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, 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 October 31, 1997 was
8,926,430.
1
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at September 30, 1997
and December 31, 1996 Pages 3-4
Condensed consolidated statements of income for the
three months ended September 30, 1997 and 1996 and the nine
months ended September 30, 1997 and 1996 Page 5
Condensed consolidated statements of cash flows
for the nine months ended September 30, 1997 and 1996 Page 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1996 through Page 7
September 30, 1997
Notes to the condensed consolidated financial statements Pages 8-10
Management's Discussion and Analysis of Financial Condition
and Results of Operations Page 10
PART II - OTHER INFORMATION Page 11
Item 6 - Exhibits and Reports on Form 8-K
Statement of Computation of Per share Earnings Page 11
SIGNATURE Page 11
2
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept. 30, Dec. 31,
1997 1996
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $2,301 $11,649
Accounts Receivable - less allowances of
$2,463 and $1,701 respectively 58,422 49,577
Unbilled Accounts Receivable 272 174
Inventories 49,929 43,265
Other Current Assets 4,701 4,087
----------- -----------
Total Current Assets 115,625 108,752
Property and Equipment (Net) 40,124 31,439
Equity Investments 8,778 8,778
Other Assets and Deferred Charges - Net 6,715 7,066
Excess of Cost over Net Assets of Acquired
Companies 20,313 13,975
---------- --------
Total Assets $191,555 $170,010
========== ========
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
3
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MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
Sept. 30, Dec. 31,
1997 1996
---- ----
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 26,900 $ 115
Accounts Payable 20,005 19,559
Accrued Compensation 4,467 4,886
Accrued Commissions 2,511 3,404
Progress Billings in Excess of Cost and
Estimated Earnings 3,127 2,899
Customer Deposits 3,218 4,829
Other Accrued Liabilities 15,653 13,786
---------- -------
Total Current Liabilities 75,881 49,478
Long-Term Debt 772 15,247
Deferred Compensation 14 18
---------- ------
Total Liabilities 76,667 64,743
--------- ------
Minority Interests 1,944 1,549
-------- -------
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 104,129 94,794
Treasury Shares, at cost, (683,271 and
680,364 common shares, respectively) ( 6,098) ( 6,040)
Cumulative Translation Adjustment ( 1,000) ( 949)
----------- ---------
Total Shareholders' Equity 112,944 103,718
--------- ---------
Total Liabilities, and Shareholders' Equity $191,555 $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 Nine Months Ended
Sept. 30, Sept. 30,
1997 1996 1997 1996
(In thousands, except per share amounts)
Net Sales 82,977 $ 75,432 225,166 $ 201,525
Net Service Revenues 4,350 3,635 12,245 12,050
-------- -------- ------- --------
Total Revenues 87,327 79,067 237,411 213,575
Cost of Goods Sold 59,929 55,615 164,774 148,127
Cost of Service Revenues 2,418 2,179 7,214 6,275
-------- --------- ------- --------
Gross Profit 24,980 21,273 65,423 59,173
Selling Expense 10,923 8,886 29,596 25,071
General and Administrative
Expense 5,055 4,366 13,284 12,249
Engineering Expense 2,039 1,932 5,808 5,369
-------- --------- -------- --------
Operating Profit 6,963 6,089 16,735 16,484
Interest Expense ( 469) ( 321) ( 1,066) ( 998)
Gain on Sale of Investment - - - 1,444
Other Income (Expense) - net ( 24) ( 340) ( 349) ( 1,665)
--------- --------- -------- -------
Income Before Income Taxes 6,470 5,428 15,320 15,265
Income Taxes 2,629 2,200 5,985 6,154
--------- --------- -------- --------
Net Income $ 3,841 $ 3,228 $ 9,335 $ 9,111
========= ======== ======= =======
Earnings per Common Share $ .43 $ .36 $ 1.04 $ 1.02
========= ======== ======= =======
Weighted Average Shares
Outstanding 8,928 8,930 8,929 8,941
========= ======== ======= ========
See the Notes to Condensed Consolidated Financial Statements.
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MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
9 Months Ended
September 30,
1997 1996
---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 9,335 $ 9,111
Adjustments to Reconcile Net Income to Net
Cash Provided by (Used In) Operating
Activities:
Depreciation and Amortization 5,526 4,249
Provision for Losses on Accounts Receivable 762 598
Cash Flows Provided (Used) by Changes In:
Assets and Liabilities (19,954) 4,117
Purchase Price Payable - National Northeast - ( 9,960)
---------- ---------
Net Cash Provided by (Used in) Operating Activities ( 4,331) 8,115
---------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (10,276) ( 4,662)
Disposition of Property - 3,193
Aquisition of Businesses (net of cash acquired) ( 5,141) (14,149)
--------- --------
Net Cash (Used in) Investing Activities (15,417) (15,618)
-------- --------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit
Agreements 11,734 ( 1,560)
Proceeds from issuance of Long Term Debt - 15,000
Principal Payments Under Long Term Debt
Obligations ( 1,125) ( 1,637)
Repurchase of Common Stock ( 58) ( 591)
Net Change in
Minority Interests ( 100) ( 516)
Cumulative Translation Adjustments ( 51) ( 50)
---------- ----------
Net Cash Provided by Financing
Activities 10,400 10,646
------- -------
Net Increase (Decrease) in Cash and Cash
Equivalents ( 9,348) 3,143
Cash and Cash Equivalents - Beginning of
Period 11,649 1,405
------- -------
Cash and Cash Equivalents - End of Period $ 2,301 $ 4,548
========= ========
See the Notes to Condensed Consolidated Financial Statements.
6
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MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
(Unaudited)
For the period January 1, 1996 through September 30, 1997
Addt'l Cumul.
Common Pd In Retained Treasury Trans.
Stock Capital Earnings Shares Adj. Total
Bal-Jan 1, 1996 $ 479 $15,434 $ 81,465 (5,449) ( 883) $ 91,046
Net Income 13,329 13,329
Common Stock Repurchased ( 591) ( 591)
Cumulative Translation Adj ( 66) ( 66)
------- ------- -------- ------ ------ ------
Bal - December 31, 1996 $ 479 $15,434 $ 94,794 (6,040) ( 949) 103,718
Net Income 9,335 9,335
Common Stock Repurchased ( 58) ( 58)
Cumulative Translation Adj ( 51) ( 51)
-------- -------- -------- ------- ------- ------
Bal - September 30, 1997 $ 479 $15,434 $104,129 (6,098) (1,000)$112,944
======= ======== ======== ======= ====== ========
See the Notes to the Condensed Consolidated Financial Statements.
7
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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 of a normal recurring
nature, 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 $2,629,000 and $2,200,000 were
recorded for the three months ended September 30, 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 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, 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 November 3, 1997 the Company acquired 100% of the issued and outstanding
common stock of CoilMate, Inc. (CoilMate) of Southington, Connecticut. CoilMate
is the leading producer of pallet decoiling equipment for the metal stamping and
roll forming industries. The purchase price paid was approximately $3,500,000.
8
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Note 3 - Property and Equipment
Sept. 30, Dec. 31,
1997 1996
---- ----
Land 2,045,00 1,092,000
Buildings 18,445,000 13,657,000
Leasehold Improvements 4,431,000 4,186,000
Equipment 58,482,000 51,183,000
------------ ----------
83,403,000 70,118,000
Accumulated Depreciation (43,279,000) (38,679,000)
------------ -----------
$40,124,000 $31,439.000
============ ===========
Note 4 - Long-Term Debt
Sept. 30, Dec. 31,
1997 1996
---- ----
Senior Notes $15,000,000 $15,000,000
Revolving Loan Agreement 10,733,000 -
Note Payable - Bank 1,000,000 -
Other Bonds and Notes Payable 939,000 362,000
----------- ----------
27,672,000 15,362,000
Less Current Maturities (26,900,000) ( 115,000)
---------- ----------
$ 772,000 $15,247,000
========== ==========
Senior Notes - 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 future operations or strategic plans.
Revolving Loan Agreement - The Company's Revolving Loan Agreement and Letter of
Credit Facility with a commercial bank was revised and extended recently through
April 30, 1998. The revised agreement (The Agreement), provides for $50 million
of unsecured revolving credit, including $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 1.75% or, at the discretion of the borrower, a
Eurodollar-based rate plus a quoted market factor. In addition, the Agreement
provides a $5,000,000 (Canadian) unsecured line of credit facility. The
Agreement contains financial covenants which require that the Company maintain
certain current ratios, working capital amounts, capital bases and leverage
ratios. The 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.
Note Payable Bank - The Company has a $10,000,000 unsecured line of credit with
a second commercial bank which expires on June 30, 1998. Borrowings under the
line, which totaled $1,000,000 at September 30, 1997, accrue interest on the
basis of LIBOR plus a quoted market factor.
Other bonds and notes payable include $670,000 in secured obligations
assumed in connection with the purchase of Hill Engineering, Inc. on
January 31, 1997.
9
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Note 5 - Earnings Per Common Share
Earnings per share were computed using the weighted average number of
common shares outstanding.
Note 6 - Shareholder's Equity
Due to redemptions of the stock interests of certain employees of the
Company's National Northeast Subsidiary the Company now owns approximately 88%
of the issued and outstanding voting common stock of National Northeast
Corporation, a Delaware corporation, successor by merger to National Northeast
Corporation and National Southeast Corporation.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operation
Total revenues in the Company's HVAC segment during the third quarter of
1997 were up 4.5% relative to the third quarter of 1996. Significantly improved
sales in certain residential and commercial hydronic products as well as
gas-fired products, were offset somewhat by reduced sales of certain industrial
and air conditioning products. The relocation of the Company's Koldwave product
line from Skokie, Illinois to Dundalk, Maryland, which was completed in 1997,
contributed to this situation. Gross profit margins for the HVAC segment
increased slightly from 26.7% to 27.7%. Operating income for this segment was up
from $4,352,000 in the third quarter of 1996 to $4,483,000 in the third quarter
of 1997. (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 third quarter of 1997 ($20,543,000 versus $14,758,000)
reflecting the added effect of Dahlstrom Industries, Inc., acquired on August
30, 1996, and Hill Engineering, Inc., acquired on January 31, 1997. Gross profit
margins increased from 24.6% to 28.0%, and operating income increased from
$1,138,000 to $1,595,000 due in part to the effect of certain product
development costs incurred by Omega Flex, Inc., (Omega) and other transitional
costs incurred by Rowe during the quarter ended September 30, 1996. Omega,
acquired in February 1996, is a manufacturer of flexible metal hose. In
January of 1997 Omega introduced Trac-Pipe(TM), a corrugated stainless steel
tubing product developed especially for use in the piping and installation of
gas appliances. The unexpectedly rapid acceptance of this product has led to
greater market development, product development and manufacturing overhead costs
than were originally envisioned. The closing of the Rowe Machinery manufacturing
plant in Dallas, Texas and the move of its products to the Company's Clinton,
Maine facility was completed in the quarter ended June 30, 1997.
The Company's computer systems segment reported increased Revenues, Gross
Profit margins and Operating income figures in the quarter ended September 30,
1997 relative to the quarter ended September 30, 1996.
For the Company as a whole, Selling, General and Administrative, and
Engineering costs, taken together as a percentage of Total Revenues, increased
from 19.2% to 20.6% owing principally to increased sales expenses. (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 third quarter of 1997 for the Company as a whole,
increased by $874,000 or 14.3% relative to the third quarter of 1996 reflecting
the various effects mentioned above.
The Company's total debt (long-term debt plus current portion of long-term
debt) decreased slightly during the quarter ended September 30, 1997 despite a
seasonal growth in receivables as well as additional investments in capital
equipment due to strong positive cash flows from earnings. 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 did not file a 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 Nine Months Ended
September 30, September 30,
------------- ------------
1997 1996 1997 1996
---- ---- ---- ----
(Amounts in thousands, except
earnings per common shares)
Net income for earnings
per share $ 3,841 $ 3,228 $ 9,335 $ 9,111
======= ======= ======= =======
Total Common shares and
common share
equivalents 8,928 8,930 8,929 8,941
======= ======= ======= =======
Earnings per common
share $ .43 $ .36 $ 1.04 $ 1.02
======= ======= ======= =======
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: November 3, 1997
/S/ Stephen M. Shea
Stephen M. Shea
Senior Vice President - Finance
(Chief Financial Officer)
11
<PAGE>
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<NAME> Mestek, Inc.
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<PERIOD-START> JUL-01-1997
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