-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Srq2BtwdNcZ1NFaXDkSxS/7uMywy4vHoKFT1T4TbOqGBb/4sOgeoeNv89Zy6Apac 4/chM1kxxNs+zFTd/TfHoA== 0000065201-98-000005.txt : 19981204 0000065201-98-000005.hdr.sgml : 19981204 ACCESSION NUMBER: 0000065201-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981031 FILED AS OF DATE: 19981203 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MET PRO CORP CENTRAL INDEX KEY: 0000065201 STANDARD INDUSTRIAL CLASSIFICATION: INDUSTRIAL & COMMERCIAL FANS & BLOWERS & AIR PURIFYING EQUIP [3564] IRS NUMBER: 231683282 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07763 FILM NUMBER: 98763398 BUSINESS ADDRESS: STREET 1: P O BOX 144 STREET 2: 160 CASSELL RD CITY: HARLEYSVILLE STATE: PA ZIP: 19438 BUSINESS PHONE: 2157236751 MAIL ADDRESS: STREET 1: 160 CASSELL ROAD STREET 2: BOX 144 CITY: HARLEYSVILLE STATE: PA ZIP: 19438 FORMER COMPANY: FORMER CONFORMED NAME: MET PRO WATER TREATMENT CORP DATE OF NAME CHANGE: 19740924 FORMER COMPANY: FORMER CONFORMED NAME: MET PRO INC DATE OF NAME CHANGE: 19661026 10-Q 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: October 31, 1998 Commission file number 001-07763 MET-PRO CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1683282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 160 Cassell Road, P.O. Box 144 Harleysville, Pennsylvania 19438 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 723-6751 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Registrant's common stock (par value $0.10 per share) is 6,849,798 (as of October 31, 1998). ================================================================================ MET-PRO CORPORATION INDEX PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Condensed consolidated balance sheet as of October 31, 1998 and January 31, 1998............................................................... 2 Condensed consolidated statement of operations for the nine-month and three-month periods ended October 31, 1998 and 1997............................................. 3 Condensed consolidated statement of stockholders' equity for the nine-month periods ended October 31, 1998 and 1997.................................................. 4 Condensed consolidated statement of cash flows for the nine-month periods ended October 31, 1998 and 1997............................................................. 5 Notes to condensed consolidated financial statements..................................................... 6 Report on review by independent accountants.............................................................. 8 Item 2. Management's discussion and analysis of financial condition and results of operations...................................................................... 9 PART II - OTHER INFORMATION Item 6(b). Reports on Form 8-K............................................................................. 13 SIGNATURES.................................................................................................... 14
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MET-PRO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) PART I - FINANCIAL INFORMATION Item 1. Financial Statements October 31, January 31, ASSETS 1998 1998 - ---------------------------------------------------------------------------------------------------------------------- Current assets Cash and cash equivalents $ 6,381,419 $11,253,380 Accounts receivable, net of allowance for doubtful accounts of approximately $417,000 and $280,000, respectively 13,803,943 10,664,310 Notes receivable, ESOT -- 200,000 Inventories - Note 4 15,364,173 12,210,749 Prepaid expenses, deposits and other current assets 2,149,142 723,965 Deferred income taxes 1,014,856 1,014,856 - ---------------------------------------------------------------------------------------------------------------------- Total current assets 38,713,533 36,067,260 Property, plant and equipment, net 14,132,655 13,787,596 Costs in excess of net assets of businesses acquired, net 19,451,424 7,198,915 Other assets 1,041,540 930,469 - ---------------------------------------------------------------------------------------------------------------------- Total assets $73,339,152 $57,984,240 ====================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ---------------------------------------------------------------------------------------------------------------------- Current liabilities Current portion of long-term debt $ 2,097,995 $ 1,441,964 Accounts payable 5,153,024 2,648,943 Accrued salaries, wages and expenses 6,832,367 6,523,442 Payroll and other taxes payable 54,826 5,746 Customers' advances 1,266,170 647,450 - ---------------------------------------------------------------------------------------------------------------------- Total current liabilities 15,404,382 11,267,545 Long-term debt 12,442,778 2,242,047 Other non-current liabilities 308,888 249,037 Deferred income taxes 363,638 384,782 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities 28,519,686 14,143,411 - ---------------------------------------------------------------------------------------------------------------------- Stockholders' equity Common stock, $.10 par value; 18,000,000 shares authorized, 7,138,625 shares issued at both dates, of which 288,827 and 145,152 shares were reacquired and held in treasury at the respective dates 713,862 713,862 Additional paid-in capital 7,508,748 7,868,357 Retained earnings 40,852,765 37,667,872 Accumulated other comprehensive income (11,468) (219,015) Treasury stock, at cost (4,244,441) (2,190,247) - ---------------------------------------------------------------------------------------------------------------------- Net stockholders' equity 44,819,466 43,840,829 - ---------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $73,339,152 $57,984,240 ======================================================================================================================
See accompanying notes to condensed consolidated financial statements. -2-
MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Nine Months Ended Three Months Ended October 31, October 31, 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------- Net sales $46,617,291 $47,044,874 $17,087,560 $16,265,312 Cost of goods sold 29,274,180 29,819,916 10,908,351 10,395,355 - ----------------------------------------------------------------------------------------------------------------------------- Gross profit 17,343,111 17,224,958 6,179,209 5,869,957 - ----------------------------------------------------------------------------------------------------------------------------- Operating expenses Selling 4,219,151 4,154,327 1,513,383 1,376,222 General and administrative 5,190,958 5,064,864 1,912,917 1,647,870 - ----------------------------------------------------------------------------------------------------------------------------- 9,410,109 9,219,191 3,426,300 3,024,092 - ----------------------------------------------------------------------------------------------------------------------------- Income from operations 7,933,002 8,005,767 2,752,909 2,845,865 Other income, net 478,504 757,283 142,180 202,214 - ----------------------------------------------------------------------------------------------------------------------------- Income before taxes 8,411,506 8,763,050 2,895,089 3,048,079 Provision for taxes 3,126,044 3,417,589 1,100,133 1,188,750 - ----------------------------------------------------------------------------------------------------------------------------- Net income $ 5,285,462 $ 5,345,461 $ 1,794,956 $ 1,859,329 ============================================================================================================================= Earnings per share, basic (1) $.76 $.76 $.26 $.26 Earnings per share, diluted (2) $.76 $.75 $.26 $.26 Cash dividend per share - declared (3) $.30 $.27 $ -- $ -- Cash dividend per share - paid (3) $.30 $.27 $ -- $ -- =============================================================================================================================
(1) Basic earnings per share are based upon the weighted average number of common shares outstanding of 6,936,273 and 7,066,915 in the nine-month periods ended October 31, 1998 and 1997, respectively, and 6,947,502 and 7,067,952 in the three-month periods ended October 31, 1998 and 1997, respectively. (2) Diluted earnings per share are based upon the weighted average number of common shares outstanding of 6,986,611 and 7,158,798 in the nine-month periods ended October 31, 1998 and 1997, respectively, and 6,999,652 and 7,158,934 in the three-month periods ended October 31, 1998 and 1997, respectively. (3) On February 23, 1998, the Company declared a $.30 per share cash dividend payable on April 24, 1998 to shareholders of record on April 10, 1998. On February 24, 1997, the Company declared a cash dividend of $.27 per share payable on April 25, 1997 to shareholders of record on April 11, 1997. See accompanying notes to condensed consolidated financial statements. -3-
MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings Income/(Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1998 $713,862 $7,868,357 $37,667,872 $(219,015) ($2,190,247) $43,840,829 Comprehensive income: Net income 5,285,462 Foreign currency translation 207,547 Total comprehensive income 5,493,009 Dividends paid, $.30 per share (2,100,569) (2,100,569) Stock option transactions (359,609) 721,837 362,228 Purchase of 191,400 shares of (2,776,031) (2,776,031) treasury stock - ------------------------------------------------------------------------------------------------------------------------------- Balances, October 31, 1998 $713,862 $7,508,748 $40,852,765 ($11,468) ($4,244,441) $44,819,466 =============================================================================================================================== Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings Income/(Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1997 $713,862 $8,260,289 $32,467,223 $19,121 ($1,107,569) $40,352,926 Comprehensive income: Net income 5,345,461 Foreign currency translation (122,560) Total comprehensive income 5,222,901 Dividends paid, $.27 per share (1,915,832) (1,915,832) Stock option transactions (388,952) 1,023,691 634,739 Purchase of 72,000 shares of (1,106,476) (1,106,476) treasury stock - ------------------------------------------------------------------------------------------------------------------------------- Balances, October 31, 1997 $713,862 $7,871,337 $35,896,852 ($103,439) ($1,190,354) $43,188,258 ===============================================================================================================================
See accompanying notes to condensed consolidated financial statements. -4-
MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Nine Months Ended October 31, 1998 1997 - ---------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Net cash provided by operating activities $ 5,521,373 $ 5,824,959 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities Proceeds from sale of property and equipment 6,600 681,819 Acquisitions of property and equipment (989,647) (1,052,544) Acquisitions of other intangibles (412,856) -- Payment for purchase of Flex-Kleen (15,367,221) -- - ---------------------------------------------------------------------------------------------------------------------- Net cash (used in) investing activities (16,763,124) (370,725) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities Proceeds from new borrowings 12,000,000 -- Reduction of debt (1,143,238) (1,187,691) Exercise of stock options 362,228 512,145 Payment of dividends (2,100,569) (1,915,832) Purchase of treasury shares (2,776,031) (1,106,476) - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 6,342,390 (3,697,854) - ---------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 27,400 (46,338) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (4,871,961) 1,710,042 Cash and cash equivalents at February 1 11,253,380 9,070,976 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at October 31 $ 6,381,419 $10,781,018 ====================================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest $ 186,391 $ 245,541 Income taxes $ 3,328,384 $ 3,271,657 ======================================================================================================================
See accompanying notes to condensed consolidated financial statements. -5- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of Met-Pro Corporation and its wholly owned subsidiaries Strobic Air Corporation, Flex-Kleen Canada Inc., and Mefiag B.V. (collectively "Met-Pro" or the "Company"), All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the financial position as of October 31, 1998 and the results of operations for the nine-month and three-month periods ended October 31, 1998 and 1997, and the statement of stockholders' equity and the statement of cash flows for the nine-month periods then ended. The results of operations for the nine-month and three-month periods ended October 31, 1998 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended January 31, 1998. In June 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income". The Company adopted SFAS No. 130 in the three- months ended April 30, 1998. This standard expands or modifies disclosures and has no impact on the Company's consolidated results of operations, financial position or cash flows. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information". SFAS No. 131 establishes standards for the way public business enterprises report information about segments in annual and interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 131 is effective for financial statements for fiscal years beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. Met-Pro is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 131 will have no impact on Met-Pro's consolidated results of operations, financial position or cash flows. In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132 establishes standards for the disclosures of pension and other postretirement benefit plans. It does not change the measurement and recognition standards for those plans, but does revise and replace the prior disclosure requirements. SFAS No. 132 is effective for fiscal years beginning after December 15, 1997. Financial statement disclosures for prior periods are required to be restated. Met-Pro is in the process of evaluating the disclosure requirements. The adoption of SFAS No. 132 will have no impact on Met-Pro's consolidated results of operations, financial position or cash flows. -6- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 3 - ACQUISITION OF BUSINESS On October 29, 1998, the Company, pursuant to an Asset Purchase Agreement, purchased all of the operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen") for a purchase price of approximately $15,000,000 together with the assumption of ordinary business liabilities. The acquisition was accounted for as a purchase transaction. Flex-Kleen is a manufacturer of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. The condensed consolidated statement of operations for the nine-months and three-months ended October 31, 1998 includes the operations of Flex-Kleen for the period since October 1, 1998. The acquisition was completed by a cash payment of approximately $15,000,000, plus acquisition costs, which resulted in approximately $12,200,000 of goodwill. A bank loan totalling $12,000,000 having a ten-year term with a fixed interest rate swap of 5.98% was used to finance the acquisition. Payments of principal and interest are payable on a quarterly basis. On a pro-forma basis, consolidated results of operations for the nine-month periods ended October 31, 1998 and 1997 would have been as follows, if the acquisition had been made as of February 1, 1998 and February 1, 1997:
Nine Months Ended October 31, 1998 1997 - -------------------------------------------------------------------------------- Net sales $58,542,291 $61,190,874 Income before taxes on income 9,249,543 9,599,621 Net income 5,804,946 5,855,769 Earnings per share, basic $ .84 $ .83 Earnings per share, diluted $ .83 $ .82 NOTE 4 - INVENTORIES Inventories consisted of the following: October 31, January 31, 1998 1998 ------------- ------------ Raw material $ 7,009,286 $ 5,570,663 Work in progess 2,518,536 2,001,618 Finished goods 5,836,351 4,638,468 ------------- ------------ $15,364,173 $12,210,749 ============= ============
NOTE 5 - ACCOUNTANTS' 10-Q REVIEW Margolis & Company P.C., the Company's auditors, has performed a limited review of the financial information included herein. Their report on such review accompanies this filing. -7- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Met-Pro Corporation and its Wholly Owned Subsidiaries Harleysville, Pennsylvania We have reviewed the accompanying condensed consolidated balance sheet of Met-Pro Corporation and its wholly owned subsidiaries as of October 31, 1998 and the related condensed consolidated statements of operations for the nine-month and three-month periods ended October 31, 1998 and 1997 and stockholders' equity and cash flows for the nine-month periods ended October 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 31, 1998 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 19, 1998, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 1998 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Margolis & Company P.C. ---------------------------- Certified Public Accountants Bala Cynwyd, Pennsylvania November 19, 1998 -8- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations Results of Operations: Nine-months Ended October 31, 1998 vs Nine-months Ended October 31, 1997 Net sales for the nine-month period ended October 31, 1998 were $46,617,291 compared to $47,044,874 for the nine-month period ended October 31, 1997, a decrease of $427,583. The sales decrease can be attributed to the impact of economic conditions in the Pacific Rim countries, especially in the Fluid Handling Equipment segment and the timing of shipments due to contract requirements in the Pollution Control Systems and Allied Equipment segment. These factors were somewhat offset by the impact of the acquisition of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen") whose operations are included effective October 1, 1998. The backlog of orders on hand from operations prior to the Flex-Kleen acquisition was 66.1% higher compared to the backlog at the beginning of the fiscal year. With the addition of Flex-Kleen orders on hand totaled $15,659,374 at October 31, 1998 or 154.9% higher compared to the backlog at the beginning of the fiscal year. This does not include an additional $5,538,708 of orders in house at October 31, 1998 compared to $3,517,559 at January 31, 1998 which, according to our longstanding policy, are not included in the backlog until, as engineered products, complete drawings have been approved. Net income for the nine-month period ended October 31, 1998 was $5,285,462 compared to $5,345,461 for the nine-month period ended October 31, 1997, a slight decrease of $59,999. The decrease in net income is related to lower sales volume in the Fluid Handling Equipment segment offset by the impact of the acquisition of Flex-Kleen. The gross margin for the nine-month period ended October 31, 1998 was 37.2% compared to 36.6% for the same period last year. The improvement in gross margin can be attributed to a combination of improved capacity utilization, product mix, and production efficiencies in both segments. Selling expense increased $64,824 during the nine-month period ended October 31, 1998 compared to the same period last year. Selling expense as a percentage of net sales was 9.1% for the nine-month period ended October 31, 1998, a slight increase compared to the nine-month period ended October 31, 1997. General and administrative expense was $5,190,958 for the nine-month period ended October 31, 1998 compared to $5,064,864 for the same period last year, an increase of $126,094. The increase was due mainly to additional costs associated with the Flex-Kleen acquisition. General and administrative expense as a percentage of net sales was 11.1% for the nine-month period ended October 31, 1998, a slight increase compared to the nine-month period ended October 31, 1997. Other income, net, decreased $278,779 for the nine-month period ended October 31, 1998 compared to the prior nine-month period. This is principally due to the gain on the sale of the former Strobic Air Corporation facility included in the nine-month period ended October 31, 1997. The effective tax rate for the nine-month period ended October 31, 1998 as 37.2% compared to 39.0% for the nine-month period ended October 31, 1997. Three-months Ended October 31, 1998 vs Three-months Ended October 31, 1997 Net sales for the three-month period ended October 31, 1998 were $17,087,560 compared to $16,265,312 for the three-month period ended October 31, 1997, an increase of $822,248 or 5.1%. The sales increase can be attributed to improving sales within our Pollution Control Systems and Allied Equipment segment, and the acquisition of Flex-Kleen, offset by the lower sales in the Fluid Handling Equipment segment. -9- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... Net income for the three-month period ended October 31, 1998 was $1,794,956 compared to $1,859,329 for the three-month period ended October 31, 1997, a decrease of $64,373 or 3.5%. The decrease in net income is related to the lower sales volume in the Fluid Handling Equipment segment offset by the impact of the acquisition of Flex-Kleen. The gross margin for the three-month period ended October 31, 1998 was 36.2% a slight increase compared to 36.1% for the same period last year. Selling expenses increased $137,161 during the three-month period ended October 31, 1998 compared to the same period last year. As a percentage of net sales, selling expense increased to 8.9% for the three-month period ended October 31, 1998 from 8.5% for the three-month period ended October 31, 1997. This increase is primarily related to the Flex-Kleen acquisition. General and administrative expense was $1,912,917 during the three-month period ended October 31,1998 compared to $1,647,870 during the three-month period ended October 31, 1997, an increase of $265,047. General and administrative expense for the three-month period ended October 31, 1998 increased to 11.2% of net sales compared to 10.1% for the same period last year. The increase was due mainly to additional costs associated with the impact of the Flex-Kleen acquisition. Other income, net, decreased $60,034 for the three-month period ended October 31, 1998 compared to the three-month period ended October 31, 1997 due to a reduction in the interest earned on lower cash balances as a result of the Flex-Kleen acquisition and the purchase of stock under the Company's stock repurchase program. The effective tax rate for the three-month period ended October 31, 1998 was 38.0% compared to 39.0% for the three-month period ended October 31, 1997. Liquidity: The Company's cash and cash equivalents was $6,381,419 on October 31, 1998 compared to $11,253,380 on January 31, 1998, a decrease of $4,871,961. This decrease is the net result of positive cash flow provided by operating activities of $5,521,373, proceeds received from the exercise of stock options of $362,228, proceeds received from new borrowings of $12,000,000, proceeds from the sale of equipment of $6,600, and the effect of exchange rate changes on cash of $27,400, offset by payment of the annual cash dividend amounting to $2,100,569, payments on long-term debt totalling $1,143,238, open market purchases of stock under the Company's stock repurchase programs amounting to $2,776,031, acquisition of other intangibles amounting to $412,856, acquisition of business of Flex-Kleen amounting to $15,367,221, and investment in property and equipment amounting to $989,647. The Company's cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects. Accounts receivable (net) amounted to $13,803,943 on October 31, 1998 compared to $10,664,310 on January 31, 1998, which represents an increase of $3,139,633. The acquisition of Flex-Kleen accounted for approximately $3,529,000 of the increase. Also the timing and size of shipments and retainage on contracts, especially in the Pollution Control Systems and Allied Equipment segment, will influence accounts receivable balances at any point in time. Inventories were $15,364,173 on October 31, 1998 compared to $12,210,749 on January 31, 1998, an increase of $3,153,424. The acquisition of Flex-Kleen accounted for approximately $1,700,000 of the increase and the balance of the increase is related to market demand, the size and timing of orders and long lead times required in the Pollution Control Systems and Allied Equipment segment of the business. -10- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... Current liabilities amounted to $15,404,382 on October 31, 1998 compared to $11,267,545 on January 31, 1998, an increase of $4,136,837. The acquisition of Flex-Kleen and the addition of the current portion of long-term debt from the ten-year term loan accounted for most of the increase. The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit totalling $5.0 million, which are available for working capital purposes. Funds, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. Capital Resources and Requirements: Cash flows provided by operating activities during the nine-month period ended October 31, 1998 amounted to $5,521,373 compared with $5,824,959 in the nine-month period ended October 31, 1997, a decrease of $303,586. Cash flows used in investing activities during the nine-month period ended October 31, 1998 amounted to $16,763,124 compared with $370,725 for the nine-month period ended October 31, 1997. The Company's investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments and the acquisition of assets of other companies. On October 29, 1998, the Company acquired all operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited for approximately $15,000,000 together with the assumption of ordinary business liabilities. The purchase price was allocated among operating assets, operating liabilities, covenant not to compete, and goodwill. During the nine-month period ended October 31, 1998, the Company acquired certain assets of a distributor of its Stiles-Kem products, located in the Southeastern United States, for a purchase price of approximately $400,000. The purchase price was allocated to customer lists, covenants not to compete and goodwill. Financing activities during the nine-month period ended October 31, 1998 provided $6,342,390 of additional cash compared to $3,697,854 of cash utilized for the nine-month period ended October 31, 1997. The 1998 activity is the result of the payment of the annual cash dividend amounting to $2,100,569, reduction of long-term debt totalling $1,143,238, plus the purchase of stock on the open market under the Company's stock repurchase programs totalling $2,776,031, offset by proceeds provided by the exercise of stock options totalling $362,228 and new borrowings of long-term debt of $12,000,000. On February 23, 1998, the Board of Directors declared a $.30 per share annual cash dividend (compared to the $.27 per share cash dividend paid in April, 1997) payable on April 24, 1998 to stockholders of record on April 10, 1998. The dividend paid April 24, 1998 on the Common Stock represented 29.5% of the prior fiscal year earnings. On June 3, 1998, the Company announced the initiation of a 350,000 share stock repurchase program. The stock repurchase program of 150,000 shares announced on August 13, 1997 has been completed. The stock repurchase programs were initiated, because in management's view, the current stock price does not reflect the true stock value. Purchases will be made from time to time in open market transactions at the prevailing prices and in accordance with applicable rules. The Company may discontinue this program at any time. For the nine-month period ended October 31, 1998, the Company has repurchased 191,400 shares under the two stock repurchase programs. -11- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... On October 29, 1998, the Company acquired all of the operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited from Aqua Alliance, Inc. Flex-Kleen is a manufacturer of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. The Company paid approximately $15,000,000 in the transaction through the utilization of $3,000,000 from available resources and $12,000,000 from new borrowings of long-term debt from Mellon Bank, N.A., exclusive of assumed liabilities. Consistent with past practices, the Company expects to continue to invest in new product development programs, and to make capital expenditures to support the on-going operations. The Company expects to finance all capital expenditure requirements through cash flows generated from operations. Year 2000 Compliance: During the fiscal year ended January 31, 1998, the Company began to modify its computer software to correctly process dates for the year 2000. The Company presently believes that the modifications to its existing software are complete. Although the Company does not expect that it will incur material sums prior to the year 2000 in connection with computer software modifications required in connection therewith, no assurances can be given as to this, or as to whether the Company will not be adversely affected by year 2000 compliance problems. Cautionary Statement Regarding Forward Looking Statements: As a cautionary note to investors, the Company and its representatives may make oral or written statements from time to time that are "forward-looking statements". This would include information concerning possible or assumed future activities, plans, results of operations of the Company and statements preceded by, followed by or that include the words "believes", "expects", "anticipates", "intends" or similar expressions. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There are a number of important factors which could cause actual results to differ materially from those anticipated. The Company believes that its future operating results will continue to be subject to quarterly variations based upon a wide variety of factors including the cyclical nature of both the business segments and the markets addressed by the Company's products, price erosion, competitive factors, the timing of new product introductions, changes in product mix, the availability and extent of utilization of manufacturing capacity, product obsolescence and the ability to develop and implement new technologies. The Company's operating results could also be impacted by sudden fluctuations in customer requirements, currency exchange rate fluctuations and other economic conditions affecting customer demand and the cost of operations in one or more of the global markets in which the Company does business. As a participant in the pollution control and fluid handling industries, the Company operates in a rapidly changing and highly competitive environment. The Company sells both custom products to customers, and industrial products; accordingly, changes in the conditions or composition of any of the Company's customers may have an impact on the Company. While the Company cannot predict what effect these various factors may have on its financial results, the aggregate effect of these and other factors could result in volatility in the Company's future performance and stock price. -12- MET-PRO CORPORATION PART II - OTHER INFORMATION Item 6(b). Reports on Form 8-K The Company filed a Report on Form 8-K with the Securities and Exchange Commission on November 13, 1998 pertaining to the acquisition of Flex-Kleen Corporation, a Delaware corporation, and Flex-Kleen Canada Limited, an Ontario, Canada corporation, from Aqua Alliance, Inc. on October 29, 1998. -13- MET-PRO CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Met-Pro Corporation ---------------------------------------- (Registrant) December 3, 1998 /s/ William L. Kacin --------------------------------------- William L. Kacin, President and Chief Executive Officer December 3, 1998 /s/ Gary J. Morgan ---------------------------------------- Gary J. Morgan, Vice President of Finance, Secretary and Treasurer, Chief Financial Officer and Chief Accounting Officer -14- EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JAN-31-1999 OCT-31-1998 6,381,419 0 13,803,943 416,738 15,364,173 38,713,533 27,786,487 13,653,832 73,339,152 15,404,382 14,540,773 713,862 0 0 44,105,604 73,339,152 46,617,291 46,617,291 29,274,180 38,684,289 0 0 220,044 8,411,506 3,126,044 0 0 0 0 5,285,462 .76 .76
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