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, 1997
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 April 29,1997 was
8,929,771.
1
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MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1997
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at March 31, 1997
and December 31, 1996 3 - 4
Condensed consolidated statements of income for the three
months ended March 31, 1997 and 1996 5
Condensed consolidated statements of cash flows for the three
months ended March 31, 1997 and 1996 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1996 through March 31, 1997 7
Notes to the condensed consolidated financial statem 8 - 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II - OTHER INFORMATION
Statement of Computation of Per share Earnings 11
SIGNATURE 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.
2
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, Dec. 31,
1997 1996
(Unaudited)
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 871 $ 11,649
Accounts Receivable - less allowances of $1,886
and $1,701, respectively 45,600 49,577
Unbilled Accounts Receivable 212 174
Inventories 50,889 43,265
Other Current Assets 4,567 4,087
----------- --------
Total Current Assets 102,139 108,752
Property and Equipment - net 37,022 31,439
Equity Investments 8,778 8,778
Other Assets and Deferred Charges - net 7,280 7,066
Excess of Cost over Net Assets of Acquired Companies 20,740 13,975
----------- ---------
Total Assets $175,959 $170,010
========== ========
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
3
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
March 31, Dec. 31,
1997 1996
---- ----
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term $ 167 $ 115
Accounts Payable 17,237 19,559
Accrued Compensation 2,264 4,886
Accrued Commissions 2,926 3,404
Progress Billings in Excess of Cost and
Estimated Earnings 2,751 2,899
Customer Deposits 3,488 4,829
Other Accrued Liabilities 19,116 13,786
----------- ----------
Total Current Liabilities 47,949 49,478
Long-Term Debt 18,914 15,247
Deferred Compensation 17 18
----------- -----------
Total Liabilities 66,880 64,743
----------- -----------
Minority Interests 2,102 1,549
---------- -----------
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 98,047 94,794
Treasury Shares, at cost,
(680,364 common shares) ( 6,040) ( 6,040)
Cumulative Translation Adjustment ( 943) ( 949)
------------- ----------
Total Shareholders' Equity 106,977 103,718
------------- ----------
Total Liabilities, and Shareholders' Equity $ 175,959 $ 170,010
=========== ==========
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1997 1996
-------- ------
(In thousands, except for
share amounts)
Net Sales $ 71,235 $ 62,147
Net Service Revenues 3,981 4,170
------------ ------------
Total Revenues 75,216 66,317
Cost of Goods Sold 52,336 45,054
Cost of Service Revenues 2,453 2,482
----------- ------------
Gross Profit 20,427 18,781
Selling Expense 8,924 8,399
General and Administrative Expense 4,018 3,768
Engineering Expense 1,884 1,611
----------- ------------
Operating Profit 5,601 5,003
Interest Expense ( 210) ( 286)
Other Income (Expense) - net ( 159) ( 291)
Gain on Sale of Fixed Assets - 854
------------ ------------
Income Before Income Taxes 5,232 5,280
Income Taxes 1,979 2,138
----------- ------------
Net Income $ 3,253 $ 3,142
=========== ============
Earnings Per Common Share $ .36 $ .35
============= =============
Weighted Average Shares Outstanding 8,930 8,962
============= =============
See the Notes to Condensed Consolidated Financial Statements.
5
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MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1997 1996
-------- ------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 3,253 $ 3,142
Adjustments to Reconcile Net Income to Net Cash
Used In Operating Activities:
Depreciation and Amortization 1,935 1,413
Provision for Losses on Accounts Receivable 185 221
Change in Assets & Liabilities:
Cash Flows Provided by (Used in) Changes In:
Accounts Receivable 4,798 1,346
Unbilled Accounts Receivable ( 38) ( 14)
Inventory ( 6,124) 222
Other Assets ( 4,786) 1,461
Accounts Payable ( 2,578) ( 1,972)
Accrued Expenses ( 106) 2,771
Progress Billings ( 148) 383
Purchase Price Payable National Northeast - ( 9,960)
Deferred Compensation ( 1) ( 2)
----------- ----------
Net Cash Used in Operating Activities ( 3,610) ( 989)
----------- ----------
Cash Flows from investing Activities:
Capital Expenditures ( 4,109) ( 884)
Disposition of Property - 2,950
Acquisition of Businesses (net of cash acquired) ( 5,141) ( 12,538)
---------- ----------
Net Cash Used in Investing Activities ( 9,250) ( 10,472)
---------- ----------
Cash Flows from Financing Activities:
Net Borrowings (Repayment) Under Line
of Credit Agreements 3,105 13,705
Principal Payments Under Long Term Debt
Obligations ( 1,087) ( 782)
Increase (Decrease) in Minority Interests 58 ( 570)
Purchase of Treasury Stock - ( 591)
Cumulative Translation Adjustments 6 ( 49)
----------- ----------
Net Cash Provided by Financing Activities 2,082 11,713
----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents ( 10,778) 252
Cash and Cash Equivalents - Beginning of Period 11,649 1,405
----------- ---------
Cash and Cash Equivalents - End of Period $ 871 $ 1,657
============ =========
See the Notes to Condensed Consolidated Financial Statements.
6
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<PAGE>
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unadited)
For the period January 1, 1996 through March 31, 1997
Additional Cumulative
Common Paid in Retained Treasury Translation
Stock Capital Earnings Shares Adjustment Total
Balance-Jan 1 $479 $15,434 $81,465 $(5,449) $(883) $91,046
Net Income 13,329 13,329
Common Stock
Repurchased ( 591) ( 591)
Cumulative
Translation
Adjustment ( 66) ( 66)
Balance-Dec 31 1996 $479 $15,434 $94,794 $(6,040) $(949) $103,718
Net Income 3,253 3,253
Cumulative
Translation
Adjustment 6 6
Common Stock
Repurchased
Balance-Mar 31, 1997 $479 $15,434 $98,047 $(6,040) $(943) $106,977
See the Notes to Condensed Consolidated Fianancial Statements.
<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 $1,979,000 and $2,138,000
were recorded for the three month periods ended March 31, 1997 and 1996,
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, (adjusted for additional consideration paid as
explained more fully in Note 2) of $11,118,000 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 acquisition of Hill
Engineering, Inc. on January 31, 1997, as more fully described in Note 2,
resulted in goodwill of $2,892,000 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.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
Note 2 - Business Acquisitions
On January 31, 1997, the Company acquired 91.01% of the issued and
outstanding common stock of Hill Engineering, Inc. of Villa Park, Illinois and
Danville Kentucky (Hill). 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 $5.1
million.
On January 2, 1997, the Company's National Northeast subsidiary paid
$4,028,000 in additional consideration related to the purchase on October 30,
1995 of approximately 83% of the issued and outstanding voting common stock of
National Northeast Corporation and National Southeast Corporation (National).
This payment completes the Company's acquisition of National.
8
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Note 3 - Property and Equipment
March 31, Dec. 31,
1997 1996
---------- -------
Land $ 1,290,000 $ 1,092,000
Building 16,685,000 13,657,000
Leasehold Improvements 4,292,000 4,186,000
Equipment 54,969,000 51,183,000
------------- -------------
77,236,000 70,118,000
Accumulated Depreciation (40,214,000) ( 38,679,000)
------------- -------------
$ 37,022,000 $ 31,439,000
============= =============
Note 4 - Long-Term Debt
March 31, Dec. 31,
1997 1996
----------- ---------
Senior Notes $15,000,000 $15,000,000
Revolving Loan Agreement 3,105,000 -
Note Payable Bank -
Other Bonds and Notes Payable 976,000 362,000
------------ ----------
19,081,000 15,362,000
Less Current Maturities ( 167,000) ( 115,000)
------------ ----------
$18,914,000 $15,247,000
============= ===========
Revolving Loan Agreement - The Company has a Revolving Loan Agreement and Letter
of Credit Facility (the Agreement) with a commercial bank. The Agreement,
provides $55 million of unsecured revolving and $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 1.00% 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. Management expects to
renew the Agreement on a one year basis during the second quarter of 1997. The
Revolving Loan Agreement contains financial covenants which require that the
Company maintain certain current ratios, working capital amounts, capital bases
and leverage ratios. 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% of net
income.
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 limitations will materially
affect the Company's operations or future strategic plans.
Other bonds and notes payable include $670,000 in secured obligations
assumed in connection with the purchase of Hill on January 31, 1997, as more
fully described in Note 2.
9
<PAGE>
Note 5 - 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 first quarter
of 1997 were increased relative to the first quarter of 1996, by $2,016,000 or
3.9% from $50,982,000 to $52,998,000. Significantly improved sales in certain
residential and commercial hydronic products were offset somewhat by reduced
sales in the Company's Air Distribution division. Gross profit margins for the
HVAC segment were decreased slightly, from 27.5% to 27.0%. Operating income for
this segment was up from $2,875,000 in the first quarter of 1996 to $3,795,000
in the first quarter of 1997 reflecting reduced selling and general and
administrative costs as well as the effects mentioned above. (Gross Profit and
Operating Income for 1996 for this segment have been adjusted to reflect certain
reclassifications for purposes of comparability).
Total Revenues in the Company's Metal Products segment were up
significantly during the first quarter of 1997 ($18,236,000 versus $11,165,000)
reflecting the effect of "full quarter" results for its Omega and Rowe units,
which were acquired on February 2, 1996 and February 5, 1996, respectively, and
the effect of Dahlstrom Industries, Inc., acquired on August 30, 1996, and Hill
Engineering, Inc., acquired on January 31, 1997. Gross profit margins were
reduced slightly, from 27.5% to 25.1%, and operating income decreased from
$1,333,000 to $1,218,000 due to significant product development costs incurred
by Omega and relocation and other transitional costs incurred by Rowe.
The Company's computer systems segment reported slightly reduced
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 20.8% to 19.7%. (Sales Expense and General and
Administrative Expense for 1996, as reported in the accompanying financial
statements, have been adjusted to reflect certain reclassifications for purposes
of comparability).
Operating income for the first quarter of 1997 for the Company as a
whole, increased by $598,000 or 11.9% reflecting the various effects mentioned
above.
Pretax income for the quarter ended March 31, 1996 included an $854,000
nonrecurring gain on the sale of the Company's idle Scranton, Pennsylvania
plant. Earnings per share was increased by $.06 in that quarter as a result of
this transaction. .
The Company's total debt (long-term debt plus current portion of
long-term debt) increased during the quarter ended March 31, 1997 by $3,719,000,
principally due to the combined effect of the Hill acquisition and the
additional purchase price paid in relation to National Northeast, Inc., as more
fully explained in Note 2 to the Financial Statements. 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.
10
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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 filed no reports on Form 8-K during the quarter for
which this report is filed.
MESTEK, INC.
SCHEDULE OF COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended March 31,
1997 1996
-------- ------
(Amounts in thousands, except
earnings per common share)
Net Income for earnings per share $ 3,253 $ 3,142
========= =========
Total common shares and common
share equivalents 8,930 8,962
========= =========
Earnings per common share $ .36 $ .35
========= =========
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: April 29, 1997 By: /S/ Stephen M. Shea
--------------------
Stephen M. Shea, Senior Vice President -
Finance, and CFO (Chief Financial Officer)
11
<PAGE>
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