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: June 30, 1996
Commission file number: 1- 448
MESTEK,INC.
Pennsylvania Corporation
I.R.S. Employer Identification No.
25 - 0661650
260 North Elm Street
Westfield, Massachusetts 01085
Telephone: (413) 568-9571
The Registrant has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months and has
been subject to such filing requirements for the past 90 days.
The number of shares of Common Stock outstanding as of July 29, 1996 was
8,929,771.
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1996
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at June 30, 1996
and December 31, 1995
Pages 3-4
Condensed consolidated statements of income for the three months ended
June 30, 1996 and 1995 and the six months ended June 30, 1996 and 1995
Page 5
Condensed consolidated statements of cash flows for the six
months ended June 30, 1996 and 1995
Page 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1995 through June 30, 1996
Page 7
Notes to the condensed consolidated financial statements
Pages 8-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Page 9
PART II - OTHER INFORMATION
Page 10
Item 6 - Exhibits and Reports on Form 8-K
Item 7 - Submission of Matters to a Vote of Security Holders
Statement of Computation of Per share Earnings Page 11
SIGNATURE Page 11
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
(Unaudited)
June 30, Dec. 31,
1996 1995
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $ 1,663 $ 1,405
Accounts Receivable - less allowances of
$1,811 and $1,377 respectively 43,030 42,911
Unbilled Accounts Receivable 136 139
Inventories 40,932 39,241
Other Current Assets 4,161 5,873
-----------------------------
Total Current Assets 89,922 89,569
Property and Equipment (Net) 27,464 24,968
Equity Investments 8,778 8,778
Property held for sale - 2,955
Other Assets and Deferred Charges - Net 8,401 8,545
Goodwill 14,214 6,616
-----------------------------
Total Assets $148,779 $141,431
=============================
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
June 30, Dec., 31
1996 1995
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 228 $ 2,651
Accounts Payable 14,583 16,342
Accrued Compensation 2,360 3,218
Accrued Commissions 1,813 2,234
Progress Billings in Excess of Cost and
Estimated Earnings 2,795 2,904
Purchase Price Payable - National Northeast - 9,960
Other Accrued Liabilities 13,805 10,634
----------------------------
Total Current Liabilities 35,584 47,943
Long-Term Debt 15,378 380
Deferred Compensation 19 22
----------------------------
Total Liabilities 50,981 48,345
----------------------------
Minority Interest - National Northeast 1,509 2,040
----------------------------
Shareholders' Equity
Common Stock - no par, stated value $0.05
per share, 9,610,135 shares 479 479
Paid in Capital 15,434 15,434
Retained Earnings 87,348 81,465
Treasury Shares, at cost, 680,364 and
634,864 common shares, respectively ( 6,040) ( 5,449)
Cumulative Translation Adjustment ( 932) ( 883)
----------------------------
Total Shareholders' Equity 96,289 91,046
----------------------------
Total Liabilities, and Shareholders'
Equity $148,779 $141,431
============================
See the Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(In thousands, except per share amounts)
Net Sales $63,946 $ 48,604 $126,093 $ 98,684
Net Service Revenues 4,245 3,875 8,415 7,554
-----------------------------------------------
Total Revenues 68,191 52,479 134,508 106,238
Cost of Goods Sold 47,771 34,718 92,273 70,669
Cost of Service Revenues 1,614 2,286 4,096 4,559
-----------------------------------------------
Gross Profit 18,806 15,475 38,139 31,010
Selling Expense 7,675 7,091 15,495 13,875
General and Administrative
Expense 4,226 3,187 8,573 6,440
Engineering Expense 1,826 1,483 3,437 2,812
-----------------------------------------------
Operating Profit 5,079 3,714 10,634 7,883
Interest Expense ( 391) ( 186) ( 677) ( 243)
Amortization Expense ( 128) ( 17) ( 239) ( 30)
Gain on Sale of Other Assets 590 - 1,444 850
Other Income (Expense) - net ( 593) ( 232) ( 1,325) ( 591)
-----------------------------------------------
Income Before Income Taxes 4,557 3,279 9,837 7,869
Income Taxes 1,816 1,375 3,954 3,286
-----------------------------------------------
Net Income $ 2,741 $ 1,904 $ 5,883 $ 4,583
================================================
Earnings per Common Share $ .31 $ .21 $ .66 $ .51
========== ========== ========= ========
Weighted Average Shares
Outstanding 8,930 9,019 8,946 9,025
===============================================
See the Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
6 Months Ended
June 30,
1996 1995
---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 5,883 $ 4,583
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used In) Operating
Activities:
Depreciation and Amortization 2,890 1,807
Provision for Losses on Accounts Receivable 434 404
Change in Assets & Liabilities:
Cash Flows Provided (Used) by Changes In:
Accounts Receivable 517 5
Unbilled Accounts Receivable 3 ( 73)
Inventories 1,379 ( 9,636)
Other Assets 1,592 ( 525)
Accounts Payable ( 3,335) ( 4,557)
Progress Billings 1,557 104
Other Accruals ( 109) ( 1,927)
Deferred Compensation ( 1) ( 2)
Purchase Price Payable - National
Northeast ( 9,960) -
--------------------------
Net Cash Provided by (Used in) Operating Activities 850 ( 9,817)
--------------------------
Cash Flows from investing Activities:
Capital Expenditures ( 2,489) ( 1,247)
Disposition of Property 3,193 -
Acquisition of Businesses (net of cash acquired) ( 12,538) -
--------------------------
Net Cash (Used in) Investing Activities ( 11,834) ( 1,247)
--------------------------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit
Agreement ( 1,725) 8,525
Proceeds from issuance of Long Term Debt 15,000 5,000
Principal Payments Under Long Term Debt
Obligations ( 862) ( 4,319)
Repurchase of Common Stock ( 591) ( 201)
Net Change in National Northeast
Minority Interest ( 531) -
Cumulative Translation Adjustments ( 49) 76
--------------------------
Net Cash Provided by (Used in) Financing
Activities 11,242 9,081
--------------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 258 ( 1,983)
Cash and Cash Equivalents - Beginning of
Period 1,405 4,201
--------------------------
Cash and Cash Equivalents - End of Period $ 1,663 $ 2,218
======== =======
See the Notes to Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the period January 1, 1995 through June 30, 1996
Additional Cumulative
Common Paid In Retained Treasury Translation
Stock Capital Earnings Shares Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 $ 479 $ 15,434 $70,559 $(4,808) $( 932) $ 80,732
Net Income 10,906 10,906
Common Stock Repurchased (641) (641)
Cumulative Translation Adjustment 49 49
Balance - December 31, 1995 $479 $15,434 $81,465 $(5,449) $( 883) $ 91,046
Net Income 5,883 5,883
Cumulative Translation Adjustment ( 49) (49)
Common Stock Repurchased (591) (591)
Balance - June 30, 1996 $ 479 $ 15,434 $87,348 $(6,040) $( 932) $ 96,289
======= ======== ======= ======== ======= ========
See the Notes to the Condensed Consolidated Financial Statements.
</TABLE>
<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, necessary for a fair presentation
of the Company's financial position, results of operations and cash flows. The
results of this interim period 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 $1,816,000 and $1,375,000 were
recorded for the three months ended June 30, 1996 and 1995, respectively.
Goodwill
The Company amortizes Goodwill on the straight line basis over the
estimated period to be benefitted. The acquisitions of National Northeast
Corporation, National Southeast Aluminum Corporation, and Heat Exchangers, Inc.
in 1995 resulted in goodwill of $7,090,000 which will be amortized over 25
years. The acquisitions of Rowe Machinery and Automation, Inc., and Omega Flex,
Inc. in 1996, resulted in goodwill of $7,729,000 which will also be amortized
over 25 years. The company continually evaluates the carrying value of goodwill.
Any impairments would be recognized when the expected future operating cash
flows derived from such goodwill is less than their carrying value.
Note 2 - Property and Equipment
June 30, Dec. 31,
1996 1995
---- ----
Land $ 758,000 $ 777,000
Buildings 10,271,000 11,035,000
Leasehold Improvements 3,507,000 3,119,000
Equipment 48,649,000 43,857,000
------------ ------------
63,185,000 58,788,000
Accumulated Depreciation (35,721,000) (33,820,000)
------------ ------------
$ 27,464,000 $ 24,968,000
============ ============
The Company's Hagerstown, Maryland facility was sold on April 1, 1996 at a gain
of $590,000.
<PAGE>
Note 3 - Debt
June 30, Dec. 31,
1996 1995
---- ----
Senior Notes $15,000,000 $ -
Revolving Loan Agreement - 1,725,000
Note Payable - Bank - 711,000
Other Bonds and Notes Payable 606,000 595,000
------------- ------------
15,606,000 3,031,000
Less Current Maturities ( 228,000) (2,651,000)
------------- ------------
$15,378,000 $ 380,000
=========== ============
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, originally set to expire on January 1, 1993, has been extended
through August 31, 1996. It provides $48 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 1.00% or, at the
discretion of the borrower, LIBOR plus a quoted market factor and may be used
for working capital or acquisition purposes, or to retire previously incurred
debt. Management expects to renew the Revolving Loan Agreement and Letter of
Credit Facility on a one year basis prior to August 31, 1996.
On April 5, 1996 the Company borrowed $15,000,000 from a commercial
insurance company on an unsecured basis, executing a Note Purchase Agreement and
related Senior Notes, (The Notes). The Notes mature March 1, 1998 and bear
interest at 5.53%. The Note Purchase Agreement contains a number of financial
covenants which limit the Company's overall debt, its dividends, and in certain
circumstances, its ability to effect acquisitions and/or divestitures. The
Company's management does not believe that these limitations will materially
affect the Company's future operations or strategic plans.
Note 4 - Earnings Per Common Share
Earnings per share were computed using the weighted average number of
common shares outstanding.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operation
Total revenues in the Company's HVAC segment during the second quarter of
1996 were increased relative to the second quarter of 1995, by $5,067,000 or
11.1%, reflecting the effect of the Company's 1995 acquisitions as well as
improved performances from the Industrial Products and Air Distribution
divisions which offset continued sluggishness in certain residential and
commercial products. Gross profit margins for the HVAC segment were decreased
slightly (from 27.73% to 26.34%) from the second quarter of 1995 due to a number
of factors. Positive effects from moderating inflation and improved margins in
Industrial Products were offset by negative effects related to certain
manufacturing relocations and other margin pressures on certain residential
and commercial products. Operating income for this segment was up from
$2,405,000 in the second quarter of 1995 to $2,770,000 in the second quarter
of 1996.
During the second quarter of 1996, Total Revenues increased 72.8% for the
Company's Equipment Handling segment relative to the second quarter of 1995,
reflecting the acquisition of Rowe Machinery and Automation, Inc. on February 6,
1996. Gross Profit margins and operating income were both lower for this
segment however due to relocation and other transitional issues affecting Rowe.
Operating income was down from $643,000 to $317,000. The Company's Computer
Systems segment reported improved Revenues, Gross Profit margins and Operating
income figures, continuing the trends established in 1995.
The Company's new Metal Fabricating segment reported operating earnings of
$1,138,000 on Total Revenues of $7,912,000. Gross profit margins were 25.47%.
<PAGE>
For the Company as a whole, Selling, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, were
reduced from 22.4% to 20.1%.
Operating income for the second quarter of 1996 for the Company as a whole,
increased by $1,365,000 or 36.7% reflecting the effects of increased HVAC
volume, as mentioned above, an improved performance from the Company's Computer
Systems segments and significant contributions from the Company's National
Northeast and Omega-Flex units which together comprise the Company's new Metal
Fabricating segment.
Pretax income for the quarter ended June 30, 1996 included $590,000 from
the sale of the Company's Hagerstown, Maryland plant, as more fully described in
Note 2 to the condensed consolidated financial statements. Earnings per share
for the quarter increased 47.6% from $.21 to $.31.
The Company's total debt (long-term debt plus current portion of long-term
debt) was relatively unchanged during the quarter ended June 30, 1996.
Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid dividends on its common stock since 1979.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings...Page 11.
(b) Registrant did not file a Form 8-K during the quarter for which this
report is filed.
Item 7 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on May 25, 1996. The
following Directors were re-elected to serve until the next Annual Meeting.
A. Warne Boyce
E. Herbert Burk
William J. Coad
Winston R. Hindle, Jr.
David W. Hunter
David R. Macdonald
John E. Reed
Stewart B. Reed
The shareholders voted to affirm the appointment of Grant Thornton LLP as
independent auditors for the Company for the fiscal year ending December 31,
1996.
The shareholders voted to approve and adopt the Mestek, Inc. 1996 Stock
Option Plan.
<PAGE>
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(Amounts in thousands, except
earnings per common shares)
Net income for earnings
per share $ 2,741 $ 1,904 $ 5,883 $ 4,583
======= ======= ======= =======
Total Common shares and
common share
equivalents 8,930 9,019 8,946 9,025
======= ======= ======== ======
Earnings per common
share $ .31 $ .21 $ .66 $ .51
======== ======== ========= ========
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 thereunto duly authorized.
MESTEK,INC.
(Registrant)
Date: July 30, 1996
/S/ Stephen M. Shea
Stephen M. Shea
Senior Vice President - Finance
(Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,663
<SECURITIES> 0
<RECEIVABLES> 44,841
<ALLOWANCES> 1,811
<INVENTORY> 40,932
<CURRENT-ASSETS> 4,161
<PP&E> 63,185
<DEPRECIATION> 35,721
<TOTAL-ASSETS> 148,779
<CURRENT-LIABILITIES> 35,584
<BONDS> 0
0
0
<COMMON> 479
<OTHER-SE> 95,810
<TOTAL-LIABILITY-AND-EQUITY> 148,779
<SALES> 63,946
<TOTAL-REVENUES> 68,191
<CGS> 47,771
<TOTAL-COSTS> 49,385
<OTHER-EXPENSES> 593
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 391
<INCOME-PRETAX> 4,557
<INCOME-TAX> 1,816
<INCOME-CONTINUING> 2,741
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,741
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
