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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, 1996
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / X /
The aggregate market value of voting common shares held by nonaffiliates of the
registrant based upon the closing price for registrant's common stock as
reported in The Wall Street Journal as of March 31, 1997 such date was
$48,174,880.
The number of shares of the registrant's common stock issued and outstanding as
of March 31, 1997 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, 1997 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 40 through 43 of
Part IV hereof are incorporated by reference into Part IV hereof.
1
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 makeup air
units. The purchase price for the assets acquired, net of liabilities assumed,
was $1,819,000.
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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. In January
of 1997 the Company pre-paid the contingent purchase price.
3
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 February 2, 1996, the Company acquired all of the issued and
outstanding common stock of Omega Flex, Inc. of Exton, Pennsylvania (Omega).
Omega is a manufacturer of flexible metal hose and related hose fabrications.
The purchase price paid for the acquired stock was $9,119,000. Liabilities
assumed were $833,000. The Company has accounted for this acquisition under the
purchase method of accounting. Omega has leased its manufacturing and office
facilities through December 31, 2001, for $182,000 per year which will increase
to $268,146 per year once the 18,000 square foot addition is ready for
occupancy.
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 $5,495,000,
including the assumed liabilities of $1,900,000. The Company has accounted for
this acquisition under the purchase method of accounting. The Company has leased
the Rowe facility in Dallas, including machinery and equipment, on a short term
basis (through April 1997) at a cost of $40,000 per month.
On August 30, 1996, the Company acquired substantially all of the
operating assets of Dahlstrom Industries, Inc. (Dahlstrom) of Schiller Park,
Illinois. Dahlstrom is a leading manufacturer of roll-forming equipment for the
metal fabrication industry. The purchase price paid was $4,288,000 including
assumed liabilities of $2,606,000. The Company has accounted for this
acquisition under the purchase method of accounting.
The Company's executive offices are located at 260 North Elm Street,
Westfield, Massachusetts 01085. The Company's phone number is 413-568-9571.
OPERATIONS OF THE COMPANY
The Company operates in three continuing business segments: heating,
ventilating, and air conditioning equipment ("HVAC") manufacturing; computer
software development and systems design; and metal products. Each of these
segments is described below. The Company and its subsidiaries together employed
2,411 persons as of December 31, 1996.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through Mestek, Inc. and various of its wholly-owned
subsidiaries, (collectively, the "Reed Division") manufactures and distributes
products in the HVAC industry. These products include residential, commercial
and industrial hydronic heat distribution products, gas-fired heating and
ventilating equipment, louver and damper equipment, commercial and residential
gas and oil-fired boilers, air conditioning units, and related products used in
heating, ventilating and air conditioning systems.
The Reed Division sells finned-tube and baseboard radiation equipment
under the names "Sterling", "Vulcan", "Heatrim", "Petite-7", "Hydrotherm", and
"Suntemp", and other hydronic heat distribution products under the names
"Sterling" and "Beacon-Morris". The division sells gas-fired unit heaters under
the name "Sterling", radiant heating and commercial furnaces under the name "Cox
and gas-fired indoor and outdoor heating and ventilating equipment under the
names "Alton", "Applied Air", "Wing", "Air Fan", and "Temprite". Cooling and air
conditioning equipment is sold under the "Alton",
4
"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. A number of these trade names are also registered
trademarks owned by the Company and its subsidiaries. These products may be used
to heat, ventilate and/or cool structures ranging in size from large office
buildings, industrial buildings, warehouses, stores and residences, down to such
small spaces as add-on rooms in residences. The division's products are
manufactured at plants in Westfield, Massachusetts; South Windsor, Connecticut;
Farmville, North Carolina; Dallas, Texas; Orangeville, Ontario; Dundalk,
Maryland; and Wrens, Georgia. The Company closed its Skokie, Illinois and
Ridgeville, Indiana plants in 1996 and consolidated these operations in Dundalk,
Maryland and Farmville, North Carolina, respectively.
The Reed Division sells its many types of fire, smoke, and air control
louvers and dampers, which are devices designed to 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 2254 independent representatives throughout the United States and
Canada, many of whom sell several of Reed's products. These independent
representatives usually handle various HVAC products made by manufacturers other
than the Company. These representatives usually are granted an exclusive right
to solicit orders for specific Reed Division products from customers in a
specific geographic territory. Because of the diversity of the Reed Division's
product lines, there is often more than one representative in a given territory.
Representatives work closely with the Reed Division's sales managers and its
technical personnel to meet customers' needs and specifications. The independent
representatives are compensated on a commission basis and generally they neither
stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its
HVAC products primarily to contractors, installers, and end users in the
construction industry, wholesale distributors and original equipment
manufacturers.
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, 1996.
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
5
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 1996,
1995, and 1994 were $814,000, $894,000, and $469,000, 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.
6
New enhancements to its software products are continually being
developed by MCS. Notable developments in 1996 include the availability of all
MCS products in the Windows NT operating system environment. During 1996, 1995,
and 1994 MCS spent approximately $1,338,000, $1,208,576, and $910,000
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, 1996,
MCS's backlog was $1,838,000.
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.
METAL PRODUCTS (formerly Coil Handling Equipment)
The Company's Coil Handling Equipment Segment, which historically
included only its Cooper- Weymouth, Peterson (CWP) division, added four
additional units in 1996: the assets of Rowe Machinery and Automation Inc.,
(Rowe), a leading manufacturer of press-feeding and cut-to-length equipment,
acquired on February 5, 1996, the assets of Dahlstrom Industries, Inc.,
(Dahlstrom), a leading manufacturer of roll forming equipment, acquired on
August 30, 1996, National Northeast Corporation, (National) an aluminum extruder
and heat sink fabricator acquired on October 30, 1995, and Omega Flex, Inc.
(Omega) an industrial metal hose fabricator, acquired on February 2, 1996. The
Company re-named this segment the Metal Products Segment in 1996 in
consideration of these acquisitions.
The CWP, Rowe and Dahlstrom units manufacture a variety of
metal-forming equipment including coil straighteners, reels, press feeds,
cut-to-length lines, roll-formers, wing benders and related equipment. The
Company believes it has improved its competitive position within this industry
by developing servo- driven feeders with microprocessor controls, affording
diagnostic and operational features, as well as by the strategic acquisitions
made in 1996 which broaden the Company's overall product offerings.
Certain products made by these units are custom designed and
manufactured to meet unique customer needs or specifications not currently met
by existing products. These products, developed by the Company's design and
application engineering groups, often represent improvements on existing
technology and are often then incorporated into the unit's standard product
line.
The primary customers for such metal-forming equipment include contract
metal stampers, manufacturers of large and small appliances, commercial and
residential lighting fixtures, automobile accessories, office furniture and
equipment, metal construction and HVAC products.
The businesses of CWP, Rowe and Dahlstrom are highly competitive. CWP
has become a substantial competitor in the manufacture of coil handling
equipment through its abilities to meet customer delivery and service
requirements through its extensive distribution network. The Company expects
that these strengths will be further leveraged by the additions of Rowe and
Dahlstrom.
National extrudes and fabricates high precision aluminum heat sinks
(heat dissipation devices) for use in a wide variety of power control,
communications and related electronic and computer systems applications. Its
products are made through an extrusion process supported by a broad line of
secondary machining capabilities. National's application engineering and
fabrication capabilities have helped it become a substantial competitor in the
heat sink market place.
7
Omega manufactures corrugated flexible stainless steel hose for use in
a wide variety of industrial applications. It's products include annular,
helical and braided metal hose and hose fabrications and are sold primarily
through industrial hose distributors. In January of 1997, Omega introduced
Trac-PipeTM, a corrugated stainless steel tubing developed for use in piping gas
appliances. The Company expects that significant synergies will be realized by
distributing Trac-PipeTM through its extensive HVAC distribution network.
The backlog relating to this segment as a whole at December 31, 1996
was $14,364,000.
Expenditures for research and development for this segment, independent
of research and development related to specific customer requests, in 1996,
1995, and 1994 were $204,000, $0, and $68,000, 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 (HVAC segment) of the Company manufactures equipment
at plants that the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing,
Pennsylvania; Dundalk, Maryland, Springfield, Ohio; Wrens, Georgia, and Dallas,
Texas. It operates plants that it leases from entities owned directly or
indirectly by certain officers and directors of the Company in Westfield,
Massachusetts; Farmville, North Carolina; South Windsor, Connecticut and Los
Angeles, California. The Reed Division leases manufacturing space from unrelated
parties in Orangeville, Ontario, Canada; as well as warehouse space in
Mississauga, Ontario, Canada.
The metal products segment manufactures products at plants the Company
owns in Clinton, Maine and Schiller Park, Illinois and at leased facilities in
Dallas, Texas, Lawrence, Massachusetts, Winter Haven, Florida and Exton,
Pennsylvania.
During 1996 the Company constructed additions to its Dundalk, Maryland;
Farmville, North Carolina; and Clinton, Maine facilities in anticipation of
product relocations from leased facilities in Skokie, Illinois; Ridgeville,
Indiana; and Dallas, Texas. These transfers are expected to be completed in
1997.
The Company's computer system's segment (MCS) leases office space in
Monroeville, Pennsylvania, which houses its principal offices and computer
facility used in the computer software development and system design business.
MCS owns the computer equipment used in its operations.
The Company's principal executive offices in Westfield, Massachusetts
are leased from an entity owned by an officer and director of the Company. The
Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 4 to the
Consolidated Financial Statements.
The Company's Scranton, Pennsylvania manufacturing facility, classified
as Property Held for Sale at December 31, 1995, was sold on January 19, 1996, at
a pre-tax gain of $854,000. The Company's
8
Hagerstown, Maryland facility was sold on April 1, 1996 at a pre-tax gain of
$590,000.
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 1996.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange,
under the symbol MCC. The number of shareholders of record as of March 31,1997
was 1,601. The price range of the Company's common stock between January 1, 1997
and March 31,1997 was 16-1/8 to 18-1/8 and the closing price on March 31, 1997
was $16-1/4.
The quarterly price ranges of the Company's common stock during 1996
and 1995 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
1996 1995
---- ----
First Quarter $13-3/4 $12 $ 10-3/8 $ 9-5/8
Second Quarter $14-7/8 $12-1/2 $ 12-7/8 $ 9-3/4
Third Quarter $14-7/8 $14-3/8 $ 14-5/8 $12-1/4
Fourth Quarter $16-1/2 $14-5/8 $ 13-1/4 $10-3/4
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.
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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,
(dollars in thousands except per share data)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Total assets ............ $170,010 $141,431 $120,430 $126,625 $137,158
Working capital ......... 59,274 41,626 36,628 37,238 58,279
Long-term debt, including
current portion ....... 15,362 3,031 5,548 20,860 32,104
Shareholders' equity .... 103,718 91,046 80,732 73,317 70,552
Common shareholders'
equity, per common
share (1) ........... $ 11.61 $ 10.14 $ 8.93 $ 7.96 $ 7.59
======== ======== ======== ======== ========
SUMMARY OF OPERATIONS - for the year ended December 31, (2) (dollars in
thousands except per share data)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Total revenues from
continuing operations (3) $299,527 $245,865 $224,018 $231,386 $190,038
Income from continuing
operations ............. 13,329 10,906 9,298 7,583 5,410
Net income ............... 13,329 10,906 9,298 4,265 5,823
Earnings per common share:
Income from continuing
operations ............. $ 1.49 $ 1.21 $ 1.02 $ .82 $ .57
Net income ................ $ 1.49 $ 1.21 $ 1.02 $ .46 $ .62
1) Equity per common share amounts are computed using the common shares and
common stock equivalents outstanding as of December 31, 1996, 1995, 1994,
1993, and 1992.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* Dahlstrom Industries, Inc. from August 30, 1996.
* Rowe Machinery and Automation, Inc., from February 5, 1996.
* Omega Flex, Inc., from February 2, 1996.
* National Northeast Corporation and National Southeast Corporation from
October 30, 1995.
* Heat Exchangers, Inc., from November 15, 1995.
* Aztec Sensible Cooling, Inc., from November 1, 1994.
* Mechanical Specialties, Inc., from August 21, 1992 and Westcast, Inc.,
from December 15, 1992.
(3) Revenues have been adjusted in 1993 and 1992 to reflect the
reclassification of revenues related to the Company's Environmental
Engineering Segment to Discontinued Operations.
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
10
RETURN ON AVERAGE NET ASSETS EMPLOYED
1996, 1995, 1994
The Company's Return on Average Net Assets Employed, defined as
operating profits before bonuses, over Average Net Assets Employed (total assets
less current liabilities other than current portion of long-term debt, averaged
over 12 months) for the years 1996, 1995, and 1994 was as follows:
1996 1995 1994
------------ ------------ ------------
Operating Profits (as defined) $ 25,925,000 $ 22,515,000 $ 21,538,000
Average Net Assets Employed (as
defined) ................... $113,594,000 $ 94,956,000 $ 90,691,000
------------ ------------ ------------
Return on Average Net Assets
Employed .................. 22.8% 23.7% 23.8%
============ ============ ============
The 1996 return on Average Net Assets Employed was reduced slightly
from 1995 despite improved performances in the HVAC and Computer Systems
Segments due principally to the costs of certain product development, plant
relocation and other transitional costs incurred in the Company's Metal Products
segment which are described in greater detail below.
ANALYSIS: 1996 VS. 1995
The Company's core HVAC Segment reported comparative results for 1996
and 1995 as follows:
1996 1995
($ 000) 1996 ($ 000) 1995 $Net Change
--------- ------- --------- ------- -----------
Net Sales ...... $ 228,115 100.00% $ 218,456 100.00% +4.42%
Gross Profit ... 62,164 27.25% 60,052 27.49% +3.52%
Operating Income 16,142 7.08% 15,495 7.09% +4.18%
The growth in revenues in this Segment was principally attributable to
the effect of added sales from the acquisition of Heat Exchangers, Inc. on
November 15, 1995. Increases in volume in the Company's historical boiler,
damper and cooling products were largely offset by reduced volumes in certain of
the Company's residential and commercial hydronic products. Gross profit margins
were relatively unchanged in 1996 despite reductions in certain raw material
costs due to the offsetting effect of relocation and other transitional expenses
incurred in relation to the Company's Nesbitt and Koldwave divisions. Operating
income as a percentage of net sales was relatively unchanged from 1995.
The Company's Computer Systems Segment (MCS, Inc.) reported improved
sales, margins and operating profits in 1996 as indicated in the following
table:
11
1996 1995
($000) 1996 ($000) 1995 $Net Change
------ ---- ------ ---- -----------
Net Sales ...... $16,114 100.00% $15,255 100.00% +5.63%
Gross Profit ... 6,865 42.60% 6,444 42.24% +6.53%
Operating Income 3,063 19.01% 2,749 18.02% +11.42%
MCS's success in 1996 reflects its continuing commitment to product
enhancement and customer support in the Durable Medical Equipment, Home Infusion
Therapy, and Home Health Services marketplaces.
The Company's Coil Handling Equipment Segment, which historically
included only the Cooper- Weymouth, Peterson division, added four additional
units in 1996: the assets of Rowe Machinery and Automation Inc., (Rowe), a
leading manufacturer of press-feeding and cut-to-length equipment, acquired on
February 5, 1996, the assets of Dahlstrom Industries, Inc., (Dahlstrom), a
leading manufacturer of roll forming equipment, acquired on August 30, 1996,
National Northeast, Corporation, (National) an aluminum extruder and heat sink
fabricator acquired on October 30, 1995, and Omega Flex, Inc. (Omega) an
industrial metal hose fabricator, acquired on February 2, 1996. The Company
re-named this segment the Metal Products Segment in 1996 in consideration of
these acquisitions. Comparative results, which were significantly affected by
these acquisitions, were as follows:
1996 1995
($000) 1996 ($000) 1995 $Net Change
------ ---- ------ ---- -----------
Net Sales ...... $55,298 100.00% $12,154 100.00% +454.98%
Gross Profit ... 13,199 23.87% 4,549 37.43% +290.15%
Operating Income 3,687 6.67% 1,926 15.85% +191.43%
The assimilation of the Rowe and Dahlstrom businesses and planning for
the relocation of the Rowe manufacturing operation to Clinton, Maine, home of
Cooper-Weymouth, Peterson, which is expected to be completed in 1997, imposed
significant direct and indirect costs on this segment in 1996 and overshadowed
otherwise excellent results reported by Cooper-Weymouth, Peterson. Significant
synergies are expected to be derived from this relocation in future years. Gross
Profit and Operating Income were also negatively effected by significant new
product development costs undertaken by Omega in anticipation of its January
1997 introduction of Trac-PipeTM, a corrugated stainless steel tubing developed
especially for use in the piping and installation of gas appliances.
As a whole the Company reported comparative results as follows:
1996 1995
($000) 1996 ($000) 1995 $Net Change
------ ---- ------ ---- -----------
Net Sales ...... $299,527 100.00% $245,865 100.00% +21.83%
Gross Profit ... 82,228 27.45% 71,045 28.90% +15.74%
Operating Income 22,892 7.64% 20,170 8.20% +13.49%
Gross Profit and Operating Income percentage margins were slightly
reduced overall principally due to the plant relocation and product development
costs described above.
12
Sales expense for the Company as a whole, as a percentage of total
revenues, was reduced from 13.08% to 11.85%. (Sales Expense and General and
Administrative Expense for 1995, as reported in the accompanying financial
statements, have been adjusted to reflect certain reclassifications for purposes
of comparability). General and Administrative Expenses, as a percentage of
revenues, increased from 5.23% in 1995 to 5.40% in 1996, principally due to an
increase in the provision for bonuses. Engineering expense, as a percentage of
total revenues, increased slightly from 2.32% to 2.55%. Interest expense
increased substantially reflecting the various acquisitions made in 1996.
Income tax expense for 1996, as a percentage of pretax income, was
relatively unchanged at 39.39%.
The Company's Scranton, Pennsylvania manufacturing facility, classified
as Property Held for Sale at December 31, 1995 was sold on January 19, 1996 at a
gain of $854,000. The Company's Hagerstown, Maryland facility was sold on April
1, 1996 at a gain of $590,000.
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 principally 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 16,
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%
13
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 the Company as a whole, as a percentage of total
revenues, was reduced from 13.37% to 13.08%. General and Administrative expenses
as a percentage of total revenues increased from 4.95% in 1994 to 5.29% 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.
14
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital increased in 1996 in proportion to the Company's overall
growth, as indicated in the following table (all amounts in thousands):
12/31/96 Net Change 12/31/95 Net Change 12/31/94
$59,274 $17,648 $ 41,626 $4,998 $ 36,628
======= ============ ======== ====== ========
The Company's funded debt to equity ratio (including deferred
compensation and Minority Interest in National Northeast as funded debt)
decreased slightly, from 16.5% at December 31,1995, to 16.2% at December 31,
1996, despite the effect of the Company's 1996 acquisitions of Rowe, Omega and
Dahlstrom due to the offsetting positive effect of income on total equity.
The Company's Net Assets Employed grew from $106,099,000 at December 31,
1995 to $120,647,000 at December 31, 1996, due principally to the effects of the
acquisitions of Rowe, Omega and Dahlstrom, as more fully described in Note 2 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.
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.
15
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
assignment of derivative responsibility for the presence of hazardous materials
attributable to two other corporations from whom the Company purchased assets
after the hazardous materials had been disposed of at the Southington 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
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.
16
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek,
Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the years in the three year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with 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, 1996 and 1995, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three year period ended December 31, 1996 in conformity with
generally accepted accounting principles.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 1996 and for each of the years in the three year period ended
December 31, 1996. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
/S/ GRANT THORNTON LLP
GRANT THORNTON LLP
Boston, Massachusetts
March 28, 1997
17
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1996 1995
-------- --------
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents .......................... $ 11,649 $ 1,405
Accounts Receivable - less allowances of
$1,701 and $1,377 ................................ 49,577 42,911
Unbilled Accounts Receivable ....................... 174 139
Inventories ........................................ 43,265 39,241
Deferred Tax Benefit ............................... 1,823 1,492
Other Current Assets ............................... 2,264 4,381
-------- --------
Total Current Assets ............................... 108,752 89,569
Property and Equipment - net .......................... 31,439 24,968
Equity Investments .................................... 8,778 8,778
Property Held for Sale ................................ -- 2,955
Other Assets and Deferred Charges - net .............. 6,786 8,097
Deferred Tax Benefit .................................. 280 448
Excess of Cost over Net Assets of Acquired Companies... 13,975 6,616
-------- --------
Total Assets ....................................... $170,010 $141,431
======== ========
See Accompanying Notes to Consolidated Financial Statements
18
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1996 1995
-------- --------
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt ................... $ 115 $ 2,651
Accounts Payable .................................... 19,559 16,342
Accrued Salaries and Bonuses ........................ 4,886 3,218
Accrued Commissions ................................. 3,404 2,234
Progress Billings in Excess of Cost
and Estimated Earnings ............................. 2,899 2,904
Purchase Price Payable - National Northeast ......... -- 9,960
Customer Deposits ................................... 4,829 --
Other Accrued Liabilities ........................... 13,786 10,634
-------- --------
Total Current Liabilities ............................. 49,478 47,943
Long-Term Debt ........................................ 15,247 380
Deferred Compensation ................................. 18 22
-------- --------
Total Liabilities ..................................... 64,743 48,345
-------- --------
Minority Interest - National Northeast ............... 1,549 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 ................................... 94,794 81,465
Treasury Shares, at cost (680,364 and
634,864 common shares, respectively) ............... ( 6,040) ( 5,449)
Cumulative Translation Adjustment ................... ( 949) ( 883)
-------- --------
Total Shareholders' Equity .......................... 103,718 91,046
-------- --------
Total Liabilities and Shareholders'
Equity ....................................... $170,010 $141,431
======== ========
See Accompanying Notes to Consolidated Financial Statements.
19
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1996 1995 1994
-------- -------- --------
(Dollars in thousands, Except Earnings Per Common Share)
Net Sales ................................. $283,413 $230,610 $209,557
Net Service Revenues ...................... 16,114 15,255 14,461
-------- -------- --------
Total Revenues............................. 299,527 245,865 224,018
Cost of Goods Sold ........................ 208,050 166,009 149,180
Cost of Service Revenues .................. 9,249 8,811 8,928
-------- -------- --------
Gross Profit .............................. 82,228 71,045 65,910
Selling Expense ........................... 35,492 32,160 29,955
General and Administrative
Expense .............................. 16,202 13,004 11,084
Engineering Expense ....................... 7,642 5,711 5,734
-------- -------- --------
Operating Profit .......................... 22,892 20,170 19,137
Interest Expense .......................... ( 1,377) ( 718) ( 839)
Gain on Sale of Property .................. 1,444 -- --
Other Income (Expense), Net ............... ( 968) ( 1,317) ( 2,250)
-------- -------- --------
Income Before Income Taxes ................ 21,991 18,135 16,048
Income Taxes .............................. 8,662 7,229 6,750
-------- -------- --------
Net Income ................................ $ 13,329 $ 10,906 $ 9,298
======== ======== ========
Earnings per Common Share: ................ $ 1.49 $ 1.21 $ 1.02
======== ======== ========
Weighted Average Shares Outstanding ....... 8,938 9,019 9,137
(In Thousands) ======== ======== ========
See Accompanying Notes to Consolidated Financial Statements.
20
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31,
1996, 1995 and 1994
$5.00
Cumulative
Convertible Cumulative
Preferred Common Paid In Retained Treasury Translation
(Dollars In Thousands) Stock Stock Capital Earnings Shares Adjustment Total
- ---------------------- --------------- ----------- -------- -------- ---------- ---------- --------
Balance - December 31, 1993 $ 7,209 $ 387 $ 8,323 $61,261 $ (3,203) $( 660) $ 73,317
Net Income 9,298 9,298
Common Stock Repurchased (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 Repurchase ( 641) ( 641)
Cumulative Translation Adjustment ( 49) ( 49)
------------ ---------- --------- -------- ---------- -------- ---------
Balance - December 31, 1995 $ - $ 479 $15,434 $81,465 $( 5,449) $( 883) $ 91,046
Net Income 13,329 13,329
Common Stock Repurchased ( 591) ( 591)
Cumulative Translation Adjustment ( 66) ( 66)
------------ ---------- ---------- -------- --------- --------- ---------
Balance - December 31, 1996 $ - $ 479 $15,434 $94,794 $(6,040) $( 949) $103,718
============ ========== ========== ========= ========= ======== =========
See Accompanying Notes to Consolidated Financial Statements
21
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1996 1995 1994
---------- --------- --------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 13,329 $ 10,906 $ 9,298
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 5,143 3,940 4,712
Provision for Losses on Accounts
Receivable, net of write offs 324 ( 63) ( 16)
Gain on Sale of Property ( 1,444) - -
Net Change in Minority Interest- ( 491) - -
National Northeast
Changes in assets and liabilities net
of effects of acquisitions and
dispositions:
Accounts Receivable ( 5,047) ( 2,972) 9,353
Unbilled Accounts Receivable ( 35) ( 15) ( 27)
Inventory 1,002 ( 3,176) ( 1,464)
Accounts Payable 1,109 ( 1,823) 3,841
Other Current Liabilities ( 2,212) ( 2,101) ( 2,745)
Progress Billings ( 5) 183 613
Deferred Compensation ( 4) ( 3) ( 7)
Other 4,399 ( 4,248) 797
---------- --------- --------
Net Cash Provided by Operating
Activities 16,068 628 24,355
---------- --------- --------
Cash Flows from Investing Activities:
Capital Expenditures ( 7,213) ( 2,963) ( 5,160)
Disposition of Property & Equipment 4,642 2,727 -
Acquisition of Businesses and Other
Assets Net of Cash Acquired (14,172) (15,595) ( 1,372)
Disposition of Business Segment - 6,000 -
---------- --------- --------
Net Cash Provided by (Used in)
Investing Activities (16,743) ( 9,831) ( 6,532)
---------- --------- --------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under
Revolving Credit Agreement ( 1,725) 2,406 ( 5,866)
Principal Payments Under Long
Term Debt Obligations ( 1,699) ( 5,367) ( 9,446)
Proceeds from Issuance of Long
Term Debt 15,000 - -
Purchase Price Payable- - 9,960 -
National Northeast
Redemption of $5.00 Convertible
Preferred Stock - - ( 6)
Repurchase of Common Stock ( 591) ( 641) ( 1,605)
---------- --------- --------
Net Cash Provided by (Used in) 10,985 6,358 (16,923)
Financing Activities ---------- --------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents 10,310 ( 2,845) 900
Translation effect on Cash ( 66) 49 ( 272)
Cash and Cash Equivalents -
Beginning of Year 1,405 4,201 3,573
---------- --------- --------
Cash and Cash Equivalents -
End of Year $ 11,649 $ 1,405 $ 4,201
========== ========= ========
See Accompanying Notes to Consolidated Financial Statements.
22
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
The Company considers all highly liquid investments with a remaining
maturity of 90 days or less at the time of purchase to be cash equivalents. Cash
equivalents include investments in an institutional money market fund which
invests in U.S.Treasury bills, notes and bonds, and/or repurchase agreements
backed by such obligations.
Inventories
Inventories are valued at the lower of cost or market. Approximately
84% of the cost of inventories is determined by the last-in, first-out (LIFO)
method.
Property and equipment
Property and equipment are carried at cost. Depreciation and
amortization are computed using the straight-line and accelerated methods over
the estimated useful lives of the assets or the life of the lease, if shorter.
When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and any resulting gain or
loss is reflected in income for the period. The cost of maintenance and repairs
is charged to income as incurred; significant improvements are capitalized.
23
Excess of Cost Over Net Assets of Acquired Companies (Goodwill)
The Company amortizes goodwill on the straight line basis over the
estimated period to be benefitted. The acquisitions of assets of Rowe Machinery
and Automation, Inc., and Dahlstrom Industries, Inc., and the acquisition of
stock of Omega Flex, Inc. as more fully described in Note 2, resulted in
goodwill of approximately $7,700,000 which will be amortized over 25 years. The
Company continually evaluates the carrying value of goodwill. Any impairments
would be recognized when the expected future operating cash flows derived from
the underlying acquired businesses is less than the carrying value of the
goodwill. Accumulated amortization of goodwill was $1,172,000 and $887,000 at
December 31, 1996 and 1995, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred, such charges
aggregated $3,193,000, $2,942,000, and $2,655,000 for the years ended December
31, 1996, 1995 and 1994 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 $1,018,000, $894,000, and $537,000, for the
years ended December 31, 1996, 1995 and 1994, respectively.
Software Development Expenses
The Company's MCS, Inc. subsidiary is in the business of application
software and systems development. SFAS No. 86 requires that development costs
incurred subsequent to the establishment of technological feasibility for the
product be capitalized, 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
$1,338,000, $1,209,000, and $910,000, for the years ended December 31,1996,
1995, and 1994, 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. Common
stock options, as more fully described in Note 15, did not effect the
computation of earning per share.
24
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
The Company's Scranton, Pennsylvania manufacturing facility, classified
as Property Held for Sale at December 31, 1995, was sold on January 19, 1996, at
a pre-tax gain of $854,000. The Company's Hagerstown, Maryland facility was sold
on April 1, 1996 at a pre-tax gain of $590,000.
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
was 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 adoption of this standard in 1996 did not
materially impact 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.
25
2. BUSINESS ACQUISITIONS
On February 2, 1996, the Company acquired all of the issued and
outstanding common stock of Omega Flex, Inc. of Exton, Pennsylvania (Omega).
Omega is a manufacturer of flexible metal hose and related hose fabrications.
The purchase price paid for the acquired stock was $9,119,000. Liabilities
assumed were $833,000. The Company has accounted for this acquisition under the
purchase method of accounting. Omega has leased its manufacturing and office
facilities through January 31, 2000, for $199,500 per year.
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
$5,495,000, including the assumed liabilities of $1,900,000. The Company has
accounted for this acquisition under the purchase method of accounting. The
Company has leased the Rowe facility in Dallas, including machinery and
equipment, on a short term basis at a cost of $40,000 per month.
On August 30, 1996, the Company acquired substantially all of the
operating assets of Dahlstrom Industries, Inc. (Dahlstrom) of Schiller Park,
Illinois. Dahlstrom is a leading manufacturer of roll-forming equipment for the
metal fabrication industry. The purchase price paid was $4,288,000 including
assumed liabilities of $2,606,000. The Company has accounted for this
acquisition under the purchase method of accounting.
Proforma unaudited results of operations for Omega, Rowe and Dahlstrom
for 1996 and 1995 are not provided herein, they deemed immaterial.
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 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 SHARE $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 $812,000 of 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 acquisitions.
26
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.
This acquisition was accounted for as a purchase. Accordingly, the
Company has included the results of this acquired business in its consolidated
statement of operations for the period starting with the acquisition date.
Supplemental proforma information is not deemed meaningful in that the
transaction is not material to the financial statements of the Company taken as
a whole.
3. INVENTORIES
Inventories consisted of the following at December 31:
1996 1995
------------ -------------
Finished Goods $ 11,004,000 $ 9,657,000
Work-in-progress 14,877,000 17,114,000
Raw materials 24,924,000 20,404,000
------------- -------------
50,805,000 47,175,000
Less provision for LIFO
method of valuation 7,540,000 7,934,000
------------ --------------
$ 43,265,000 $ 39,241,000
============ ==============
Progress billings exceeded related contract costs by $2,899,000, and
$2,904,000, at December 31, 1996 and 1995, respectively. As such, these amounts
are reported as a liability in the accompanying consolidated financial
statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
1996 1995 Useful Lives
------------- ------------ ----------------
Land $ 1,092,000 $ 777,000
Buildings 13,657,000 11,035,000 19-39 Years
Leasehold Improvements 4,186,000 3,119,000 15-39 Years
Equipment 51,183,000 43,857,000 3-10 Years
------------- -------------
70,118,000 58,788,000
Accumulated Depreciation (38,679,000) (33,820,000)
-------------- -------------
$ 31,439,000 $ 24,968,000
============== ==============
The above amounts include $437,000, and $144,000, at December 31, 1996
and 1995, 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 $5,143,000, $3,864,000, and
$4,669,000, for the years ended December 31, 1996, 1995, and 1994, respectively.
27
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS)
The Company's investment in HBS is carried at a zero balance reflecting
the Company's equity in HBS' cumulative losses. The Company has no obligation to
fund future HBS operating losses.
Eafco, Inc. (EAFCO)
On April 7, 1993, the Company acquired a 46.8% interest in 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 the Company 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
1996, 1995, and 1994.
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 $1,352,000 and $3,272,000 at December 31, 1996 and 1995,
respectively.
6. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
1996 1995
----------- ----------
Senior Notes $15,000,000 $ -
Revolving Loan Agreement - 1,725,000
Note Payable Bank - 711,000
Other Bonds and Notes Payable 362,000 595,000
------------ ------------
15,362,000 3,031,000
Less Current Maturities ( 115,000) (2,651,000)
------------ -------------
$15,247,000 $ 380,000
============ =============
Senior Notes - On April 5, 1996, the Company borrowed $15,000,000 from a
commercial insurance company on an unsecured basis, executing a Note Purchase
Agreement and related Senior Notes, (the Notes). The Notes mature March 1, 1998
and bear interest at 5.53%. The Note Purchase Agreement contains a number of
financial covenants which limit the Company's overall debt, its dividends, and
in certain circumstances, its ability to effect acquisitions and/or
divestitures. The Company's management does not believe that these limitations
will materially affect the Company's future operations or strategic plans.
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, originally set to expire on January 1, 1993, has
been amended and extended through April 30, 1997. It currently provides $55
million of unsecured revolving credit and $10 million of standby letter of
credit capacity. Borrowings under the Agreement bear interest at a floating rate
based on the bank's prime rate
28
less 1.00% or, at the discretion of the borrower, LIBOR plus a quoted market
factor or, alternatively, in lieu of the prime based rate, a rate based on the
overnight Federal Funds Rate. Management expects to renew the Agreement on a one
year basis prior to April 30, 1997. 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 $3,233,000, and $3,242,000, at
December 31, 1996 and 1995, respectively.
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, 1996 was $178,000. 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, 1996 are $143,702 and $41,241 respectively, and the
notes mature on May 1, 2001 and March 31, 1997, respectively.
Cash paid for interest was $1,377,000, $718,000, and $839,000, during the
years ended December 31, 1996, 1995, and 1994, respectively.
Maturities of long-term debt in each of the next five years are as
follows:
1997 - $ 115,000
1998 - $ 15,079,000
1999 - $ 85,000
2000 - $ 57,000
2001 - $ 26,000
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 debt and the contractual
values of the outstanding letters of credit approximate their fair values as of
December 31, 1996.
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, 1996, John E.
Reed, Chairman, President and CEO of the Company and Stewart B. Reed, a Director
of the Company and son of John E. Reed, together beneficially own a majority of
the outstanding shares of the Company's common stock.
By a vote of its shareholders at its annual meeting of shareholders on
May 22, 1996, the Company amended its Articles of Incorporation to authorize
10,000,000 shares of a new class (or classes) of preferred stock (the Preferred
Stock) and to eliminate both its $5.00 convertible, non-cumulative, non-voting,
$100 par, preferred stock (the Convertible Preferred) and its $6.00, $100 par,
redeemable preferred stock (the Redeemable Preferred) . As of December 31, 1996
no shares of the Preferred Stock have been issued.
29
8. INCOME TAXES
Income before income taxes included foreign earnings (losses) of
($474,000), $217,000 and ($606,000) in 1996, 1995, and 1994, respectively.
Income tax expense (benefit) consisted of the following:
1996 1995 1994
------------ -------------- ----------
Federal Income Tax:
Current $7,259,000 $5,894,000 $5,298,000
Deferred ( 134,000) ( 174,000) ( 89,000)
State Income Tax:
Current 1,551,000 1,543,000 1,534,000
Deferred ( 29,000) ( 46,000) ( 5,000)
Foreign Income Tax:
Current 15,000 12,000 12,000
Deferred - - -
------------- ------------ -----------
Income Taxes $8,662,000 $7,229,000 $6,750,000
============= =========== ============
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 to earnings before income tax, as follows:
1996 1995 1994
------------ ------------ -----------
Computed "expected" income tax $ 7,736,000 $6,347,000 $5,617,000
State income tax, net of
federal tax benefit 989,000 973,000 994,000
Benefit of foreign loss not
allocated to income statement - - 212,000
Foreign tax rate differential ( 14,000) ( 15,000) ( 82,000)
Change in beginning year balance
of the valuation allowance for
deferred tax assets allocated
to income tax expense - ( 76,000) -
Other - net ( 49,000) - 9,000
------------- -------------- -----------
Income Taxes $8,662,000 $7,229,000 $6,750,000
============= ============== ===========
30
A deferred income tax (expense) benefit results from temporary timing
differences in the recognition of income and expense for income tax and
financial reporting purposes. The components of and changes in the net deferred
tax assets (liability) which give rise to this deferred income tax (expense)
benefit for the year ended December 31, 1996 are as follows:
Change
December 31, (Expense) December 31,
1995 Benefit 1996
------------- ------------- ------------
Deferred Tax Assets:
Warranty Reserve $ 662,000 $ 113,000 $ 775,000
Compensated Absences 721,000 100,000 821,000
Inventory Valuation 350,000 14,000 364,000
Accounts Receivable Valuation 557,000 125,000 682,000
State Tax Operating Loss
Carryforward 192,000 ( 51,000) 141,000
Foreign Tax Operating Loss
Carryforward 629,000 83,000 712,000
Deferred Income on Sale of Assets
to Nonconsolidated Investees 213,000 - 213,000
------------- ------------ -----------
Total Gross Deferred Tax Assets 3,324,000 384,000 3,708,000
Less Valuation Allowance ( 119,000) - ( 119,000)
------------ ------------ -----------
Deferred Tax Assets 3,205,000 384,000 3,589,000
------------ ------------ -----------
Deferred Tax Liabilities:
Prepaid Expenses ( 578,000) - ( 578,000)
Depreciation ( 326,000) (261,000) ( 587,000)
Other ( 361,000) 40,000 ( 321,000)
------------ ------------ -----------
Deferred Tax Liabilities ( 1,265,000) (221,000) (1,486,000)
------------ ------------ -----------
Net Deferred Tax Assets $ 1,940,000 $ 163,000 $2,103,000
=========== ============ ===========
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 year. At December 31, 1996, no
additional valuation allowance has been established relative to the remaining
foreign tax operating loss carryforward or state tax operating loss
carryforward. It is management's belief that it is more likely than not that
these carry forwards will be utilized prior to their expiration. The Company has
available to it a number of tax planning opportunities which support this
conclusion.
At December 31, 1996, the Company has state tax operating loss and
foreign tax operating loss carryforwards of approximately $2,932,000 and
$1,430,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carryforward" rules and limitations. These
losses expire as follows:
State Foreign
1998 $ 436,000 $ -
2000 - 1,430,000
2007 2,496,000 -
------------ ------------
$2,932,000 $1,430,000
============ ============
Cash paid for income taxes was $7,354,000, $8,222,000 and $ 5,990,000,
for the years ended December 31, 1996, 1995, and 1994 respectively.
31
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, 1996 including the effect of renewals and amendments executed
subsequent to December 31, 1996 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 $ 576,000
Land and Building - Engineering 07/01/83 15 years 42,000 63,000
Land and Building - South Complex 01/01/94 15 years 256,800 3,081,600
Machinery & Equipment 01/01/93 5 years 41,460 41,460
(Westfield, Farmville and Wrens
Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5 years 223,980 223,980
(Westfield, Farmville, Wrens,
South Windsor and Clinton Locations)
Elizabeth C. Reed Trust
Machinery & Equipment 01/01/93 5 years 14,100 14,100
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 324,000 648,000
MacKeeber
(South Windsor Location) 01/01/97 8 years 324,600 2,596,800
Rent expense for operating leases, including those with related parties,
was $3,454,000, $2,581,000 and $2,433,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
Future minimum lease payments under all noncancelable leases as of December
31, 1996 are as follows:
Operating
Year Ending December 31, Leases
1997 $ 2,427,000
1998 2,144,000
1999 1,794,000
2000 1,195,000
2001 850,000
After 2001 2,770,000
-------------
Total minimum lease payments $11,180,000
=============
32
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $872,000,
$828,000, and $789,000, for the years ended December 31, 1996, 1995, and 1994,
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 $247,000, $252,000, and $176,000, for the years
ended December 31, 1996, 1995, and 1994, 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
$349,000, $243,000, and $212,000 for the years ended December 1996, 1995, and
1994, 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, 1996, 1995, and 1994 was $70,000, $64,000, and $59,000, 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
1997.
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to several legal actions and proceedings in which
various monetary claims are asserted. Management, after consultation with its
corporate counsel and outside counsel, does not
33
anticipate that any ultimate liability arising out of all such litigation and
proceedings will have a material adverse effect on the financial condition of
the Company.
The Company is obligated as guarantor with respect to the debt of
MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership,
under an Industrial Development Bond issued in 1984 by the Connecticut
Development Authority. The balance outstanding under the bond as of December 31,
1996 was $1,204,000.
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. Liabilities for
environmental remediation and/or restoration are recorded when it is probable
that obligations have been incurred and the amounts can be reasonably estimated.
The Company is not aware, at present, of any material administrative or judicial
proceedings against the Company arising under any federal, state or local
environmental protection laws or regulations (Environmental Laws). There are,
however, a number of activities in which the Company is engaged under
Environmental Laws. The Company is engaged in various matters with respect to
obtaining, amending or renewing permits required under Environmental Laws to
operate each of its manufacturing facilities. The Company or various of its
subsidiaries have been named or contacted by state authorities and/or the
Environmental Protection Agency (the EPA) regarding the Company's liability as a
potentially responsible party (PRP) for the remediation of several sites, none
of which, in the judgement of management, would have a material adverse impact
on the financial condition or results of operations of the Company. There have
been releases of hazardous materials on a few parcels of property which are
presently leased or operated by the Company. Based on the information presently
available to it, management does not believe that the costs of addressing any of
the releases will have a material adverse effect on the Company's financial
position or the results of operations.
12. SEGMENT INFORMATION
The Company operates in the following segments: heating, ventilating and
air conditioning equipment (HVAC); computer software development and system
design (Computer Systems); and the manufacture of metal handling machinery and
metal fabricating, (Metal Products), formerly known as the Coil Handling
Equipment Segment.
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 Metal Products Segment includes the design and manufacture of
metal-forming equipment, the extrusion and fabrication of aluminum products, and
the fabrication of flexible metal hose.
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.
34
The following table presents segment information for the years ended
December 31, 1996, 1995, and 1994. Segment information reflecting the operations
of acquired businesses is shown only for the periods following acquisition.
1996 1995 1994
---------- ---------- ---------
(Dollars in thousands)
Total Revenues
HVAC $ 228,115 $ 218,456 $ 200,445
Computer Systems 16,114 15,255 14,461
Metal Products 55,298 12,154 9,112
---------- ----------- ----------
Total Revenues $ 299,527 $ 245,865 $ 224,018
========== =========== ==========
Operating Profit
HVAC $ 16,142 $ 15,495 $ 15,310
Computer Systems 3,063 2,749 2,244
Metal Products 3,687 1,926 1,583
--------- ----------- -----------
Total Operating Profit $ 22,892 $ 20,170 $ 19,137
========= =========== ===========
Other information regarding the segments for the years 1996, 1995, and 1994
is as follows:
1996
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 120,020 $ 3,950 $ 3,020
Computer Systems 6,899 204 20
Metal Products 43,091 3,059 1,818
----------- --------- ---------
Total $ 170,010 $ 7,213 $ 4,858
=========== ========= =========
1995
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 112,259 $ 2,416 $ 3,535
Computer Systems 6,772 25 69
Metal Products 22,400 522 260
------------ ----------- -----------
Total $ 141,431 $ 2,963 $ 3,864
============ =========== ===========
1995 segment data has been reclassified for purposes of comparability.
35
1994
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 106,011 $ 4,635 $ 4,516
Engineering 6,000 - -
Computer Systems 4,866 135 62
Metal Products 3,553 390 91
------------- ------------- ----------
Total $ 120,430 $ 5,160 $ 4,669
============= ============= ==========
* Excludes capital assets acquired by acquisition.
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, 1996 and 1995, accounts receivable, net
of allowances, for the HVAC segment totaled $35,862,000 and $38,664,000,
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, 1996 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 1996 and 1995. (Dollars in thousands except per common share
amounts).
1996 1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
Total Revenues $66,317 $68,191 $79,067 $85,952
Gross Profit $19,222 $18,678 $21,273 $23,055
Net Income $ 3,142 $ 2,741 $ 3,228 $ 4,218
Per Common Share:
Net Income $ .35 $ .31 $ .36 $ .47
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
36
14. COMMON STOCK BUYBACK PROGRAM
In 1996 and 1995 the Company continued its program of selective
"open-market" purchases of common shares, originally announced in 1990. 45,500
and 60,440 of such shares were acquired in 1996 and 1995, respectively. All such
shares are accounted for as treasury shares as of December 31, 1996 and 1995,
respectively.
15. STOCK OPTION PLANS
On March 20, 1996 the Company adopted a stock option plan, the Mestek, Inc.
1996 Stock Option Plan, which provides for the granting of incentive and
nonqualified stock options on up to 500,000 shares of stock to certain employees
of the Company and other persons, including directors, for the purchase of the
Company's common stock at fair market value at the date of grant. The Plan was
approved by the Company's shareholders on May 22, 1996. Options granted under
the plan vest over a five-year period and expire at the end of ten years. During
1996, 90,000 options were granted, at an exercise price of $13.75, to four
employees and these options are outstanding at December 31, 1996.
Effective with 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation,
SFAS No. 123. As permitted by the statement, the Company has chosen to continue
to account for stock-based compensation using the intrinsic value method.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plan. Had the fair value method of accounting been applied to the
Company's stock option plan, the impact on operating results would be
insignificant. Accordingly, the Company has omitted certain disclosures relating
to SFAS No. 123.
16. SUBSEQUENT EVENTS
On January 31, 1997, the Company acquired 91% of the issued and outstanding
common stock of Hill Engineering, Inc of Villa Park, Illinois and Danville,
Kentucky (Hill). The purchase price paid for the acquired stock was
approximately $5.1 million. Hill is a leading producer of precision tools and
dies for the gasket manufacturing and roll-forming industries and specialty
equipment.
37
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, 1997, 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, 1997, 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, 1997, 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, 1997, and, to the extent required, is
incorporated herein by reference.
38
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of
this report
Independent Auditors' Reports Page 17
Financial Statements:
(a)(1)Consolidated Balance Sheets as of December 31, 1996
and 1995 Pages 18 and 19
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 Page 20
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1996, 1995, and 1994 Page 21
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1995, and 1994 Page 22
Notes to the Consolidated Financial Statements Pages 23 thru 37
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts Page 40
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 41 through 43
(b) No reports on Form 8-K were filed during the three months ended December
31, 1996.
No annual report to security holders as of December 31, 1996 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 1997. 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.
39
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1996, 1995 and 1994
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
1996 Allowance
for doubtful
accounts $1,377 $ 740 $ - $ 26 (1) $ (442)(2) $1,701
1995 Allowance
for doubtful
accounts $1,440 $ 867 $ - $ 76 (1) $(1,006)(2) $1,377
1994 Allowance
for doubtful
accounts $1,456 $ 248 $ - $ - $ (264)(2) $1,440
(1) Includes recoveries of amounts previously written-off and allowances for
doubtful accounts of acquired companies.
(2) Bad debts written off.
40
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., as amended
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (D)
10.1 Mestek, Inc. (formerly Reed National Corp.) Deferred Profit
Sharing Plan (A)
10.2 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.3 Lease dated July 1, 1983 between Sterling Realty Trust (lessor)
and Mestek, Inc. (lessee) (D)
10.4 Lease dated December 17, 1984 between Mestek (lessee) and Sterling
Realty Trust (lessor), as amended on November 1, 1991 (D)
10.5 Lease dated January 1, 1994 between Mestek (lessee) and Sterling
Realty Trust (lessor) (D)
10.6 Amended lease dated as of November 2, 1992 between Mestek
(lessee) and Rudbeek Realty Corp. (lessor) (D)
10.7 Amended and restated lease agreement dated as of January 1, 1997
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor)
10.8 Equipment Lease Agreement dated January 1, 1993, between
Mestek (lessee) and Sterling Realty Trust (lessor) (D)
10.9 Loan Agreement dated as of December 1, 1984 among
Reed National Corp., Rudbeek Realty Corp. and The Pitt
County Industrial Facilities and Pollution Control
Financing Authority and the Promissory Notes thereunder,
two Guaranty Agreements dated as of December 1, 1984
between Reed National Corp., NCNB National Bank of
North Carolina, and Rudbeek Realty Corp. (A)
10.10 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. (A)
10.11 Note Agreement dated as of July 1, 1987 between Mestek,
Inc. and Massachusetts Mutual Life Insurance Company. (B)
41
10.12 Indemnification Agreements entered into between Mestek
Inc. and its Directors and Officers and the Directors
of its wholly-owned subsidiaries incorporated by
reference as provided herein, except as set forth in the
attached schedule (C)
10.13 Acquisition Agreement dated July 29, 1993 for the Purchase
of Stock of Chester Environmental, Inc. between Duquesne
Enterprises, Inc. and Mestek, Inc. (D)
10.14 Variable Interest Rate Cognovit Note dated December 15,
1993 between Mestek, Inc. and The Mary Staebell Trust (D)
10.15 Loan Agreement and Promissory Note between Mestek, Inc.
and ABN Amro Bank, N.V., dated July 9, 1993 (D)
10.16 Loan Agreement and Promissory Note dated June 7, 1993
between The First National Bank of Boston and Mestek, Inc. (D)
10.17 Mortgage Note dated February 1, 1986 between Arrow United
Industries, Inc. and Chemical Bank; said Note assumed by
Mestek, Inc. in the purchase of certain assets of Arrow United
Industries, Inc. (D)
10.18 Closing Agreement dated February 10, 1995 between Shougang
Mechanical Equipment of Pennsylvania, Inc. and West Homestead
Joint Venture Corporation. (E)
10.19 Equipment Lease Agreement dated January 1, 1993 between
Machinery Rental Company (Lessor) and Vulcan Radiator
Corporation (Lessee). (E)
10.20 Equipment Lease Agreement dated January 1, 1993 between Machinery
Rental Company (Lessor) and Mestek, Inc. (Lessee). (E)
10.21 Equipment Lease Agreement dated January 1, 1993 between Elizabeth
C. Reed Trust (Lessor) and Mestek, Inc. (Lessee). (E)
10.22 Asset Purchase Agreement dated September 9, 1994 between Mestek,
Inc. and Aztech International, Ltd., debtor-in-possession; and
Aztec Sensible Cooling, Inc., debtor-in-possession, and the
Amendment thereto dated October 31, 1994. (E)
10.23 Stock Purchase Agreement relating to the acquisition of stock 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. (F)
10.24 Asset Purchase Agreement dated November 15, 1995 by and between
Mestek, Inc. and Heat Exchangers, Inc. and Lease. (G)
10.25 Stock Purchase Agreement dated February 2, 1996 for the purchase
of stock of Omega Flex, Inc. between Mestek, Inc. and Koji Shimada
and Lease. (G)
10.26 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. (H)
42
10.27 Asset Purchase Agreement dated October 2, 1995 by and between
Mestek, Inc.and Honeywell, Inc. (H)
10.28 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. (H)
10.29 Purchase Contract dated November 15, 1995 for the purchase and
sale of real property in Dunmore, Pennsylvania between
Peritek, Inc. and R.R. Donnelly & Sons Company. (H)
10.30 Amended and Restated Revolving Loan Agreement, Letter of Credit
Facility and Foreign Exchange Facilities between Mestek, Inc.
and Bay Bank, dated September 27, 1996.
10.31 Agreement for The Purchase and Sale of Assets between Formtek, Inc.
(Purchaser)and Dalhstrom Industries, Inc. (Seller) dated
August 8, 1996.
10.32 Stock Purchase Agreement between Formtek, Inc.(Purchaser) and Maurice
Hill Trust dated August 16, 1991, Thomas Nedbal, Donald Hill, Robert
Martinelli, Elmer Utley, and Allen Reczek (Sellers) dated January 30,
1997.
10.33 Letter Agreement between Mestek, Inc. and the Travelers Insurance
Company, dated March 1, 1996, regarding 5.53% Senior Notes due
March 1, 1998.
11.1 Schedule of Computation of Earnings per Common Share.
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Registration Statement 33-7101,
effective July 31, 1986
(B) Filed as an Exhibit to the Current Report on Form 8-K dated
July 2, 1987
(C) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1987
(D) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1993
(E) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1994
(F ) Filed as an Exhibit to the Current Report on Form 8-K dated
November 13, 1995.
(G) Filed as an Exhibit to the Current Report on Form 8-K dated
February 13, 1996.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1995.
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1996 1995 1994
---- ---- ----
Net income $ 13,329 $ 10,906 $ 9,298
Less: dividends on Preferred Stock - - -
--------- -------- -------
Net income for common shareholders $ 13,329 $ 10,906 $9,298
Add back dividends which would not have
been paid if $5.00 Convertible Preferred
Stock had been converted - - -
--------- -------- --------
Net income for earnings per share $ 13,329 $ 10,906 $ 9,298
-------- -------- --------
Weighted average number of common shares
outstanding 8,938 9,019 8,241
Common share equivalents resulting from
conversion of the $5.00 Convertible
Preferred Stock - - 896
-------- -------- -------
Total common shares and common share
equivalents 8,938 9,019 9,137
-------- -------- --------
Earnings per common share $1.49 $1.21 $1.02
======== ======== ========
43
SUBSIDIARIES OF MESTEK, INC.
Jurisdiction
Corporate Name of Organization
Advanced Thermal Hydronics Delaware
Alapco Holding, Inc. Delaware
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Cooper-Weymouth, Peterson, Inc. Delaware
Hill Engineering, Inc. Illinois
Gentex Partners, Inc. Texas
Mestex, Ltd. Texas
Yorktown Properties, Ltd. Texas
HBS Acquisition Corp. Delaware
Homestead Holding, Inc. Delaware
Lexington Business Trust Massachusetts
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 Corp. Delaware
Westcast, Inc. Massachusetts
44
Exhibit 10.12
SCHEDULE OF DIRECTORS/OFFICERS
Indemnification Agreements
The Indemnification Agreement entered into by the Directors and/or Officers
of Mestek, Inc. and certain Directors of Mestek's wholly-owned subsidiaries are
identical in all respects, except for the name of the indemnified director or
officer and the date of execution.
Set forth below is the identity of each director and officer of Mestek,
Inc. and the date upon which the above Indemnification Agreement was executed by
the Director or Officer.
Director and/or Officer Year of Execution
A. Warne Boyce 1987
E. Herbert Burk 1987
William J. Coad 1987
David R. Macdonald 1987
David M. Kelly 1996
Winston R. Hindle, Jr. 1995
David W. Hunter 1987
John E. Reed 1987
Stewart B. Reed 1987
James A. Burk 1987
R. Bruce Dewey 1990
Robert G. Dewey 1988
Nicholas Kakavis 1987
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
45
Kevin R. Hoben 1996
Stephen M. Schwaber 1997
Phil K. LaRosa 1997
Robert P. Kandel 1997
Robert F. Neveu 1997
Richard E. Kessler 1997
Timothy P. Scanlan 1997
46
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: April 2, 1997 By: /S/ JOHN E. REED
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: April 2, 1997 By: /S/ STEPHEN M. SHEA
Stephen M. Shea, Senior Vice President
Finance, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: April 2, 1997 By: /S/ A. WARNE BOYCE
A. Warne Boyce, Director
Date: April 2, 1997 By: /S/ E. HERBERT BURK
E. Herbert Burk, Director
Date: APRIL 2, 1997 By: /S/ WILLIAM J. COAD
William J. Coad, Director
47
Date: APRIL 2, 1997 By: /S/ DAVID M. KELLY
David M. Kelly, Director
Date: APRIL 2, 1997 By: /S/ WINSTON R. HINDLE, JR.
Winston R. Hindle, Jr., Director
Date: APRIL 2, 1997 By: /S/ DAVID W. HUNTER
David W. Hunter, Director
Date: APRIL 2, 1997 By: /S/ DAVID R. MACDONALD
David R. Macdonald, Director
Date: APRIL 2, 1997 By: /S/ JOHN E. REED
John E. Reed, Director
Date: APRIL 2, 1997 By: /S/ STEWART B. REED
Stewart B. Reed, Director
48