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, 1995
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 October 30, 1995 was
9,015,271.
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at September 30,
1995, and December 31, 1994 3 and 4
Condensed consolidated statement of income for the three months ended
September 30, 1995 and 1994 and the nine months ended September 30,
1995
and 1994. 5
Condensed consolidated statements of cash flows for the nine
months ended September 30, 1995 and 1994 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1994 through
September 30, 1995 7
Notes to the condensed consolidated financial statements 8 thru 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
Schedule of Computation of Earnings Per Common Share 11
SIGNATURE 12
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 statement of such operations. All such adjustments are of a normal
recurring nature.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Sept. 30, Dec. 31,
1995 1994
(Dollars in thousands)
(Unaudited)
ASSETS
Current Assets
Cash and Cash Equivalents $ 930 $ 4,201
Accounts Receivable - (Net) 42,764 35,306
Unbilled Accounts Receivable 184 124
Inventories 39,228 32,102
Other Current Assets 8,685 4,357
Total Current Assets $ 91,791 $ 76,090
Property and Equipment (Net) 17,937 18,483
Equity Investments 8,789 8,643
Property held for sale 2,855 5,870
Other Assets and Deferred Charges (Net) 5,032 11,344
Total Assets $ 126,404 $ 120,430
See Accompanying Notes to Condensed Consolidated Financial Statements
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
Sept. 30, Dec. 31,
1995 1994
(Dollars in thousands)
(Unaudited)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 6,469 $ 5,337
Accounts Payable 10,393 14,117
Accrued Salaries and Bonuses 2,861 3,008
Accrued Commissions 2,636 1,833
Progress Billings and Excess of Cost
and Estimated Earnings 3,033 2,721
Other Accrued Liabilities 12,586 12,446
Total Current Liabilities 37,978 39,462
Long-Term Debt 187 211
Deferred 23 25
Total Liabilities 38,188 39,698
Shareholders' Equity
Common Stock - no par, stated value $.05 per
share, 9,610,135 shares issued 479 479
Paid in Capital 15,434 15,434
Retained Earnings 78,105 70,559
Treasury Shares, at cost, 594,864 and 547,824
common shares, respectively ( 5,009) ( 4,808)
Cumulative Translation Adjustments ( 793) ( 932)
Total Shareholders' Equity 88,216 80,732
Total Liabilities and Shareholders' Equity $ 126,404 $ 120,430
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(In thousands, except per share amounts)
Net Sales $ 60,865 $ 60,963 $159,549 $150,297
Net Service Revenues 3,821 3,775 11,375 10,639
Total Revenues 64,686 64,738 170,924 160,936
Cost of Goods Sold 43,600 44,087 114,269 108,153
Cost of Service Revenue 2,130 2,384 6,689 6,705
Gross Profit 18,956 18,267 49,966 46,078
Selling Expense 7,578 7,405 21,453 20,231
General and Administrative
Expense 4,085 3,628 10,525 9,519
Engineering Expense 1,305 1,538 4,117 4,243
Operating Profit 5,988 5,696 13,871 12,085
Interest Expense ( 277) ( 231) ( 520) ( 593)
Gain on Sale of Investment - - 850 -
Loss on Sale of Fixed Assets ( 400) - ( 400) -
Amortization Expense ( 19) ( 13) ( 49) ( 38)
Other Income(Expense) - net ( 158) ( 548) ( 749) ( 1,101)
Income Before Income
Taxes 5,134 4,904 13,003 10,353
Income Taxes 2,171 2,075 5,457 4,207
Net Income $ 2,963 $ 2,829 $ 7,546 $ 6,146
Earnings per Common Share: $ .33 $ .31 $ .84 $ .67
Weighted Average Shares
Outstanding (in thousands) 9,015 9,107 9,022 9,166
See Notes to the Condensed Consolidated Financial Statements
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1995 1994
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 7,546 $ 6,146
Adjustments to Reconcile Net Income to
Net Cash Provided by (Used In)
Operating Activities:
Depreciation and Amortization 2,698 3,578
Net Cost of Fixed Assets Disposed of 2,727 -
Provision for Losses on Accounts Receivable ( 91) 745
Changes in Assets and Liabilities ( 15,234) ( 1,413)
Net Cash Provided by Operating Activities ( 2,354) 9,056
Cash Flows from Investing Activities:
Capital Expenditures ( 1,817) ( 3,351)
Investment in Equity Securities ( 146) -
Net Cash (Used) in Investing Activities ( 1,963) ( 3,351)
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under Line of
Credit Agreements 6,435 3,530
Principal Payments Under Long Term Debt
Obligations ( 5,327) ( 9,438)
Redemption of $5.00 Non-voting Preferred - ( 6)
Treasury Stock Purchases ( 201) ( 1,349)
Cumulative Translation Adjustments 139 ( 159)
Net Cash (Used) Provided by Financing
Activities 1,046 ( 7,422)
Net (Decrease) in Cash and Cash
Equivalents ( 3,271) ( 1,717)
Cash and Cash Equivalents - Beginning of
Period 4,201 3,573
Cash and Cash Equivalents - End of Period $ 930 $ 1,856
See the Notes to the Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the Period January 1, 1994 through September 30, 1995
<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, 1994 $ 7,209 $ 387 $ 8,323 $ 61,261 $( 3,203) $ ( 660) $ 73,317
Net Income 9,298 9,298
Cash Dividends:
Common Stock Repurchased ( 1,605) ( 1,605)
Conversion of $5.00 Convertible Preferred (7,203) 92 7,111 -
Redemption of $5.00 Convertible Preferred ( 6) ( 6)
Cumulative Translation Adjustment ( 272) ( 272)
Balance - December 31, 1994 $ 0 $ 479 $ 15,434 $ 70,559 $( 4,808) $ ( 932) $ 80,732
Net Income 7,546 7,546
Cumulative Translation Adjustment 139 139
Common Stock Repurchased ( 201) ( 201)
Balance - September 30, 1995 $ 0 $479 $ 15,434 $ 78,105 $( 5,009) $ ( 793) $ 88,216
</TABLE>
See Accompanying Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Significant Accounting Policies
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.
Inventories
Inventories are valued at the lower of cost or market. Cost of inventories
is determined principally by the last-in, first-out (LIFO) method.
Income Taxes
Provisions for income tax in the amounts of $2,963,000, and $2,829,000, have
been recorded for the three months ended September 30, 1995 and 1994,
respectively.
Property Held for Sale
The condensed consolidated financial statements include, under the heading
Property Held for Sale, a manufacturing facility in Scranton, Pennsylvania. This
property is carried at cost which is less than estimated net realizable value.
The Company's Northvale, New Jersey facility was sold on July 5, 1995 for
$2,450,000 in notes payable secured by the property, personal and corporate
guarantees, and other security. A loss of $400,000 was reported in connection
with the sale.
Note 2 - Business Acquisitions
On November 1, 1994, pursuant to a motion approved by the United States
Bankruptcy Court for the District of New Mexico, the Company acquired
substantially all of the inventory, accounts receivable, and fixed tangible and
intangible assets of Aztec Sensible Cooling, Inc. (Aztec) a manufacturer of
evaporative cooling and other customer air handling equipment in Albuquerque,
New Mexico. The purchase price for the assets acquired was $1,372,000. This
acquisition was accounted for as a purchase. Accordingly, the Company has
included the results of this acquired business in its consolidated statement of
operations for the period starting with the acquisition date.
<PAGE>
Note 3 - Property and Equipment
Sept. 30, Dec. 31,
1995 1994
Land $ 750,000 $ 750,000
Buildings 11,224,000 10,662,000
Leasehold Improvements 2,985,000 2,872,000
Equipment 35,585,000 34,443,000
50,544,000 48,727,000
Accumulated Depreciation (32,607,000) (30,244,000)
$ 17,937,000 $ 18,483,000
Note 4 - Long-Term Debt
Sept. 30, Dec. 31,
1995 1994
Senior Notes $ - $ 1,000,000
Revolving Loan Agreement 6,435,000 -
Note Payable Bank - -
Notes Payable American Standard - 1,903,000
Notes Payable Eafco - 2,400,000
Other Bonds and Notes Payable 221,000 245,000
6,656,000 5,548,000
Less Current Maturities (6,469,000) (5,337,000)
$ 187,000 $ 211,000
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 through June 30,1995, was recently extended
through June 30, 1996. 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 1.25%, or LIBOR plus 1.5%
at the discretion of the borrower, and may be used for working capital or
acquisition purposes, or to retire previously incurred debt.
Note 5 - 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 includes shares which would have been issued upon the conversion of
the $5.00 Convertible Preferred Stock for the 1994 periods. As explained in Note
6, the $5 Convertible Preferred Stock was eliminated in 1994.
Note 6 - Shareholders Equity
On April 25, 1994, a Notice of Redemption was sent to all holders of the
Company's $5.00 Convertible Preferred Stock, in accordance with its terms,
announcing a redemption by the Company of all shares of Convertible Preferred
stock outstanding and unconverted on June 24, 1994. Pursuant to the notice, all
but 64 shares were converted into 1,838,259 shares of common shares of common
stock on June 24, 1994. The remaining 64 shares were redeemed on June 24, 1994.
<PAGE>
Note 7 - Other Transactions
Chester
On August 31, 1995, Mestek, Inc. ("Mestek"), completed the disposition of
30% of the outstanding common stock of Chester Environmental, Inc. ("Chester"),
a Pennsylvania corporation headquartered in Pittsburgh, Pennsylvania. Chester is
engaged in environmental engineering and consulting. Prior to August 1993,
Chester was a wholly owned subsidiary of Mestek. Mestek sold 70% of Chester's
common stock to Duquesne Enterprises, Inc. ("Duquesne") in 1993, and this
redemption in 1995 of the remaining 30% of Chester's common stock by Chester,
liquidates Mestek's interest in Chester.
Under the terms of the redemption, Mestek received $6,000,000 from Chester.
Simultaneously with this disposition, Mestek settled in full certain indemnities
and guarantees of Chester accounts receivable that Mestek undertook in the 1993
transaction.
This disposition completes Mestek's exit from the environmental services
segment. The company's three remaining business segments are: Heating,
Ventilating, and Air Conditioning (HVAC); Computer Systems; and Coil Handling
Equipment.
Cox
On July 12, 1995, the Company purchased the operating assets of Cox
Manufacturing Co., Inc. of Ridgeville, Indiana for approximately $500,000.00 in
a bulk sales transaction. The Company has leased a portion of the Cox facility
to manufacture the radiant heating and furnace product line of Cox.
Honeywell
On October 2, 1995, the Company purchased certain manufacturing assets and
inventory from Honeywell Corp. (Honeywell) of Minneapolis, Minnesota for
approximately $500,000. The Company expects to manufacture a line of dampers
for Honeywell.
Note 8 - Subsequent Event
On October 30, 1995, the Company executed an agreement whereby it would
acquire approximately eighty-three (83%) of the issued and outstanding stock of
National Northeast Corporation and National Southeast Aluminum Corporation
("National"). National operates custom aluminum extrusion and fabrication
facilities located in Lawrence, Massachusetts and Winter Haven, Florida that
will sell over $20 million of aluminum products to the building products,
thermal management, power control and other markets in 1995. The consideration
for the purchase is approximately $9.96 million in cash and approximately $3.32
million payable over three years contingent upon continuing levels of earnings.
The Company expects to close the transaction in January of 1996. A Form 8-K
relative to the transaction will be filed prior to November 14, 1995. Related
proforma and historical financial data will be filed within sixty days
thereafter.
<PAGE>
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
1995 were relatively unchanged from the third quarter of 1994. Gross profit
margins for the HVAC segment were up slightly from 27.2% to 27.8%. Operating
income for this segment was up $203,000, or 4.4% from the third quarter of 1994,
traceable principally to the increase in margins.
During the third quarter of 1995, Total Revenues for the Company's Equipment
Handling Segment grew by 8.6% relative to the third quarter of 1994 reflecting
this segment's continuing success with its new product offerings and the
generally healthy climate affecting this relatively cyclical segment.
For the Company as a whole, Selling, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, were
increased slightly from 19.4% to 20.0%.
Operating income for the third quarter of 1994, for the Company as a whole,
was increased by $292,000, or 5.1% reflecting the effects of the improved HVAC
margins mentioned above and, also, excellent results reported by the Company's
Computer Systems segment.
The Company's total debt decreased during the quarter ended September 30,
1995 by $8,098,000, due principally to the disposition of the Company's
remaining interest in Chester Environmental, Inc., as more fully described in
Note 7 to the Condensed Consolidated Financial Statements. The growth in
inventories during the second and third quarters, which has been somewhat more
pronounced than in prior years, is traceable in part to the relocation of
certain manufacturing operations in 1995 and growing sales backlogs at certain
of the Company's HVAC divisions.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings . . .Page 12
(b) The registrant filed a report on Form 8-K on August 31, 1994 relative to
the disposition of its remaining interest in Chester Environmental,
Inc., as more fully described in Note 7 to the Condensed Consolidated
Financial Statements.
<PAGE>
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(Amounts in thousands,
except per common share)
Net income $ 2,963 $ 2,829 $ 7,546 $ 6,146
Less: dividends on Preferred
Stock - - - -
Net income for earnings per
share $ 2,963 $ 2,829 $ 7,546 $ 6,146
Weighted average number of
common shares outstanding 9,015 9,107 9,022 7,972
Common Share equivalents
resulting from: Conversion
of the $5.00 Convertible
Preferred Stock - - - 1,194
Total common shares and common
share equivalents 9,015 9,017 9,022 9,166
Earnings per common share $ .33 $ .31 $ .84 $ .67
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: October 30, 1995 By: STEPHEN M. SHEA
Stephen M. Shea
Senior Vice President - Finance
(Chief Financial Officer)
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<PERIOD-END> SEP-30-1995
<CASH> 930
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<RECEIVABLES> 44,113
<ALLOWANCES> 1,349
<INVENTORY> 39,228
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<PP&E> 50,544
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<TOTAL-ASSETS> 126,404
<CURRENT-LIABILITIES> 37,978
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<COMMON> 479
0
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<OTHER-SE> 87,737
<TOTAL-LIABILITY-AND-EQUITY> 126,404
<SALES> 60,865
<TOTAL-REVENUES> 64,686
<CGS> 43,600
<TOTAL-COSTS> 45,730
<OTHER-EXPENSES> 158
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