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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended Commission file number: 1-448
December 31, 1995
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and
(2) has been subject to such
filing requirements for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting common shares held by nonaffiliates of the
registrant as of April 4, 1996, based upon the closing price for registrant's
common stock as reported in The Wall Street Journal as of such date was
$39,730,946.
The number of shares of the registrant's common stock issued and outstanding as
of April 4, 1996 was 8,929,771.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on May 22, 1996 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 44 thru 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 November 13, 1989 the Company purchased the assets of Air Fan Engineered
Products, Inc., a small manufacturer of air conditioning, air moving and heat
transfer equipment located in Los Angeles, California. The assets were
subsequently moved to the Company's Dallas facility.
In March of 1990, the Company, through a wholly-owned subsidiary, purchased
a 48.6 percent interest in The H. B. Smith Company, Incorporated, a Westfield,
Massachusetts manufacturer of boilers.
In January, 1991, Keystone Environmental Resources, Inc. ("Keystone"),
a subsidiary of Chester Environmental Group, Inc., ("Chester"), formed
Environmental Technology Applications Company (ETA) in a joint venture with
Beazer Environmental Services, Inc., to market and apply environmental
technologies previously developed by Keystone. ETA was dissolved by mutual
agreement effective March 31, 1992. The Company subsequently sold a majority
interest in Chester, as more fully explained in the Notes to the Consolidated
Financial Statements.
In February 1991 the Company, through Chester acquired the assets of
two corporations: GeoSpatial Solutions, Inc. and NEA, Inc., ("NEA"). GeoSpatial
Solutions, Inc., of Colorado, a satellite imaging concern, sold its assets to
Chester for $120,000. The NEA assets were purchased for $2,600,000, net of
liabilities assumed. NEA's primary lines of business are consulting and
analytical services relative to air quality. The Company subsequently sold a
majority interest in Chester, as more fully explained in the Note to the
Consolidated Financial Statements.
On July 31, 1991 Mestek, through a wholly-owned subsidiary, purchased
substantially all of the assets of Hydrotherm, Inc., ("Hydrotherm"), located in
Northvale, New Jersey, and its wholly-owned subsidiary Hydrotherm (Canada) Inc.,
located in Toronto, Ontario. Hydrotherm is manufacturer of commercial and
residential gas and oil-fired boilers, residential baseboard heating equipment
and residential air conditioning equipment. Management consolidated the
manufacturing operations of Hydrotherm in 1992, closing the Northvale, New
Jersey plant. The Hydrotherm and Hydrotherm Canada assets acquired include
substantially all of Hydrotherm's inventory, receivables and fixed tangible and
intangible assets relating to the commercial and residential gas and oil-fired
boiler business and other product lines mentioned above. The purchase price for
the assets acquired, net of liabilities assumed, was $12,900,000.
On August 9, 1991 Mestek purchased substantially all of the assets of
Dynaforce Corporation, a New York Corporation, and a leading manufacturer of air
curtains, make-up air equipment and related products. The purchase price paid
for the assets was $586,000. The Dynaforce assets were subsequently moved to the
Company's South Windsor facility.
On October 8, 1991 Mestek, through a newly formed Canadian subsidiary,
acquired substantially all of the operating assets of Temprite Industries, Ltd.,
an Ontario Corporation located in Orangeville, Ontario. Temprite manufactures
industrial, institutional, and commercial air handling equipment and make-up air
units. The purchase price for the assets acquired, net of liabilities assumed,
was $1,819,000.
On October 31, 1991 Chester acquired substantially all of the assets of
Kamber Engineering, Inc. (Kamber) of Gaithersburg, Maryland. Kamber's business
involves water and waste projects, federal environmental projects, and corporate
land development projects. The purchase price of the assets acquired, net of
liabilities assumed, was $1,200,000. The Company subsequently sold a majority
interest in Chester, as more fully explained in the Notes to the Consolidated
Financial Statements.
On August 21, 1992, pursuant to the Plan of Reorganization approved by
the United States Bankruptcy Court for the Eastern District of Pennsylvania, the
Company acquired substantially all of the inventory, accounts receivable, and
fixed tangible and intangible assets of Mechanical Specialties, Inc. (MSI), a
manufacturer of heating and ventilating equipment located in Philadelphia,
Pennsylvania. The purchase price for the assets acquired, net of liabilities
assumed, was $6,335,000.
On December 15, 1992, Mestek, through a wholly-owned subsidiary,
Westcast, Inc., purchased certain assets of The H. B. Smith Company,
Incorporated, (HBS), at public auction. Assets acquired included inventory, a
hydronics laboratory, certain foundry and machine-shop machinery and tooling,
certain office equipment, and furniture and certain notes and instruments
secured by other assets of HBS. The purchase price paid for these assets was
$3,115,000. The Company, through another wholly-owned subsidiary, owns 48.6% of
the outstanding common stock of HBS.
On December 22, 1992, Mestek, through a wholly-owned subsidiary,
Peritek, Inc., purchased certain assets of The Trane Company, ("Trane"), a
division of American Standard Inc. and an affiliate, for cash and notes which
totaled, after adjustment, approximately $10.1 million. The Company acquired a
manufacturing facility in Scranton, Pennsylvania and certain inventory and
equipment.
In April of 1993, the Company purchased a 46.8% interest in Eafco, Inc.
Eafco produces cast iron boiler sections for the boiler industry, including
Mestek's boiler subsidiaries. The Company accounts for its investment in Eafco
under the equity method.
On August 17, 1993, the Company sold a 70% interest in its
Environmental Engineering Segment, Chester Environmental, Inc., ("Chester"), to
Duquesne Enterprises, Inc., a Pennsylvania corporation, headquartered in
Pittsburgh, Pennsylvania. The Company has accounted for this transaction as a
Disposal of a Discontinued Segment, as more fully explained in Note 17 to the
consolidated financial statements. The Company sold its remaining 30% interest
on August 31, 1995, as more fully explained in Note 15 to the consolidated
financial statements.
On November 1, 1994, pursuant to a motion approved by the United States
Bankruptcy Court for the District of New Mexico, the Company acquired
substantially all of the inventory, accounts receivable, and fixed tangible and
intangible assets of Aztec Sensible Cooling, Inc. (Aztec) a manufacturer of
evaporative cooling and other custom air handling equipment in Albuquerque, New
Mexico. The purchase price for the assets acquired, was $1,372,000. The
operations of Aztec were relocated to the Company's Dallas, Texas facility in
December of 1994.
On October 30, 1995, the Company executed an agreement to acquire
approximately eighty-three (83%) of the issued and outstanding voting common
stock of National Northeast Corporation and National Southeast Aluminum
Corporation ("National"). National operates custom aluminum extrusion and
fabrication facilities located in Lawrence, Massachusetts and Winter Haven,
Florida. The transaction was accounted for under the purchase method of
accounting as of October 30, 1995 and, accordingly, the company has included the
results of this acquired business in its consolidated statement of operations
from this date. The Company itself is a user of aluminum extrusions in its HVAC
segment. The consideration for the purchase was $9.96 million in cash and
approximately $3.32 million payable over three years, contingent upon a future
level of earnings. The transaction was completed on January 2, 1996.
On November 15, 1995, the Company acquired substantially all of the
accounts receivable, inventory, fixed and intangible assets of Heat Exchangers,
Inc., a manufacturer of portable air conditioning equipment in Skokie, Illinois.
The purchase price paid, including the assumption of certain liabilities, was
$6,764,000. The acquisition was accounted for as a purchase and, accordingly,
the Company has included the results of this acquired business in its
consolidated statement of operations since the date of the acquisition.
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, air conditioning equipment ("HVAC") manufacturing; computer
software development and systems design; and coil handling equipment
manufacturing. Each of these segments is described below. The Company and its
subsidiaries together employed 2,255 persons as of December 31, 1995.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through Mestek, Inc. and its wholly-owned subsidiaries,
Pacific/Air Balance, Inc., ("Pacific Air"), The Hydrotherm Corporation, Mestek
Canada, Inc., and Westcast, Inc. (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. National, the Company's custom aluminum extruder and
fabricator is included in the Heating, Ventilating, and Air Conditioning segment
also.
The Reed Division sells finned-tube and baseboard radiation equipment
under the names "Sterling", "Vulcan", "Heatrim", "Petite-7", "Hydrotherm", and
"Suntemp", and other hydronic heat distribution products under the names
"Sterling" and "Beacon-Morris". The division sells gas-fired indoor and outdoor
heating and ventilating under the names "Alton", "Applied Air", "Wing", "Air
Fan", and "Temprite". Cooling and air conditioning equipment is sold under the
"Alton", "Applied Air", "Space Pak", "Aztec", "Koldwave", "Air Fan", and
"Nesbitt" names, and gas and oil-fired boilers are sold primarily under the
names "Hydrotherm", "Multi-Pulse", and "Multi-Temp", and distributed under the
name "Smith Cast Iron Boilers" by Westcast, Inc. 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 Company's products are
manufactured at plants in Westfield, Massachusetts; South Windsor, Connecticut;
Farmville, North Carolina; Dallas, Texas; Orangeville, Ontario; Dundalk,
Maryland; Ridgeville, Indiana; Skokie, Illinois; and Wrens, Georgia. The Company
consolidated its Northvale, New Jersey and Dundalk, Maryland plants in Dundalk
in 1992.
The Reed Division sells its many types of fire, smoke, and air control
louvers and dampers, which are devices designed to control or seal off the
movement of air through building ductwork in the event of fire or smoke, under
the names "Air Balance", "Phillips Aire", "Pacific Air Balance", "American
Warming and Ventilating", and "Arrow". These products are manufactured at the
Company's plants in Wrens, Georgia; Los Angeles, California; Bradner, Ohio;
Waldron, Michigan; Springfield, Ohio, and Wyalusing, Pennsylvania. The Reed
Division also manufactures industrial and power plant dampers in Los Angeles,
California under the name "Pacific Air Products".
Through its design and application engineering groups, the Reed
Division custom designs and manufactures many HVAC products to meet unique
customer needs or specifications not met by existing products. Such custom
designs often represent improvements on existing technology and often are
incorporated into the Reed Division's standard line of products.
The Reed division sells its HVAC products primarily through
approximately 375 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, subject to final acceptance of such orders by the
Reed Division. 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.
The Company sells gas-fired and hydronic heating and ventilating
products, boilers and coil handling 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 consolidated total revenues, nor did foreign assets exceed
ten percent of total assets, in any of the most recent five years ending
December 31, 1995.
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 commercial and residential
cast-iron boiler business through its acquisitions in 1991 and 1992.
Nevertheless, in all of the industries in which it competes, the Company has
competitors with substantially greater manufacturing, sales, research and
financial resources than the Company. Competition in these industries is based
mainly on merchandising capability, service, quality, price and ability to meet
customer specifications. The Reed Division believes that it has achieved and
maintained its position as a substantial competitor in the HVAC industry largely
through the strength of its extensive distribution network, the breadth of it
product line and its ability to meet customer delivery and service requirements.
Most of its competitors offer their products in some but not all of the
industries served by the Reed Division.
The quarterly results of the HVAC segment are affected by the
construction industry's demand for heating equipment, which generally peaks in
the last four months of each year (the "heating season"). Accordingly, sales are
usually higher during the heating season, and such higher levels of sales may in
some years continue into the following calendar year. As a result of these
seasonal factors, the Company's inventories of finished goods reach higher
levels during the heating season and are generally lower during the balance of
the year.
Management does not believe that backlog figures relating to the HVAC
segment are material to an understanding of its business because most equipment
is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents.
Although the Company usually seeks to obtain patents where appropriate, it does
not consider any segment materially dependent upon any single patent or group of
related patents.
The Reed Division has a number of trademarks important to its business,
including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Wing,
Alton, Applied Air, Arrow, Aztec Sensible Cooling, Hydrotherm, Temprite and
Dynaforce product lines.
Expenditures for research and development for the HVAC segment in 1995,
1994, and 1993 were $894,000, $469,000, and $438,000, respectively. Product
development efforts are necessary and ongoing in all product markets.
The Company believes that compliance with environmental laws will not
have a financially material effect on its operations in 1996.
COMPUTER SOFTWARE DEVELOPMENT AND SYSTEM DESIGN
The business of Mestek's wholly-owned subsidiary, MCS, Inc. ("MCS") is
primarily related to business applications software and systems development. MCS
develops computer software applications to meet specific industry requirements.
Services to customers include preparation of computer programs and software to
meet the customer needs, providing proper computer hardware when required,
installing the system at the customer's business, and providing continuing
support services. MCS also provides computer processing services to customers on
a time-sharing basis.
The most significant systems which MCS has developed and has available
for sale are MestaMed, a third-party billing, general ledger, accounting and
inventory control system for durable medical equipment suppliers, home health
providers and infusion therapy providers and ProfitWorks, a system utilized by
lumber, electrical, plumbing, and manufacturer's representatives to manage order
entry, inventory, purchasing, accounts receivable, and reporting. Support
includes software enhancements, diagnostic access, and training seminars. MCS
also has available a Telephone Usage System which analyses usage for
institutions with multiple telephones. The hardware for these and other systems
is supplied primarily by Digital Equipment Corp., for which MCS is an Authorized
Solution Provider.
New enhancements to its software products are continually being
developed by MCS. Recent examples include electronic reimbursement, and medical
records tracking. During 1995, 1994, and 1993 MCS spent approximately
$1,208,576, $910,000, and $702,000, respectively, for software development.
These costs related primarily to customer sponsored development and improvements
to existing products.
Because of the importance of systems development to MCS, programming
and sales personnel are a primary resource. MCS's main office is in the
Pittsburgh, Pennsylvania area and it has sales offices in other parts of the
country.
The markets for business applications software and systems development
are diverse and very competitive. MCS has many competitors in the markets in
which it operates, both on a regional and national basis. On December 31, 1995,
MCS's backlog was $2,915,000.
MCS's inventory consists primarily of computer hardware and related
equipment which is used in the computer systems sold. MCS attempts to maintain a
sixty-day supply so that delivery of completed systems can be made on a timely
basis.
COIL HANDLING EQUIPMENT
The Company, through its Cooper-Weymouth, Peterson Division,
manufactures various types and sizes of coil stock handling devices at its plant
in Clinton, Maine. These devices consist primarily of metal coil straighteners,
reels, and equipment used to feed metal from coils into punch presses and other
metal stamping or shaping equipment. The Company has improved its competitive
position in this industry by developing servo-driven feeders with microprocessor
controls, affording diagnostic and operational features. The Company believes
that its line of coil stock handling products is among the broadest in the
industry.
Certain coil handling products are custom designed and manufactured to
meet unique customer needs or specifications which are 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 Division's standard product
line.
The primary customers for such coil handling equipment include contract
metal stampers, manufacturers of large and small appliances, commercial and
residential lighting fixtures, automobile accessories, office equipment and HVAC
products. The Cooper-Weymouth, Peterson Division also acts as a supplier of coil
handling equipment to original equipment manufacturers of metal handling and
metal forming machinery.
The business of the Coil Handling Equipment segment is highly
competitive. The Company has become a substantial competitor in the manufacture
of coil handling equipment through its abilities to meet customer delivery and
service requirements and its extensive distribution network. The Coil Handling
Equipment segment has a number of trademarks important to its business,
including those relating to its Cooper-Weymouth, Peterson, Coil-Matic,
Dickerman, ServoMatic, and ServoMax product lines.
Management does not believe that backlog figures relating to the coil
handling equipment segment are material to an understanding of its business
because most equipment is shipped promptly after the receipt of orders.
Expenditures for research and development for the Coil Handling
Equipment segment in 1995, 1994, and 1993 were $0, $68,000, and $52,000,
respectively.
SEGMENT INFORMATION
Selected financial information regarding the operations of each of the
above segments is presented in Note 12 to the Consolidated Financial Statements.
Item 2 - PROPERTIES
The Reed Division of the Company manufactures HVAC equipment at plants
that the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing,
Pennsylvania; Dundalk, Maryland, Springfield, Ohio; Wrens, Georgia, and Dallas,
Texas. It operates plants that it leases from entities owned directly or
indirectly by certain officers and directors of the Company in Westfield,
Massachusetts; Farmville, North Carolina; South Windsor, Connecticut and Los
Angeles, California. The Division leases manufacturing space from unrelated
parties in Dallas, Texas; Orangeville, Ontario, Canada; and Skokie, Illinois, as
well as warehouse space in Mississauga, Ontario, Canada. National, the Company's
aluminum extruder and fabricator, operates in leased facilities in Lawrence,
Massachusetts and Winter Haven, Florida.
The Cooper-Weymouth, Peterson Division manufactures coil handling
products at a plant the Company owns in Clinton, Maine.
The Company's principal executive offices in Westfield, Massachusetts
are also leased from an entity owned by an officer and director of the Company.
The Company also owns an office building in Holland, Ohio.
MCS leases office space in Monroeville, Pennsylvania, which houses its
principal offices and computer facility used in the computer software
development and system design segments. MCS owns the computer equipment used in
the operations.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 4 to the
Consolidated Financial Statements.
The Company relocated the operations of The Hydrotherm Corporation from
Northvale, New Jersey to Dundalk, Maryland in 1992 and the operations of its
Scranton, Pennsylvania facility to Westfield, Massachusetts in 1993. These
properties were sold in July of 1995 and January of 1996, respectively, as
explained more fully in Note 1 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 1995.
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 April 4, 1996
was 1,644 The price range of the Company's common stock between January 1, 1996
and April 4, 1996 was $11.75 to $13.63 and the closing price on April 4, 1996
was $13.50.
The quarterly price ranges of the Company's common stock during 1995
and 1994 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
1995 1994
---- ----
First Quarter $ 10-3/8 $ 9-1/2 $ 10-3/8 $ 9-1/2
Second Quarter $ 12-7/8 $ 9-3/4 $ 10 $ 9-1/4
Third Quarter $ 14-5/8 $ 12-1/4 $ 10-1/8 $ 9-1/4
Fourth Quarter $ 13-3/8 $ 10-3/4 $ 10 $ 9-3/8
The Company has not paid any dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are listed on
a stock exchange or are publicly traded.
Item 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five fiscal years
is shown in the following table. Selected financial data reflecting the
operations of acquired businesses is shown only for periods following the
related acquisition. (Dollars stated in thousands except per share data.)
SUMMARY OF FINANCIAL POSITION as of December 31,
1995 1994 1993 1992 1991
---------- ---------- -------- --------- ------
Total assets $141,431 $120,430 $126,625 $137,158 $120,865
Working capital 41,626 36,628 37,238 58,279 52,644
Long-term debt, including
current portion 3,031 5,548 20,860 32,104 18,269
Shareholders' equity 91,046 80,732 73,317 70,552 66,397
Common shareholders'
equity, per common
share (1) $10.14 $ 8.93 $ 7.96 $ 7.59 $ 7.05
====== ====== ====== ====== ======
SUMMARY OF OPERATIONS - for the year ended December 31, (2)
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
Total revenues from
continuing operations (3) $245,865 $224,018 $231,386 $190,038 $173,852
Income from continuing
operations ............. 10,906 9,298 7,583 5,410 8,589
Net income ............... 10,906 9,298 4,265 5,823 8,995
Earnings per common share:
Income from continuing
operations ............. $ 1.21 $ 1.02 $ .82 $ .57 $ .91
Net income ................ $ 1.21 1.02 .46 .62 .95
(1) Equity per common share amounts are computed using the common shares and
common stock equivalents outstanding as of December 31, 1995, 1994, 1993,
1992, and 1991
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* National Northeast Corporation and National Southeast Aluminum
Corporation from October 30, 1995
* Heat Exchangers, Inc. from November 15, 1995
* Aztec Sensible Cooling, Inc. from November 1, 1994
* Mechanical Specialties, Inc. from August 21, 1992 and Westcast, Inc.
from December 15, 1992.
* GeoSpatial Solutions, Inc. and NEA, Inc. from February 1991;
Hydrotherm, Inc., Hydrotherm (Canada), Inc., and Dynaforce
Corporation from August 1991; Temprite Industries, Ltd. from October
1991, and Kamber Engineering from November 1991.
(3) Revenues have been adjusted in 1993, 1992, and 1991, to reflect the
reclassification of revenues related to the Company's Environmental
Engineering Segment to Discontinued Operations, which are separately
reported in the accompanying financial statements. The Company sold a 70%
interest in this segment on August 17, 1993, and sold its remaining 30%
interest on August 31, 1995, as more fully explained in Note 15 to the
Consolidated Financial Statements.
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RETURN ON AVERAGE NET ASSETS EMPLOYED
1995, 1994, 1993
The Company's Return on Average Net Assets Employed, defined as
operating profits from continuing operations before bonuses, interest expense,
taxes, and other income and (expense), over Average Net Assets Employed (total
assets less current liabilities other than current portion of long-term debt,
averaged over 12 months) for the years 1995, 1994, and 1993 was as follows:
1995 1994 1993
Operating Profits (as defined) $22,515,000 $21,538,000 $15,917,000
Average Net Assets Employed (as
defined) ................... $94,956,000 $90,691,000 $90,267,000
Return on Average Net Assets
Employed .................. 23.7% 23.8% 17.6%
The 1995 return on Average Net Assets Employed was relatively unchanged
from 1994 due principally to weaker performances from certain of the Company's
residential HVAC products and certain of its commercial and industrial damper
products, which offset much improved performances from the Company's industrial
HVAC products divisions.
ANALYSIS: 1995 VS. 1994
The Company's core HVAC Segment reported comparative results for 1995
and 1994 as follows:
1995 1994
($ 000) 1995 ($ 000) 1994 $Net Change
Net Sales ...... $ 218,456 100.00% $ 200,444 100.00% + 8.99%
Gross Profit ... 60,052 27.49% 56,746 28.31% + 5.82%
Operating Income 15,495 7.09% 15,310 7.64% + 1.21%
The growth in revenues was attributable to significantly improved sales
from the Company's Industrial Products divisions in Dallas, Texas, and
Orangeville, Ontario Canada - offset somewhat by reduced sales from the
Company's residential hydronic divisions in Westfield, Massachusetts. Gross
profit margins were slightly reduced in 1995 owing in part to the effect of
reduced hydronic sales, in part to the effect (in early 1995) of material cost
increases, and also to the effect of certain product relocations completed in
1995. Operating income as a percentage of net sales was also slightly reduced
owing to the same effects.
In addition to the effects on HVAC Net Sales, Gross Profits, and
Operating Income discussed above, the acquisitions of National Northeast
Corporation, as of October 30, 1995, and Heat Exchangers, Inc., on November 15,
1995, as more fully described in Note 2 to the Consolidated Financial
Statements, affected the comparative results for 1995 and 1994 as follows:
Percentage Effect of 1995 Acq. Percentage Change
Change (National Northeast) Net of acquisitions
1995 vs. 1994 (Heat Exchangers, Inc.) 1995 vs 1994
Net Sales + 8.99% + 2.1% + 6.89%
Gross Profit + 5.82% - .86% + 6.68%
Operating Income + 1.21% - 1.53% + 2.74%
The Company's Computer Systems Segment (MCS, Inc.) reported improved
sales, margins and operating profits in 1995 as indicated in the following
table:
1995 1994
($ 000) 1995 ($ 000) 1994 $Net Change
Net Sales ...... $15,255 100.00% $14,461 100.00% + 5.49%
Gross Profit ... 6,444 42.24% 5,583 38.61% + 15.42%
Operating Income 2,749 18.02% 2,244 15.52% + 22.50%
MCS's success in 1995 reflects its ongoing commitment to product
enhancement and customer support in the Durable Medical Equipment, Home Infusion
Therapy, and Home Health Services marketplaces in which it competes.
The Company's Coil Handling Equipment Segment (Cooper-Weymouth,
Peterson) also reported excellent results for 1995, with margins declining only
slightly despite a 33% growth in revenues:
1995 1994
($ 000) 1995 ($ 000) 1994 $Net Change
Net Sales ...... $ 12,154 100.00% $ 9,112 100.00% + 33.38%
Gross Profit ... 4,549 37.43% 3,581 39.30% + 27.03%
Operating Income 1,926 15.85% 1,583 17.37% + 21.67%
These results reflect both the healthy conditions presently affecting
the coil handling equipment marketplace and the success of this segment's
product innovation efforts.
As a whole the Company reported comparative results as follows:
1995 1994
($ 000) 1995 ($ 000) 1994 $Net Change
Net Sales ...... $ 245,865 100.00% $ 224,018 100.00% + 9.75%
Gross Profit ... 71,045 28.90% 65,910 29.42% + 7.79%
Operating Income 20,170 8.20% 19,137 8.54% + 5.40%
Sales expense for continuing operations of the Company, as a percentage
of total revenues, was reduced from 12.6% to 12.3%. General and Administrative
expenses as a percentage of revenues increased from 5.7% in 1994 to 6.0% in
1995, principally due to an increase in the provision for bad debts. Engineering
expense, as a percentage of total revenues, was reduced from 2.6% to 2.3%.
Interest expense from continuing operations was reduced by $121,000 reflecting
the effect, net of investment and acquisition activities, of the sale of the
Company's remaining interest in Chester Environmental, Inc. in August of 1995
for approximately $6,000,000.
Income tax expense for continuing operations for 1995, as a percentage
of pretax income, was 39.9% as compared with 42.1% for 1994, due to the effect
in 1994 of certain subsidiary losses on state and foreign income tax
obligations, as more fully described in Note 8 to the Consolidated Financial
Statements.
At December 31, 1995, the Company classified an idle manufacturing
facility, in Scranton, Pennsylvania, as a Property Held for Sale. This property
was sold in January of 1996 at which time a gain was realized.
Other Expense decreased substantially in 1995, due to the effect of
reduced carrying costs on idle properties held for sale, and the inclusion in
1995 of a non-recurring $850,000 gain on the sale of the Company's remaining
investment in Mesta Engineering Company.
ANALYSIS: 1994 VS. 1993
The Company's core HVAC Segment benefitted in 1994 from a strong
cyclical recovery in the construction marketplace which allowed it to realize
some of the benefits of its many ongoing market development and new product
development programs.
In 1993 this segment generated $26,347,000 in "one-time" sales at a
very low margin to a major customer in connection with the acquisition of
certain product lines from that customer. Excluding the effect of these "one
time" sales, Total Revenues for this segment increased $13,686,000, or 7.3% in
1994 as indicated in the following table:
Total Total
Revenues Revenues Increase %
1994 1993 (Decrease) Change
$ (000) $ (000) $ (000) $
HVAC Segment:
"One time" 1993 sales $ 0 $ 26,347 $ (26,347)
All other sales .... 200,445 186,759 13,686 7.3%
200,445 213,106 (12,661) (5.9%)
Computer Systems Segment 14,461 12,211 2,250 18.4%
Coil Handling Equipment . 9,112 6,069 3,043 50.1%
$ 224,018 $ 231,386 $ (7,368) (3.2%)
The Company's Computer Systems Segment reported substantially higher
revenues and operating profits in 1994 reflecting its very successful product
diversification efforts in the Durable Medical Equipment, Home Infusion Therapy
and Home Health Services markets.
The Company's Coil Handling Equipment Segment also reported
substantially higher revenues and operating profits due to the success of its
new product offerings in the area of "electronic feeds".
Consolidated operating profit from continuing operations increased in
1994 by $4,970,000, or 35.1%, reflecting the improved performances mentioned
above. The HVAC segment reported operating profit of $15,310,000 in 1994, up
24.1% from 1993, for the reasons mentioned above. The Company's Computer Systems
segment reported operating profit of $2,244,000, up 63.3% from 1993 on
relatively unchanged Average Net Assets Employed. The Coil Handling Equipment
segment reported operating profit of $1,583,000, up 345.6% from 1993, also on
relatively unchanged Average Net Assets Employed.
Gross profit margins by segment for continuing operations for 1994 and
1993 were as follows:
Computer Coil Handling
HVAC Systems Equipment
Segment Segment Segment
1994 Gross Profit % 28.3% 38.3% 39.3%
1993 Gross Profit % 26.7% 36.1% 34.6%
Increase/Decrease 1.6% 2.2% 4.7%
The 1993 Gross profit margins for the HVAC segment were adversely
effected by the special "one-time" sales described above. But for these sales,
HVAC margins in 1993 would have been 29.4%, suggesting that HVAC margins, on a
true comparative basis, declined slightly in 1994 (from 29.4% to 28.3%). This
effect is traceable principally to price increases experienced in 1994 on basic
commodities (steel, copper, and aluminum) used in the Company's manufacturing
processes.
Sales expense for continuing operations of the Company, as a percentage
of total revenues, was relatively unchanged at 12.6% despite the elimination of
$26,347,000 in "one time" 1993 sales, as described above. General and
Administrative expenses (excluding the effect of corporate and profit-center
bonuses which were increased by 37.1%), as a percentage of revenues decreased
from 5.5% in 1993 to 4.6% in 1994, principally due to the elimination of a
significant one time incremental general and administrative cost associated with
the operationof the Company's Scranton, Pennsylvania facility in 1993.
Engineering expense, as a percentage of total revenues, was unchanged at 2.6%.
Interest expense from continuing operations was reduced by approximately
$522,000 reflecting the effect of substantial reductions in interest bearing
debt during 1994.
Income tax expense for continuing operations for 1994, as percentage of
pretax income, was 42.1% as compared with 40.2% for 1993, reflecting the effect
of certain subsidiary losses on state and foreign income tax obligations, as
more fully described in Note 8 to the 1994 Consolidated Financial Statements.
At December 31, 1994, the Company classified two of its manufacturing
facilities, Northvale, New Jersey and Scranton, Pennsylvania, as Property Held
for Sale. These properties are carried at cost which is less than estimated net
realizable value.
Other Expense increased substantially in 1994, principally due to the
effect of carrying costs related to the properties held for sale and the fact
that 1993's results included a non-recurring $606,000 gain on the disposition of
certain equipment.
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
The Company's working capital increased in 1995 in proportion to the
Company's overall growth, as indicated in the following table (all amounts in
thousands):
12/31/95 Net Change 12/31/94 Net Change 12/31/93
$ 41,626 $4,998 $ 36,628 $( 610) $ 37,238
The Company's funded debt to equity ratio (including deferred
compensation, Minority Interest in National Northeast, and Purchase Price
Payable-National Northeast as funded debt) increased from 6.9% at December
31,1994, to 16.5% at December 31, 1995, reflecting the effect of the Company's
1995 acquisitions (National Northeast Corporation and Heat Exchangers, Inc.)
offset somewhat by the effect of the sale of the Company's remaining investment
in Chester Environmental, Inc. as described above.
The Company's only significant additions to Net Assets Employed during
the year, other than ordinary growth in receivables and inventories, were plant
and equipment spending of $2,963,000, and the acquisition of the Cox and
Honeywell assets as more fully described in Note 15 to the Consolidated
Financial Statements.
Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid dividends on its common stock since 1979.
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.
A facility of the Company received a non-governmental demand that it
comply with its water discharge permit. The Company believes that it is
currently in compliance with the terms of such permit and has invested in
additional discharge system checks and controls to assure continued compliance.
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
the site lacks the financial ability to address compliance with 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 land-fill. The Company's activity at the site represented less than 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
assignments 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 sites. The
Company is currently participating as part of a joint defense group in
discussions with the EPA for a "de minimis settlement" at the Southington,
Connecticut site. The obligations of the Company in this matter are not expected
to be material to the Company's financial position or the results of operations.
The Company has recently received notices from Pitt County and the EPA that it
may (along with many others) be a PRP at the Pitt County landfill and a site in
Charlotte, North Carolina. The Company continues to investigate these emerging
matters, but expects that these matters 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. In most cases, other
parties are responsible for the costs of remediation and the Company is fully
indemnified. At a site in Massachusetts leased by the Company the lessor has
received notice from a down-stream abutter that activities on the property prior
to the Company's occupation may be the source of groundwater contamination on
the abutter's property. Based upon an investigation by the Lessor, the claim
does not appear to be supportable. Based on the information presently available
to it, management does not believe that the costs of addressing any of the
releases will have a material adverse effect on the Company's financial position
or the results of operations.
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
atmospheric combustion, will not over the long-term and in the future have a
material adverse effect on the Company's results of operations.
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the two year period ended December 31, 1995.. 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. The consolidated financial statements of Mestek,
Inc. and subsidiaries for the year ended December 31, 1993 were audited by other
auditors whose report dated April 6, 1994 expressed an unqualified opinion on
those statements.
We conducted our audits in accordance with generally accepted auditing
standards. 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, 1995 and 1994, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the two year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 1995 and for each of the years in the two year period ended
December 31, 1995. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
Boston, Massachusetts
March 29, 1996
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
The Board of Directors
Mestek, Inc.:
We have audited the consolidated statements of income, shareholders'
equity and cash flows for the year ended December 31, 1993 of Mestek, Inc. and
subsidiaries. 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 audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows to Mestek, Inc. and subsidiaries for the year ended December 31, 1993 in
conformity with generally accepted accounting principles.
Springfield, Massachusetts
April 6, 1994
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1995 1994
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents ........................... $ 1,405 $ 4,201
Accounts Receivable - less allowances of
$1,377 and $1,440 ................................. 42,911 35,306
Unbilled Accounts Receivable ........................ 139 124
Inventories ......................................... 39,241 32,102
Deferred Tax Benefit ................................ 1,492 1,088
Other Current Assets ................................ 4,381 3,269
Total Current Assets ................................ 89,569 76,090
Property and Equipment - net ........................... 24,968 18,483
Equity Investments ..................................... 8,778 8,643
Property Held for Sale ................................. 2,955 5,870
Other Assets and Deferred Charges - net ............... 8,545 11,241
Goodwill ............................................... 6,616 103
Total Assets ........................................ $141,431 $120,430
See Accompanying Notes to Consolidated Financial Statements
(Continued)
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1995 1994
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt ........... $ 2,651 $ 5,337
Accounts Payable ............................ 16,342 14,117
Accrued Salaries and Bonuses ................ 3,218 3,008
Accrued Commissions ......................... 2,234 1,833
Progress Billings in Excess of Cost
and Estimated Earnings ................... 2,904 2,721
Purchase Price Payable - National Northeast . 9,960 --
Other Accrued Liabilities ................... 10,634 12,446
Total Current Liabilities ................... 47,943 39,462
Long-Term Debt .............................. 380 211
Deferred Compensation ....................... 22 25
Total Liabilities ........................... 48,345 39,698
Minority Interest - National Northeast ..... 2,040 --
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 ........................... 81,465 70,559
Treasury Shares, at cost (634,864 and
574,424 common shares, respectively) ... ( 5,449) ( 4,808)
Cumulative Translation Adjustment ........... ( 883) ( 932)
Total Shareholders' Equity .................. 91,046 80,732
Total Liabilities and Shareholders'
Equity ............................. $141,431 $120,430
See Accompanying Notes to Consolidated Financial Statements.
(Continued)
MESTEK, INC
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1995 1994 1993
(Dollars in thousands)
Net Sales ................................... $230,610 $209,557 $219,175
Net Service Revenues ...... ................. 15,255 14,461 12,211
Total Revenues .............................. 245,865 224,018 231,386
Cost of Goods Sold .......................... 166,009 149,180 160,234
Cost of Service Revenues .................... 8,811 8,928 7,798
Gross Profit ................................ 71,045 65,910 63,354
Selling Expense ............................. 30,319 28,282 28,742
General and Administrative
Expense ................................ 14,845 12,757 14,441
Engineering Expense ......................... 5,711 5,734 6,004
Operating Profit ............................ 20,170 19,137 14,167
Interest Expense ............................ ( 718) ( 839) ( 1,361)
Amortization Expense ........................ ( 93) ( 53) ( 55)
Other Income (Expense), Net ................. ( 1,224) ( 2,197) ( 61)
Income From Continuing Operations
Before Income Taxes ................... 18,135 16,048 12,690
Income Taxes ................................ 7,229 6,750 5,107
Income From Continuing
Operations ............................ 10,906 9,298 7,583
Discontinued Operations:
(Loss) From Operations of
Discontinued Segment ........................ -- -- ( 2,323)
Applicable Income Tax Benefit ............... -- -- 793
-- -- ( 1,530)
Loss on Disposal of Discontinued
Segment ................................ -- -- ( 2,425)
Applicable Income Tax Benefit ............... -- -- 637
-- -- ( 1,788)
Net Income .................................. $ 10,906 $ 9,298 $ 4,265
See Accompanying Notes to Consolidated Financial Statements.
(Continued)
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME (Continued)
For the years ended December 31,
1995 1994 1993
Earnings (loss) per Common Share:
Income From Continuing Operations . $ 1.21 $ 1.02 $ .82
(Loss) From Operations of
Discontinued Segment (Net of
Applicable Income Tax Benefit) .. -- -- (.17)
Loss on Disposal of Discontinued
Segment (Net of Applicable
Income Tax Benefit) ............ -- -- (.19)
Net Income ........................ $ 1.21 $ 1.02 $ .46
Weighted Average Shares Outstanding
(in thousands) .................... 9,019 9,137 9,258
See Accompanying Notes to Consolidated Financial Statements.
(Continued)
MESTEK, INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31,
1995, 1994 and 1993
$ 5.00
Cumulative
Convertible Cumulative
Preferred Common Paid In Retained Treasury Translation
Stock Stock Capital Earnings Shares Adjustment Total
Balance - December 31, 1992 ............... $ 7,301 $ 386 $ 8,232 $57,357 $(2,421) $(303) $70,552
Net Income ................................ 4,265 4,265
Cash Dividends:
Convertible Preferred ($5.00
per share) ........................... ( 361) ( 361)
Common Stock Repurchased .................. ( 782) ( 782)
Conversion of $5.00 Convertible
Preferred ............................ ( 92) 1 91 --
Cumulative Translation Adjustment ......... ( 357) ( 357)
Balance - December 31, 1993 ............... $ 7,209 $ 387 $ 8,323 $61,261 $(3,203) $(660) $73,317
Net Income ................................ 9,298 9,298
Common Stock Repurchase ................... (1,605) ( 1,605)
Conversion of $5.00 Convertible
Preferred ............................ (7,203) 92 7,111
Redemption of $5.00 Convertible
Preferred ............................ ( 6) ( 6)
Cumulative Translation Adjustment ......... ( 272) ( 272)
Balance - December 31, 1994 ............... $ -- $ 479 $15,434 $70,559 $(4,808) $(932) $80,732
Net Income ................................ 10,906 10,906
Common Stock Repurchased .................. ( 641) ( 641)
Cumulative Translation Adjustment ......... 49 49
Balance - December 31, 1995 ............... $ -- $ 479 $15,434 $81,465 $(5,449) $(883) $91,046
See Accompanying Notes to Consolidated Financial Statements
(Continued)
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1995 1994 1993
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income ........................... $ 10,906 $ 9,298 $ 4,265
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization .......... 3,940 4,712 6,205
Provision for Losses on Accounts
Receivable, net of write offs ........ ( 63) ( 16) 462
Changes in assets and liabilities net
of effects of acquisitions and
dispositions:
Accounts Receivable .................... ( 2,972) 9,353 ( 4,765)
Unbilled Accounts Receivable ........... ( 15) ( 27) ( 590)
Inventory .............................. ( 3,176) ( 1,464) 4,416
Accounts Payable ....................... ( 1,823) 3,841 ( 3,492)
Other Current Liabilities .............. ( 2,101) ( 2,745) 6,102
Progress Billings ...................... 183 613 429
Deferred Compensation .................. ( 3) ( 7) ( 63)
Other .................................. ( 4,248) 797 ( 1,616)
Net Cash Provided by Operating
Activities ................................ 628 24,355 11,353
Cash Flows from Investing Activities:
Capital Expenditures ................... ( 2,963) ( 5,160) ( 4,293)
Disposition of Property & Equipment .... 2,727 -- 853
Acquisition of Businesses and Other
Assets Net of Cash Acquired ...... ( 15,595) ( 1,372) ( 7,449)
Disposition of Business Segment ........ 6,000 -- 12,000
Net Cash Provided by (Used in)
Investing Activities .................. ( 9,831) ( 6,532) 1,111
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under
Revolving Credit Agreement ............ 2,406 ( 5,866) ( 659)
Principal Payments Under Long
Term Debt Obligations ................. ( 5,367) ( 9,446) ( 13,535)
Proceeds from Issuance of Long
Term Debt ............................ -- -- 3,467
Purchase Price Payable - National Northeast 9,960 -- --
Redemption of $5.00 Convertible
Preferred Stock ...................... -- ( 6) --
Repurchase of Common Stock ............. ( 641) ( 1,605) ( 782)
Dividends Paid ......................... -- -- ( 361)
Net Cash Provided by (Used in)
Financing Activities .................. 6,358 (16,923) ( 11,870)
Net Increase (Decrease) in Cash and
Cash Equivalents ...................... ( 2,845) 900 594
Translation effect on Cash ................. 49 ( 272) ( 414)
Cash and Cash Equivalents -
Beginning of Year .......................... 4,201 3,573 3,393
Cash and Cash Equivalents -
End of Year ................................ $ 1,405 $ 4,201 $ 3,573
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
intercompany 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.
Unbilled receivables represent revenue earned in the current period but
not billed to the customer until future dates, usually within one month.
Cash equivalents
Cash equivalents include in U.S. Treasury securities with original
maturities of three months or less.
Inventories
Inventories are valued at the lower of cost or market. Cost of
inventories is determined principally by the last-in, first-out (LIFO) method.
Property and equipment
Property and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line method 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.
Goodwill
The Company amortizes Goodwill on the straight line basis over the
estimated period to be benefitted. The acquisition of National Northeast
Corporation and National Southeast Aluminum Corporation ("National"), as more
fully described in Note 2, resulted in goodwill of $4,617,000 which will be
amortized over 25 years. The acquisition of Heat Exchangers, Inc., as more fully
described in Note 2, resulted in goodwill and related intangibles of $2,473,000
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.
Advertising Expense
Advertising costs are charged to operations as incurred, such charges
aggregated $2,942,000, $2,426,000, and $2,655,000 for the years ended December
31, 1995, 1994 and 1993 respectively.
Equity Investments
The Company's 48.6 percent interest in H. B. Smith Company, Incorporated
("HBS") and 46.8 percent interest in EAFCO, Inc., ("EAFCO"), are accounted
for under the equity method.
Research and Development Expense
Research and development expenses are charged to operations as incurred.
Such charges aggregated $894,000, $537,000, and $490,000, for the years ended
December 31, 1995, 1994 and 1993, respectively.
Software Development Expenses
The Company's MCS, Inc. subsidiary is in the business of application
software and systems development. Statement of Financial Accounting Standards
No. 86 requires that development costs incurred subsequent to the establishment
of technological feasibility for the product be capitalized, however, the
Company does not believe that such amounts are material to the consolidated
financial statements. Accordingly, all development costs are charged to expense
as incurred. Such charges aggregated $1,208,576, $910,000, and $702,000, 1995,
1994, and 1993, respectively.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per common share
Earnings per share have been computed based upon the average number of
common shares outstanding giving effect, where dilutive, to common shares which
would be issued upon conversion of the $5.00 Convertible Preferred Stock.
Postretirement and Postemployment benefits
In 1990, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The Statement is effective for
fiscal years beginning after December 15, 1992. The Company does not provide
significant postretirement benefits and adoption of the Statement in 1993 did
not have a material effect on the consolidated financial statements.
In 1992, the FASB issued Statement of Financial Accounting Standards
No. 112, "Employers' Accounting for Post Employment Benefits". This Statement is
effective for fiscal years beginning after December 15, 1993. The Company does
not provide significant postemployment benefits and adoption of this Statement
on January 1, 1994 did not have a material effect on the consolidated financial
statements.
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.
Property Held for Sale
Property Held for Sale includes a manufacturing facility in Scranton,
Pennsylvania which was sold at a gain in January of 1996.
The Company's Northvale, New Jersey facility, reflected in Property
Held for Sale at December 31, 1994, was sold on July 5, 1995 for $2,450,000 in
notes payable secured by the property, personal and corporate guarantees, and
other security. A loss of $400,000 was reported in connection with this
transaction in 1995.
New Accounting Standard
In March, 1995 the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121 "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", which
will be effective for the Company's fiscal year ending December 31, 1996. This
statement requires the Company to review long-lived assets for impairment
whenever events or changes in circumstances, indicate that the carrying amount
of an asset may not be recoverable. The Company intends to adopt this statement
prospectively. The impact of this standard is not expected to have a material
impact on the Company's financial condition or results of operations.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
2. BUSINESS ACQUISITIONS
On October 30, 1995, the Company executed an agreement to acquire
approximately eight-three (83%) of the issued and outstanding voting common
stock of National Northeast Corporation and National Southeast Aluminum
Corporation ("National"). National operates custom aluminum extrusion and
fabrication facilities located in Lawrence, Massachusetts and Winter Haven,
Florida. The transaction was accounted for under the purchase method of
accounting as of October 30, 1995 and, accordingly, the Company has included the
results of this acquired business in its consolidated statement of operations
from this date. The Company itself is a user of aluminum extrusions in its HVAC
segment. The consideration for the purchase was $9.96 million in cash and
approximately $3.32 million payable over three years, contingent upon a future
level of earnings. The transaction was completed on January 2, 1996.
Proforma unaudited results of operations for 1994 and 1995, reflecting
a hypothetical acquisition date of January 1, 1994 are as follows:
1995 1994
Total Revenues $267,234 $242,197
Net Income 11,652 9,657
Earnings per shar $ 1.30 $ 1.06
============ ===========
On November 15, 1995, the Company acquired substantially all of the
accounts receivable, inventory, fixed and intangible assets of Heat Exchangers,
Inc., a manufacturer of portable air conditioning equipment in Skokie, Illinois.
The purchase price paid, including the assumption of certain liabilities, was
$6,764,000. The acquisition was accounted for as a purchase and, accordingly,
the Company has included the results of this acquired business in its
consolidated statement of operations since the date of the acquisition. On a
proforma basis this acquisition would not have had a material effect on the
Company's consolidated results of operations for either of the two years in the
period ended December 31, 1995.
3. INVENTORIES
Inventories consisted of the following at December 31:
1995 1994
------------- -----------
Raw materials $ 20,404,000 $ 17,524,000
Work-in-progress 17,114,000 13,441,000
Finished goods 9,657,000 8,241,000
----------- -----------
47,175,000 39,206,000
Less provision for LIFO
method of valuation 7,934,000 7,104,000
----------- -----------
$ 39,241,000 $ 32,102,000
=========== ===========
Progress billings exceeded related contract costs by $2,904,000, and
$2,721,000, at December 31, 1995 and 1994, respectively. As such, these amounts
are reported as deferred income in the accompanying consolidated financial
statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
1995 1994
------------- -----------
Land $ 777,000 $ 750,000
Buildings 11,035,000 10,662,000
Leasehold Improvements 3,119,000 2,873,000
Equipment 43,857,000 34,442,000
------------- ------------
58,788,000 48,727,000
Accumulated Depreciation (33,820 000) (30,244,000)
------------ ------------
$ 24,968,000 $ 18,483,000
============ ============
The above amounts include $144,000, and $1,370,000, at December 31, 1995
and 1994, respectively, in assets that had not yet been placed in service by the
Company. No depreciation was recorded in the related periods for these assets.
Depreciation and amortization expense was $3,864,000, $4,669,000, and
$6,205,000, for the years ended December 31, 1995, 1994, and 1993 respectively.
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS)
The Company's investment in HBS is zero reflecting the Company's equity
in HBS' cumulative losses. The Company has no obligation to fund future HBS
operating losses.
Eafco, Inc. (EAFCO)
On April 7, 1993, the Company acquired a 46.8% interest in EAFCO, Inc.,
(EAFCO), a Pennsylvania company, located in Boyertown, Pennsylvania in return
for cash, notes and certain items of foundry equipment valued in total at
$8,643,000.
EAFCO produces cast iron boiler sections for the boiler industry. EAFCO
used a portion of the proceeds to modernize its foundry facilities and equipment
and began supplying cast iron boiler sections for use in Mestek's boiler
subsidiaries in 1993. This investment is accounted for in accordance with the
equity method of accounting. The Company reported its share of EAFCO's operating
results, which were not material, in Other Income (Expense) in the consolidated
financial statements in 1995, 1994, and 1993.
The Company purchases approximately $18,000,000 on an annualized basis
from Eafco and HBS together. The Company's net receivable from Eafco and HBS
together was $3,272,000 and $1,474,000 at December 31, 1995 and 1994,
respectively.
Note 6 - Long-Term Debt
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
1995 1994
------------ -----------
Senior Notes $ - $ 1,000,000
Revolving Loan Agreement 1,725,000 -
Note Payable Bank 711,000 -
Notes Payable American Standard, Inc. - 1,903,000
Notes Payable Eafco, Inc. - 2,400,000
Other Bonds and Notes Payable 595,000 245,000
------------ ----------
3,031,000 5,548,000
Less Current Maturities (2,651,000) (5,337,000)
----------- -----------
$ 380,000 $ 211,000
============ ===========
Revolving Loan Agreement - On January 1, 1992, the Company entered into a
Revolving Loan Agreement and Letter of Credit Facility (the "Agreement") with a
commercial bank. The Agreement, which had been extended through June 30, 1995,
was recently extended through April 30, 1996. Under the terms of this most
recent extension, it provides $48 million of unsecured revolving credit and
standby letter of credit capacity. Borrowings under the Agreement bear interest
at a floating rate based upon the bank's prime rate less 1.00%, or LIBOR plus a
quoted market factor, at the discretion of the borrower, and may be used for
working capital or acquisition purposes, or to retire previously incurred debt.
It is management's intention, upon expiration of the Revolving Loan Agreement on
April 30, 1996 to extend or otherwise negotiate a similar financing agreement
for future capital needs. The Revolving Loan Agreement contains financial
covenants which require that the Company maintain certain current ratios,
working capital amounts, capital bases and leverage ratios. This agreement also
contains restrictions regarding the creation of indebtedness, the occurrence of
mergers or consolidations, the sale of subsidiary stock, and the payment of
dividends in excess of 50% of net income.
Commitment fees on letters of credit are 3/4% annually. Outstanding
letters of credit, principally related to the Company's insurance programs,
aggregated $3,242,000 and $3,827,000, at December 31, 1995 and 1994,
respectively.
Note Payable Bank - The Company's subsidiary, National Northeast Corporation had
in effect at December 31, 1995 a revolving credit agreement with a commercial
bank. The outstanding balance of $711,000 was paid off in January of 1996
through advances under the Company's Revolving Loan Agreement.
Notes Payable American Standard Inc. - On December 22, 1992 the Company
executed several non-interest bearing notes in connection with the purchase of
certain assets from American Standard Inc. The final installment on the notes of
$1,903,000 was paid on January 1, 1995.
Note Payable Eafco, Inc. - On April 7, 1993, the Company executed an
unsecured promissory note in the amount of $2,400,000 in connection with the
acquisition of a 46.8% interest in Eafco as more fully described in Note 5 to
the Consolidated Financial Statements. Borrowings under the note, which matured
and were paid on January 5, 1995, bore interest at the prime rate of interest on
a floating basis.
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 5% and matures on July 25, 2001. The
outstanding balance under the Bond at December 31, 1995 was $212,000. The
Company's National Northeast subsidiary is obligated under two non-interest
bearing subordinated Notes Payable on which interest was imputed at 8%. The
notes are secured by certain pieces of equipment. The outstanding balances under
the notes at December 31, 1995 are $185,000 and $198,000, respectively, and the
notes mature on May 1, 2001 and March 31, 1997, respectively.
Cash paid for interest was $718,000, $839,000, and $1,535,000, during the
years ended December 31, 1995, 1994, and 1993, respectively.
Maturities of long-term debt in each of the next five years are as
follows:
1996 - $ 2,651,000
1997 - $ 116,000
1998 - $ 80,000
1999 - $ 85,000
2000 - $ 62,000
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 the debt approximates its
fair value as of December 31, 1995.
7. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 20,000,000 shares with no par
value, and a stated value of $0.05 per share. As of December 31, 1995, 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 24, 1995, 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, 1995
no shares of the Preferred Stock have been issued.
Prior to May 25, 1995 the Company had 250,000 shares of authorized $5.00,
convertible, noncumulative, nonvoting preferred stock with a par value of $100
per share (the "Convertible Preferred"). 73,260 shares of the Convertible
Preferred were issued on July 31, 1986. The Convertible Preferred was
convertible into a total of 1,878,462 shares of Mestek common stock, subject to
certain antidilution provisions. As of December 31, 1993, 1,170 of the preferred
shares had been converted into 29,993 shares of Mestek common. The remaining
Convertible Preferred was redeemable at the option of the Company at par value
plus any declared but unpaid dividends, any time after July 31, 1993. Pursuant
to a notice of redemption dated April 22, 1994, all but 64 shares of the
Convertible Preferred were converted into 1,838,259 shares of Common Stock of
the Company. The remaining 64 shares of Convertible Preferred were redeemed on
June 24, 1994.
8. INCOME TAXES
Income before income taxes included foreign earnings (losses) of $217,000,
($606,000), and ($449,000) in 1995, 1994, and 1993, respectively. Income tax
expense (benefit) from continuing operations consisted of the following:
1995 1994 1993
-------------- ------------- -----------
Federal income tax:
Current $ 5,894,000 $ 5,298,000 $ 4,052,000
Deferred ( 174,000) ( 89,000) ( 249,000)
State income tax:
Current 1,543,000 1,534,000 1,306,000
Deferred ( 46,000) ( 5,000) ( 36,000)
Foreign income tax:
Current 12,000 12,000 -
Deferred - - 34,000
------------ ------------- ------------
Income taxes from
Continuing Operations $ 7,229,000 $ 6,750,000 $ 5,107,000
=========== =========== ===========
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 percent (34 percent prior to 1994) to earnings before income tax, as
follows:
1995 1994 1993
----------- ----------- ----------
Computed "expected" income tax $ 6,347,000 $ 5,617,000 $ 4,314,000
State income tax, net of
federal tax benefit 973,000 994,000 838,000
Benefit of foreign loss not
allocated to income statement - 212,000 -
Foreign tax rate differential ( 15,000) ( 82,000) ( 152,000)
Change in beginning year balance
of the valuation allowance for
deferred tax assets allocated
to income tax expense ( 76,000) - 195,000
Other - net - 9,000 ( 88,000)
-------------- ------------ -----------
Income Taxes $ 7,229,000 $ 6,750,000 $ 5,107,000
=========== =========== ===========
A deferred income tax (expense) benefit results from temporary
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 (liability) which give rise to this deferred income tax (expense)
benefit for the year ended December 31, 1995 are as follows:
Change
December 31, (Expense) December 31,
1994 Benefit 1995
----------- --------- -----------
Deferred Tax Assets:
Warranty Reserve .................. $ 630,000 $ 32,000 $ 662,000
Compensated Absences .............. 522,000 199,000 721,000
Inventory Valuation ............... 283,000 67,000 350,000
Accounts Receivable Valuation ..... 622,000 ( 65,000) 557,000
Capital Loss Carryforward ......... 323,000 (323,000) --
State Tax Operating Loss
Carryforward ................... 100,000 92,000 192,000
Foreign Tax Operating Loss
Carryforward ................... 704,000 ( 75,000) 629,000
Deferred Income on Sale of Assets
to Nonconsolidated Investees .. 213,000 -- 213,000
----------- -------- ---------
Total Gross Deferred Tax Assets ... 3,397,000 ( 73,000) 3,324,000
Less Valuation Allowance .......... ( 195,000) 76,000 ( 119,000)
---------- --------- -------
Deferred Tax Assets ........ 3,202,000 3,000 3,205,000
---------- --------- -------
Deferred Tax Liabilities:
Prepaid Expenses .................. ( 653,000) 75,000 ( 578,000)
Depreciation ...................... ( 443,000) 117,000 ( 326,000)
Other ............................. ( 386,000) 25,000 ( 361,000)
---------- --------- ---------
Net Deferred Tax Liabilities (1,482,000) 217,000 (1,265,000)
---------- --------- ---------
Net Deferred Tax Assets .... $ 1,720,000 $ 220,000 $ 1,940,000
========== ========= =========
A valuation allowance of $195,000 was established at December 31, 1993.
This allowance reflects uncertainties as to the realization of a portion of the
foreign tax operating loss carryforward identified above. This valuation
allowance was adjusted downward to $119,000 on December 31, 1995 because the
foreign operations resulted in earnings for the current year. It is management's
belief that this trend will continue. At December 31, 1995, no valuation
allowance has been established relative to the remaining foreign tax operating
loss carryforward or state tax operating loss carryforward. It is management's
belief that it is more likely than not that these carryforwards will be utilized
prior to their expiration. The Company has available to it a number of tax
planning opportunities which support this conclusion.
At December 31, 1995, the Company has state tax operating loss and
foreign tax operating loss carryforwards of approximately $3,553,000 and
$1,259,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carryforward" rules and limitations. The
significant increase in state tax operating loss carryforwards resulted
primarily from a change in Pennsylvania law permitting loss carryforwards which
were not previously allowed. These losses expire as follows:
State Foreign
2000 $1,600,000 $ -
2007 1,953,000 1,259,000
----------- -----------
$3,553,000 $1,259,000
========== ==========
Cash paid for income taxes was $8,222,000, $5,990,000 and $1,889,000, for
the years ended December 31, 1995, 1994, and 1993 respectively.
9. 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, 1995 are as follows:
Date Basic Minimum
of Annual Future
Lease Term Rental Rentals
Sterling Realty Trust
Land and building - Main 12/17/84 15 years $ 192,000 $ 768,000
Land and building - Engineering 07/01/83 15 years 42,000 105,000
Land and building - South Complex 01/01/94 15 years 256,800 3,338,400
Machinery & Equipment 01/01/93 5 years 41,460 82,920
(Westfield, Farmville and Wrens
Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5 years 223,980 447,960
(Westfield, Farmville, Wrens,
South Windsor and Clinton Locations)
Elizabeth C. Reed Trust
Machinery & Equipment 01/01/93 5 years 14,100 28,200
Production Realty
Land and building N/A monthly 26,400 2,200
Machinery & Equipment N/A monthly 41,400 3,450
Rudbeek Realty Corp.
(Farmville Location) 11/02/92 6 years 324,000 972,000
MacKeeber
(South Windsor Location) 07/01/90 14.5 years 616,041 5,852,424
Rent expense for operating leases, including those with related parties,
was $2,581,000, $2,433,000, and $4,699,000, for the years ended December 31,
1995, 1994 and 1993, respectively.
Future minimum lease payments under all noncancelable leases as of December
31, 1995 are as follows:
Operating
Year Ending December 31, Leases
1996 $ 3,170,000
1997 2,482,000
1998 2,120,000
1999 1,775,000
2000 1,271,000
-------------
After 2000 4,795,000
-------------
Total minimum lease payments $15,613,000
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $828,000,
$789,000, and $755,000, for the years ended December 31, 1995, 1994, and 1993,
respectively. Contributions to the Plan are defined as 3.0% of gross wages up to
the current Old Age, Survivors, and Disability, (OASDI), limit and 6.0% 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 20% vesting after 3 years of service, 40% after 4
years, 60% after 5 years, 80% after 6 years, and 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 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 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 $252,000, $176,000 and $178,000, for the years
ended December 31, 1995, 1994, and 1993, respectively.
The Company maintains a separate qualified 401(k) Plan for salaried
employees not covered by a collective bargaining agreement, who chose to
participate, and who have at least one year of 1,000 hours or more of service at
the time of participation. Participants may elect to have up to 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 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 1.50% of an employee's compensation. The Company does
not match any amounts for withholdings from participants in excess of 6.00% of
their compensation or for any nondeductible voluntary contributions.
Contributions are funded on a current basis. Contributions to the Plan were
$243,000, $212,000, and $197,000 for the years ended December 1995, 1994, and
1993, respectively.
One of the Company's subsidiaries maintains a qualified defined
contribution target benefit pension plan which covers substantially all of it's
employees. Pension costs are accrued annually based on contributions earned by
participants under plan provisions as determined by an independent actuary. The
total expense related to this pension plan for the twelve months ended December
31, 1995, 1994, and 1993 was $64,000, $59,000, and $48,000, respectively.
The Company maintains bonus plans for its officers and other key
employees. The plans generally allow for annual bonuses for individual employees
based upon the operating results of related profit centers in excess of a
percentage of the Company's investment in the respective profit centers. The
Company also has employment agreements with certain executive officers.
40% of the Company's employees are covered under collective bargaining
agreements, of which 15% are covered under agreements expected to be renewed in
1996.
11. COMMITMENTS AND CONTINGENCIES
Mestek and its subsidiaries are subject to several legal actions and
proceedings in which various monetary claims are asserted. Management, after
consultation with its corporate counsel and outside counsel, does not anticipate
that any ultimate liability arising out of all such litigation and proceedings
will have a material adverse effect on the financial condition of the Company.
David R. Macdonald, a member of the Company's Board of Directors, is a
partner in the law firm of Baker & McKenzie. Management from time to time
retains Baker & McKenzie to perform legal services for the Company. Amounts paid
for such services aggregated $147,000, $93,000, and $378,000, for the years
ended December 31, 1995, 1994, and 1993, respectively.
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,
1995 was $1,348,000.
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Liabilities for
environmental remediation and/or restoration are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably estimated.
The Company is not aware, at present, of any material administrative or judicial
proceedings against the Company arising under any federal, state or local
environmental protection laws or regulations ("Environmental Laws"). There are,
however, a number of activities in which the Company is engaged under
Environmental Laws. The Company is engaged in various matters with respect to
obtaining, amending or renewing permits required under Environmental Laws to
operate each of its manufacturing facilities. The Company or various of its
subsidiaries have been named or contacted by state authorities and/or the
Environmental Protection Agency (the "EPA") regarding the Company's liability as
a potentially responsible party ("PRP") for the remediation of several sites,
none of which, in the judgement of management, would have a material adverse
impact on the financial condition or results of operations of the Company. There
have been releases of hazardous materials on a few parcels of property which are
presently owned, leased or operated by the Company. Based on the information
presently available to it, management does not believe that the costs of
addressing any of the releases will have a material adverse effect on the
Company's financial position or the results of operations.
12. SEGMENT INFORMATION
The Company has historically operated in the following segments: heating,
ventilating and air conditioning equipment ("HVAC"); environmental engineering
and consulting services ("Engineering"); computer software development and
system design ("Computer Systems"); and the manufacture of coil handling
equipment ("Coil Handling Equipment").
The HVAC segment includes the design and manufacture primarily of
residential, commercial and industrial hydronic heat distribution products,
including finned-tube and baseboard radiation equipment, gas-fired heating and
ventilating equipment, air damper equipment and related products used in air
distribution.
The Computer Systems segment includes the development, sale,
installation, and maintenance of business applications software.
The Coil Handling Equipment segment includes the design and manufacture
of coil stock handling devices such as coil straighteners, feeders and other
shaping equipment.
Intersegment sales are not significant. Operating income is defined as
net sales directly related to a segment's operations, less operating expenses.
Identifiable assets by segments are those assets used in the operations of that
segment. The Company has not identified any of its assets as corporate assets.
The following table presents segment information for the years ended
December 31, 1995, 1994, and 1993. Segment information reflecting the operations
of acquired businesses is shown only for the periods following acquisition.
Segment information for the Engineering segment is excluded from this table due
to the disposition of this segment in 1993.
Also, Operating Profit has been adjusted in 1993 to give effect to the
reclassification of corporate overhead originally charged to the Engineering
segment in accordance with APB 30.
1995 1994 1993
-------------- -------------- --------
(Dollars in thousands)
Total Revenues
HVAC $ 218,456 $ 200,445 $ 213,106
Computer Systems 15,255 14,461 12,211
Coil Handling Equipment 12,154 9,112 6,069
--------- --------- ---------
Total Revenues $ 245,865 $ 224,018 $ 231,386
========= ========= =========
Operating Profit
HVAC 15,495 15,310 12,335
Computer Systems 2,749 2,244 1,374
Coil Handling Equipment 1,926 1,583 458
---------- --------- ----------
Total Operating Profit $ 20,170 $ 19,137 $ 14,167
========== ========= =========
Other information regarding the segments for the years 1995, 1994, and 1993 is
as follows:
1995
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 128,093 $ 2,416 $ 3,604
Computer Systems 6,772 25 69
Coil Handling Equipment 6,476 522 191
---------- -------- ---------
Total $ 141,341 $ 2,963 $ 3,864
========== ======== =========
*Excludes capital assets acquired by acquisition
1994
Identifiable assets Capital Depreciation
(at year-end) expenditure expense
(Dollars in thousands)
HVAC $ 106,011 $ 4,635 $ 4,516
Engineering 6,000 0 0
Computer Systems 4,866 135 62
Coil Handling Equipment 3,553 390 91
---------- ---------- ----------
Total $ 120,430 $ 5,160 $ 4,669
========== ========== =========
1993
Identifiable assets Capital Depreciation
(at year-end) expenditures expense
(Dollars in thousands)
HVAC $ 112,963 $ 3,590 $ 4,284
Engineering 6,000 622 1,749
Computer Systems 3,947 39 55
Coil Handling Equipment 3,715 42 65
----------- ----------- ------------
Total $ 126,625 $ 4,293 $ 6,153
=========== ============ ===========
The Company sells its HVAC products primarily to contractors, installers, and
end users in the construction industry, wholesale distributors, and original
equipment manufacturers. At December 31, 1995 and 1994, accounts receivable, net
of allowances, for the HVAC segment totaled $38,664,000 and $30,837,000,
respectively. These receivables are generally of high quality, and the Company's
history is that losses from bad debts are not excessive. Management believes
that established reserves at December 31, 1995 are adequate to absorb any such
losses.
13. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full quarter
of 1995 and 1994. (Dollars in thousands except per common share amounts).
1995 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Total Revenues $ 53,759 $ 52,479 $ 64,686 $ 74,941
Gross Profit $ 15,535 $ 15,475 $ 18,956 $ 21,079
Net Income $ 2,675 $ 1,904 $ 2,963 $ 3,364
Per Common Share:
Net Income $ .30 $ .21 $ .33 $ .37
1994 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Total Revenues $50,043 $46,155 $64,738 $63,082
Gross Profit $14,391 $13,420 $18,267 $19,832
Net Income $ 1,722 $ 1,595 $ 2,829 $ 3,152
Per Common Share:
Net Income $ .19 $ .17 $ .31 $ .35
14. COMMON STOCK BUYBACK PROGRAM
In 1995 and 1994 the Company continued its program of selective "open-market"
purchases of common shares, originally announced in 1990. 60,440 and 169,200 of
such shares were acquired in 1995 and 1994, respectively. All such shares are
accounted for as treasury shares as of December 31, 1995 and 1994, respectively.
15. OTHER TRANSACTIONS
Mesta
On March 3, 1995, the Company, through its Delaware-based subsidiary, West
Homestead Joint Venture Corporation, concluded the sale of its remaining 30%
partnership interest in Mesta International (formerly Mesta Engineering Company)
to Shougang Mechanical Equipment Co. of Pennsylvania, Inc., a U.S. subsidiary of
a Chinese industrial company, for $850,000 in cash and the assumption of all
liabilities of Mesta International. The Company reported a gain on the
transaction in 1995 of approximately $850,000.
Chester
On August 31, 1995, the Company, completed the disposition of 30% of the
outstanding common stock of Chester Environmental, Inc. ("Chester"), a
Pennsylvania corporation headquartered in Pittsburgh, Pennsylvania. Chester is
engaged in environmental engineering and consulting. Prior to August 1993,
Chester was a wholly owned subsidiary of the Company. The Company sold 70% of
Chester's common stock to Duquesne Enterprises, Inc. ("Duquesne") in 1993, and
this redemption in 1995 of the remaining 30% of Chester's common stock by
Chester, liquidated the Company's interest in Chester.
Under the terms of the redemption, the Company received $6,000,000 from Chester,
and simultaneously, settled in full certain indemnities and guarantees of
Chester accounts receivable undertaken in 1993. The Company fully reserved for
these obligations at the time of the 1993 transaction. A nominal loss was
reported in 1995 as a result of these transactions.
This disposition completes the Company's exit from its environmental services
segment. The Company's three remaining business segments are: Heating,
Ventilating, and Air Conditioning (HVAC); Computer Systems; and Coil Handling
Equipment.
Cox
On July 12, 1995, the Company purchased certain operating assets of Cox
Manufacturing Co., Inc. of Ridgeville, Indiana for approximately $500,000 in a
bulk sales transaction. The Company leased a portion of the former Cox facility
to manufacture the radiant heating and furnace product line obtained in the
transaction.
Honeywell
On October 2, 1995, the Company purchased certain manufacturing assets and
inventory from Honeywell Corp. (Honeywell) of Minneapolis, Minnesota for
approximately $500,000. The Company expects to manufacture a line of dampers for
Honeywell.
Note 16. Subsequent Events
On February 5, 1996, the Company acquired certain assets of the press feeding
and cut-to-length line businesses of Rowe Machinery and Automation Inc. of
Dallas, Texas ("Rowe"). Rowe is a leading manufacturer of press feeding and
cut-to-length line equipment serving the appliance, office furniture,
automotive, and many other markets. The purchase price paid was approximately $5
million, including the assumption of certain liabilities. Mestek will lease the
Rowe facility in Dallas including all machinery and equipment through the end of
1996 at a cost of $40,000 per month.
On February 2, 1996, the Company acquired all of the issued and outstanding
common stock of Omega Flex, Inc. of Exton Pennsylvania. Omega Flex is a
manufacturer of flexible metal hose and related hose fabrications. The purchase
price paid for the acquired stock was approximately $9 million. Omega Flex has
leased its manufacturing and office facility through January 31, 2000, for
$199,500 per year.
Note 17. Discontinued Operations (1993)
On August 17, 1993, the Company completed the sale of 70% of the outstanding
common stock of its Chester Environmental, Inc. subsidiary (Chester) to Duquesne
Enterprises, Inc. (Duquesne), a Pennsylvania corporation headquartered in
Pittsburgh, Pennsylvania. The Company received $12,000,000 plus certain "put"
rights exercisable at various dates through 1999 which enabled the Company, at
its option, to sell its remaining 30% interest for a minimum of $6,000,000. The
Company accounted for the transaction as a disposal of a business segment in
accordance with APB 30. Accordingly, the Company recorded a loss (Loss on
Disposal of Discontinued Segment) in 1993 on the sale which, together with the
effect of writing its remaining investment down to $6,000,000, amounted to
$1,788,000, net of a related tax benefit of $637,000. The operations of Chester
are separately reported in accordance with APB 30 in the accompanying
Consolidated Statements of Income for 1993 under the heading (Loss) from
Operations of Discontinued Segment. For this purpose the operations of Chester
are included only through the date of sale, August 17, 1993. Subsequent to this
date, the Company accounted for its remaining investment in Chester under the
cost method of accounting, since the Company did not have the ability to exert
significant influence over the operations or financial policies of Chester. The
"put" rights received by the Company also allowed the Company, under certain
circumstances, at its option, to sell its remaining interest for $8,000,000. No
value was assigned to this additional consideration in the computation of the
Loss on Disposal of Discontinued Segment in 1993. Also, under the terms of the
Agreement of Sale, Duquesne received a "call" right which enabled it to
purchase, at its option, the Company's remaining interest for $12,000,000.
Interest expense was allocated to the Loss from Discontinued Operations for 1993
based upon the ratio of net assets (defined as average total assets less average
non-interest bearing indebtedness) of the discontinued segment to consolidated
net assets. Corporate general and administrative expenses originally allocated
to the Discontinued Segment totaling $310,000 for the year 1993 were reallocated
to the HVAC Segment in the accompanying Consolidated Statements of Income in
accordance with APB 30. Revenues of the discontinued segment totaled $28,147,000
for 1993 (through August 17, 1993).
PART III
With respect to items 10 through 13, the company will file with the Securities
and Exchange Commission, within 120 days of the close of its fiscal year, a
definitive proxy statement pursuant to Regulation 14-A.
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 22, 1996, and to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is forth
under the caption "Executive Officers".
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the Company's
proxy statement relating to the annual meeting of shareholders to be held May
22, 1996, and, to the extent required, is incorporated herein by reference.
The report of the Compensation Committee of the Board of Directors of the
Company shall not be deemed incorporated by reference by any general statement
incorporating by reference the proxy statement into any filing under the
Securities Exchange Act of 1934, and shall not otherwise be deemed filed under
such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will be set forth in the Company's proxy statement relating to the
annual meeting of shareholders to be held May 22, 1996, and, to the extent
required, is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will be set
forth in the Company's proxy statement relating to the annual meeting of
shareholders to be held May 22, 1996, and, to the extent required, is
incorporated herein by reference.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Independent Auditors' Reports
Financial Statements:
(a)(1) Consolidated Balance Sheets as of December 31, 1995
and 1994
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994, and 1993
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994, and 1993
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts
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 thru 47
(b) One report on Form 8-K was filed during the three months ended December
31, 1995.
No annual report to security holders as of December 31, 1995 had been sent
to security holders and no proxy statement, form of proxy or other proxy
soliciting material has been sent by the registrant to more than ten of the
registrant's security holders with respect to any annual or other meeting of
security holders held or to be held in 1996. 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, 1995, 1994 and 1993
Charged Charged
Bal. at to cost to other Bal.
at Beg. and Accts. Other Deduct. at end
Year Description of Year expense (Desc.) (Desc.) (Desc.) of Year
1995 Allowance
for doubtful
accounts $1,440 $ 867 $ - $ 76 $(1,006)(2) $1,377
1994 Allowance
for doubtful
accounts $1,456 $ 248 $ - $ - $( 264)(2) $1,440
1993 Allowance
for doubtful
accounts $1,455 $1,071 $ - $( 350)(1)$( 720)(2)$1,456
(1) Includes recoveries of amounts previously written-off and eliminated reserve
due to sale of Chester.
(2) Bad debts written off.
(3) Includes recoveries of amounts previously written-off and allowances for
doubtful accounts of acquired companies.
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 Restated Articles of Incorporation of Mestek, Inc. (A)
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (G)
9.1 Agreement dated April 13, 1976 between John E. Reed and
Stewart B. Reed (B)
10.1 Amended and Restated Revolving Loan Agreement and Letter
of Credit facility between Mestek, Inc. and BayBank dated
April 30, 1994 (H)
10.2 Mestek, Inc. (formerly Reed National Corp.) Deferred Profit
Sharing Plan (B)
10.3 Employment Agreement dated January 1,1982 between Mestek
and Stewart B. Reed (B)
10.4 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (B)
10.5 Lease dated July 1, 1983 between Sterling Realty Trust (lessor)
and Mestek, Inc. (lessee) (G)
10.6 Lease dated December 17, 1984 between Mestek (lessee) and Sterling
Realty Trust (lessor), as amended on November 1, 1991 (G)
10.7 Lease dated January 1, 1994 between Mestek (lessee) and Sterling
Realty Trust (lessor) (G)
10.8 Amended lease dated as of November 2, 1992 between Mestek
(lessee) and Rudbeek Realty Corp. (lessor) (G)
10.9 Amended lease dated as of July 1, 1990 between Vulcan Radiator
Corporation (lessee) and MacKeeber Associates Limited (G)
Partnership (lessor)
10.10 Equipment Lease Agreement dated January 1, 1993, between
Mestek (lessee) and Sterling Realty Trust (lessor) (G)
10.11 Loan Agreement dated as of December 1, 1984 among
Reed National Corp., Rudbeek Realty Corp. and The Pitt
County Industrial Facilities and Pollution Control
Financing Authority and the Promissory Notes thereunder,
two Guaranty Agreements dated as of December 1, 1984
between Reed National Corp., NCNB National Bank of
North Carolina, and Rudbeek Realty Corp. (B)
10.12 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, N.A. (B)
10.13 Note Agreement dated as of July 1, 1987 between Mestek,
Inc. and Massachusetts Mutual Life Insurance Company. (C)
10.14 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 (F)
10.15 Acquisition Agreement dated July 29, 1993 for the Purchase
of Stock of Chester Environmental, Inc. between Duquesne
Enterprises, Inc. and Mestek, Inc. (G)
10.16 Amended Asset Purchase Agreement dated March 26, 1992
between Mestek, Inc. and Mechanical Specialties, Inc. (D)
10.17 Agreement for the Purchase and Sale of Assets dated
December 22, 1992 between Peritek, Inc. and American
Standard Inc.; and Agreement for Purchase and Sale of
Assets between Wabco Standard Trane Inc., and Mestek,
Inc., dated December 22, 1992 (E)
10.18 Subscription and Stock Purchase Agreement dated October
1, 1992 between Mestek, Inc. and Eafco, Inc. (G)
10.19 Variable Interest Rate Cognovit Note dated December 15,
1993 between Mestek, Inc. and The Mary Staebell Trust (G)
10.20 Loan Agreement and Promissory Note between Mestek, Inc.
and ABN Amro Bank, N.V., dated July 9, 1993 (G)
10.21 Loan Agreement and Promissory Note dated June 7, 1993
between The First National Bank of Boston and Mestek, Inc. (G)
10.22 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. (G)
10.23 Closing Agreement dated February 10, 1995 between Shougang (H)
Mechanical Equipment of Pennsylvania, Inc. and West Homestead
Joint Venture Corporation.
10.24 Equipment Lease Agreement dated January 1, 1993 between (H)
Machinery Rental Company (Lessor) and Vulcan Radiator
Corporation (Lessee).
10.25 Equipment Lease Agreement dated January 1, 1993 between
Machinery Rental Company (Lessor) and Mestek, Inc. (Lessee). (H)
10.26 Equipment Lease Agreement dated January 1, 1993 between Elizabeth
C. Reed Trust (Lessor) and Mestek, Inc. (Lessee). (H)
10.27 Asset Purchase Agreement dated September 9, 1994 between Mestek, (H)
Inc. and Aztech International, Ltd., debtor-in-possession; and
Aztec Sensible Cooling, Inc., debtor-in-possession, and the
Amendment thereto dated October 31, 1994.
10.29 Stock Purchase Agreement relating to the acquisition of stock (I)
of National Northeast Corporation dated October 30, 1995 by
and between Mestek, Inc. as Buyer and David Weener,
Wayne Frerichs, Mark McCrill, and Jon Morrison as Sellers; Stock
Purchase Agreement dated October 30, 1995 relating to the
acquisition of stock of National Southeast Aluminum Corporation
by and between Mestek, Inc. as Buyer and David Weener,
Wayne Frerichs, Mark McCrill, and Jon Morrison as Sellers.
10.30 Amended and Restated Revolving Loan Agreement, Letter of Credit
Facility and Foreign Exchange Facilities dated December 20, 1995.
10.31 Asset Purchase Agreement dated November 15, 1995 by and between
Mestek, Inc. and Heat Exchangers, Inc. and Lease.
10.32 Stock Purchase Agreement dated February 2, 1996 for the purchase
of stock of Omega Flex, Inc. between Mestek, Inc. and
Koji Shimada and Lease. (J)
10.33 Agreement for the Purchase and Sale of Assets dated January 12, 1996
by and between Mestex, Ltd., Rowe Machinery & Automation, Inc.,
and Met-Coil Systems Corporation, and the Amendment thereto
dated February 5, 1996 and Lease. (J)
10.34 Agreement of Sale dated July 5, 1995 between The Hydrotherm
Corporation and SET Realty, L.L.C. for the purchase and sale of real
property in Northvale, New Jersey.
11.1 Schedule of Computation of Earnings per Common Share
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Annual Report on Form 10-Q for the
quarter ended September 30, 1986
(B) Filed as an Exhibit to the Registration Statement 33-7101,
effective July 31, 1986
(C) Filed as an Exhibit to the Current Report on Form 8-K dated
July 2, 1987
(D) Filed as an Exhibit to the Current Report on Form 8-K dated
August 13, 1982
(E) Filed as an Exhibit to the Current Report on Form 8-K dated
December 15, 1992
(F) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1987
(G) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993
(H) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1994
(I) Filed as an Exhibit to the Current Report on Form 8-K dated
November 13, 1995.
(J) Filed as an Exhibit to the Current Report on Form 8-K dated
February 13, 1996.
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1995 1994 1993
---- ---- ----
Net income $ 10,906 $ 9,298 $ 4,265
Less: dividends on Preferred Stock - - 361
---------- ----------- ---------
Net income for common shareholders $ 10,906 $ 9,298 $ 3,904
Add back dividends which would not have
been paid if $5.00 Convertible Preferred
Stock had been converted - - 361
---------- ----------- --------
Net income for earnings per share $ 10,906 $ 9,298 $ 4,265
-------- ------- -------
Weighted average number of common shares
outstanding 9,019 8,241 7,395
Common share equivalents resulting from
conversion of the $5.00 Convertible
Preferred Stock - 896 1,863
-------- --------- ---------
Total common shares and common share
equivalents 9,019 9,137 9,258
-------- -------- ---------
Earnings per common share $1.21 $1.02 $ .46
===== ===== =====
Exhibit 22.1
SUBSIDIARIES OF MESTEK, INC.
Jurisdiction
Corporate Name of Incorporation
Alapco Holding, Inc. Delaware
Deltex Partners, Inc. Delaware
Gentex Partners, Inc. Texas
HBS Acquisition Corporation Delaware
Homestead Holding, Inc. Delaware
MCS, Inc. Pennsylvania
Mestek Canada, Inc. Ontario
Mestek Foreign Sales Corporation U.S. Virgin Islands
National Northeast Corporation Delaware
Omega Flex, Inc. Pennsylvania
Pacific/Air Balance, Inc. California
TEK Capital Corporation Delaware
The Hydrotherm Corporation Delaware
Westcast, Inc. Massachusetts
Exhibit 10.14
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
Peter Glynn-Jones 1993
Winston R. Hindle, Jr. 1995
David W. Hunter 1987
John E. Reed 1987
Stewart B. Reed 1987
James A. Burk 1987
R. Bruce Dewey 1990
Robert G. Dewey 1988
Nicholas Kakavis 1987
Robert K. McCauley 1995
Richard J. McKnight 1987
Walter J. Markowski 1990
John F. Melesko, Jr. 1987
Jack E. Nelson 1996
William S. Rafferty 1990
Stephen M. Shea 1987
Charles J. Weymouth 1995
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: April 11, 1996 By: /S/ John E. Reed
----------------------------------------------------------------------
John E. Reed, Chairman of the
Board and Chief Executive Officer
Date: April 11, 1996 By: /S/ Stephen M. Shea
-------------------------------------------------------
Stephen M. Shea, Vice President
Finance and 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 dated indicated.
Date: April 11, 1996 By: /S/ A. Warne Boyce
-------------------------------------------------------
A. Warne Boyce, Director
Date: April 11, 1996 By: /S/ E. Herbert Burk
----------------------------------------------------------------------
E. Herbert Burk, Director
Date: April 11, 1996 By: /S/ William J. Coad
--------------------------------------------------------
William J. Coad, Director
Date: April 11, 1996 By: /S/ Peter Glynn-Jones
----------------------------------------------------------
Peter Glynn-Jones, Director
Date: April 11, 1996 By: /S/ Winston R. Hindle, Jr.
--------------------------------------------------------------
Winston R. Hindle, Jr.
Date: April 11, 1996 By: /S/ David W. Hunter, Director
------------------------------------------------------------------
David W. Hunter, Director
Date: April 11, 1996 By:/S/ David R. Macdonald, Director
--------------------------------------------------------------------
David R. Macdonald, Director
Date: April 11, 1996 By: /S/ John E. Reed, Director
--------------------------------------------------------------
John E. Reed, Director
Date: April 11, 1996 By: /S/ Stewart B. Reed, Director
-----------------------------------------------------------------
Stewart B. Reed, Director