Back to GetFilings.com
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, 2000
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__
--------------------------------------------------------------
The aggregate market value of voting common shares held by non-affiliates of the
registrant as of March 30, 2001, based upon the closing price for the
registrant's common stock as reported in The Wall Street Journal as of such date
was $50,408,493
The number of shares of the registrant's common stock issued and outstanding as
of March 20, 2001 was 8,722,703.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on June 7, 2001 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 de-coiling
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 complementary 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 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 January 28, 2000, the Company acquired substantially all of the
operating assets of Wolfram, Inc. d/b/a Cesco Products ("Cesco"), a manufacturer
of air distribution products for approximately $6,425,000, as more fully
explained in Note 2 to the accompanying Consolidated Financial Statements.
On February 10, 2000, the Company acquired certain assets of B & K
Rotary Machinery International Corporation ("B & K"), a manufacturer of metal
processing lines, for approximately $3,018,000, as more fully explained in Note
2 to the accompanying Consolidated Financial Statements.
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 3 to the accompanying
Consolidated Financial Statements.
On June 3, 2000, the Company completed its previously announced
acquisition of Met-Coil Systems Corporation, (Met-Coil) for approximately $33.6
million, as more fully explained in Note 2 to the accompanying Consolidated
Financial Statements. Met-Coil manufactures advanced sheet metal forming
equipment, fabricating equipment, and computer-controlled fabrication systems
for the global market. The Company employs approximately 270 people, principally
in its Cedar Rapids, Iowa, and Lisle, Illinois, manufacturing facilities, and
had revenues for the fiscal year ended May 31, 2000 of approximately $48.3
million. Met-Coil's products are complementary with those of the Company's Metal
Forming Segment.
On June 30, 2000 the Company acquired substantially all of the
operating assets of Louvers and Dampers, Inc. (L & D) located in Florence,
Kentucky. L & D manufactures louver and damper products for the HVAC industry.
The purchase price paid for the assets acquired was $3,000,000 and included
$699,000 of goodwill. The Company accounted for the acquisition under the
purchase method of accounting.
On August 25, 2000 the Company, through a 75% owned subsidiary,
Airtherm LLC, acquired substantially of all of the operating assets of Airtherm
Manufacturing Company, a Missouri corporation, and Airtherm Products, Inc., an
Arkansas corporation, (collectively, the sellers), except the real property
owned by these companies, for approximately $3,815,000, including assumed
liabilities of $101,000. No goodwill was recorded in the transaction. The
Company has an option to acquire the remaining 25% of Airtherm LLC membership
interests it does not own for $2,000,000, subject to certain downward
adjustments. The option expires on February 21, 2002. The Company, pursuant to
put rights held by the other membership interest, may become contractually
obligated to purchase these share for $2,500,000, subject to certain downward
adjustments, if it chooses not to exercise it options. If the Company chooses to
exercise its option to acquire the membership interests, or is required to
purchase the membership interests, the amount paid will be recorded as goodwill
in connection with the acquisition of Airtherm. In connection with the
transaction, the Company also loaned $1,550,000 to an unrelated company, which
acquired two manufacturing facilities owned by the sellers. The loan is
evidenced by a $750,000 promissory note and an $800,000 promissory note, which
bear interest at 7% and 7% and matures on August 31, 2002 and August 31, 2002,
respectively. The notes are secured in each case by the related manufacturing
facilities and are included in other current assets and other assets,
respectively, as of September 31, 2000.
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 three continuing business segments: Heating,
Ventilating, and Air Conditioning Equipment ("HVAC") Manufacturing; 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. As further described in Note 3, the Company discontinued its
Computer Software segment during fiscal 2000 by distributing the stock of MCS,
Inc. to the Company's shareholders.
The Company and its subsidiaries together employed approximately 3,221
persons as of December 31, 2000.
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", "Beacon-Morris", and "Airtherm". 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 Sensible Cooling", "Koldwave", and "Air Fan" 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;
Wrens, Georgia; and Forrest City, Arkansas. 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", "Arrow", "Cesco", and "Louvers and Dampers". These products are
manufactured at the Company's plants in Wrens, Georgia; San Fernando,
California; Bradner, Ohio; Waldron, Michigan; Milford, Ohio; Wyalusing,
Pennsylvania; Minneapolis, Minnesota; Carson, California; Scranton,
Pennsylvania; and Florence, Kentucky. The Reed Division also manufactures
industrial and power plant dampers in San Fernando, 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 a diverse
group of 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 affect 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, 2000.
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 its 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,
Anemostat, Air Clean Damper Company, Cesco, Louvers and Dampers, and Airtherm
product lines.
Expenditures for research and development for the HVAC segment in 2000,
1999, and 1998, were $2,551,000 $1,735,000, and $1,415,000, respectively.
Product development efforts are necessary and ongoing in all product markets.
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, Rowe,
Lockformer, and Iowa Precision (collectively, Formtek). The products are sold
through factory direct sales and 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,
flying cut-off saws, and plasma cutting equipment.
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
de-coiling 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.
In 2000, this segment added Iowa Precision and Lockformer
(collectively, Met-Coil Systems Corporation), as more fully explained in Note 2
to the accompanying Consolidated Financial Statements. Met-Coil manufactures
advanced sheet-metal-forming equipment, fabricating equipment and
computer-controlled fabrication systems for the global market.
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,
1997, and 2000, 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 sheet metal and mechanical contractors, 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 somewhat more cyclical (due to changes in manufacturing
capacity utilization) than the Company's other operating segments. CWP, Rowe,
CoilMate-Dickerman, and Iowa Precision 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. Dahlstrom and Lockformer are well-established
names in the roll-former market place. The Company believes that the critical
mass created by the recent acquisition of Met-Coil Systems Corporation will
allow it to more fully leverage its large installed customer base.
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, 2000.
The backlog relating to this segment at December 31, 2000 was
approximately $36,069,538.
Expenditures for research and development for this segment in 2000,
1999, and 1998, were $931,000, $610,000, and $465,000, respectively.
METAL PRODUCTS
The Company's Metal Products Segment (consisting of Omega Flex, Inc.
and Boyertown Foundry Company) manufactures a variety of metal products
including flexible metal hose and grey iron castings. This segment sells cast
iron products to the HVAC industry, including the company's HVAC segment, and
flexible metal hose products to the HVAC and industrial metal hose marketplaces.
National Northeast Corporation (National), reported under Discontinued
Operations in accordance with APB30 in the accompanying Consolidated Financial
Statements, but formerly included in the Company's Metal Products segment,
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. National was sold
on January 9, 2001, as explained more fully in Note 17 to the Consolidated
Financial Statements.
Omega Flex, 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-Pipe(R), a corrugated stainless steel tubing developed for use
in piping gas appliances. The Company has realized significant synergies by
distributing Trac-Pipe(R) 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, 2000.
The backlog relating to this segment at December 31, 2000 was
approximately $7,603,032.
Expenditures for research and development for this segment, independent
of research and development related to specific customer requests, in 2000,
1999, and 1998, were $343,000, $594,000, and $256,000, 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 Regulations 5-K, is presented in Note 13 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;
Scranton, Pennsylvania; Dundalk, Maryland; Wrens, Georgia; Milford, Ohio; 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; and South Windsor, Connecticut. The
HVAC segment leases manufacturing space from unrelated parties in Mississauga,
Ontario, Canada; Carson, California; Minneapolis, Minnesota; San Fernando,
California; Florence, Kentucky; St. Louis, Missouri; Forrest City, Arkansas; 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; Danville,
Kentucky; Cedar Rapids, Iowa; and Lisle, Illinois.
The Metal Products segment manufactures products at plants the Company
owns in Boyertown, Pennsylvania; and at leased facilities in Exton,
Pennsylvania.
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 5 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 2000.
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 20, 2001
based on inquiries of the registrant's transfer agent was 1,248. 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, 2001 and March 20,
2001 was between $20 1/4 and 16, and the closing price on March 20, 2001 was
$18.40.
The quarterly price ranges of the Company's common stock during 2000
and 1999 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
2000 1999
---- ----
First Quarter $20 1/4 $14 3/16 $20 15/16 $18 3/4
Second Quarter $18 1/16 $15 7/8 $22 3/8 $18 3/8
Third Quarter $17 13/16 $16 3/8 $22 7/8 $19 3/4
Fourth Quarter $17 $16 3/8 $20 1/4 $18 1/4
The Company has not paid any cash 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. A "Pro forma 2000" column is included below illustrating
the effect on the Company's balance sheet of the sale of National Northeast
Corporation (National) on January 9, 2001 as though it had been completed on
December 31, 2000. The sale of National, as more fully explained in Note 17 to
the Consolidated Financial Statements, generated approximately $45 million in
net proceeds and resulted in a $17 million pre-tax gain reportable in the first
quarter of 2001.
SUMMARY OF FINANCIAL POSITION as of December 31, (1)
(dollars in thousands except per share data)
Pro Forma
2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Total Assets $259,036 $293,489 $242,253 $205,143 $191,117 $170,010
Working capital 57,741 26,252 63,732 49,415 42,056 59,274
Long-term debt, including
current portion 18,658 63,658 34,791 13,188 19,329 15,362
Shareholders' equity 173,914 163,682 148,617 133,298 118,007 103,718
Shareholders' equity
per common share (1) $ 20.67 $ 18.72 $ 16.96 $ 14.99 $ 13.22 $ 11.61
======= ======= ======= ======= ======= =======
SUMMARY OF OPERATIONS - for the year ended December 31, (2)
(dollars in thousands except per share data)
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Revenues from Continuing Operations $375,987 $328,145 $291,164 $282,700 $262,158
Income from Continuing Operations 16,402 17,666 13,560 11,757 11,089
Net income 17,068 17,917 16,064 14,405 13,329
Earnings per common share:
- -------------------------
Basic Earnings per Common Share:
Continuing Operations $1.87 $1.99 $1.52 $ 1.31 $ 1.24
Discontinued Operation .08 .03 .28 .30 .25
------ ------- ----- ------- -------
Net Income $ 1.95 $ 2.02 $1.80 $ 1.61 $ 1.49
====== ======= ===== ====== ========
Diluted Earnings Per Common Share
Continuing Operations $ 1.87 $ 1.99 $1.52 $ 1.31 $ 1.24
Discontinued Operations .08 .03 .28 .30 .25
------- ------- ----- ------- -------
Net Income $ 1.95 $ 2.02 $1.80 $ 1.61 $ 1.49
====== ======= ===== ======= ========
1) Equity per common share amounts are computed using the common shares and
common share equivalents outstanding as of December 31, 2000, 1999, 1998,
1997, and 1996.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* Airtherm LLC from August 25, 2000 * Louvers & Dampers, Inc. from June
30, 2000 * Met-Coil Systems Corporation from June 3, 2000
* B & K Rotary Machinery International Corporation from February 10, 2000
* Cesco Products from January 29, 2000 * ACDC, Inc. from May 7, 1999 *
Anemostat Corporation from March 26, 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.
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, 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
(Continuing Operations)
2000, 1999, 1998
As more fully explained in Note 17 to the Consolidated Financial Statement, the
results of operations for the Company's National Northeast Corporation and MCS,
Inc. subsidiaries are reported under Discontinued Operations. National Northeast
Corporation, an aluminum extruder and heat-sink fabricator formerly include in
the Company Metal Products segment, was sold on January 9, 2001. One hundred
percent of the common stock of MCS, Inc. was distributed to the Company's common
shareholders on March 7, 2000, as more fully explained in Note 3 to the
Consolidated Financial Statements. The discussion and analysis which follows
relates to the Company's continuing operations only.
The Company's Return on Average Net Assets Employed From Continuing
Operations, defined as Operating Profits From Continuing Operations, over
Average Net Assets Employed From Continuing Operations (Total Assets less
Current and Non Current Liabilities-other than Current and Non Current Portions
of Long-Term Debt-averaged over 12 months) for the years 2000, 1999, and 1998
was as follows:
2000 1999 1998
---- ---- ----
(in thousands)
Operating Profits $ 27,105 $ 29,193 $ 22,137
Average Net Assets Employed (as defined $ 186,999 $ 145,850 $ 125,833
--------- --------- ---------
Return on Average Net Assets Employed 14.49% 20.01% 17.59%
========== ========= =========
The Year 2000 return on Average Net Assets Employed From Continuing
Operations decreased significantly from 1999 due principally to the effect of
substandard operating incomes from the Company's recent Met-Coil, Anemostat, and
Air Clean Damper acquisitions, as more fully explained below.
ANALYSIS: 2000 VS. 1999
The Company's core HVAC Segment reported comparative results from
continuing operations for 2000 and 1999 as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $271,918 100.00% $ 254,451 100.00%
Gross Profit 75,188 27.65% 73,604 28.93%
Operating Incom 16,494 6.06% 20,445 8.03%
The reduced gross profit and operating income levels reflect
principally sub par results from the Company's recent Anemostat and Air Clean
Damper Company (ACDC) acquisitions as well as sub par results from certain
hydronic products. Significant product development and market development
expenses were incurred in 2000 as part of a long-term plan to strengthen and
improve the Anemostat franchise. These costs will continue in year 2001 and may
result in substandard returns on the Company's investment in Anemostat for some
time. The Company consolidated its two heavy-duty damper operations into one
location in 2000 which adversely effected the results of operations for ACDC.
The Company's Metal Products Segment includes 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. BFC produces cast iron products and related machining
services for the Company's HVAC Segment and various third parties. This segment
formerly included National Northeast Corporation, (National), an eighty-nine and
five tenths percent (89.5%) owned aluminum extruder and heat sink fabricator
acquired in 1995, which was sold on January 9, 2001, as more fully explained in
Note 17 to the Consolidated Financial Statements.
Comparative results from continuing operations for 2000 and 1999 were
as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------ ------ -----
Net Sales $ 39,816 100.00% $ 35,138 100.00%
Gross Profit 16,992 42.68% 13,732 39.08%
Operating Income 6,787 17.05% 6,813 19.39%
Operating profits in 2000 were relatively flat despite significantly
improved results from Omega due to an offsetting reduction in operating profits
at BFC. Sales of Omega's patented TracPipe(R) flexible gas piping product
continued to grow at a rapid pace in 2000. TracPipe(R) is a corrugated stainless
steel tubing developed especially for use in the piping and installation of gas
appliances. Operating results for BFC were adversely effected by legal and other
costs associated with a protracted legal dispute which was settled during 2000.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Manufacturing, (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 de-coiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997. This segment's results also include the operations of The
Lockformer Company (Lockformer) and Iowa Precision, Inc. (IPI), the operating
units of Met-Coil Systems Corporation, which was acquired on June 3, 2000, as
more fully described in Note 2 to the Consolidated Financial Statements.
Comparative results from continuing operations for 2000 and 1999 were
as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ----- -------
Net Sales $63,424 100.00% $ 37,116 100.00%
Gross Profit 16,408 25.86% 10,168 27.39%
Operating Income 4,143 6.53% 1,727 4.65%
Exclusive of the effect of the Met-Coil acquisition, revenues were up
3.67%, gross profits were up 7.86% and operating profits were up 47.6%
reflecting improved results from the segment's CWP and Rowe units which more
than offset reduced operating results at Hill and Dahlstrom.
As a whole the Company reported comparative results as follows:
2000 2000 1999 1999
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $375,987 100.00% $328,145 100.00%
Gross Profit 108,802 28.94% 98,249 29.94%
Operating Income 27,105 7.21% 29,193 8.89%
Gross Profit and Operating Income margins overall reflect the negative
effects of the product development, market development and factory relocation
costs incurred in the HVAC segments, as described above, offset somewhat by the
positive results contributed by the Metal Forming segment's CWP and Rowe
divisions.
Sales Expense for the Company as a whole, as a percentage of continuing
revenues, increased slightly, from 12.97% to 13.24%. General and Administrative
Expenses, as a percentage of continuing revenues, increased very slightly from
5.24% to 5.39%. Engineering Expense, as a percentage of continuing revenues,
increased slightly also from 2.82% to 3.10%, owing to increased new product
development costs incurred in the Company's HVAC Segment.
Interest Expense increased substantially in 2000, reflecting
principally the effect of the Met-Coil and other acquisitions, as more fully
described in Note 2 to the Consolidated Financial Statements.
Income Tax Expense for 2000, as a percentage of pretax income,
increased slightly from 37.1% to 37.2%.
ANALYSIS: 1999 VS. 1998
The Company's core HVAC Segment reported comparative results from
continuing operations for 1999 and 1998 as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ----- ------ -------
Net Sales $254,451 100.00% $229,704 100.00%
Gross Profit 73,604 28.92% 65,124 28.35%
Operating Income 20,445 8.03% 15,534 6.76%
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 product development and market development
expenses were incurred in 1999 as part of a long-term plan to strengthen and
improve the Anemostat franchise.
The Company's Metal Products Segment includes 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 this segment's 1998 results. BFC produces cast iron products and related
machining services for the Company's HVAC Segment and various third parties.
This segment formerly included National Northeast Corporation, (National), an
eighty-nine and five tenths percent (89.5%) owned aluminum extruder and heat
sink fabricator acquired in 1995, which was sold on January 9, 2001, as more
fully explained in Note 17 to the Consolidated Financial Statements.
Comparative results from continuing operations for 1999 and 1998 were
as follows:
1999 1999 1998 1998
---- ---- ---- ----
($000) % ($000) %
------ ------- ------ -------
Net Sales $35,138 100.00% $18,466 100.00%
Gross Profit 13,732 39.08% 6,905 37.39%
Operating Income 6,813 19.38% 1,797 9.73%
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.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson,
(CWP), Rowe Machinery and Manufacturing, (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 de-coiling
equipment for the metal stamping and roll forming industries acquired on
November 3, 1997.
Comparative results from continuing operations 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 10,168 27.39% 12,212 29.59%
Operating Income 1,727 4.65% 4,135 10.02%
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 $ 328,145 100.00% $ 291,164 100.00%
Gross Profit 98,249 29.94% 85,062 29.21%
Operating Income 29,193 8.89% 22,137 7.60%
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 continuing
revenues, decreased slightly, from 13.42% to 12.97%, owing to in the Company's
growth in 1999. General and Administrative Expenses, as a percentage of
continuing revenues, decreased from 5.46% to 5.24% for the same reason.
Engineering Expense, as a percentage of continuing revenues, increased slightly
from 2.72% to 2.82%.
Interest Expense increased slightly 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 36.9% to 37.1%.
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital decreased in 2000 from $63,732,000 at December 31, 1999
to $26,252,000 at December 31, 2000, primarily as a result of short-term debt
incurred in connection with the Met-Coil and other acquisitions completed in
2000, as more fully described in Note 2 to the consolidated financial
statements.
The Company chose to fund these acquisitions, which added indebtedness of
approximately $42 million, with short-term borrowings due to the pending sale of
National Northeast Corporation (NNE) which was ultimately completed on January
9, 2001 and which raised approximately $45 million (net of minority interest) in
net proceeds and resulted in a pretax gain of approximately $17 million which
will be reported in the Company's first quarter 2001 results of operations. The
Company's December 31, 2000 balance sheet, adjusted on a pro forma basis to give
effect to the NNE sale as though it had occurred on December 31, 2000, looks as
follows on a condensed basis:
Actual Pro Forma Pro Forma
December 31, Effect of December 31,
2000 NNE Sale 2000
(in thousands)
Current Assets $148,009 ($9,736) $138,273
Non-Current Assets 145,480 (24,717) 120,763
------- -------- -------
Total $293,489 ($34,453) $259,036
======== ========= ========
Short-term Debt $63,418 ($45,000) 18,418
Other Current Liabilities 58,339 3,775 62,114
Non-Current Liabilities 5,304 (1,757) 3,547
Minority Interest 2,746 (1,703) 1,043
Shareholders' Equity 163,682 10,232 173,914
------- ------ -------
Total $293,489 ($34,453) $259,036
======== ========= ========
The Company's working capital at December 31, 2000, after giving effect to the
NNE sale on a pro forma basis, was $57,741,000, down
from $63,732,000 at December 31, 1999. The Company's funded debt to equity
ratio, however, (including minority interests in funded debt and including on a
pro forma basis the effect of the sale of NNE as though it had occurred on
December 31, 2000) decreased from 25.37% at December 31, 1999 to 11.33% at
December 31, 2000, principally as a result of the NNE sale.
The principal changes to the Company's Net Assets Employed during 2000,
including the pro forma effect of the sale of NNE as though it had occurred on
December 31, 2000, were as follows:
Net Assets Employed 12/31/99 $ 188,429
Acquisition of Cesco Products 1/28/00 5,374
Acquisition of B & K Rotary Machinery 2/10/00 3,018
Acquisition of Met-Coil Systems Corporation
6/3/00 (including assumed bank debt) 37,333
Acquisition of Louvers & Dampers 6/30/00 3,000
Acquisition of Airtherm LLC 8/25/00 3,714
Distribution of MCS, Inc. common stock (1,551)
Capital equipment purchased 6,979
Additional Investment in Simione Central Holdings, Inc. (net) 2,000
Cash flow in excess of net income and other effects (18,210)
---------
Net Assets Employed 12/31/00 (Actual) $230,086
---------
Sale of National Northeast (Pro Forma) (36,471)
---------
Net Assets Employed 12/31/00 (Pro Forma) $193,615
=========
Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid cash dividends on its common stock since 1979.
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. Problems related to Year 2000
functionality in its information systems 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 believes that its total cost of addressing the Year 2000
issue, including software licenses, modifications, training and implementation
was not material in the year ended December 31, 2000.
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 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. The
residential neighbors of a manufacturing facility site in Illinois now owned by
a Company subsidiary have been certified as a class in an action against the
Company and its subsidiary for alleged contamination of the neighbors' drinking
water wells. In a separate action, the State of Illinois has also filed an
action to compel the Company's subsidiary to investigate and remediate the same
site for the same contamination. In both suits, the plaintiffs are seeking an
injunction ordering that the Company's subsidiary provide a permanent
alternative water supply to the neighborhood. The Company believes that its
subsidiary carries adequate insurance coverage, such that the costs of these
suits should have no material adverse effect on the Company's financial
position. 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, undertook to remove the hazardous materials and
has filed a report with the appropriate state agency that no further action is
necessary at the site. Although the Company anticipates that it may be subject
to a claim for contribution with respect to this 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 its 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 the
creation of carbon dioxide or other currently unregulated compounds emitted in
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
of Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000. 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, 2000 and 1999, 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, 2000 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, 2000 and for each of the years in the three-year period ended
December 31, 2000. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
Grant Thornton, LLP
Boston, Massachusetts
March 2, 2001
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
2000 1999
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash $ 2,417 $ 4,468
Accounts Receivable - less allowances of
$3,746 and $3,627 respectively 64,832 66,605
Unbilled Accounts Receivable 27 447
Inventories 70,911 54,688
Deferred Tax Benefit 3,333 1,551
Other Current Assets 6,489 4,264
----------- -----------
Total Current Assets 148,009 132,023
Property and Equipment - net 73,489 69,067
Notes Receivable 800 3,850
Investment in Simione Central Holdings, Inc. 6,850 --
Other Assets and Deferred Charges - net 7,676 7,146
Excess of Cost over Net Assets
of Acquired Companies-net 56,665 30,167
--------- ----------
Total Assets $ 293,489 $ 242,253
========= =========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
2000 1999
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt 63,418 14,467
Accounts Payable 19,646 18,335
Accrued Compensation 6,903 6,778
Accrued Commissions 2,528 3,314
Progress Billings in Excess of Cost
and Estimated Earnings 283 3,257
Customer Deposits 9,321 5,409
Other Accrued Liabilities 19,658 16,731
--------- --------
Total Current Liabilities 121,757 68,291
Long-Term Debt 240 20,324
Other Liabilities 5,064 2,104
-------- ----------
Total Liabilities 127,061 90,719
-------- ----------
Minority Interests 2,746 2,917
---------- -----------
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 158,697 143,180
Treasury Shares, at cost (867,032 and
846,132 common shares, respectively) (9,733) (9,393)
Cumulative Translation Adjustment (1,195) (1,083)
--------- ----------
Total Shareholders' Equity 163,682 148,617
--------- ---------
Total Liabilities and Shareholders' Equity $ 293,489 $ 242,253
========= =========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
2000 1999 1998
---- ---- ----
(Dollars in thousands, Except Earnings Per Common Share)
Net Sales $ 375,158 $ 326,705 $ 289,435
Net Service Revenues 829 1,440 1,729
----------- ---------- ---------
Total Revenues 375,987 328,145 291,164
Cost of Goods Sold 266,585 229,228 205,194
Cost of Service Revenues 600 668 908
---------- --------- ---------
Gross Profit 108,802 98,249 85,062
Selling Expense 49,782 42,571 39,086
General and Administrative Expense 20,257 17,207 15,905
Engineering Expense 11,658 9,278 7,934
--------- --------- ----------
Operating Profit 27,105 29,193 22,137
Interest Expense (1,120) (48) ---
Other Income (Expense), Net 149 (1,050) (656)
--------- ---------- ----------
Income from Continuing
Operations Before Income Taxes 26,134 28,095 21,481
Income Taxes 9,732 10,429 7,921
--------- ---------- ---------
Income from Continuing Operations 16,402 17,666 13,560
Discontinued Operations (see Note 3 & 17):
Income from Operations of
Discontinued Segments Before Taxes 1,227 615 4,170
Applicable Income Tax Expense (561) (364) (1,666)
----- ----- -------
Income from Operations
of Discontinued Segments 666 251 2,504
Net Income $ 17,068 $ 17,917 $ 16,064
========= ========= =========
Basic Earnings per Common Share:
Continuing Operations $1.87 $1.99 $1.52
Discontinued Operations .08 .03 .28
--------- --------- --------
Net Income $ 1.95 $ 2.02 $ 1.80
======== ========= =========
Basic Weighted Average Shares Outstanding 8,744 8,857 8,921
======== ========= =========
Diluted Earnings Per Common Share
Continuing Operations $ 1.87 $ 1.99 $ 1.52
Discontinued Operations .08 .03 .28
--------- --------- --------
Net Income $ 1.95 $ 2.02 $ 1.80
========= ========= ========
Diluted Weighted Average
Shares Outstanding 8,760 8,887 8,949
========= ========= ========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended December 31, 2000, 1999 and 1998
Cumulative
Common Paid In Retained Treasury Translation
(Dollars in Thousands) Stock Capital Earnings Shares Adjustment Total
- ---------------------- -------- ------- -------- ----------- ---------- ----------
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 Repurchased (2,603) (2,603)
Cumulative Translation Adjustment 5 5
----- --------- --------- --------- --------- -----------
Balance - December 31, 1999 $ 479 $ 15,434 $ 143,180 ($ 9,393) ($ 1,083) $ 148,617
Net Income 17,068 17,068
Dividends Paid in MCS, Inc. Common Stock (1,551) (1,551)
Common Stock Repurchased (340) (340)
Cumulative Translation Adjustment (112) (112)
----- --------- --------- --------- --------- -------------
Balance - December 31, 2000 $ 479 $15,434 $158,697 ($9,733) ($1,195) $163,682
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 17,068 $ 17,917 $ 16,064
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 12,779 10,631 8,599
Provision for Losses on Accounts
Receivable, net of write-offs 119 184 914
Net Change in Minority Interests net of
effects of acquisitions and dispositions (171) 54 256
Changes in assets and liabilities net of
effects of acquisitions and dispositions:
Accounts Receivable 5,909 (7,207) (2,782)
Unbilled Accounts Receivable 420 (161) (38)
Inventory (2,922) 2,076 755
Accounts Payable (166) (2,805) (560)
Other Liabilities 1,421 (745) 2,718
Progress Billings 240 107 (55)
Notes Receivable 3,850 (3,850) ---
Other (3,810) 2,255 (1,346)
---------- ---------- ----------
Net Cash Provided by Operating Activities 34,737 18,456 24,525
---------- --------- ----------
Cash Flows from Investing Activities:
Capital Expenditures (6,979) (12,437) (12,802)
Acquisition of Businesses and Other
Assets, Net of Cash Acquired (45,636) (24,333) (2,877)
Investment in Simione Central Holdings, Inc. (6,850) --- ---
---------- ----------- -----------
Net Cash Used in Investing Activities (59,465) (36,770) (15,679)
---------- ---------- ----------
Cash Flows from Financing Activities:
Net Borrowings Under
Revolving Credit Agreement 28,959 1,739 9,119
Principal Payments Under Long
Term Debt Obligations (5,830) (136) (15,909)
Proceeds from Issuance of Long Term Debt --- 20,000 ---
Repurchase of Common Stock (340) (2,603) (681)
---------- ----------- -----------
Net Cash Provided by (Used In) by Financing Activities 22,789 19,000 (7,471)
--------- ----------- ----------
Net (Decrease) Increase in Cash and Cash Equivalents (1,939) 686 1,375
Translation Effect on Cash (112) 5 (92)
Cash and Cash Equivalents - Beginning of Year 4,468 3,777 2,494
--------- ----------- -----------
Cash and Cash Equivalents - End of Year $ 2,417 $ 4,468 $ 3,777
========= ========= =========
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
eighty-nine percent (89%) and seventy-eight percent (78%) of the cost of
inventories are determined by the last-in, first-out (LIFO) method for the years
ended December 31, 2000 and 1999, respectively.
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 benefited. The acquisition of the assets of Anemostat on March 26,
1999 resulted in Goodwill of approximately $6,800,000, which will be amortized
over 25 years. The acquisition of the assets of Wolfram, Inc. d/b/a Cesco
Products, as more fully described in Note 2, resulted in Goodwill of
approximately $2,700,000, which will be amortized over 25 years. The acquisition
of selected assets of B & K Rotary Machinery International Corporation, as more
fully described in Note 2, resulted in Goodwill of approximately $2,200,000,
which will be amortized over 25 years. The merger of Met-Coil Systems
Corporation into Formtek, Inc., a wholly owned subsidiary of the Company, as
more fully described in Note 2, resulted in Goodwill of approximately
$23,000,000, which will be amortized over 25 years. The acquisition of the
assets of Louvers and Dampers, Inc., as more fully described in Note 2, resulted
in Goodwill of approximately $699,000, which will be amortized over 25 years.
The Company continually evaluates the carrying value of Goodwill. Any
impairments would be recognized when the expected future operating cash flows
derived from such Goodwill is less than their carrying value. Accumulated
amortization of goodwill and other intangibles was $7,288,000 and $4,984,000 at
December 31, 2000 and 1999, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $4,337,000, $4,794,000, and $3,993,000, for the years ended
December 31, 2000, 1999, and 1998, respectively.
Research and Development Expense
Research and development expenses are charged to operations as
incurred. Such charges aggregated $3,826,000, $2,939,000, and $2,136,000, for
the years-ended December 31, 2000, 1999, and 1998, respectively.
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 16, 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, 2000, and December 31, 1999,
respectively, the components of other comprehensive income were immaterial and
consisted solely of foreign currency translation adjustments.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform to the current year presentation.
2. BUSINESS ACQUISITIONS
On January 28, 2000, the Company acquired substantially all of the
operating assets of Wolfram, Inc. d/b/a Cesco Products ("Cesco") located in
Minneapolis, Minnesota. Cesco manufactures vertical and horizontal louvers;
controls and fire/smoke dampers; gravity ventilators, louver penthouses and
walk-in access doors for the HVAC industry at its location in Minneapolis,
Minnesota. The Cesco products are complementary to the Company's existing louver
and damper businesses. The purchase price paid for the assets acquired was
approximately $6,425,000, including assumed liabilities of approximately
$1,051,000. The Company accounted for this acquisition under the purchase method
of accounting and accordingly recorded goodwill of approximately $2,700,000.
On February 10, 2000, the Company, through a wholly owned subsidiary,
acquired the designs, intellectual property and certain physical assets of B & K
Rotary Machinery International Corporation ("B & K") of Brampton, Ontario,
Canada. B & K is a well-known and experienced manufacturer of highly engineered
metal processing lines. B & K equipment is found in steel processing centers,
tube/pipe production plants and roll-forming facilities around the world. The B
& K Supermill(TM), Rotary Shear(TM), and Rotary Pierce(TM) designs are the
technology of choice among leading producers of light gauge steel framing used
in building construction. The purchase price paid for the assets acquired was
approximately $3,018,000. The Company accounted for this acquisition under the
purchase method of accounting and accordingly recorded goodwill of approximately
$2,200,000.
On June 3, 2000, the Company and Met-Coil Systems Corporation
("Met-Coil") completed its previously announced merger agreement under which
Met-Coil was merged into a wholly owned subsidiary of the Company. Immediately
thereafter, in accordance with the terms of the merger agreement, the Met-Coil
shareholders were redeemed for a total cash consideration of approximately
$33,600,000. Met-Coil manufactures advanced sheet-metal-forming equipment,
fabricating equipment and computer-controlled fabrication systems for the global
market. The Company employs approximately 270 people, principally in its Cedar
Rapids, Iowa and Lisle, Illinois manufacturing facilities, and had revenues for
the fiscal year ended May 31, 2000 of $48.3 million (unaudited). Met-Coil's
products are complementary with those of the Company's Metal Forming Segment.
The Company accounted for the merger under the purchase method of accounting
and, accordingly, the total purchase price allocated to the assets acquired was
approximately $49,400,000, including assumed liabilities of approximately
$15,800,000. Goodwill of approximately $23,000,000 was recorded.
Pro forma unaudited results of operations for 2000 and 1999, reflecting
a hypothetical acquisition date for Met-Coil of January 1, 1999 are as follows:
2000 1999
---- ----
Total Revenues $ 395,238 $ 378,037
Net Income 17,514 19,136
Diluted Earnings Per Share 2.00 2.15
On June 30, 2000 the Company acquired substantially all of the
operating assets of Louvers and Dampers, Inc. (L & D) located in Florence,
Kentucky. L & D manufactures louver and damper products for the HVAC industry.
The purchase price paid for the assets acquired was $3,000,000 and included
$699,000 of goodwill. The Company accounted for the acquisition under the
purchase method of accounting.
On August 25, 2000 the Company, through a 75% owned subsidiary,
Airtherm LLC, acquired substantially of all of the operating assets of Airtherm
Manufacturing Company, a Missouri corporation, and Airtherm Products, Inc., an
Arkansas corporation, (collectively the sellers), except the real property owned
by these companies, for approximately $3,815,000, including assumed liabilities
of $101,000. No goodwill was recorded in the transaction. The Company has an
option to acquire the remaining 25% of Airtherm LLC membership interests it does
not own for $2,000,000, subject to certain downward adjustments. The option
expires on February 21, 2002. Pursuant to put rights held by the other
membership interests, the Company may become contractually obligated to purchase
these shares for $2,500,000, subject to certain downward adjustments, if it
chooses not to exercise its option. If the Company chooses to exercise its
option to acquire the membership interests, or is required to purchase the
membership interests, the amount paid will be recorded as goodwill in connection
with the acquisition of Airtherm. In connection with the transaction, the
Company also loaned $1,550,000 to an unrelated company, which acquired two
manufacturing facilities owned by the sellers. The loan is evidenced by a
$750,000 promissory note, which bears interest at 7% and matures on August 31,
2002 and a $800,000 promissory note which bears interest at 7% and matures on
August 31, 2002. The notes are secured in each case by the related manufacturing
facilities and are included in other current assets and other assets,
respectively, as of December 30, 2000.
3. MERGER AGREEMENT
On May 26, 1999 the Company entered into an agreement (the Agreement)
to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione Central
Holdings, Inc., now known as CareCentric, Inc. (Simione). Simione is a provider
of information systems and services to the home health care industry supplying
information systems, consulting and agency support services to customers
nationwide. Simione provides freestanding, hospital based and multi-office home
health care providers (including certified, private duty, staffing, HME, IV
therapy, and hospice) with information solutions that address all aspects of
home care operations. Simione maintains offices nationwide and is headquartered
in Atlanta, Georgia.
Under the terms of the Agreement, for every share of outstanding
Simione common stock, Simione would issue .85 shares of its common stock to the
Company. As a result, the Company would own, based on the number of Simione
common shares outstanding at the date of the Agreement, approximately 46% of
Simione after the merger is completed. On August 12, 1999, Simione, with the
Company's consent, acquired all of the outstanding common stock of CareCentric
Solutions, Inc. for $200,000 and acquired all of the Preferred Stock of
CareCentric Solutions, Inc. in return for 3.1 million newly issued shares of
Simione Series A Preferred Stock, which may be converted on a one for one basis
into Simione common shares upon consent of a majority of the Simione
shareholders. The Series A Preferred Stock was convertible to common stock after
shareholder approval upon consummation of the merger. As a result, the Company
ownership percentage would drip to approximately 38% of Simione. Under the terms
of the Agreement, MCS's ProfitWorks segment would remain with the Company.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had
entered into an amendment to the Plan and Agreement of Merger dated May 26, 1999
(the "Amendment") between Simione Central Holdings, Inc. ("SCHI"), Mestek, and
its wholly-owned subsidiary, MCS, Inc. ("MCS"), whereby the shares of common
stock of MCS would be distributed to the Mestek common shareholders in a
spin-off transaction (the Spin-off), and MCS would then be merged with and into
SCHI, (the Merger). The Spin-off and the Merger were completed on March 7, 2000,
after shareholder approval.
In connection with the Amendment, Mestek loaned to SCHI a total of
$4,000,000 on a short-term basis. Upon the closing of the above-mentioned
merger, the $4,000,000 loan was canceled, and Mestek contributed an additional
$2,000,000 to the capital of SCHI in return for newly issued Series B Preferred
Stock of SCHI. The Series B Preferred Stock issued to Mestek had super-voting
rights equivalent to 2.2 million shares of SCHI common stock. On June 12, 2000
Mestek agreed to reduce such voting rights by half to comply with NASDAQ's
voting rights policy, in exchange for a three-year warrant to acquire up to
490,396 shares at an exercise price of $3.21 of SCHI Common Stock. Mestek also
received as part of its capital contribution to SCHI a warrant for the
subsequent purchase of 400,000 shares of SCHI common stock at an exercise price
of $10.875. The Amendment also provided, upon consummation of the merger, for
the appointment to the SCHI Board of Directors of six individuals designated by
Mestek, and the obligation of the Mestek Major Shareholders (as defined in the
Amendment) to vote for the nominees to the SCHI Board of Directors for eighteen
months after the effective date of the merger.
Mestek also loaned Simione $850,000 on November 11, 1999 on a
short-term basis. Upon consummation of the merger, the loan was converted to
$850,000 of newly issued Series C Preferred Stock. The Series C Preferred stock
has voting rights equal to 170,000 shares of SCHI common stock.
On March 6, 2000, the Company completed the Spin-off and on March 7,
2000, the merger of MCS, Inc. into Simione Central Holdings, Inc. was completed.
The net book value of the assets of MCS, Inc. of approximately $1,551,000 has
been treated as a dividend to the shareholders of the Company. The Company has
accounted for the operations of MCS prior to that date (with the exception of
its ProfitWorks division which was retained by the Company under the terms of
the Agreement) as a discontinued operation in accordance with APB30.
See also - Note 10 - Related Party Transactions
Summarized financial information for the discontinued MCS operations, is as
follows:
Years ended
-----------
2000 1999 1998
---- ---- ----
(in thousands)
Operating Revenues $1,701 $16,648 $14,901
Income (Loss) from Discontiuned
Operations before Provision
for Income Taxes (478) $772 $1,712
Net Income from Discontinued Operations (310) $466 $1,026
2000 1999
---- ----
(in thousands)
Current Assets --- $4,648
Total Assets --- $6,696
Current Liabilities --- $6,191
Total Liabilities --- $6,191
Net Assets of Discontinued Operations --- $505
4. INVENTORIES
Inventories consisted of the following at December 31:
2000 1999
---- ----
(in thousands)
Finished Goods $ 16,969 $ 18,692
Work-in-progress 22,488 14,865
Raw materials 38,776 28,335
------ ------
78,223 61,892
Less provision for LIFO
method of valuation (7,322) (7,204)
------- -------
$ 70,911 $ 54,688
======== ========
Progress billings exceeded related contract costs by $283,000 and
$3,257,000, at December 31, 2000 and 1999, respectively. As such, these amounts
are reported as a liability in the accompanying consolidated financial
statements.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
2000 1999 Useful Lives
---- ---- ------------
(in thousands)
Land $ 4,636 $ 2,853
Buildings 28,639 26,792 19-39 Years
Leasehold Improvements 4,839 4,415 15-39 Years
Equipment 105,763 96,028 3-10 Years
------- ---------
143,877 130,088
Accumulated Depreciation (70,388) (61,021)
--------- -------
$ 73,489 $ 69,067
======== ========
The above amounts include $1,267,000 and $851,000, at December 31, 2000
and 1999 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 related to continuing operations
was $9,985,000 $8,205,000, and $6,415,000, for the years ended December 31,
2000, 1999, and 1998, respectively.
6. 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. These
operations have subsequently conducted business under the name Boyertown Foundry
Company, Inc. and are included in the Company's Metal Products segment as more
fully described in Note 13.
Simione Central Holdings, Inc.
As more fully described in Note 3, the Company has invested $6,850,000
as of December 31, 2000 in certain preferred equity securities of Simione
Central Holdings, Inc.
7. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
2000 1999
---- ----
(in thousands)
Revolving Loan Agreement $48,336 $ 34,358
Note Payable 15,000 ---
Other Bonds and Notes Payable 322 433
--------- ---------
63,658 34,791
Less Current Maturities (63,418) (14,467)
-------- --------
$ 240 $ 20,324
========= ========
Revolving Loan Agreement - The Company has a Revolving Loan Agreement
and Letter of Credit Facility (the Agreement) with a commercial bank. The
Agreement provides $70 million of unsecured revolving credit including $10
million of standby letter of credit capacity. Borrowings under the Agreement
bear interest at a floating rate based on the bank's prime rate less one percent
(1.00%) or, at the discretion of the borrower, LIBOR plus a quoted market factor
or, alternatively, in lieu of the prime based rate, a rate based on the
overnight Federal Funds Rate. The Agreement has been extended on a one-year
basis through April 30, 2001. The Revolving Loan Agreement contains financial
covenants, which require that the Company maintain certain current ratios,
working capital amounts, capital bases and leverage ratios. This Agreement also
contains restrictions regarding the creation of indebtedness, the occurrence of
mergers or consolidations, the sale of subsidiary stock and the payment of
dividends in excess of 50 percent (50%) of net income.
Note Payable - The Company has an unsecured uncommitted Demand Loan
Facility with a second commercial bank under which the Company can borrow up to
$25,000,000 on a LIBOR basis. The facility expires on April 30, 2001.
$15,000,000 was outstanding under the Demand Loan facility as of December 31,
2000.
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,
2000 was $22,000. 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, 2000 was $300,000. The bond
bears interest at eighty percent (80%) of the prime rate and matures on
September 1, 2005.
Cash paid for interest (including interest related to discontinued
operations) was $2,644,000, $1,951,000, and $1,256,000, during the years ended
December 31, 2000, 1999, and 1998, respectively.
Maturities of long-term debt in each of the next five years are as
follows in thousands:
2001 $63,418
2002 50
2003 50
2004 40
2005 100
--------
Total $63,658
=======
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, 2000.
8. 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, 2000, 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, 2000
no shares of the Preferred Stock have been issued.
9. INCOME TAXES
Income tax expense from discontinued operations was $561,000, $364,000,
and $1,666,000 for 2000, 1999, and 1998, respectively. Income before income
taxes included foreign income (losses) of $1,559,000, $223,000, and
($1,166,000), in 2000, 1999, and 1998, respectively. Income tax expense
(benefit) from continuing operations consisted of the following:
2000 1999 1998
---- ---- ----
(in thousands)
Federal Income Tax:
Current $ 5,694 $ 8,075 $ 7,763
Deferred 2,252 1,137 (406)
State Income Tax:
Current 831 934 1,357
Deferred 238 169 (199)
Foreign Income Tax:
Current 18 18 18
Deferred 699 96 (612)
------- -------- --------
Income Taxes $ 9,732 $ 10,429 $ 7,921
======= ======== =======
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:
2000 1999 1998
---- ---- ----
(in thousands)
Computed "expected" income tax $ 9,147 $ 9,833 $ 7,518
State income tax,
net of federal tax benefit 812 775 639
Foreign tax rate differential 47 7 (35)
Valuation Allowance (119) 0 0
Other - net (155) (186) (201)
--------- ---------- --------
Income Taxes $ 9,732 $ 10,429 $ 7,921
======= ======== =======
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, 2000 are as follows:
Change
December 31, (Expense) December 31,
1999 Benefit 2000
(in thousands)
Deferred Tax Assets:
Warranty Reserve $ 523 $ 283 $ 806
Compensated Absences 694 326 1,020
Inventory Valuation 504 (55) 449
Accounts Receivable Valuation 569 148 717
Federal Tax Credit Carryforward 0 466 466
State Tax Operating Loss
Carryforward 172 89 261
Foreign Tax Operating Loss
Carryforward 1,024 (228) 796
Deferred Income on Sale of Assets
to Non-consolidated Investees 159 --- 159
Other 140 (56) 84
------- ------- ------
Total Gross Deferred Tax Assets 3,785 973 4,758
Less Valuation Allowance (119) 119 ----
------- ----- --------
Deferred Tax Assets $ 3,666 $ 1,092 $ 4,758
Deferred Tax Liabilities:
Prepaid Expenses (677) (429) (1,106)
Depreciation and Amortization (3,490) (1,906) (5,396)
------- ------- -------
Deferred Tax Liabilities (4,167) (2,335) (6,502)
------- ------- -------
Net Deferred Tax Liability ($ 501) ($ 1,243) ($ 1,744)
A valuation allowance of $195,000 was established at December 31, 1993.
This allowance reflected uncertainties as to the realization of a portion of the
foreign tax operating loss carry forward 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, 2000, the
valuation allowance was reversed. It is management's belief that these carry
forwards will be fully utilized prior to the end of 2001.
At December 31, 2000, the Company has state tax operating loss and
foreign tax operating loss carry forwards of approximately $5,665,000 and
$1,750,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carry forward" rules and limitations. These
losses begin to expire after the following years:
State Foreign
2006 --- $ 1,750
2007 $ 5,665 -
------- -------
$ 5,665 $ 1,750
------- -------
Cash paid for income taxes was $ 7,756,000 $10,191,000, and $7,876,000
for the years ended December 31, 2000, 1999, and 1998 respectively.
10. 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, 2000 including the effect of renewals and amendments executed
subsequent to December 31, 2000 are as follows:
Date Basic Minimum
Of Annual Future
Lease Term Rental Rentals
Sterling Realty Trust
Land and Building - Main * 01/01/00 5 years $ 282 $ 1,128
Land and Building - Engineering 07/01/98 5 years 77 193
Land and Building - South Complex 01/01/94 14 years 257 1,799
Land and Building - Torrington 07/01/99 5 years 127 445
Land and Building -
Torrington (1st Floor)*** 07/01/99 5 years 76 266
Land and Building -
Torrington (1st Floor)**** 10/01/00 5 years 25 117
Machinery Rental
Machinery & Equipment 01/01/93 5** years - -
(Westfield, Farmville, Wrens
and South Windsor Locations)
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
* Lease expired December 31, 1999 and was renewed as of January 1, 2000
for 5 years at a monthly rent expense of $23,500.
** 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.
*** On July 1, 1999 portion of the first floor was leased for 5
years at a monthly rent expense of $6,292.
**** On October 1, 2000 additional space on the first floor was
leased for 5 years at a monthly rent expense of $2,053.
All Leases
Rent expense for operating leases, including those with related
parties, was $3,066,000, $2,685,000, and $2,801,000, for the years ended
December 31, 2000, 1999, and 1998, respectively.
Future minimum lease payments under all noncancellable leases as of
December 31, 2000 are as follows:
Operating
Year Ending December 31, Leases
2001 $ 3,338
2002 2,690
2003 2,476
2004 2,402
2005 1,707
After 2005 3,664
-----
Total minimum lease payments $ 16,277
========
11. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $1,296,000,
$1,183,000, and $1,118,000, for the years ended December 31, 2000, 1999, and
1998, 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
$330,000, $304,000, and $302,000, for the years-ended December 31, 2000, 1999,
and 1998, 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 $490,000, $360,000,
and $435,000, for the years ended December 31, 2000, 1999, and 1998,
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 2001.
12. 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 legal department 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,
2000 was $595,000.
The Company is obligated as a guarantor with respect to the debt of
Simione Central Holdings, Inc. (see Note 3) to its primary commercial bank,
Wainwright Bank & Trust Company, in the amount of $6 million. The balance
outstanding under Simione's credit line with Wainwright Bank & Trust Company as
of December 31, 2000 was $5,996,000.
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) other than the
AG action vs. Lockformer. 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 judgment 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, which may not yet be complete, 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.
13. SEGMENT INFORMATION
Description of the types of products and services from which each reportable
segment derives its revenues:
The Company has three reportable segments: the manufacture of heating,
ventilating and air-conditioning equipment (HVAC), the manufacture of metal
handling and metal forming machinery (Metal Forming), and the production of
metal products (Metal Products). As further described in Note 3, the Company
discontinued its Computer Software segment during fiscal 2000.
The Company's HVAC segment manufactures and sells a wide variety of
residential, commercial and industrial heating, cooling, and air distribution
products to independent wholesales supply warehouses, to mechanical, sheet metal
and other contractors, and in some cases to other HVAC manufacturers under
original equipment manufacture (OEM) contracts. The products include finned tube
and baseboard radiation equipment, gas fired heating and ventilating equipment,
air damper equipment and related air distribution products and commercial and
residential boilers. The products are marketed under a number of franchise names
including Sterling, Beacon Morris, Smith, Hydrotherm, RBI, Vulcan, Applied Air,
Alton, Aztec Sensible Cooling, Airfan Wing, AWV, ABI, Arrow, Koldwave, Anemostat
and Spacepak. Assets totaling approximately $13,090,000 acquired in the Cesco,
Louvers and Dampers, and Airtherm LLC acquisitions, as more fully described in
Note 2, have been added to the Company's HVAC segment.
The Company's Metal Products segment manufactures a variety of metal
products including flexible metal hose and gray iron castings. This segment
sells its products mostly as components to manufacturers who incorporate them
into their own products. In some cases flexible metal hose is sold to
distributors.
The Company's Metal Forming segment designs, manufactures and sells a
variety of metal forming equipment and related machinery under names such as
Cooper-Weymouth, Peterson, Dahlstrom, Hill Engineering, CoilMate/Dickerman,
Rowe, B & K Rotary; Lockformer and Iowa Precision Industries. The products are
sold through independent dealers in most cases to end-users and in some cases to
other original equipment manufacturers. The products include roll formers, wing
benders, coil feeds, straighteners, cradles, cut-to-length lines, specialty
dies, plasma cutting equipment, rotary punch, tube feed and cut-off and flying
cut-off saws. Assets totaling approximately $2,800,000 acquired in the B & K
Rotary acquisition on February 10, 2000, as more fully described in Note 2, have
been added to the Company's Metal Forming segment. Assets totaling approximately
$49,400,000 acquired in the Met-Coil acquisition on June 3, 2000, as more fully
described in Note 2, have also been added to the Company's Metal Forming
segment. The operating units of Met-Coil are The Lockformer Company and Iowa
Precision, Inc.
Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on
profit or loss from operations before interest expense and income taxes, (EBIT)
not including non-operating gains and losses. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. Inter-segment sales and transfers are recorded
at prices substantially equivalent to the Company's cost; inter-company profits
on such inter-segment sales or transfers are not material.
Factors management used to identify the enterprise's reportable segments:
The Company's reportable segments are business units that offer
different products. The reportable segments are each managed separately because
they manufacture and distribute distinct products using distinct production
processes intended for distinct marketplaces.
Information presented in the following tables relates to continuing operations
only.
Year ended
December 31, 2000
($ in thousands)
Metal Metal All
HVAC Products Forming Other Totals
---- -------- ------- ----- ------
Revenues from External Customers $ 271,918 39,816 63,424 829 $375,987
Intersegment & Intrasegment Revenues $6,170 7,358 221 --- $13,749
Interest Expense $640 118 362 --- $1,120
Depreciation Expense $5,289 1,338 1,420 11 $8,058
Amortization Expense $747 186 994 --- $1,927
Segment Operating Profit $16,494 6,787 4,143 (319) $27,105
Segment Assets $147,976 27,294 83,515 251 $259,036
Expenditures for $5,376 914 689 --- $6,979
Long-lived Assets (1)
Year ended
December 31, 1999
($ in thousands)
Metal Metal All
HVAC Products Forming Other Totals
Revenues from External Customers
$ 254,451 35,138 37,116 1,440 $ 328,145
Intersegment & Intrasegment Revenues
$ 8,009 6,491 1,848 --- $ 16,348
Interest Expense $ 33 7 8 --- $ 48
Depreciation Expense $ 4,263 1,312 1,698 --- $ 7,273
Amortization Expense $ 384 187 361 --- $ 932
Segment Operating Profit $ 20,445 6,813 1,727 208 $ 29,193
Segment Assets $ 134,969 28,782 36,382 501 $200,634
Expenditures for
Long-lived Assets (1) $ 5,185 453 1,476 --- $ 7,114
Year ended
December 31, 1998
($ in thousands)
Metal Metal All
HVAC Products Forming Other Totals
(2.)
Revenues from External Customers
$ 229,704 18,466 41,265 1,729 $ 291,164
Intersegment & Intrasegment Revenues
$ 7,851 1,046 234 --- $ 9,131
Interest Expense --- --- --- --- ---
Depreciation Expense $ 3,870 557 1,168 --- $ 5,595
Amortization Expense $ 231 216 373 --- $ 820
Segment Operating Profit $ 15,534 1,797 4,135 671 $ 22,137
Segment Assets $ 113,796 24,630 29,916 --- $ 168,342
Expenditures for
Long-lived Assets (1) $ 3,064 282 1,025 --- $ 4,371
(1) Excludes long-lived assets acquired via business acquisition.
(2.) The Company's investment in Eafco, Inc., historically accounted for on the
equity method, 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 subsequent to that date.
RECONCILIATION WITH CONSOLIDATED DATA:
Revenues 2000 1999 1998
- -------- ---- ---- ----
Total external revenues for reportable segments $ 375,987 $ 328,145 $ 291,164
Inter & Intrasegment revenues
for reportable segments 13,749 16,348 9,131
Elimination of Inter & Intrasegment revenues (13,749) (16,348) (9,131)
----------- --------- ----------
Total consolidated revenues $ 375,987 $ 328,145 $ 291,164
========= ========= =========
Profit or Loss
Total profit or loss for reportable segments $ 27,105 $ 29,193 $ 22,137
Interest Expense (1,120) (48) ---
Other income (expense) net 149 (1,050) (656)
---------- ---------- ---------
Income before income taxes $ 26,134 $ 28,095 $ 21,481
======== ======== ========
Assets:
Total assets for reportable segments $ 259,036 $ 200,634 $ 168,342
Discontinued operations assets:
MCS, Inc. assets --- 6,760 5,589
National Northeast assets 34,453 34,859 31,212
---------- -------- ---------
Total consolidated assets $ 293,489 $ 242,253 $ 205,143
========= ========= =========
GEOGRAPHIC INFORMATION:
2000 1999 1998
Revenues:
United States $ 353,736 $ 308,149 $ 267,423
Canada 14,958 13,443 17,310
Other Foreign Countries 7,293 6,553 6,431
----------- ----------- -----------
Consolidated Total $ 375,987 $ 328,145 $ 291,164
========= ========= =========
Long Lived Assets:
United States $128,325 $ 69,242 $ 53,267
Canada 1,829 2,048 1,904
Other Foreign Countri --- --- ---
----------- --------- ---------
Consolidated Total $130,154 $ 71,290 $ 55,271
======== ======== ========
14. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information from
continuing operations for each full quarter of 2000 and 1999.
(Dollars in thousands except per common share amounts).
2000 1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Total Revenues $ 80,566 $ 82,670 $105,867 $ 106,885
Gross Profit $ 23,643 $ 23,295 $ 29,131 $ 32,733
Net Income $ 3,613 $ 2,540 $ 3,872 $ 6,377
Per Common Share:
Basic $ 0.42 $ 0.29 $ 0.44 $ 0.73
Diluted $ 0.42 $ 0.29 $ 0.44 $ 0.72
1999 1st 2nd 3rd 4th
- --------------------------------------------------------------------------------
Quarter Quarter Quarter Quarter
Total Revenues $ 70,672 $ 76,714 $ 87,062 $ 93,697
Gross Profit $ 20,229 $ 22,292 $ 24,415 $ 31,313
Net Income $ 3,282 $ 3,235 $ 4,230 $ 6,919
Per Common Share:
Basic $ 0.37 $ 0.36 $ 0.48 $ 0.78
Diluted $ 0.37 $ 0.36 $ 0.48 $ 0.78
15. COMMON STOCK BUYBACK PROGRAM
In 2000 and 1999 the Company continued its program of selective
"open-market" purchases. 20,900 and 126,302 of such shares were acquired in 2000
and 1999, respectively. All such shares are accounted for as treasury shares.
16. 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, 2000, 1999,
and 1998, 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
---------------------------------
Balance - December 31, 2000 175,000 $16.79
---------------------------------
Options exercisable for the years ended December 31, 2000, 1999, and
1998, were 89,000, 54,000, and 36,000, respectively. The weighted average
exercise price for all exercisable options as of December 31, 2000 was $14.94.
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
outstanding as of December 31, 2000, 1999 and 1998 were $8.32 $8.32, and $7.27,
respectively. No options were granted during 2000. The fair value of options at
the date of grant was estimated using the Black-Scholes model with the following
weighted average assumptions:
Options
Granted in
1999 1998
---- ----
Expected life (years) 10 10
Interest 4.81% 6.56%
Volatility 23.75% 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,
2000 1999 1998
----------- ----------- -----------
Net income - as reported $17,068 $17,917 $16,064
Net income - pro forma 16,893 17,748 15,985
Earnings per share - as reported $1.95 $2.02 $1.80
Earnings per share - pro forma $1.93 $2.00 $1.79
The application of SFAS 123 for pro forma disclosure may not be
representative of future effects of applying the statement.
17. SUBSEQUENT EVENTS / DISCONTINUED OPERATIONS
National Northeast Corporation:
On January 9, 2001, the Company completed the sale of its 89.5% owned
subsidiary, National Northeast Corporation, (National), an aluminum extruder and
heat sink fabricator, to Alpha Technologies Group, Inc. for a total cash
consideration of $49,900,000. The Company's net proceeds, after accounting for
the minority interest, was approximately $45,000,000, resulting in a pre-tax
gain of approximately $17,000,000. The Company will account for the transaction
in its first quarter 2001 financial statements as a Gain on Disposal of
Discontinued Operations in accordance with APB30.
The operations of National are separately reported in accordance with APB30 in
the accompanying Consolidated Statements of Income for the years 2000, 1999, and
1998 under the heading Income From Discontinued Operations. National was
formerly included in the Company's Metal Products segment. Interest expense has
been allocated to the operations of National based on indebtedness related to
the Company's investment in National during 2000, 1999, and1998. Corporate
General & Administrative expenses originally allocated to National totaling
$428,000, $255,000, and $140,000 for the years 2000, 1999, and 1998,
respectively, have been reallocated to the Company's continuing operations in
accordance with APB30. Revenues for National were $37,474,000, 30,477,000, and
32,279,000 for the years 2000, 1999, and 1998, respectively.
Summarized financial information for the discontinued National operations,
is as follows:
Years ended
2000 1999 1998
---- ---- ----
(in thousands)
Operating Revenues $37,474 $30,477 $32,279
Income before Provision
for Income Taxes $1,705 ($157) $2,458
Income from Discontinued Operations
Net of Income Tax $977 ($215) $1,478
2000 1999
---- ----
(in thousands)
Current Assets $9,736 $8,001
Total Assets $34,453 $34,859
Current Liabilities $2,495 $2,079
Total Liabilities $4,572 $3,563
Net Assets of Discontinued Operations $29,881 $31,296
MCS, Inc.:
As more fully explained in Note 3, on March 7, 2000 the Company distributed 100%
of the common stock of MCS, Inc. (MCS) to the Company's shareholders in
connection with the merger of MCS and Simione Central Holdings, Inc. The
operations of MCS prior to that date (with the exception of MCS's ProfitWorks
division which was not distributed) are accounted for as a discontinued
operation in accordance with APB 30 and are reported in the Consolidated
Financial Statements under the heading Income from Discontinued Operations.
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 June 7, 2001, and to the extent required and except as set forth therein,
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 June 7, 2001, and, to the extent required and except as set forth therein,
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 June 7, 2001, and, to the extent
required and except as set forth therein, 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 June 7, 2001, and, to the extent required and
except as set forth therein, 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 18
Financial Statements:
(a)(1) Consolidated Balance Sheets as of December 31, 2000 and 1999
Pages 19 and 20
Consolidated Statements of Income for the Years
Ended December 31, 2000, 1999, and 1998 Page 21
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 2000, 1999, and 1998 Page 22
Consolidated Statements of Cash Flows for the Years
Ended December 31, 2000, 1999, and 1998 Page 23
Notes to the Consolidated Financial Statements Page 24 through 40
(a)(2) Financial Statement Schedules Page 42
II. Valuation and Qualifying Accounts Page 43
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 46
No annual report to security holders as of December 31, 2000 has 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 2001. 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, 2000, 1999, and 1998
Bal. at Charged Bad Debt Bal.
at Beg. to Other Write-offs at end
Year Description of Year expense (1) (2) of Year
- --------------------------------------------------------------------------------
2000 Allowance
for doubtful
accounts $ 3,627 $ 1,426 $ 70 ($ 1,377) $ 3,746
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
(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
*************
3.1 Articles of Incorporation of Mestek, Inc., as amended (H)
3.2 Amended and Restated By-laws of Mestek, Inc. as amended through
December 12, 2000
10.1 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.2 Lease Agreement dated January 1, 2000 between Mestek (lessee) and
Sterling Realty Trust (lessor); 260 North Elm
10.3 Lease dated January 1, 1994 between Mestek (lessee) and
Sterling Realty Trust (lessor); South Complex (D)
10.4 Amended and Restated Lease Agreement dated as of July 1, 1997
between Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor) (J)
10.5 Amended and Restated Lease Agreement dated as of January 1, 1997
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor). (H)
10.6 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)
10.7 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)
10.8 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. (K)
10.9 Lease Agreement dated July 1, 1998 between Mestek (lessee) and
Sterling Realty Trust (lessor); 161 Notre Dame (L)
10.10 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)
10.11 1996 Mestek, Inc. Stock Option Plan. (G)
10.12 Amended and Restated Revolving Loans and Foreign Exchange Facilities
Agreement between Mestek, Inc. and Bank Boston dated July 15, 1997. (I)
10.13 Lease dated January 1, 1997 between Pacific Air Balance, Inc. (Lessee)
and Production Realty, Inc. (Lessor). (I)
10.14 Supplemental Executive Retirement Agreements entered into between
Mestek, Inc. and certain of its officers. (I)
10.15 Lease dated July 1, 1999 between Mestek (Lessee) and
Sterling Realty Trust (Lessor) for 1st floor - Torrington Building. (M)
10.16 Lease dated July 1, 1999 between Mestek (Lessee) and
Sterling Realty Trust (Lessor) for 3rd & 4th Floor - Torrington
Building. (M)
10.17 Lease dated October 1, 2000 between Mestek (Lessee) and
Sterling Realty (Lessor); 1st Floor Torrington Building
10.18 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Sterling Realty Company (Seller). (M)
10.19 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and
Elizabeth C. Reed Trust (Seller). (M)
10.20 Bill of Sale dated January 1, 2000 between Mestek (Purchaser) and
Machinery Rental Company (Seller) (M)
10.21 Asset Purchase Agreement dated March 18, 1999 among CTS Corporation,
Dynamics Corporation of America, and Mestek, Inc. (E)
10.22 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. (F)
10.23 Agreement and Plan of Reorganization by and between Formtek
Acquisition, Inc., Formtek, Inc., and Met-Coil Systems Corporation
dated March 13, 2000.
(M)
10.24 Stock Purchase Agreement dated September 18, 2000 between Mestek, Inc.
and Alpha Technologies Group, Inc.
10.24.1 Amendment No. 1 dated November 10, 2000 to the Stock Purchase Agreement
dated September 18, 2000 between Mestek, Inc. and Alpha Technologies
Group, Inc.
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 Current Report on Form 8-k dated
April 6, 1999.
(F) 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.
(G) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1996.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended September 31, 1997.
(J) Filed as an Exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1997.
(K) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1998.
(L) Filed as an Exhibit to the Quarterly Report on Form 10-Q for
the quarter ended March 31, 1999.
(M) Filed as an Exhibit to the Annual Report on Form 10-K for
the year ended December 31, 1999.
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
2000 1999 1998
--------- --------- ---------
Income from Continuing Operations 16,402 17,666 13,560
Income from Discontinued Operations 666 251 2,504
Net Income $ 17,068 $ 17,917 $ 16,064
========= ========= =========
Basic Earnings per Common Share:
Continuing Operations $1.87 $1.99 $1.52
Discontinued Operations .08 .03 .28
--------- --------- --------
Net Income $ 1.95 $ 2.02 $ 1.80
======== ========= =========
Basic Weighted Average Shares Outstanding 8,744 8,857 8,921
======== ========= =========
Diluted Earnings Per Common Share
Continuing Operations $ 1.87 $ 1.99 $ 1.52
Discontinued Operations .08 .03 .28
--------- --------- --------
Net Income $ 1.95 $ 2.02 $ 1.80
========= ========= ========
Diluted Weighted Average
Shares Outstanding 8,760 8,887 8,949
========= ========= ========
Exhibit 22.1
LIST OF SUBSIDIARIES
AT MARCH 20, 2001
Jurisdiction of
Name Formation
---- ---------
Advanced Thermal Hydronics, Inc. Delaware
Alapco Holding, Inc. Delaware
Anemostat, Inc Delaware
Boyertown Foundry Company Pennsylvania
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Met-Coil Systems Corporation. Delaware
Hill Engineering, Inc. Illinois
Gentex Partners, Inc. Texas
Mestex, Ltd. (Texas limited partnership) Texas
Yorktown Properties, Ltd. (Texas limited partnership) Texas
HBS Acquisition Corporation Delaware
Keyser Properties, Inc. Delaware
Lexington Business Trust (Massachusetts business trust) Massachusetts
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
Richard J. McKnight 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, 2001 By: /S/ John E. Reed
------------------------------------------
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: March 31, 2001 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, 2001 By: /S/ A. Warne Boyce
-----------------------------------------
A. Warne Boyce, Director
Date: March 31, 2001 By: /S/ E. Herbert Burk
-----------------------------------------
E. Herbert Burk, Director
Date: March 31, 2001 By: /S/ William J. Coad
-----------------------------------------
William J. Coad, Director
Date: March 31, 2001 By: /S/ David M. Kelly
-----------------------------------------
David M. Kelly, Director
Date: March 31, 2001 By: /S/ Winston R. Hindle, Jr.
-----------------------------------------
Winston R. Hindle, Jr., Director
Date: March 31, 2001 By: /S/ David W. Hunter
-----------------------------------------
David W. Hunter, Director
Date: March 31, 2001 By: /S/ David R. Macdonald
-----------------------------------------
David R. Macdonald, Director
Date: March 31, 2001 By: /S/ John E. Reed
-----------------------------------------
John E. Reed, Director
Date: March 31, 2001 By: /S/ Stewart B. Reed
-----------------------------------------
Stewart B. Reed, Director