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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, 1997
MESTEK, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0661650
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) (Identification No.)
260 North Elm Street
Westfield, Massachusetts 01085
(Address of principal executive offices)
Registrant's telephone number, including area code: 413-568-9571
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, no par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of voting common shares held by nonaffiliates of the
registrant as of March 20, 1998, based upon the closing price for the
registrant's common stock as reported in The Wall Street Journal as of such date
was $63,224,878.
The number of shares of the registrant's common stock issued and outstanding as
of March 20,1998 was 8,926,305.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement relating to the annual meeting of shareholders
of the registrant to be held on May 12, 1998 are incorporated by reference into
Part III hereof and the exhibits to filings referenced on Pages 43 through 45 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.
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 accounted for this transaction as a
Disposal of a Discontinued Segment. The Company sold its remaining 30% interest
on August 31, 1995.
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
February 0f 1995.
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 transaction was completed on January 2, 1996. The Company
itself is a user of aluminum extrusions in its HVAC segment. The consideration
paid for the purchase was $9.96 million in cash plus future considerations
contingent upon future levels of earnings. In January of 1997 the Company paid
$4,028,000 to settle the contingent purchase price obligation. Since the date of
acquisition, the Company, through National, has purchased additional common
shares from its minority shareholders raising the Company's ownership of
National to approximately 88% as of December 31, 1997.
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 temporary and 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 $268,000 per year.
On February 5, 1996, the Company acquired certain assets of the press
feeding and cut-to-length line businesses of Rowe Machinery & 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,
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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 leased the
Rowe facility in Dallas, including machinery and equipment, on a short term
basis through April of 1997.
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.
On January 31, 1997, the Company acquired 91.01% of the issued and
outstanding common stock of Hill Engineering, Inc. (Hill) of Villa Park,
Illinois and Danville, Kentucky. Hill is a leading producer of precision tools
and dies for the gasket manufacturing and roll-forming industries and other
specialty equipment. The purchase price paid for the acquired stock was
$5,141,000. The Company has accounted for this acquisition under the purchase
method of accounting.
On November 3, 1997 the Company acquired 100% of the issued and
outstanding common stock of Coilmate, Inc. (Coilmate) of Southington,
Connecticut. Coilmate is the leading producer of pallet decoiling equipment for
the metal stamping and roll forming industries. The purchase price paid was
$3,521,000. The Company has accounted for this acquisition under the purchase
method of accounting.
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.
Prior to 1994 the Company operated in a fourth segment, Environmental
Engineering, through its Chester Engineering, Inc. and Keystone Engineering,
Inc. subsidiaries. These businesses were substantially disposed of in 1993
and the Company effectively exited the Environmental Engineering field at
that time.
Through the purchases of National in 1995, Omega, Rowe and Dahlstrom in
1996 and Hill and Coilmate in 1997, the Company has substantially expanded its
former Coil Handling Equipment Segment (renamed in 1996 the Metal Products
Segment).
The Company and its subsidiaries together employed approximately 2,596
persons as of December 31, 1997.
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
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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", "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 relocated
these operations to Dundalk, Maryland and Farmville, North Carolina,
respectively.
The Reed Division sells its many types of fire, smoke, and air control
louvers and dampers, which are devices designed to facilitate the ventilation of
buildings or to control or seal off the movement of air through building
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 2300 independent representatives throughout the United States and
Canada, many of whom sell several of Reed's products. These independent
representatives usually handle various HVAC products made by manufacturers other
than the Company. These representatives usually are granted an exclusive right
to solicit orders for specific Reed Division products from customers in a
specific geographic territory. Because of the diversity of the Reed Division's
product lines, there is often more than one representative in a given territory.
Representatives work closely with the Reed Division's sales managers and its
technical personnel to meet customers' needs and specifications. The independent
representatives are compensated on a commission basis and generally they neither
stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its
HVAC products primarily to contractors, installers, and end users in the
construction industry, wholesale distributors and original equipment
manufacturers.
While the Reed Division's HVAC products are distributed throughout the
United States and Canada, sales in the northeast, mid-atlantic and upper
mid-west states are somewhat higher than would be suggested by unadjusted
construction statistics in any given year due to the relative popularity of
hydronic products in these areas.
The sale of heating and cooling products is inherently sensitive to
climatic trends in that relatively warm winters and/or cool summers can
adversely effect sales volumes.
The Reed Divison sells gas-fired and hydronic heating and ventilating
products, boilers and other HVAC equipment in Canada and also sells its products
in other foreign markets from time to time. Total export sales did not exceed
ten percent of total revenues, nor did foreign assets exceed ten percent of
total assets, in any of the most recent five years ending December 31, 1997.
4
The Reed Division uses a wide variety of materials in the manufacture
of its products, such as copper, aluminum and steel, as well as electrical and
mechanical components, controls, motors and other products. Management believes
that it has adequate sources of supply for its raw materials and components and
has not had significant difficulty in obtaining the raw materials, component
parts or finished goods from it suppliers. No industry segment of the Company is
dependent on a single supplier, the loss of which would have a material adverse
effect on its business.
The businesses of the HVAC segment are highly competitive. The Company
believes that it is the largest manufacturer of hydronic baseboard heating for
residential and commercial purposes and is one of the three leading
manufacturers of gas-fired heaters and fire and smoke dampers. The Company has
established a substantial market position in the commercial and residential
cast-iron boiler business through its acquisitions in 1991 and 1992.
Nevertheless, in all of the industries in which it competes, the Company has
competitors with substantially greater manufacturing, sales, research and
financial resources than the Company. Competition in these industries is based
mainly on merchandising capability, service, quality, price and ability to meet
customer specifications. The Reed Division believes that it has achieved and
maintained its position as a substantial competitor in the HVAC industry largely
through the strength of its extensive distribution network, the breadth of it
product line and its ability to meet customer delivery and service requirements.
Most of its competitors offer their products in some but not all of the
industries served by the Reed Division.
The quarterly results of the HVAC segment are affected by the
construction industry's demand for heating equipment, which generally peaks in
the last four months of each year (the "heating season"). Accordingly, sales are
usually higher during the heating season, and such higher levels of sales may in
some years continue into the following calendar year. As a result of these
seasonal factors, the Company's inventories of finished goods reach higher
levels during the heating season and are generally lower during the balance of
the year.
Management does not believe that backlog figures relating to the HVAC
segment are material to an understanding of its business because most equipment
is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents.
Although the Company usually seeks to obtain patents where appropriate, it does
not consider any segment materially dependent upon any single patent or group of
related patents.
The Reed Division has a number of trademarks important to its business,
including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Wing,
Alton, Applied Air, Arrow, Aztec Sensible Cooling, Hydrotherm, Temprite and
Dynaforce product lines.
Expenditures for research and development for the HVAC segment in 1997,
1996, and 1995 were $941,000, $814,000, and $894,000, 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 1998.
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 computer hardware when required, installing
the system at the customer's business, and providing continuing support
services.
5
The most significant systems which MCS has developed and has available
for sale are MestaMed, a third-party billing, general ledger, accounting and
inventory control system for durable medical equipment suppliers, home health
providers and infusion therapy providers and ProfitWorks, a system utilized by
lumber, electrical, plumbing, and manufacturer's representatives to manage order
entry, inventory, purchasing, accounts receivable, and reporting. Support
includes software enhancements, diagnostic access, and training seminars. MCS
also has available a Telephone Usage System which analyses usage for
institutions with multiple telephones. The hardware for these and other systems
is supplied primarily by Digital Equipment Corp., for which MCS is an Authorized
Solution Provider.
New enhancements to its software products are continually being
developed by MCS. Notable developments in 1997 include the enchancement of MCS's
product offering in the Home Health Agency marketplace. During 1997, 1996 and
1995 MCS spent approximately $1,575,000, $1,338,000, and $1,209,000
respectively, for software development. These costs related primarily to
customer sponsored development and improvements to existing products.
In 1997, MCS acquired a management services division and a conputer
based training division to enhance the productivity of the Profit Works and
Mesta Med 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 intensely competitive and subject to rapid technological change. For this
reason MCS faces risks and enjoys opportunities which are somewhat more
pronounced than in the Company's other operating segments. MCS has many
competitors in the markets in which it operates, both on a regional and national
basis. Foreign sales are not significant. On December 31, 1997, MCS's backlog
was $1,550,000.
MCS's inventory consists primarily of computer hardware and related
equipment which is sold together with applications software as a turnkey
solution. MCS attempts to maintain a sixty-day supply so that delivery of
completed systems can be made on a timely basis.
METAL PRODUCTS (formerly Coil Handling Equipment)
The Company's Metal Products Segment added two additional units in
1997: Hill Engineering, Inc. a leading producer of precision tools and dies for
the gasket manufacturing and roll forming industries, and Coilmate, Inc., a
leading producer of pallet decoiling equipment for the metal stamping and roll
forming industries.
The 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 and 1997 which broadened 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 and,
due to the nature of the products, are subject to somewhat greater cyclicality
than is seen in the Company's other operating segments. CWP has become a
substantial competitor in the manufacture of coil handling equipment
6
through its broad and competitive product line, its customer driven application
engineering, and its ability 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 the large customer base
of Rowe, Dahlstrom, Hill and Coilmate.
National competitively extrudes aluminum shapes for the construction
and other markets and 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, stamping and assembly machining capabilities. National's application
engineering and fabrication capabilities have helped it become a substantial
competitor in the heat sink market place.
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 Metals Products Segment sells equipment in Canada and in other
foreign markets. Total export sales, however, did not exceed ten percent of
total revenues, nor did foreign assets exceed ten percent of total assets in any
of the most recent five years ending December 31, 1997.
The backlog relating to this segment as a whole at December 31, 1997
was approximately $12,736,000.
Expenditures for research and development for this segment, independent
of research and development related to specific customer requests, in 1997,
1996, and 1995 were $687,000, $204,000 and $0 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, Villa Park, Illinois, Pelham, New Hampshire and Schiller
Park, Illinois and at leased facilities in Lawrence, Massachusetts, Winter
Haven, Florida, Exton, Pennsylvania and Southington, Connecticut.
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 were 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
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The Company's principal executive offices in Westfield, Massachusetts
are leased from an entity owned by an officer and director of the Company. The
Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other
office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain
long-term debt instruments. See Property and Equipment, Note 4 to the
Consolidated Financial Statements.
Item 3 - LEGAL PROCEEDINGS
The Company is not presently involved in any litigation which it
believes will materially and adversely affect its financial condition or results
of operations.
Item 4 - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to the security holders of the Company for a
vote during the fourth quarter of 1997.
PART II
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange,
under the symbol MCC. The number of shareholders of record as of March 20, 1998
was 1,408. The price range of the Company's common stock between January 1, 1998
and March 20, 1998 was between $18-5/16 and 21-7/8, and the closing price on
March 20, 1998 was $21-1/2.
The quarterly price ranges of the Company's common stock during 1997
and 1996 as reported in the consolidated transaction reporting system were as
follows:
PRICE RANGE
1997 1996
---- ----
First Quarter $18-1/8 $16-1/8 $ 13-3/4 $12
Second Quarter $20-7/8 $16-1/4 $ 14-7/8 $12-1/2
Third Quarter $21-3/8 $17-3/4 $ 14-7/8 $14-3/8
Fourth Quarter $19-3/8 $17-3/8 $ 16-1/2 $14-5/8
The Company has not paid any dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are listed on
a stock exchange or are publicly traded.
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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.
SUMMARY OF FINANCIAL POSITION as of December 31,
(dollars in thousands except per share data)
1997 1996 1995 1994 1993
---------------------- ------------ ------------ --------
Total Assets $191,117 $170,010 $141,431 $120,430 $126,625
Working capital 42,056 59,274 41,626 36,628 37,238
Long-term debt, incl
current portion 19,329 15,362 3,031 5,548 20,860
Shareholders' equity 118,007 103,718 91,046 80,732 73,317
Commons shareholders'
equity, per common
share (1) $ 13.22 $11.61 $ 10.14 $ 8.93 $ 7.96
========= ====== ======= ====== ======
SUMMARYOF OPERATIONS - for the year ended December 31, (2) (dollars in thousands
except per share data)
1997 1996 1995 1994 1993
---------- -------- ---------- ---------- --------
Total revenues from
continuing operation(3) $327,778 $299,527 $245,865 $224,018 $231,386
Income from continuing
operations 14,40 13,329 10,906 9,298 7,583
Net income 14,405 13,329 10,906 9,298 4,265
Earnings per common share:
Income from continuing
Operations:
Basic $ 1.61 $ 1.49 $ 1.21 $ 1.02 $ .82
Diluted $ 1.61 $ 1.49 $ 1.21 $ 1.02 $ .82
Net Income:
Basic $ 1.61 $ 1.49 $ 1.21 $ 1.02 $ .46
Diluted $ 1.61 $ 1.49 $ 1.21 $ 1.02 $ .46
1) Equity per common share amounts are computed using the common shares and
common stock equivalents outstanding as of December 31, 1997, 1996, 1995,
1994, and 1993.
(2) Includes the results of acquired companies or asset acquisitions from the
date of such acquisition, as follows:
* Coilmate, Inc., from November 3, 1997
* Hill Engineering, Inc., from January 31, 1997
* Dahlstrom Industries, Inc. from August 30, 1996.
* Rowe Machinery & Automation, Inc., from February 5, 1996.
* Omega Flex, Inc., from February 2, 1996.
* National Northeast Corp and National Southeast Corp from Oct 30, 1995.
* Heat Exchangers, Inc., from November 15, 1995.
* Aztec Sensible Cooling, Inc., from November 1, 1994.
(3) Revenues have been adjusted in 1993 to reflect the reclassification of
revenues related to the Company's Environmental Engineering Segment to
Discontinued Operations.
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Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RETURN ON AVERAGE NET ASSETS EMPLOYED
1997, 1996, 1995
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 1997, 1996, and 1995 was as follows:
1997 1996 1995
---- ---- ----
Operating Profits (as defined) $ 30,525,000 $ 25,925,000 $22,515,000
Average Net Assets Employed (as
defined) $130,419,000 $113,594,000 $94,956,000
------------ ----------- -----------
Return on Average Net Assets
Employed 23.4% 22.8% 23.7%
================= ======= ===============
The 1997 return on Average Net Assets Employed improved slightly from
1996 despite product development, plant relocation and other transitional costs
incurred in 1997 in the Company's Metal Products and HVAC segments which are
described in greater detail below, owing to strong performances from certain of
the Company's historical hydronic and gas-fired products as well as from the
Company's National Northeast subsidiary which is contained in the Company's
Metal Products Segment.
ANALYSIS: 1997 VS. 1996
The Company's core HVAC Segment reported comparative results for 1997
and 1996 as follows:
1997 1997 1996
($000) % ($000) % $Net Change
------ --------- ------ -------- -----------
Net Sales $229,423 100.00% $228,115 100.00% +1.0%
Gross Profit 66,178 28.85% 62,164 27.25% +6.5%
Operating Income 17,846 7.78% 16,142 7.08% +10.6%
Revenues in this Segment were relatively flat in 1997 as increases in
certain of the Company's historical hydronic and gas-fired heating products were
offset by reductions in certain industrial and air conditioning products which
were traceable to a variety of factors, including the relatively mild summer of
1997. Gross profit margins were improved overall in 1997 as product relocation
costs were reduced and raw material costs remained well controlled. Operating
income as a percentage of net sales was up slightly, reflecting the improvement
in gross profit margins.
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The Company's Computer Systems Segment (MCS, Inc.) reported improved
revenues, gross profits and operating profits in 1997 as indicated in the
following table:
1997 1997 1996 1996
($000) % ($000) % $Net Change
------ -------- ------ ------- -----------
Net Sales $17,029 100.00% $ 16,114 100.00% +5.7%
Gross Profit 7,238 42.50% 6,865 42.60% +5.4%
Operating Income 3,289 19.31% 3,063 19.01% +7.4%
MCS continued its commitment in 1997 to product enhancement and
customer support in the Durable Medical Equipment, Home Infusion Therapy, and
Home Health Services marketplaces. MCS's principal software products are now, or
will shortly be, "Year 2000 compliant." MCS does not expect that its costs
related to "Year 2000 compliance will be material.
The Company's Metal Products Segment includes Cooper-Weymouth,
Peterson, (CWP), Rowe Machinery & Automation Inc., (Rowe), a leading
manufacturer of press-feeding and cut-to-length equipment, acquired in 1996,
Dahlstrom Industries, (Dahlstrom), a leading manufacturer of roll forming
equipment, acquired in 1996, National Northeast, Corporation, (National), an
aluminum extruder and heat sink fabricator acquired in 1995, Omega Flex, Inc.,
(Omega), an industrial metal hose fabricator acquired in 1996, Hill Engineering,
(Hill), a leading producer of tools and dies for the gasket manufacturing and
roll forming industries acquired on January 31, 1997, and Coilmate, Inc.,
(Coilmate), a leading producer of pallet decoiling equipment for the metal
stamping and roll forming industries acquired on November 3, 1997. Comparative
results, which were significantly affected by these acquisitions, were as
follows:
1997 1997 1996 1996
($000) % ($000) % $Net Change
------ -------- ------ -------- -----------
Net Sales $81,326 100.00% $ 55,298 100.00% +47.1%
Gross Profit 21,033 25.86% 13,199 23.87% +59.4%
Operating Income 4,260 5.24% 3,687 6.67% +15.5%
The relocation of the Rowe manufacturing operation to our Formtek
facility in Clinton, that also engineers and produces our product line which was
completed in 1997, imposed significant direct and indirect costs on this segment
in 1997 and overshadowed otherwise solid contributions from Cooper-Weymouth,
Peterson, National Northeast and Hill Engineering. 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 and market development costs undertaken by Omega in connection with
its 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:
1997 1997 1996 1996
($000) % ($000) % $Net Change
------ -------- ------ -------- -----------
Net Sales $327,778 100.00% $299,527 100.00% +9.4
Gross Profit 94,449 28.81% 82,228 27.45% +14.9%
Operating Income 25,395 7.75% 22,892 7.64% +10.9%
Gross Profit and Operating Income percentage margins were slightly
improved reflecting the effects described above.
11
Sales expense for the Company as a whole, as a percentage of total
revenues, increased from 11.85% to 12.48% (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 5.41% in 1996 to 6.13% in 1997, principally due to an
increase in the provision for bonuses. Engineering expense, as a percentage of
total revenues, decreased slightly from 2.55% to 2.44%. Interest expense was
relatively unchanged in 1997, despite the various acquisitions, due to the
offsetting effect of positive cash flows from operations.
Income tax expense for 1997, as a percentage of pretax income, was
reduced slightly from 39.39% to 38.16%.
Pretax income for 1996 included gains from the sale of unneeded
manufacturing facilities totalling $1,444,000; there were no comparable
transactions in 1997.
ANALYSIS: 1996 VS. 1995
The Company's core HVAC Segment reported comparative results for 1996 and 1995
as follows:
1996 1996 1995 1995
($000) % ($000) % $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.
12
The Company's Computer Systems Segment (MCS, Inc.) reported improved
sales, margins and operating profits in 1996 as indicated in the following
table:
1996 1996 1995 1995
($000) % ($000) % $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 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, which historically
included only the Cooper- Weymouth, Peterson division, added four additional
units in 1996: the assets of Rowe Machinery & 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 on October 30, 1995, and Omega Flex, Inc. (Omega), an industrial
metal hose fabircator, 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
acqusitions, were as follows:
1996 1996 1995 1995
($000) % ($000) % $Net Change
------ --------- ------ -------- -----------
Net Sales $55,298 100.00% $12,154 100.00% +354.98%
Gross Profit 13,199 23.87% 4,549 37.43% +190.15%
Operating Income 3,687 6.67% 1,926 15.85% +91.43%
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-Pipe(TM), 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 1996 1995 1995
($000) % ($000) % $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.
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 classifications for purposes
of comparability). General and Administrative Expenses, as a percentage of
revenues, increased from 5.23% in
13
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: LIQUIDITY AND CAPITAL STRUCTURE
While working capital decreased in 1997, from $59,274,000 at December 31,
1996 to $42,056,000 at December 31, 1997, this reflects principally the
reclassification of the $15,000,000 Senior Notes from long-term to current. The
Notes matured on March 1, 1998 and were paid off by the Company through its
Revolving Loan and Letter of Credit Facility.
The Company's funded debt to equity ratio (including deferred liabilities
and minority interests in funded debt) decreased from 16.2% at December 31,
1996, to 2.4% at December 31, 1997, despite the effect of the Company's 1997
acquisitions and other capital spending, due to the reclassification of the
Senior Notes to current, as well as the effect of positive cash flows.
The principal changes to the Company's Net Assets Employed during 1997
were as follows:
Net Assets Employed 12/31/96 $120,647
Acquisition of Hill Engineering 5,141,000
Acquisition of Coilmate 3,521,000
Capital spending in excess of depreciation 6,158,000
National Northeast - additional purchase price paid 4,028,000
All other 54,000
Net Assets Employed 12/31/97 $139,549,000
Management regards the Company's current capital structure and banking
relationships as fully adequate to meet foreseeable future needs. The Company
has not paid dividends on its common stock since 1979.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 130 which will be effective for fiscal years beginning
after December 15, 1997. FAS 130 requires the presentation of "comprehensive
income," a more broadly defined measure of income, in addition to conventional
"net income." The Company does not expect that it's "comprehensive income" will
be materially different from it's "net income." The Company will adopt FAS 130
effective with 1998.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 131 which will be effective for fiscal years beginning
after December 15, 1997. FAS 131 requires, in general, a "management approach"
rather than an "industry approach" to the disclosure of segment information. The
Company is presently studying the changes, if any, which will result from
adoption of FAS 131 in 1998.
FORWARD LOOKING INFORMATION
This report contains forward looking statements which are subject to
inherent uncertainties. These uncertainties include, but are not limited to,
variations in weather, changes in the regulatory environment, customer
preferences, general economic conditions, and increased competition. All of
these are difficult to predict, and many of these are beyond the ability of the
Company to control.
14
YEAR 2000 DISCLOSURE
The Company's exposure to the "Year 2000 problem" falls into three
principal categories, which are discussed separately below:
1. Financial software systems
2. Manufacturing, order processing and accounts receivable
software systems 3. Engineering (CAD/CAM) systems
1. FINANCIAL SOFTWARE SYSTEMS
The Company performs most of its financial reporting on a centralized
basis in Westfield, MA using standard accounting, payroll, payables,
fixed assets and human resources software packages which are supported
by the related vendors and are believed to be fully "Year 2000"
compliant at this time. Certain of the Company's subsidiaries maintain
separate financial reporting functions using a variety of personal
computer based software solutions which are also believed to be either
fully "year 2000" compliant at this time, or expected to be compliant
by December 31, 1999.
2. MANUFACTURING, ORDER PROCESSING, ACCOUNTS RECEIVABLE SOFTWARE
SYSTEMS The Company uses a variety of manufacturing and order
processing software systems at various locations today. The Company's
needs in this area, while highly specific to each individual division,
have sufficient common ground that commercially available software
packages, suitably customized, have been used in the past rather than
custom written code. As such, the Company believes that it can
successfully address the Year 2000 problem in this area
by upgrading its various manufacturing/order processing/accounts
receivable software systems to "Year 2000 Compliant" versions, while at
the same time adding enhanced functionality.
The Company adopted this approach to the "Year 2000 Problem" in 1996
and began a search at that time for a system which would meet the needs
of as many of its divisions as possible. A manufacturing package with
strong "configure to order" capabilities was chosen in 1997 and
modification and implementation of this system for two of the Company's
Westfield based divisions has been completed at this time. A plan to
extend this system to all of the Company's Westfield based divisions
prior to 12/31/99 is presently under study. The Company's remote or
"non-Westfield based" locations are implementing similar strategies and
are in various stages of the process. It is expected that all will have
completed the transition to Year 2000 compliant systems by December 31,
1999.
3. ENGINEEERING(CAD/CAM) SYSTEMS
The Company uses a variety of commercially available engineering and
manufacturing design tools all of which are now, or are expected to be
prior to December 31, 1999, "Year 2000 Compliant."
SUMMARY:
The Company estimates that its total cost of addressing the Year 2000
issue, including software licenses, modifications, training and
implementation will be approximately $1,500,000 over the 3 year period
ended December 31, 1999. Of this total, the Company has incurred
approximately $500,000 as of December 31, 1997.
15
ENVIRONMENTAL DISCLOSURE
The Company is subject to numerous laws and regulations that govern the
discharge and disposal of materials into the environment. The Company is not
aware, at present, of any material administrative or judicial proceedings
against the Company arising under any federal, state or local environmental
protection laws or regulations ("Environmental Laws"). There are, however, a
number of activities in which the Company is engaged under Environmental Laws.
Permitting Activities
The Company is engaged in various matters with respect to obtaining,
amending or renewing permits required under Environmental Laws to operate each
of its manufacturing facilities. Based on the information presently available to
it, management expects that all permit applications will be routinely handled
and management does not believe that the denial of any currently pending permit
application will have a material adverse effect on the Company's financial
position or the results of operations.
Potentially Responsible Parties (PRP) Actions
The Company has been named or contacted by state authorities and/or the
Environmental Protection Agency (the "EPA") regarding the Company's liability as
a potentially responsible party ("PRP") for the remediation of several sites,
none of which actions represent a material proceeding. The potential liability
of the Company is based upon records that show the Company or other corporations
from whom the Company or its subsidiaries acquired assets used the sites for the
lawful disposal of hazardous waste pursuant to third party agreements with the
operators of such sites. Such PRP actions generally arise when the operator of a
site lacks the financial ability to address compliance with the Environmental
Laws, decisions and orders affecting the site in a timely and effective manner.
The governmental authority responsible for the site looks to the past users of
the facility and their successors to address the costs of remediation of the
site.
In High Point, North Carolina, the Company has been named as a PRP with
regard to the clean-up of groundwater contamination allegedly due to dumping at
a 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 site. The
Company is currently participating as part of a joint defense group in
discussions with the EPA for a "de minimis settlement" at the Southington,
Connecticut site. The obligations of the Company in this matter are not expected
to be material to the Company's financial position or the results of operations.
The Company has received a notice from Pitt County, North Carolina that it may
(along with many others) be a PRP at the Pitt County Landfill but the Company
believes that any material which it shipped to the site was not of a hazardous
nature. The Company has also received a request for information from the EPA
addressed to a predecessor of the Company regarding the generation, storage,
transportion and possible release of hazardous substances at a superfund site in
Coraopolis, Pennsylvania, and the Company has complied with such request. The
Company continues to investigate these matters, but expects that they will not
be material to the Company's financial position or results of operations.
Releases of Hazardous Materials
There have been releases of hazardous materials on a few parcels of
property which are presently leased or operated by the Company. All such
releases occurred prior to the occupation of the properties by the Company. All
releases are in the process of assessment or remediation. At a site in
Massachusetts leased by the Company the Lessor has received notice from two
abutters that activities on the property prior to the Company's occupation may
be the source of groundwater contamination on the abutters' property. Based upon
16
an investigation by the Lessor, the claims do not appear to be supportable.
Based on the information presently available to it, management does not believe
that the costs of addressing any of the releases will have a material adverse
effect on the Company's financial position or the results of operations.
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.
17
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, 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, 1997 in conformity with
generally accepted accounting principles.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of
December 31, 1997 and for each of the years in the three year period ended
December 31, 1997. In our opinion, the schedule presents fairly, in all material
respects, the information required to be set forth therein.
/S/ GRANT THORNTON
Grant Thornton
Boston, Massachusetts
March 6, 1998
18
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1997 1996
---- ----
(Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $ 2,494 $ 11,649
Accounts Receivable - less allowances of
$2,529 and $1,701 52,696 49,577
Unbilled Accounts Receivable 248 174
Inventories 51,580 43,265
Deferred Tax Benefit 1,691 1,823
Other Current Assets 3,582 2,264
---------- -------------
Total Current Assets 112,291 108,752
Property and Equipment - net 40,715 31,439
Equity Investments 8,778 8,778
Other Assets and Deferred Charges - net 5,516 5,832
Deferred Tax Benefit - 280
Excess of Cost over Net Assets of Acquired Companies 23,817 14,929
-------- -----------
Total Assets $191,117 $ 170,010
======== ==========
See Accompanying Notes to Consolidated Financial Statements
19
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1997 1996
---- ----
(Dollars in thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $ 18,667 $ 115
Accounts Payable 20,276 19,559
Accrued Salaries and Bonuses 6,100 4,886
Accrued Commissions 3,283 3,404
Progress Billings in Excess of Cost
and Estimated Earnings 3,205 2,899
Customer Deposits 3,570 4,829
Other Accrued Liabilities 15,134 13,786
----------- -----------
Total Current Liabilities 70,235 49,478
Deferred Tax Liability 224 -
Long-Term Debt 662 15,247
Deferred Compensation 14 18
------------ --------------
Total Liabilities 71,135 64,743
---------- -----------
Minority Interests 1,975 1,549
----------- ------------
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 109,199 94,794
Treasury Shares, at cost (683,830 and
680,364 common shares, respectively) ( 6,109) ( 6,040)
Cumulative Translation Adjustment ( 996) ( 949)
------------ ------------
Total Shareholders' Equity 118,007 103,718
--------- ----------
Total Liabilities and Shareholders'
Equity $191,117 $ 170,010
======== =========
See Accompanying Notes to Consolidated Financial Statements.
20
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1997 1996 1995
---- ---- ----
(Dollars in thousands, Except Earnings Per Common Share)
Net Sales $ 310,749 $ 283,413 $ 230,610
Net Service Revenues 17,029 16,114 15,255
----------- ----------- -----------
Total Revenues 327,778 299,527 245,865
Cost of Goods Sold 223,539 208,050 166,009
Cost of Service Revenues 9,790 9,249 8,811
------------- ------------ ------------
Gross Profit 94,449 82,228 71,045
Selling Expense 40,929 35,492 32,160
General and Administrative
Expense 20,096 16,202 13,004
Engineering Expense 8,029 7,642 5,711
------------ ------------ ------------
Operating Profit 25,395 22,892 20,170
Interest Expense ( 1,434) ( 1,377) ( 718)
Gain on Sale of Property - 1,444 -
Other Income (Expense), Net ( 668) ( 968) ( 1,317)
----------- -------------- ------------
Income Before Income Taxes 23,293 21,991 18,135
Income Taxes 8,888 8,662 7,229
----------- ---------- -----------
Net Income $ 14,405 $ 13,329 $ 10,906
========= ========= ========
Basic Earnings per Common Share: $ 1.61 $ 1.49 $ 1.21
=========== =========== ==========
Basic Weighted Average Shares 8,929 8,938 9,019
Outstanding ========== =========== ===========
Diluted Earnings Per Common Share $ 1.61 $ 1.49 $ 1.21
=========== ========== ==========
Diluted Weighted Average Shares 8,951 8,943 9,019
Outstanding ========== =========== ==========
See Accompanying Notes to Consolidated Financial Statements.
21
MESTEK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the years ended December 31,
1997, 1996 and 1995
Common Paid In Retain Treasury Trans Cumul.
(Dollars In Thousands) Stock Capital Earn Shares Adj Total
- ---------------------- ------- ------- ------ -------- ----- ------
Bal-Dec 31, 1994 $479 $15,434 $70,559 $(4,808) $(932) $80,732
Net Income 10,906 10,906
Common Stock Repurchased ( 641) ( 641)
Cumulative Translation Adj 49 49
------ ------- -------- ------ ------- -------
Bal-Dec 31, 1995 $479 $15,434 $81,465 $(5,449) $( 883) $91,046
Net Income 13,329 13,329
Common Stock Repurchase ( 591) ( 591)
Cumulative Translation Adj ( 66) ( 66)
------ -------- -------- ------- -------- --------
Bal-Dec 31, 1996 $479 $15,434 $94,794 $(6,040) $( 949) $103,718
Net Income 14,405 14,405
Common Stock Repurchased ( 69) ( 69)
Cumulative Translation Adj ( 47) ( 47)
------ --------- -------- -------- -------- --------
Bal-Dec 31, 1997 $479 $15,434 $109,199 $(6,109) $( 996) $118,007
===== ======= ======== ======== ====== ========
See Accompanying Notes to Consolidated Financial Statements
22
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1997 1996 1995
----------- ------------- --------
(Dollars in thousands)
Cash Flows from Operating Activities:
Net Income $ 14,405 $ 13,329 $ 10,906
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation and Amortization 6,548 5,143 3,940
Provision for Losses on Accounts
Receivable, net of write offs 828 324 ( 63)
Gain on Sale of Property - ( 1,444) -
Net Change in Minority Interests ( 82) ( 491) -
Changes in assets and liabilities net
of effects of acquisitions and dispositions:
Accounts Receivable ( 2,498) ( 5,047) (2,972)
Unbilled Accounts Receivable ( 74) ( 35) ( 5)
Inventory ( 6,894) 1,002 (3,176)
Accounts Payable 430 1,109 ( ,823)
Other Liabilities 247 ( 2,212) (2,101)
Progress Billings 306 ( 5) 183
Deferred Compensation ( 4) ( 4) ( 3)
Other 109 4,399 (4,248)
------------ ------------------
Net Cash Provided by Operating
Activities 13,321 16,068 628
----------- --------- ------
Cash Flows from Investing Activities:
Capital Expenditures ( 11,740) ( 7,213) (2,963)
Disposition of Property & Equipment - 4,642 2,727
Acquisition of Businesses and Other
Assets Net of Cash Acquired ( 12,886) (14,172) (15,595)
Disposition of Business Segment - - 6,000
-------------- --------- ------
Net Cash (Used in)
Investing Activities ( 24,626) (16,743) ( 9,831)
--------- --------- -------
Cash Flows from Financing Activities:
Net Borrowings (Repayments) Under
Revolving Credit Agreement 3,500 ( 1,725) 2,406
Principal Payments Under Long
Term Debt Obligations ( 1,234) ( 1,699) ( 5,367)
Proceeds from Issuance of Long
Term Debt - 15,000 -
Purchase Price Payable - National Northeast - - 9,960
Repurchase of Common Stock ( 69) ( 591) ( 641)
---------- --------- -------
Net Cash Provided by Financing Activities 2,197 10,985 6,358
---------- ---------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents ( 9,108) 10,310 ( 2,845)
Translation effect on Cash ( 47) ( 66) 49
Cash and Cash Equivalents -
Beginning of Year 11,649 1,405 4,201
--------- --------- -------
Cash and Cash Equivalents -
End of Year $ 2,494 $ 11,649 $ 1,405
========= ========= ========
See Accompanying Notes to Consolidated Financial Statements.
23
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
89% 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.
24
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 stock of Hill
Engineering, Inc., and Coilmate, Inc., and the additional consideration paid in
respect of National Northeast Corporation, as more fully described in Note 2,
resulted in goodwill of approximately $10,064,000 which will be amortized over
25 years. The Company continually evaluates the carrying value of goodwill. Any
impairments would be recognized when the expected future operating cash flows
derived from the underlying acquired businesses is less than the carrying value
of the goodwill. Accumulated amortization of goodwill and other intangibles was
$2,514,000 and $1,584,000 at December 31, 1997 and 1996, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges
aggregated $3,738,000, $3,193,000, and $2,942,000 for the years ended December
31, 1997, 1996 and 1995 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 $1,628,000, $1,018,000, and $894,000, for the
years ended December 31, 1997, 1996 and 1995, 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
$1,575,000, $1,338,000, and $1,209,000, for the years ended December 31,1997,
1996, and 1995, respectively.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per common share
Basic earnings per share have been computed using the weighted average
number of common shares outstanding. Common stock options, as more fully
described in Note 15, were considered in the computation of Diluted earnings per
share but had no effect.
25
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.
Reclassification
Reclassifications are made periodically to previously issued financial
statements to conform with the current year presentation.
2. BUSINESS ACQUISITIONS
On January 2, 1997, the Company's National Northeast subsidiary paid
$4,028,000 in additional consideration related to the purchase on October 30,
1995 of approximately 83% of the issued and outstanding voting common stock of
National Northeast Corporation and National Southeast Corporation (National).
This payment completes the Company's acquisition of National.
On January 31, 1997, the Company acquired 91.01% of the issued and
outstanding common stock of Hill Engineering, Inc.(Hill) of Villa Park, Illinois
and Danville, Kentucky. Hill is a leading producer of precision tools and dies
for the gasket manufacturing and roll-forming industries and other specialty
equipment. The purchase price paid for the acquired stock was $5,141,000. The
Company has accounted for this acquisition under the purchase method of
accounting.
On November 3, 1997 the Company acquired 100% of the issued and
outstanding common stock of Coilmate, Inc. (Coilmate) of Southington,
Connecticut. Coilmate is the leading producer of pallet decoiling equipment for
the metal stamping and roll forming industries. The purchase price paid was
$3,521,000. The Company has accounted for this acquisition under the purchase
method of accounting.
Proforma unaudited results of operations for Hill Engineering and
Coilmate for 1997 and 1996 are not provided herein as they are not considered
material.
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. 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 $268,000 per year.
On February 5, 1996, the Company acquired certain assets of the
press feeding and cut-to-length line businesses of Rowe Machinery & 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 leased the
Rowe facility in Dallas, including machinery and equipment, on a short term
basis through April of 1997.
26
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, Dahlstrom,
and Heat Exchangers, Inc. for 1996 and 1995 are not provided herein, as they are
not considered material.
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 Pelham, New Hampshire, 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 plus certain additional consideration, contingent upon a future level of
earnings, as described above. The transaction was completed on January 2, 1996.
Subsequent to that date, the Company, through National, has purchased additional
shares raising its ownership percentage to approximately 88%.
Proforma unaudited results of operations for 1995 and 1994, 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 under the purchase method of
accounting.
Under the purchase method of accounting, results of operations of
acquired businesses are included in consolidated operations subsequent to the
date of acquisition.
3. INVENTORIES
Inventories consisted of the following at December 31:
1997 1996
----------------- -----------
Finished Goods $18,012,000 $ 11,004,000
Work-in-progress 15,386,000 14,877,000
Raw materials 25,842,000 24,924,000
-------------- -------------
59,240,000 50,805,000
Less provision for LIFO
method of valuation (7,660,000) (7,540,000)
-------------- -------------
$51,580,000 $ 43,265,000
============== ============
Progress billings exceeded related contract costs by $3,205,000, and
$2,899,000, at December 31, 1997 and 1996, respectively. As such, these amounts
are reported as a liability in the accompanying consolidated financial
statements.
27
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and
Amortization Est.
1997 1996 Useful Lives
------------------ ------------------ ----------------
Land $ 2,045,000 $ 1,092,000
Buildings 18,319,000 13,657,000 19-39 Years
Leasehold Improvements 4,352,000 4,186,000 15-39 Years
Equipment 60,260,000 51,183,000 3-10 Years
------------- ------------
84,976,000 70,118,000
Accum.Depreciation (44,261,000) (38,679,000)
-------------- ------------
$ 40,715,000 $ 31,439,000
=============== ============
The above amounts include $1,939,000, and $437,000, at December 31, 1997
and 1996, 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 $6,548,000, $5,143,000, and
$3,864,000, for the years ended December 31, 1997, 1996, and 1995, respectively.
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS)
The Company's investment in HBS is carried at a zero balance reflecting
the Company's equity in HBS' cumulative losses. The Company has no obligation to
fund future HBS operating losses.
Eafco, Inc. (EAFCO)
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 to 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
1997, 1996, and 1995.
The Company purchases approximately $19,000,000 on an annualized basis
from EAFCO and HBS together. The Company's net receivable from EAFCO and HBS
together was $2,568,000 and $1,352,000 at December 31, 1997 and 1996,
respectively.
28
6. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31,
1997 1996
---------- -------
Senior Notes $15,000,000 $15,000,000
Revolving Loan Agreement 3,500,000 -
Other Bonds and Notes Payable 829,000 362,000
--------------- ------------
19,329,000 15,362,000
Less Current Maturities ( 18,667,000) ( 115,000)
---------------- -------------
$ 662,000 $15,247,000
============= ===============
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. The
Company intends paid off the Notes at maturity using its Revolving Loan and
Letter of Credit Facility.
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, 1998. It currently provides $50
million of unsecured revolving credit, $10 million of standby letter of credit
capacity, and $5,000,000 of unsecured revolving credit in Canadian dollars.
Borrowings under the Agreement bear interest at a floating rate based on the
bank's prime rate less 1.75% or, at the discretion of the borrower, LIBOR plus a
quoted market factor. Management expects to renew the Agreement on a one year
basis prior to April 30, 1998. 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 $3,284,000, and $3,233,000, at December
31, 1997 and 1996, 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, 1997 was $142,000. The
Company's National Northeast subsidiary is obligated under a non-interest
bearing subordinated Note Payable on which interest was imputed at 8%. The notes
are secured by certain pieces of equipment. The outstanding balance under the
note at December 31, 1997 was $107,490 and the note matures on May 1, 2001. The
Company's Hill Engineering subsidiary is obligated under two Industrial Revenue
Bonds secured by certain of its operating assets. The outstanding balances under
the bonds at December 31, 1997 were $130,000 and $450,000, respectively. The
former of these bears interest at 9% and matures on November 1, 2000; the latter
bears interest at 80% of the prime rate and matures on September 1, 2005.
Cash paid for interest was $1,434,000, $1,377,000, and $718,000,
during the years ended December 31, 1997, 1996, and 1995, respectively.
29
Maturities of long-term debt in each of the next five years are as follows:
1998 - $18,667,000
1999 - 175,000
2000 - 157,000
2001 - 86,000
2002 - 60,000
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, 1997.
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, 1997, 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, 1997
no shares of the Preferred Stock have been issued.
30
8. INCOME TAXES
Income before income taxes included foreign earnings (losses) of
($730,000), ($474,000) and $217,000 in 1997, 1996, and 1995, respectively.
Income tax expense (benefit) consisted of the following:
1997 1996 1995
------------ ------------ ----------
Federal Income Tax:
Current $7,188,000 $7,259,000 $5,894,000
Deferred 527,000 ( 134,000) ( 174,000)
State Income Tax:
Current 1,045,000 1,551,000 1,543,000
Deferred 166,000 ( 29,000) ( 46,000)
Foreign Income Tax:
Current 18,000 15,000 12,000
Deferred ( 56,000) - -
------------- -------------- -----------
Income Taxes $8,888,000 $8,662,000 $7,229,000
============ ============ ==========
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:
1997 1996 1995
------------ ------------- -----------
Computed "expected" income tax $8,218,000 $7,736,000 $6,347,000
State income tax, net of
federal tax benefit 787,000 989,000 973,000
Foreign tax rate differential ( 22,000) ( 14,000) ( 15,000)
Change in beginning year balance
of the valuation allowance for
deferred tax assets allocated
to income tax expense - - ( 76,000)
Other - net ( 95,000) ( 49,000) -
------------ ---------- -----------
Income Taxes $8,888,000 $8,662,000 $7,229,000
============ ========== ==========
31
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, 1997 are as follows:
Change
December 31, (Expense) December 31,
1996 Benefit 1997
------------ ------------ -----------
Deferred Tax Assets:
Warranty Reserve $ 775,000 ($ 209,000) $ 566,000
Compensated Absences 821,000 ( 99,000) 722,000
Inventory Valuation 364,000 104,000 468,000
Accounts Receivable Valuation 682,000 176,000 858,000
State Tax Operating Loss
Carryforward 141,000 17,000 158,000
Foreign Tax Operating Loss
Carryforward 712,000 56,000 768,000
Deferred Income on Sale of Assets
to Nonconsolidated Investees 213,000 ( 54,000) 159,000
Other 0 17,000 17,000
----------- ----------- -----------
Total Gross Deferred Tax Assets 3,708,000 8,000 3,716,000
Less Valuation Allowance ( 119,000) - ( 119,000)
------------ -------------- ----------
Deferred Tax Assets 3,589,000 8,000 3,597,000
------------ ------------- ---------
Deferred Tax Liabilities:
Prepaid Expenses ( 578,000) ( 155,000) ( 733,000)
Depreciation and Amortization ( 587,000) ( 810,000) ( 1,397,000)
Other ( 321,000) 321,000 0
------------ ---------- -----------
Deferred Tax Liabilities (1,486,000) ( 644,000) (2,130,000)
----------- ------------- -----------
Net Deferred Tax Assets $ 2,103,000 ( $ 36,000) $1,467,000
=========== =========== ============
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, 1997, 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, 1997, the Company has state tax operating loss and
foreign tax operating loss carryforwards of approximately $3,288,000 and
$1,724,000, respectively, which are available to reduce future income taxes
payable, subject to applicable "carryforward" rules and limitations. These
losses begin to expire after the following years:
State Foreign
2000 $ 410,000 $1,724,000
2007 2,878,000 -
--------- ----------
$ 3,288,000 $1,724,000
========== ==========
Cash paid for income taxes was $9,027,000, $7,354,000 and $8,222,000, for
the years ended December 31, 1997, 1996 and 1995 respectively.
32
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, 1997 including the effect of renewals and amendments executed
subsequent to December 31, 1997 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 $ 384,000
Land and Building - Engineering 07/01/83 15 years 42,000 21,000
Land and Building - South Complex 01/01/94 15 years 256,800 2,824,800
Machinery & Equipment 01/01/93 5 years 41,460 *
(Westfield, Farmville and Wrens
Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5 years 223,980 *
(Westfield, Farmville, Wrens and
South Windsor Locations)
Elizabeth C. Reed Trust
Machinery and Equipment 01/01/93 5 years 14,100 *
Production Realty
Land and Building 01/01/97 2 years 114,000 114,000
Rudbeek Realty Corp.
(Farmville Location) 11/02/92 17.66 years 366,000 5,100,000
MacKeeber
(South Windsor Location) 01/01/97 8 years 324,600 2,272,200
* Lease renewal process incomplete as of March 6, 1998; rentals month to
month pending renewal.
Rent expense for operating leases, including those with related parties,
was $2,719,000, $3,454,000 and $2,581,000 for the years ended December 31, 1997,
1996 and 1995, respectively.
Future minimum lease payments under all noncancelable leases as of December
31, 1997 are as follows:
Operating
Year Ending December 31, Leases
1998 $ 2,542,000
1999 2,303,000
2000 1,814,000
2001 1,531,000
2002 1,263,000
After 2002 5,250,000
------------
Total minimum lease payments $14,703,000
============
33
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan
covering all eligible employees. Contributions to the plan were $1,011,000, $
872,000, and $828,000, for the years ended December 31, 1997, 1996, and 1995,
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 $269,000, $247,000, and $252,000, for the years
ended December 31, 1997, 1996, and 1995, 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
$392,000, $349,000, and $243,000 for the years ended December 1997, 1996, and
1995, 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, 1997, 1996, and 1995 was $65,000, $70,000, and $64,000, respectively.
The Company maintains bonus plans for its officers and other key
employees. The plans generally allow for annual bonuses for individual employees
based upon the operating results of related profit centers in excess of a
percentage of the Company's investment in the respective profit centers. The
Company maintains an employment agreement with it's chief executive officer.
Approximately 28% of the Company's employees are covered under collective
bargaining agreements, of which 17% are covered under agreements expected to be
renewed in 1998.
34
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to several legal actions and proceedings in which
various monetary claims are asserted. Management, after consultation with its
corporate counsel and outside counsel, does not anticipate that any ultimate
liability arising out of all such litigation and proceedings will have a
material adverse effect on the financial condition of the Company.
The Company is obligated as guarantor with respect to the debt of
MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership,
under an Industrial Development Bond issued in 1984 by the Connecticut
Development Authority. The balance outstanding under the bond as of December 31,
1997 was $1,060,000.
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.
35
The following table presents segment information for the years ended
December 31, 1997, 1996, and 1995. Segment information reflecting the operations
of acquired businesses is shown only for the periods following acquisition.
1997 1996 1995
------------- ------------- ---------
(Dollars in thousands)
Total Revenues
HVAC $229,423 $ 228,115 $ 218,456
Computer Systems 17,029 16,114 15,255
Metal Products 81,326 55,298 12,154
---------- ----------- ----------
Total Revenues $327,778 $ 299,527 $245,865
======== ========= =========
Operating Profit
HVAC $ 17,846 16,142 15,495
Computer Systems 3,289 3,063 2,749
Metal Products 4,260 3,687 1,926
---------- ----------- -----------
Total Operating Profit $ 25,395 $ 22,892 $ 20,170
======== ========== ========
Other information regarding the segments for the years 1997, 1996, and 1995
is as follows:
1997
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 123,960 $ 4,047 $ 2,727
Computer Systems 5,045 166 119
Metal Products 62,112 7,527 2,736
---------- --------- --------
Total $191,117 $11,740 $ 5,582
======== ======= =======
1996
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $122,365 $ 3,950 $ 3,020
Computer Systems 4,554 204 20
Metal Products 43,091 3,059 1,818
------------- -------------- ------------
Total $170,010 $ 7,213 $ 4,858
=========== =========== ============
36
1995
Identifiable assets Capital Depreciation
(at year-end) expenditures * expense
(Dollars in thousands)
HVAC $ 114,381 $ 2,416 $ 3,535
Computer Systems 4,650 25 69
Metal Products 22,400 522 260
----------- ---------------- --------------
Total $ 141,431 $ 2,963 $ 3,864
=========== ============ ===========
1996 and 1995 Segment data has been reclassified for purposes of comparability.
* 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, 1997 and 1996, accounts receivable, net
of allowances, totaled $52,696,000 and $49,577,000, 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, 1997 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 1997 and 1996. (Dollars in thousands except per common share
amounts).
1997 1st 2nd 3rd 4th
- ---- Quarter Quarter Quarter Quarter
Total Revenues $ 75,216 $ 74,868 $ 87,327 $ 90,367
Gross Profit $ 20,427 $ 20,016 $ 24,980 $ 29,026
Net Income $ 3,253 $ 2,241 $ 3,841 $ 5,070
Per Common Share:
Basic $ .36 $ .25 $ .43 $ .57
Diluted .36 .25 .43 .57
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:
Basic $ .35 $ .31 $ .36 $ .47
Diluted .35 .31 .36 .47
14. COMMON STOCK BUYBACK PROGRAM
In 1997 and 1996 the Company continued its program of selective
"open-market" and odd-lot purchases. 3,466 and 45,500 of such shares were
acquired in 1997 and 1996, respectively. All such shares are accounted for as
treasury shares.
37
15. STOCK OPTION PLANS
On March 20, 1996 the Company adopted a stock option plan, the Mestek, Inc.
1996 Stock Option Plan, (the Plan), which provides for the granting of 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,
1997.
As of March 20, 1996, the date of grant, the fair value of the options was
estimated using the Black- Scholes model with the following weighted average
assumptions:
Expected life (years) 10
Interest 6.56%
Volatility 22.5%
Dividend yield 0%
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, with compensation cost for the Plan determined on
the basis of the fair value at the grant date for awards in 1997 and 1996, the
Company's net income and earnings per share would have been as follows:
1997 1996
---- ---
Net Earnings - as reported $14,405 $13,329
Net Earnings - pro forma $14,326 $13,268
Earnings per share - as reported $1.61 $1.49
Earnings per share - pro forma $1.61 $1.48
The application of SFAS 123 for pro forma disclosure may not be representative
of future effects of applying the statement.
38
PART III
With respect to items 10 through 13, the Company will file with the
Securities and Exchange Commission, within 120 days of the close of its fiscal
year, a definitive proxy statement pursuant to Regulation 14-A.
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 1998, and to the extent required, is incorporated herein by
reference. Information regarding executive officers of the Company is set forth
under the caption "Executive Officers".
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the
Company's proxy statement relating to the annual meeting of shareholders to be
held May 12, 1998, and, to the extent required, is incorporated herein by
reference.
The report of the Compensation Committee of the Board of Directors of the
Company shall not be deemed incorporated by reference by any general statement
incorporating by reference the proxy statement into any filing under the
Securities Exchange Act of 1934, and shall not otherwise be deemed filed under
such Act.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management will be set forth in the Company's proxy statement relating to the
annual meeting of shareholders to be held May 12, 1998, and, to the extent
required, is incorporated herein by reference.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will
be set forth in the Company's proxy statement relating to the annual meeting of
shareholders to be held May 12, 1998, and, to the extent required, is
incorporated herein by reference.
39
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of
this report
Independent Auditors' Reports Page 19
Financial Statements:
(a)(1) Consolidated Balance Sheets as of December 31, 1997
and 1996 Pages 20 and 21
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996, and 1995 Page 22
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1997, 1996, and 1995 Page 23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996, and 1995 Page 24
Notes to the Consolidated Financial Statements Pages 25 thru 39
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts Page 42
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 43 through 45
(b) No reports on Form 8-K were filed during the three months ended December
31, 1997.
No annual report to security holders as of December 31, 1997 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 1998. 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.
40
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts
Years ended December 31, 1997, 1996 and 1995
Charged
Bal. at to cost Bal.
at Beg. and Other Deduct. at end
Year Description of Year expense (Desc.) (Desc.) of Year
- ---- ----------- ------- ------- ------- ------- --------
1997 Allowance
for doubtful
accounts $1,701 $1,124 $16(1) $(312)(2) $2,529
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
(1) Includes recoveries of amounts previously written-off and allowances for
doubtful accounts of acquired companies.
(2) Bad debts written off.
41
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 (K)
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (D)
10.1 Employment Agreement dated January 1, 1982 between Mestek
and John E. Reed (A)
10.2 Lease dated July 1, 1983 between Sterling Realty Trust (lessor)
and Mestek, Inc. (lessee) (D)
10.3 Lease dated December 17, 1984 between Mestek (lessee) and Sterling
Realty Trust (lessor), as amended on November 1, 1991 (D)
10.4 Lease dated January 1, 1994 between Mestek (lessee) and Sterling (D)
Realty Trust (lessor)
10.5 Amended and restated lease agreement dated as of July 1, 1997 between
Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor) (K)
10.6 Amended and restated lease agreement dated as of January 1, 1997 (D)
between Vulcan Radiator Division, Mestek, Inc. (lessee) and
MacKeeber Associates Limited Partnership (lessor).
10.7 Equipment Lease Agreement dated January 1, 1993, between (D) Mestek
(lessee) and Sterling Realty Trust (lessor)
10.8 Loan Agreement dated as of December 1, 1984 among Reed National Corp.,
Rudbeek Realty Corp. and The Pitt County Industrial Facilities and
Pollution Control Financing Authority and the Promissory Notes
thereunder, two Guaranty Agreements dated as of December 1, 1984
between Reed National Corp., NCNB National Bank of (A) North Carolina,
and Rudbeek Realty Corp.
10.9 Loan Agreement dated as of May 1, 1984 among the Connecticut
Development Authority (the "CDA"), MacKeeber Limited Partnership,
Vulcan Radiator Corporation and the Promissory Notes thereunder;
Guaranty of Vulcan Radiator Corporation and Reed National Corp. to
the Connecticut Bank and Trust Company, N.A. (A)
10.10 Note Agreement dated as of July 1, 1987 between Mestek (B)
Inc. and Massachusetts Mutual Life Insurance Company.
42
10.11 Indemnification Agreements entered into between Mestek, Inc. and its
Directors and Officers and the Directors of its wholly-owned
subsidiaries incorporated by reference as provided herein, except as
set forth in the attached schedule. (C)
10.12 Acquisition Agreement dated July 29, 1993 for the Purchase
of Stock of Chester Environmental, Inc. between Duquesne
Enterprises, Inc. and Mestek, Inc. (D)
10.13 Variable Interest Rate Cognovit Note dated December 15,
1993 between Mestek, Inc. and The Mary Staebell Trust (D)
10.14 Loan Agreement and Promissory Note between Mestek, Inc.
and ABN Amro Bank, N.V., dated July 9, 1993 (D)
10.15 Loan Agreement and Promissory Note dated June 7, 1993
between The First National Bank of Boston and Mestek, Inc. (D)
10.16 Mortgage Note dated February 1, 1986 between Arrow United Industries,
Inc. and Chemical Bank; said Note assumed by (D) Mestek, Inc. in the
purchase of certain assets of Arrow United Industries, Inc.
10.17 Closing Agreement dated February 10, 1995 between Shougang (E)
Mechanical Equipment of Pennsylvania, Inc. and West Homestead
Joint Venture Corporation.
10.18 Equipment Lease Agreement dated January 1, 1993 between (E)
Machinery Rental Company (Lessor) and Vulcan Radiator
Corporation (Lessee).
10.19 Equipment Lease Agreement dated January 1, 1993 between Machinery (E)
Rental Company (Lessor) and Mestek, Inc. (Lessee).
10.20 Equipment Lease Agreement dated January 1, 1993 between Elizabeth (E)
10.21 Asset Purchase Agreement dated September 9, 1994 between Mestek, (E)
Inc. and Aztec International, Ltd., debtor-in-possession; and Aztec
Sensible Cooling, Inc., debtor-in-possession, and the Amendment thereto
dated October 31, 1994.
10.22 Stock Purchase Agreement relating to the acquisition of stock of (F)
National Northeast Corporation dated October 30, 1995 by and between
Mestek, Inc. as Buyer and David Weener, Wayne Frerichs, Mark McCrill,
and Jon Morrison as Sellers; Stock Purchase Agreement dated October 30,
1995 relating to the acquisition of stock of National Southeast
Aluminum Corporation by and between Mestek, Inc. as Buyer and David
Weener, Wayne Frerichs, Mark McCrill, and Jon Morrison as Sellers.
10.23 Asset Purchase Agreement dated November 15, 1995 by and between Mestek,
Inc. and Heat Exchangers, Inc. and Lease. (G)
10.24 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)
43
10.25 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. (G)
10.26 Stock Purchase Agreement dated October 27, 1997 between Formtek, Inc.
and Joseph Julian. (J)
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 1996 Mestek, Inc. Stock Option Plan. (I)
10.31 Amended and Restated Revolving Loans and Foreign Exchange Facilities
Agreement between Mestek, Inc. and Bank Boston dated July 15, 1997. (J)
10.31 Agreement for The Purchase and Sale of Assets between Formtek, Inc. (K)
(Purchaser)and Dalhstrom Industries, Inc. (Seller) dated August 8,1996.
10.32 Lease dated January 1, 1997 between Pacific/ Air Balance, Inc. (Lessee)
and Production Realty, Inc. (Lessor). (J)
10.33 Stock Purchase Agreement between Formtek, Inc.(Purchaser) and (K)
Maurice Hill Trust dated August 16, 1991, Thomas Nedbal, Donald Hill,
Robert Martinelli, Elmer Utley, and Allen Reczek (Sellers) dated
January 30, 1997.
10.34 Letter Agreement between Mestek, Inc. and the Travelers Insurance (K)
Company, dated March 1, 1996, regarding 5.53% Senior Notes due March 1,
1998.
10.35 Supplemental Executive Retirement Agreements entered into between (J)
Mestek, Inc. and certain of its officers.
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.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
(J) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
(K) Filed as an Exhibit to the Annual Report on Form 10-K for the
year ended December 31, 1996.
44
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1997 1996 1995
---- ---- ----
Net income for earnings per share $ 14,405 $ 13,329 $10,906
-------- -------- -------
Basic weighted average number of common shares
outstanding 8,929 8,938 9,019
======== ======== =========
Basic earnings per common share $1.61 $1.49 $1.21
======== ======== ==========
Diluted weighted average number of common shares
outstanding 8,951 8,943 9,019
======== ======== ==========
Diluted earnings per common share $1.61 $1.49 $1.21
======== ======== =========
45
Exhibit 22.1
LIST OF SUBSIDIARIES
Jurisdiction of
Name Formation
Advanced Thermal Hydronics, Inc. Delaware
Alapco Holding, Inc. Delaware
Deltex Partners, Inc. Delaware
Formtek, Inc. Delaware
Cooper-Weymouth, Peterson, Inc. Delaware
Hill Engineering, Inc. Illinois
CoilMate, Inc. Connecticut
Gentex Partners, Inc. Texas
Mestex, Ltd. (Texas limited partnership) Texas
Yorktown Properties, Ltd. (Texas limited partnership)Texas
HBS Acquisition Corporation Delaware
Lexington Business Trust (Massachusetts business trust) Massachusetts
Mestek Canada, Inc. Ontario
Mestek Foreign Sales Corporation U.S. Virgin Islands
Mestek Technology, Inc. Delaware
MCS, Inc. Pennsylvania
National Northeast Corporation Delaware
Omega Flex, Inc. Pennsylvania
Pacific/Air Balance, Inc. California
TEK Capital Corporation Delaware
Westcast, Inc. Massachusetts
46
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
47
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
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this report be signed on its
behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: March 27, 1998 By: /S/ John E. Reed
- ------------------------------------- ----------------
John E. Reed, Chairman of the Board
and Chief Executive Officer
Date: March 27, 1998 By: /S/ Stephen M. Shea
- ------------------------------------ -------------------
Stephen M. Shea, Senior Vice President
Finance, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: March 27, 1998 By: /S/ A. Warne Bouce
- -------------------------------------- ------------------
A. Warne Boyce, Director
Date: March 27, 1998 By: /S/ E. Herbert Burk
- ------------------------------------ -------------------
E. Herbert Burk, Director
Date: March 27, 1998 By: /S/ William J. Coad
- ----------------------------------- -------------------
William J. Coad, Director
49
Date: March 27, 1998 By: /S/ David M. Kelly
- --------------------------------------- ------------------
David M. Kelly, Director
Date: March 27, 1998 By: /S/ Winston R. Hindle, Jr.
- --------------------------------------- --------------------------
Winston R. Hindle, Jr., Director
Date: March 27, 1998 By: /S/ David W. Hunter
- ------------------------------------- -------------------
David W. Hunter, Director
Date: March 27, 1998 By: /S/ David R. Macdonald
- ------------------------------------ ----------------------
David R. Macdonald, Director
Date: March 27, 1998 By: /S/ John E. Reed
- ------------------------------------ ----------------
John E. Reed, Director
Date: March 27, 1998 By: /S/ Stewart B. Reed
- -------------------------------------- -------------------
Stewart B. Reed, Director
50