
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 project 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.
Therefore, discontinued operations will no longer be measured at net realizable
value or include amounts for operating losses that have not yet occurred. The
provisions of FAS 144 will apply to the Company effective January 1, 2002. The
Company is currently reviewing the impact of these provisions.
2. BUSINESS ACQUISITIONS
On December 31, 2001, the Company acquired substantially all of the
operating assets and certain liabilities of The King Company, (King), a
subsidiary of United Dominion Industries, based in Bishopville, South Carolina,
and Owatonna, Minnesota. King manufactures industrial heating and specialty
refrigeration and ventilation products complementary to certain of the Company's
other industrial HVAC product lines. The purchase price paid, net of liabilities
assumed, was $4 million and included no goodwill. The Company accounted for the
transaction under the purchase method of accounting.
On July 2, 2001 the Company, through its wholly owned subsidiary,
Formtek, Inc., acquired of 100% of the outstanding common stock of SNS
Properties, Inc. (SNS), an Ohio corporation based in Warrensville Heights, Ohio.
SNS, through its Yoder, Krasny Kaplan and Mentor AGVS businesses, manufactures
sophisticated metal forming equipment, tube mills, pipe mills, custom engineered
material handling equipment, and automated guided vehicle systems for the global
market. The purchase price paid for the stock was $12.5 million and included
$7.7 million in goodwill. The Company also acquired a related manufacturing
plant in Bedford Heights, Ohio for $1.1 million. The Company accounted for the
transaction under the purchase method of accounting.
On August 25, 2000 the Company, through a 75% owned subsidiary,
Airtherm LLC, acquired substantially of all of the operating assets of Airtherm
Manufacturing Company, a Missouri corporation, and Airtherm Products, Inc., an
Arkansas corporation, except the real property owned by these companies, for
approximately $3,815,000, including assumed liabilities of $101,000. No goodwill
was recorded in the transaction. The Company accounted for the transaction under
the purchase method of accounting. The Company acquired an option at that time
to acquire the remaining 25% of Airtherm LLC membership interests it did not own
for $2,000,000, subject to certain downward adjustments. The Company exercised
its option to acquire the membership interests in September of 2001 and the
amount paid was recorded as goodwill in connection with the acquisition of
Airtherm. In connection with the transaction, the Company also loaned $1,550,000
to an unrelated company, which acquired two manufacturing facilities owned by
the sellers. The loan was evidenced by a $750,000 promissory note, which bore
interest at 7% and was scheduled to mature on August 31, 2002 and a $800,000
promissory note which bore interest at 7% and was scheduled to mature on August
31, 2002. The notes were secured in each case by the related manufacturing
facilities and were included in other current assets and other assets,
respectively, as of December 31, 2000. The notes were paid off in September of
2001.
On June 30, 2000 the Company acquired substantially all of the
operating assets of Louvers and Dampers, Inc. (L & D) located in Florence,
Kentucky. L & D manufactures louver and damper products for the HVAC industry.
The purchase price paid for the assets acquired was $3,000,000 and included
$699,000 of in intangible assets. The Company accounted for the acquisition
under the purchase method of accounting.
On June 3, 2000, the Company and Met-Coil Systems Corporation
("Met-Coil") completed its previously announced merger agreement under which
Met-Coil was merged into a wholly owned subsidiary of the Company. Immediately
thereafter, in accordance with the terms of the merger agreement, the Met-Coil
shareholders were redeemed for a total cash consideration of approximately
$33,600,000. Met-Coil manufactures advanced sheet-metal-forming equipment,
fabricating equipment and computer-controlled fabrication systems for the global
market. The Company employs approximately 270 people, principally in its Cedar
Rapids, Iowa and Lisle, Illinois manufacturing facilities, and had revenues for
the fiscal year ended May 31, 2000 of $48.3 million (unaudited). Met-Coil's
products are complementary with those of the Company's Metal Forming Segment.
The Company accounted for the merger under the purchase method of accounting
and, accordingly, the total purchase price allocated to the assets acquired was
approximately $49,400,000, including assumed liabilities of approximately
$15,800,000. Goodwill of approximately $23,000,000 was recorded.
Pro forma unaudited results of operations for 2000 and 1999, reflecting
a hypothetical acquisition date for Met-Coil of January 1, 1999 are as follows:
2000 1999
---- ----
(dollars in thousands)
Total Revenues $395,238 $378,037
Net Income 17,514 19,136
Diluted Earnings Per Share $2.00 $2.15
On February 10, 2000, the Company, through a wholly owned subsidiary,
acquired the designs, intellectual property and certain physical assets of B & K
Rotary Machinery International Corporation ("B & K") of Brampton, Ontario,
Canada. B & K is a well-known and experienced manufacturer of highly engineered
metal processing lines. B & K equipment is found in steel processing centers,
tube/pipe production plants and roll-forming facilities around the world. The B
& K Supermill(TM), Rotary Shear(TM), and Rotary Pierce(TM) designs are the
technology of choice among leading producers of light gauge steel framing used
in building construction. The purchase price paid for the assets acquired was
approximately $3,018,000. The Company accounted for this acquisition under the
purchase method of accounting and accordingly recorded goodwill of approximately
$2,200,000.
On January 28, 2000, the Company acquired substantially all of the
operating assets of Wolfram, Inc. d/b/a Cesco Products ("Cesco") located in
Minneapolis, Minnesota. Cesco manufactures vertical and horizontal louvers;
controls and fire/smoke dampers; gravity ventilators, louver penthouses and
walk-in access doors for the HVAC industry at its location in Minneapolis,
Minnesota. The Cesco products are complementary to the Company's existing louver
and damper businesses. The purchase price paid for the assets acquired was
approximately $6,425,000, including assumed liabilities of approximately
$1,051,000. The Company accounted for this acquisition under the purchase method
of accounting and accordingly recorded goodwill of approximately $2,700,000.
On April 26, 1999, an order was entered in the Bankruptcy Court for the
Southern District of Ohio, whereby the Company's offer to acquire certain of the
operating assets of ACDC, Inc. of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for approximately $2,554,000.
On March 26, 1999, the Company acquired substantially all of the
operating assets of the Anemostat Products and Anemostat-West Divisions of
Dynamics Corporation of America, (collectively, Anemostat), a wholly-owned
subsidiary of CTS Corporation. Anemostat manufactures commercial air
distribution products (grilles, registers, diffusers and VAV boxes); security
air distribution products; and door and vision frame products for the HVAC and
commercial building industries at locations in Scranton, Pennsylvania,
(Anemostat Products) and Carson, California, (Anemostat-West). The Anemostat
products are complementary to the Company's existing louver and damper
businesses. The purchase price paid for the assets acquired was approximately
$25,360,000, including assumed liabilities of approximately $3,577,000. The
Company accounted for this acquisition under the purchase method of accounting
and, accordingly, recorded Goodwill of approximately $6,800,000.
Pro forma unaudited results of operations for 1999 reflecting a
hypothetical acquisition date for Anemostat of January 1, 1999 are as follows:
1999
----
(dollars in thousands,
except earnings per share)
Total Revenues $381,448
Net Income $17,409
Earnings Per Share $1.97
3. BUSINESS DISPOSITIONS
National Northeast Corporation
On January 9, 2001 the Company completed the sale of its subsidiary,
National Northeast Corporation ("National"), an aluminum extruder and heat sink
fabricator, to Alpha Technologies Group, Inc. ("Alpha") for a total cash
consideration of $49.9 million. The Company's net pre-tax gain, after accounting
for the minority interest and related costs of sale, was approximately $16.4
million. The Income Tax Expense recorded in respect of the gain is higher than
would be suggested by applying statutory rates to the gain recorded for
accounting purposes due principally to the fact that as part of the agreement
for sale the Company agreed to make on behalf of Alpha an election under
Internal Revenue Code Section 338(h)10 which requires that the Company treat the
transaction for tax purposes as a deemed sale of 100% of National's assets, the
negative tax consequences of which inure to the Company. The Company has
accounted for the transaction as a Gain on Disposal of Discontinued Operations
in accordance with APB30.
The operations of National are separately reported in accordance with
APB30 in the accompanying Consolidated Statements of Income for the years 2001,
2000, and 1999, under the heading Income From Discontinued Operations. National
was formerly included in the Company's Metal Products segment. Interest expense
has been allocated to the operations of National based on indebtedness related
to the Company's investment in National during 2001, 2000, and 1999. Corporate
General & Administrative expenses originally allocated to National totaling $0,
$428,000, and $255,000, for the years 2001, 2000, and 1999, respectively, have
been reallocated to the Company's continuing operations in accordance with
APB30. Revenues for National were $0, $37,474,000, and 30,477,000, for the years
2001, 2000, and 1999, respectively.
Summarized financial information for the discontinued National
operations is as follows:
Years ended
2001 2000 1999
---- ---- ----
(in thousands)
Operating Revenues $0 $37,474 $30,477
Income before Provision for Income Taxes 0 $1,705 ($157)
Income from Discontinued Operations
Net of Income Tax 0 $977 ($215)
Years ended
2001 2000 1999
---- ---- ----
(in thousands)
Current Assets $0 $9,736 $8,001
Total Assets $0 $34,453 $34,859
Current Liabilities $0 $2,495 $2,079
Total Liabilities $0 $4,572 $3,563
Net Assets of Discontinued Operations $0 $29,881 $31,296
MCS, Inc.
On May 26, 1999 the Company entered into an agreement (the Agreement)
to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione Central
Holdings, Inc., now known as CareCentric, Inc. (Simione). Simione is a provider
of information systems and services to the home health care industry supplying
information systems, consulting and agency support services to customers
nationwide. Simione provides freestanding, hospital based and multi-office home
health care providers (including certified, private duty, staffing, HME, IV
therapy, and hospice) with information solutions that address all aspects of
home care operations. Simione maintains offices nationwide and is headquartered
in Atlanta, Georgia.
Under the terms of the Agreement, for every share of outstanding
Simione common stock, Simione would issue .85 shares of its common stock to the
Company. As a result, the Company would own, based on the number of Simione
common shares outstanding at the date of the Agreement, approximately 46% of
Simione after the merger is completed. On August 12, 1999, Simione, with the
Company's consent, acquired all of the outstanding common stock of CareCentric
Solutions, Inc. for $200,000 and acquired all of the Preferred Stock of
CareCentric Solutions, Inc. in return for 3.1 million newly issued shares of
Simione Series A Preferred Stock, which were convertible on a one for one basis
into Simione common shares after shareholder approval upon consummation of the
merger. As a result, the Company ownership percentage would drop to
approximately 37% of Simione. Under the terms of the Agreement, MCS's
ProfitWorks segment would remain with the Company.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had
entered into an amendment to the Plan and Agreement of Merger dated May 26, 1999
(the "Amendment") between Simione, Mestek, and its wholly-owned subsidiary, MCS,
Inc. ("MCS"), whereby the shares of common stock of MCS would be distributed to
the Mestek common shareholders in a spin-off transaction (the Spin-off), and MCS
would then be merged with and into Simione, (the Merger). The Spin-off and the
Merger were completed on March 7, 2000, after shareholder approval.
In connection with the Amendment, Mestek loaned to Simione a total of
$4,000,000 on a short-term basis. Upon the closing of the above-mentioned
merger, the $4,000,000 loan was canceled, and Mestek contributed an additional
$2,000,000 to the capital of Simione in return for newly issued Series B
Preferred Stock of Simione. The Series B Preferred Stock issued to Mestek had
super-voting rights equivalent to 2.2 million shares of Simione common stock. On
June 12, 2000 Mestek agreed to reduce such voting rights by half to comply with
NASDAQ's voting rights policy, in exchange for a three-year warrant to acquire
up to 490,396 shares at an exercise price of $3.21 of Simione Common Stock.
Mestek also received as part of its capital contribution to Simione a warrant
for the subsequent purchase of 400,000 shares of Simione common stock at an
exercise price of $10.875. The Amendment also provided, upon consummation of the
merger, for the appointment to the Simione Board of Directors of six individuals
designated by the Mestek Major Shareholders (as defined in the Amendment) and
the obligation of the Mestek Major Shareholders to vote for the nominees to the
Simione Board of Directors for eighteen months after the effective date of the
merger.
Mestek also loaned Simione $850,000 on November 11, 1999 on a
short-term basis. Upon consummation of the merger, the loan was converted to
$850,000 of newly issued Series C Preferred Stock. The Series C Preferred stock
has voting rights equal to 170,000 shares of Simione common stock.
On March 6, 2000, the Company completed the Spin-off and on March 7,
2000, the merger of MCS, Inc. into Simione was completed. The net book value of
the assets of MCS, Inc. of approximately $1,551,000 has been treated as a
dividend to the shareholders of the Company. The Company has accounted for the
operations of MCS prior to that date (with the exception of its ProfitWorks
division which was retained by the Company under the terms of the Agreement) as
a discontinued operation in accordance with APB30.
The company's continuing investments in CareCentric subsequent to March
7, 2000 are described in Note 6 Equity Investment.
Summarized financial information for the discontinued MCS operations, is as
follows:
Years ended
2000 1999
---- ----
(in thousands)
Operating Revenues $1,701 $16,648
Income (Loss) from Discontinued Operations
before Provision for Income Taxes (Benefit) ($478) $772
Income from Discontinued Operations
Net of Income Tax ($310) $466
2000 1999
---- ----
(in thousands)
Current Assets --- $4,648
Total Assets --- $6,696
Current Liabilities --- $6,191
Total Liabilities --- $6,191
Net Assets of Discontinued Operations --- $505
4. INVENTORIES
Inventories consisted of the following at December 31:
2001 2000
---- ----
(in thousands)
Finished Goods $ 18,664 $ 16,969
Work-in-progress 17,910 22,488
Raw materials 34,790 38,776
------ ------
71,364 78,233
Less provision for LIFO
method of valuation (6,776) (7,322)
------- -------
$ 64,588 $ 70,911
======== ========
Progress billings exceeded related contract costs by $286,000 and
$283,000, at December 31, 2001 and 2000, respectively. As such, these amounts
are reported as a liability in the accompanying consolidated financial
statements.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
2001 2000 Useful Lives
---- ----
(in thousands)
Land $ 4,437 $ 4,636
Buildings 27,044 28,639 19-39 Years
Leasehold Improvements 4,843 4,839 15-39 Years
Equipment 90,285 105,763 3-10 Years
------ -------
126,609 143,877
Accumulated Depreciation (68,275) (70,388)
---------- ----------
$ 58,334 $ 73,489
======== ========
The above amounts include $2,511,000 and $1,267,000, at December 31,
2001and 2000, respectively, in assets that had not yet been placed in service by
the Company. No depreciation was recorded in the related periods for these
assets.
Depreciation and amortization expense related to continuing operations
was $9,269,000, $9,985,000 and $8,205,000, for the years ended December 31,
2001, 2000, and 1999, respectively.
6. EQUITY INVESTMENTS
The H. B. Smith Company, Inc. (HBS):
The Company's investment in HBS common stock through a subsidiary is
carried at a zero balance reflecting the Company's equity in HBS' cumulative
losses. The Company has a note receivable from HBS carried at a value of
$1,264,000 as of December 31, 2001, which bears interest at 5.5% and matures on
December 31, 2005. The Company has no obligation to fund future HBS operating
losses. The Company purchases certain products and services from HBS under a
manufacturing agreement and distributes, through a subsidiary, product under a
distribution agreement. No material inter-company profits have been recorded by
the Company in connection with these agreements.
CareCentric, Inc.:
The Company has invested $6,850,000 in certain preferred equity
securities and $2,058,000 in other notes receivable as of December 31, 2001 in
CareCentric, Inc. (formerly Simione Central Holdings, Inc.). In addition, the
Company has guaranteed CareCentric's obligations under its $6,000,000 commercial
bank line of credit, as more fully described in Note 12 to the Consolidated
Financial Statements. The commercial bank line of credit extended to CareCentric
is secured by substantially all of CareCentric's assets. The Company's aggregate
"at risk" investment therefore is $14,908,000 as of December 31, 2001. The
preferred equity securities include votes representing approximately 20.5% of
all outstanding votes of all CareCentric equity securities as of December 31,
2001 and accordingly the Company has accounted for the above investments in
CareCentric in the accompanying financial statements in accordance with the
Equity Method of Accounting for Investments. The Company has reflected its share
of CareCentric's net loss for 2001 in accordance with the Equity Method in the
accompanying Income Statement for 2001 under the heading Equity Loss in
Investee, thus reducing the carrying value of the above investments to zero as
of December 31, 2001 and, in addition, reflecting a liability of $6,000,000 on
the Balance Sheet representing the Company's contingent obligation arising from
the aforementioned guarantee. The Company has no other obligations to fund
future CareCentric operating losses, except as more fully explained in the Note
18 to the Consolidated Financial Statements. The Company's application of The
Equity Method of Accounting for Investments is based upon Accounting Principles
Board Opinion 18, The Equity Method of Accounting for Investments in Common
Stock and related authoritative guidance contained in EITF 99-10, Percentage
Used to Determine Amount of Equity Method of Losses, and FIN 35, Criteria for
Applying the Equity Method of Accounting for Investments in Common Stock. The
Company does not own, as of the date of this report, and has not owned in the
past, directly or indirectly, any common shares of CareCentric, Inc. or its
predecessor, Simione Central Holdings, Inc. The Company has no intercompany
business with or other obligations to CareCentric.
The above notes receivable and preferred equity investments are more
fully described in Note 3 Business Dispositions. The notes receivable consist of
the following: (1) a $ 1,000,000 participation in the John E Reed Facility (a
financing facility made available to CareCentric by John E. Reed, personally)
which bears interest at 9%, matures on June 22, 2005, is convertible into
CareCentric common shares at $ 2.51 per share, and is secured by a second
security interest in substantially all of CareCentric's assets, (2) a $
1,018,846 unsecured promissory note bearing interest at Prime plus 1.5% and
maturing on June 30, 2003 and (3) a $ 40,463 unsecured promissory note bearing
interest at Prime plus 2% and maturing on December 31, 2003.
7. LONG TERM DEBT
Long-Term Debt consisted of the following at December 31:
2001 2000
---- ----
(in thousands)
Revolving Loan Agreement $23,510 $48,336
Note Payable 6,000 15,000
Other Bonds and Notes Payable 672 322
--------- ---------
30,182 63,658
Less Current Maturities (30,002) (63,418)
------- --------
$ 180 $ 240
========= =========
Revolving Loan Agreement - The Company has a Revolving Loan Agreement
and Letter of Credit Facility (the Agreement) with a commercial bank. The
Agreement has been amended and extended on a one-year basis through April 30,
2002. The Agreement as amended provides $50 million of unsecured revolving
credit including $10 million of standby letter of credit capacity. Borrowings
under the Agreement bear interest at a floating rate based on the bank's prime
rate less one and three quarters percent (1.75%), approximately 3% at December
31, 2001, or, at the discretion of the borrower, LIBOR plus a quoted market
factor or, alternatively, in lieu of the prime based rate, a rate based on the
overnight Federal Funds Rate. The Revolving Loan Agreement contains financial
covenants, which require that the Company maintain ratios, relating to interest
coverage and leverage. This Agreement also contains restrictions regarding the
creation of indebtedness, the occurrence of mergers or consolidations, the sale
of subsidiary stock and the payment of dividends in excess of 50 percent of net
income. The Company expects to renew the Agreement on substantially equivalent
terms before its expiration. The Company has outstanding at December 31, 2001
$5,424,000 in standby letters of credit issued principally in connection with
its commercial insurance programs.
Note Payable - The Company has an unsecured uncommitted Demand Loan
Facility with a second commercial bank under which the Company can borrow up to
$25,000,000 on a LIBOR basis. $6,000,000 was outstanding under the Demand Loan
facility as of December 31, 2001 which amount bears interest at 2.45% and
matures on March 15, 2002. The facility has been renewed through June 30, 2002.
The Company expects to renew the facility on substantially equivalent terms
before its expiration.
Other Bond and Notes Payable
Certain of the Companies owned properties are pledged as security for
certain of these bonds and Notes Payable.
Cash paid for interest was $1,396,000, $2,644,000, and $1,951,000,
during the years ended December 31, 2001, 2000, and 1999, respectively.
Maturities of long-term debt in each of the next five years are as
follows in thousands:
2002 30,002
2003 50
2004 50
2005 40
2006 40
-------
Total $30,182
=======
The fair value of the Company's long-term debt is estimated based on
the current interest rates offered to the Company for debt of the same remaining
maturities. Management believes the carrying value of debt and the contractual
values of the outstanding letters of credit approximate their fair values as of
December 31, 2001.
8. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 20,000,000 shares with no
par value, and a stated value of $0.05 per share. As of December 31, 2001, John
E. Reed, Chairman and CEO of the Company and Stewart B. Reed, a Director of the
Company and son of John E. Reed, together beneficially own a majority of the
outstanding shares of the Company's common stock.
By a vote of its shareholders at its annual meeting of shareholders on
May 22, 1996, the Company amended its Articles of Incorporation to authorize
10,000,000 shares of a new class (or classes) of preferred stock (the Preferred
Stock) and to eliminate both its $5.00 convertible, non-cumulative, non-voting,
$100 par, preferred stock (the Convertible Preferred) and its $6.00, $100 par,
redeemable preferred stock (the Redeemable Preferred). As of December 31, 2001
no shares of the Preferred Stock have been issued.
9. INCOME TAXES
Income tax expense from discontinued operations was $7,499,000,
$561,000, and $364,000, for 2001, 2000, and 1999, respectively. Discontinued
operations are discussed at greater length in Note 3. Income from Continuing
Operations before income taxes included foreign income of $1,505,000,
$1,559,000, and $223,000, in 2001, 2000, and 1999, respectively. Income tax
expense from continuing operations consisted of the following:
2001 2000 1999
---- ---- ----
(in thousands)
Federal Income Tax:
Current $ 2,325 $ 5,694 $ 8,075
Deferred (4,214) 2,252 1,137
State Income Tax:
Current 552 831 934
Deferred (942) 238 169
Foreign Income Tax:
Current 557 18 18
Deferred 289 699 96
--------- -------- ------------
Income Tax Expense (Benefit) ($ 1,433) $ 9,732 $ 10,429
======== ======= ========
Total income tax expense from continuing operations differed from
"expected " income tax expense, computed by applying the U.S. federal income tax
rate of 35% to earnings before income tax, as follows:
2001 2000 1999
---- ---- ----
(in thousands)
Computed "expected" income tax ($ 1,279) $ 9,147 $ 9,833
State income tax, net of federal tax benefit (7) 812 775
Foreign tax rate differential 47 47 7
Valuation Allowance 0 (119) ---
Other - net (194) (155) (186)
-------- --------- -----------
Income Tax Expense (Benefit) ($ 1,433) $ 9,732 $ 10,429
======== ======= ========
A deferred income tax (expense) benefit results from temporary timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The components of and changes in the net deferred
tax assets (liabilities) which give rise to this deferred income tax (expense)
benefit for the year ended December 31, 2001 are as follows:
Change
December 31, (Expense) December 31,
2000 Benefit 2001
(in thousands)
Deferred Tax Assets:
Warranty Reserve $ 806 $ (10) $ 796
Compensated Absences 1,020 (31) 989
Inventory Valuation 449 2 451
Equity Losses in Investee --- 5,734 5,734
Accounts Receivable Valuation 717 412 1,129
Federal Tax Credit Carryforward 466 (466) ---
State Tax Operating Loss/Credit
Carryforward 261 197 458
Foreign Tax Operating Loss
Carryforward 796 (796) ---
Deferred Income on Sale of Assets
to Non-consolidated Investees 159 --- 159
Other 84 696 780
------ ------- ------
Total Gross Deferred Tax Assets 4,758 5,738 10,496
Deferred Tax Liabilities:
Prepaid Expenses (1,106) 278 (828)
Depreciation and Amortization (5,396) 1,173 (4,223)
------- ----- -------
Deferred Tax Liabilities (6,502) 1,451 (5,051)
------- ----- -------
Net Deferred Tax Benefit (Liability) ($1,744) $7,189 $5,445
At December 31, 2001, the Company has state tax operating loss carry
forwards of approximately $7,138,000, which are available to reduce future
income taxes payable, subject to applicable "carry forward" rules and
limitations. These losses begin to expire after the year 2007. All of the
foreign net operating loss carry forwards were fully utilized prior to December
31, 2001.
Cash paid for income taxes was $10,711,000, $7,756,000, and
$10,191,000, for the years ended December 31, 2001, 2000, and 1999,
respectively.
10. LEASES
Related Party Leases
The Company leases various manufacturing facilities and equipment from
companies owned by certain officers and directors of the Company, either
directly or indirectly, through affiliates. The leases generally provide that
the Company will bear the cost of property taxes and insurance.
Details of the principal operating leases with related parties as of
December 31, 2001 including the effect of renewals and amendments executed
subsequent to December 31, 2001 are as follows:
Date Basic Minimum
Of Annual Future
Lease Term Rental Rentals
----- ---- ------ -------
(dollars in thousands)
Sterling Realty Trust
Land and Building - Main 01/01/00 5 years $ 282 $ 846
Land and Building - Engineering 07/01/98 5 years 77 115
Land and Building - South Complex 01/01/94 14 years 257 1,798
Land and Building - Torrington * 07/01/99 5 years 121 281
Rudbeek Realty Corp.
(Farmville Location) 7/1/97 13.5 years 436 3,703
MacKeeber (see Note 12)
(South Windsor Location) 01/01/97 8 years 325 974
* On July 1, 1999, a portion of this building was leased for 5 years at
a monthly rent expense of $6,292. On October 1, 2000 additional space
on the first floor was leased for 5 years at a monthly rent expense of
$2,053.
All Leases
Rent expense for operating leases, including those with related
parties, was $3,527,000, $3,066,000, and $2,685,000, for the years ended
December 31, 2001, 2000, and 1999, respectively.
Future minimum lease payments under all noncancellable leases as of
December 31, 2001 are as follows:
Operating
Year Ending December 31, Leases
------
(dollars in thousands)
2002 3,416
2003 3,140
2004 2,780
2005 2,129
2006 1,622
After 2006 2,371
-----
Total minimum lease payments $ 15,458
========
11. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $1,383,000,
$1,296,000, and $1,183,000, for the years ended December 31, 2001, 2000, and
1999, respectively. Contributions to the Plan are defined as three percent (3%)
of gross wages up to the current Old Age, Survivors, and Disability (OASDI)
limit and six percent (6%) of the excess over the Old Age, Survivors, and
Disability (OASDI) limit, subject to the maximum allowed under the Employee
Retirement Income Security Act, (ERISA). The plan's vesting terms are twenty
percent (20%) vesting after 2 years of service, forty percent (40%) after 3
years, sixty percent (60%) after 4 years, eighty percent (80%) after 5 years,
and one hundred percent (100%) vesting after 6 years.
In addition to the profit-sharing plan, the Company also offers the
following defined contribution benefit plans:
The Company maintains a Retirement Savings Plan qualified under Internal
Revenue Code Section 401(k) for employees covered under certain collective
bargaining agreements. Service eligibility requirements differ by division and
collective bargaining agreement. Participants may elect to have up to fifteen
percent (15%) of their compensation withheld, up to the maximum allowed by the
Internal Revenue Code. Participants may also elect to make nondeductible
voluntary contributions up to an additional ten percent (10%) of their gross
earnings each year within the legal limits. The Company contributes differing
amounts depending upon the division's collective bargaining agreement.
Contributions are funded on a current basis. Contributions to the Plan were
$328,000, $330,000, and $304,000, for the years ended December 31, 2001, 2000,
and 1999, respectively.
The Company maintains a separate qualified 401(k) Plan for salaried
employees not covered by a collective bargaining agreement who choose to
participate. Participants may elect to have up to fifteen percent (15%) of their
compensation withheld, up to the maximum allowed by the Internal Revenue Code.
Participants may also elect to make nondeductible voluntary contributions up to
an additional ten percent (10%) of their gross earnings each year within the
legal limits. The Company contributes $0.25 of each $1.00 deferred by
participants and deposited to the Plan not to exceed one and five tenths percent
(1.5%) of an employee's compensation. The Company does not match any amounts for
withholdings from participants in excess of six percent (6%) of their
compensation or for any nondeductible voluntary contributions. Contributions are
funded on a current basis. Contributions to the Plan were $528,000, $490,000,
and $360,000, for the years ended December 31, 2001, 2000, and 1999,
respectively.
One of the Company's subsidiaries had a defined benefit pension plan
covering certain employees prior to acquisition by the Company. As of the date
of acquisition, the plan was frozen (no new participants and no credit for
future service). Pension expense under this plan was approximately $15,000 for
the year ended December 31, 2001.
The Company maintains bonus plans for its officers and other key
employees. The plans generally allow for annual bonuses for individual employees
based upon the operating results of related profit centers in excess of a
percentage of the Company's investment in the respective profit centers. The
Company maintains an employment agreement with its chief executive officer.
Approximately forty-six percent (46%) of the Company's employees are
covered under collective bargaining agreements, of which seven percent (7%) of
these employees are covered under agreements expected to be renewed in 2002.
12. COMMITMENTS AND CONTINGENCIES
The Company is obligated as guarantor with respect to the debt of
MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership, a
relatee party, under an Industrial Development Bond issued in 1984 by the
Connecticut Development Authority. The balance outstanding under the bond as of
December 31, 2001 was $425,000.
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.
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 December 31, 2001 was $5,572,000.
The Company is subject to several legal actions and proceedings in
which various monetary claims are asserted. Management, after consultation with
its corporate legal department and outside counsel, does not anticipate that any
ultimate liability arising out of all such litigation and proceedings will have
a material adverse effect on the financial condition of the Company except as
set forth below.
On June 26, 2001, the Company and one of its wholly owned subsidiaries
received a Notice letter from the United States Environmental Protection Agency
("EPA") regarding the Company's and its subsidiary's liability as potentially
responsible parties ("PRP"), and requesting that soil containing
trichloroethylene ("TCE") at the subsidiary's manufacturing facility in Lisle,
Illinois, be remediated. On October 4, 2001, the Company's subsidiary received
an Administrative Order directing the Company's subsidiary to submit a Work Plan
to address the remediation issue. The Company's subsidiary has since engaged in
extensive discussions with the EPA relative to the technical details of the Work
Plan. The Company's subsidiary anticipates submitting a second revised Work Plan
to EPA later in April 2002. The Company's subsidiary has begun the process of
managing the remediation and preparing specification for the goods and services
required to achieve compliances.
Even after the Work Plan is approved by EPA, it will be sometime before
the costs of implementing the Work Plan can be quantified, because a budget must
still be developed and the remedial project described in the Work Plan put out
to bid. The Company's subsidiary, considering all the facts presently available
to it, has accrued $2 million as of December 31, 2001 in anticipation of the
remediation costs expected to be incurred, which amount was charged to the
operating earnings of the Company's Metal Forming segment. Completion of the
Work Plan may cost more than anticipated and the timing of completion of the
Work Plan is likewise uncertain. In addition, there is no assurance that the
proposed Work Plan will be effective without further supplementation.
In High Point, North Carolina, the Company has been named as a PRP with
regard to the clean up of groundwater contamination allegedly due to dumping at
a landfill. The Company believes that its activity at the site represented less
than one percent of all activity at the site. State authorities have received
for review a report on the Remedial Investigation of the site, a base-line Risk
Assessment, and a Feasibility Study of the alternative remedial options for
treating groundwater contamination at or near the site. Supplemental remedial
investigation has been requested and a remedial action plan has not yet been
selected. The Company continues to participate in a joint defense group to help
define and limit its liabilities and may be required to contribute to the
remediation of groundwater contamination.
Residents of the neighborhood to the south of the aforementioned
manufacturing facility site in Lisle, Illinois, now owned by a Company
subsidiary, have been certified as a class in an action against the Company and
its subsidiary for alleged contamination of the neighbors' drinking water wells,
allegedly due to migration off-site of historic TCE contamination of soil at the
facility. Based on all available evidence contamination of the subsidiary's
property predates the Company's acquisition for the subsidiary. A second group
of residents in a neighborhood south of the certified class has filed a second
class action complaint on the same grounds. This second action has not been
certified as a class action. In two other actions, residents of six homes
outside the class areas have also filed suit against the Company and its
subsidiary for alleged contamination of their drinking water wells. In all of
these actions, the plaintiffs seek damages for property value diminution and
other relief, including punitive damages, and they are also seeking injunctions
ordering that the Company's subsidiary provide permanent alternative water
supplies to their neighborhoods. One individual plaintiff is also claiming a
personal injury.
In a separate action, the State of Illinois has also sued to compel the
Company's subsidiary to investigate the same site for the same contamination and
provide an interim supply of bottled water to certain neighborhood residents. In
this action, the Company's subsidiary entered into a consent agreement with the
State of Illinois pursuant to which it retained an environmental consultant to
conduct the investigation requested and it instituted delivery of bottled water
to certain residents.
The Company and its subsidiary are contesting all of these claims
vigorously. However, if the plaintiffs in these actions were to obtain findings
of liability from a court of competent jurisdiction and assessments of
significant damages, including punitive damages, such decisions could,
individually or in the aggregate, materially adversely affect the Company's
results of operations. Based on the information presently available to it,
management does not believe that the costs of addressing the potential liability
associated with these claims will have a material adverse effect on the
Company's financial position or the results of operation.
The Company's subsidiary has tendered all of these claims to its
historic insurance carriers, and five carriers are reimbursing the Company's
subsidiary for a substantial portion of the subsidiary's defense costs,
including the costs incurred by the subsidiary under the consent agreement.
However, the subsidiary's insurers have contested their liability, and the
Company and its subsidiary are in litigation with the insurers regarding
coverage. The insurers are seeking a declaratory judgment that they have no
liability and a reimbursement of the defense costs paid by the insurers.
Moreover, if any punitive damages were to be awarded to the plaintiffs in any of
these suits, those punitive damages, would not in any event be covered by
insurance.
The company incurred $3.2 million, including $2 million accrued and
unpaid as of December 31, 2001, in legal and other costs (net of insurance
recoveries) associated with the environmental matters at its Lisle, Illinois
facility in 2001, of which $1 million was charged to goodwill in the second
quarter of 2001 as a resolution of a pre-acquisition contingency, in accordance
with Financial Accounting Standard 38. The balance was charged to the operating
earnings of the Metal Forming segment.
13. SEGMENT INFORMATION
Description of the types of products and services from which each reportable
segment derives its revenues:
As described in Note 3, the Company completed the sale of National
Northeast Corporation, (National) on January 9, 2001. National represented the
largest division in the Company's Metal Products segment. The Company has
elected to incorporate the Metal Products segment's remaining units, Omega Flex,
Inc. and Boyertown Foundry Company into the Heating, Ventilating, and Air
Conditioning segment (HVAC) as of January 1, 2001. Year 2000 and 1999 segment
information has been similarly reclassified for purposes of comparability.
Effective January 1, 2001, therefore, 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 wide variety of
residential, commercial and industrial heating, cooling, and air distribution
products to independent wholesale supply warehouses, to mechanical, sheet metal
and other contractors, and in some cases to other HVAC manufacturers under
original equipment manufacture (OEM) contracts. The products include finned tube
and baseboard radiation equipment gas fired heating and ventilating equipment,
air damper equipment and related air distribution products and commercial and
residential boilers. The products are marketed under a number of franchise names
including Sterling, Beacon Morris, Smith, Hydrotherm, RBI, Vulcan, Applied Air,
Wing, AWV, ABI, Arrow, CESCO, Louvers & Dampers, Airtherm, Koldwave, Anemostat,
Omega Flex, King National, King and Spacepak.
The Company's Metal Forming Segment designs, manufactures and sells a
variety of metal forming equipment and related machinery and repair parts under
names such as Cooper-Weymouth, Peterson, Dahlstrom, B & K, Lockformer, Iowa
Precision (IPI), Hill Engineering, Coilmate/Dickerman, Yoder, Krasny-Kaplan,
Mentor AGVS and Rowe. The products are sold directly and through independent
dealers to end-users and to original equipment manufacturers. The products
include roll formers, wing benders, duct forming systems, plasma and water-jet
cutting equipment, coil feeds, straighteners, cradles, cut-to-length lines,
specialty dies, rotary punching equipment, tube feed and cut-off and flying
cut-off saws, tube mills, pipe mills, and roll forming systems.
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 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 Company's reportable segments are business units that offer
different products. The reportable segments are each managed separately because
they manufacture and distribute distinct products using distinct production
processes intended for distinct marketplaces.
Information presented in the following tables relates to continuing
operations only.
Year ended
December 31, 2001
($ in thousands)
Metal All
HVAC Forming Other Totals
Revenues from External Customers
313,726 79,755 622 394,103
Intersegment & Intrasegment Revenues
13,607 3,647 --- 17,254
Interest Expense (net) 938 457 1 1,396
Depreciation Expense 5,015 1,652 84 6,751
Amortization Expense 990 1,528 --- 2,518
Segment Operating Profit (Loss) 21,464 (7,659) (1,769) 12,036
Segment Assets 174,201 85,047 263 259,511
Expenditures for
Long-lived Assets (1) 2,667 25 --- 2,692
Year ended
December 31, 2000
($ in thousands)
Metal All
HVAC Forming Other Totals
Revenues from External Customers
311,734 63,424 829 375,987
Intersegment & Intrasegment Revenues
13,528 221 --- 13,749
Interest Expense (Net) 758 362 --- 1,120
Depreciation Expense 6,627 1,420 11 8,058
Amortization Expense 933 994 --- 1,927
Segment Operating Profit (Loss) 23,281 4,143 (319) 27,105
Segment Assets 188,009 70,776 251 259,036
Expenditures for 6,290 689 --- 6,979
Long-lived Assets (1)
Year ended
December 31, 1999
($ in thousands)
Metal All
HVAC Forming Other Totals
Revenues from External Customers
289,589 37,116 1,440 328,145
Intersegment & Intrasegment Revenues
14,500 1,848 --- 16,348
Interest Expense 40 8 --- 48
Depreciation Expense 5,575 1,698 --- 7,273
Amortization Expense 571 361 --- 932
Segment Operating Profit 27,258 1,727 208 29,193
Segment Assets 163,751 36,382 501 200,634
Expenditures for
Long-lived Assets (1) 5,638 1,476 --- 7,114
(1) Excludes long-lived assets acquired via business acquisition.
RECONCILIATION WITH CONSOLIDATED DATA:
Revenues 2001 2000 1999
-------- ---- ---- ----
(dollars in thousands)
Total external revenues for reportable segments $ 394,103 $ 375,987 $ 328,145
Inter & Intrasegment revenues for reportable segments 17,251 13,749 16,348
Elimination of Inter & Intrasegment revenues (17,251) (13,749) (16,348)
----------- ----------- ----------
Total consolidated revenues $ 394,103 $ 375,987 $ 328,145
========= ========= =========
Profit or Loss
Total profit or loss for reportable segments $ 12,036 $ 27,105 $ 29,193
Interest expense-net (722) (1,120) (48)
Other income (expense) net (60) 149 (1,050)
Equity loss in investee (14,908) -- --
-------- -------------------------
Income (loss) before income taxes ($3,654) $ 26,134 $ 28,095
======= ======== ========
Assets:
Total assets for reportable segments $ 259,511 $ 259,036 $ 200,634
Discontinued operations assets:
MCS, Inc. assets --- --- 6,760
National Northeast assets --- 34,453 34,859
------------- ----------- -----------
Total consolidated assets $ 259,511 $ 293,489 $ 242,253
========= ========= =========
GEOGRAPHIC INFORMATION:
2001 2000 1999
Revenues:
United States $ 368,735 $ 353,736 $ 308,149
Canada 15,233 14,958 13,443
Other Foreign Countries 10,135 7,293 6,553
---------- ----------- -----------
Consolidated Total $394,103 $ 375,987 $ 328,145
======== ========= =========
Long Lived Assets:
United States $115,386 $128,325 $ 69,242
Canada 1,672 1,829 2,048
Other Foreign Countries --- --- ---
-------------- -------------- -------------
Consolidated Total $117,058 $130,154 $ 71,290
======== ======== ========
14. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full
quarter of 2001 and 2000.
(Dollars in thousands except per common share amounts).
2001 1st 2nd 3rd 4th
----------------------------------------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Total Revenues $96,294 $94,579 $104,353 $ 98,877
Gross Profit $25,112 $26,571 $27,183 $ 24,810
Net Income (Loss) $ 11,188 $ 2,626 $ 2,199 ($ 9,287)
Per Common Share:
Basic $ 1.28 $ 0.30 $ 0.25 ($ 1.06)
Diluted $ 1.28 $ 0.30 $ 0.25 ($ 1.06)
2000 1st 2nd 3rd 4th
----------------------------------------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Total Revenues (from continuing Operations) $ 80,566 $ 82,670 $105,867 $ 106,885
Gross Profit (from continuing Operations) $ 23,643 $ 23,295 $ 29,131 $ 32,733
Net Income $ 3,539 $ 2,832 $ 4,034 $ 6,663
Per Common Share:
Basic $ 0.40 $ 0.32 $ 0.46 $ 0.77
Diluted $ 0.40 $ 0.32 $ 0.46 $ 0.77
15. COMMON STOCK BUYBACK PROGRAM
In 2001 and 2000, the Company continued its program of selective
"open-market" purchases. 21,500 and 20,900 of such shares were acquired in 2001
and 2000, respectively. All such shares are accounted for as treasury shares.
The program remains in effect in 2002.
16. 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.
A summary of transactions for the years ended December 31, 2001, 2000,
and 1999, are as follows:
Weighted
Number of Average
Options Exercise Price
Balance - December 31, 1997 90,000 $13.75
------------------------------------------
Balance - December 31, 1998 90,000 $13.75
------------------------------------------
Granted 85,000 $20.00
------------------------------------------
Balance - December 31, 1999 175,000 $16.79
------------------------------------------
Balance - December 31, 2000 175,000 $16.79
------------------------------------------
Granted 25,000 $23.25
------------------------------------------
Balance - December 31, 2001 200,000 $17.60
---------=======--------------------------
Options exercisable for the years ended December 31, 2001, 2000, and
1999, were 124,000, 89,000, and 54,000, respectively. The weighted average
exercise price for all exercisable options as of December 31, 2001 was $15.46.
Effective in 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
SFAS No. 123. As permitted by the statement, the Company has chosen to continue
to account for stock-based compensations using the intrinsic value method as
prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no
compensation expense has been recognized for its stock-based compensation plan.
The weighted average fair value at the date of grant for options
outstanding as of December 31, 2001, 2000, and 1999 were $8.64, $8.32, and
$8.32, respectively. 25,000 options were granted on December 24, 2001 at an
exercise price of $23.25. The fair value of options at the date of grant was
estimated using the Black-Scholes model with the following weighted average
assumptions:
Options
Granted in
2001 1999
---- ----
Expected life (years) 10 10
Interest 4.39% 4.81%
Volatility 22.52% 23.75%
Dividend yield 0% 0%
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 (in thousands except EPS data):
Years Ended
December 31, December 31, December 31
2001 2000 1999
Net income - as reported $6,726 $17,068 $17,917
Net income - pro forma $6,627 16,893 17,748
Basic Earnings per share - as reported 0.77 $1.95 $2.02
Earnings per share - pro forma 0.76 $1.93 $2.00
The application of SFAS 123 for pro forma disclosure may not be
representative of future effects of applying the statement.
17. RESTRUCTURING AND SPECIAL CHARGES
The Company recorded a restructuring charge of $774,000 in the first
quarter of 2001 relating to the shutdown of certain operations and product lines
at several of its manufacturing locations. Through December 31, 2001, the
Company has paid expenses representing substantially all of this restructuring
charge.
The Company's subsidiary, Met Coil Systems Corporation, accrued a
$2,000,000 charge in the fourth quarter of 2001 in relation to the pending
environmental litigation at its Lisle, Illinois facility, as more fully
described in Note 12 to the Consolidated Financial Statements. None of this
amount has been expended as of December 31, 2001. The Company has not revised
this estimate as of the date of this report.
The Company accrued $1 million in bonuses related to the disposition of
National Northeast Corporation, as more fully described in Note 3, Business
Dispositions. Notwithstanding its connection to this non-recurring gain, the
bonuses were charged to continuing operations as required by Generally Accepted
Accounting Principles. The bonuses accrued were paid on March 15, 2002.
18. SUBSEQUENT EVENTS
As of the date of this report, the Company has made an offer proposing
to make available to CareCentric, Inc. (CareCentric) (see Notes 3 & 6)
aproximately $1.1 million of short-term financing to assist CareCentric with its
near term working capital needs. If CareCentric meets the terms and conditions
proposed by the Company in this regard, the funds will be advanced, and
subsequently, this and other debt of CareCentric to Mestek will be refinanced on
a long-term basis, in conjunction with the re-pricing and restructuring of the
Company's equity investments in CareCentric.
Coincident with Mestek's Offer, John E. Reed, the Company's Chairman and CEO,
has made an offer proposing to make available to CareCentric approximately
$900,000 of short-term financing as well. If CareCentric meets the terms and
conditions proposed by Mr. Reed in this regard, the funds will be advanced, and
subsequently, this and other debt of CareCentric to Mr. Reed will be refinanced
on a long-term basis, in conjunction with the re-pricing and restructuring of
preferred stock investments in CareCentric held by Mr. Reed.
PART III
With respect to items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14A.
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 28, 2002, and to the extent required and except as set forth therein,
is incorporated herein by reference. Information regarding executive officers of
the Company is set forth under the caption "Executive Officers".
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 28, 2002, and, to the extent required and except as set forth therein,
is incorporated herein by reference.
The report of the Compensation Committee of the Board of Directors of
the Company shall not be deemed incorporated by reference by any general
statement incorporating by reference the proxy statement into any filing under
the Securities Exchange Act of 1934, and shall not otherwise be deemed filed
under such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth in the Company's proxy statement relating to
the annual meeting of shareholders to be held May 28, 2002, and, to the extent
required and except as set forth therein, is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth in the Company's proxy statement relating to the annual
meeting of shareholders to be held May 28, 2002, and, to the extent required and
except as set forth therein, is incorporated herein by reference.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of
this report
------------------------------------------------------------------------------
Independent Auditors' Reports Page 22
Financial Statements:
(a)(1) Consolidated Balance Sheets as of December 31, 2001 and 2000
Pages 23 and 24
Consolidated Statements of Income for the Years
Ended December 31, 2001, 2000, and 1999 Page 25
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 2001, 2000, and 1999 Page 26
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2001, 2000, and 1999 Page 27
Notes to the Consolidated Financial Statements Pages 28 through 47
(a)(2) Financial Statement Schedules Page 49
II. Valuation and Qualifying Accounts Page 50
All other financial statement schedules required by Item 14(a)(2) have been
omitted because they are inapplicable or because the required information has
been included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The Exhibit Index is set forth on Pages 51 through 53
No annual report to security holders as of December 31, 2001 has been sent
to security holders and no proxy statement, form of proxy or other proxy
soliciting material has been sent by the registrant to more than ten of the
registrant's security holders with respect to any annual or other meeting of
security holders held or to be held in 2002. Such annual report to security
holders, proxy statement or form of proxy will be furnished to security holders
subsequent to the filing of this Annual Report on Form 10-K.
Separate audited 2001 Financial Statements for CareCentric, Inc. will be
filed as an exhibit under Item 14 (d) as soon as they are publicly disclosed by
CareCentric, Inc.
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts
Years ended December 31, 2001, 2000, and 1999
Bal. at Charged Bad Debt Bal.
at Beg. to Other Write-offs at end
Year Description of Year expense (1) of Year
-------------------------------------------------------------------------------------------------------------
(dollars in thousands)
2001 Allowance
for doubtful
accounts $ 3,746 $ 1,108 ($ 218) ($ 396) $ 4,239
2000 Allowance
for doubtful
accounts $ 3,627 $ 1,426 $ 70 ($ 1,377) $ 3,746
1999 Allowance
for doubtful
accounts $ 3,443 $ 1,432 $ 27 ($ 1,275) $ 3,627
(1) Includes recoveries of amounts previously written-off, allowances for
doubtful accounts of acquired companies, and deletions of allowances
for doubtful accounts of disposed of companies.
EXHIBIT INDEX
Those documents followed by a parenthetical notation are incorporated
herein by reference to previous filings with the Securities and Exchange
Commission as set forth below.
Exhibit No.
Description
*************
3.1 Articles of Incorporation of Mestek, Inc., as amended (H)
3.2 Amended and Restated By-laws of Mestek, Inc. as
amended through December 12, 2000 (B)
10.1 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.2 Lease Agreement dated January 1, 2000 between Mestek (lessee) and
Sterling Realty Trust (lessor); 260 North Elm (B)
10.3 Lease dated January 1, 1994 between Mestek (lessee) and
Sterling Realty Trust (lessor); South Complex (D)
10.4 Amended and Restated Lease Agreement dated as of July 1, 1997
between Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor) (J)
10.5 Amended and Restated Lease Agreement dated as of January 1, 1997
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor). (H)
10.6 Loan Agreement dated as of May 1, 1984 among the Connecticut
Development Authority (the "CDA"), MacKeeber Limited Partnership,
Vulcan Radiator Corporation and the Promissory Notes thereunder;
Guaranty of Vulcan Radiator Corporation and Reed National Corp.
to the Connecticut Bank and Trust Company, NA (A)
10.7 Indemnification Agreements entered into between Mestek, Inc. and
its Directors and Officers and the Directors of its wholly-owned
subsidiaries incorporated by reference as provided herein, except
as set forth in the attached schedule (C)
10.8 Share Purchase Agreement relating to the acquisition of capital
stock of Ruscio Brothers Refractory, Ltd. And Rainbow Electronics
Spotwelding Equipment, Ltd. dated April 29, 1998 by and between
1291893 Ontario, Inc. as Buyer and
Domenic Ruscio, et al., as Sellers. (K)
10.9 Lease Agreement dated July 1, 1998 between Mestek (lessee) and
Sterling Realty Trust (lessor); 161 Notre Dame (L)
10.10 Mortgage Note dated February 1, 1986 between Arrow United Industries,
Inc. and Chemical Bank; said Note assumed by Mestek, Inc. in the
purchase of certain assets of Arrow United Industries, Inc. (D)
10.11 1996 Mestek, Inc. Stock Option Plan. (G)
10.12 Amended and Restated Revolving Loans and Foreign Exchange Facilities
Agreement between Mestek, Inc. and Bank Boston dated
July 15, 1997. (I)
10.13 Second Amendment dated May 31, 2001 to Amended and Restated Revolving
loans and Foreign Exchange facilities Agreement between Mestek, Inc.
and Fleet National Bank
10.14 Supplemental Executive Retirement Agreements entered into between
Mestek, Inc. and certain of its officers. (I)
10.15 Lease dated July 1, 1999 between Mestek (Lessee) and
Sterling Realty Trust (Lessor) for 1st floor-Torrington Building. (M)
10.16 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty
Trust (Lessor) for 3rd & 4th Floor - Torrington Building. (M)
10.17 Lease dated October 1, 2000 between Mestek (Lessee) and
Sterling Realty (Lessor); 1st Floor Torrington Building (B)
10.18 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller). (M)
10.19 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Elizabeth C. Reed Trust (Seller). (M)
10.20 Bill of Sale dated January 1, 2000 between Mestek (Purchaser) and
Machinery Rental Company (Seller) (M)
10.21 Asset Purchase Agreement dated March 18, 1999 among CTS Corporation,
Dynamics Corporation of America, and Mestek, Inc. (E)
10.22 Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement dated October 25, 1999 among Simione Central
Holdings, Inc., MCS, Inc., Mestek, Inc., John E. Reed, Stewart B. Reed,
and E. Herbert Burk. (F)
10.23 Agreement and Plan of Reorganization by and between
Formtek Acquisition, Inc., Formtek, Inc., and Met-Coil Systems
Corporation dated March 13, 2000. (M)
10.24 Stock Purchase Agreement dated September 18, 2000 between Mestek, Inc.
and Alpha Technologies Group, Inc. (B)
10.24.1 Amendment No. 1 dated November 10, 2000 to the Stock Purchase
Agreement dated September 18, 2000 between Mestek, Inc. and
Alpha Technologies Group, Inc. (B)
10.25 Stock Purchase Agreement dated July 2, 2001 between Formtek, Inc.
as purchaser and Roger Steel, Richard D. Nelson, John B. Strang,
and Vivian Steel as sellers.
10.26 Asset Purchase Agreement dated December 14, 2001 between King Company,
United Dominion Industries, Inc. and Mestek, Inc.
10.27 Participation Agreement dated as of December 31, 2001 by and among
John E. Reed, Mestek, Inc. and CareCentric, Inc.
11.1 Schedule of Computation of Earnings per Common Share.
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Registration Statement 33-7101,
effective July 31, 1986
(B) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 2000
(C) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1987
(D) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993
(E) Filed as an Exhibit to the Current Report on Form 8-k dated April 6,
1999.
(F) Incorporated by reference from the from the Form 10 file by
MCS, Inc. with the Securities and Exchange Commission on
October 26, 1999, File No. 000-27829.
(G) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for the year
ended December 31, 1996.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 31, 1997.
(J) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1997.
(K) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998.
(L) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
(M) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended
December 31, 1999.
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
2001 2000 1999
---- -----------------
(dollars in thousands, except earnings per share)
-------------------------------------------------------------------------------------------------------------------
Income (Loss) from Continuing Operations ($ 2,221) $ 16,402 $ 17,666
---------- --------- ---------
Income from Discontinued Segments 8,947 666 251
-------- --- ---
Net Income $ 6,726 $ 17,068 $ 17,917
======== ========= =========
Basic Earnings (Loss) per Common Share:
Continuing Operations ($ 0.25) $ 1.87 $ 1.99
Discontinued Operations 1.02 0.08 0.03
------- ----------- ------------
Net Income $ 0.77 $ 1.95 $ 2.02
Basic Weighted Average Shares Outstanding 8,723 8,744 8,857
========= ========= ==========
Diluted Earnings (Loss) Per Common Share:
Continuing Operations ($ 0.25) $ 1.87 $ 1.99
Discontinued Operations 1.02 0.08 0.03
---------- ----------- ------------
Net Income $ 0.77 $ 1.95 $ 2.02
========= ========= ==========
Diluted Weighted Average Shares Outstanding 8,765 8,760 8,887
========= ========== ==========
Exhibit 22.1
LIST OF SUBSIDIARIES
AT MARCH 20, 2002
Jurisdiction of
Name Formation
Advanced Thermal Hydronics, Inc. Delaware
Airtherm, L.L.C. Delaware
Anemostat, Inc. Delaware
Boyertown Foundry Company Pennsylvania
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Met-Coil Systems Corporation Delaware
Hill Engineering, Inc. Illinois
Formtek Cleveland, Inc. (f/k/a SNS Properties, Inc.) Ohio
Krasny-Kaplan, Inc. (sub of SNS) Ohio
Gentex Partners, Inc. Texas
Mestex, Ltd. (Texas limited partnership) Texas
Yorktown Properties, Ltd. (Texas limited partnership) Texas
HBS Acquisition Corporation Delaware
Keyser Properties, Inc. Delaware
Lexington Business Trust (Massachusetts business trust) Massachusetts
Mestek Canada, Inc. Ontario
1470604 Ontario, Inc. Ontario
Mestek Foreign Sales Corporation U.S. Virgin Islands
Mestek Technology, Inc. Delaware
Omega Flex, Inc. Pennsylvania
Pacific/Air Balance, Inc. California
Westcast, Inc. Massachusetts
Exhibit 10.12
SCHEDULE OF DIRECTORS/OFFICERS
Indemnification Agreements
The Indemnification Agreement entered into by the Directors and/or Officers
of Mestek, Inc. and certain Directors of Mestek's wholly owned subsidiaries are
identical in all respects, except for the name of the indemnified director or
officer and the date of execution.
Set forth below is the identity of each director and officer of Mestek,
Inc. and the date upon which the above Indemnification Agreement was executed by
the Director or Officer.
Director and/or Officer Year of Execution
A. Warne Boyce 1987
E. Herbert Burk 1987
William J. Coad 1987
David R. Macdonald 1987
David M. Kelly 1996
Winston R. Hindle, Jr. 1995
David W. Hunter 1987
John E. Reed 1987
Stewart B. Reed 1987
James A. Burk 1987
R. Bruce Dewey 1990
Richard J. McKnight 1987
Jack E. Nelson 1996
William S. Rafferty 1990
Stephen M. Shea 1987
Charles J. Weymouth 1995
Kevin R. Hoben 1996
Stephen M. Schwaber 1997
Phil K. LaRosa 1997
Robert P. Kandel 1997
Richard E. Kessler 1997
Timothy P. Scanlan 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: March 29, 2002 By: /S/ John E. Reed
------------------------------------------
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: March 29, 2002 By: /S/ Stephen M. Shea
---------------------------------------
Stephen M. Shea, Senior Vice President
Finance, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 29, 2002 By: /S/ A. Warne Boyce
-------------------------------------------
A. Warne Boyce, Director
Date: March 29, 2002 By: /S/ William J. Coad
-------------------------------------------
William J. Coad, Director
Date: March 29, 2002 By: /S/ Winston R. Hindle, Jr.
-------------------------------------------
Winston R. Hindle, Jr., Director
Date: March 29, 2002 By: /S/ David W. Hunter
-------------------------------------------
David W. Hunter, Director
Date: March 29, 2002 By: /S/ David M. Kelly
-------------------------------------------
David M. Kelly, Director
Date: March 29, 2002 By: /S/ John E. Reed
-------------------------------------------
John E. Reed, Director
Date: March 29, 2002 By: /S/ Stewart B. Reed
-------------------------------------------
Stewart B. Reed, Director