SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 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 May 3, 1996 was
8,929,771.
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1996
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at March 31, 1996
and December 31, 1995
Condensed consolidated statements of income for the three
months ended March 31, 1996 and 1995
Condensed consolidated statements of cash flows for the three months
ended March 31, 1996 and 1995
Condensed consolidated statement of changes in shareholders' equity for
the period from January 1, 1995 through March 31, 1996
Notes to the condensed consolidated financial statements
Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Statement of Computation of Per share Earnings
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 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)
March 31, Dec. 31,
1996 1995
---- ----
(Unaudited)
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 1,657 $ 1,405
Accounts Receivable - less allowances of
$1,598 and $1,377 respectively 42,414 42,911
Unbilled Accounts Receivable 153 139
Inventories 42,089 39,241
Other Current Assets 4,882 5,873
----------- ------------
Total Current Assets $ 91,195 $ 89,569
Property and Equipment - net 27,308 24,968
Equity Investments 8,778 8,778
Property held for sale - 2,955
Other Assets and Deferred Charges - net 7,820 8,545
Goodwill 14,477 6,616
----------- ---------
Total Assets $ 149,578 $ 141,431
================================
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 31, Dec. 31,
1996 1995
---- ----
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 15,658 $ 2,651
Accounts Payable 15,946 16,342
Accrued Salaries and Bonus 2,441 3,218
Accrued Commissions 1,954 2,234
Progress Billings in Excess of Cost
and Estimated Earnings 3,287 2,904
Purchase Price Payable - National Northeast - 9,960
Other Accrued Liabilities 14,796 10,634
----------- ---------
Total Current Liabilities 54,082 47,943
Long-Term Debt 458 380
Deferred Compensation 20 22
----------- ----------
Total Liabilities 54,560 48,345
Minority Interest - National Northeast 1,470 2,040
-----------------------------
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 84,607 81,465
Treasury Shares, at cost, 680,364 and 634,864
common shares, respectively ( 6,040) ( 5,449)
Cumulative Translation Adjustment ( 32) ( 883)
-------------- --------------
Total Shareholders' Equity 93,548 91,046
----------- -----------
Total Liabilities, and Shareholders' Equity $149,578 $ 141,431
=============================
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1996 1995
------------------------
(In thousands, except for
share amounts)
Net Sales $ 62,147 $ 50,080
Net Service Revenues 4,170 3,679
-------------------------
Total Revenues 66,317 53,759
Cost of Goods Sold 44,502 35,951
Cost of Service Revenues 2,482 2,273
-------------------------
Gross Profit 19,333 15,535
Selling Expense 7,820 6,784
General and Administrative Expense 4,347 3,253
Engineering Expense 1,611 1,329
------------ ----------
Operating Profit 5,555 4,169
Interest Expense ( 286) ( 57)
Amortization Expense ( 111) ( 13)
Other Income (Expense) - net ( 732) ( 359)
Gain on Sale of Investment - 850
Gain on Sale of Fixed Assets 854 -
- -
-------------------------
Income Before Income Taxes 5,280 4,590
Income Taxes 2,138 1,911
----------- -------
Net Income $ 3,142 $ 2,679
========== ==========
Earnings Per Common Share $ .35 $ .30
========== ==========
Weighted Average Shares Outstanding 8,962 9,030
========== ==========
See the Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1996 1995
--------------------------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 3,142 $ 2,679
Adjustments to Reconcile Net Income to Net Cash
Used In Operating Activities:
Depreciation and Amortization 1,413 849
Provision for Losses on Accounts Receivable 221 287
Change in Assets & Liabilities:
Cash Flows Provided by (Used in) Changes In:
Accounts Receivable 1,346 3,898
Unbilled Accounts Receivable ( 14) 8
Inventory 222 ( 4,029)
Other Assets 1,461 57
Accounts Payable ( 1,972) ( 2,431)
Accrued Expenses 2,771 ( 373)
Progress Billings 383 292
Purchase Price Payable National Northeast ( 9,960) -
Deferred Compensation ( 2) -
----------- -------
Net Cash Provided by (Used in) In Operating Activities ( 989) 1,237
------------------------
Cash Flows from investing Activities:
Capital Expenditures ( 884) ( 432)
Disposition of Property 2,950 -
Acquisition of Businesses (net of cash acquired) (12,538) -
-------- --------
Net Cash Used in Investing Activities 10,472 ( 432)
-------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayment) Under Line
of Credit Agreements 13,705 3,230
Principal Payments Under Long Term Debt
Obligations ( 782) ( 4,311)
Reduction in National Northeast Minority Interest ( 570) -
Purchase of Treasury Stock ( 591) ( 137)
Cumulative Translation Adjustments ( 49) ( 54)
----------- ----------
Net Cash Provided by (Used In) Financing Activities 1,713 ( 1,272)
--------- ---------
Net Decrease in Cash and Cash Equivalents 252 ( 467)
Cash and Cash Equivalents - Beginning of Period 1,405 4,201
-----------------------
Cash and Cash Equivalents - End of Period $ 1,657 $ 3,734
========= =======
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 March 31, 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) $ 93,548
========================================================================
Net Income 3,142 3,142
Cumulative Translation Adjustment ( 49) ( 49)
Common Stock Repurchase ( 591) ( 591)
------------------------------------------------------------------------
Balance - March 31, 1996 $ 479 $ 15,434 $ 84,607 $ (6,040) $( 932) $ 93,548
========================================================================
See the Notes to 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 condensed 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 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 $2,138,000 and $ 1,911,000
were recorded for the three month periods ended March 31, 1996 and 1995,
respectively.
Property Held for Sale
The Company's Scranton, Pennsylvania manufacturing facility, classified
as Property Held for Sale at December 31, 1995, was sold on January 31,1996, at
a gain of 854,000.
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, as more fully described in Note 2, resulted in goodwill of $7,729,000
which will 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 - Business Acquisitions
On February 5, 1996, the Company acquired certain assets of the press
feeding and cut-to-length line businesses of Rowe Machinery and Automation Inc.
of Dallas, Texas ("Rowe"). Rowe is a leading manufacturer of press feeding and
cut-to-length line equipment serving the appliance, office furniture,
automotive, and many other markets. The purchase price paid was approximately $5
million, including the assumption of certain liabilities. Mestek will lease the
Rowe facility in Dallas including all machinery and equipment through the end of
1996 at a cost of $40,000 per month.
On February 2, 1996, the company acquired all of the issued and
outstanding common stock of Omega Flex, Inc. of Exton Pennsylvania. Omega Flex
is a manufacturer of flexible metal hose and related hose fabrication the
purchase price paid for the acquired stock was approximately $9 million. Omega
Flex has leased its manufacturing and office facility through January 31, 2000,
for $199,500 per year.
<PAGE>
Note 3 - Property and Equipment
March 31, Dec. 31,
1996 1995
---------- -------
Land $ 777,000 $ 777,000
Building 11,233,000 11,035,000
Leasehold Improvements 3,155,000 3,119,000
Equipment 47,255,000 43,857,000
------------------------------------------
62,390,000 58,788,000
Accumulated Depreciation ( 35,082,000) ( 33,820,000)
----------------- ---------------
$ 27,308,000 $ 24,968,000
================= ===============
Note 4 - Long-Term Debt
March 31, Dec. 31,
1996 1995
----------- -------
Revolving Loan Agreement 8,577,000 1,725,000
Note Payable Bank 7,000,000 7,111,000
Other Bonds and Notes Payable 539,000 595,000
------------------------------------------
16,116,000 3,031,000
Less Current Maturities ( 15,658,000) ( 2,651,000)
----------------- --------------
$ 458,000 $ 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 July 1, 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 July 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
the 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 limiations will materially
affect the Company's operations or future strategic plans.
Note 5 - Earnings Per Common Share
Earnings per share were computed using the weighted average number of
common shares outstanding.
<PAGE>
Note 6 - Shareholders Equity
The Company continued its program of selective "open market" purchases
of its common stock in 1996. 45,500 common shares were acquired in this manner
in the three monthperiod ended March 31, 1996, and are accounted for as treasury
shares.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operation
Total Revenues in the Company's HVAC segment during the first quarter
of 1996 were increased relative to the first quarter of 1995, by $3,654,000 or
7.7%, reflecting the effect of the Company's 1995 acquisitions as well as
improved performances from the Industrial Products and Air Distribution
divisions which offset continuing weakness in residential products. Gross profit
margins for the HVAC segment were increased slightly (from 27.32% to 28.36%)
from the first quarter of 1995 reflecting the effect of moderating inflation on
the Company's labor and material costs. Operating income for this segment was up
from $3,013,000 in the first quarter of 1995 to $3,430,000 in the first quarter
of 1996.
During the first quarter of 1996, Total Revenues increased 76.7% for
the Company's equipment handling segment relative to the first quarter of 1995,
reflecting the acquisition of Rowe Machinery and Automation, Inc. on February 6,
1996. Although Gross Profit margins were reduced due to transitional issues
effecting Rowe, operating income for this segment was up 22.2% from $646,000 to
$790,000. The Company's computer systems segment also reported improved
Revenues, Gross Profit margins and Operating income figures.
For the Company as a whole, Selling, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, were
slightly reduced from 21.1% to 20.8%.
Operating income for the first quarter of 1996 for the Company as a
whole, increased by $1,386,000 or 33.2% reflecting the effects of increased HVAC
volume, improved performances, as mentioned above, from the Company's Equipment
Handling and Computer Systems Segments and contributions from the Company's
National Northeast and Omega-Flex units, which were acquired October 30, 1995
and February 2, 1996 , respectively, and which together comprise the company's
new Metal Fabricating segment.
Pretax income for the quarter ended March 31, 1996 included $854,000
from the sale of the Company's idle Scranton, Pennsylvania plant, as more fully
described in Note 1 to the condensed consolidated financial statements. A
similar nonrecurring gain of $850,000 was recorded in the first quarter of 1995.
Earnings per share were increased by $.06 in each quarter as a result of these
transactions. Overall, earnings per share increased 16.7% from $.30 to $.35.
The Company's total debt (long-term debt plus current portion of
long-term debt) increased during the quarter ended March 31, 1996 by
$13,085,000, principally due to the combined effects of the Rowe, National
Northeast, and Omega-Flex acquisitions, offset to same extent by the sale of the
Company's Scranton, Pennsylvania plant. 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.
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Statement of Computation of Per Share Earnings
(b) Registrant filed the following Forms 8-K during the quarter for
which this report is filed.
* Proforma and historical financial data relative to National
Northeast Corporation and National Southeast Corporation.
* Acquisitions of Omega-Flex, Inc. and Rowe Machinery and Automation, Inc.
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended March 31,
1996 1995
-------------------------------
(Amounts in thousands, except
earnings per common share)
Net Income for earnings per share $ 3,142 $ 2,679
=================================
Total common shares and common
share equivalents 8,962 9,030
=================================
Earnings per common share $ .35 $ .30
=================================
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MESTEK, INC.
(Registrant)
Date: May 3, 1996 By: /S/ Stephen M. Shea
--------------------
Stephen M. Shea, Senior Vice President -
Finance, and CFO (Chief Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,657
<SECURITIES> 0
<RECEIVABLES> 44,012
<ALLOWANCES> 1,598
<INVENTORY> 42,089
<CURRENT-ASSETS> 91,195
<PP&E> 62,390
<DEPRECIATION> 35,082
<TOTAL-ASSETS> 149,578
<CURRENT-LIABILITIES> 54,082
<BONDS> 0
0
0
<COMMON> 479
<OTHER-SE> 93,069
<TOTAL-LIABILITY-AND-EQUITY> 149,578
<SALES> 62,147
<TOTAL-REVENUES> 66,317
<CGS> 44,052
<TOTAL-COSTS> 46,984
<OTHER-EXPENSES> 732
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 286
<INCOME-PRETAX> 5,280
<INCOME-TAX> 2,138
<INCOME-CONTINUING> 3,142
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,142
<EPS-PRIMARY> .35
<EPS-DILUTED> .35
</TABLE>
