-----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, EOdG5BYGieP/AJwiRRkACgGVGxKfVkXsrXwLbegOJS1FqDJNYS6VoV9H8eLIcoDv mFQcvP224biAVR1/LoJ7Iw== 0000065201-99-000009.txt : 19991202 0000065201-99-000009.hdr.sgml : 19991202 ACCESSION NUMBER: 0000065201-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991201 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: 99767217 BUSINESS ADDRESS: STREET 1: 160 CASSELL ROAD 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, 1999 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 6,391,755 as of October 31, 1999. ================================================================================ MET-PRO CORPORATION INDEX PART I - FINANCIAL INFORMATION
Item 1. Financial Statements Condensed consolidated balance sheet as of October 31, 1999 and January 31, 1999....................................................... 2 Condensed consolidated statement of operations for the nine-month and three-month periods ended October 31, 1999 and 1998..................................... 3 Condensed consolidated statement of stockholders' equity for the nine-month periods ended October 31, 1999 and 1998.......................................... 4 Condensed consolidated statement of cash flows for the nine-month periods ended October 31, 1999 and 1998..................................................... 5 Notes to condensed consolidated financial statements................................................. 6 Report of independent accountants.................................................................... 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................... 10 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................................................. 15 Item 2. Changes in Securities............................................................................. 15 Item 3. Defaults Upon Senior Securities................................................................... 15 Item 4. Submissions of Matters to a Vote of Security Holders.............................................. 15 Item 5. Other Information................................................................................. 15 Item 6. Exhibits and Reports on Form S-K (a) Exhibits Required by Item 601 of Regulation S-K............................................... 15 (b) Reports on Form 8-K .......................................................................... 15 SIGNATURES.................................................................................................... 16
-1- MET-PRO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) PART I - FINANCIAL INFORMATION Item 1. Financial Statements
October 31, January 31, ASSETS 1999 1999 - ------------------------------------------------------------------------------------------------------------------------ Current assets Cash and cash equivalents $5,190,041 $7,446,369 Accounts receivable, net of allowance for doubtful accounts of approximately $312,000 and $261,000, respectively 13,103,331 14,492,082 Inventories - Note 4 13,825,780 14,973,169 Prepaid expenses, deposits and other current assets 1,154,806 827,824 Deferred income taxes 944,009 944,009 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 34,217,967 38,683,453 Property, plant and equipment, net 13,614,515 13,931,276 Costs in excess of net assets of businesses acquired, net 18,896,102 19,260,591 Other assets 759,989 1,013,321 - ------------------------------------------------------------------------------------------------------------------------ Total assets $67,488,573 $72,888,641 ======================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------ Current liabilities Current portion of long-term debt $2,006,657 $2,125,093 Accounts payable 4,028,230 5,213,770 Dividend payable 511,340 -- Accrued salaries, wages and expenses 5,870,691 5,804,235 Payroll and other taxes payable 38,598 216,822 Customers' advances 650,106 1,027,948 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 13,105,622 14,387,868 Long-term debt 10,436,120 11,941,954 Other non-current liabilities 394,011 328,838 Deferred income taxes 283,386 304,874 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 24,219,139 26,963,534 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity Common stock, $.10 par value; 18,000,000 shares authorized, 7,185,507 and 7,138,625 shares issued, of which 793,752 and 343,727 shares were reacquired and held in treasury at the respective dates 718,550 713,862 Additional paid-in capital 7,938,033 7,508,748 Retained earnings 44,976,775 42,718,355 Accumulated other comprehensive loss (235,940) (85,103) Treasury stock, at cost (10,127,984) (4,930,755) - ------------------------------------------------------------------------------------------------------------------------ Net stockholders' equity 43,269,434 45,925,107 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $67,488,573 $72,888,641 ========================================================================================================================
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, 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Net sales $59,212,504 $46,617,291 $17,846,269 $17,087,560 Cost of goods sold 38,824,967 29,274,180 11,528,063 10,908,351 - ---------------------------------------------------------------------------------------------------------------------------------- Gross profit 20,387,537 17,343,111 6,318,206 6,179,209 - ---------------------------------------------------------------------------------------------------------------------------------- Operating expenses Selling 5,558,747 4,219,151 1,809,594 1,513,383 General and administrative 6,690,014 5,190,958 2,154,514 1,912,917 - ---------------------------------------------------------------------------------------------------------------------------------- 12,248,761 9,410,109 3,964,108 3,426,300 - ---------------------------------------------------------------------------------------------------------------------------------- Income from operations 8,138,776 7,933,002 2,354,098 2,752,909 Other Income, net 372,775 478,504 110,715 142,180 - ---------------------------------------------------------------------------------------------------------------------------------- Income before taxes 8,511,551 8,411,506 2,464,813 2,895,089 Provision for taxes 3,060,910 3,126,044 763,150 1,100,133 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $5,450,641 $5,285,462 $1,701,663 $1,794,956 ================================================================================================================================== Earnings per share, basic (1) $.83 $.76 $.26 $.26 Earnings per share, diluted (2) $.82 $.76 $.26 $.26 Cash dividend per share - declared (3) $.48 $.30 $.08 $.00 Cash dividend per share - paid (3) $.40 $.30 $.08 $.00 ===================================================================================================================================
(1) Basic earnings per share are based on the weighted average number of shares of common stock outstanding of 6,592,232 and 6,936,273 in the nine-month periods ended October 31, 1999 and 1998, respectively, and 6,619,678 and 6,947,502 in the three-month periods ended October 31, 1999 and 1998, respectively. (2) Diluted earnings per share are based on the weighted average number of shares of common stock outstanding of 6,631,383 and 6,986,611 in the nine-month periods ended October 31, 1999 and 1998, respectively, and 6,660,094 and 6,999,652 in the three-month periods ended October 31, 1999 and 1998, respectively. (3) On February 23, 1998, the Company declared a cash dividend of $.30 per share payable on April 24, 1998 to stockholders of record on April 10, 1998. On February 22, 1999, the Company declared an annual $.32 per share cash dividend payable on April 23, 1999 for the fiscal year ended January 31, 1999 to stockholders of record on April 9, 1999. On June 2, 1999, the Company declared a quarterly $.08 per share cash dividend payable on September 10, 1999 to stockholders of record on August 20, 1999. On October 20, 1999, the Company declared a quarterly $.08 per share cash dividend payable on December 10, 1999 to stockholders of record on November 26, 1999. 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 (Loss) Stock Total - ----------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1999 $713,862 $7,508,748 $42,718,355 ($85,103) ($4,930,755) $45,925,107 Comprehensive income: Net income 5,450,641 Foreign currency translation (150,837) Total comprehensive income 5,299,804 Dividends paid, $.40 per share (2,680,881) (2,680,881) Dividends declared, $.08 per share (511,340) (511,340) Proceeds from issuance of common stock under dividend reinvestment plan (46,882 4,688 456,465 461,153 shares) Stock option transactions (27,180) 42,180 15,000 Purchase of 453,025 shares of treasury stock (5,239,409) (5,239,409) - ----------------------------------------------------------------------------------------------------------------------------------- Balances, October 31, 1999 $718,550 $7,938,033 $44,976,775 ($235,940) ($10,127,984) $43,269,434 ==================================================================================================================================== 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 treasury stock (2,776,031) (2,776,031) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, October 31, 1998 $713,862 $7,508,748 $40,852,765 ($11,468) ($4,244,441) $44,819,466 ====================================================================================================================================
See accompanying notes to condensed consolidated financial statements. -4-
MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Nine Months Ended October 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Net cash provided by operating activities $7,715,350 $5,521,373 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Proceeds from sale of property and equipment 12,048 6,600 Acquisitions of property and equipment (888,414) (989,647) Acquisitions of other intangibles (7,281) (412,856) Payment for acquisition of businesses -- (15,367,221) - ------------------------------------------------------------------------------------------------------------------------ Net cash (used in) investing activities (883,647) (16,763,124) - ------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities Proceeds from new borrowing -- 12,000,000 Reduction of debt (1,624,270) (1,143,238) Exercise of stock options 15,000 362,228 Payment of dividends (2,219,728) (2,100,569) Purchase of treasury shares (5,239,408) (2,776,031) - ------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities (9,068,406) 6,342,390 - ------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (19,625) 27,400 - ------------------------------------------------------------------------------------------------------------------------ Net (decrease) in cash and cash equivalents (2,256,328) (4,871,961) Cash and cash equivalents at February 1 7,446,369 11,253,380 - ------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at October 31 $5,190,041 $6,381,419 ======================================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest $631,011 $186,391 Income taxes $2,739,675 $3,328,384 ========================================================================================================================
See accompanying notes to condensed consolidated financial statements. -5- MET-PRO CORPORATION 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, 1999 and the results of operations for the nine- month and three-month periods ended October 31, 1999 and 1998, and changes in stockholders' equity and cash flows for the nine-month periods then ended. The results of operations for the nine-month and three-month periods ended October 31, 1999 and 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, 1999. 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 plus 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 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 $12,150,000 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 period ended October 31, 1998 would have been as follows, if the acquisition had been made as of February 1, 1998: Net sales $58,542,291 Income before taxes 9,249,543 Net income 5,804,946 Earnings per share, basic $.84 Earnings per share, diluted $.83 -6- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVENTORIES Inventories consisted of the following: October 31, January 31, 1999 1999 ------------ ------------ Raw material $6,677,852 $7,246,379 Work in progress 2,239,776 2,435,351 Finish goods 4,908,152 5,291,439 ------------ ------------ $13,825,780 $14,973,169 ============ ============ NOTE 5 - BUSINESS SEGMENT DATA The Company's operations are conducted in two business segments as follows: the manufacture and sale of pollution control systems and allied equipment, and the manufacture and sale of fluid handling equipment. No significant intercompany revenue is realized by either business segment. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management. Financial information by business segment is shown below. Nine Months Ended October 31, 1999 1998 -------------------------------------- Net sales Pollution control systems and allied equipment $39,346,224 $26,689,206 Fluid handling equipment 19,866,280 19,928,085 ------------ ------------ $59,212,504 $46,617,291 ============ ============ Income from operations Pollution control systems and allied equipment $5,518,948 $4,987,520 Fluid handling equipment 2,619,828 2,945,482 ------------ ------------ $8,138,776 $7,933,002 ============ ============ October 31, 1999 1998 -------------------------------------- Identifiable assets Pollution control systems and allied equipment $42,049,189 $44,883,938 Fluid handling equipment 18,969,915 20,585,637 ------------ ------------ 61,019,104 65,469,575 Corporate 6,469,469 7,869,579 ------------ ------------ $67,488,573 $73,339,154 ============ ============
-7- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - EMPLOYEE BENEFIT PLAN Effective April 1, 1999, the Company implemented a 401(k) profit sharing plan. Substantially all employees of the Company in the United States are eligible to participate in the plan following their completion of one year of service and attaining age 21. Pursuant to this plan, employees can contribute up to 15% of their compensation to the plan. The Company will match in the form of Met-Pro common stock up to 50% of the employee contribution up to 4% of compensation. NOTE 7 - INTEREST EXPENSE The Company's interest expense is included in general and administrative and is comprised of the following: October 31, 1999 1998 ------------------------------------- Nine months ended $620,896 $171,686 Three months ended 201,212 54,312 NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of this pronouncement will have no immediate impact on Met-Pro's consolidated results of operations, financial position or cash flows. NOTE 9 - 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. -8- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Met-Pro Corporation Harleysville, Pennsylvania We have reviewed the accompanying condensed consolidated balance sheet of Met-Pro Corporation and its wholly owned subsidiaries as of October 31, 1999 and the related condensed consolidated statements of operations for the nine-month and three-month periods ended October 31, 1999 and 1998 and stockholders' equity and cash flows for the nine-month periods ended October 31, 1999 and 1998. 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, 1999 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 25, 1999, 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, 1999 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 16, 1999 -9- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations: Nine Months Ended October 31, 1999 vs Nine Months Ended October 31, 1998 Net sales for the nine-month period ended October 31, 1999 were $59,212,504 compared to $46,617,291 for the nine-month period ended October 31, 1998, an increase of $12,595,213 or 27.0%. Sales in the Pollution Control Systems and Allied Equipment segment were $12,657,018 or 47.4% higher than the nine-month period ended October 31, 1998 due to the acquisition of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen"), effective as of October 1, 1998, coupled with higher demand primarily for our Pollution Control and Allied Equipment. Sales in the Fluid Handling Equipment segment were $61,805 lower compared to the nine-month period ended October 31, 1998. Backlog at October 31, 1999 totaled $12,877,852 or 17.4% lower than the backlog of orders on hand at October 31, 1998 and 48.4% higher than the backlog of orders on hand at July 31, 1999. In addition, the Company had an additional $4,274,414 of orders which are not included in our backlog due to the Company's long-standing policy of not including these orders in backlog until engineering drawings are approved. The gross margin for the nine-month period ended October 31, 1999 was 34.4% versus 37.2% for the same period in the prior year due to lower gross margins experienced in the Pollution Control Systems and Allied Equipment segment. Selling expense increased $1,339,596 during the nine-month period ended October 31, 1999 compared to the same period last year. The increase in selling expense is attributed to the inclusion of Flex-Kleen operations for the nine-month period ended October 31, 1999 which in the previous year only included one month for the comparative period. Selling expense as a percentage of net sales was 9.4% for the nine-month period ended October 31, 1999, a slight increase compared to the nine-month period ended October 31, 1998. General and administrative expense was $6,690,014 for the nine-month period ended October 31, 1999 compared to $5,190,958 for the same period last year, an increase of $1,499,056. The increase was due mainly to amortization, interest expense and other administrative expenses connected with the inclusion of Flex-Kleen, which in the previous year only included one month for the comparative period. Interest expense for the nine-months ended October 31, 1999 and 1998 amounted to $620,896 and $171,686, respectively. General and administrative expense as a percentage of net sales increased to 11.3% for the nine-month period ended October 31, 1999 from 11.1% for the same period last year. Other income, net, decreased $105,729 for the nine-month period ended October 31, 1999 compared to the nine-month period ended October 31, 1998, due to less interest earned on lower cash balances. The effective tax rate for the nine-month period ended October 31, 1999 was 36% compared to 37.2% for the nine-month period ended October 31, 1998. Three Months Ended October 31, 1999 vs Three Months Ended October 31, 1998 Net sales for the three-month period ended October 31, 1999 were $17,846,269 compared to $17,087,560 for the three-month period ended October 31, 1998, an increase of $758,709 or 4.4%. The sales increase can be attributed to the acquisition of Flex-Kleen, which in the previous year only included one month for the comparative period. -10- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations continued... The gross margin for the three-month period ended October 31, 1999 was 35.4% compared to 36.2% for the same period last year. The decrease is due to lower gross margins experienced in Pollution Control and Allied Equipment segment. Selling expenses increased $296,211 during the three-month period ended October 31, 1999 compared to the same period last year. As a percentage of net sales, selling expense increased to 10.1% for the three-month period ended October 31, 1999 from 8.9% for the three-month period ended October 31, 1998. The increase in selling expense is attributed to the inclusion of Flex-Kleen operations for the three-month period ended October 31, 1999 which in the previous year only included one month for the comparative period. General and administrative expense was $2,154,514 during the three-month period ended October 31,1999 compared to $1,912,917 during the three-month period ended October 31, 1998, an increase of $241,597. Interest expense for the three-months ended October 31, 1999 and 1998 amounted to $201,212 and $54,312, respectively. General and administrative expense for the three-month period ended October 31, 1999 increased to 12.1% of net sales compared to 11.2% for the same period last year. The increase in general and administrative expense is attributed to the inclusion of Flex-Kleen operations for the three-month period ended October 31, 1999, which in the previous year only included one month of the comparative period. Other income, net, decreased $31,465 for the three-month period ended October 31, 1999 compared to the prior year's comparable three-month period due to less interest earned on lower cash balances. The effective tax rate for the three-month period ended October 31, 1999 was 31.0% compared to 38.0% for the three-month period ended October 31, 1998. Liquidity: The Company's cash and cash equivalents were $5,190,041 on October 31, 1999 compared to $7,446,369 on January 31, 1999, a decrease of $2,256,328. This decrease is the net result of the payment of cash dividends amounting to $2,219,728 (net of $461,153 of dividends utilized for stock purchased under the Dividend Reinvestment Plan), payments on long-term debt totalling $1,624,270, purchase of treasury stock amounting to $5,239,408, acquisition of other intangibles amounting to $7,281 and investment in property and equipment amounting to $888,414, offset by positive cash flow provided by operating activities of $7,715,350, proceeds received from the exercise of stock options of $15,000, and proceeds received from the sale of property and equipment amounting to $12,048. 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 $13,103,331 on October 31, 1999 compared to $14,492,082 on January 31, 1999, which represents a decrease of $1,388,751. 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 $13,825,780 on October 31, 1999 compared to $14,973,169 on January 31, 1999, a decrease of $1,147,389. Inventory balances fluctuate depending upon market demand, the size and timing of orders and varying lead times required. -11- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations continued... Current liabilities amounted to $13,105,622 on October 31, 1999 compared to $14,387,868 on January 31, 1999, a decrease of $1,282,246. Accounts payable, current portion of long term debt, customer advances and other taxes payable, offset by the increase in accrued expenses and dividends declared but payable in a subsequent period, accounted for the decrease. 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. Cash flows, 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, 1999 amounted to $7,715,350 compared with $5,521,373 in the nine-month period ended October 31, 1998, an increase of $2,193,977. Cash flows used in investing activities during the nine-month period ended October 31, 1999 amounted to $883,647 compared with $16,763,124 for the nine-month period ended October 31, 1998. The Company's investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments, combined with acquisition of businesses. One of those acquisitions occurred on October 29, 1998, when 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. Flex-Kleen is a manufacturer of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. The purchase price, exclusive of liabilities assumed, was paid 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. The purchase price was allocated among operating assets, operating liabilities, covenant not to compete, and goodwill. The other acquisition during the nine-month period ended October 31, 1998, occurred when 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, 1999 utilized $9,068,406 of available resources compared to $6,342,390 of cash provided for the nine-month period ended October 31, 1998. The 1999 activity is the result of the payment of dividends amounting to $2,219,728 (net of $461,153 of dividends utilized for stock purchased under the Dividend Reinvestment Plan), reduction of long-term debt totalling $1,624,270, plus the purchase of treasury stock totalling $5,239,408, offset by proceeds provided by the exercise of stock options totalling $15,000. On February 22, 1999, the Board of Directors declared a $.32 per share annual cash dividend (compared to the $.30 per share cash dividend paid on April 24, 1998) payable on April 23, 1999 to stockholders of record on April 9, 1999. The dividend paid on April 23, 1999 represented 30.1% of the prior fiscal year earnings. A total of $431,329 of such dividend was used by our stockholders to purchase an aggregate of 44,218 shares through our dividend reinvestment plan. -12- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations continued... Due to the strong cash flows generated from operating activities, the Company announced the change from an annual dividend which was traditionally paid during the month of April to an expected quarterly dividend. On June 2, 1999, the Board of Directors declared a quarterly dividend of $.08 per share payable on September 10, 1999 to stockholders of record at the close of business on August 20, 1999. On October 20, 1999, the Board of Directors declared a quarterly dividend of $.08 per share payable on December 10, 1999 to stockholders of record at the close of business on November 26, 1999. On June 3, 1998, the Company announced the initiation of a 350,000 share stock repurchase program ("1998 Stock Repurchase Program"). On May 12, 1999, the Company announced a new stock repurchase program for an additional 350,000 shares or approximately 5% of the Company's outstanding stock, to commence after all shares have been repurchased under the 1998 Stock Repurchase Program. The Company completed the 1998 Stock Repurchase Program, during the nine-month period ended October 31, 1999. These stock repurchase programs were initiated and are expected to be implemented because, in management's view, the prevailing price of the Company's stock does not adequately reflect the stock's fair 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 the program at any time. For the nine-month period ended October 31, 1999, the Company had repurchased 453,025 shares, 280,825 under the plan effective May 12, 1999 and 172,200 shares under the 1998 Stock Repurchase Program. Consistent with past practices, the Company intends to continue to invest in new product development programs, and to make capital expenditures to support the on-going operations during the coming year. The Company expects to finance all capital expenditure requirements through cash flows generated from operations. Year 2000 Compliance: The "Year 2000" issue refers to computer systems and other equipment operating on software that uses only two digits to represent the year, rather than four digits. As a result, these systems and equipment may not process information or otherwise function properly when using the year "2000", since that year will be indistinguishable from the year "1900". The Company initiated a Year 2000 program to assess and develop plans to resolve the issue both internally and externally. During 1997, the Company began developing a plan to upgrade its business and operating systems to Year 2000 compliant software. Implementation of the upgrade began in 1998 with the initial testing of the system on a limited basis prior to converting all of the Company's locations. As of May 1998, the Company had substantially completed implementation and testing of substantially all of its business and operating systems at all of the Company's facilities. The Company has surveyed its major suppliers, financial institutions, and certain others with whom it does business to determine their Year 2000 readiness and coordinate conversion efforts. Approximately 95% of the third party suppliers surveyed have responded to the Company's surveys. At the current time, respondents the Company considers critical to the operations of the Company have indicated that they are, or reasonably believe that they will be, Year 2000 compliant. If a material risk arises, the Company is prepared to implement procedures that will resolve the issues associated with the risks. Additionally, the Company has established programs to ensure that future purchases of equipment and software are Year 2000 compliant. -13- MET-PRO CORPORATION MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations continued... While reasonable actions have been taken to address the Year 2000 problem and will continue to be taken in the future to mitigate such disruption, the magnitude of all Year 2000 disturbances cannot be predicted. Management believes that past or expected future capital requirements related to Year 2000 compliance issues will not have a material impact on the Company's consolidated financial position or results of operations. The information above contains forward-looking statements including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions, and adequate resources that are made pursuant to the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements about the Year 2000 should be read in conjunction with the Company's disclosures under the heading: Cautionary Statement Regarding Forward Looking Statements. 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 "anticipates", "believes", "designed to", "estimates", "expects", "foreseeable future", "goal", "intends", "projects", "projection", "plans", "scheduled", "should" 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, the effectiveness of the Company's cost control programs, the availability of suitable acquisition opportunities 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 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. -14- MET-PRO CORPORATION PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 2. Changes in Securities and Use of Proceeds None Item 3. Defaults Upon Senior Securities None Item 4. Submissions of Matters to a Vote of Security Holders. None Item 5. Other Information None Item 6. Exhibits and Reports on Form S-K (a) Exhibits Required by Item 601 of Regulation S-K None (b) Reports on Form 8-K There were no reports filed for the nine-month period ended October 31, 1999. -15- 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 1, 1999 /s/ William L. Kacin ------------------------------------------- William L. Kacin, Chairman, President and Chief Executive Officer December 1, 1999 /s/ Gary J. Morgan ------------------------------------------- Gary J. Morgan, Vice President of Finance, Secretary and Treasurer, Chief Financial Officer, Chief Accounting Officer and Director -16- EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS JAN-31-2000 OCT-31-1999 5,190,041 0 13,103,331 311,976 13,825,780 34,217,967 28,347,183 14,732,668 67,488,573 13,105,622 12,442,777 718,550 0 0 42,550,884 67,488,573 59,212,504 59,212,504 38,824,967 51,073,728 0 0 620,896 8,511,551 3,060,910 0 0 0 0 5,450,641 .83 .82
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