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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number: 1-448
December 31, 1999
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
- ------------ ----------
(State or other jurisdiction of (I. R. S Employer
incorporation or organization) Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) 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 (2) has been subject to such filing requirements
for the past 90 days.
YES X NO__
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of voting common shares held by non-affiliates of the
registrant as of March 7, 1999, based upon the closing price for the
registrant's common stock as reported in The Wall Street Journal as of such date
was $47,454,674.
The number of shares of the registrant's common stock issued and outstanding as
of March 7, 2000 was 8,743,103.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on May 12, 2000 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 44 through 47 of
Part IV hereof are incorporated by reference into Part IV hereof.
PART I
Item 1 - BUSINESS
GENERAL
Mestek, Inc. ("Mestek" or the "Company") was incorporated in the
Commonwealth of Pennsylvania in 1898 as Mesta Machine Company. It changed its
name to Mestek, Inc. in October, 1984, and merged with Reed National Corp. on
July 31, 1986.
On January 31, 1997, the Company acquired ninety-one and one hundredths
percent (91.01%) of the issued and outstanding common stock of Hill Engineering,
Inc. (Hill) of Villa Park, Illinois and Danville, Kentucky. 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 $5,141,000. The Company has accounted for this
acquisition under the purchase method of accounting.
On November 3, 1997 the Company acquired one hundred percent (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 $3,521,000. The Company has accounted for this acquisition under the
purchase method of accounting.
On April 29, 1998, the Company, through a Canadian subsidiary, acquired
100 percent of the outstanding common stock of Ruscio Brothers Refractory Ltd.
(RBR) and 988721 Ontario, Inc. (988721), both of Mississauga, Ontario, Canada.
RBR and 988721 manufacture and distribute commercial and residential
copper-finned boilers and water heaters under the name Ruscio Brothers
Industries, (RBI), primarily in Canada. Copper-finned boilers and water heaters
are complimentary to the Company's other hydronic products and the Company now
distributes RBI's products in the United States. The purchase price paid for the
acquired stock was approximately $2,877,000 (U.S.) and included goodwill of
approximately $1,807,000 (U.S.)
On November 2, 1998, the Company exchanged its forty-six and eight
tenths percent (46.8%) interest in Eafco, Inc. for ninety-three and six tenths
percent (93.6%) of the common stock of Boyertown Foundry Company (BFC) of
Boyertown, PA. BFC received one hundred percent (100%) of the foundry and
machining operations of Eafco on that same date pursuant to "a split-up" of
Eafco structured for tax purposes as a tax-free reorganization. The Company has
accounted for this transaction under the purchase method of accounting.
Accordingly, the carrying value of the Company's equity investment in Eafco,
$8,778,000 at November 2, 1998, was treated as the purchase price for accounting
purposes. The assets acquired by BFC included substantially all of the real
estate and equipment owned by Eafco in Boyertown and used in the foundry,
machining and boiler assembly operations and certain other assets and
liabilities. BFC will operate principally as a cast-iron foundry, supplying cast
iron sections and related machining services to both the Company's Westcast
subsidiary and to various third parties, including Peerless Heater Company, Inc.
In connection with this transaction the Company loaned Eafco, Inc. $1,500,000
and also assumed and paid $650,000 of Eafco's then outstanding bank
indebtedness. The $1,500,000 loan bears interest at BankBoston's prime rate less
one, is payable over 42 months beginning on May 1, 2000, and is secured by
substantially all of Eafco's assets. BFC has also leased a portion of its
facilities in Boyertown to Eafco, Inc. which will continue to assemble and
warehouse boilers in Boyertown for Peerless Heater Company, Inc.
On March 26, 1999, the Company acquired substantially all of the
operating assets of the Anemostat Products and Anemostat-West Divisions of
Dynamics Corporation of America, (collectively, Anemostat), a wholly-owned
subsidiary of CTS Corporation. Anemostat manufactures commercial air
distribution products (grilles, registers, diffusers and VAV boxes); security
air distribution products; and door and vision frame products for the HVAC and
commercial building industries at locations in Scranton, Pennsylvania,
(Anemostat Products) and Carson, California, (Anemostat-West). The Anemostat
products are complementary to the Company's existing louver and damper
businesses. The purchase price paid for the assets acquired was approximately
$25,360,000, including assumed liabilities of approximately $3,577,000. The
Company accounted for this acquisition under the purchase method of accounting
and, accordingly, recorded Goodwill of approximately $6,800,000.
On April 26, 1999, an order was entered in the Bankruptcy Court for the
Southern District of Ohio, whereby the Company's offer to acquire certain of the
operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for $2,554,000.
On March 7, 2000, the Company completed the Spin-off and subsequent
merger of its wholly owned subsidiary, MCS, Inc. with and into Simione Central
Holdings, Inc., as more fully explained in note 2 to the consolidated financial
statements.
On March 14, 2000, the Company and MetCoil Systems Corporation,
(MetCoil) announced that they have entered into a definitive merger agreement
under which MetCoil will be merged into a wholly owned subsidiary of the Company
for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review
under the Hart-Scott-Rodino Act. All other conditions will be further described
in a proxy statement to be mailed to MetCoil's stockholders. The Board of
Directors of MetCoil has unanimously recommended that stockholders approve the
merger.
MetCoil 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, 1999 of $45.8 million. MetCoil's
products are complementary with those of the Company's Metal Forming Segment.
The Company's executive offices are located at 260 North Elm Street,
Westfield, Massachusetts 01085. The Company's phone number is 413-568-9571.
OPERATIONS OF THE COMPANY
The Company operates in four continuing business segments: Heating,
Ventilating, and Air Conditioning Equipment ("HVAC") manufacturing; Computer
Software Development and Systems Design; Metal Products; and Metal Forming. Each
of these segments is described below.
The Company's former Metal Products Segment was subdivided for
reporting purposes after 1997 into the Metal Forming Segment and the Metal
Products Segment.
The Company divested its Computer Systems segment on March 7, 2000 as
explained above.
The Company and its subsidiaries together employed approximately 3,050
persons as of December 31, 1999.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through Mestek, Inc. and various of its wholly owned
subsidiaries, (collectively, the "Reed Division") manufactures and distributes
products in the HVAC industry. These products include residential, commercial
and industrial hydronic heat distribution products, gas-fired heating and
ventilating equipment, louver and damper equipment, commercial and residential
gas and oil-fired boilers, air conditioning units, and related products used in
heating, ventilating and air conditioning systems.
The Reed Division sells finned-tube and baseboard radiation equipment
under the names "Sterling", "Vulcan", "Heatrim", "Petite-7", "Hydrotherm", and
"Suntemp", and other hydronic heat distribution products under the names
"Sterling" and "Beacon-Morris". The division sells gas-fired unit heaters under
the name "Sterling", radiant heating under the name "Cox" and gas-fired indoor
and outdoor heating and ventilating equipment under the names "Alton", "Applied
Air", "Wing", "Air Fan", and "Temprite". Cooling and air conditioning equipment
is sold under the "Alton", "Applied Air", "Space Pak", "Aztec", "Koldwave", "Air
Fan", and "Nesbitt" names, and gas and oil-fired boilers are sold primarily
under the names "RBI", "Hydrotherm", "Multi-Pulse", and "Multi-Temp", and
distributed under the name "Smith Cast Iron Boilers" by Westcast, Inc. A number
of these trade names are also registered trademarks owned by the Company and its
subsidiaries. These products may be used to heat, ventilate and/or cool
structures ranging in size from large office buildings, industrial buildings,
warehouses, stores and residences, down to such small spaces as add-on rooms in
residences. The division's products are manufactured at plants in Westfield,
Massachusetts; South Windsor, Connecticut; Farmville, North Carolina; Dallas,
Texas; Mississauga, Ontario, Canada; Dundalk, Maryland; and Wrens, Georgia. The
Company closed its Skokie, Illinois and Ridgeville, Indiana plants in 1996 and
relocated these operations to Dundalk, Maryland and Farmville, North Carolina,
respectively.
The Reed Division sells its many types of fire, smoke, and air control
louvers and dampers, which are devices designed to facilitate the ventilation of
buildings or to control or seal off the movement of air through building duct
work in the event of fire or smoke, under the names "Air Balance", "Phillips
Aire", "Anemostat", "ACDC", "Pacific Air Balance", "American Warming and
Ventilating", and "Arrow". These products are manufactured at the Company's
plants in Wrens, Georgia; Los Angeles, California; Bradner, Ohio; Waldron,
Michigan; Springfield, Ohio, and Wyalusing, Pennsylvania. The Reed Division also
manufactures industrial and power plant dampers in Los Angeles, California under
the name "Pacific Air Products".
Through its design and application engineering groups, the Reed
Division custom designs and manufactures many HVAC products to meet unique
customer needs or specifications not met by existing products. Such custom
designs often represent improvements on existing technology and often are
incorporated into the Reed Division's standard line of products.
The Reed division sells its HVAC products primarily through
approximately 2300 independent representatives throughout the United States and
Canada, many of whom sell several of Reed's products. These independent
representatives usually handle various HVAC products made by manufacturers other
than the Company. These representatives usually are granted an exclusive right
to solicit orders for specific Reed Division products from customers in a
specific geographic territory. Because of the diversity of the Reed Division's
product lines, there is often more than one representative in a given territory.
Representatives work closely with the Reed Division's sales managers and its
technical personnel to meet customers' needs and specifications. The independent
representatives are compensated on a commission basis and generally they neither
stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its
HVAC products primarily to contractors, installers, and end users in the
construction industry, wholesale distributors and original equipment
manufacturers.
While the Reed Division's HVAC products are distributed throughout the
United States and Canada, sales in the northeast, mid-Atlantic and upper
mid-west states are somewhat higher than would be suggested by unadjusted
construction statistics in any given year due to the relative popularity of
hydronic products in these areas.
The sale of heating and cooling products is inherently sensitive to
climatic trends in that relatively warm winters and/or cool summers can
adversely effect sales volumes.
The Reed Division sells gas-fired and hydronic heating and ventilating
products, boilers and other HVAC equipment in Canada and also sells its products
in other foreign markets from time to time. Total export sales did not exceed
ten percent of total revenues, nor did foreign assets exceed ten percent of
total assets, in any of the most recent five years ending December 31, 1999.
The Reed Division uses a wide variety of materials in the manufacture
of its products, such as copper, aluminum and steel, as well as electrical and
mechanical components, controls, motors and other products. Management believes
that it has adequate sources of supply for its raw materials and components and
has not had significant difficulty in obtaining the raw materials, component
parts or finished goods from it suppliers. No industry segment of the Company is
dependent on a single supplier, the loss of which would have a material adverse
effect on its business.
The businesses of the HVAC segment are highly competitive. The Company
believes that it is the largest manufacturer of hydronic baseboard heating for
residential and commercial purposes and is one of the three leading
manufacturers of gas-fired heaters and fire and smoke dampers. The Company has
established a substantial market position in the cast-iron boiler business
through its acquisitions in 1991, 1992, and 1998. Nevertheless, in all of the
industries in which it competes, the Company has competitors with substantially
greater manufacturing, sales, research and financial resources than the Company.
Competition in these industries is based mainly on merchandising capability,
service, quality, price and ability to meet customer specifications. The Reed
Division believes that it has achieved and maintained its position as a
substantial competitor in the HVAC industry largely through the strength of its
extensive distribution network, the breadth of it product line and its ability
to meet customer delivery and service requirements. Most of its competitors
offer their products in some but not all of the industries served by the Reed
Division.
The quarterly results of the HVAC segment are affected by the
construction industry's demand for heating equipment, which generally peaks in
the last four months of each year (the "heating season"). Accordingly, sales are
usually higher during the heating season, and such higher levels of sales may in
some years continue into the following calendar year. As a result of these
seasonal factors, the Company's inventories of finished goods reach higher
levels during the heating season and are generally lower during the balance of
the year.
Management does not believe that backlog figures relating to the HVAC
segment are material to an understanding of its business because most equipment
is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents.
Although the Company usually seeks to obtain patents where appropriate, it does
not consider any segment materially dependent upon any single patent or group of
related patents.
The Reed Division has a number of trademarks important to its business,
including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Wing,
Alton, Applied Air, Arrow, Aztec Sensible Cooling, Hydrotherm, Temprite and
Dynaforce product lines.
Expenditures for research and development for the HVAC segment in 1999,
1998, and 1997 were$1,735,000, $1,415,000, and $941,000 respectively. Product
development efforts are necessary and ongoing in all product markets.
The Company believes that compliance with environmental laws will not
have a financially material effect on its operations in 2000.
COMPUTER SOFTWARE DEVELOPMENT AND SYSTEM DESIGN
The business of Mestek's wholly owned subsidiary, MCS, Inc. ("MCS") is
primarily related to the sales and service of business applications software for
the home health services information systems marketplace. Services to customers
include preparation of computer programs and software to meet the customer
needs, providing computer hardware when required, installing the system at the
customer's business, and providing continuing support services.
The most significant systems which MCS has available are MestaMed, a
third-party billing, general ledger, accounting and inventory control system for
providers of durable medical equipment, home health care, infusion therapy,
rehabilitation programs, and hospice services, and ProfitWorks, a system
utilized by lumber, electrical, plumbing, and manufacturer's representatives to
manage order entry, inventory, purchasing, accounts receivable, and reporting.
Support includes software enhancements, diagnostic access, and training
seminars. MestaMed is the only supplier of an integrated solution for providers
of home health services. MestaMed is available on a variety of hardware
platforms and operating systems including UNIX and various Intel based
platforms.
MCS's products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware and operating
systems platforms, including Windows NT. Developments undertaken during 1999
include a graphical user interface (GUI) for applicable modules and open
database compliant (ODBC) features. At the same time, the Company continues to
look at developing or acquiring new products based upon third generation tools
and modern software languages. The Company is also studying the use of such
tools, as well as Web-based tools, to accomplish the migration of its current
offerings to modern operating systems environments.
New enhancements to its software products are continually being
developed by MCS. Notable developments in 1999 were (1) the introduction of a
"point-of-care" enhancement to MCS's Home Health Care software and (2) the
introduction of an enhanced inventory system for MestaMed. During 1999, 1998,
and 1997 MCS spent approximately $2,532,000, $1,992,000, and $1,575,000
respectively, for software development. These costs related primarily to
customer-sponsored development and improvements to existing products.
Because of the importance of systems development to MCS, programming
and sales personnel are a primary resource. MCS's main office is in the
Pittsburgh, Pennsylvania area and it has sales offices in other parts of the
country.
The delivery of home health care services is increasingly dominated by
hospital based "integrated delivery systems" (IDS). MCS has not established a
relationship at this time with a supplier of information systems to hospital
based delivery systems. It has, however, recently entered into agreement with
the Volunteer Hospital Association whereby its products will be recommended to
the Association's members as a recommended solution for their home health
services information systems needs.
The markets for business applications software and systems development
are intensely competitive and subject to rapid technological change. For this
reason MCS faces risks and enjoys opportunities, which are somewhat more
pronounced than in the Company's other operating segments. MCS has many
competitors in the markets in which it operates both on a regional and national
basis. Foreign sales are not significant. On December 31, 1999, MCS's backlog
was approximately $187,803.
MCS's inventory consists primarily of computer hardware and related
equipment, which is sold together with applications software as a turnkey
solution. MCS attempts to maintain a sixty-day supply so that delivery of
completed systems can be made on a timely basis.
METAL FORMING
The Company's Metal Forming Segment designs, manufactures and sells a
variety of metal handling and metal forming products under names such as
Cooper-Weymouth-Peterson, Dahlstrom, Hill Engineering, CoilMate-Dickerman, and
Rowe (collectively Formtek). 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, roll forming systems, wing
benders, presses, servo-feeds, straighteners, cradles, reels, cut-to-length
lines, specialty dies, tube cut-off systems, hydraulic punching blanking and
cutoff systems, rotary punching, and flying cut-off saws.
In 1997, this Segment added two additional units: Hill Engineering,
Inc. a leading producer of precision tools and dies for the gasket manufacturing
and roll forming industries, and CoilMate, Inc., a leading producer of pallet
decoiling equipment for the metal stamping and roll forming industries. The
CoilMate product has been combined with a former CWP Division, Dickerman, and
this "low-end" line is now marketed as CoilMate-Dickerman.
The Company believes it has improved its competitive position within
the metal forming marketplace by developing servo-driven feeders with
microprocessor controls, and other software controls, affording diagnostic and
operational features, as well as by the strategic acquisitions made in 1996 and
1997 which broadened the segment's overall product offerings.
Certain products made by these units are custom designed and
manufactured to meet unique customer needs or specifications not currently met
by existing products. These products, developed by the Company's design and
application engineering groups, often represent improvements on existing
technology and are often then incorporated into the unit's standard product
line.
The primary customers for such metal-handling and metal-forming
equipment include contract metal stampers, manufacturers of large and small
appliances, commercial and residential lighting fixtures, automobile
accessories, office furniture and equipment, metal construction and HVAC
products.
The businesses of Formtek are highly competitive and, due to the nature
of the products, are significantly more cyclical (due to changes in
manufacturing capacity utilization) than the Company's other operating segments.
CWP, Rowe, and CoilMate-Dickerman have become substantial forces in the
manufacture of coil handling equipment through their broad and competitive
product lines, together with Formtek's customer driven application engineering
and ability to meet customer delivery and service requirements through separate
extensive distribution networks. The Company expects that these strengths will
be further leveraged by the large installed customer bases of its recent
acquisitions.
The Metal Forming Segment sells equipment in Canada and other foreign
markets. Total export sales did not exceed ten percent (10%) of the total
revenues nor did foreign assets exceed ten percent (10%) of total assets in any
of the most recent five years ending December 31,1999.
The backlog relating to this segment at December 31, 1999 was
approximately $9,257,335.
Expenditures for research and development for this segment in 1999,
1998, and 1997 were $610,000, $465,000, and $298,000, respectively.
METAL PRODUCTS
The Company's Metal Products Segment (consisting of National Northeast
Corporation, OmegaFlex, Inc. and Boyertown Foundry Company) manufactures a
variety of metal products including extruded aluminum heat sinks, flexible metal
hose and grey iron castings. This segment sells cast iron products to the HVAC
industry, including the company's HVAC segment, flexible metal hose products to
the HVAC and industrial metal hose marketplaces, extruded aluminum products for
thermal management, (heat sinks), to the electronics marketplaces, extruded
aluminum products to the architectural products marketplace, and extruded
aluminum products to the Company's HVAC segment.
National Northeast Corporation (National) extrudes aluminum shapes for
the construction and other markets and extrudes and fabricates aluminum based
products and assemblies and high precision aluminum heat sinks (heat dissipation
devices) for use in a wide variety of power control, communications and related
electronic and computer systems applications. Its products are made through an
extrusion process supported by a broad line of secondary machining, stamping and
assembly capabilities. National's application engineering and fabrication
capabilities have helped it become a substantial competitor in the heat sink
market place.
OmegaFlex, Inc. (Omega) manufactures corrugated flexible stainless
steel hose for use in a wide variety of industrial applications. Its products
include annular, helical and braided metal hose and hose fabrications and are
sold primarily through industrial hose distributors. In January of 1997, Omega
introduced Trac-PipeTM, a corrugated stainless steel tubing developed for use in
piping gas appliances. The Company has realized significant synergies by
distributing Trac-PipeTM through its extensive HVAC distribution network.
Boyertown Foundry Company (BFC) operates a cast-iron foundry in
Boyertown, PA, which manufactures products used principally in the HVAC
industry.
The Metals Products Segment sells products in Canada and in other
foreign markets. Total export sales, however, did not exceed ten percent of
total revenues, nor did foreign assets exceed ten percent of total assets in any
of the most recent five years ending December 31, 1999.
The backlog relating to this segment at December 31, 1999 was
approximately $15,451,414.
Expenditures for research and development for this segment, independent
of research and development related to specific customer requests, in 1999,
1998, and 1997 were $594,000, $256,000, and $389,000, respectively.
SEGMENT INFORMATION
Selected financial information regarding the operations of each of the
above segments, consistent with statement of Financial Accounting Standard No.
131 and Section 101 (d) of Regulation 5-K, is presented in Note 12 to the
Consolidated Financial Statements.
Item 2 - PROPERTIES
The HVAC segment of the Company manufactures equipment at plants that
the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing, Pennsylvania;
Dundalk, Maryland, Springfield, Ohio; Wrens, Georgia, and Dallas, Texas. It
operates plants that it leases from entities owned directly or indirectly by
certain officers and directors of the Company in Westfield, Massachusetts;
Farmville, North Carolina; South Windsor, Connecticut and Los Angeles,
California. The Reed Division leases manufacturing space from unrelated parties
in Mississauga, Ontario, Canada; Carson, California; New Milford, Ohio; as well
as a regional distribution facility in Mississauga, Ontario, Canada.
The Metal Forming segment manufactures products at plants the Company
owns in Clinton, Maine, Villa Park, Illinois, Schiller Park, Illinois, and
Danville, Kentucky.
The Metal Products segment manufactures products at plants the Company
owns in Pelham, New Hampshire, Boyertown, Pennsylvania and at leased facilities
in Lawrence, Massachusetts, Winter Haven, Florida, and Exton, Pennsylvania.
The Company's Computer System's segment (MCS) leases office space in
Monroeville, Pennsylvania, which houses its principal offices and computer
facility used in the computer software development and system design business.
MCS has also recently leased office space in Pleasanton, California. MCS owns
the computer equipment used in its operations
The Company's principal executive offices in Westfield, Massachusetts
are leased from an entity owned by an officer and director of the Company. The
Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 4 to the
Consolidated Financial Statements.
Item 3 - LEGAL PROCEEDINGS
The Company is not presently involved in any litigation, which it
believes will materially and adversely affect its financial condition or results
of operations.
Item 4 - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to the security holders of the Company for a vote
during the fourth quarter of 1999.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange,
under the symbol MCC. The number of shareholders of record as of March 15, 2000
based on inquiries of the registrant's transfer agent was 1,288. For this
purpose, shareholders whose shares are held by brokers on behalf of such
shareholders (shares held in "street name") are not separately counted. The
price range of the Company's common stock between January 1, 2000 and March 15,
2000 was between $20 1/4 and $16, and the closing price on March 15, 2000 was
$16.
The quarterly price ranges of the Company's common stock during 1999
and 1998 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
1999 1998
---- ----
First Quarter $20 15/16 $18 3/4 $22 3/8 $18 1/4
Second Quarter $22 3/8 $18 3/8 $22 3/4 $18 9/16
Third Quarter $22 7/8 $19 3/4 $22 5/8 $18
Fourth Quarter $20 1/4 $18 1/4 $20 3/4 $17 1/2
The Company has not paid any dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are listed on
a stock exchange or are publicly traded.
Item 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five fiscal
years is shown in the following table. Selected financial data reflecting the
operations of acquired businesses is shown only for periods following the
related acquisition.
SUMMARY OF FINANCIAL POSITION as of December 31, (1) (dollars in thousands
except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total Assets $242,253 $205,143 $191,117 $170,010 $141,431
Working capital 63,732 49,415 42,056 59,274 41,626
Long-term debt, including
current portion 34,791 13,188 19,329 15,362 3,031
Shareholders' equity 148,617 133,298 118,007 103,718 91,046
Shareholders' equity
per common share (1) $16.96 $14.99 $13.22 $11.61 $10.14
======== ========= ======= ======= ========
SUMMARY OF OPERATIONS - for the year ended December 31, (2) (dollars in
thousands except per share data)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Total revenue $375,270 $338,344 $327,778 $299,527 $245,865
Net income 17,917 16,064 14,405 13,329 10,906
Earnings per common share:
Net Income
Basic $2.02 $1.80 $1.61 $1.49 $1.21
Diluted $2.02 $1.80 $1.61 $1.49 $1.21
1) Equity per common share amounts are computed using the common shares and
common share equivalents outstanding as of December 31, 1999, 1998, 1997,
1996, and 1995.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* Anemostat Corporation from March 26, 1999 * ACDC, Inc. from May 7, 1999
* Boyertown Foundry Company from November 2, 1998
* Ruscio Brothers Industries, (RBI), from April 29, 1998
* CoilMate, Inc., from November 3, 1997
* Hill Engineering, Inc., from January 31, 1997
* Dahlstrom Industries, Inc. from August 30, 1996.
* Rowe Machinery & Automation, Inc., from February 5, 1996.
* Omega Flex, Inc., from February 2, 1996.
* National Northeast Corporation and National Southeast Corporation from
October 30, 1995.
* Heat Exchangers, Inc., from November 15, 1995.
* Aztec Sensible Cooling, Inc., from November 1, 1994.
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
This report contains forward-looking statements, which are subject to
inherent uncertainties. These uncertainties include, but are not limited to,
variations in weather, changes in the regulatory environment, the broad economic
effect of the Year 2000 problem, customer preferences, general economic
conditions, and increased competition. All of these are difficult to predict,
and many are beyond the ability of the Company to control.
Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, that are not historical facts but rather reflect
the Company's current expectations concerning future results and events. The
words "believes", "expects", "intends", "plans", "anticipates", "likely",
"will", and similar expressions identify such forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other important factors that could cause the actual results, performance or
achievements of the Company (or entities in which the Company has interests), or
industry results, to differ materially from future results, performance or
achievements expressed or implied by such forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements which reflect management's view only as of the date
of this Annual Report on Form 10-K. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstance after the date hereof or to
reflect the occurrence of unanticipated events, conditions or circumstances.
RETURN ON AVERAGE NET ASSETS EMPLOYED
1999, 1998, 1997
The Company's Return on Average Net Assets Employed, defined as
operating profits before bonuses, over Average Net Assets Employed (Total Assets
less Current Liabilities other than Current Portion of Long-Term Debt and
Revolving Credit Agreement, averaged over 12 months) for the years 1999, 1998,
and 1997 was as follows:
1999 1998 1997
---- ---- ----
Operating Profits (as defined) $36,295,000 $31,497,000 $30,525,000
Average Net Assets Employed (as defined) $175,070,000 $147,170,000 $130,419,000
------------ ------------ -----------
Return on Average Net Assets Employed 20.7% 21.4% 23.4%
============ ============ ===========
The 1999 return on Average Net Assets Employed decreased slightly from
1998 due principally to reduced operating incomes from the Company's Computer
Software and Metal Forming Segments and a substandard return on the HVAC
segment's investment in Anemostat, as more fully explained below.
ANALYSIS: 1999 VS. 1998
The Company's core HVAC Segment reported comparative results for 1999
and 1998 as follows:
1999 1999 1998 1998
($000) % ($000) %
------ ---- ------ ----
Net Sales $254,452 100.00% $229,704 100.00%
Gross Profit 73,604 28.93% 65,485 28.51%
Operating Income 20,700 8.14% 15,668 6.82%
Improved performances from many of the HVAC segment's hydronic and
industrial products offset sub par performances from certain air distribution
products as well as depressed results from the Company's recently acquired
Anemostat business. Significant one-time expenses were incurred in 1999 as part
of a long-term plan to strengthen and improve the Anemostat franchise,
principally in the product development and market development areas. These costs
will continue in year 2000 and may result in substandard returns on the
Company's investment in Anemostat for some time.
The Company's Computer Systems Segment (MCS, Inc.) reported increased
sales, relatively flat margins, and significantly reduced operating profits in
1999 as indicated in the following table:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $18,087 100.00% $16,630 100.00%
Gross Profit 7,073 39.11% 6,578 39.56%
Operating Income 937 5.18% 2,335 14.04%
Sales of MCS' core MestaMed product increased significantly in 1999,
accounting for most of MCS' revenue growth. Significant product development and
product support related costs were also incurred during this period resulting in
decreased operating income for MCS despite the growth in revenues. MCS is
pursuing a number of product development initiatives designed to assist with the
migration of its core products to more modern operating system environments.
MCS' products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware, and operating
systems platforms, including Windows NT. MCS is also undertaking a redesign of
its product support infrastructure with a view to improving the quality and
timeliness of the support function.
The Company's Metal Products Segment includes National Northeast
Corporation, (National), an 89.5% owned aluminum extruder and heat sink
fabricator acquired in 1995, Omega Flex, Inc. (Omega), an industrial metal hose
fabricator acquired in 1996, and Boyertown Foundry Company, (BFC), a
ninety-three and six tenths percent (93.6%) owned subsidiary which acquired the
foundry and machining operations of Eafco, Inc. on November 2, 1998. Prior to
that date, the Company's forty-six and eight tenths percent (46.8%) investment
in Eafco was accounted for on the equity method and was not included in this
segment. Results of operations for BFC for the period November 2, 1998 through
December 31, 1998, exclusive of intersegment sales, are included in the this
segment's 1998 results. BFC produces cast iron products and related machining
services for the Company's HVAC Segment and various third parties.
Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $65,614 100.00% $50,745 100.00%
Gross Profit 18,554 28.28% 14,222 28.03%
Operating Income 7,870 11.99% 5,194 10.24%
The growth in operating profits in 1999 is traceable to significantly
improved results from both BFC and Omega. Sales of Omega's patented TracPipe(R)
flexible gas piping product continued to grow at a very rapid pace in 1999.
TracPipe(R) is a corrugated stainless steel tubing developed especially for use
in the piping and installation of gas appliances. National experienced a sub par
year in 1999 as it completed its relocation from Lawrence, Massachusetts to
Pelham, New Hampshire and installed a new 3,000 ton extrusion press in Pelham.
Significant disruptions and one-time costs associated with the relocation and
new press installation impacted operating profits in 1999.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll forming equipment,
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll forming industries acquired on January 31,
1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $37,116 100.00% $41,265 100.00%
Gross Profit 10,141 27.32% 12,212 29.59%
Operating Income 1,748 4.71% 4,170 10.11%
The Metal Forming Segment was effected in 1999 by an industry-wide
slowdown in orders for new equipment which reduced revenues significantly.
Margins also suffered for related reasons and results overall were impacted
accordingly.
As a whole the Company reported comparative results as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $375,270 100.00% $338,334 100.00%
Gross Profit 109,372 29.14% 98,136 29.01%
Operating Income 31,255 8.33% 27,367 8.09%
Gross Profit and Operating Income margins increased primarily due to
positive results from the Company's HVAC and Metal Products Segments.
Sales Expense for the Company as a whole, as a percentage of total
revenues, decreased slightly, from twelve and seventy hundredths percent 12.70%
to twelve and fifty-nine hundredths 12.59%, owing to in the Company's growth in
1999. General and Administrative Expenses, as a percentage of revenues,
decreased from five and sixty-two hundredths percent (5.62%) to five and three
tenths percent (5.3%)for the same reason. Engineering Expense, as a percentage
of total revenues, increased slightly from two and sixty hundredths percent
(2.60%) to two and ninety-three hundredths percent (2.93%), owing to significant
new product development costs incurred by the Company's Computer Software
Segment.
Interest Expense increased substantially in 1999, reflecting
principally the effect of the Anemostat acquisition and other capital spending.
Income Tax Expense for 1999, as a percentage of pretax income,
increased slightly from thirty-seven and thirty-seven hundredths percent
(37.37%) to thirty-seven and fifty-nine hundredths percent (37.59%).
ANALYSIS: 1998 VS. 1997
The Company's core HVAC Segment reported comparative results for 1998
and 1997 as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $229,704 100.00% $229,423 100.00%
Gross Profit 65,485 28.51% 66,178 28.85%
Operating Income 15,668 6.82% 17,846 7.78%
The Company's decision in 1998 to close its Temprite Manufacturing
location in Orangeville, Ontario, Canada, together with the effect of certain
transitional costs associated with the Company's recent HVAC acquisitions and
certain other product re-alignment costs, combined to produce flat HVAC revenues
in 1998 and reduced operating profits.
The Company's Computer Systems Segment (MCS, Inc.) reported reduced
sales, margins and operating profits in 1998 as indicated in the following
table:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $16,630 100.00% $17,029 100.00%
Gross Profit 6,578 39.56% 7,238 42.50%
Operating Income 2,335 14.04% 3,289 19.31%
Reimbursement restrictions imposed upon Medicare providers (MCS's
customers) in 1998 by the Balanced Budget Amendment adversely affected the home
health care information systems marketplace and resulted in reduced revenues for
MCS. Also, costs incurred by MCS relative to its efforts to address Year 2000
functionality in its products, and other product development initiatives,
impacted this segment's operating costs adversely in 1998.
MCS's products were developed in what are today regarded as "legacy"
environments. Nevertheless, by the continual application and utilization of
tools developed by others, MCS has been able to sustain and improve the utility
of its products and offer such products on a variety of hardware, and operating
systems platforms, including Windows NT. Developments in progress at this time
include a graphical user interface (GUI) for applicable modules and open
database compliant (ODBC) features. At the same time the Company continues to
look at developing or acquiring new products based upon third generation tools
and modern software languages. The Company is also studying the use of such
tools, as well as Web-based tools, to accomplish the migration of its current
offerings to modern operating systems environments.
For 1998 reporting purposes the Company's former Metal Products Segment
has been subdivided into a Metal Forming Segment and a Metal Products segment.
The Company's Metal Products Segment includes National Northeast
Corporation, (National), an eighty-nine and five tenths percent (89.5%) aluminum
extruder and heat sink fabricator acquired in 1995, Omega Flex, Inc. (Omega), an
industrial metal hose fabricator acquired in 1996, and Boyertown Foundry
Company, (BFC), a ninety-three and six tenths percent (93.6%) owned subsidiary
which acquired the foundry and machining operations of Eafco, Inc. on November
2, 1998. Prior to that date, the Company's forty-six and eight tenths percent
(46.8%) investment in Eafco was accounted for on the equity method and was not
included in this segment. Results of operations for BFC for the period November
2, 1998 through December 31, 1998, exclusive of intersegment sales, are included
in the this segments' 1998 results. BFC produces cast iron products and related
machining services for the Company's HVAC Segment and various third parties.
Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $50,745 100.00% $42,797 100.00%
Gross Profit 14,222 28.03% 10,407 24.32%
Operating Income 5,194 10.24% 2,723 6.36%
The growth in operating profits in 1998 is traceable to significantly
improved results from both National and Omega. National continued to execute its
aggressive expansion plan in 1998, moving its fabricating operations from
Lawrence, MA to its new facility in Pelham, NH, and continued to expand its
presence in the thermal management (heat sink) marketplace. Omega, with
significant 1997 product development and market development costs behind it,
successfully executed its plan in 1998 to greatly expand sales of its new
"Trac-pipe(TM)" flexible gas piping product, a corrugated stainless steel tubing
developed especially for use in the piping and installation of gas appliances.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of
press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom
Industries, (Dahlstrom), a leading manufacturer of roll forming equipment,
acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies
for the gasket manufacturing and roll forming industries acquired on January 31,
1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $41,265 100.00% $38,529 100.00%
Gross Profit 12,212 29.59% 10,626 27.58%
Operating Income 4,170 10.11% 1,537 3.99%
The relocation of the Rowe manufacturing operation to the Company's
Formtek facility in Clinton, Maine imposed significant direct and indirect costs
on this segment in 1997. With these costs behind it, this segment was able to
exploit the synergies expected from this consolidation and as a result operating
income for 1998 was up considerably on modestly increased revenues. The Coilmate
operations were moved from Southington, Connecticut to Clinton, Maine, in the
fourth quarter to achieve further operating synergies.
As a whole the Company reported comparative results as follows:
1998 1998 1997 1997
---- ---- ---- ----
($000) % ($000) %
------ ---- ------ ----
Net Sales $338,334 100.00% $327,778 100.00%
Gross Profit 98,136 29.01% 94,449 28.81%
Operating Income 27,367 8.09% 25,395 7.75%
Gross Profit and Operating Income percentage margins were relatively
unchanged overall.
Sales Expense for the Company as a whole, as a percentage of total
revenues, increased slightly, from twelve and forty-nine hundredths percent
(12.49%) to twelve and seventy hundredths percent (12.70%), owing to relatively
flat revenues in the Company's HVAC segment. General and Administrative
Expenses, as a percentage of revenues, decreased from six and thirteen
hundredths percent (6.13%) to five and sixty-two hundredths percent (5.62%),
principally due to a decrease in the provision for bonuses. Engineering Expense,
as a percentage of total revenues, increased slightly from two and forty-five
hundredths percent (2.45%) to two and sixty hundredths percent (2.60%). Interest
Expense decreased slightly in 1998, tracking the net reduction in interest
bearing indebtedness.
Income Tax Expense for 1998, as a percentage of pretax income, was
reduced slightly from thirty-eight and sixteen hundredths percent (38.16%) to
thirty-seven and thirty-seven hundredths percent (37.37%).
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital increased in 1999, from $49,415,000 at December 31,
1998 to $63,732,000 at December 31, 1999, reflecting primarily the acquisition
of Anemostat as more fully described in Note 2 to the consolidated financial
statements.
The Company's funded debt to equity ratio (including minority interests
in funded debt) increased from twelve and four hundredths percent (12.04%) at
December 31, 1998 to twenty-five and thirty-seven hundredths percent 25.37% at
December 31, 1999 for the same reason.
The principal changes to the Company's Net Assets Employed during 1999
were as follows:
Net Assets Employed 12/31/98 $149,927
Acquisition of Anemostat Products 21,783
National Northeast plant expansion
and related capital spending 11,209
All other 5,510
--------
Net Assets Employed 12/31/99 $ 188,429
=========
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.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 130, which was effective for fiscal years
beginning after December 15, 1997. FAS 130 requires the presentation of
"comprehensive income," a more broadly defined measure of income, in addition to
conventional "net income. The Company adopted FAS 130 effective with 1998. The
Company's "comprehensive income" was not materially different from its "net
income" as explained in Note 1 to the Consolidated Financial Statements.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standard No. 131, which was effective for fiscal years
beginning after December 15, 1997. FAS 131 requires, in general, a "management
approach" rather than an "industry approach" to the disclosure of segment
information. The Company adopted FAS 131 in 1998 and expanded its segmental
reporting accordingly as reflected in Note 12 to the Consolidated Financial
Statements.
YEAR 2000 DISCLOSURE
The following information is being provided as a Year 2000 Readiness
Disclosure Statement, and is subject to the provisions of the Year 2000
Information and Readiness Disclosure Act.
The Company's Year 2000 problems have been nominal to date and the
Company expects no material adverse effect from such problems in the future.
Costs incurred relative to Year 2000 solutions:
The Company estimates that its total cost of addressing the Year 2000
issue, (excluding costs incurred by MCS relative to its software products),
including software licenses, modifications, training and implementation was
approximately $2,500,000 over the 4-year period ended December 31, 1999. Of this
total, the Company incurred approximately $1,100,000 in 1999.
ENVIRONMENTAL DISCLOSURE
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. The Company is not
aware, at present, of any material administrative or judicial proceedings
against the Company arising under any federal, state or local environmental
protection laws or regulations ("Environmental Laws"). There are, however, a
number of activities in which the Company is engaged under Environmental Laws.
Permitting Activities
The Company is engaged in various matters with respect to obtaining,
amending or renewing permits required under Environmental Laws to operate each
of its manufacturing facilities. Based on the information presently available to
it, management expects that all permit applications will be routinely handled
and management does not believe that the denial of any currently pending permit
application will have a material adverse effect on the Company's financial
position or the results of operations.
Potentially Responsible Parties (PRP) Actions
The Company has been named or contacted by state authorities and/or the
Environmental Protection Agency (the "EPA") regarding the Company's liability as
a potentially responsible party ("PRP") for the remediation of several sites,
none of which actions represent a material proceeding. The potential liability
of the Company is based upon records that show the Company or other corporations
from whom the Company or its subsidiaries acquired assets used the sites for the
lawful disposal of hazardous waste pursuant to third party agreements with the
operators of such sites. Such PRP actions generally arise when the operator of a
site lacks the financial ability to address compliance with the Environmental
Laws, decisions and orders affecting the site in a timely and effective manner.
The governmental authority responsible for the site looks to the past users of
the facility and their successors to address the costs of remediation of the
site.
In High Point, North Carolina, the Company has been named as a PRP with
regard to the clean up of groundwater contamination allegedly due to dumping at
a landfill. The Company's activity at the site represented less than one percent
(1%) of all activity at the site. State authorities continue to investigate the
extent of and remediation methods for groundwater contamination at or near the
site, and the Company joined a joint defense group to help define and limit its
liabilities whereby it may be required to contribute additional non-material
sums as part of the remediation of groundwater contamination. The Company (along
with many other corporations) is involved in PRP actions for the remediation of
a site in Southington, Connecticut, as a result of the EPA's preliminary
assignment of derivative responsibility for the presence of hazardous materials
attributable to two other corporations from whom the Company purchased assets
after the hazardous materials had been disposed of at the Southington site. The
Company is currently participating as part of a joint defense group in
discussions with the EPA for a "de minimis settlement" at the Southington,
Connecticut site. The obligations of the Company in this matter are not expected
to be material to the Company's financial position or the results of operations.
The Company has also received a request for information from the EPA addressed
to a predecessor of the Company regarding the generation, storage,
transportation and possible release of hazardous substances at a superfund site
in Coraopolis, Pennsylvania, and the Company has complied with such request. The
Company continues to investigate all of these matters, but expects that they
will not be material to the Company's financial position or results of
operations.
Releases of Hazardous Materials
There have been releases of hazardous materials on a few parcels of
property which are presently leased or operated by the Company. All such
releases occurred prior to the occupation of the properties by the Company. All
releases are in the process of assessment or remediation. At a site in
Massachusetts leased by the Company the Lessor has received notice from two
abutters that activities on the property prior to the Company's occupation may
be the source of groundwater contamination on the abutters' property. Based upon
an investigation by the Lessor, the claims do not appear to be supportable.
Based on the information presently available to it, management does not believe
that the costs of addressing any of the releases will have a material adverse
effect on the Company's financial position or the results of operations.
The Company has also received notice from the owner of a formerly
leased property of a release of hazardous materials into the ground around and
under the Company's former manufacturing facility. The owner, which is also a
former operator of the facility, has undertaken to remove the hazardous
materials. Although the Company's anticipates that it may be subject to a claim
for contribution with respect tot he removal of hazardous substances, it expects
that any contribution will not be material to the Company's financial position
or result of operations.
Changes to Environmental Laws Affecting Operations and Product Design
The Company's operations and it's HVAC products that involve combustion
as currently designed and applied entail the risk of future noncompliance with
the evolving landscape of Environmental Laws. The cost of complying with the
various Environmental Laws is likely to increase over time, and there can be no
assurance that the cost of compliance, including changes to manufacturing
processes and design changes to current HVAC product offerings that involve
atmospheric combustion, will not over the long-term and in the future have a
material adverse effect on the Company's results of operations (especially in
light of the international agreement on the reduction of green house gas
emissions set forth in the Kyoto Protocol).
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Mestek,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three year period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 1999 and for each of the years in the three-year period ended
December 31, 1999. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
Boston, Massachusetts
March 3, 2000
(except for Note 17 as to which the date is March 14, 2000)
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1999 1998
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $4,468 $3,777
Accounts Receivable - less allowances of
$3,627and $3,443 66,605 55,443
Unbilled Accounts Receivable 447 286
Inventories 54,688 52,980
Deferred Tax Benefit 1,551 1,483
Other Current Assets 4,264 3,620
------- -------
Total Current Assets 132,023 117,589
Property and Equipment - net 69,067 55,841
Notes Receivable 3,850 -
Other Assets and Deferred Charges - net 7,146 7,148
Excess of Cost over Net Assets of Acquired Companies 30,167 24,565
------- -------
Total Assets $242,253 $205,143
======== ========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1999 1998
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving Credit Agreement $14,358 $12,619
Current Portion of Long-Term Debt 109 131
Accounts Payable 18,335 20,126
Accrued Salaries and Bonuses 6,778 6,187
Accrued Commissions 3,314 3,985
Progress Billings in Excess of Cost
and Estimated Earnings 3,257 3,150
Customer Deposits 5,409 5,746
Other Accrued Liabilities 16,731 16,230
--------- ---------
Total Current Liabilities 68,291 68,174
Deferred Tax Liability 2,052 361
Long-Term Debt 20,324 438
Other Liabilities 52 9
--------- ---------
Total Liabilities 90,719 68,982
--------- ---------
Minority Interests 2,917 2,863
--------- ---------
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 143,180 125,263
Treasury Shares, at cost (846,132 and
719,830 common shares, respectively) (9,393) (6,790)
Cumulative Translation Adjustment (1,083) (1,088)
--------- ---------
Total Shareholders' Equity 148,617 133,298
--------- ---------
Total Liabilities and Shareholders' Equity $242,253 $205,143
========= =========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands,
Except Earnings Per Common Share)
Net Sales $357,182 $321,714 $310,749
Net Service Revenues 18,088 16,630 17,029
-------- -------- --------
Total Revenues 375,270 338,344 327,778
Cost of Goods Sold 254,884 230,156 223,539
Cost of Service Revenues 11,014 10,052 9,790
-------- -------- --------
Gross Profit 109,372 98,136 94,449
Selling Expense 47,249 42,970 40,929
General and Administrative Expense 19,887 19,015 20,096
Engineering Expense 10,981 8,784 8,029
-------- -------- --------
Operating Profit 31,255 27,367 25,395
Interest Expense (1,951) (1,256) (1,434)
Other Income (Expense), Net (594) (460) (668)
-------- -------- --------
Income Before Income Taxes 28,710 25,651 23,293
Income Taxes 10,793 9,587 8,888
------- ------- --------
Net Income $17,917 $16,064 $14,405
======= ======= ========
Basic Earnings per Common Share: $2.02 $1.80 $1.61
===== ===== ======
Basic Weighted Average Shares Outstanding 8,857 8,921 8,929
===== ===== ======
Diluted Earnings Per Common Share $2.02 $1.80 $1.61
===== ===== ======
Diluted Weighted Average Shares Outstanding 8,887 8,949 8,951
===== ===== ======
See Accompanying Notes to Consolidated Financial Statements.
1
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 1999, 1998 and 1997
Cumulative
Common Paid In Retained Treasury Translation
(Dollars in Thousands) Stock Capital Earnings Shares Adjustment Total
- ---------------------- ------ ------- -------- -------- ----------- ---------
Balance - December 31, 1996 $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 16,064 16,064
Common Stock Repurchased (681) (681)
Cumulative Translation Adjustment (92) (92)
------ ------- -------- -------- ---------- ---------
Balance - December 31, 1998 $479 $15,434 $125,263 ($6,790) ($1,088) $133,298
Net Income 17,917 17,917
Common Stock Repurchase (2,603) (2,603)
Cumulative Translation Adjustment 5 5
------ ------- -------- -------- ---------- ---------
Balance - December 31, 1999 $479 $15,434 $143,180 ($9,393) ($1,083) $148,617
====== ======= ======== ========= ========== =========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997
---- ---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income 17,917 $16,064 $14,405
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 10,631 8,599 6,548
Provision for Losses on Accounts
Receivable, net of write-offs 184 914 828
Net Change in Minority Interests net of
effects of acquisitions and dispositions 54 256 (82)
Changes in assets and liabilities net of
effects of acquisitions and dispositions:
Accounts Receivable (7,207) (2,782) (2,498)
Unbilled Accounts Receivable (161) (38) (74)
Inventory 2,076 755 (6,894)
Accounts Payable (2,805) (560) 430
Other Liabilities (745) 2,718 247
Progress Billings 107 (55) 306
Notes Receivable (3,850) - -
Other 2,255 (1,346) 105
------- ------- ------
Net Cash Provided by Operating Activities 18,456 24,525 13,321
------- ------- -------
Cash Flows from Investing Activities:
Capital Expenditures (12,437) (12,802) (11,740)
Acquisition of Businesses and Other
Assets, Net of Cash Acquired (24,337) (2,877) (12,886)
-------- -------- -------
Net Cash (Used in) Investing Activities (36,770) (15,679) (24,626)
-------- -------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under
Revolving Credit Agreement 1,739 9,119 3,500
Principal Payments Under Long
Term Debt Obligations (136) (15,909) (1,234)
Proceeds from Issuance of Long Term Debt 20,000 - -
Repurchase of Common Stock (2,603) (681) (69)
-------- -------- --------
Net Cash (Used In) Provided by Financing Activities 19,000 (7,471) 2,197
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 686 1,375 (9,108)
Translation effect on Cash 5 (92) (47)
Cash and Cash Equivalents - Beginning of Year 3,777 2,494 11,649
-------- -------- --------
Cash and Cash Equivalents - End of Year $4,468 $3,777 $2,494
======== ======= =======
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Mestek,
Inc. and its subsidiaries, collectively referred to as the Company. All material
inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition and unbilled receivables
Revenue from product sales is recognized at the time of shipment.
Revenue from the licensing of software applications and software systems
development is recognized on the basis of completed contracts in accordance with
the "residual value method" provided in SOP 98-9.
Unbilled receivables represent revenue earned in the current period but
not billed to the customer until future dates, usually within one month.
Cash equivalents
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents include investments in an institutional money market fund, which
invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements,
backed by such obligations.
Inventories
Inventories are valued at the lower of cost or market. Approximately
seventy-eight percent (78%) of the cost of inventories are determined by the
last-in, first-out (LIFO) method.
Property and equipment
Property and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line and accelerated methods over
the estimated useful lives of the assets or the life of the lease, if shorter.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged to income as incurred; significant improvements are capitalized.
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 benefitted. The acquisition of Anemostat Products, as
more fully described in Note 2, resulted in goodwill of approximately $6,800,000
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 the underlying acquired
businesses is less than the carrying value of the goodwill. Accumulated
amortization of goodwill and other intangibles was $4,984,000 and $3,640,000 at
December 31, 1999 and 1998, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $4,794,000, $3,993,000, and $3,738,000, for the years ended December
31, 1999, 1998, and 1997 respectively.
Research and Development Expense
Research and development expenses are charged to operations as
incurred. Such charges aggregated $2,939,000, $2,136,000, and $1,628,000, for
the years-ended December 31, 1999, 1998, and 1997, respectively.
Software Development Expenses
The Company's MCS, Inc. subsidiary is in the business of application
software and systems development. SFAS No. 86 requires that development costs
incurred subsequent to the establishment of technological feasibility for the
product be capitalized. The Company has no capitalized development cost.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per common share
Basic earnings per share have been computed using the weighted average
number of common shares outstanding. Common stock options, as more fully
described in Note 15, were considered in the computation of diluted earnings per
share but had no effect.
Currency Translation
Assets and liabilities denominated in foreign currencies are translated
into U.S. dollars at exchange rates prevailing on the balance sheet date. Net
foreign currency transactions are reported in the results of operations in U.S.
dollars at average exchange rates. Adjustments resulting from balance sheet
translations are excluded from the determination of income and are accumulated
in a separate component of shareholders' equity.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Comprehensive Income
For the years ended December 31, 1999 and December 31, 1998,
respectively, the components of other comprehensive income were immaterial and
consisted solely of foreign currency translation adjustment.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
2. BUSINESS ACQUISITIONS
On March 26, 1999, the Company acquired substantially all of the
operating assets of the Anemostat Products and Anemostat-West Divisions of
Dynamics Corporation of America, (collectively, Anemostat), a wholly-owned
subsidiary of CTS Corporation. Anemostat manufactures commercial air
distribution products (grilles, registers, diffusers and VAV boxes); security
air distribution products; and door and vision frame products for the HVAC and
commercial building industries at locations in Scranton, Pennsylvania,
(Anemostat Products) and Carson, California, (Anemostat-West). The Anemostat
products are complementary to the Company's existing louver and damper
businesses. The purchase price paid for the assets acquired was approximately
$25,360,000, including assumed liabilities of approximately $3,577,000. The
Company accounted for this acquisition under the purchase method of accounting
and, accordingly, recorded Goodwill of approximately $6,800,000.
Proforma unaudited results of operations for 1999 and 1998, reflecting
a hypothetical acquisition date for Anemostat of January 1, 1998 are as follows:
1999 1998
Total Revenues $381,448 368,195
Net Income $17,409 5,634
Earnings Per Share $1.97 $1.75
On April 26, 1999, an order was entered in the Bankruptcy Court for the
Southern District of Ohio, whereby the Company's offer to acquire certain of the
operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of
industrial dampers for the power generation market, was approved. The Company
closed this transaction on May 7, 1999 for $2,554,000.
On May 26, 1999 the Company entered into a definitive 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 Simione management
intends to seek such consent and conversion in June 2000. As a result the
Company would expect to own, barring other changes in the capital structure of
Simione, approximately 38% of Simione after the merger is completed. Under the
terms of the Agreement, MCS's ProfitWorks segment would be distributed to the
Company prior to the merger.
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 Spinoff), and MCS will then be merged with and into SCHI, (the
Merger). The Spin-off and the Merger were completed on March 7, 2000.
In connection with the Amendment, Mestek loaned to SCHI a total of
$4,000,000 on a short-term basis, $3,000,000 of which was outstanding as of
December 31, 1999. 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 has voting rights equivalent to
11.2 million shares of SCHI common stock. Mestek also received as part of it
capital contribution to SCHI a warrant for the subsequent purchase of 2 million
shares of SCHI common stock. 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 850,000 shares of SCHI common stock.
Under the purchase method of accounting, results of operations of
acquired businesses are included in consolidated operations subsequent to the
date of acquisition.
3. INVENTORIES
Inventories consisted of the following at December 31:
1999 1998
---- ----
Finished Goods $18,692 $21,803
Work-in-progress 14,865 13,948
Raw materials 28,335 24,463
------- -------
61,892 60,214
Less provision for LIFO
method of valuation (7,204) (7,234)
------- -------
$54,688 $52,980
======= ========
Progress billings exceeded related contract costs by $3,257,000, and
$3,150,000 at December 31, 1999 and 1998, respectively. As such, these
amounts are reported as a liability in the accompanying consolidated
financial statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
1999 1998 Useful Lives
---- ---- ------------
Land $2,853 $2,395
Buildings 26,792 21,887 19-39 Years
Leasehold Improvements 4,415 4,474 15-39 Years
Equipment 96,028 78,820 3-10 Years
--------- ---------
130,088 107,576
Accumulated Depreciation (61,021) (51,735)
--------- ---------
$69,067 $55,841
========= =========
The above amounts include $851,000, and$6,870,000, at December 31, 1999
and 1998 respectively, in assets that had not yet been placed in service by the
Company. No depreciation was recorded in the related periods for these assets.
Depreciation and amortization expense was $10,631,000, $8,599,000, and
$6,548,000, for the years ended December 31, 1999, 1998, and 1997, respectively.
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS)
- --------------------------------------
The Company's investment in HBS is carried at a zero balance reflecting
the Company's equity in HBS' cumulative losses. The Company has no obligation to
fund future HBS operating losses.
Eafco, Inc. (EAFCO)
The Company's forty-six and eight hundredths percent (46.8%) investment
in Eafco, Inc. was exchanged on November 2, 1998 for ninety-three and six tenths
percent (93.6%) of the foundry and machining operations of Eafco.
6. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
1999 1998
---- ----
Revolving Loan Agreement $34,358 $12,619
Other Bonds and Notes Payable 433 569
-------- --------
34,791 13,188
Less Current Maturities (14,467) (12,750)
-------- --------
$20,324 $438
======== ========
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 of net income.
Note Payable - The Company has a Demand Loan Facility with a second
commercial bank under which the Company can borrow up to $10,000,000 on a LIBOR
basis. The facility expires on April 1, 2000, with no balance outstanding as of
December 31, 1999.
Other Bonds and Notes Payable - The Company is obligated under the
terms of an Industrial Revenue Bond (the Bond) secured by its facility in
Wyalusing, Pennsylvania. The Bond bears interest at five percent (5%) and
matures on July 25, 2001. The outstanding balance under the Bond at December 31,
1999 was $64,000. The Company's National Northeast subsidiary is obligated under
a non-interest bearing subordinated Note Payable on which interest was imputed
at eight percent (8%). The note is secured by certain pieces of equipment. The
outstanding balance under the note at December 31, 1999 was $19,000 and the note
matures on May 1, 2001. The Company's Hill Engineering subsidiary is obligated
under an Industrial Revenue Bond secured by certain of its operating assets. The
outstanding balance under the bond at December 31, 1999 was $350,000. The bond
bears interest at eighty percent (80%) of the prime rate and matures on
September 1, 2005.
Cash paid for interest was $1,951,000, $1,256,000, and $1,434,000,
during the years ended December 31, 1999, 1998, and 1997, respectively.
Maturities of long-term debt in each of the next five years are as follows:
2000 14,467
2001 20,074
2002 50
2003 50
2004 50
The fair value of the Company's long-term debt is estimated based on
the current interest rates offered to the Company for debt of the same remaining
maturities. Management believes the carrying value of debt and the contractual
values of the outstanding letters of credit approximate their fair values as of
December 31, 1999.
7. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 20,000,000 shares with no par value,
and a stated value of $0.05 per share. As of December 31, 1999, John E. Reed,
Chairman, President and CEO of the Company and Stewart B. Reed, a Director of
the Company and son of John E. Reed, together beneficially own a majority of the
outstanding shares of the Company's common stock.
By a vote of its shareholders at its annual meeting of shareholders on May 22,
1996, the Company amended its Articles of Incorporation to authorize 10,000,000
shares of a new class (or classes) of preferred stock (the Preferred Stock) and
to eliminate both its $5.00 convertible, non-cumulative, non-voting, $100 par,
preferred stock (the Convertible Preferred) and its $6.00, $100 par, redeemable
preferred stock (the Redeemable Preferred). As of December 31, 1999 no shares of
the Preferred Stock have been issued.
8. INCOME TAXES
Income before income taxes included foreign income (losses) of
$223,000, ($1,166,000), and ($730,000) in 1999, 1998, and 1997, respectively.
Income tax expense (benefit) consisted of the following:
1999 1998 1997
---- ---- ----
Federal Income Tax:
Current $8,113 $8,897 $7,188
Deferred 1,284 (283) 527
State Income Tax:
Current 1,107 1,708 1,045
Deferred 175 (141) 166
Foreign Income Tax:
Current 18 18 18
Deferred 96 (612) (56)
-------- ------ -------
Income Taxes $10,793 $9,587 $8,888
======== ====== =======
Total income tax expense from continuing operations differed from
"expected " income tax expense, computed by applying the U.S. federal income tax
rate of 35% to earnings before income tax, as follows:
1999 1998 1997
- ---- ---- ----
Computed "expected" income tax $10,067 $9,068 $8,218
State income tax, net of federal tax benefit 917 867 787
Foreign tax rate differential 7 (35) (22)
Other - net (198) (313) (95)
-------- ------- -------
Income Taxes $10,793 $9,587 $8,888
======== ======= =======
1
A deferred income tax (expense) benefit results from temporary timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The components of and changes in the net deferred
tax assets (liabilities) which give rise to this deferred income tax (expense)
benefit for the year ended December 31, 1999 are as follows:
Change
December 31, (Expense) December 31,
1998 Benefit 1999
---- ------- ----
Deferred Tax Assets:
Warranty Reserve $656 ($133) $523
Compensated Absences 716 (22) 694
Inventory Valuation 608 (104) 504
Accounts Receivable Valuation 241 328 569
State Tax Operating Loss
Carryforward 131 41 172
Foreign Tax Operating Loss
Carryforward 1,120 (96) 1,024
Deferred Income on Sale of Assets
to Non-consolidated Investees 159 - 159
Other 27 113 140
------- ------ -------
Total Gross Deferred Tax Assets 3,658 127 3,785
Less Valuation Allowance (119) - (119)
------- ------ -------
Deferred Tax Assets 3,539 127 3,666
------- ------ -------
Deferred Tax Liabilities:
Prepaid Expenses (501) (176) (677)
Depreciation and Amortization (1,916) (1,574) (3,490)
------- ------- --------
Deferred Tax Liabilities (2,417) (1,750) (4,167)
------- ------- --------
Net Deferred Tax Assets (Liabilities) $1,122 ($1,623) ($501)
======= ======== =======
A valuation allowance of $195,000 was established at December 31, 1993.
This allowance reflects uncertainties as to the realization of a portion of the
foreign tax operating loss carryforward identified above. This valuation
allowance was adjusted downward to $119,000 on December 31, 1995 because the
foreign operations resulted in earnings for the year. At December 31, 1999, no
additional valuation allowance has been established relative to the remaining
foreign tax operating loss carryforward or state tax operating loss
carryforward. It is management's belief that it is more likely than not that
these carry forwards will be utilized prior to their expiration. The Company has
available to it a number of tax planning opportunities which support this
conclusion.
At December 31, 1999, the Company has state tax operating loss and
foreign tax operating loss carry forwards of approximately $3,796,000 and
$2,089,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carryforward" rules and limitations. These
losses begin to expire after the following years:
State Foreign
2002 - $2,089
2007 $ 3,796 -
-------- -------
$ 3,796 $2,089
======== =======
Cash paid for income taxes was $10,191,000, $7,876,000, and $9,027,000
for the years ended December 31, 1999, 1998 and 1997 respectively.
9. LEASES
Related Party Leases
The Company leases various manufacturing facilities and equipment from
companies owned by certain officers and directors of the Company, either
directly or indirectly, through affiliates. The leases generally provide that
the Company will bear the cost of property taxes and insurance.
Details of the principal operating leases with related parties as of
December 31, 1999 including the effect of renewals and amendments executed
subsequent to December 31, 1999 are as follows:
Date Basic Minimum
Of Annual Future
Lease Term Rental Rentals
Sterling Realty Trust
Land and Building - Main monthly $192 ***
Land and Building - Engineering 07/01/98 5 years 77 269
Land and Building - South Complex 01/01/94 15 years 257 2,311
Land and Building - Torrington 07/01/99 5 years 127 572
Machinery & Equipment 01/01/93 5 years - *
(Westfield, Farmville & Wrens
Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5** years - -
(Westfield, Farmville, Wrens
and South Windsor Locations)
Elizabeth C. Reed Trust
Machinery & Equipment 01/01/93 5 years - *
Rohrschach Associates ^
Land and Building 01/01/97 2++years 120 120
Rudbeek Realty Corp.
(Farmville Location) 11/02/92+ 18.16 years 436 4,792
MacKeeber
(South Windsor Location) 01/01/97 8 years 325 1,623
* Original lease expired 01/01/98, month-to-month rental terminated as
of 12/31/98 and machinery and equipment sold to the Company in January
of 1999.
** Original lease expired on 01/01/98, month-to-month rental terminated
as of 12/31/99. Equipment purchased by the Company from Lessor in
January 2000.
+ Original lease amended 4/1/98 extending the lease term to 12/31/10;
and amended again 7/1/98 increasing rent expense to $36,300 per month.
++ Lease was renewed as of 1/1/99 for an additional two-year renewal
term at $0.40/sf. for 25,000sf.
^ Formerly Production Realty
*** Lease expired 12/31/99; renewal pending as of March 15, 2000
On January 1, 1999, the company purchased its previously leased Machinery and
Equipment from Sterling Realty Trust and Elizabeth C. Reed trust for use in
its Westfield, Farmville, and Wrens location. The purchase price paid was
$263,500 and $99,750 respectively.
On January 1, 2000, at the end of the lease term, the Company purchased
Machinery and Equipment used at Westfield, Farmville, Wrens, and South Windsor
locations from Machinery Rental Company, paying $507,000
All Leases
Rent expense for operating leases, including those with related
parties, was $2,685,000, $2,801,000, and $2,719,000 for the years ended December
31, 1999, 1998 and 1997 respectively.
Future minimum lease payments under all noncancellable leases as of
December 31, 1999 are as follows:
Operating
Year Ending December 31, Leases
2000 2,320
2001 1,973
2002 1,644
2003 1,576
2004 1,474
After 2005 4,731
--------
Total minimum lease payments $13,718
========
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $1,183,000,
$1,118,000, and $ 1,011,000, for the years ended December 31, 1999, 1998, and
1997, respectively. Contributions to the Plan are defined as three percent (3%)
of gross wages up to the current Old Age, Survivors, and Disability, (OASDI),
limit and six percent (6%) of the excess over the Old Age, Survivors, and
Disability, (OASDI), limit, subject to the maximum allowed under the Employee
Retirement Income Security Act, (ERISA). The plan's vesting terms are twenty
percent (20%) vesting after 3 years of service, forty percent (40%) after 4
years, sixty percent (60%) after 5 years, eighty percent (80%) after 6 years,
and one hundred percent (100%) vesting after 7 years.
In addition to the profit-sharing plan, the Company also offers the
following defined contribution benefit plans:
The Company maintains a Retirement Savings Plan qualified under Internal
Revenue Code Section 401(k) for employees covered under regional collective
bargaining agreements. Service eligibility requirements differ by division and
collective bargaining agreement. Participants may elect to have up to fifteen
percent (15%) of their compensation withheld, up to the maximum allowed by the
Internal Revenue Code. Participants may also elect to make nondeductible
voluntary contributions up to an additional ten percent (10%) of their gross
earnings each year within the legal limits. The Company contributes differing
amounts depending upon the division's collective bargaining agreement.
Contributions are funded on a current basis. Contributions to the Plan were
$304,000, $302,000, and $269,000, for the years-ended December 31, 1999, 1998,
and 1997, respectively.
The Company maintains a separate qualified 401(k) Plan for salaried
employees not covered by a collective bargaining agreement, who choose to
participate. Participants may elect to have up to fifteen percent (15%) of their
compensation withheld, up to the maximum allowed by the Internal Revenue Code.
Participants may also elect to make nondeductible voluntary contributions up to
an additional ten percent (10%) of their gross earnings each year within the
legal limits. The Company contributes $0.25 of each $1.00 deferred by
participants and deposited to the Plan not to exceed one and five tenths percent
(1.5%) of an employee's compensation. The Company does not match any amounts for
withholdings from participants in excess of six percent (6%) of their
compensation or for any nondeductible voluntary contributions. Contributions are
funded on a current basis. Contributions to the Plan were $360,000, $435,000,
and $392,000 for the years ended December 1999, 1998, and 1997, respectively.
One of the Company's subsidiaries maintains a qualified defined
contribution target benefit pension plan, which covers substantially all of its
employees. Pension costs are accrued annually based on contributions earned by
participants under plan provisions as determined by an independent actuary. The
total expense related to this pension plan for the twelve months ended December
31, 1999, 1998, and 1997 was $124,000, $88,000, and $65,000, respectively.
The Company maintains bonus plans for its officers and other key
employees. The plans generally allow for annual bonuses for individual employees
based upon the operating results of related profit centers in excess of a
percentage of the Company's investment in the respective profit centers. The
Company maintains an employment agreement with its chief executive officer.
Approximately forty-two percent (42%) of the Company's employees are
covered under collective bargaining agreements, of which thirty-eight (38%) of
these employees are covered under agreements expected to be renewed in 2000.
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to several legal actions and proceedings in
which various monetary claims are asserted. Management, after consultation with
its corporate counsel and outside counsel, does not anticipate that any ultimate
liability arising out of all such litigation and proceedings will have a
material adverse effect on the financial condition of the Company.
The Company is obligated as guarantor with respect to the debt of
MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership,
under an Industrial Development Bond issued in 1984 by the Connecticut
Development Authority. The balance outstanding under the bond as of December 31,
1999 was $765,000.
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Liabilities for
environmental remediation and/or restoration are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably estimated.
The Company is not aware, at present, of any material administrative or judicial
proceedings against the Company arising under any federal, state or local
environmental protection laws or regulations (Environmental Laws). There are,
however, a number of activities in which the Company is engaged under
Environmental Laws. The Company is engaged in various matters with respect to
obtaining, amending or renewing permits required under Environmental Laws to
operate each of its manufacturing facilities. The Company or various of its
subsidiaries have been named or contacted by state authorities and/or the
Environmental Protection Agency (the EPA) regarding the Company's liability as a
potentially responsible party (PRP) for the remediation of several sites, none
of which, in the judgement of management, would have a material adverse impact
on the financial condition or results of operations of the Company. There have
been releases of hazardous materials on a few parcels of property which are
presently leased or operated by the Company. Based on the information presently
available to it, management does not believe that the costs of addressing any of
the releases will have a material adverse effect on the Company's financial
position or the results of operations.
12. SEGMENT INFORMATION
Description of the types of products and services from which each reportable
segment derives its revenues:
The Company has four reportable segments: the manufacture of heating,
ventilating and air-conditioning equipment (HVAC), the manufacture of metal
handling and metal forming machinery (Metal Forming), the production of metal
products (Metal Products), and computer software development and system design,
(Computer Software).
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, Anemostat, Koldwave, and SpacePak. Assets acquired in the
Anemostat and ACDC acquisitions on March 26, 1999 and May 7, 1999 respectively,
as more fully described in Note 2, have been added to the Company's HVAC
segment.
The Company's Metal Forming Segment designs, manufactures and sells a
variety of metal handling and metal forming products under names such as
Cooper-Weymouth, Peterson, Dahlstrom, Hill Engineering, Coilmate-Dickerman, and
Rowe. 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 custom metal forming systems and other standard machinery such
as roll formers, wing formers, destackers, presses, feeds, straighteners,
cradles, stock reels, cut-to-length lines, gasket dies, tools and dies for metal
forming systems and specialty punching and cut-off machinery.
The Company's Metal Products segment manufactures a variety of metal
products including aluminum extrusions, flexible metal hose and grey 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 Computer Software segment operates under the name MCS and
develops and sells software used principally in the medical information systems
marketplace. MCS's products include software used to manage the day-to-day
operations of durable medical equipment dealers and home health agencies. As
explained in Note 2, the Company distributed the stock of its MCS subsidiary to
its shareholders on March 7, 2000. Results of operations for MCS in the Year
2000 will be accounted for under Discontinued Operations in accordance with APB
30.
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. Intersegment sales and transfers are recorded
at prices substantially equivalent to the Company's cost; inter-company profits
on such intersegment 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.
Year ended
December 31, 1999
Metal Metal Computer All
HVAC Products Forming Software Other Totals
Revenues from External
Customers $254,452 65,614 37,117 18,087 --- $375,270
Intersegment & Intrasegment
Revenues $8,009 8,847 1,848 --- --- $18,704
Interest Expense $1,194 513 190 54 --- $1,951
Depreciation Expense $4,263 3,129 1,698 240 --- $9,330
Amortization Expense $384 556 361 --- --- $1,301
Segment Operating Profit $20,700 7,870 1,748 937 --- $31,255
Segment Assets $148,272 63,641 23,643 6,697 --- $242,253
Expenditures for
Long-lived Assets (1.) $5,185 5,090 1,476 686 --- $12,437
Year ended
December 31, 1998
Metal Metal Computer All
HVAC Products Forming Software Other Totals
Revenues from External
Customers $229,704 50,745 41,265 16,630 --- $338,344
Intersegment & Intrasegment
Revenues $7,851 2,288 234 --- --- $10,373
Interest Expense $711 342 169 34 --- $1,256
Depreciation Expense $3,870 2,242 1,168 194 --- $7,474
Amortization Expense $231 584 373 --- --- $1,188
Segment Operating Profit $15,668 5,194 4,170 2,335 --- $27,367
Segment Assets $113,796 55,842 29,916 5,589 --- $205,143
Expenditures for
Long-lived Assets (1.) $3,064 8,185 1,025 528 --- $12,802
Year ended
December 31, 1997
Metal Metal Computer All
HVAC Products Forming Software Other Totals
(2.)
Revenues from External
Customers $229,423 42,797 38,529 17,029 --- $327,778
Intersegment & Intrasegment
Revenues $7,809 634 509 --- --- $8,952
Interest Expense $850 265 215 38 66 $1,434
Depreciation Expense $2,732 1,791 940 119 --- $5,582
Amortization Expense $144 584 246 --- --- $974
Segment Operating Profit $17,846 2,723 1,537 3,289 --- $25,395
Segment Assets $113,405 35,312 28,577 5,045 8,778 $191,117
Expenditures for
Long-lived Assets (1.) $5,802 5,589 183 166 --- $11,740
(1.) Excludes long-lived assets acquired via business acquisition.
(2.) Segments Assets in All Other in 1997 represents the Companyy's investment
in Eafco, Inc. which was exchanged on November 2, 1998 for ninety-three and six
tenths percent (93.6%) of the foundry and machining operations of Eafco. The
business assets thus acquired and the related results of operations are included
in the Metal Products segment in 1999 and 1998.
RECONCILIATION WITH CONSOLIDATED DATA:
Revenues 1999 1998 1997
- -------- ---- ---- ----
Total external revenues for
reportable segments $375,270 $338,344 $327,778
Inter & Intrasegment revenues
for reportable segments 18,704 10,373 8,952
Elimination of Inter &
Intrasegment revenues (18,704) (10,373) (8,952)
---------- --------- ---------
Total consolidated revenues $375,270 $338,344 $327,778
========== ========= ==========
Profit or Loss
Total profit or loss for
reportable segments $31,255 $27,367 $25,395
Interest Expense (1,951) (1,256) (1,434)
Other income (expense) net (594) (460 (668)
-------- -------- ---------
Income before income taxes $28,710 $25,651 $23,293
======== ======== =========
Assets:
Total assets for reportable
segments $242,253 $205,143 $182,339
Equity Investment in Eafco Inc. --- --- 8,778
-------- -------- ---------
Total consolidated assets $242,253 $205,143 $191,117
======== ======== ==========
GEOGRAPHIC INFORMATION:
1999 1998 1997
---- ---- ----
Revenues:
United States $355,274 $314,603 $305,728
Canada 13,443 17,310 14,235
Other Foreign Countries 6,553 6,431 7,815
-------- -------- ----------
Consolidated Total $375,270 $338,344 $327,778
======== ======== ==========
Long Lived Assets:
United States $97,187 $78,502 $64,349
Canada 2,048 1,904 183
Other Foreign Countries --- --- ---
------- ------- ---------
Consolidated Total $99,235 $80,406 $ 64,532
======= ======= ==========
13. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full
quarter of 1999 and 1998.
(Dollars in thousands except per common share amounts)
1999 1st 2nd 3rd 4th
- ----
Quarter Quarter Quarter Quarter
Total Revenues $82,026 $89,533 $98,646 $105,065
Gross Profit $23,035 $26,130 $26,778 $33,429
Net Income $3,519 $3,605 $4,069 $6,724
Per Common Share:
Basic $0.40 $0.41 $0.46 $0.75
Diluted $0.40 $0.41 $0.46 $0.75
1998 1st 2nd 3rd 4th
- ----
Quarter Quarter Quarter Quarter
Total Revenues $75,649 $77,688 $92,013 $92,994
Gross Profit $21,172 $21,607 $26,432 $28,925
Net Income $3,370 $2,832 $4,324 $5,538
Per Common Share:
Basic $0.38 $0.32 $0.48 $0.62
Diluted $0.38 $0.32 $0.48 $0.62
14. COMMON STOCK BUYBACK PROGRAM
In 1999 and 1998 the Company continued its program of selective
"open-market" and odd lot purchases. 126,302 and 36,000 of such shares were
acquired in 1999 and 1998, respectively. All such shares are accounted for as
treasury shares.
15. 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
options to purchase 500,000 shares of the Company's common stock. The Plan
provides for the awarding of incentive and non-qualified stock options to
certain employees of the Company and other persons, including directors, for the
purchase of the Company's common stock at fair market value on the grant date.
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.
A summary of transactions for the years ended December 31, 1999, 1998, and 1997
are as follows:
Weighted
Number of Average
Options Exercise Price
Balance - December 31, 1996 90,000 $13.75
Balance - December 31, 1997 90,000 $13.75
Balance - December 31, 1998 90,000 $13.75
Granted 85,000 $20.00
Balance - December 31, 1999 175,000 $16.79
Options exercisable for the years ended December 31, 1999, 1998, and
1997 were 54,000, 36,000, and 18,000, respectively. The weighted average
exercise price for all exercisable options was $13.75.
Effective in 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
SFAS No. 123. As permitted by the statement, the Company has chosen to continue
to account for stock-based compensations using the intrinsic value method as
prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no
compensation expense has been recognized for its stock-based compensation plan.
The weighted average fair value at the date of grant for options
granted during the year ended December 31, 1999 and for options outstanding as
of December 31, 1998 and 1997 were $9.44, $7.27, and $7.27, respectively. The
fair value of options at the date of grant was estimated using the Black-Scholes
model with the following weighted average assumptions:
Years Ended
December 31, December 31, December 31
1999 1998 1997
Expected life (years) 10 10 10
Interest 4.81% 6.56% 6.56%
Volatility 23.75% 22.50% 22.50%
Dividend yield 0% 0%
Had the fair value method of accounting been applied to the Company's
stock option plan, with compensation cost for the Plan determined on the basis
of the fair value of the options at the grant date, the Company's net income and
earnings per share would have been as follows:
Years Ended
December 31, December 31, December 31
1999 1998 1997
Net income (loss) - as reported $17,917 $16,064 $14,405
Net income (loss) - pro forma 17,748 15,985 14,326
Earnings per share - as reported $2.02 $1.80 $1.61
Earnings per share - pro for $2.00 $1.79 1.61
The application of SFAS 123 for pro forma disclosure may not be
representative of future effects of applying the statement.
16. NOTES RECEIVABLE
On September 9, 1999, the Company loaned $3,000,000 to Simione Central
Holdings, Inc. as more fully explained in Note 2 to the consolidated financial
statements. The loan matures on the earlier of June 30, 2000 or the date of
closing of the transaction described in Note 2. The loan bears interest at two
points above the prime rate of interest as set from time to time by BankBoston
N.A. The loan was canceled on March 7, 2000, as more fully described in Note 2.
On November 11, 1999, the Company loaned $850,000 to Simione Central
Holdings, Inc. as more fully explained in Note 2 to the consolidated financial
statements. The loan matures on November 11, 2000 and bears interest at the rate
of 11 percent. The loan is convertible on or after the date of closing of the
transactions described in Note 2 into $850,000 of Simione Central Holdings, Inc.
Series C Preferred Stock, as more fully described in Note 2 to the Consolidated
Financial Statements
17. SUBSEQUENT EVENT
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 complimentary to the Company's existing louver
and damper businesses. The purchases price paid for the assets acquired was
approximately $5,991,000, including assumed liabilities of approximately
$991,000. The Company intends to account for this acquisition under the purchase
method of accounting.
On February 4, 2000, the Company loaned $1 million to Simione Central
Holdings, Inc. The loan matures on the earlier of June 30, 2000 or the closing
of the transactions described in Note 2 to the consolidated financial
statements. The loan bears interest at two points above the prime rate of
interest as set from time to time by BankBoston N.A. The loan was canceled on
March 7, 2000, as more fully described in Note 2.
On February 10, 2000, the Company 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 well-known and
experience highly engineered metal processing line. 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 B & K products
will be designed and manufactured at the Formtek operations located in Chicago,
Illinois and Clinton, Maine. The purchase price paid for the assets acquired was
approximately $2.8 million. The Company intends to account for this acquisition
under the purchase method of accounting.
On March 7, 2000, the Company completed the Spin-off and subsequent
merger of its wholly owned subsidiary, MCS, Inc., into Simione Central Holdings,
Inc. as more fully explained in Note 2.
On March 14, 2000, the Company and MetCoil Systems Corporation,
(MetCoil) announced that they have entered into a definitive merger agreement
under which MetCoil will be merged into a wholly owned subsidiary of the Company
for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review
under the Hart-Scott-Rodino Act. All other conditions will be further described
in a proxy statement to be mailed to MetCoil's stockholders. The board of
directors of MetCoil has unanimously recommended that stockholders approve the
merger.
MetCoil 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, 1999 of $45.8 million. MetCoil's products are
complementary with those of the Company's Metal Forming Segment.
PART III
With respect to items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14-A.
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 2000, and to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is set forth
under the caption "Executive Officers".
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 2000, and, to the extent required, is incorporated herein by
reference.
The report of the Compensation Committee of the Board of Directors of
the Company shall not be deemed incorporated by reference by any general
statement incorporating by reference the proxy statement into any filing under
the Securities Exchange Act of 1934, and shall not otherwise be deemed filed
under such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners
and management will be set forth in the Company's proxy statement relating to
the annual meeting of shareholders to be held May 12, 2000, and, to the extent
required, is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions
will be set forth in the Company's proxy statement relating to the annual
meeting of shareholders to be held May 12, 2000, and, to the extent required, is
incorporated herein by reference.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of
this report
Independent Auditors' Reports Page 19
Financial Statements:
(a)(1) Consolidated Balance Sheets as of
December 31, 1998 and 1997 Pages 20 and 21
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997, and 1996 Page 22
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1998, 1997, and 1996 Page 23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997, and 1996 Page 24
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts Page 44
All other financial statement schedules required by Item 14(a)(2) have been
omitted because they are inapplicable or because the required information has
been included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The Exhibit Index is set forth on Pages 44 through 47
No annual report to security holders as of December 31, 1999 had been sent to
security holders and no proxy statement, form of proxy or other proxy soliciting
material has been sent by the registrant to more than ten of the registrant's
security holders with respect to any annual or other meeting of security holders
held or to be held in 2000. Such annual report to security holders, proxy
statement or form of proxy will be furnished to security holders subsequent to
the filing of this Annual Report on Form 10-K.
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998 and 1997
Bal.at Charged Bad Debt Bal.
at Beg. to Other Write-offs at end
Year Description of Year expense (1) (2) of Year
- ---- ----------- ------- ------- ----------- ----------- -------
1999 Allowance
for doubtful
accounts $3,443 $1,432 $27 ($1,275) $3,627
1998 Allowance
for doubtful
accounts $2,529 $1,165 $57 ($308) $3,443
1997 Allowance
for doubtful
accounts $1,701 $1,124 $16 ($312) $2,529
(1) Includes recoveries of amounts previously written-off and allowances for
doubtful accounts of acquired companies.
(2) Bad debts written off.
EXHIBIT INDEX
Those documents followed by a parenthetical notation are incorporated
herein by reference to previous filings with the Securities and Exchange
Commission as set forth below.
Exhibit No.
Description
****************
2.1 Plan of Reorganization of Eafco, Inc. (H)
3.1 Restated Articles of Incorporation of Mestek, Inc., as amended (K)
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (D)
10.1 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.2 Lease dated July 1, 1983 between Sterling Realty Trust (lessor)
and Mestek, Inc. (lessee) (D)
10.3 Lease dated December 17, 1984 between Mestek (lessee) and
Sterling Realty Trust (lessor), as amended on November 1, 1991 (D)
10.4 Lease dated January 1, 1994 between Mestek (lessee) and
Sterling Realty Trust (lessor) (D)
10.5 Amended and restated lease agreement dated as of July 1, 1997
between Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor)
10.6 Amended and restated lease agreement dated as of January 1, 1997
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor). (K)
10.7 Equipment Lease Agreement dated January 1, 1993, between Mestek
(lessee) and Sterling Realty Trust (lessor) (D)
10.8 Loan Agreement dated as of December 1, 1984 among Reed National
Corp., Rudbeek Realty Corp. and The Pitt County Industrial Facilities
and Pollution Control Financing Authority and the Promissory Notes
thereunder two Guaranty Agreements dated as of December 1, 1984
between Reed National Corp., NCNB National Bank of North Carolina,
and Rudbeek Realty Corp. (A)
10.9 Loan Agreement dated as of May 1, 1984 among the Connecticut
Development Authority (the "CDA"), MacKeeber Limited Partnership,
Vulcan Radiator Corporation and the Promissory Notes thereunder;
Guaranty of Vulcan Radiator Corporation and Reed National Corp.
to the Connecticut Bank and Trust Company, NA (A)
10.10 Note Agreement dated as of July 1, 1987 between Mestek, Inc. and
Massachusetts Mutual Life Insurance Company. (B)
10.11 Indemnification Agreements entered into between Mestek, Inc. and
its Directors and Officers and the Directors of its wholly-owned
subsidiaries incorporated by reference as provided herein, except
as set forth in the attached schedule (C)
10.12 Share Purchase Agreement relating to the acquisition of capital
stock of Ruscio Brothers Refractory, Ltd. And Rainbow Electronics
Spotwelding Equipment, Ltd. dated April 29, 1998 by and between
1291893 Ontario, Inc. as Buyer and Domenic Ruscio, et al.,
as Sellers. (L)
10.13 Lease Agreement dated July 1, 1998 between Mestek (lessee) and
Sterling Realty Trust (lessor). (D)
10.14 Loan Agreement and Promissory Note dated June 7, 1993 between
The First National Bank of Boston and Mestek, Inc. (D)
10.15 Mortgage Note dated February 1, 1986 between Arrow United Industries,
Inc. and Chemical Bank; said Note assumed by Mestek, Inc. in the
purchase of certain assets of Arrow United Industries, Inc. (D)
10.16 Equipment Lease Agreement dated January 1, 1993 between Machinery
Rental Company (Lessor) and Vulcan Radiator Corporation (Lessee). (E)
10.17 Equipment Lease Agreement dated January 1, 1993 between Machinery
Rental Company (Lessor) and Mestek, Inc. (Lessee). (E)
10.18 Equipment Lease Agreement dated January 1, 1993 between
Elizabeth C. Reed Trust (Lessor) and Mestek, Inc. (Lessee). (E)
10.19 1996 Mestek, Inc. Stock Option Plan. (I)
10.20 Amended and Restated Revolving Loans and Foreign Exchange Facilities
Agreement between Mestek, Inc. and Bank Boston dated July 15, 1997.(J)
10.21 Lease dated January 1, 1997 between Pacific Air Balance, Inc. (Lessee)
and Production Realty, Inc. (Lessor). (J)
10.22 Letter Agreement between Mestek, Inc. and the Travelers Insurance
Company, dated March 1, 1996, regarding five and fifty-three hundredth
percent (5.53%) Senior Notes due March 1, 1998. (K)
10.23 Supplemental Executive Retirement Agreements entered into between
Mestek, Inc. and certain of its officers. (J)
10.24 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty
Trust (Lessor) for 1st floor - Torrington Building.
10.25 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty
Trust (Lessor) for 3rd & 4th Floor - Torrington Building.
10.26 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller).
10.27 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Elizabeth C. Reed Trust (Seller).
10.28 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and
Machinery Rental Company (Seller)
10.29 Asset Purchase Agreement dated March 18, 1999 among CTS Corporation,
Dynamics Corporation of America, and Mestek, Inc. (F)
10.30 Second Amended and Restated Agreement and Plan of Merger and
Investment Agreement dated October 25, 1999 among Simione Central
Holdings, Inc., MCS, Inc., Mestek, Inc., John E. Reed,
Stewart B. Reed, and E. Herbert Burk. (G)
10.31 Agreement and Plan of Reorganization by and betwwe Formtek Acquisition,
Inc., Formtek, Inc., and Met-Coil Systems Corporation
dated March 13, 2000
10.32 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller).
10.33 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and
Machinery Rental Company (Seller)
11.1 Schedule of Computation of Earnings per Common Share.
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Registration Statement 33-7101,
effective July 31, 1986
(B) Filed as an Exhibit to the Current Report on Form 8-K dated
July 2, 1987
(C) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1987
(D) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993
(E) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1994
(F) Filed as an Exhibit to the Current Report on Form 8-k dated
April 6, 1999.
(G) Incorporated by reference from the from the Form 10 file
by MCS, Inc. with the Securities and Exchange Commission on
October 26, 1999, File No. 000-27829.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1998.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(J) Filed as an Exhibit tot eh Quarterly Report on Form 10-Q for
the quarter ended September 30, 1997.
(K) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1996.
(L) Filed as and Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1999 1998 1997
---- ---- ----
Net income for earnings per share $17,917 $16,064 $14,405
======= ======= =======
Basic weighted average number of
common shares outstanding 8,857 8,921 8,929
======= ======= =======
Basic earnings per common share $2.02 $1.80 $1.61
======= ======= =======
Diluted weighted average number of
common shares outstanding 8,887 8,949 8,951
======= ======= =======
Diluted earnings per common share $2.02 $1.80 $1.61
======= ======= =======
Exhibit 22.1
LIST OF SUBSIDIARIES
Jurisdiction of
Formation
Name
Advanced Thermal Hydronics, Inc. Delaware
Alapco Holding, Inc. Delaware
Anemostat, Inc Delaware
Boyertown Foundry Company Pennsylvania
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Formtek Acquistion, Inc. Delaware
Hill Engineering, Inc. Illinois
Gentex Partners, Inc. Texas
Mestex, Ltd. (Texas limited partnership) Texas
Yorktown Properties, Ltd. (Texas limited partnership) Texas
HBS Aquisition Corporation Delaware
Keyser Properties, Inc. Delaware
Lexington Business Trust (Massachusetts business trust) Massachusetts
MCS, Inc. Pennsylvania
Mestek Canada, Inc. Ontario
1291893 Ontario, Inc. Ontario
Ruscio Brother Refractory, Ltd. Ontario
988721 Ontario, Inc. Ontario
Mestek Foreign Sales Corporation U.S. Virgin Islands
Mestek Technology, Inc. Delaware
National Northeast Corporation Delaware
Omega Flex, Inc. Pennsylvania
Pacific/Air Balance, Inc. California
TEK Capital Corporation Delaware
Westcast, Inc. Massachusetts
Exhibit 10.12
SCHEDULE OF DIRECTORS/OFFICERS
Indemnification Agreements
The Indemnification Agreement entered into by the Directors and/or Officers
of Mestek, Inc. and certain Directors of Mestek's wholly owned subsidiaries are
identical in all respects, except for the name of the indemnified director or
officer and the date of execution.
Set forth below is the identity of each director and officer of Mestek,
Inc. and the date upon which the above Indemnification Agreement was executed by
the Director or Officer.
Director and/or Officer Year of Execution
A. Warne Boyce 1987
E. Herbert Burk 1987
William J. Coad 1987
David R. Macdonald 1987
David M. Kelly 1996
Winston R. Hindle, Jr. 1995
David W. Hunter 1987
John E. Reed 1987
Stewart B. Reed 1987
James A. Burk 1987
R. Bruce Dewey 1990
Robert G. Dewey 1988
Nicholas Kakavis 1987
Richard J. McKnight 1987
Walter J. Markowski 1990
John F. Melesko, Jr. 1987
Jack E. Nelson 1996
William S. Rafferty 1990
Stephen M. Shea 1987
Charles J. Weymouth 1995
Kevin R. Hoben 1996
Stephen M. Schwaber 1997
Phil K. LaRosa 1997
Robert P. Kandel 1997
Richard E. Kessler 1997
Timothy P. Scanlan 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: March 31, 2000 By: /S/ John E. Reed
------------------------ ----------------
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: March 31, 2000 By: /S/ Stephen M. Shea
------------------------ -------------------
Stephen M. Shea, Senior Vice President
Finance, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 31, 2000 By: /S/ A. Warne Boyce
------------------------ ------------------
A. Warne Boyce, Director
Date: March 31, 2000 By: /S/ E. Herbert Burk
------------------------ ------------------
E. Herbert Burk, Director
Date: March 31, 2000 By: /S/ William J. Coad
------------------------ -------------------
William J. Coad, Director
Date: March 31, 2000 By: /S/ David M. Kelly
------------------------ -----------------
David M. Kelly, Director
Date: March 31, 2000 By: /S/ Winston R. Hindle, Jr.
------------------------ --------------------------
Winston R. Hindle, Jr., Director
Date: March 31, 2000 By: /S/ David W. Hunter
------------------------ -------------------
David W. Hunter, Director
Date: March 31, 2000 By: /S/ David R. Macdonald
------------------------ ----------------------
David R. Macdonald, Director
Date: March 31, 2000 By: /S/ John E. Reed
------------------------ ----------------
John E. Reed, Director
Date: March 31, 2000 By: /S/ Stewart B. Reed
------------------------ -------------------
Stewart B. Reed, Director