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, 2000
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 November 6, 2000 was
8,743,103.
<PAGE>
MESTEK, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
INDEX
Page
PART I - FINANCIAL INFORMATION
Condensed consolidated balance sheets at September 30, 2000
and December 31, 1999 3-4
Condensedconsolidated statements of income for the three months ended September
30, 2000 and 1999 and the nine months ended
September 30, 2000 and 1999 5
Condensed consolidated statements of cash flows for the nine
months ended September 30, 2000 and 1999 6
Condensed consolidated statement of changes in shareholders' equity
for the period from January 1, 1999 through September 30, 2000 7
Notes to the condensed consolidated financial statements 8-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations 15-16
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 16
Statement of Computation of Per share Earnings 17
SIGNATURE 17
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)
Sept. 30, Dec. 31,
2000 1999
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash $3,031 $4,468
Accounts Receivable - less allowances of
$4,478 and $3,627 respectively 74,400 66,605
Unbilled Accounts Receivable 44 447
Inventories 71,873 54,688
Other Current Assets 9,030 5,815
--------- ---------
Total Current Assets 158,378 132,023
Property and Equipment -net 75,771 69,067
Notes Receivable --- 3,850
Investment in Simione Central Holdings, Inc. 6,850 ---
Other Assets and Deferred Charges - net 8,840 7,146
Excess of Cost over Net Assets of Acquired Companies 56,845 30,167
--------- ---------
Total Assets $306,684 $242,253
========= =========
See the Notes to Condensed Consolidated Financial Statements.
Continued on next page
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (continued)
(Unaudited)
Sept. 30, Dec. 31,
2000 1999
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion of Long-Term Debt $81,522 $14,467
Accounts Payable 23,506 18,335
Accrued Compensation 5,109 6,778
Accrued Commissions 2,660 3,314
Progress Billings in Excess of Cost and
Estimated Earnings 268 3,257
Customer Deposits 8,588 5,409
Other Accrued Liabilities 22,656 16,731
--------- --------
Total Current Liabilities 144,309 68,291
Long-Term Debt 244 20,324
Other Liabilities 2,326 2,104
--------- --------
Total Liabilities 146,879 90,719
--------- --------
Minority Interests 2,789 2,917
--------- --------
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 152,035 143,180
Treasury Shares, at cost, (867,032 and 846,132
common shares, respectively) (9,809) (9,393)
Cumulative Translation Adjustment (1,123) (1,083)
--------- ---------
Total Shareholders' Equity 157,016 148,617
--------- ---------
Total Liabilities and Shareholders' Equity $306,684 $242,253
========= =========
See the Notes to Condensed Consolidated Financial Statements.
<PAGE>
MESTEK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-------- -------- -------- --------
(Amounts in thousands,
except earnings per common share)
Net Sales $114,967 $94,490 $296,558 $256,560
Net Service Revenues 165 125 685 125
-------- ------- -------- --------
Total Revenues 115,132 94,615 297,243 256,685
Cost of Goods Sold 83,860 69,368 214,884 186,162
Cost of Service Revenues 149 15 450 15
-------- ------- -------- --------
Gross Profit 31,123 25,232 81,909 70,508
Selling Expense 13,974 10,914 37,592 32,204
General and Administrative Expense 6,303 4,632 15,774 12,497
Engineering Expense 3,126 2,757 8,751 7,240
-------- ------- ------- -------
Operating Profit 7,720 6,929 19,792 18,567
Interest Expense (1,381) (630) (2,487) (1,476)
Other Income (Expense) - net 99 (31) 177 (201)
-------- ------- ------- -------
Income from Continuing
Operations Before Income Taxes 6,438 6,268 17,482 16,890
Income Taxes 2,404 2,307 6,765 6,325
-------- ------- ------- -------
Income from Continuing Operations 4,034 3,961 10,717 10,565
Discontinued Operations:
Income (Loss) from Operations of
Discontinued Segment Before Taxes --- 182 (478) 1,035
Applicable Income Tax (Expense) Benefit --- (74) 167 (407)
-------- ------- ------- -------
Income (Loss) from Operations
of Discontinued Segment --- 108 (311) 628
Net Income $4,034 $4,069 $10,406 $11,193
-------- ------- ------- -------
Basic Earnings Per Common Share
Continuing Operations $ .46 $ .45 $1.23 $1.19
Discontinued Operations --- .01 (.04) .07
-------- ------- ------- -------
Net Income $ .46 $ .46 $1.19 $1.26
======== ======= ======= =======
Basic Weighted Average Shares Outstanding 8,743 8,857 8,743 8,870
======== ======= ======= =======
Diluted Earnings Per Common Share
Continuing Operations $.46 $.45 $1.23 $1.19
Discontinued Operations --- .01 (.04) .07
-------- ------- ------- -------
Net Income $.46 $.46 $1.19 $1.26
======== ======= ======= =======
Diluted Weighted Average Shares Outstanding 8,760 8,888 8,760 8,899
======== ======= ======= =======
See the Notes to Condensed Consolidated Financial Statements.
Note: Year-to-date September 30, 2000 and September 30, 1999 earning per share
figures do not equal the sum of individual quarters due to rounding differences.
<PAGE>
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $10,406 $11,193
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 9,296 7,800
Provision for Losses on Accounts Receivable 1,053 414
Change in Assets & Liabilities:
Cash Flows (Used) by Changes In:
Assets and Liabilities (10,959) (12,131)
-------- --------
Net Cash Provided by Operating Activities 9,796 7,276
-------- --------
Cash Flows from Investing Activities:
Investment in Simione Central Holdings, Inc. (3,000) ---
Capital Expenditures (7,348) (8,425)
Acquisition of Businesses (net of cash acquired) (41,537) (25,495)
-------- --------
Net Cash (Used in) Investing Activities (51,885) (33,920)
-------- --------
Cash Flows from Financing Activities:
Net Borrowings Under Line of Credit Agreement 41,328 26,007
Principal Payments Under Long Term Debt Obligation (91) (109)
Repurchase of Common Stock (417) (988)
Increase in Minority Interests (128) (11)
Cumulative Translation Adjustments (40) (5)
-------- --------
Net Cash Provided by Financing Activities 40,652 24,894
-------- --------
Net (Decrease) in Cash and Cash Equivalents (1,437) (1,750)
Cash and Cash Equivalents - Beginning of Period 4,468 3,777
-------- --------
Cash and Cash Equivalents - End of Period $3,031 $2,027
------- --------
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, 1999 through September 30, 2000
<CAPTION>
Additional Cumulative
Common Paid In Retained Treasury Translation
Stock Capital Earnings Shares Adjustment Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1999 $479 $15,434 $125,263 ($6,790) ($1,088) $133,298
Net Income 17,917 17,917
Common Stock Repurchased (2,603) (2,603)
Cumulative Translation Adjustment 5 5
--------------------------------------------------------------------------------------
Balance - December 31, 1999 $479 $15,434 $143,180 (9,393) (1,083) $148,617
======================================================================================
Net Income 10,406 10,406
Dividends Paid in MCS, Inc. common stock (1,551) (1,551)
Common Stock Repurchased (416) (416)
Cumulative Translation Adjustment (40) (40)
--------------------------------------------------------------------------------------
Balance - September 30, 2000 $479 $15,434 $152,035 (9,809) (1,123) $157,016
======================================================================================
</TABLE>
See the Notes to the Condensed Consolidated Financial 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 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 $2,404,000 and $2,307,000 were
recorded for the three months ended September 30, 2000 and 1999, respectively.
Excess of Cost Over Net Assets of acquired Companies (Goodwill)
---------------------------------------------------------------
The Company amortizes Goodwill on the straight-line basis over the estimated
period to be benefited. The acquisition of the assets of Anemostat on March 26,
1999 resulted in Goodwill of approximately $6,800,000, which will be amortized
over 25 years. The acquisition of the assets of Wolfram, Inc. d/b/a Cesco
Products, as more fully described in Note 2, resulted in Goodwill of
approximately $2,700,000, which will be amortized over 25 years. The acquisition
of selected assets of B & K Rotary Machinery International Corporation, as more
fully described in Note 2, resulted in Goodwill of approximately $2,200,000,
which will be amortized over 25 years. The merger of Met-Coil Systems
Corporation into Formtek, Inc., a wholly owned subsidiary of the Company, as
more fully described in Note 2, resulted in goodwill of approximately
$23,000,000, which will be amortized over 25 years. The acquisition of the
assets of Louvers and Dampers, Inc., as more fully described in Note 2, resulted
in Goodwill of approximately $699,000, 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.
Comprehensive Income
For the periods ended September 30, 2000 and September 30, 1999, respectively,
the components of other comprehensive income were immaterial and consisted
solely of foreign currency translation adjustments.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
Recent Accounting Pronouncements
On December 3, 1999, the SEC released Staff Accounting Bulletin 101, (SAB101)
"Revenue Recognition in Financial Statements". This bulletin established more
clearly defined revenue recognition criteria than previous existing accounting
pronouncements. On June 26, 2000, the SEC released Staff Accounting Bulletin
101B which delayed the required implementation of SAB101 until no later than the
fourth quarter of fiscal years ending December 31, 2000. The Company believes
that the effects of SAB101 will not be material to its financial condition,
results of operations or cash flow.
Note 2 - Business Acquisitions
On January 28, 2000, the Company acquired substantially all of the operating
assets of Wolfram, Inc. d/b/a Cesco Products ("Cesco") located in Minneapolis,
Minnesota. Cesco manufactures vertical and horizontal louvers; controls and
fire/smoke dampers; gravity ventilators, louver penthouses and walk-in access
doors for the HVAC industry at its location in Minneapolis, Minnesota. The Cesco
products are complementary to the Company's existing louver and damper
businesses. The purchase price paid for the assets acquired was approximately
$5,991,000, including assumed liabilities of approximately $991,000. The Company
accounted for this acquisition under the purchase method of accounting and
accordingly recorded goodwill of approximately $2,700,000.
On February 10, 2000, the Company, through a wholly owned subsidiary, acquired
the designs, intellectual property and certain physical assets of B & K Rotary
Machinery International Corporation ("B & K") of Brampton, Ontario, Canada. B &
K is a well-known and experienced manufacturer of highly engineered metal
processing lines. B & K equipment is found in steel processing centers,
tube/pipe production plants and roll-forming facilities around the world. The B
& K Supermill(TM), Rotary Shear(TM), and Rotary Pierce(TM) designs are the
technology of choice among leading producers of light gauge steel framing used
in building construction. The purchase price paid for the assets acquired was
approximately $2,800,000. The Company accounted for this acquisition under the
purchase method of accounting and accordingly, recorded goodwill of
approximately $2,200,000.
On June 3, 2000, the Company and Met-Coil Systems Corporation ("Met-Coil")
completed its previously announced merger agreement under which Met-Coil was
merged into a wholly owned subsidiary of the Company. Immediately thereafter, in
accordance with the terms of the merger agreement, the Met-Coil shareholders
were redeemed for a total cash consideration of approximately $33,600,000.
Met-Coil manufactures advanced sheet-metal-forming equipment, fabricating
equipment and computer-controlled fabrication systems for the global market. The
Company employs approximately 270 people, principally in its Cedar Rapids, Iowa
and Lisle, Illinois manufacturing facilities, and had revenues for the fiscal
year ended May 31, 2000 of $48.3 million. Met-Coil's products are complementary
with those of the Company's Metal Forming Segment. The Company accounted for the
merger under the purchase method of accounting and, accordingly, the total
purchase price allocated to the assets acquired was approximately $49,400,000,
including assumed liabilities of $15,800,000. Goodwill of approximately
$23,000,000 was recorded.
On June 30, 2000 the Company acquired substantially all of the operating assets
of Louvers and Dampers, Inc. (L & D) located in Florence, Kentucky. L & D
manufactures louver and damper products for the HVAC industry. The purchase
price paid for the assets acquired was $3,000,000 and included $699,000 of
goodwill. The Company accounted for the acquisition under the purchase method of
accounting.
On August 25, 2000 the Company, through a 75% owned subsidiary, Airtherm LLC,
acquired substantially of all of the operating assets of Airtherm Manufacturing
Company, a Missouri corporation, and Airtherm Products, Inc., an Arkansas
corporation, (collectively the sellers), except the real property owned by these
companies, for approximately $4,099,000, including assumed liabilities of
$101,000. No goodwill was recorded in the transaction. The Company has an option
to acquire the remaining 25% of Airtherm LLC membership interests it does not
own for $2,000,000, subject to certain downward adjustments. The option expires
on February 21, 2002. The Company may become contractually obligated to purchase
these shares for $2,500,000, subject to certain downward adjustments if it
chooses not to exercise its option. If the Company chooses to exercise its
option to acquire the membership interests, or is required to purchase the
membership interests, the amount paid will be recorded as goodwill in connection
with the acquisition of Airtherm. In connection with the transaction the Company
also loaned $1,550,000 to an unrelated company which acquired two manufacturing
facilities owned by the sellers. The loan is evidenced by a $750,000 promissory
note which bears interest at 7% and matures on August 31, 2002 and a $800,000
promissory note which bears interest at 7% and matures on August 31, 2002. The
notes are secured in each case by the related manufacturing facilities and are
included in other current assets and other assets, respectively, as of September
30, 2000.
Note 3 - Merger Agreement
On May 26, 1999 the Company entered into an agreement (the Agreement) to merge
its wholly owned subsidiary, MCS, Inc. (MCS) into Simione Central Holdings, Inc.
(Simione). Simione is a provider of information systems and services to the home
health care industry supplying information systems, consulting and agency
support services to customers nationwide. Simione provides freestanding,
hospital based and multi-office home health care providers (including certified,
private duty, staffing, HME, IV therapy, and hospice) with information solutions
that address all aspects of home care operations. Simione maintains offices
nationwide and is headquartered in Atlanta, Georgia.
Under the terms of the Agreement, for every share of outstanding Simione common
stock, Simione would issue .85 shares of its common stock to the Company. As a
result, the Company would own, based on the number of Simione common shares
outstanding at the date of the Agreement, approximately 46% of Simione after the
merger is completed. On August 12, 1999, Simione, with the Company's consent,
acquired all of the outstanding common stock of CareCentric Solutions, Inc. for
$200,000 and acquired all of the Preferred Stock of CareCentric Solutions, Inc.
in return for 3.1 million newly issued shares of Simione Series A Preferred
Stock, which may be converted on a one for one basis into Simione common shares
upon consent of a majority of the Simione shareholders. The Series A Preferred
Stock was converted to common stock after shareholder approval on March 7, 2000.
As a result, the Company owns approximately 38% of Simione. Under the terms of
the Agreement, MCS's ProfitWorks segment remains with the Company.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had entered into
an amendment to the Plan and Agreement of Merger dated May 26, 1999 (the
"Amendment") between Simione Central Holdings, Inc. ("SCHI"), Mestek, and its
wholly-owned subsidiary, MCS, Inc. ("MCS"), whereby the shares of common stock
of MCS will be distributed to the Mestek common shareholders in a spin-off
transaction (the Spin-off), and MCS will then be merged with and into SCHI, (the
Merger). The Spin-off and the Merger were completed on March 7, 2000, after
shareholder approval.
In connection with the Amendment, Mestek loaned to SCHI a total of $4,000,000 on
a short-term basis. Upon the closing of the above-mentioned merger, the
$4,000,000 loan was canceled, and Mestek contributed an additional $2,000,000 to
the capital of SCHI in return for newly issued Series B Preferred Stock of SCHI.
The Series B Preferred Stock issued to Mestek had super-voting rights equivalent
to 2.2 million shares of SCHI common stock. On June 12, 2000 Mestek agreed to
reduce such voting rights by half to comply with NASDAQ's voting rights policy,
in exchange for a three-year warrant to acquire up to 490,396 shares at an
exercise price of $3.21 of SCHI Common Stock. Mestek also received as part of it
capital contribution to SCHI a warrant for the subsequent purchase of 400,000
shares of SCHI common stock at an exercise price of $10.875. The Amendment also
provided, upon consummation of the merger, for the appointment to the SCHI Board
of Directors of six individuals designated by Mestek, and the obligation of the
Mestek Major Shareholders (as defined in the Amendment) to vote for the nominees
to the SCHI Board of Directors for eighteen months after the effective date of
the merger.
Mestek also loaned Simione $850,000 on November 11, 1999 on a short-term basis.
Upon consummation of the merger, the loan was converted to $850,000 of newly
issued Series C Preferred Stock. The Series C Preferred stock has voting rights
equal to 170,000 shares of SCHI common stock.
On March 6, 2000, the Company completed the Spin-off and on March 7, 2000, the
subsequent merger of its wholly owned subsidiary, MCS, Inc., into Simione
Central Holdings, Inc. The net book value of the assets of MCS, Inc. of
approximately $1,551,000 has been treated as a dividend to the shareholders of
the Company. The Company has accounted for the operations of MCS prior to that
date as a discontinued operation in accordance with APB30.
See also - Note 11 - Related Party Transactions
Summarized financial information for the discontinued operations, is as follows:
Quarter ended Years ended
September 30, 2000 1999 1998
------------------ ---- ----
Operating Revenues --- $16,648 $14,901
Income before Provision for Income Taxes --- $772 $1,712
Income from Discontinued Operations
Net of Income Tax --- $466 $1,026
<PAGE>
At December 31, 1999
Current Assets $4,648
Total Assets $6,696
Current Liabilities $6,191
Total Liabilities $6,191
Net Assets of Discontinued Operations $505
Note 4 - Inventories
Inventories consisted of the following at:
September 30, December 31,
2000 1999
---- ----
Finished Goods $23,252 $18,692
Work-in-progress 23,172 14,865
Raw materials 32,652 28,335
------ ------
79,076 61,892
Less provision for LIFO
Method of valuation (7,203) (7,204)
------- -------
$71,873 $54,688
======= =======
Note 5 - Property and Equipment
September 30, Dec. 31,
2000 1999
---- ----
Land $4,636 $2,853
Building 29,188 26,792
Leasehold Improvements 4,824 4,415
Equipment 104,781 96,028
------- -------
143,429 130,088
Accumulated Depreciation (67,658) (61,021)
-------- -------
$75,771 $69,067
======== ========
<PAGE>
Note 6 - Long-Term Debt
September 30, Dec. 31,
2000 1999
---- ----
Revolving Loan Agreement $61,430 $34,358
Note Payable 20,000 ---
Other Bonds and Notes Payable 336 433
------- --------
81,766 34,791
Less Current Maturities (81,522) (14,467)
-------- --------
$244 $20,324
======== ========
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 credit 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 one percent (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 has been extended on a one-year basis through April 30,
2001. 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 percent (50%) of net income.
Note Payable - The Company has an unsecured uncommitted Demand Loan Facility
with a second commercial bank under which the Company can borrow up to
$25,000,000 on a LIBOR basis. The facility expires on April 30, 2001.
$20,000,000 was outstanding under the Demand Loan facility as of September 30,
2000.
Note 7 - Interim Segment Information
Description of the types of products and services from which each reportable
segment derives its revenues:
The Company has three reportable segments: the manufacture of heating,
ventilating and air-conditioning equipment (HVAC), the manufacture of metal
handling and metal forming machinery (Metal Forming), and the production of
metal products (Metal Products). As further described in Note 3, the Company
discontinued its Computer Software segment during fiscal 2000.
The Company's HVAC segment manufactures and sells a wide variety of residential,
commercial and industrial heating, cooling, and air distribution products to
independent wholesales supply warehouses, to mechanical, sheet metal and other
contractors, and in some cases to other HVAC manufacturers under original
equipment manufacture (OEM) contracts. The products include finned tube and
baseboard radiation equipment, gas fired heating and ventilating equipment, air
damper equipment and related air distribution products and commercial and
residential boilers. The products are marketed under a number of franchise names
including Sterling, Beacon Morris, Smith, Hydrotherm, RBI, Vulcan, Applied Air,
Wing, AWV, ABI, Arrow, Koldwave, Anemostat and Spacepak. Assets totaling
approximately $13,090,000 acquired in the Cesco, Louvers and Dampers, and
Airtherm LLC acquisitions, as more fully described in Note 2, have been added to
the Company's HVAC segment.
The Company's Metal Products segment manufactures a variety of metal products
including aluminum extrusions, flexible metal hose and gray iron castings. This
segment sells its products mostly as components to manufacturers who incorporate
them into their own products. In some cases flexible metal hose is sold to
distributors.
The Company's Metal Forming segment designs, manufactures and sells a variety of
metal forming equipment and related machinery under names such as
Cooper-Weymouth, Peterson, Dahlstrom, Hill Engineering, CoilMate/Dickerman,
Rowe, B & K Rotary, Lockformer and Iowa Precision. The products are sold through
independent dealers in most cases to end-users and in some cases to other
original equipment manufacturers. The products include roll formers, wing
benders, coil feeds, straighteners, cradles, cut-to-length lines, specialty
dies, rotary punch, tube feed and cut-off and flying cut-off saws. Assets
totaling approximately $2,800,000 acquired in the B & K Rotary acquisition on
February 10, 2000, as more fully described in Note 2, have been added to the
Company's Metal Forming segment. Assets totaling approximately $49,400,000
acquired in the Met-Coil acquisition on June 3, 2000, as more fully described in
Note 2, have also been added to the Company's Metal Forming segment.
Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on profit or
loss from operations before interest expense and income taxes, (EBIT) not
including non-operating gains and losses. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales and transfers are recorded
at prices substantially equivalent to the Company's cost; inter-company profits
on such inter-segment sales or transfers are not material.
Factors management used to identify the enterprise's reportable segments:
The Company's reportable segments are business units that offer different
products. The reportable segments are each managed separately because they
manufacture and distribute distinct products using distinct production processes
intended for distinct marketplaces.
<PAGE>
Three Months ended
September 30, 2000:
Metal Metal All
HVAC Products Forming Others Totals
------- -------- ------- ------ -------
Revenues from External Customers $75,015 $19,427 $20,525 $165 $115,132
Segment Operating Profit $4,289 $2,642 $906 ($117) $7,720
Three Months ended
September 30, 1999:
Metal Metal All
HVAC Products Forming Others Totals
------- -------- ------- ------ -------
Revenues from External Customers $68,678 $16,028 $9,784 $125 $94,615
Segment Operating Profit $5,098 $1,418 $403 $10 $6,929
Note 8 - 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 9 - Common Stock Buyback Program
No purchases have been made under the Company's program of selective "open
market" purchases of its common stock since January 13, 2000.
Note 10 - Stock Option Plans
On March 20, 1996 the Company adopted a stock option plan, the Mestek, Inc. 1996
Stock Option Plan, (the Plan), which provides for the granting of incentive and
non-qualified stock options of up to 500,000 shares of stock to certain
employees of the Company and other persons, including directors, for the
purchase of the Company's common stock at fair market value at the date of
grant. The Plan was approved by the Company's shareholders on May 22, 1996.
Options granted under the plan vest over a five-year period and expire at the
end of ten years. All options granted under the Plan total 175,000 shares, none
of which have been exercised at March 31, 2000. No options were granted in the
third quarter of 2000.
Note 11 - Related Party Transactions
As more fully described in Note 3, the Company has invested $6,850,000 in
Simione Central Holdings, Inc. (Simione) equity securities.
On July 12, 2000, the Company executed a guarantee on behalf of Simione relative
to Simione's $6 million one-year line of credit with Wainwright Bank and Trust
Company. Under the terms of the guarantee, the Company is obligated to fulfill
any obligations under the line of credit agreement not fulfilled by Simione. The
outstanding balance under the line of credit as of September 30, 2000 was
approximately $4,598,000. In consideration of the guarantee the Company received
a three-year warrant to purchase up to 104,712 shares of Simione common stock at
an exercise price of $2.51 per share.
Simione Central Holdings, Inc. is obligated to the Company under a $600,000
one-year Promissory Note which bears interest at prime plus one and matures on
July 30, 2001. The Note is included in other current assets on September 30,
2000.
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operation
Total Revenues in the Company's HVAC segment for the three-month period ended
September 30, 2000, net of revenues generated by the Cesco, Inc., Louvers and
Dampers, Inc., and Airtherm, Inc. acquisitions, as more fully described in Note
2, were up approximately 2.9%. Gross profit margins for the HVAC segment were
slightly lower at 26.8% reflecting the transitional effects of these
acquisitions. Operating income for this segment decreased from $5,098,000 in the
third quarter of 1999 to $4,289,000 in the third quarter of 2000. Costs
associated with a number of new product development projects and the relocation
of an air distribution products manufacturing facility also impacted operating
results for this segment.
Total Revenues in the Company's Metal Products segment for the three-month
period ended September 30, 2000, were up 21.2%, principally as a result of
improved performances at National Northeast Corporation, which experienced a
sub-par 1999 due to relocation costs and installation of a new extrusion press,
and at Omega Flex, Inc., which continued to expand sales of its TracPipe(R)
flexible gas piping product. As a result of these factors, gross profit margins
and operating income increased significantly for this segment during the
three-month period ended September 30, 2000.
Total Revenues in the Company's Metal Forming segment more than doubled during
the quarter ended September 30, 2000, as set forth in Note 7 to the Condensed
Consolidated Financial Statement, as a result of revenues from the Company's
Met-Coil unit, which was acquired on June 3, 2000. Gross Profit Margins for the
Metal Forming segment were reduced relative to the comparable quarter in 1999
due to reduced revenues from certain historical product lines and certain
transitional costs associated with the absorption of B & K Rotary Machinery
International Corporation, which was acquired on February 10, 2000 as more fully
described in Note 2. Operating income increased from $403,000 in the third
quarter of 1999 to $906,000 in the third quarter of 2000 reflecting the effect
of the MetCoil acquisition.
For the Company as a whole, Sales, General and Administrative, and Engineering
costs, taken together as a percentage of Total Revenues, increased from 19.3% to
20.3%.
Operating income from continuing operations for the third quarter of 2000 for
the Company as a whole increased 2.7% from $6,268,000 to $6,438,000 reflecting
the net effect of the factors mentioned above.
The Company's total debt (long-term debt plus current portion of long-term debt)
increased by $2,260,000 during the quarter ended September 30, 2000. Management
regards the Company's current capital structure and banking relationships as
fully adequate to meet foreseeable future needs. Except for the non-cash
distribution of the stock of MCS during the first quarter 2000 as further
described in Note 3, 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 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,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(Amounts in thousands, except earnings per common share)
Net income for earnings per share $4,034 $4,069 $10,406 $11,193
===== ===== ====== =======
Basic earnings per common share
Continued Operations $ .46 $ .45 $1.23 $1.19
Discontinued Operations -- .01 (.04) .07
----- ----- ----- -----
Net Income $ .46 $ .46 $1.19 $1.26
===== ===== ===== =====
Basic Weighted Average Share Outstanding 8,743 8,857 8,743 8,870
===== ===== ===== =====
Diluted Earnings Per Common Share
Continued Operations .46 .45 1.23 1.19
Discontinued Operations -- .01 (.04) .07
----- ----- ----- -----
Net Income $ .46 $ .46 $1.19 $1.26
===== ===== ===== =====
Diluted Weighted Average Share Outstanding 8,760 8,888 8,760 8,899
===== ===== ===== =====
Note: Year-to-date September 30, 2000 and September 30, 1999 earnings per share
figures do not equal the sum of individual quarters due to rounding differences.
<PAGE>
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 14, 2000 /S/ Stephen M. Shea
---------------------------------------------
Stephen M. Shea Senior Vice President-Finance
(Chief Financial Officer)
