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, 1998
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 30, 1998,
was 8,926,305.
1
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at March 31, 1998
and December 31, 1997 3 - 4
Condensed consolidated statements of income for the three
months ended March 31, 1998 and 1997 5
Condensed consolidated statements of cash flows for the three
months ended March 31, 1998 and 1997 6
Condensed consolidated statement of changes in shareholders'
equity for the period from January 1, 1997 through March 31, 1998 7
Notes to the condensed consolidated financial statements 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
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MESTEK,INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, Dec. 31,
1998 1997
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 1,898 $ 2,494
Accounts Receivable - less allowances of
$2,604,000 and $2,529,000, respectively 46,292 52,696
Unbilled Accounts Receivable 269 248
Inventories 56,092 51,580
Other Current Assets 4,905 5,273
---------- ----------
Total Current Assets 109,456 112,291
Property and Equipment - net 41,477 40,715
Equity Investments 8,778 8,778
Other Assets and Deferred Charges - net 5,435 5,516
Excess of Cost over Net Assets of
Acquired Companies 23,719 23,817
---------- ----------
Total Assets $ 188,865 $ 191,117
========== ==========
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)
March 31, Dec. 31,
1998 1997
---- ----
(Dollars in thousands)
LIABILITIES, AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $ 18,391 $ 18,667
Accounts Payable 16,945 20,276
Accrued Compensation 3,138 6,100
Accrued Commissions 2,526 3,283
Progress Billings in Excess of Cost
and Estimated Earnings 2,505 3,205
Customer Deposits 4,996 3,570
Other Accrued Liabilities 16,073 15,134
----------- -----------
Total Current Liabilities 64,574 70,235
Long-Term Debt 642 662
Other Liabilities 238 238
----------- -----------
Total Liabilities 65,454 71,135
----------- -----------
Minority Interests 2,035 1,975
----------- -----------
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 112,569 109,199
Treasury Shares, at cost,
(683,830 common shares) ( 6,109) ( 6,109)
Cumulative Translation Adjustment ( 997) ( 996)
------------ ------------
Total Shareholders' Equity 121,376 118,007
------------ ------------
Total Liabilities, and
Shareholders' Equity $ 188,865 $ 191,117
============ ============
See the Notes to Condensed Consolidated Financial Statements.
4
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MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
March 31,
1998 1997
-------- ------
(In thousands, except for
share amounts)
Net Sales $ 71,634 $ 71,235
Net Service Revenues 4,015 3,981
------------ ------------
Total Revenues 75,649 75,216
Cost of Goods Sold 51,888 52,336
Cost of Service Revenues 2,589 2,453
------------ ------------
Gross Profit 21,172 20,427
Selling Expense 9,753 8,924
General and Administrative Expense 3,707 4,018
Engineering Expense 1,988 1,884
------------ ------------
Operating Profit 5,724 5,601
Interest Expense ( 159) ( 210)
Other Income (Expense) - net ( 127) ( 159)
------------ ------------
Income Before Income Taxes 5,438 5,232
Income Taxes 2,068 1,979
------------ ------------
Net Income $ 3,370 $ 3,253
============ ============
Basic Earnings Per Common Share $ .38 $ .36
============ ============
Basic Weighted Average Shares Outstanding 8,926 8,930
============ ============
Diluted Earnings Per Common Share $ .38 $ .36
============ ============
Diluted Weighted Average Shares Outstanding 8,950 8,947
============ ============
See the Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
1998 1997
-------- ------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 3,370 $ 3,253
Adjustments to Reconcile Net Income to Net Cash
Used In Operating Activities:
Depreciation and Amortization 1,929 1,935
Provision for Losses on Accounts Receivable 75 185
Change in Assets & Liabilities:
Cash Flows Provided by (Used in) Changes in:
Accounts Receivable 6,329 4,798
Unbilled Accounts Receivable ( 21) ( 38)
Inventory ( 4,512) ( 6,124)
Other Assets 274 ( 4,786)
Accounts Payable ( 3,331) ( 2,578)
Accrued Expenses ( 1,354) ( 106)
Progress Billings ( 700) ( 148)
Other Long Term Liabilities - ( 1)
--------- --------
Net Cash Provided by (Used in) Operating Activities 2,059 ( 3,610)
--------- --------
Cash Flows from Investing Activities:
Capital Expenditures ( 2,418) ( 4,109)
Acquisition of Businesses (net of cash acquired) - ( 5,141)
--------- --------
Net Cash Used in Investing Activities ( 2,418) ( 9,250)
--------- --------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit Agreements 14,720 3,105
Principal Payments Under Long Term Debt
Obligations (15,016) ( 1,087)
Increase in Minority Interests 60 58
Cumulative Translation Adjustments ( 1) 6
--------- --------
Net Cash Provided by (Used in) Financing Activities ( 237) 2,082
--------- --------
Net Decrease in Cash and Cash Equivalents ( 596) ( 10,778)
Cash and Cash Equivalents - Beginning of Period 2,494 11,649
--------- ---------
Cash and Cash Equivalents - End of Period $ 1,898 $ 871
========= =========
See the Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
For the period January 1, 1997 through March 31, 1998
Addtn'l Cumul.
Common Paid In Retained Treasury Transl.
Stock Capital Earnings Shares Adj. Total
----- ------- -------- ------- ------- -------
Balance - January 1, 1997 $ 479 $15,434 $94,794 $ (6,040) $( 949) $103,718
Net Income 14,405 14,405
Common Stock Repurchased ( 69) ( 69)
Cumulative Translation Adjustment ( 47) ( 47)
------ ------- -------- -------- ------- --------
Balance - December 31, 1997 $ 479 $15,434 $109,199 $( 6,109) $( 996) $118,007
Net Income 3,370 3,370
Cumulative Translation Adjustment ( 1) ( 1)
------ ------- -------- -------- -------- --------
Balance - March 31, 1998 $ 479 $15,434 $112,569 $( 6,109) $( 997) $121,376
====== ======= ======== ========= ======== ========
See the Notes to Condensed Consolidated Financial Statements.
7
<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 $2,068,000 and $1,979,000
were recorded for the three month periods ended March 31, 1998 and 1997,
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 is being amortized over 25
years. The acquisitions of Rowe Machinery & Automation, Inc., and Omega Flex,
Inc. in 1996 resulted in goodwill of $7,729,000 which is being amortized over 25
years. The acquisition of Hill Engineering, Inc. on January 31, 1997, resulted
in goodwill of $2,892,000 which is being 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.
8
<PAGE>
Note 2 - Property and Equipment
March 31, Dec. 31,
1998 1997
---------- -------
Land $ 2,045,000 $ 2,045,000
Building 18,941,000 18,319,000
Leasehold Improvements 4,352,000 4,352,000
Equipment 62,056,000 60,260,000
------------ ---------------
87,394,000 84,796,000
Accumulated Depreciation (45,917,000) ( 44,261,000)
------------ ---------------
$ 41,477,000 $ 40,715,000
============ ===============
Note 3 - Long-Term Debt
March 31, Dec. 31,
1998 1997
----------- -------
Senior Notes $ - $15,000,000
Revolving Loan Agreement 18,220,000 3,500,000
Other Bonds and Notes Payable 813,000 829,000
------------ -----------
19,033,000 19,329,000
Less Current Maturities ( 18,391,000) ( 18,667,000)
------------ -----------
$ 642,000 $ 662,000
============ ===========
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. The Agreement was
recently renewed on a one year basis extending through April 30, 1999. 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 matured and were paid off on
March 1, 1998. The notes bore interest at 5.53% per annum.
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
<PAGE>
Note 4 - Earnings Per Common Share
Basic earnings per share were computed using the weighted average
number of common shares outstanding. Common stock options were considered in the
computation of diluted earnings.
Note 5 - Subsequent Event
On April 29, 1998 the Company, through a newly established Canadian
subsidiary, acquired 100% of the capital stock of Ruscio Brothers Refractory,
Ltd. (RBR) and 988721 Ontario Inc. (988721) of Mississauga,Ontario, Canada
for approximately $4.3 million CA. RBR and 988721 operate under the
name Ruscio Brothers Industries (RBI). RBI manufactures copper-finned boilers
and water heaters which are distributed primarily in Canada. Copper-finned
boilers are complementary to the Company's other boiler products and the Company
expects that its distribution network in the United States will substantially
expand RBI's sales.
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 reduced relative to the first quarter of 1997, by $3,156,000 or
5.9%. HVAC sales were adversely effected by the relatively mild winter of 1998
as well as by changes in the Company's traditional deferred billing program
which resulted in the postponement of certain shipments from the first quarter
to the third quarter of 1998. Gross profit margins for the HVAC segment
decreased slightly, from 28.0% to 27.3%. Operating income for this segment was
accordingly reduced from $4,656,000 in the first quarter of 1997 to $3,434,000
in the first quarter of 1998.
Total Revenues in the Company's Metal Products segment were up
significantly during the first quarter of 1998 ($22,085,000 versus $18,529,000),
principally as a result of substantial revenue growth in the segment's National
Northeast and Omega-Flex units. National Northeast has continued to expand its
capabilities as a high end manufacturer of thermal heat sinks. Omega-Flex has
begun to enjoy the fruits of significant market development and product
development costs incurred in 1996 and 1997 relative to it's Trac-Pipe(TM)
flexible gas piping product, the demand for which has grown substantially since
the product's introduction in 1997. As a result of these factors, gross profit
margins improved significantly, from 23.8% to 28.5%, and operating income
increased from $1,190,000 to $2,169,000.
The Company's computer systems segment reported slightly improved
revenues, but slightly reduced Gross Profit margins and, as a result, slightly
reduced operating income.
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 19.71% to 18.05%.
Operating income for the first quarter of 1997 for the Company as a
whole, increased by $123,000 or 2.1% reflecting the net effects of the factors
mentioned above.
The Company's total debt (long-term debt plus current portion of
long-term debt) was relatively unchanged during the quarter ended March 31,
1998. 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
<PAGE>
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,
1998 1997
-------- ------
(Amounts in thousands, except
earnings per common share)
Net Income for earnings per share $ 3,370 $ 3,253
========= =========
Basic weighted average number of
common shares outstanding 8,926 8,930
========= =========
Basic earnings per common share $ .38 $ .36
========= =========
Diluted weighted average number of
common shares outstanding 8,950 8,947
========= =========
Diluted earnings per common share $ .38 $ .36
========= =========
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 4, 1998 By: /S/ Stephen M. Shea
--------------------
Stephen M. Shea, Senior Vice President -
Finance, and CFO (Chief Financial Officer)
11
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<NAME> Mestek, Inc.
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,898
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<RECEIVABLES> 48,896
<ALLOWANCES> 2,604
<INVENTORY> 56,092
<CURRENT-ASSETS> 109,456
<PP&E> 87,394
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<COMMON> 479
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