Item 1 - BUSINESS
GENERAL
Mestek, Inc. ("Mestek" or the "Company") was incorporated in the Commonwealth of Pennsylvania in 1898 as Mesta Machine Company. It changed its name to Mestek, Inc. in October, 1984, and merged with Reed National Corp. on July 31, 1986.
On January 31, 1997, the Company acquired ninety-one and one hundredths percent (91.01%) of the issued and outstanding common stock of Hill Engineering, Inc. (Hill) of Villa Park, Illinois and Danville, Kentucky. Hill is a leading producer of precision tools and dies for the gasket manufacturing and roll-forming industries and other specialty equipment. The purchase price paid for the acquired stock was $5,141,000. The Company has accounted for this acquisition under the purchase method of accounting.
On November 3, 1997 the Company acquired one hundred percent (100%) of the issued and outstanding common stock of CoilMate, Inc. (Coilmate) of Southington, Connecticut. Coilmate is the leading producer of pallet decoiling equipment for the metal stamping and roll forming industries. The purchase price paid was $3,521,000. The Company has accounted for this acquisition under the purchase method of accounting.
On April 29, 1998, the Company, through a Canadian subsidiary, acquired 100 percent of the outstanding common stock of Ruscio Brothers Refractory Ltd. (RBR) and 988721 Ontario, Inc. (988721), both of Mississauga, Ontario, Canada. RBR and 988721 manufacture and distribute commercial and residential copper-finned boilers and water heaters under the name Ruscio Brothers Industries, (RBI), primarily in Canada. Copper-finned boilers and water heaters are complimentary to the Company's other hydronic products and the Company now distributes RBI's products in the United States. The purchase price paid for the acquired stock was approximately $2,877,000 (U.S.) and included goodwill of approximately $1,807,000 (U.S.)
On November 2, 1998, the Company exchanged its forty-six and eight tenths percent (46.8%) interest in Eafco, Inc. for ninety-three and six tenths percent (93.6%) of the common stock of Boyertown Foundry Company (BFC) of Boyertown, PA. BFC received one hundred percent (100%) of the foundry and machining operations of Eafco on that same date pursuant to "a split-up" of Eafco structured for tax purposes as a tax-free reorganization. The Company has accounted for this transaction under the purchase method of accounting. Accordingly, the carrying value of the Company's equity investment in Eafco, $8,778,000 at November 2, 1998, was treated as the purchase price for accounting purposes. The assets acquired by BFC included substantially all of the real estate and equipment owned by Eafco in Boyertown and used in the foundry, machining and boiler assembly operations and certain other assets and liabilities. BFC will operate principally as a cast-iron foundry, supplying cast iron sections and related machining services to both the Company's Westcast subsidiary and to various third parties, including Peerless Heater Company, Inc. In connection with this transaction the Company loaned Eafco, Inc. $1,500,000 and also assumed and paid $650,000 of Eafco's then outstanding bank indebtedness. The $1,500,000 loan bears interest at BankBoston's prime rate less one, is payable over 42 months beginning on May 1, 2000, and is secured by substantially all of Eafco's assets. BFC has also leased a portion of its facilities in Boyertown to Eafco, Inc. which will continue to assemble and warehouse boilers in Boyertown for Peerless Heater Company, Inc.
On March 26, 1999, the Company acquired substantially all of the operating assets of the Anemostat Products and Anemostat-West Divisions of Dynamics Corporation of America, (collectively, Anemostat), a wholly-owned subsidiary of CTS Corporation. Anemostat manufactures commercial air distribution products (grilles, registers, diffusers and VAV boxes); security air distribution products; and door and vision frame products for the HVAC and commercial building industries at locations in Scranton, Pennsylvania, (Anemostat Products) and Carson, California, (Anemostat-West). The Anemostat products are complementary to the Company's existing louver and damper businesses. The purchase price paid for the assets acquired was approximately $25,360,000, including assumed liabilities of approximately $3,577,000. The Company accounted for this acquisition under the purchase method of accounting and, accordingly, recorded Goodwill of approximately $6,800,000.
On April 26, 1999, an order was entered in the Bankruptcy Court for the Southern District of Ohio, whereby the Company's offer to acquire certain of the operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of industrial dampers for the power generation market, was approved. The Company closed this transaction on May 7, 1999 for $2,554,000.
On March 7, 2000, the Company completed the Spin-off and subsequent merger of its wholly owned subsidiary, MCS, Inc. with and into Simione Central Holdings, Inc., as more fully explained in note 2 to the consolidated financial statements.
On March 14, 2000, the Company and MetCoil Systems Corporation, (MetCoil) announced that they have entered into a definitive merger agreement under which MetCoil will be merged into a wholly owned subsidiary of the Company for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review under the Hart-Scott-Rodino Act. All other conditions will be further described in a proxy statement to be mailed to MetCoil's stockholders. The Board of Directors of MetCoil has unanimously recommended that stockholders approve the merger.
MetCoil manufactures advanced sheet metal forming equipment, fabricating equipment, and computer-controlled fabrication systems for the global market. The Company employs approximately 270 people, principally in its Cedar Rapids, Iowa, and Lisle, Illinois, manufacturing facilities, and had revenues for the fiscal year ended May 31, 1999 of $45.8 million. MetCoil's products are complementary with those of the Company's Metal Forming Segment.
The Company's executive offices are located at 260 North Elm Street, Westfield, Massachusetts 01085. The Company's phone number is 413-568-9571.
OPERATIONS OF THE COMPANY
The Company operates in four continuing business segments: Heating, Ventilating, and Air Conditioning Equipment ("HVAC") manufacturing; Computer Software Development and Systems Design; Metal Products; and Metal Forming. Each of these segments is described below.
The Company's former Metal Products Segment was subdivided for reporting purposes after 1997 into the Metal Forming Segment and the Metal Products Segment.
The Company divested its Computer Systems segment on March 7, 2000 as explained above.
The Company and its subsidiaries together employed approximately 3,050 persons as of December 31, 1999.
HEATING, VENTILATING AND AIR CONDITIONING EQUIPMENT
The Company, through Mestek, Inc. and various of its wholly owned subsidiaries, (collectively, the "Reed Division") manufactures and distributes products in the HVAC industry. These products include residential, commercial and industrial hydronic heat distribution products, gas-fired heating and ventilating equipment, louver and damper equipment, commercial and residential gas and oil-fired boilers, air conditioning units, and related products used in heating, ventilating and air conditioning systems.
The Reed Division sells finned-tube and baseboard radiation equipment under the names "Sterling", "Vulcan", "Heatrim", "Petite-7", "Hydrotherm", and "Suntemp", and other hydronic heat distribution products under the names "Sterling" and "Beacon-Morris". The division sells gas-fired unit heaters under the name "Sterling", radiant heating under the name "Cox" and gas-fired indoor and outdoor heating and ventilating equipment under the names "Alton", "Applied Air", "Wing", "Air Fan", and "Temprite". Cooling and air conditioning equipment is sold under the "Alton", "Applied Air", "Space Pak", "Aztec", "Koldwave", "Air Fan", and "Nesbitt" names, and gas and oil-fired boilers are sold primarily under the names "RBI", "Hydrotherm", "Multi-Pulse", and "Multi-Temp", and distributed under the name "Smith Cast Iron Boilers" by Westcast, Inc. A number of these trade names are also registered trademarks owned by the Company and its subsidiaries. These products may be used to heat, ventilate and/or cool structures ranging in size from large office buildings, industrial buildings, warehouses, stores and residences, down to such small spaces as add-on rooms in residences. The division's products are manufactured at plants in Westfield, Massachusetts; South Windsor, Connecticut; Farmville, North Carolina; Dallas, Texas; Mississauga, Ontario, Canada; Dundalk, Maryland; and Wrens, Georgia. The Company closed its Skokie, Illinois and Ridgeville, Indiana plants in 1996 and relocated these operations to Dundalk, Maryland and Farmville, North Carolina, respectively.
The Reed Division sells its many types of fire, smoke, and air control louvers and dampers, which are devices designed to facilitate the ventilation of buildings or to control or seal off the movement of air through building duct work in the event of fire or smoke, under the names "Air Balance", "Phillips Aire", "Anemostat", "ACDC", "Pacific Air Balance", "American Warming and Ventilating", and "Arrow". These products are manufactured at the Company's plants in Wrens, Georgia; Los Angeles, California; Bradner, Ohio; Waldron, Michigan; Springfield, Ohio, and Wyalusing, Pennsylvania. The Reed Division also manufactures industrial and power plant dampers in Los Angeles, California under the name "Pacific Air Products".
Through its design and application engineering groups, the Reed Division custom designs and manufactures many HVAC products to meet unique customer needs or specifications not met by existing products. Such custom designs often represent improvements on existing technology and often are incorporated into the Reed Division's standard line of products.
The Reed division sells its HVAC products primarily through approximately 2300 independent representatives throughout the United States and Canada, many of whom sell several of Reed's products. These independent representatives usually handle various HVAC products made by manufacturers other than the Company. These representatives usually are granted an exclusive right to solicit orders for specific Reed Division products from customers in a specific geographic territory. Because of the diversity of the Reed Division's product lines, there is often more than one representative in a given territory. Representatives work closely with the Reed Division's sales managers and its technical personnel to meet customers' needs and specifications. The independent representatives are compensated on a commission basis and generally they neither stock Reed Division products nor purchase such products for resale.
The Reed Division, directly, or through its representatives, sells its HVAC products primarily to contractors, installers, and end users in the construction industry, wholesale distributors and original equipment manufacturers.
While the Reed Division's HVAC products are distributed throughout the United States and Canada, sales in the northeast, mid-Atlantic and upper mid-west states are somewhat higher than would be suggested by unadjusted construction statistics in any given year due to the relative popularity of hydronic products in these areas.
The sale of heating and cooling products is inherently sensitive to climatic trends in that relatively warm winters and/or cool summers can adversely effect sales volumes.
The Reed Division sells gas-fired and hydronic heating and ventilating products, boilers and other HVAC equipment in Canada and also sells its products in other foreign markets from time to time. Total export sales did not exceed ten percent of total revenues, nor did foreign assets exceed ten percent of total assets, in any of the most recent five years ending December 31, 1999.
The Reed Division uses a wide variety of materials in the manufacture of its products, such as copper, aluminum and steel, as well as electrical and mechanical components, controls, motors and other products. Management believes that it has adequate sources of supply for its raw materials and components and has not had significant difficulty in obtaining the raw materials, component parts or finished goods from it suppliers. No industry segment of the Company is dependent on a single supplier, the loss of which would have a material adverse effect on its business.
The businesses of the HVAC segment are highly competitive. The Company believes that it is the largest manufacturer of hydronic baseboard heating for residential and commercial purposes and is one of the three leading manufacturers of gas-fired heaters and fire and smoke dampers. The Company has established a substantial market position in the cast-iron boiler business through its acquisitions in 1991, 1992, and 1998. Nevertheless, in all of the industries in which it competes, the Company has competitors with substantially greater manufacturing, sales, research and financial resources than the Company. Competition in these industries is based mainly on merchandising capability, service, quality, price and ability to meet customer specifications. The Reed Division believes that it has achieved and maintained its position as a substantial competitor in the HVAC industry largely through the strength of its extensive distribution network, the breadth of it product line and its ability to meet customer delivery and service requirements. Most of its competitors offer their products in some but not all of the industries served by the Reed Division.
The quarterly results of the HVAC segment are affected by the construction industry's demand for heating equipment, which generally peaks in the last four months of each year (the "heating season"). Accordingly, sales are usually higher during the heating season, and such higher levels of sales may in some years continue into the following calendar year. As a result of these seasonal factors, the Company's inventories of finished goods reach higher levels during the heating season and are generally lower during the balance of the year.
Management does not believe that backlog figures relating to the HVAC segment are material to an understanding of its business because most equipment is shipped promptly after the receipt of orders.
The Company owns a number of United States and foreign patents. Although the Company usually seeks to obtain patents where appropriate, it does not consider any segment materially dependent upon any single patent or group of related patents.
The Reed Division has a number of trademarks important to its business, including those relating to its Sterling, Vulcan, Beacon-Morris, Heatrim, Wing, Alton, Applied Air, Arrow, Aztec Sensible Cooling, Hydrotherm, Temprite and Dynaforce product lines.
Expenditures for research and development for the HVAC segment in 1999, 1998, and 1997 were$1,735,000, $1,415,000, and $941,000 respectively. Product development efforts are necessary and ongoing in all product markets.
The Company believes that compliance with environmental laws will not have a financially material effect on its operations in 2000.
COMPUTER SOFTWARE DEVELOPMENT AND SYSTEM DESIGN
The business of Mestek's wholly owned subsidiary, MCS, Inc. ("MCS") is primarily related to the sales and service of business applications software for the home health services information systems marketplace. Services to customers include preparation of computer programs and software to meet the customer needs, providing computer hardware when required, installing the system at the customer's business, and providing continuing support services.
The most significant systems which MCS has available are MestaMed, a third-party billing, general ledger, accounting and inventory control system for providers of durable medical equipment, home health care, infusion therapy, rehabilitation programs, and hospice services, and ProfitWorks, a system utilized by lumber, electrical, plumbing, and manufacturer's representatives to manage order entry, inventory, purchasing, accounts receivable, and reporting. Support includes software enhancements, diagnostic access, and training seminars. MestaMed is the only supplier of an integrated solution for providers of home health services. MestaMed is available on a variety of hardware platforms and operating systems including UNIX and various Intel based platforms.
MCS's products were developed in what are today regarded as "legacy" environments. Nevertheless, by the continual application and utilization of tools developed by others, MCS has been able to sustain and improve the utility of its products and offer such products on a variety of hardware and operating systems platforms, including Windows NT. Developments undertaken during 1999 include a graphical user interface (GUI) for applicable modules and open database compliant (ODBC) features. At the same time, the Company continues to look at developing or acquiring new products based upon third generation tools and modern software languages. The Company is also studying the use of such tools, as well as Web-based tools, to accomplish the migration of its current offerings to modern operating systems environments.
New enhancements to its software products are continually being developed by MCS. Notable developments in 1999 were (1) the introduction of a "point-of-care" enhancement to MCS's Home Health Care software and (2) the introduction of an enhanced inventory system for MestaMed. During 1999, 1998, and 1997 MCS spent approximately $2,532,000, $1,992,000, and $1,575,000 respectively, for software development. These costs related primarily to customer-sponsored development and improvements to existing products.
Because of the importance of systems development to MCS, programming and sales personnel are a primary resource. MCS's main office is in the Pittsburgh, Pennsylvania area and it has sales offices in other parts of the country.
The delivery of home health care services is increasingly dominated by hospital based "integrated delivery systems" (IDS). MCS has not established a relationship at this time with a supplier of information systems to hospital based delivery systems. It has, however, recently entered into agreement with the Volunteer Hospital Association whereby its products will be recommended to the Association's members as a recommended solution for their home health services information systems needs.
The markets for business applications software and systems development are intensely competitive and subject to rapid technological change. For this reason MCS faces risks and enjoys opportunities, which are somewhat more pronounced than in the Company's other operating segments. MCS has many competitors in the markets in which it operates both on a regional and national basis. Foreign sales are not significant. On December 31, 1999, MCS's backlog was approximately $187,803.
MCS's inventory consists primarily of computer hardware and related equipment, which is sold together with applications software as a turnkey solution. MCS attempts to maintain a sixty-day supply so that delivery of completed systems can be made on a timely basis.
METAL FORMING
The Company's Metal Forming Segment designs, manufactures and sells a variety of metal handling and metal forming products under names such as Cooper-Weymouth-Peterson, Dahlstrom, Hill Engineering, CoilMate-Dickerman, and Rowe (collectively Formtek). The products are sold through independent dealers in most cases to end-users and in some cases to other original equipment manufacturers. The products include roll formers, roll forming systems, wing benders, presses, servo-feeds, straighteners, cradles, reels, cut-to-length lines, specialty dies, tube cut-off systems, hydraulic punching blanking and cutoff systems, rotary punching, and flying cut-off saws.
In 1997, this Segment added two additional units: Hill Engineering, Inc. a leading producer of precision tools and dies for the gasket manufacturing and roll forming industries, and CoilMate, Inc., a leading producer of pallet decoiling equipment for the metal stamping and roll forming industries. The CoilMate product has been combined with a former CWP Division, Dickerman, and this "low-end" line is now marketed as CoilMate-Dickerman.
The Company believes it has improved its competitive position within the metal forming marketplace by developing servo-driven feeders with microprocessor controls, and other software controls, affording diagnostic and operational features, as well as by the strategic acquisitions made in 1996 and 1997 which broadened the segment's overall product offerings.
Certain products made by these units are custom designed and manufactured to meet unique customer needs or specifications not currently met by existing products. These products, developed by the Company's design and application engineering groups, often represent improvements on existing technology and are often then incorporated into the unit's standard product line.
The primary customers for such metal-handling and metal-forming equipment include contract metal stampers, manufacturers of large and small appliances, commercial and residential lighting fixtures, automobile accessories, office furniture and equipment, metal construction and HVAC products.
The businesses of Formtek are highly competitive and, due to the nature of the products, are significantly more cyclical (due to changes in manufacturing capacity utilization) than the Company's other operating segments. CWP, Rowe, and CoilMate-Dickerman have become substantial forces in the manufacture of coil handling equipment through their broad and competitive product lines, together with Formtek's customer driven application engineering and ability to meet customer delivery and service requirements through separate extensive distribution networks. The Company expects that these strengths will be further leveraged by the large installed customer bases of its recent acquisitions.
The Metal Forming Segment sells equipment in Canada and other foreign markets. Total export sales did not exceed ten percent (10%) of the total revenues nor did foreign assets exceed ten percent (10%) of total assets in any of the most recent five years ending December 31,1999.
The backlog relating to this segment at December 31, 1999 was approximately $9,257,335.
Expenditures for research and development for this segment in 1999, 1998, and 1997 were $610,000, $465,000, and $298,000, respectively.
METAL PRODUCTS
The Company's Metal Products Segment (consisting of National Northeast Corporation, OmegaFlex, Inc. and Boyertown Foundry Company) manufactures a variety of metal products including extruded aluminum heat sinks, flexible metal hose and grey iron castings. This segment sells cast iron products to the HVAC industry, including the company's HVAC segment, flexible metal hose products to the HVAC and industrial metal hose marketplaces, extruded aluminum products for thermal management, (heat sinks), to the electronics marketplaces, extruded aluminum products to the architectural products marketplace, and extruded aluminum products to the Company's HVAC segment.
National Northeast Corporation (National) extrudes aluminum shapes for the construction and other markets and extrudes and fabricates aluminum based products and assemblies and high precision aluminum heat sinks (heat dissipation devices) for use in a wide variety of power control, communications and related electronic and computer systems applications. Its products are made through an extrusion process supported by a broad line of secondary machining, stamping and assembly capabilities. National's application engineering and fabrication capabilities have helped it become a substantial competitor in the heat sink market place.
OmegaFlex, Inc. (Omega) manufactures corrugated flexible stainless steel hose for use in a wide variety of industrial applications. Its products include annular, helical and braided metal hose and hose fabrications and are sold primarily through industrial hose distributors. In January of 1997, Omega introduced Trac-PipeTM, a corrugated stainless steel tubing developed for use in piping gas appliances. The Company has realized significant synergies by distributing Trac-PipeTM through its extensive HVAC distribution network.
Boyertown Foundry Company (BFC) operates a cast-iron foundry in Boyertown, PA, which manufactures products used principally in the HVAC industry.
The Metals Products Segment sells products in Canada and in other foreign markets. Total export sales, however, did not exceed ten percent of total revenues, nor did foreign assets exceed ten percent of total assets in any of the most recent five years ending December 31, 1999.
The backlog relating to this segment at December 31, 1999 was approximately $15,451,414.
Expenditures for research and development for this segment, independent of research and development related to specific customer requests, in 1999, 1998, and 1997 were $594,000, $256,000, and $389,000, respectively.
SEGMENT INFORMATION
Selected financial information regarding the operations of each of the above segments, consistent with statement of Financial Accounting Standard No. 131 and Section 101 (d) of Regulation 5-K, is presented in Note 12 to the Consolidated Financial Statements.
Item 2
Item 2 - PROPERTIES
The HVAC segment of the Company manufactures equipment at plants that the Company owns in Waldron, Michigan; Bradner, Ohio; Wyalusing, Pennsylvania; Dundalk, Maryland, Springfield, Ohio; Wrens, Georgia, and Dallas, Texas. It operates plants that it leases from entities owned directly or indirectly by certain officers and directors of the Company in Westfield, Massachusetts; Farmville, North Carolina; South Windsor, Connecticut and Los Angeles, California. The Reed Division leases manufacturing space from unrelated parties in Mississauga, Ontario, Canada; Carson, California; New Milford, Ohio; as well as a regional distribution facility in Mississauga, Ontario, Canada.
The Metal Forming segment manufactures products at plants the Company owns in Clinton, Maine, Villa Park, Illinois, Schiller Park, Illinois, and Danville, Kentucky.
The Metal Products segment manufactures products at plants the Company owns in Pelham, New Hampshire, Boyertown, Pennsylvania and at leased facilities in Lawrence, Massachusetts, Winter Haven, Florida, and Exton, Pennsylvania.
The Company's Computer System's segment (MCS) leases office space in Monroeville, Pennsylvania, which houses its principal offices and computer facility used in the computer software development and system design business. MCS has also recently leased office space in Pleasanton, California. MCS owns the computer equipment used in its operations
The Company's principal executive offices in Westfield, Massachusetts are leased from an entity owned by an officer and director of the Company. The Company also owns an office building in Holland, Ohio.
In addition, the Company and certain of its subsidiaries lease other office space in various cities around the country for use as sales offices.
Certain of the owned facilities are pledged as security for certain long-term debt instruments. See Property and Equipment, Note 4 to the Consolidated Financial Statements.
Item 3
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
Item 4 - SUBMISSION OF MATTER TO A VOTE OF THE SECURITY HOLDERS
No matters were submitted to the security holders of the Company for a vote during the fourth quarter of 1999.
PART II
Item 5
Item 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the New York Stock Exchange, under the symbol MCC. The number of shareholders of record as of March 15, 2000 based on inquiries of the registrant's transfer agent was 1,288. For this purpose, shareholders whose shares are held by brokers on behalf of such shareholders (shares held in "street name") are not separately counted. The price range of the Company's common stock between January 1, 2000 and March 15, 2000 was between $20 1/4 and $16, and the closing price on March 15, 2000 was $16.
The quarterly price ranges of the Company's common stock during 1999 and 1998 as reported in the consolidated transaction reporting system were as follows:
PRICE RANGE 1999 1998 ---- ----
First Quarter $20 15/16 $18 3/4 $22 3/8 $18 1/4 Second Quarter $22 3/8 $18 3/8 $22 3/4 $18 9/16 Third Quarter $22 7/8 $19 3/4 $22 5/8 $18 Fourth Quarter $20 1/4 $18 1/4 $20 3/4 $17 1/2
The Company has not paid any dividends on its common stock since 1979.
No securities issued by the Company, other than common stock, are listed on a stock exchange or are publicly traded.
Item 6
Item 6 - SELECTED FINANCIAL DATA
Selected financial data for the Company for each of the last five fiscal years is shown in the following table. Selected financial data reflecting the operations of acquired businesses is shown only for periods following the related acquisition.
SUMMARY OF FINANCIAL POSITION as of December 31, (1) (dollars in thousands except per share data)
1999 1998 1997 1996 1995 ---- ---- ---- ---- ----
Total Assets $242,253 $205,143 $191,117 $170,010 $141,431 Working capital 63,732 49,415 42,056 59,274 41,626 Long-term debt, including current portion 34,791 13,188 19,329 15,362 3,031 Shareholders' equity 148,617 133,298 118,007 103,718 91,046 Shareholders' equity per common share (1) $16.96 $14.99 $13.22 $11.61 $10.14 ======== ========= ======= ======= ========
SUMMARY OF OPERATIONS - for the year ended December 31, (2) (dollars in thousands except per share data)
1999 1998 1997 1996 1995 ---- ---- ---- ---- ----
Total revenue $375,270 $338,344 $327,778 $299,527 $245,865 Net income 17,917 16,064 14,405 13,329 10,906 Earnings per common share: Net Income
Basic $2.02 $1.80 $1.61 $1.49 $1.21 Diluted $2.02 $1.80 $1.61 $1.49 $1.21
1) Equity per common share amounts are computed using the common shares and common share equivalents outstanding as of December 31, 1999, 1998, 1997, 1996, and 1995.
(2) Includes the results of acquired companies or asset acquisitions from the date of such acquisition, as follows:
* Anemostat Corporation from March 26, 1999 * ACDC, Inc. from May 7, 1999 * Boyertown Foundry Company from November 2, 1998 * Ruscio Brothers Industries, (RBI), from April 29, 1998 * CoilMate, Inc., from November 3, 1997 * Hill Engineering, Inc., from January 31, 1997 * Dahlstrom Industries, Inc. from August 30, 1996. * Rowe Machinery & Automation, Inc., from February 5, 1996. * Omega Flex, Inc., from February 2, 1996. * National Northeast Corporation and National Southeast Corporation from October 30, 1995. * Heat Exchangers, Inc., from November 15, 1995. * Aztec Sensible Cooling, Inc., from November 1, 1994.
Item 7
Item 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING INFORMATION
This report contains forward-looking statements, which are subject to inherent uncertainties. These uncertainties include, but are not limited to, variations in weather, changes in the regulatory environment, the broad economic effect of the Year 2000 problem, customer preferences, general economic conditions, and increased competition. All of these are difficult to predict, and many are beyond the ability of the Company to control.
Certain statements in this Annual Report on Form 10-K constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are not historical facts but rather reflect the Company's current expectations concerning future results and events. The words "believes", "expects", "intends", "plans", "anticipates", "likely", "will", and similar expressions identify such forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company (or entities in which the Company has interests), or industry results, to differ materially from future results, performance or achievements expressed or implied by such forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements which reflect management's view only as of the date of this Annual Report on Form 10-K. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements which may be made to reflect events or circumstance after the date hereof or to reflect the occurrence of unanticipated events, conditions or circumstances.
RETURN ON AVERAGE NET ASSETS EMPLOYED
1999, 1998, 1997
The Company's Return on Average Net Assets Employed, defined as operating profits before bonuses, over Average Net Assets Employed (Total Assets less Current Liabilities other than Current Portion of Long-Term Debt and Revolving Credit Agreement, averaged over 12 months) for the years 1999, 1998, and 1997 was as follows:
1999 1998 1997 ---- ---- ----
Operating Profits (as defined) $36,295,000 $31,497,000 $30,525,000 Average Net Assets Employed (as defined) $175,070,000 $147,170,000 $130,419,000 ------------ ------------ ----------- Return on Average Net Assets Employed 20.7% 21.4% 23.4% ============ ============ ===========
The 1999 return on Average Net Assets Employed decreased slightly from 1998 due principally to reduced operating incomes from the Company's Computer Software and Metal Forming Segments and a substandard return on the HVAC segment's investment in Anemostat, as more fully explained below.
ANALYSIS: 1999 VS. 1998
The Company's core HVAC Segment reported comparative results for 1999 and 1998 as follows:
1999 1999 1998 1998 ($000) % ($000) % ------ ---- ------ ----
Net Sales $254,452 100.00% $229,704 100.00% Gross Profit 73,604 28.93% 65,485 28.51% Operating Income 20,700 8.14% 15,668 6.82%
Improved performances from many of the HVAC segment's hydronic and industrial products offset sub par performances from certain air distribution products as well as depressed results from the Company's recently acquired Anemostat business. Significant one-time expenses were incurred in 1999 as part of a long-term plan to strengthen and improve the Anemostat franchise, principally in the product development and market development areas. These costs will continue in year 2000 and may result in substandard returns on the Company's investment in Anemostat for some time.
The Company's Computer Systems Segment (MCS, Inc.) reported increased sales, relatively flat margins, and significantly reduced operating profits in 1999 as indicated in the following table:
1999 1999 1998 1998 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $18,087 100.00% $16,630 100.00% Gross Profit 7,073 39.11% 6,578 39.56% Operating Income 937 5.18% 2,335 14.04%
Sales of MCS' core MestaMed product increased significantly in 1999, accounting for most of MCS' revenue growth. Significant product development and product support related costs were also incurred during this period resulting in decreased operating income for MCS despite the growth in revenues. MCS is pursuing a number of product development initiatives designed to assist with the migration of its core products to more modern operating system environments. MCS' products were developed in what are today regarded as "legacy" environments. Nevertheless, by the continual application and utilization of tools developed by others, MCS has been able to sustain and improve the utility of its products and offer such products on a variety of hardware, and operating systems platforms, including Windows NT. MCS is also undertaking a redesign of its product support infrastructure with a view to improving the quality and timeliness of the support function.
The Company's Metal Products Segment includes National Northeast Corporation, (National), an 89.5% owned aluminum extruder and heat sink fabricator acquired in 1995, Omega Flex, Inc. (Omega), an industrial metal hose fabricator acquired in 1996, and Boyertown Foundry Company, (BFC), a ninety-three and six tenths percent (93.6%) owned subsidiary which acquired the foundry and machining operations of Eafco, Inc. on November 2, 1998. Prior to that date, the Company's forty-six and eight tenths percent (46.8%) investment in Eafco was accounted for on the equity method and was not included in this segment. Results of operations for BFC for the period November 2, 1998 through December 31, 1998, exclusive of intersegment sales, are included in the this segment's 1998 results. BFC produces cast iron products and related machining services for the Company's HVAC Segment and various third parties.
Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $65,614 100.00% $50,745 100.00% Gross Profit 18,554 28.28% 14,222 28.03% Operating Income 7,870 11.99% 5,194 10.24%
The growth in operating profits in 1999 is traceable to significantly improved results from both BFC and Omega. Sales of Omega's patented TracPipe(R) flexible gas piping product continued to grow at a very rapid pace in 1999. TracPipe(R) is a corrugated stainless steel tubing developed especially for use in the piping and installation of gas appliances. National experienced a sub par year in 1999 as it completed its relocation from Lawrence, Massachusetts to Pelham, New Hampshire and installed a new 3,000 ton extrusion press in Pelham. Significant disruptions and one-time costs associated with the relocation and new press installation impacted operating profits in 1999.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson, (CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom Industries, (Dahlstrom), a leading manufacturer of roll forming equipment, acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies for the gasket manufacturing and roll forming industries acquired on January 31, 1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling equipment for the metal stamping and roll forming industries acquired on November 3, 1997. Comparative results for 1999 and 1998 were as follows:
1999 1999 1998 1998 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $37,116 100.00% $41,265 100.00% Gross Profit 10,141 27.32% 12,212 29.59% Operating Income 1,748 4.71% 4,170 10.11%
The Metal Forming Segment was effected in 1999 by an industry-wide slowdown in orders for new equipment which reduced revenues significantly. Margins also suffered for related reasons and results overall were impacted accordingly.
As a whole the Company reported comparative results as follows:
1999 1999 1998 1998 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $375,270 100.00% $338,334 100.00% Gross Profit 109,372 29.14% 98,136 29.01% Operating Income 31,255 8.33% 27,367 8.09%
Gross Profit and Operating Income margins increased primarily due to positive results from the Company's HVAC and Metal Products Segments.
Sales Expense for the Company as a whole, as a percentage of total revenues, decreased slightly, from twelve and seventy hundredths percent 12.70% to twelve and fifty-nine hundredths 12.59%, owing to in the Company's growth in 1999. General and Administrative Expenses, as a percentage of revenues, decreased from five and sixty-two hundredths percent (5.62%) to five and three tenths percent (5.3%)for the same reason. Engineering Expense, as a percentage of total revenues, increased slightly from two and sixty hundredths percent (2.60%) to two and ninety-three hundredths percent (2.93%), owing to significant new product development costs incurred by the Company's Computer Software Segment.
Interest Expense increased substantially in 1999, reflecting principally the effect of the Anemostat acquisition and other capital spending.
Income Tax Expense for 1999, as a percentage of pretax income, increased slightly from thirty-seven and thirty-seven hundredths percent (37.37%) to thirty-seven and fifty-nine hundredths percent (37.59%).
ANALYSIS: 1998 VS. 1997
The Company's core HVAC Segment reported comparative results for 1998 and 1997 as follows:
1998 1998 1997 1997 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $229,704 100.00% $229,423 100.00% Gross Profit 65,485 28.51% 66,178 28.85% Operating Income 15,668 6.82% 17,846 7.78%
The Company's decision in 1998 to close its Temprite Manufacturing location in Orangeville, Ontario, Canada, together with the effect of certain transitional costs associated with the Company's recent HVAC acquisitions and certain other product re-alignment costs, combined to produce flat HVAC revenues in 1998 and reduced operating profits.
The Company's Computer Systems Segment (MCS, Inc.) reported reduced sales, margins and operating profits in 1998 as indicated in the following table:
1998 1998 1997 1997 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $16,630 100.00% $17,029 100.00% Gross Profit 6,578 39.56% 7,238 42.50% Operating Income 2,335 14.04% 3,289 19.31%
Reimbursement restrictions imposed upon Medicare providers (MCS's customers) in 1998 by the Balanced Budget Amendment adversely affected the home health care information systems marketplace and resulted in reduced revenues for MCS. Also, costs incurred by MCS relative to its efforts to address Year 2000 functionality in its products, and other product development initiatives, impacted this segment's operating costs adversely in 1998.
MCS's products were developed in what are today regarded as "legacy" environments. Nevertheless, by the continual application and utilization of tools developed by others, MCS has been able to sustain and improve the utility of its products and offer such products on a variety of hardware, and operating systems platforms, including Windows NT. Developments in progress at this time include a graphical user interface (GUI) for applicable modules and open database compliant (ODBC) features. At the same time the Company continues to look at developing or acquiring new products based upon third generation tools and modern software languages. The Company is also studying the use of such tools, as well as Web-based tools, to accomplish the migration of its current offerings to modern operating systems environments.
For 1998 reporting purposes the Company's former Metal Products Segment has been subdivided into a Metal Forming Segment and a Metal Products segment.
The Company's Metal Products Segment includes National Northeast Corporation, (National), an eighty-nine and five tenths percent (89.5%) aluminum extruder and heat sink fabricator acquired in 1995, Omega Flex, Inc. (Omega), an industrial metal hose fabricator acquired in 1996, and Boyertown Foundry Company, (BFC), a ninety-three and six tenths percent (93.6%) owned subsidiary which acquired the foundry and machining operations of Eafco, Inc. on November 2, 1998. Prior to that date, the Company's forty-six and eight tenths percent (46.8%) investment in Eafco was accounted for on the equity method and was not included in this segment. Results of operations for BFC for the period November 2, 1998 through December 31, 1998, exclusive of intersegment sales, are included in the this segments' 1998 results. BFC produces cast iron products and related machining services for the Company's HVAC Segment and various third parties.
Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $50,745 100.00% $42,797 100.00% Gross Profit 14,222 28.03% 10,407 24.32% Operating Income 5,194 10.24% 2,723 6.36%
The growth in operating profits in 1998 is traceable to significantly improved results from both National and Omega. National continued to execute its aggressive expansion plan in 1998, moving its fabricating operations from Lawrence, MA to its new facility in Pelham, NH, and continued to expand its presence in the thermal management (heat sink) marketplace. Omega, with significant 1997 product development and market development costs behind it, successfully executed its plan in 1998 to greatly expand sales of its new "Trac-pipe(TM)" flexible gas piping product, a corrugated stainless steel tubing developed especially for use in the piping and installation of gas appliances.
The Company's Metal Forming Segment includes Cooper-Weymouth, Peterson, (CWP), Rowe Machinery and Automation Inc., (Rowe), a leading manufacturer of press-feeding and cut-to-length equipment, acquired in 1996, Dahlstrom Industries, (Dahlstrom), a leading manufacturer of roll forming equipment, acquired in 1996, Hill Engineering, (Hill), a leading producer of tools and dies for the gasket manufacturing and roll forming industries acquired on January 31, 1997, and CoilMate, Inc., (CoilMate), a leading producer of pallet decoiling equipment for the metal stamping and roll forming industries acquired on November 3, 1997. Comparative results for 1998 and 1997 were as follows:
1998 1998 1997 1997 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ----
Net Sales $41,265 100.00% $38,529 100.00% Gross Profit 12,212 29.59% 10,626 27.58% Operating Income 4,170 10.11% 1,537 3.99%
The relocation of the Rowe manufacturing operation to the Company's Formtek facility in Clinton, Maine imposed significant direct and indirect costs on this segment in 1997. With these costs behind it, this segment was able to exploit the synergies expected from this consolidation and as a result operating income for 1998 was up considerably on modestly increased revenues. The Coilmate operations were moved from Southington, Connecticut to Clinton, Maine, in the fourth quarter to achieve further operating synergies.
As a whole the Company reported comparative results as follows:
1998 1998 1997 1997 ---- ---- ---- ---- ($000) % ($000) % ------ ---- ------ ---- Net Sales $338,334 100.00% $327,778 100.00% Gross Profit 98,136 29.01% 94,449 28.81% Operating Income 27,367 8.09% 25,395 7.75%
Gross Profit and Operating Income percentage margins were relatively unchanged overall.
Sales Expense for the Company as a whole, as a percentage of total revenues, increased slightly, from twelve and forty-nine hundredths percent (12.49%) to twelve and seventy hundredths percent (12.70%), owing to relatively flat revenues in the Company's HVAC segment. General and Administrative Expenses, as a percentage of revenues, decreased from six and thirteen hundredths percent (6.13%) to five and sixty-two hundredths percent (5.62%), principally due to a decrease in the provision for bonuses. Engineering Expense, as a percentage of total revenues, increased slightly from two and forty-five hundredths percent (2.45%) to two and sixty hundredths percent (2.60%). Interest Expense decreased slightly in 1998, tracking the net reduction in interest bearing indebtedness.
Income Tax Expense for 1998, as a percentage of pretax income, was reduced slightly from thirty-eight and sixteen hundredths percent (38.16%) to thirty-seven and thirty-seven hundredths percent (37.37%).
ANALYSIS: LIQUIDITY AND CAPITAL STRUCTURE
Working capital increased in 1999, from $49,415,000 at December 31, 1998 to $63,732,000 at December 31, 1999, reflecting primarily the acquisition of Anemostat as more fully described in Note 2 to the consolidated financial statements.
The Company's funded debt to equity ratio (including minority interests in funded debt) increased from twelve and four hundredths percent (12.04%) at December 31, 1998 to twenty-five and thirty-seven hundredths percent 25.37% at December 31, 1999 for the same reason.
The principal changes to the Company's Net Assets Employed during 1999 were as follows:
Net Assets Employed 12/31/98 $149,927 Acquisition of Anemostat Products 21,783 National Northeast plant expansion and related capital spending 11,209 All other 5,510 -------- Net Assets Employed 12/31/99 $ 188,429 =========
Management regards the Company's current capital structure and banking relationships as fully adequate to meet foreseeable future needs. The Company has not paid dividends on its common stock since 1979.
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard No. 130, which was effective for fiscal years beginning after December 15, 1997. FAS 130 requires the presentation of "comprehensive income," a more broadly defined measure of income, in addition to conventional "net income. The Company adopted FAS 130 effective with 1998. The Company's "comprehensive income" was not materially different from its "net income" as explained in Note 1 to the Consolidated Financial Statements.
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standard No. 131, which was effective for fiscal years beginning after December 15, 1997. FAS 131 requires, in general, a "management approach" rather than an "industry approach" to the disclosure of segment information. The Company adopted FAS 131 in 1998 and expanded its segmental reporting accordingly as reflected in Note 12 to the Consolidated Financial Statements.
YEAR 2000 DISCLOSURE
The following information is being provided as a Year 2000 Readiness Disclosure Statement, and is subject to the provisions of the Year 2000 Information and Readiness Disclosure Act.
The Company's Year 2000 problems have been nominal to date and the Company expects no material adverse effect from such problems in the future.
Costs incurred relative to Year 2000 solutions:
The Company estimates that its total cost of addressing the Year 2000 issue, (excluding costs incurred by MCS relative to its software products), including software licenses, modifications, training and implementation was approximately $2,500,000 over the 4-year period ended December 31, 1999. Of this total, the Company incurred approximately $1,100,000 in 1999.
ENVIRONMENTAL DISCLOSURE
The Company is subject to numerous laws and regulations that govern the discharge and disposal of materials into the environment. The Company is not aware, at present, of any material administrative or judicial proceedings against the Company arising under any federal, state or local environmental protection laws or regulations ("Environmental Laws"). There are, however, a number of activities in which the Company is engaged under Environmental Laws.
Permitting Activities
The Company is engaged in various matters with respect to obtaining, amending or renewing permits required under Environmental Laws to operate each of its manufacturing facilities. Based on the information presently available to it, management expects that all permit applications will be routinely handled and management does not believe that the denial of any currently pending permit application will have a material adverse effect on the Company's financial position or the results of operations.
Potentially Responsible Parties (PRP) Actions
The Company has been named or contacted by state authorities and/or the Environmental Protection Agency (the "EPA") regarding the Company's liability as a potentially responsible party ("PRP") for the remediation of several sites, none of which actions represent a material proceeding. The potential liability of the Company is based upon records that show the Company or other corporations from whom the Company or its subsidiaries acquired assets used the sites for the lawful disposal of hazardous waste pursuant to third party agreements with the operators of such sites. Such PRP actions generally arise when the operator of a site lacks the financial ability to address compliance with the Environmental Laws, decisions and orders affecting the site in a timely and effective manner. The governmental authority responsible for the site looks to the past users of the facility and their successors to address the costs of remediation of the site.
In High Point, North Carolina, the Company has been named as a PRP with regard to the clean up of groundwater contamination allegedly due to dumping at a landfill. The Company's activity at the site represented less than one percent (1%) of all activity at the site. State authorities continue to investigate the extent of and remediation methods for groundwater contamination at or near the site, and the Company joined a joint defense group to help define and limit its liabilities whereby it may be required to contribute additional non-material sums as part of the remediation of groundwater contamination. The Company (along with many other corporations) is involved in PRP actions for the remediation of a site in Southington, Connecticut, as a result of the EPA's preliminary assignment of derivative responsibility for the presence of hazardous materials attributable to two other corporations from whom the Company purchased assets after the hazardous materials had been disposed of at the Southington site. The Company is currently participating as part of a joint defense group in discussions with the EPA for a "de minimis settlement" at the Southington, Connecticut site. The obligations of the Company in this matter are not expected to be material to the Company's financial position or the results of operations. The Company has also received a request for information from the EPA addressed to a predecessor of the Company regarding the generation, storage, transportation and possible release of hazardous substances at a superfund site in Coraopolis, Pennsylvania, and the Company has complied with such request. The Company continues to investigate all of these matters, but expects that they will not be material to the Company's financial position or results of operations.
Releases of Hazardous Materials
There have been releases of hazardous materials on a few parcels of property which are presently leased or operated by the Company. All such releases occurred prior to the occupation of the properties by the Company. All releases are in the process of assessment or remediation. At a site in Massachusetts leased by the Company the Lessor has received notice from two abutters that activities on the property prior to the Company's occupation may be the source of groundwater contamination on the abutters' property. Based upon an investigation by the Lessor, the claims do not appear to be supportable. Based on the information presently available to it, management does not believe that the costs of addressing any of the releases will have a material adverse effect on the Company's financial position or the results of operations.
The Company has also received notice from the owner of a formerly leased property of a release of hazardous materials into the ground around and under the Company's former manufacturing facility. The owner, which is also a former operator of the facility, has undertaken to remove the hazardous materials. Although the Company's anticipates that it may be subject to a claim for contribution with respect tot he removal of hazardous substances, it expects that any contribution will not be material to the Company's financial position or result of operations.
Changes to Environmental Laws Affecting Operations and Product Design
The Company's operations and it's HVAC products that involve combustion as currently designed and applied entail the risk of future noncompliance with the evolving landscape of Environmental Laws. The cost of complying with the various Environmental Laws is likely to increase over time, and there can be no assurance that the cost of compliance, including changes to manufacturing processes and design changes to current HVAC product offerings that involve atmospheric combustion, will not over the long-term and in the future have a material adverse effect on the Company's results of operations (especially in light of the international agreement on the reduction of green house gas emissions set forth in the Kyoto Protocol).
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders'
Mestek, Inc.
We have audited the accompanying consolidated balance sheets of Mestek, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mestek, Inc. and subsidiaries as of December 31, 1999 and 1998, and the consolidated results of their operations and their consolidated cash flows for each of the years in the three year period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States.
We have also audited Schedule II of Mestek, Inc. and subsidiaries as of December 31, 1999 and for each of the years in the three-year period ended December 31, 1999. In our opinion, the schedule presents fairly, in all material respects, the information required to be set forth therein.
Boston, Massachusetts March 3, 2000
(except for Note 17 as to which the date is March 14, 2000)
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS
As of December 31,
1999 1998 ---- ---- (Dollars in thousands)
ASSETS
Current Assets
Cash and Cash Equivalents $4,468 $3,777 Accounts Receivable - less allowances of $3,627and $3,443 66,605 55,443 Unbilled Accounts Receivable 447 286 Inventories 54,688 52,980 Deferred Tax Benefit 1,551 1,483 Other Current Assets 4,264 3,620 ------- -------
Total Current Assets 132,023 117,589
Property and Equipment - net 69,067 55,841 Notes Receivable 3,850 - Other Assets and Deferred Charges - net 7,146 7,148 Excess of Cost over Net Assets of Acquired Companies 30,167 24,565 ------- -------
Total Assets $242,253 $205,143 ======== ========
See Accompanying Notes to Consolidated Financial Statements
MESTEK, INC.
CONSOLIDATED BALANCE SHEETS (continued)
As of December 31,
1999 1998 ---- ---- (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities: Revolving Credit Agreement $14,358 $12,619 Current Portion of Long-Term Debt 109 131 Accounts Payable 18,335 20,126 Accrued Salaries and Bonuses 6,778 6,187 Accrued Commissions 3,314 3,985 Progress Billings in Excess of Cost and Estimated Earnings 3,257 3,150 Customer Deposits 5,409 5,746 Other Accrued Liabilities 16,731 16,230 --------- ---------
Total Current Liabilities 68,291 68,174
Deferred Tax Liability 2,052 361 Long-Term Debt 20,324 438 Other Liabilities 52 9 --------- ---------
Total Liabilities 90,719 68,982 --------- ---------
Minority Interests 2,917 2,863 --------- ---------
Shareholders' Equity: Common Stock - no par, stated value $0.05 per share, 9,610,135 shares issued 479 479 Paid in Capital 15,434 15,434 Retained Earnings 143,180 125,263 Treasury Shares, at cost (846,132 and 719,830 common shares, respectively) (9,393) (6,790) Cumulative Translation Adjustment (1,083) (1,088) --------- --------- Total Shareholders' Equity 148,617 133,298 --------- ---------
Total Liabilities and Shareholders' Equity $242,253 $205,143 ========= =========
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
1999 1998 1997 ---- ---- ---- (Dollars in thousands, Except Earnings Per Common Share)
Net Sales $357,182 $321,714 $310,749 Net Service Revenues 18,088 16,630 17,029 -------- -------- --------
Total Revenues 375,270 338,344 327,778
Cost of Goods Sold 254,884 230,156 223,539 Cost of Service Revenues 11,014 10,052 9,790 -------- -------- --------
Gross Profit 109,372 98,136 94,449
Selling Expense 47,249 42,970 40,929 General and Administrative Expense 19,887 19,015 20,096 Engineering Expense 10,981 8,784 8,029 -------- -------- --------
Operating Profit 31,255 27,367 25,395
Interest Expense (1,951) (1,256) (1,434) Other Income (Expense), Net (594) (460) (668) -------- -------- --------
Income Before Income Taxes 28,710 25,651 23,293 Income Taxes 10,793 9,587 8,888 ------- ------- --------
Net Income $17,917 $16,064 $14,405 ======= ======= ========
Basic Earnings per Common Share: $2.02 $1.80 $1.61 ===== ===== ======
Basic Weighted Average Shares Outstanding 8,857 8,921 8,929 ===== ===== ======
Diluted Earnings Per Common Share $2.02 $1.80 $1.61 ===== ===== ======
Diluted Weighted Average Shares Outstanding 8,887 8,949 8,951 ===== ===== ======
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
1999 1998 1997 ---- ---- ---- (Dollars in thousands)
Cash Flows from Operating Activities: Net Income 17,917 $16,064 $14,405 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 10,631 8,599 6,548 Provision for Losses on Accounts
Receivable, net of write-offs 184 914 828 Net Change in Minority Interests net of
effects of acquisitions and dispositions 54 256 (82) Changes in assets and liabilities net of effects of acquisitions and dispositions: Accounts Receivable (7,207) (2,782) (2,498) Unbilled Accounts Receivable (161) (38) (74) Inventory 2,076 755 (6,894) Accounts Payable (2,805) (560) 430 Other Liabilities (745) 2,718 247 Progress Billings 107 (55) 306 Notes Receivable (3,850) - - Other 2,255 (1,346) 105 ------- ------- ------ Net Cash Provided by Operating Activities 18,456 24,525 13,321 ------- ------- -------
Cash Flows from Investing Activities: Capital Expenditures (12,437) (12,802) (11,740) Acquisition of Businesses and Other Assets, Net of Cash Acquired (24,337) (2,877) (12,886) -------- -------- ------- Net Cash (Used in) Investing Activities (36,770) (15,679) (24,626) -------- -------- --------
Cash Flows from Financing Activities: Net Borrowings (Repayments) Under Revolving Credit Agreement 1,739 9,119 3,500 Principal Payments Under Long Term Debt Obligations (136) (15,909) (1,234) Proceeds from Issuance of Long Term Debt 20,000 - - Repurchase of Common Stock (2,603) (681) (69) -------- -------- -------- Net Cash (Used In) Provided by Financing Activities 19,000 (7,471) 2,197 -------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 686 1,375 (9,108) Translation effect on Cash 5 (92) (47) Cash and Cash Equivalents - Beginning of Year 3,777 2,494 11,649 -------- -------- --------
Cash and Cash Equivalents - End of Year $4,468 $3,777 $2,494 ======== ======= =======
See Accompanying Notes to Consolidated Financial Statements.
MESTEK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Mestek, Inc. and its subsidiaries, collectively referred to as the Company. All material inter-company accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition and unbilled receivables
Revenue from product sales is recognized at the time of shipment. Revenue from the licensing of software applications and software systems development is recognized on the basis of completed contracts in accordance with the "residual value method" provided in SOP 98-9.
Unbilled receivables represent revenue earned in the current period but not billed to the customer until future dates, usually within one month.
Cash equivalents
The Company considers all highly liquid investments with a remaining maturity of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents include investments in an institutional money market fund, which invests in U.S. Treasury bills, notes and bonds, and/or repurchase agreements, backed by such obligations.
Inventories
Inventories are valued at the lower of cost or market. Approximately seventy-eight percent (78%) of the cost of inventories are determined by the last-in, first-out (LIFO) method.
Property and equipment
Property and equipment are carried at cost. Depreciation and amortization are computed using the straight-line and accelerated methods over the estimated useful lives of the assets or the life of the lease, if shorter. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant improvements are capitalized.
Excess of Cost Over Net Assets of Acquired Companies (Goodwill)
The Company amortizes goodwill on the straight-line basis over the estimated period to be benefitted. The acquisition of Anemostat Products, as more fully described in Note 2, resulted in goodwill of approximately $6,800,000 which will be amortized over 25 years. The Company continually evaluates the carrying value of goodwill. Any impairments would be recognized when the expected future operating cash flows derived from the underlying acquired businesses is less than the carrying value of the goodwill. Accumulated amortization of goodwill and other intangibles was $4,984,000 and $3,640,000 at December 31, 1999 and 1998, respectively.
Advertising Expense
Advertising costs are charged to operations as incurred. Such charges aggregated $4,794,000, $3,993,000, and $3,738,000, for the years ended December 31, 1999, 1998, and 1997 respectively.
Research and Development Expense
Research and development expenses are charged to operations as incurred. Such charges aggregated $2,939,000, $2,136,000, and $1,628,000, for the years-ended December 31, 1999, 1998, and 1997, respectively.
Software Development Expenses
The Company's MCS, Inc. subsidiary is in the business of application software and systems development. SFAS No. 86 requires that development costs incurred subsequent to the establishment of technological feasibility for the product be capitalized. The Company has no capitalized development cost.
Treasury shares
Common stock held in the Company's treasury has been recorded at cost.
Earnings per common share
Basic earnings per share have been computed using the weighted average number of common shares outstanding. Common stock options, as more fully described in Note 15, were considered in the computation of diluted earnings per share but had no effect.
Currency Translation
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates prevailing on the balance sheet date. Net foreign currency transactions are reported in the results of operations in U.S. dollars at average exchange rates. Adjustments resulting from balance sheet translations are excluded from the determination of income and are accumulated in a separate component of shareholders' equity.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Comprehensive Income
For the years ended December 31, 1999 and December 31, 1998, respectively, the components of other comprehensive income were immaterial and consisted solely of foreign currency translation adjustment.
Reclassification
Reclassifications are made periodically to previously issued financial statements to conform to the current year presentation.
2. BUSINESS ACQUISITIONS
On March 26, 1999, the Company acquired substantially all of the operating assets of the Anemostat Products and Anemostat-West Divisions of Dynamics Corporation of America, (collectively, Anemostat), a wholly-owned subsidiary of CTS Corporation. Anemostat manufactures commercial air distribution products (grilles, registers, diffusers and VAV boxes); security air distribution products; and door and vision frame products for the HVAC and commercial building industries at locations in Scranton, Pennsylvania, (Anemostat Products) and Carson, California, (Anemostat-West). The Anemostat products are complementary to the Company's existing louver and damper businesses. The purchase price paid for the assets acquired was approximately $25,360,000, including assumed liabilities of approximately $3,577,000. The Company accounted for this acquisition under the purchase method of accounting and, accordingly, recorded Goodwill of approximately $6,800,000.
Proforma unaudited results of operations for 1999 and 1998, reflecting a hypothetical acquisition date for Anemostat of January 1, 1998 are as follows:
1999 1998
Total Revenues $381,448 368,195 Net Income $17,409 5,634
Earnings Per Share $1.97 $1.75
On April 26, 1999, an order was entered in the Bankruptcy Court for the Southern District of Ohio, whereby the Company's offer to acquire certain of the operating assets of ACDC, Inc. (ACDC) of New Milford, Ohio, a manufacturer of industrial dampers for the power generation market, was approved. The Company closed this transaction on May 7, 1999 for $2,554,000.
On May 26, 1999 the Company entered into a definitive agreement, (The Agreement), to merge its wholly owned subsidiary, MCS, Inc. (MCS) into Simione Central Holdings, Inc. (Simione). Simione is a provider of information systems and services to the home health care industry supplying information systems, consulting and agency support services to customers nationwide. Simione provides freestanding, hospital based and multi-office Home Health Care Providers (including certified, private duty, staffing, HME, IV therapy, and hospice) with information solutions that address all aspects of home care operations. Simione maintains offices nationwide and is headquartered in Atlanta, Georgia.
Under the terms of the Agreement, for every share of outstanding Simione common stock, Simione would issue .85 shares of its common stock to the Company. As a result, the Company would own, based on the number of Simione common shares outstanding at the date of the Agreement, approximately 46% of Simione after the merger is completed. On August 12, 1999, Simione, with the Company's consent, acquired all of the outstanding common stock of CareCentric Solutions, Inc. for $200,000 and acquired all of the Preferred Stock of CareCentric Solutions, Inc. in return for 3.1 million newly issued shares of Simione Series A Preferred Stock, which may be converted on a one for one basis into Simione common shares upon consent of a majority of the Simione shareholders. The Simione management intends to seek such consent and conversion in June 2000. As a result the Company would expect to own, barring other changes in the capital structure of Simione, approximately 38% of Simione after the merger is completed. Under the terms of the Agreement, MCS's ProfitWorks segment would be distributed to the Company prior to the merger.
On September 9, 1999, Mestek, Inc. ("Mestek") announced that it had entered into an amendment to the Plan and Agreement of Merger dated May 26, 1999 (the "Amendment") between Simione Central Holdings, Inc. ("SCHI"), Mestek, and its wholly-owned subsidiary, MCS, Inc. ("MCS"), whereby the shares of common stock of MCS will be distributed to the Mestek common shareholders in a spin-off transaction (the Spinoff), and MCS will then be merged with and into SCHI, (the Merger). The Spin-off and the Merger were completed on March 7, 2000.
In connection with the Amendment, Mestek loaned to SCHI a total of $4,000,000 on a short-term basis, $3,000,000 of which was outstanding as of December 31, 1999. Upon the closing of the above-mentioned merger, the $4,000,000 loan was canceled, and Mestek contributed an additional $2,000,000 to the capital of SCHI in return for newly issued Series B Preferred Stock of SCHI. The Series B Preferred Stock issued to Mestek has voting rights equivalent to 11.2 million shares of SCHI common stock. Mestek also received as part of it capital contribution to SCHI a warrant for the subsequent purchase of 2 million shares of SCHI common stock. The Amendment also provided, upon consummation of the merger, for the appointment to the SCHI Board of Directors of six individuals designated by Mestek, and the obligation of the Mestek Major Shareholders (as defined in the Amendment) to vote for the nominees to the SCHI Board of Directors for eighteen months after the effective date of the merger.
Mestek also loaned Simione $850,000 on November 11, 1999 on a short-term basis. Upon consummation of the merger, the loan was converted to $850,000 of newly issued Series C Preferred Stock. The Series C Preferred stock has voting rights equal to 850,000 shares of SCHI common stock.
Under the purchase method of accounting, results of operations of acquired businesses are included in consolidated operations subsequent to the date of acquisition.
3. INVENTORIES
Inventories consisted of the following at December 31:
1999 1998 ---- ----
Finished Goods $18,692 $21,803 Work-in-progress 14,865 13,948 Raw materials 28,335 24,463 ------- ------- 61,892 60,214 Less provision for LIFO method of valuation (7,204) (7,234) ------- ------- $54,688 $52,980 ======= ========
Progress billings exceeded related contract costs by $3,257,000, and $3,150,000 at December 31, 1999 and 1998, respectively. As such, these amounts are reported as a liability in the accompanying consolidated financial statements.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Depreciation and Amortization Est.
1999 1998 Useful Lives ---- ---- ------------
Land $2,853 $2,395 Buildings 26,792 21,887 19-39 Years Leasehold Improvements 4,415 4,474 15-39 Years Equipment 96,028 78,820 3-10 Years --------- --------- 130,088 107,576 Accumulated Depreciation (61,021) (51,735) --------- --------- $69,067 $55,841 ========= =========
The above amounts include $851,000, and$6,870,000, at December 31, 1999 and 1998 respectively, in assets that had not yet been placed in service by the Company. No depreciation was recorded in the related periods for these assets.
Depreciation and amortization expense was $10,631,000, $8,599,000, and $6,548,000, for the years ended December 31, 1999, 1998, and 1997, respectively.
5. EQUITY INVESTMENTS
H. B. Smith Company Incorporated (HBS) - --------------------------------------
The Company's investment in HBS is carried at a zero balance reflecting the Company's equity in HBS' cumulative losses. The Company has no obligation to fund future HBS operating losses.
Eafco, Inc. (EAFCO)
The Company's forty-six and eight hundredths percent (46.8%) investment in Eafco, Inc. was exchanged on November 2, 1998 for ninety-three and six tenths percent (93.6%) of the foundry and machining operations of Eafco.
6. LONG TERM DEBT
Long-Term Debt consisted of the following:
Dec. 31, Dec. 31, 1999 1998 ---- ----
Revolving Loan Agreement $34,358 $12,619 Other Bonds and Notes Payable 433 569 -------- -------- 34,791 13,188 Less Current Maturities (14,467) (12,750) -------- -------- $20,324 $438 ======== ========
Revolving Loan Agreement - The Company has a Revolving Loan Agreement and Letter of Credit Facility (the Agreement) with a commercial bank. The Agreement provides $55 million of unsecured revolving credit and$10 Million of standby letter of credit capacity. Borrowings under the Agreement bear interest at a floating rate based on the bank's prime rate less one percent (1.00%) or, at the discretion of the borrower, LIBOR plus a quoted market factor or, alternatively, in lieu of the prime based rate, a rate based on the overnight Federal Funds Rate. The Agreement has been extended on a one-year basis through April 30, 2001. The Revolving Loan Agreement contains financial covenants, which require that the Company maintain certain current ratios, working capital amounts, capital bases and leverage ratios. This Agreement also contains restrictions regarding the creation of indebtedness, the occurrence of mergers or consolidations, the sale of subsidiary stock and the payment of dividends in excess of 50 percent of net income.
Note Payable - The Company has a Demand Loan Facility with a second commercial bank under which the Company can borrow up to $10,000,000 on a LIBOR basis. The facility expires on April 1, 2000, with no balance outstanding as of December 31, 1999.
Other Bonds and Notes Payable - The Company is obligated under the terms of an Industrial Revenue Bond (the Bond) secured by its facility in Wyalusing, Pennsylvania. The Bond bears interest at five percent (5%) and matures on July 25, 2001. The outstanding balance under the Bond at December 31, 1999 was $64,000. The Company's National Northeast subsidiary is obligated under a non-interest bearing subordinated Note Payable on which interest was imputed at eight percent (8%). The note is secured by certain pieces of equipment. The outstanding balance under the note at December 31, 1999 was $19,000 and the note matures on May 1, 2001. The Company's Hill Engineering subsidiary is obligated under an Industrial Revenue Bond secured by certain of its operating assets. The outstanding balance under the bond at December 31, 1999 was $350,000. The bond bears interest at eighty percent (80%) of the prime rate and matures on September 1, 2005.
Cash paid for interest was $1,951,000, $1,256,000, and $1,434,000, during the years ended December 31, 1999, 1998, and 1997, respectively.
Maturities of long-term debt in each of the next five years are as follows:
2000 14,467 2001 20,074 2002 50 2003 50 2004 50
The fair value of the Company's long-term debt is estimated based on the current interest rates offered to the Company for debt of the same remaining maturities. Management believes the carrying value of debt and the contractual values of the outstanding letters of credit approximate their fair values as of December 31, 1999.
7. SHAREHOLDERS' EQUITY
The Company has authorized common stock of 20,000,000 shares with no par value, and a stated value of $0.05 per share. As of December 31, 1999, John E. Reed, Chairman, President and CEO of the Company and Stewart B. Reed, a Director of the Company and son of John E. Reed, together beneficially own a majority of the outstanding shares of the Company's common stock.
By a vote of its shareholders at its annual meeting of shareholders on May 22, 1996, the Company amended its Articles of Incorporation to authorize 10,000,000 shares of a new class (or classes) of preferred stock (the Preferred Stock) and to eliminate both its $5.00 convertible, non-cumulative, non-voting, $100 par, preferred stock (the Convertible Preferred) and its $6.00, $100 par, redeemable preferred stock (the Redeemable Preferred). As of December 31, 1999 no shares of the Preferred Stock have been issued.
8. INCOME TAXES
Income before income taxes included foreign income (losses) of $223,000, ($1,166,000), and ($730,000) in 1999, 1998, and 1997, respectively. Income tax expense (benefit) consisted of the following:
1999 1998 1997 ---- ---- ---- Federal Income Tax: Current $8,113 $8,897 $7,188 Deferred 1,284 (283) 527 State Income Tax: Current 1,107 1,708 1,045 Deferred 175 (141) 166 Foreign Income Tax: Current 18 18 18 Deferred 96 (612) (56) -------- ------ ------- Income Taxes $10,793 $9,587 $8,888 ======== ====== =======
Total income tax expense from continuing operations differed from "expected " income tax expense, computed by applying the U.S. federal income tax rate of 35% to earnings before income tax, as follows:
1999 1998 1997 - ---- ---- ----
Computed "expected" income tax $10,067 $9,068 $8,218 State income tax, net of federal tax benefit 917 867 787 Foreign tax rate differential 7 (35) (22) Other - net (198) (313) (95) -------- ------- -------
Income Taxes $10,793 $9,587 $8,888 ======== ======= =======
A deferred income tax (expense) benefit results from temporary timing differences in the recognition of income and expense for income tax and financial reporting purposes. The components of and changes in the net deferred tax assets (liabilities) which give rise to this deferred income tax (expense) benefit for the year ended December 31, 1999 are as follows:
Change December 31, (Expense) December 31, 1998 Benefit 1999 ---- ------- ---- Deferred Tax Assets:
Warranty Reserve $656 ($133) $523 Compensated Absences 716 (22) 694 Inventory Valuation 608 (104) 504 Accounts Receivable Valuation 241 328 569 State Tax Operating Loss Carryforward 131 41 172 Foreign Tax Operating Loss Carryforward 1,120 (96) 1,024 Deferred Income on Sale of Assets to Non-consolidated Investees 159 - 159 Other 27 113 140 ------- ------ ------- Total Gross Deferred Tax Assets 3,658 127 3,785 Less Valuation Allowance (119) - (119) ------- ------ ------- Deferred Tax Assets 3,539 127 3,666 ------- ------ ------- Deferred Tax Liabilities: Prepaid Expenses (501) (176) (677) Depreciation and Amortization (1,916) (1,574) (3,490) ------- ------- -------- Deferred Tax Liabilities (2,417) (1,750) (4,167) ------- ------- -------- Net Deferred Tax Assets (Liabilities) $1,122 ($1,623) ($501) ======= ======== =======
A valuation allowance of $195,000 was established at December 31, 1993. This allowance reflects uncertainties as to the realization of a portion of the foreign tax operating loss carryforward identified above. This valuation allowance was adjusted downward to $119,000 on December 31, 1995 because the foreign operations resulted in earnings for the year. At December 31, 1999, no additional valuation allowance has been established relative to the remaining foreign tax operating loss carryforward or state tax operating loss carryforward. It is management's belief that it is more likely than not that these carry forwards will be utilized prior to their expiration. The Company has available to it a number of tax planning opportunities which support this conclusion.
At December 31, 1999, the Company has state tax operating loss and foreign tax operating loss carry forwards of approximately $3,796,000 and $2,089,000, respectively, which are available to reduce future income taxes payable, subject to applicable "carryforward" rules and limitations. These losses begin to expire after the following years:
State Foreign
2002 - $2,089 2007 $ 3,796 - -------- ------- $ 3,796 $2,089 ======== =======
Cash paid for income taxes was $10,191,000, $7,876,000, and $9,027,000 for the years ended December 31, 1999, 1998 and 1997 respectively.
9. LEASES
Related Party Leases
The Company leases various manufacturing facilities and equipment from companies owned by certain officers and directors of the Company, either directly or indirectly, through affiliates. The leases generally provide that the Company will bear the cost of property taxes and insurance.
Details of the principal operating leases with related parties as of December 31, 1999 including the effect of renewals and amendments executed subsequent to December 31, 1999 are as follows:
Date Basic Minimum Of Annual Future Lease Term Rental Rentals
Sterling Realty Trust
Land and Building - Main monthly $192 *** Land and Building - Engineering 07/01/98 5 years 77 269 Land and Building - South Complex 01/01/94 15 years 257 2,311 Land and Building - Torrington 07/01/99 5 years 127 572 Machinery & Equipment 01/01/93 5 years - * (Westfield, Farmville & Wrens Locations)
Machinery Rental
Machinery & Equipment 01/01/93 5** years - - (Westfield, Farmville, Wrens and South Windsor Locations)
Elizabeth C. Reed Trust
Machinery & Equipment 01/01/93 5 years - *
Rohrschach Associates ^ Land and Building 01/01/97 2++years 120 120
Rudbeek Realty Corp. (Farmville Location) 11/02/92+ 18.16 years 436 4,792
MacKeeber
(South Windsor Location) 01/01/97 8 years 325 1,623
* Original lease expired 01/01/98, month-to-month rental terminated as of 12/31/98 and machinery and equipment sold to the Company in January of 1999.
** Original lease expired on 01/01/98, month-to-month rental terminated as of 12/31/99. Equipment purchased by the Company from Lessor in January 2000.
+ Original lease amended 4/1/98 extending the lease term to 12/31/10; and amended again 7/1/98 increasing rent expense to $36,300 per month.
++ Lease was renewed as of 1/1/99 for an additional two-year renewal term at $0.40/sf. for 25,000sf.
^ Formerly Production Realty
*** Lease expired 12/31/99; renewal pending as of March 15, 2000
On January 1, 1999, the company purchased its previously leased Machinery and Equipment from Sterling Realty Trust and Elizabeth C. Reed trust for use in its Westfield, Farmville, and Wrens location. The purchase price paid was $263,500 and $99,750 respectively.
On January 1, 2000, at the end of the lease term, the Company purchased Machinery and Equipment used at Westfield, Farmville, Wrens, and South Windsor locations from Machinery Rental Company, paying $507,000
All Leases
Rent expense for operating leases, including those with related parties, was $2,685,000, $2,801,000, and $2,719,000 for the years ended December 31, 1999, 1998 and 1997 respectively.
Future minimum lease payments under all noncancellable leases as of December 31, 1999 are as follows:
Operating
Year Ending December 31, Leases
2000 2,320 2001 1,973 2002 1,644 2003 1,576 2004 1,474 After 2005 4,731 --------
Total minimum lease payments $13,718 ========
10. EMPLOYEE BENEFIT PLANS
The Company maintains a qualified non-contributory profit-sharing plan covering all eligible employees. Contributions to the plan were $1,183,000, $1,118,000, and $ 1,011,000, for the years ended December 31, 1999, 1998, and 1997, respectively. Contributions to the Plan are defined as three percent (3%) of gross wages up to the current Old Age, Survivors, and Disability, (OASDI), limit and six percent (6%) of the excess over the Old Age, Survivors, and Disability, (OASDI), limit, subject to the maximum allowed under the Employee Retirement Income Security Act, (ERISA). The plan's vesting terms are twenty percent (20%) vesting after 3 years of service, forty percent (40%) after 4 years, sixty percent (60%) after 5 years, eighty percent (80%) after 6 years, and one hundred percent (100%) vesting after 7 years.
In addition to the profit-sharing plan, the Company also offers the following defined contribution benefit plans:
The Company maintains a Retirement Savings Plan qualified under Internal Revenue Code Section 401(k) for employees covered under regional collective bargaining agreements. Service eligibility requirements differ by division and collective bargaining agreement. Participants may elect to have up to fifteen percent (15%) of their compensation withheld, up to the maximum allowed by the Internal Revenue Code. Participants may also elect to make nondeductible voluntary contributions up to an additional ten percent (10%) of their gross earnings each year within the legal limits. The Company contributes differing amounts depending upon the division's collective bargaining agreement. Contributions are funded on a current basis. Contributions to the Plan were $304,000, $302,000, and $269,000, for the years-ended December 31, 1999, 1998, and 1997, respectively.
The Company maintains a separate qualified 401(k) Plan for salaried employees not covered by a collective bargaining agreement, who choose to participate. Participants may elect to have up to fifteen percent (15%) of their compensation withheld, up to the maximum allowed by the Internal Revenue Code. Participants may also elect to make nondeductible voluntary contributions up to an additional ten percent (10%) of their gross earnings each year within the legal limits. The Company contributes $0.25 of each $1.00 deferred by participants and deposited to the Plan not to exceed one and five tenths percent (1.5%) of an employee's compensation. The Company does not match any amounts for withholdings from participants in excess of six percent (6%) of their compensation or for any nondeductible voluntary contributions. Contributions are funded on a current basis. Contributions to the Plan were $360,000, $435,000, and $392,000 for the years ended December 1999, 1998, and 1997, respectively.
One of the Company's subsidiaries maintains a qualified defined contribution target benefit pension plan, which covers substantially all of its employees. Pension costs are accrued annually based on contributions earned by participants under plan provisions as determined by an independent actuary. The total expense related to this pension plan for the twelve months ended December 31, 1999, 1998, and 1997 was $124,000, $88,000, and $65,000, respectively.
The Company maintains bonus plans for its officers and other key employees. The plans generally allow for annual bonuses for individual employees based upon the operating results of related profit centers in excess of a percentage of the Company's investment in the respective profit centers. The Company maintains an employment agreement with its chief executive officer.
Approximately forty-two percent (42%) of the Company's employees are covered under collective bargaining agreements, of which thirty-eight (38%) of these employees are covered under agreements expected to be renewed in 2000.
11. COMMITMENTS AND CONTINGENCIES
The Company is subject to several legal actions and proceedings in which various monetary claims are asserted. Management, after consultation with its corporate counsel and outside counsel, does not anticipate that any ultimate liability arising out of all such litigation and proceedings will have a material adverse effect on the financial condition of the Company.
The Company is obligated as guarantor with respect to the debt of MacKeeber Associates Limited Partnership, a Connecticut Limited Partnership, under an Industrial Development Bond issued in 1984 by the Connecticut Development Authority. The balance outstanding under the bond as of December 31, 1999 was $765,000.
The Company is subject to numerous laws and regulations that govern the discharge and disposal of materials into the environment. Liabilities for environmental remediation and/or restoration are recorded when it is probable that obligations have been incurred and the amounts can be reasonably estimated. The Company is not aware, at present, of any material administrative or judicial proceedings against the Company arising under any federal, state or local environmental protection laws or regulations (Environmental Laws). There are, however, a number of activities in which the Company is engaged under Environmental Laws. The Company is engaged in various matters with respect to obtaining, amending or renewing permits required under Environmental Laws to operate each of its manufacturing facilities. The Company or various of its subsidiaries have been named or contacted by state authorities and/or the Environmental Protection Agency (the EPA) regarding the Company's liability as a potentially responsible party (PRP) for the remediation of several sites, none of which, in the judgement of management, would have a material adverse impact on the financial condition or results of operations of the Company. There have been releases of hazardous materials on a few parcels of property which are presently leased or operated by the Company. Based on the information presently available to it, management does not believe that the costs of addressing any of the releases will have a material adverse effect on the Company's financial position or the results of operations.
12. SEGMENT INFORMATION
Description of the types of products and services from which each reportable segment derives its revenues:
The Company has four reportable segments: the manufacture of heating, ventilating and air-conditioning equipment (HVAC), the manufacture of metal handling and metal forming machinery (Metal Forming), the production of metal products (Metal Products), and computer software development and system design, (Computer Software).
The Company's HVAC segment manufactures and sells a wide variety of residential, commercial and industrial heating, cooling, and air distribution products to independent wholesales supply warehouses, to mechanical, sheet metal and other contractors, and in some cases to other HVAC manufacturers under original equipment manufacture (OEM) contracts. The products include finned tube and baseboard radiation equipment gas fired heating and ventilating equipment, air damper equipment and related air distribution products and commercial and residential boilers. The products are marketed under a number of franchise names including Sterling, Beacon Morris, Smith, Hydrotherm, RBI, Vulcan, Applied Air, Wing, AWV, ABI, Arrow, Anemostat, Koldwave, and SpacePak. Assets acquired in the Anemostat and ACDC acquisitions on March 26, 1999 and May 7, 1999 respectively, as more fully described in Note 2, have been added to the Company's HVAC segment.
The Company's Metal Forming Segment designs, manufactures and sells a variety of metal handling and metal forming products under names such as Cooper-Weymouth, Peterson, Dahlstrom, Hill Engineering, Coilmate-Dickerman, and Rowe. The products are sold through independent dealers in most cases to end-users and in some cases to other original equipment manufacturers. The products include custom metal forming systems and other standard machinery such as roll formers, wing formers, destackers, presses, feeds, straighteners, cradles, stock reels, cut-to-length lines, gasket dies, tools and dies for metal forming systems and specialty punching and cut-off machinery.
The Company's Metal Products segment manufactures a variety of metal products including aluminum extrusions, flexible metal hose and grey iron castings. This segment sells its products mostly as components to manufacturers who incorporate them into their own products. In some cases flexible metal hose is sold to distributors.
The Company's Computer Software segment operates under the name MCS and develops and sells software used principally in the medical information systems marketplace. MCS's products include software used to manage the day-to-day operations of durable medical equipment dealers and home health agencies. As explained in Note 2, the Company distributed the stock of its MCS subsidiary to its shareholders on March 7, 2000. Results of operations for MCS in the Year 2000 will be accounted for under Discontinued Operations in accordance with APB 30.
Measurement of segment profit or loss and segment assets:
The Company evaluates performance and allocates resources based on profit or loss from operations before interest expense and income taxes, (EBIT) not including non-operating gains and losses. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at prices substantially equivalent to the Company's cost; inter-company profits on such intersegment sales or transfers are not material.
Factors management used to identify the enterprise's reportable segments:
The Company's reportable segments are business units that offer different products. The reportable segments are each managed separately because they manufacture and distribute distinct products using distinct production processes intended for distinct marketplaces.
Year ended December 31, 1999
Metal Metal Computer All HVAC Products Forming Software Other Totals
Revenues from External
Customers $254,452 65,614 37,117 18,087 --- $375,270
Intersegment & Intrasegment Revenues $8,009 8,847 1,848 --- --- $18,704
Interest Expense $1,194 513 190 54 --- $1,951
Depreciation Expense $4,263 3,129 1,698 240 --- $9,330
Amortization Expense $384 556 361 --- --- $1,301
Segment Operating Profit $20,700 7,870 1,748 937 --- $31,255
Segment Assets $148,272 63,641 23,643 6,697 --- $242,253
Expenditures for Long-lived Assets (1.) $5,185 5,090 1,476 686 --- $12,437
Year ended December 31, 1998
Metal Metal Computer All HVAC Products Forming Software Other Totals
Revenues from External Customers $229,704 50,745 41,265 16,630 --- $338,344
Intersegment & Intrasegment Revenues $7,851 2,288 234 --- --- $10,373
Interest Expense $711 342 169 34 --- $1,256
Depreciation Expense $3,870 2,242 1,168 194 --- $7,474
Amortization Expense $231 584 373 --- --- $1,188
Segment Operating Profit $15,668 5,194 4,170 2,335 --- $27,367
Segment Assets $113,796 55,842 29,916 5,589 --- $205,143
Expenditures for Long-lived Assets (1.) $3,064 8,185 1,025 528 --- $12,802
Year ended December 31, 1997
Metal Metal Computer All HVAC Products Forming Software Other Totals (2.)
Revenues from External Customers $229,423 42,797 38,529 17,029 --- $327,778
Intersegment & Intrasegment Revenues $7,809 634 509 --- --- $8,952
Interest Expense $850 265 215 38 66 $1,434
Depreciation Expense $2,732 1,791 940 119 --- $5,582
Amortization Expense $144 584 246 --- --- $974
Segment Operating Profit $17,846 2,723 1,537 3,289 --- $25,395
Segment Assets $113,405 35,312 28,577 5,045 8,778 $191,117
Expenditures for Long-lived Assets (1.) $5,802 5,589 183 166 --- $11,740
(1.) Excludes long-lived assets acquired via business acquisition.
(2.) Segments Assets in All Other in 1997 represents the Companyy's investment in Eafco, Inc. which was exchanged on November 2, 1998 for ninety-three and six tenths percent (93.6%) of the foundry and machining operations of Eafco. The business assets thus acquired and the related results of operations are included in the Metal Products segment in 1999 and 1998.
RECONCILIATION WITH CONSOLIDATED DATA:
Revenues 1999 1998 1997 - -------- ---- ---- ----
Total external revenues for reportable segments $375,270 $338,344 $327,778 Inter & Intrasegment revenues for reportable segments 18,704 10,373 8,952 Elimination of Inter & Intrasegment revenues (18,704) (10,373) (8,952) ---------- --------- --------- Total consolidated revenues $375,270 $338,344 $327,778 ========== ========= ==========
Profit or Loss
Total profit or loss for reportable segments $31,255 $27,367 $25,395 Interest Expense (1,951) (1,256) (1,434) Other income (expense) net (594) (460 (668) -------- -------- --------- Income before income taxes $28,710 $25,651 $23,293 ======== ======== =========
Assets:
Total assets for reportable segments $242,253 $205,143 $182,339 Equity Investment in Eafco Inc. --- --- 8,778 -------- -------- --------- Total consolidated assets $242,253 $205,143 $191,117 ======== ======== ==========
GEOGRAPHIC INFORMATION:
1999 1998 1997 ---- ---- ---- Revenues:
United States $355,274 $314,603 $305,728 Canada 13,443 17,310 14,235 Other Foreign Countries 6,553 6,431 7,815 -------- -------- ---------- Consolidated Total $375,270 $338,344 $327,778 ======== ======== ==========
Long Lived Assets:
United States $97,187 $78,502 $64,349 Canada 2,048 1,904 183 Other Foreign Countries --- --- --- ------- ------- --------- Consolidated Total $99,235 $80,406 $ 64,532 ======= ======= ==========
13. SELECTED QUARTERLY INFORMATION (UNAUDITED)
The table below sets forth selected quarterly information for each full quarter of 1999 and 1998.
(Dollars in thousands except per common share amounts)
1999 1st 2nd 3rd 4th - ---- Quarter Quarter Quarter Quarter
Total Revenues $82,026 $89,533 $98,646 $105,065 Gross Profit $23,035 $26,130 $26,778 $33,429
Net Income $3,519 $3,605 $4,069 $6,724 Per Common Share: Basic $0.40 $0.41 $0.46 $0.75 Diluted $0.40 $0.41 $0.46 $0.75
1998 1st 2nd 3rd 4th - ---- Quarter Quarter Quarter Quarter
Total Revenues $75,649 $77,688 $92,013 $92,994 Gross Profit $21,172 $21,607 $26,432 $28,925
Net Income $3,370 $2,832 $4,324 $5,538 Per Common Share: Basic $0.38 $0.32 $0.48 $0.62 Diluted $0.38 $0.32 $0.48 $0.62
14. COMMON STOCK BUYBACK PROGRAM
In 1999 and 1998 the Company continued its program of selective "open-market" and odd lot purchases. 126,302 and 36,000 of such shares were acquired in 1999 and 1998, respectively. All such shares are accounted for as treasury shares.
15. STOCK OPTION PLANS
On March 20, 1996 the Company adopted a stock option plan, the Mestek, Inc. 1996 Stock Option Plan, (the Plan), which provides for the granting of options to purchase 500,000 shares of the Company's common stock. The Plan provides for the awarding of incentive and non-qualified stock options to certain employees of the Company and other persons, including directors, for the purchase of the Company's common stock at fair market value on the grant date. The Plan was approved by the Company's shareholders on May 22, 1996. Options granted under the plan vest over a five-year period and expire at the end of ten years.
A summary of transactions for the years ended December 31, 1999, 1998, and 1997 are as follows: Weighted Number of Average Options Exercise Price
Balance - December 31, 1996 90,000 $13.75
Balance - December 31, 1997 90,000 $13.75
Balance - December 31, 1998 90,000 $13.75 Granted 85,000 $20.00
Balance - December 31, 1999 175,000 $16.79
Options exercisable for the years ended December 31, 1999, 1998, and 1997 were 54,000, 36,000, and 18,000, respectively. The weighted average exercise price for all exercisable options was $13.75.
Effective in 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, SFAS No. 123. As permitted by the statement, the Company has chosen to continue to account for stock-based compensations using the intrinsic value method as prescribed by Accounting Principles Board Opinion No. 25. Accordingly, no compensation expense has been recognized for its stock-based compensation plan.
The weighted average fair value at the date of grant for options granted during the year ended December 31, 1999 and for options outstanding as of December 31, 1998 and 1997 were $9.44, $7.27, and $7.27, respectively. The fair value of options at the date of grant was estimated using the Black-Scholes model with the following weighted average assumptions:
Years Ended
December 31, December 31, December 31 1999 1998 1997
Expected life (years) 10 10 10 Interest 4.81% 6.56% 6.56% Volatility 23.75% 22.50% 22.50% Dividend yield 0% 0%
Had the fair value method of accounting been applied to the Company's stock option plan, with compensation cost for the Plan determined on the basis of the fair value of the options at the grant date, the Company's net income and earnings per share would have been as follows:
Years Ended
December 31, December 31, December 31 1999 1998 1997
Net income (loss) - as reported $17,917 $16,064 $14,405 Net income (loss) - pro forma 17,748 15,985 14,326
Earnings per share - as reported $2.02 $1.80 $1.61 Earnings per share - pro for $2.00 $1.79 1.61
The application of SFAS 123 for pro forma disclosure may not be representative of future effects of applying the statement.
16. NOTES RECEIVABLE
On September 9, 1999, the Company loaned $3,000,000 to Simione Central Holdings, Inc. as more fully explained in Note 2 to the consolidated financial statements. The loan matures on the earlier of June 30, 2000 or the date of closing of the transaction described in Note 2. The loan bears interest at two points above the prime rate of interest as set from time to time by BankBoston N.A. The loan was canceled on March 7, 2000, as more fully described in Note 2.
On November 11, 1999, the Company loaned $850,000 to Simione Central Holdings, Inc. as more fully explained in Note 2 to the consolidated financial statements. The loan matures on November 11, 2000 and bears interest at the rate of 11 percent. The loan is convertible on or after the date of closing of the transactions described in Note 2 into $850,000 of Simione Central Holdings, Inc. Series C Preferred Stock, as more fully described in Note 2 to the Consolidated Financial Statements
17. SUBSEQUENT EVENT
On January 28, 2000, the Company acquired substantially all of the operating assets of Wolfram, Inc. d/b/a Cesco Products (Cesco) located in Minneapolis, Minnesota. Cesco manufactures vertical and horizontal louvers; controls and fire/smoke dampers; gravity ventilators louver penthouses and walk-in access doors for the HVAC industry at its location in Minneapolis, Minnesota. The Cesco products are complimentary to the Company's existing louver and damper businesses. The purchases price paid for the assets acquired was approximately $5,991,000, including assumed liabilities of approximately $991,000. The Company intends to account for this acquisition under the purchase method of accounting.
On February 4, 2000, the Company loaned $1 million to Simione Central Holdings, Inc. The loan matures on the earlier of June 30, 2000 or the closing of the transactions described in Note 2 to the consolidated financial statements. The loan bears interest at two points above the prime rate of interest as set from time to time by BankBoston N.A. The loan was canceled on March 7, 2000, as more fully described in Note 2.
On February 10, 2000, the Company acquired the designs, intellectual property and certain physical assets of B & K Rotary Machinery International Corporation (B & K) of Brampton, Ontario, Canada. B & K is well-known and experience highly engineered metal processing line. B & K equipment is found in steel processing centers, tube/pipe production plants and roll forming facilities around the world. The B & K Supermill(TM), Rotary Shear(TM), and Rotary Pierce(TM) designs are the technology of choice among leading producers of light gauge steel framing used in building construction. The B & K products will be designed and manufactured at the Formtek operations located in Chicago, Illinois and Clinton, Maine. The purchase price paid for the assets acquired was approximately $2.8 million. The Company intends to account for this acquisition under the purchase method of accounting.
On March 7, 2000, the Company completed the Spin-off and subsequent merger of its wholly owned subsidiary, MCS, Inc., into Simione Central Holdings, Inc. as more fully explained in Note 2.
On March 14, 2000, the Company and MetCoil Systems Corporation, (MetCoil) announced that they have entered into a definitive merger agreement under which MetCoil will be merged into a wholly owned subsidiary of the Company for approximately $32 million.
The merger is subject to approval by MetCoil's stockholders and review under the Hart-Scott-Rodino Act. All other conditions will be further described in a proxy statement to be mailed to MetCoil's stockholders. The board of directors of MetCoil has unanimously recommended that stockholders approve the merger.
MetCoil manufactures advanced sheet metal forming equipment, fabricating equipment and computer-controlled fabrication systems for the global market. The Company employs approximately 270 people, principally in its Cedar Rapids, Iowa and Lisle, Illinois manufacturing facilities, and had revenues for the fiscal year ended May 31, 1999 of $45.8 million. MetCoil's products are complementary with those of the Company's Metal Forming Segment.
PART III
With respect to items 10 through 13, the Company will file with the Securities and Exchange Commission, within 120 days of the close of its fiscal year, a definitive proxy statement pursuant to Regulation 14-A.
Item 10
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of the Company will be set forth in the Company's proxy statement relating to the annual meeting of shareholders to be held May 12, 2000, and to the extent required, is incorporated herein by reference. Information regarding executive officers of the Company is set forth under the caption "Executive Officers".
Item 11
Item 11 - EXECUTIVE COMPENSATION
Information regarding executive compensation will be set forth in the Company's proxy statement relating to the annual meeting of shareholders to be held May 12, 2000, and, to the extent required, is incorporated herein by reference.
The report of the Compensation Committee of the Board of Directors of the Company shall not be deemed incorporated by reference by any general statement incorporating by reference the proxy statement into any filing under the Securities Exchange Act of 1934, and shall not otherwise be deemed filed under such Act.
Item 12
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and management will be set forth in the Company's proxy statement relating to the annual meeting of shareholders to be held May 12, 2000, and, to the extent required, is incorporated herein by reference.
Item 13
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions will be set forth in the Company's proxy statement relating to the annual meeting of shareholders to be held May 12, 2000, and, to the extent required, is incorporated herein by reference.
PART IV
Item 14
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
INDEX
Pages of this report
Independent Auditors' Reports Page 19
Financial Statements:
(a)(1) Consolidated Balance Sheets as of
December 31, 1998 and 1997 Pages 20 and 21
Consolidated Statements of Income for the Years
Ended December 31, 1998, 1997, and 1996 Page 22
Consolidated Statements of Shareholders' Equity for
the Years Ended December 31, 1998, 1997, and 1996 Page 23
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998, 1997, and 1996 Page 24
Notes to the Consolidated Financial Statements
(a)(2) Financial Statement Schedules
II. Valuation and Qualifying Accounts Page 44
All other financial statement schedules required by Item 14(a)(2) have been omitted because they are inapplicable or because the required information has been included in the consolidated financial statements or notes thereto.
(a)(3) Exhibits
The Exhibit Index is set forth on Pages 44 through 47
No annual report to security holders as of December 31, 1999 had been sent to security holders and no proxy statement, form of proxy or other proxy soliciting material has been sent by the registrant to more than ten of the registrant's security holders with respect to any annual or other meeting of security holders held or to be held in 2000. Such annual report to security holders, proxy statement or form of proxy will be furnished to security holders subsequent to the filing of this Annual Report on Form 10-K.
Schedule II
MESTEK, INC.
Valuation and Qualifying Accounts Years ended December 31, 1999, 1998 and 1997
Bal.at Charged Bad Debt Bal. at Beg. to Other Write-offs at end Year Description of Year expense (1) (2) of Year - ---- ----------- ------- ------- ----------- ----------- -------
1999 Allowance for doubtful
accounts $3,443 $1,432 $27 ($1,275) $3,627
1998 Allowance for doubtful
accounts $2,529 $1,165 $57 ($308) $3,443
1997 Allowance for doubtful
accounts $1,701 $1,124 $16 ($312) $2,529
(1) Includes recoveries of amounts previously written-off and allowances for doubtful accounts of acquired companies.
(2) Bad debts written off.
EXHIBIT INDEX
Those documents followed by a parenthetical notation are incorporated herein by reference to previous filings with the Securities and Exchange Commission as set forth below.
Exhibit No. Description
****************
2.1 Plan of Reorganization of Eafco, Inc. (H)
3.1 Restated Articles of Incorporation of Mestek, Inc., as amended (K)
3.2 By-laws of Mestek, Inc. as amended through April 1, 1993 (D)
10.1 Employment Agreement dated January 1, 1982 between Mestek and John E. Reed (A)
10.2 Lease dated July 1, 1983 between Sterling Realty Trust (lessor) and Mestek, Inc. (lessee) (D)
10.3 Lease dated December 17, 1984 between Mestek (lessee) and Sterling Realty Trust (lessor), as amended on November 1, 1991 (D)
10.4 Lease dated January 1, 1994 between Mestek (lessee) and Sterling Realty Trust (lessor) (D)
10.5 Amended and restated lease agreement dated as of July 1, 1997 between Mestek, Inc. (lessee) and Rudbeek Realty Corp. (lessor)
10.6 Amended and restated lease agreement dated as of January 1, 1997 between Vulcan Radiator Division, Mestek, Inc. (lessee) and MacKeeber Associates Limited Partnership (lessor). (K)
10.7 Equipment Lease Agreement dated January 1, 1993, between Mestek (lessee) and Sterling Realty Trust (lessor) (D)
10.8 Loan Agreement dated as of December 1, 1984 among Reed National Corp., Rudbeek Realty Corp. and The Pitt County Industrial Facilities and Pollution Control Financing Authority and the Promissory Notes thereunder two Guaranty Agreements dated as of December 1, 1984 between Reed National Corp., NCNB National Bank of North Carolina, and Rudbeek Realty Corp. (A)
10.9 Loan Agreement dated as of May 1, 1984 among the Connecticut Development Authority (the "CDA"), MacKeeber Limited Partnership, Vulcan Radiator Corporation and the Promissory Notes thereunder; Guaranty of Vulcan Radiator Corporation and Reed National Corp. to the Connecticut Bank and Trust Company, NA (A)
10.10 Note Agreement dated as of July 1, 1987 between Mestek, Inc. and Massachusetts Mutual Life Insurance Company. (B)
10.11 Indemnification Agreements entered into between Mestek, Inc. and its Directors and Officers and the Directors of its wholly-owned subsidiaries incorporated by reference as provided herein, except as set forth in the attached schedule (C)
10.12 Share Purchase Agreement relating to the acquisition of capital stock of Ruscio Brothers Refractory, Ltd. And Rainbow Electronics Spotwelding Equipment, Ltd. dated April 29, 1998 by and between 1291893 Ontario, Inc. as Buyer and Domenic Ruscio, et al., as Sellers. (L)
10.13 Lease Agreement dated July 1, 1998 between Mestek (lessee) and Sterling Realty Trust (lessor). (D)
10.14 Loan Agreement and Promissory Note dated June 7, 1993 between The First National Bank of Boston and Mestek, Inc. (D)
10.15 Mortgage Note dated February 1, 1986 between Arrow United Industries, Inc. and Chemical Bank; said Note assumed by Mestek, Inc. in the purchase of certain assets of Arrow United Industries, Inc. (D)
10.16 Equipment Lease Agreement dated January 1, 1993 between Machinery Rental Company (Lessor) and Vulcan Radiator Corporation (Lessee). (E)
10.17 Equipment Lease Agreement dated January 1, 1993 between Machinery Rental Company (Lessor) and Mestek, Inc. (Lessee). (E)
10.18 Equipment Lease Agreement dated January 1, 1993 between Elizabeth C. Reed Trust (Lessor) and Mestek, Inc. (Lessee). (E)
10.19 1996 Mestek, Inc. Stock Option Plan. (I)
10.20 Amended and Restated Revolving Loans and Foreign Exchange Facilities Agreement between Mestek, Inc. and Bank Boston dated July 15, 1997.(J)
10.21 Lease dated January 1, 1997 between Pacific Air Balance, Inc. (Lessee) and Production Realty, Inc. (Lessor). (J)
10.22 Letter Agreement between Mestek, Inc. and the Travelers Insurance Company, dated March 1, 1996, regarding five and fifty-three hundredth percent (5.53%) Senior Notes due March 1, 1998. (K)
10.23 Supplemental Executive Retirement Agreements entered into between Mestek, Inc. and certain of its officers. (J)
10.24 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty Trust (Lessor) for 1st floor - Torrington Building.
10.25 Lease dated July 1, 1999 between Mestek (Lessee) and Sterling Realty Trust (Lessor) for 3rd & 4th Floor - Torrington Building.
10.26 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and Sterling Realty Company (Seller).
10.27 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and Elizabeth C. Reed Trust (Seller).
10.28 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and Machinery Rental Company (Seller)
10.29 Asset Purchase Agreement dated March 18, 1999 among CTS Corporation, Dynamics Corporation of America, and Mestek, Inc. (F)
10.30 Second Amended and Restated Agreement and Plan of Merger and Investment Agreement dated October 25, 1999 among Simione Central Holdings, Inc., MCS, Inc., Mestek, Inc., John E. Reed, Stewart B. Reed, and E. Herbert Burk. (G)
10.31 Agreement and Plan of Reorganization by and betwwe Formtek Acquisition, Inc., Formtek, Inc., and Met-Coil Systems Corporation dated March 13, 2000
10.32 Bill of Sale dated January 1, 1999 between Mestek (Purchaser) and Sterling Realty Company (Seller).
10.33 Bill of Sale dated January 1, 2000 between Mestek (Purchase) and Machinery Rental Company (Seller)
11.1 Schedule of Computation of Earnings per Common Share.
22.1 Subsidiaries of Mestek, Inc.
(A) Filed as an Exhibit to the Registration Statement 33-7101, effective July 31, 1986
(B) Filed as an Exhibit to the Current Report on Form 8-K dated July 2, 1987
(C) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1987
(D) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1993
(E) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1994
(F) Filed as an Exhibit to the Current Report on Form 8-k dated April 6, 1999.
(G) Incorporated by reference from the from the Form 10 file by MCS, Inc. with the Securities and Exchange Commission on October 26, 1999, File No. 000-27829.
(H) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1998.
(I) Filed as an Exhibit to the Quarterly Report on Form 10-Q for the quarter ended September 30, 1996. (J) Filed as an Exhibit tot eh Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
(K) Filed as an Exhibit to the Annual Report on Form 10-K for the year ended December 31, 1996.
(L) Filed as and Exhibit to the Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
Exhibit 11.1
MESTEK, INC.
Schedule of Computation of Earnings Per Common Share
Years Ended December 31,
1999 1998 1997 ---- ---- ----
Net income for earnings per share $17,917 $16,064 $14,405 ======= ======= =======
Basic weighted average number of common shares outstanding 8,857 8,921 8,929 ======= ======= =======
Basic earnings per common share $2.02 $1.80 $1.61 ======= ======= =======
Diluted weighted average number of common shares outstanding 8,887 8,949 8,951 ======= ======= =======
Diluted earnings per common share $2.02 $1.80 $1.61 ======= ======= =======
Exhibit 22.1
LIST OF SUBSIDIARIES
Jurisdiction of Formation
Name
Advanced Thermal Hydronics, Inc. Delaware Alapco Holding, Inc. Delaware Anemostat, Inc Delaware Boyertown Foundry Company Pennsylvania Deltex Partners, Inc. Delaware Formtek, Inc. Delaware Formtek Acquistion, Inc. Delaware Hill Engineering, Inc. Illinois
Gentex Partners, Inc. Texas Mestex, Ltd. (Texas limited partnership) Texas Yorktown Properties, Ltd. (Texas limited partnership) Texas
HBS Aquisition Corporation Delaware Keyser Properties, Inc. Delaware Lexington Business Trust (Massachusetts business trust) Massachusetts MCS, Inc. Pennsylvania Mestek Canada, Inc. Ontario 1291893 Ontario, Inc. Ontario Ruscio Brother Refractory, Ltd. Ontario 988721 Ontario, Inc. Ontario Mestek Foreign Sales Corporation U.S. Virgin Islands Mestek Technology, Inc. Delaware National Northeast Corporation Delaware Omega Flex, Inc. Pennsylvania Pacific/Air Balance, Inc. California TEK Capital Corporation Delaware Westcast, Inc. Massachusetts
Exhibit 10.12
SCHEDULE OF DIRECTORS/OFFICERS
Indemnification Agreements
The Indemnification Agreement entered into by the Directors and/or Officers of Mestek, Inc. and certain Directors of Mestek's wholly owned subsidiaries are identical in all respects, except for the name of the indemnified director or officer and the date of execution.
Set forth below is the identity of each director and officer of Mestek, Inc. and the date upon which the above Indemnification Agreement was executed by the Director or Officer.
Director and/or Officer Year of Execution
A. Warne Boyce 1987 E. Herbert Burk 1987 William J. Coad 1987 David R. Macdonald 1987 David M. Kelly 1996 Winston R. Hindle, Jr. 1995 David W. Hunter 1987 John E. Reed 1987 Stewart B. Reed 1987 James A. Burk 1987 R. Bruce Dewey 1990 Robert G. Dewey 1988 Nicholas Kakavis 1987 Richard J. McKnight 1987 Walter J. Markowski 1990 John F. Melesko, Jr. 1987 Jack E. Nelson 1996 William S. Rafferty 1990 Stephen M. Shea 1987 Charles J. Weymouth 1995 Kevin R. Hoben 1996 Stephen M. Schwaber 1997 Phil K. LaRosa 1997 Robert P. Kandel 1997 Richard E. Kessler 1997 Timothy P. Scanlan 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has caused this report be signed on its behalf by the undersigned, thereunto duly authorized.
MESTEK, INC.
Date: March 31, 2000 By: /S/ John E. Reed ------------------------ ---------------- John E. Reed, Chairman of the Board and Chief Executive Officer
Date: March 31, 2000 By: /S/ Stephen M. Shea ------------------------ ------------------- Stephen M. Shea, Senior Vice President Finance, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Date: March 31, 2000 By: /S/ A. Warne Boyce ------------------------ ------------------ A. Warne Boyce, Director
Date: March 31, 2000 By: /S/ E. Herbert Burk ------------------------ ------------------ E. Herbert Burk, Director
Date: March 31, 2000 By: /S/ William J. Coad ------------------------ ------------------- William J. Coad, Director
Date: March 31, 2000 By: /S/ David M. Kelly ------------------------ ----------------- David M. Kelly, Director
Date: March 31, 2000 By: /S/ Winston R. Hindle, Jr. ------------------------ -------------------------- Winston R. Hindle, Jr., Director
Date: March 31, 2000 By: /S/ David W. Hunter ------------------------ ------------------- David W. Hunter, Director
Date: March 31, 2000 By: /S/ David R. Macdonald ------------------------ ---------------------- David R. Macdonald, Director
Date: March 31, 2000 By: /S/ John E. Reed ------------------------ ---------------- John E. Reed, Director
Date: March 31, 2000 By: /S/ Stewart B. Reed ------------------------ ------------------- Stewart B. Reed, Director