SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30,1994
MESTEK, INC.
A Pennsylvania Corporation
I.R.S. Employer Identification No.
25-0661650
260 North Elm Street
Westfield, Massachusetts 01085
Telephone: (413) 568-9571
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
The number of shares of Common Stock outstanding as of November 7, 1994 was
9,059,011.
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1994
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at September 30,
1994, and December 31, 1993 3 - 4
Condensed consolidated statements of income for the
three months ended September 30, 1994 and 1993
and the nine months ended September 30, 1994
and 1993. 5
Condensed consolidated statements of cash flows for the nine
months ended September 30, 1994 and 1993 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1993 through
September 30, 1994 7
Notes to the condensed consolidated financial statements 8 - 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10- 11
PART II - OTHER INFORMATION
Schedule of Computation of Earnings Per Common Share 12
SIGNATURE
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statements of such operations. All such adjustments are of a normal
recurring nature.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, Dec. 31,
1994 1993
(Dollars in thousands)
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,856 $ 3,573
Accounts Receivable - (Net) 45,949 43,973
Unbilled Accounts Receivable 338 97
Inventories 28,758 30,175
Other Current Assets 5,775 6,142
Total Current Assets 82,676 83,960
Property and Equipment (Net) 17,240 17,299
Equity Investments 8,643 8,643
Property held for sale 6,279 6,418
Other Assets and Deferred Charges (Net) 8,945 10,305
Total Assets $ 123,783 $ 126,625
See Accompanying Notes to Consolidated Financial Statements
(Continued)
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
Sept. 30, Dec. 31,
1994 1993
(Dollars in thousands)
(Unaudited)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 14,733 $ 14,306
Accounts Payable 11,818 10,276
Progress Billings and Excess of Cost
and Estimated Earnings 2,767 2,108
Other Accrued Liabilities 16,265 20,032
Total Current Liabilities 45,583 46,722
Long-Term Debt 251 6,586
Total Liabilities 45,834 53,308
Shareholders' Equity
$5 Convertible Preferred Stock - 7,209
Common Stock - no par, stated value $.05, per
share, 9,610,135 and 7,763,338 shares
issued, respectively 391 387
Paid in Capital 15,522 8,323
Retained Earnings 67,407 61,261
Treasury Shares, at cost, 547,824 and 405,224
common shares, respectively ( 4,552) ( 3,203)
Cumulative Translation Adjustments ( 819) ( 660)
Total Shareholders' Equity 77,949 73,317
Total Liabilities and Shareholders' Equity $ 123,783 $ 126,625
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(In thousands, except per share amounts)
(See Note 9) (See Note 9)
Net Sales $ 60,963 $ 59,860 $150,297 $151,711
Net Service Revenues 3,775 2,991 10,639 9,046
Total Revenues 64,738 62,851 160,936 160,757
Cost of Goods Sold 44,087 44,130 108,153 111,430
Cost of Service Revenue 2,384 1,856 6,705 5,814
Gross Profit 18,267 16,865 46,078 43,513
Selling Expense 7,405 7,463 20,231 20,468
General and Administrative
Expense 3,628 3,505 9,519 9,133
Engineering Expense 1,538 1,441 4,243 4,349
Operating Profit 5,696 4,456 12,085 9,563
Interest Expense ( 231) ( 660) ( 593) ( 1,444)
Amortization Expense ( 13) ( 14) ( 38) ( 42)
Other Income (Expense) - net ( 548) 10 ( 1,101) 1,570
Income From Continuing
Operations Before Income
Taxes 4,904 3,792 10,353 9,647
Income Taxes 2,075 1,637 4,207 3,789
Income From Continuing
Operations 2,829 2,155 6,146 5,858
(Loss) From Operations of
Discontinued Segment (Net) - ( 583) - ( 1,530)
(Loss) on Disposal of
Discontinued Segment (Net) - ( 1,181) - ( 1,788)
Net Income $ 2,829 $ 391 $ 6,146 $ 2,540
Earnings per Common Share:
Income From Continuing
Operations .31 .23 .67 .63
(Loss) From Operations of
Discontinued Segment (Net) - ( .06) - ( .17)
(Loss) on Disposal of
Discontinued Segment (Net) - ( .13) - (.19)
Net Income $ .31 $ .04 $ .67 $ .27
Weighted Average Shares
Outstanding (in thousands) 9,107 9,249 9,166 9,274
See the Notes to the Condensed Consolidated Financial Statements.
MESTEK,INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1994 1993
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 6,146 $ 2,540
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used In)
Operating Activities:
Depreciation and Amortization 3,578 4,876
Gain on Disposition of Fixed Assets - ( 1,719)
Loss on Disposition of Discontinued
Segment - 1,788
Provision for Losses on Accounts Receivable 745 ( 46)
Changes in Assets and Liabilities ( 1,413) ( 6,145)
Net Cash Provided by Operating Activities 9,056 1,294
Cash Flows from Investing Activities:
Capital Expenditures ( 3,351) ( 2,923)
Investment in Eafco - ( 7,958)
Net Cash (Used) in Investing Activities ( 3,351) (10,881)
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under Line of
Credit Agreements 3,530 10,042
Principal Payments Under Long Term Debt
Obligations ( 9,438) ( 4,224)
Proceeds from Issuance of Long Term
Debt (Net) - 2,900
Redemption of $5.00 Non-voting Preferred ( 6) -
Treasury Stock Purchases ( 1,349) ( 431)
Cumulative Translation Adjustments ( 159) ( 359)
Net Cash (Used) Provided by Financing
Activities ( 7,422) 7,928
Net Increase (Decrease) in Cash and Cash
Equivalents ( 1,717) ( 1,659)
Cash and Cash Equivalents - Beginning of
Period 3,573 3,393
Cash and Cash Equivalents - End of Period $ 1,856 $ 1,734
See the Notes to the Condensed Consolidated Financial Statements.
<TABLE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the Period January 1, 1993 through September 30, 1994
<CAPTION>
$5.00
Cumulative Additional Cumulative
Convertible Common Paid In Retained Treasury Translation
Preferred Stock Capital Earnings Shares Adjustment Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1993 $ 7,301 $ 386 $ 8,232 $ 57,357 $( 2,421) $( 303) $ 70,552
Net Income 4,265 4,265
Cash Dividends:
Convertible Preferred
($5.00 per share) ( 361) ( 361)
Common Stock Repurchased ( 782) ( 782)
Conversion of $5.00 Convertible
Preferred ( 92) 1 91 -
Cumulative Translation Adjustment ( 357) ( 357)
Balance - December 31, 1993 7,209 387 8,323 61,261 ( 3,203) ( 660) 73,317
Net Income 6,146 6,146
Conversion of $5.00 Convertible
Preferred ( 7,203) 4 7,199 -
Redemption of $5.00 Convertible
Preferred ( 6) ( 6)
Cumulative Translation Adjustment ( 159) ( 159)
Common Stock Repurchased ( 1,349) ( 1,349)
Balance - September 30, 1994 $ 0 $ 391 $15,52 $ 67,407 $( 4,552) $( 819) $77,949
<FN>
<F1> See Accompanying Notes to Condensed Consolidated Financial Statements.
</FN>
</TABLE>
MESTEK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. In the opinion of management, the financial
statements include all material adjustments, consisting solely of normal
recurring
adjustments, necessary for a fair presentation of the Company's financial
position, results of operations and cash flows. The results for the interim
periods are not necessarily indicative of results for the entire year.
Note 2 - Income Taxes
Provisions for income tax in the amounts of $2,075,000 and $1,060,000, have
been recorded for the three months ended September 30, 1994 and 1993,
respectively.
Note 3 - Property and Equipment
Sept. 30, Dec. 31,
1994 1993
Land $ 750,000 $ 750,000
Buildings 10,637,000 9,805,000
Leasehold Imp. 2,783,000 2,492,000
Equipment 32,684,000 30,456,000
46,854,000 43,503,000
Accum. Dep. (29,614,000) (26,204,000
$ 17,240,000 $ 17,299,000
Note 4 - Long-Term Debt
Sept. 30, Dec. 31,
1994 1993
Senior Notes $ 1,000,000 $ 3,000,000
Revolving Loan Agreement 4,396,000 5,866,000
Note Payable Banks 5,000,000 5,000,000
Notes Payable American Standard 1,903,000 4,273,000
Notes Payable Eafco 2,400,000 2,400,000
Other Obligations Payable 285,000 353,000
14,984,000 20,892,000
Less Current Maturities 14,733,000 14,306,000
$ 251,000 $ 6,586,000
On January 1, 1992, the Company entered into a Revolving Loan Agreement and
Letter of Credit Facility (the "Agreement") with a commercial bank. The
Agreement, which had been extended to May 31,1994, was recently extended through
April 30, 1995. It provides $38 million of unsecured revolving credit and
standby
letter of credit capacity. Borrowings under the Agreement bear interest at a
floating rate based on the bank's prime rate less 75 basis points or, at the
discretion of the borrower, rate based on LIBOR, and may be used for working
capital or acquisition purposes, or to retire previously incurred debt.
Note 5 - Discontinued Segment
On August 17,1993, the Company completed the sale of 70% of the outstanding
common stock of its Chester Environmental, Inc. subsidiary (Chester) to Duquesne
Enterprises, Inc.(Duquesne), a Pennsylvania corporation headquartered in
Pittsburgh, Pennsylvania. The Company received $12,000,000 plus certain "put"
rights exercisable at various dates through 1999 which enable the Company, at
its
option, to sell its remaining 30% interest for a minimum of $6,000,000. The
Company has accounted for the transaction as a disposal of a business segment in
accordance with APB 30. Accordingly, the operations of Chester are separately
reported in accordance with APB 30 in the accompanying Condensed Consolidated
Statement of Income for 1993, under the heading Loss from Operations of
Discontinued Segment. For this purpose, the operations of Chester are included
only through the date of sale, August 17,1993. Subsequent to this date, the
Company has accounted for its remaining investment in Chester under the cost
method of accounting, since the Company does not have the ability to exert
significant influence over the operations or financial policies of Chester.
Interest expense has been allocated to the Loss from Discontinued Operations for
1993, based upon the ratio of net assets (defined as average total assets less
average non-interest bearing indebtedness) of the discontinued segment to
consolidated net assets. Corporate general and administrative expenses
originally
allocated to the Discontinued Segment for the year 1993 have been reallocated to
the HVAC Segment in the accompanying Condensed Consolidated Statements of Income
in accordance with APB 30. As a result, Income from Continuing Operations for
the
three month and nine month periods ended September 30, 1993 has been restated
from
(.10) and (.21), respectively, to (.06) and (.17), respectively. (Loss) from
Operations of Discontinued Segment for these same periods has been
correspondingly
adjusted. Net revenues of the discontinued segment totaled $5,137,000 for the
period July 1, 1993 through August 17, 1993.
Note 6 - Earnings Per Common Share
Earnings per share have been computed using the weighted average number of
common shares outstanding. The weighted average number of common shares
outstanding include shares which would be issued upon the conversion of the
$ 5.00 Convertible Preferred Stock for both periods.
Note 7 - Shareholders Equity
In the third quarter of 1994, the Company acquired and placed in its treasury
118,500 shares of its Common Stock pursuant to a continuing stock buyback
program.
Through September 30, 1994, 142,600 shares of Common Stock have been purchased
in 1994 on the open market by the Company in 1994 and returned to the treasury.
Pursuant to a notice of redemption dated April 22, 1994, all but 64 shares of
$5 Preferred Stock were converted into 1,838,259 shares of Common Stock in the
second quarter of 1994. The remaining 64 shares of $5 Preferred Stock were
redeemed when not converted by the redemption date. Consequently, the $5
Preferred Stock has been eliminated. At September 30,1994, there are 9,610,135
shares of Common Stock of the Company issued and outstanding, 547,824 of which
are in the Company's treasury.
Note 8 - Other Matters
On June 22, 1994, Alapco Holding, Inc., a wholly-owned subsidiary of Mestek,
received an order of the United States Bankruptcy Court for the District of New
Mexico preliminarily approving the lending of up to $1,000,000 of post-petition
financing to Aztec Sensible Cooling, Inc., debtor-in-possession, secured by a
super-priority lien on all of Aztec Sensible Cooling's tangible assets. Alapco
Holding received final approval of its liens and right to finance on July 13,
1994. As of September 30, 1994, the amount borrowed by Aztec totaled
approximately $1,068,000. Aztec Sensible Cooling, Inc., an Albuquerque-based
manufacturer of evaporative cooling and other air handling systems, filed for
protection under Chapter 11 of the United States Bankruptcy Code on
June 16,1994.
Mestek acquired the assets and rights of Aztec Sensible Cooling on November 1,
1994, pursuant to Section 363(b) motion to sell assets free and clear of liens
outside the ordinary course of business, approved on that date by the United
States Bankruptcy Court for the District of New Mexico, for cash and other
considerations totaling approximately $1,318,000.
Note 9 - Reclassification
Certain amounts in the 1993 financial statements included herein have been
reclassified to conform with the presentation in the 1993 audited financial
statements.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Total Revenues in the Company's HVAC segment during the third quarter of
1994 increased relative to the third quarter of 1993, (net of the effect of
certain one-time sales in 1993 to a major customer discussed below) by
$ 5,780,000,
or 11%, reflecting the effect of improved economic conditions in the residential
and commercial construction marketplaces. Gross profit margins for the HVAC
segment, disregarding the effect of the one-time sales mentioned above, were
reduced slightly from the third quarter of 1993 reflecting the effects of
inflationary pressures presently affecting the Company's labor and material
costs.
Operating income for this segment increased from $4,038,000 in the third quarter
of 1993 to $4,614,000 in the third quarter of 1994, an increase of 14.3%.
During
1993 the Company generated approximately $26,000,000 in "one-time" sales to a
major customer from its Scranton, Pennsylvania facility. These sales, which
carried a very low margin, amounted to $6,024,000 in the third quarter of 1993.
During the third quarter of 1994, Total Revenues, Gross Profit Margins, and
Operating Income all improved markedly for the Company's Coil Handling Segment,
relative to the same period in 1993, reflecting both this segment's successful
new
product development efforts as well as generally improved economic conditions in
the markets in which it operates. During the third quarter of 1994, Total
Revenues, Gross Profit Margins, and Operating Income also improved markedly for
the Company's Computer Systems Segment, for similar reasons.
For the Company as a whole, Selling, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, were down
slightly, from 19.7% to 19.4%.
Operating profit for the third quarter of 1994, for the Company as a whole,
increased by $1,240,000, or 27.8%, reflecting the effects of increased HVAC
volume
(net of the one-time sales mentioned above) and the improved performance of the
Company's Equipment Handling and Computer Systems segments.
The Company's total debt (long-term debt plus current portion of long-term
debt) was reduced during the quarter ended September 30, 1994 by $5,908,000, due
to the retainage of earnings. The Company's long-term debt to equity ratio
decreased from .05 at June 30, 1994 to .003 at September 30, 1994. Management
regards the Company's current capital structure and banking relationships as
fully
adequate to meet foreseeable future needs. The Company has not paid dividends
on
its commons stock since 1979. Its present policy is to retain earnings for
business purposes.
Environmental Disclosure
The Company participated in a Potentially Responsible Parties (PRP) action
Phase I (surface remediation) at a site in North Carolina. State authorities
continue to investigate the extent of and remediation methods for groundwater
contamination at or near the site. The Company is participating in a
newly-formed
group for Phase II PRP action. At this time it is anticipated that the
Company's obligation in this regard will be non-material.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings . . . Page 12
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
(Amounts in thousands,
except per common share)
Net income $ 2,829 $ 391 $ 6,146 $ 2,540
Less: dividends on Preferred
Stock 0 0 0 0
Net income for earnings per
share $ 2,829 $ 391 $ 6,146 $ 2,540
Weighted average number of
common shares outstanding 9,107 7,383 7,972 7,406
Common Share equivalents
resulting from: Conversion
of the $5.00 Convertible
Preferred Stock - 1,866 1,194 1,868
Total common shares and common
share equivalents 9,107 9,249 9,166 9,274
Earnings per common share $ .31 $ .04 $ .67 $ .27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Mestek, Inc.
Date: November 7, 1994 By: /S/ Stephen M. Shea
Stephen M. Shea
Senior Vice President - Finance
(Chief Financial Officer)
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