-----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, WRWn/cyLx6696Mkb3oFAcX9zPAIH24XHbm6OBZef7AgCT9Pjm73igs4msdZ2MM27 7CM2oqXe5+0e9Mratna+Qw== 0000950116-99-000804.txt : 19990426 0000950116-99-000804.hdr.sgml : 19990426 ACCESSION NUMBER: 0000950116-99-000804 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990131 FILED AS OF DATE: 19990423 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-K SEC ACT: SEC FILE NUMBER: 001-07763 FILM NUMBER: 99599591 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-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [ X ] ANNUAL 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 fiscal year ended: January 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 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- Common Stock, par value $0.10 per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.10 per share (Title of Class) 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 (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.____ The number of shares outstanding of the Registrant's Common Stock was 6,743,998 as of April 9, 1999. The aggregate market value of the voting stock held by non-affiliates of the Registrant was $71,233,479 as of April 9, 1999. DOCUMENTS INCORPORATED BY REFERENCE Form 10-K Part Number ----------- Portions of Registrant's Definitive Proxy Statement filed pursuant to Regulation 14A in connection with Registrant's Annual Meeting of Stockholders to be held on June 2, 1999........................ III INDEX PART I Item 1. Business ................................................................................. 1 Item 2. Properties ............................................................................... 6 Item 3. Legal Proceedings ........................................................................ 7 Item 4. Submission of Matters to a Vote of Security Holders ...................................... 7 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .................... 8 Item 6. Selected Financial Data .................................................................. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .... 9 Item 7A. Quantitative and Qualitative Disclosure About Market Risks ............................... 13 Item 8. Financial Statements and Supplementary Data .............................................. 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..... 33 PART III Item 10. Directors and Executive Officers of the Registrant ....................................... 33 Item 11. Executive Compensation ................................................................... 33 Item 12. Security Ownership of Certain Beneficial Owners and Management ........................... 33 Item 13. Certain Relationships and Related Transactions ........................................... 33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .......................... 34 SIGNATURES ............................................................................................ 36
PART I Item 1. Business: General: Met-Pro Corporation ("Met-Pro" or the "Company"), incorporated in the State of Delaware on March 30, 1966, manufactures and sells pollution control and allied equipment for purification of air and liquids, and fluid handling equipment for corrosive, abrasive and high temperature liquids. The Company was taken public on April 6, 1967 and traded on the American Stock Exchange from July 25, 1978 until June 18, 1998, at which time the Company's Common Stock began trading on the New York Stock Exchange. The Company's principal executive offices are located at 160 Cassell Road, Harleysville, Pennsylvania and the telephone number at that location is (215) 723-6751. The Company operates through ten divisions and three wholly owned subsidiaries. Except where otherwise indicated by the context used herein, references to the "Company" means Met-Pro Corporation and its wholly owned subsidiaries. Recent Developments: As previously reported in a Current Report on Form 8-K filed on November 13, 1998, on October 29, 1998, the Company completed the acquisition of the material operating assets of Flex-Kleen Corporation, a leading supplier of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. Flex-Kleen's sales are approximately $20,000,000 annually. The purchase price was $15,000,000 cash, plus the assumption of ordinary business liabilities. During the fiscal year ended January 31, 1999, the Company repurchased an aggregate of 246,300 shares of its Common Stock under two stock buy back programs, one of which was completed during the fiscal year. As of January 31,1999, the Company had authority to repurchase an additional 172,200 shares under its 350,000 share buy back program announced in June 1998. Products, Services and Markets: The Company operates in two segments, the Pollution Control and Allied Equipment Segment and the Fluid Handling Equipment Segment. For financial information concerning the Company's industry segments, reference is made to "Consolidated Business Segment Data" contained within the Company's Consolidated Financial Statements that form a part of this Report on Form 10-K. A narrative description of the Company's operations within these two segments is as follows: Pollution Control and Allied Equipment Segment Flex-Kleen Division, located in Itasca, Illinois, operating with its wholly-owned subsidiary, Flex-Kleen Canada Inc., is a leading supplier of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. While some of Flex-Kleen's products are also used for nuisance collection of particulates to conform to environmental concerns, the overwhelming portion of its sales activity is for product collection and is process driven. At present, Flex-Kleen's products are sold through approximately seventy-two manufacturer's representatives located in thirty-two offices across the United States and twelve manufacturer's representatives located in four offices throughout Canada. The Stiles-Kem Division, located in Waukegan, Illinois, is a leading manufacturer of specialty chemicals for the control of lead and copper leaching, scale, and the discoloration of drinking water caused by the presence of iron and manganese in the source water. Stiles-Kem Division's products for drinking water treatment are food grade and are certified to meet existing state, federal and ANSI/NSF standards for health effects in drinking water. The products are distributed through a network of distributors located in the United States and Canada. The Sethco Division, located on Long Island, New York, designs, manufactures and sells corrosion resistant pumps, filter chambers and filter systems with flow rates to about 200 gallons per minute. These products are used in wastewater treatment systems and fume scrubbers for pollution control. They are also widely used in the metal finishing, electronics and chemical processing industries. Sethco products are sold to original equipment manufacturers and to catalog supply houses through a network of non-exclusive distributors. Strobic Air Corporation, located in Harleysville, Pennsylvania, designs, manufactures and holds patents on specialty blowers and industrial fans for industrial applications including laboratories, hospitals, semi-conductor manufacturers, government laboratories, pharmaceutical, chemical, petrochemical plants and other testing laboratory facilities. Sales, engineering and customer service are provided through a distributor network located throughout the United States and Canada. Strobic Air has established a manufacturing and sales office at the Company's Mefiag B.V. facility in Heerenveen, Holland. 1 The Duall Division, located in Owosso, Michigan, is a leading manufacturer of industrial and municipal air pollution control equipment. The Division's major products include odor control systems, fume and emergency gas scrubbers, particulate collectors, stripping towers, process tanks and exhaust fans. All equipment is fabricated from corrosion resistant materials. Duall's support services include pilot studies, engineering, installation and performance testing. Duall products are sold both domestically and internationally to the metal finishing, wastewater treatment, composting, food processing, chemical, printed circuit, semiconductor, steel pickling, pharmaceutical, battery manufacturing and groundwater remediation markets. At present, ninety factory trained manufacturer's representatives sell Duall's engineered systems to industrial and municipal clients. The Systems Division, located in West Chester, Pennsylvania, is a leader in the supply of custom designed and manufactured air and water pollution control equipment. Systems Division's air pollution control capabilities include: carbon adsorption systems for the concentration and recovery of volatile solvents, thermal and catalytic oxidation systems and the supply of abatement catalysts. These systems are custom engineered for clients in the automotive, aerospace and furniture industries. Additional applications include painting, pharmaceutical, chemical, electronics, food processing and printing industries. Systems Division also manufactures a full range of catalytic converters for stationary engines and cogeneration plants to greatly reduce smog producing and toxic gases, such as NOx, CO and residual hydrocarbons, which are emitted from these sources. Fluid Handling Equipment Segment Mefiag(R), operating through its wholly owned subsidiary, Mefiag B. V., located in Heerenveen, Holland, and the Mefiag Division, located in Harleysville, Pennsylvania, designs and manufactures filter systems utilizing horizontal disc technology for superior performance, particularly in high efficiency and high-flow applications. Mefiag(R) filters are used in tough, corrosive applications in the plating, metal finishing and printing industries. Worldwide sales are accomplished through qualified, market-based distributors and original equipment manufacturers located throughout Europe, United States, Asia and other major markets throughout the world. The Keystone Filter Division, located in Hatfield, Pennsylvania, is an established custom pleater and cartridge manufacturer in the United States. The Division provides custom designed and engineered products which are currently used in such diverse applications as the nuclear power industry, as components in medical equipment and in indoor air quality equipment. Keystone Filter also provides standard filters for water purification and industrial applications. Sales and customer service are provided through a non-exclusive distributor network. The Dean Pump Division, located in Indianapolis, Indiana, designs and manufactures high quality pumps that handle a broad range of industrial applications. Users such as the chemical, petrochemical, refinery, pharmaceutical, plastics, pulp and paper, and food processing industries choose Dean Pump products particularly for their high temperature applications. The Division's products are sold through an extensive network of distributors. The Fybroc Division, located in Telford, Pennsylvania, is a world leader in the manufacture of fiberglass reinforced plastic ("FRP") centrifugal pumps. These pumps provide excellent corrosion resistance for tough applications including pumping of acids, brines, caustics, bleaches and a wide variety of waste liquids. Fybroc's new second generation epoxy resin, EY-2, allows the Company to offer the first corrosion resistant and high temperature FRP thermoset pumps suitable for solvent applications. The new EY-2 material also expands Fybroc's pumping capabilities to include certain acid applications such as high concentration sulfuric acid (75-98%). Fybroc pumps are sold to many markets including the chemical, steel, pulp and paper, electric utility, aquaculture, aquarium, and industrial and municipal waste treatment industries. Fybroc's new EY-2 material is expected to allow it to enter new markets such as pharmaceutical, petrochemical, fertilizer and pesticides. A worldwide distributor network provides sales, engineering and customer service. The Company markets its products through its own personnel, distributors, representatives and agents based on the division or subsidiary involved. The Company's products are sold worldwide primarily in industrial markets. The following table sets forth certain data concerning total net sales to customers by geographic area in the past three years: Percentage of Net Sales Fiscal Year Ended January 31, 1999 1998 1997 ------------------------------- United States 83.4% 83.5% 85.3% Foreign 16.6% 16.5% 14.7% ------------------------------- Net Sales 100.0% 100.0% 100.0% =============================== 2 Customers: During each of the past three fiscal years, no single customer accounted for 10% or more of the total net sales of the Company in any year. The Company does not believe that it would be materially adversely affected by the loss of any single customer. Seasonality: The Company does not consider its business to be seasonal in nature. Competition: The Company experiences competition from a variety of sources with respect to virtually all of its products. The Company knows of no single entity that competes with it across the full range of its products and systems. The lines of business in which the Company is engaged are highly competitive. Competition in the markets served is based on a number of considerations, which may include price, technology, applications experience, know-how, reputation, product warranties, service and distribution. With respect to the Fluid Handling Equipment segment, specifically the pump manufacturing operations, several companies, including Ingersoll Dresser Pumps Corporation (a joint venture of Ingersoll-Rand Company and Dresser Industries), Goulds Industrial Pumps, Inc. (a subsidiary of ITT Industries), and Durco Pumps, Inc. (a subsidiary of Flow Serve Corporation), dominate the industry with several smaller companies competing in selected product lines and niche markets. With respect to the Pollution Control Systems and Allied Equipment segment, there are numerous competitors of both comparable and larger size which may have greater resources than the Company, but there are no companies that dominate the market. The Company is unable to state with certainty its relative market position in all aspects of its businesses. Research and Development: The Company engages in research and development on an operational basis. Due to the wide range of the Company's products, the research and development effort is not centralized. Research is directed towards the development of new products related to current product lines, and the improvement and enhancement of existing products. The principal goals of the Company's research programs are maintaining the Company as a technological leader in the production of pollution control and allied equipment, and fluid handling equipment; developing new products; and providing technological support to the manufacturing operations. Research and development expenses were $0.8 million, $0.7 million and $0.7 million in the years ended January 31, 1999, 1998 and 1997, respectively. Patents and Trademarks: The Company maintains a small number of patents and trademarks. The Company considers these rights important to its business, although it considers no individual right material to its business. Regulatory Matters: The Company is subject to environmental laws and regulations concerning air emissions, discharges to water processing facilities, and the generation, handling, storage and disposal of waste materials in all operations. All of the Company's production and manufacturing facilities are controlled under permits issued by federal, state and local regulatory agencies. The Company believes it is presently in compliance in all material respects with these laws and regulations. To date, compliance with federal, state and local provisions relating to protection of the environment has had no material effect upon capital expenditures, earnings or the competitive position of the Company. 3 Backlog: Generally, the Company's customers do not enter into long-term contracts, but rather issues purchase orders that are accepted by the Company. The rate of booking new orders varies from month to month. In addition, the orders have varying delivery schedules, and the Company's backlog as of any particular date may not be representative of actual revenues for any succeeding period. The dollar amount of the Company's backlog of orders considered to be firm totalled approximately $13,085,678 and approximately $6,143,284 as of January 31, 1999 and 1998, respectively. The Company expects that substantially all of the backlog that existed as of January 31, 1999 will be shipped during the ensuing fiscal year. Raw Materials: The Company procures its raw materials and supplies from various sources. The Company believes it could secure substitutes for the raw materials and supplies should they become unavailable, but there are no assurances that the substitutes would perform as well or be priced competitively. The Company has not experienced difficulty in securing raw materials and supplies, and does not anticipate any difficulty in procurement in the coming year or foreseeable future. Employees: As of January 31, 1999, the Company employed 434 persons, of whom 178 were involved in manufacturing, and 256 were engaged in administration, sales, engineering, supervision and clerical work. The Company has had no work stoppages during the past 16 years and considers its employee relations to be good. Foreign Operations: Most of the Company's operations and assets are located in the United States. The Company also owns a manufacturing operation in Heerenveen, Holland through its wholly owned subsidiary, Mefiag B.V. and operates a sales office and warehouse in Markham, Ontario, Canada through its wholly owned subsidiary Flex-Kleen Canada Inc. Large export sales are typically made on the basis of confirmed irrevocable letters of credit or time drafts to selected customers in U.S. dollars. Therefore, the Company believes that currency fluctuation, and political and economic instability do not constitute substantial risks to the business. For information concerning foreign net sales on a segment basis, reference is made to the Consolidated Business Segment Data contained on page 20. 4 Executive Officers of the Registrant: The following table sets forth certain information regarding the executive officers of the Company: Walter A. Everett, age 77, is Chairman of the Board of Directors of the Company. He is the former President and Chief Executive Officer of the Company. Except for a brief period prior to August 15, 1990, he has been a Director of the Company for the past twenty-eight years. William L. Kacin, age 67, is President, Chief Executive Officer and a Director of the Company. He was elected to this position in February 1993. Prior to that, he was Vice President and General Manager of the Company's Sethco Division for seventeen years. Gary J. Morgan, CPA, age 44, is Vice President of Finance, Chief Financial Officer, Secretary, Treasurer and a Director of the Company. He was elected Vice President of Finance, Chief Financial Officer, Secretary and Treasurer in October 1997, and a Director of the Company in February 1998. Mr. Morgan joined the Registrant in 1980 and served as the Company's Corporate Controller immediately prior to October 1997. Mark A. Betchaver, age 49, is a Vice President of Registrant and General Manager of the Sethco Division, to which office he was elected in June 1993. He joined the Registrant in 1972. Carl W. Dean, age 52, is a Vice President of Registrant and General Manager of the Dean Pump Division, to which office he was elected in February 1987. He was employed by Dean Brothers Pumps, Inc. in 1972 and became an employee of Registrant when that entity was acquired in July 1984. Raymond J. De Hont, age 45, is a Vice President of Registrant and General Manager of the Fybroc Division, to which office he was elected in June 1995 when he joined the Company. For more than five years prior thereto, Mr. De Hont was employed by Air and Water Technologies and served in various capacities. His last position was Executive Vice President of their Service Group. Thomas V. Edwards, age 45, is a Vice President of Registrant and General Manager of the Systems Division, to which office he was elected in December 1998. Mr. Edwards joined the Registrant in June 1995 and prior to his present position, held the position of Assistant to the President. For more than five years prior thereto, Mr. Edwards was employed by Lockheed Martin as Engineering Manager. Sonja M. Haggert, age 45, is a Vice President of Registrant and General Manager of the Keystone Filter Division, to which office she was elected in February 1993. She joined the Registrant in 1978 and prior to her present position, held the position of Distributor Sales Manager of the Division. William G. Hughes, age 52, is Vice President and General Manager of the Flex-Kleen Division, to which office he was elected in October 1998. For more than five years prior thereto, Mr. Hughes was employed by the Flex-Kleen subsidiary of Research Cottrell, a subsidiary of Air and Water Technologies, as Vice President and General Manager. Hans J. D. Huizinga, age 48, is the Managing Director of Mefiag B.V., a wholly owned subsidiary of Registrant, located in Heerenveen, Holland, an office to which he was elected in August 1993. He was employed by Mefiag B.V. (formerly Systems Engineering and Manufacturing Corp. Nederland B.V.) for over five years as Managing Director prior to becoming an employee of the Registrant's subsidiary on June 30, 1993, when Registrant acquired that company. Gregory C. Kimmer, age 44, is Vice President and General Manager of the Duall Division, to which office he was elected in October 1989. For more than five years prior thereto, Mr. Kimmer was employed by Duall Industries, Inc. in various capacities. William F. Mersch, age 45, is a Vice President of Registrant and General Manager of the Stiles-Kem Division, to which office he was elected in October 1996. He joined the Registrant in June 1995 as National Sales Manager. For more than five years prior thereto, Mr. Mersch was employed by ANCO Corporation, in which his last position was Vice President Sales and Marketing. Robert P. Replogle, age 58, is Vice President and Director of the International Sales Division and the Mefiag Division, to which offices he was elected in December 1995. He joined the Registrant in December 1973 and prior to his present position, held the position of Director of the International Sales Division and the Mefiag Division. Lynn T. Secrest, age 61, is a Vice President of Registrant and General Manager of Strobic Air Corporation, to which office he was elected in October 1996, in connection with the Company's acquisition of Strobic Air Corporation. For more than five years prior thereto, Mr. Secrest was employed by the predecessor entity as President. There is no family relationship between any of the Directors or executive officers of Registrant. Each officer serves at the pleasure of the Board of Directors, except for Mr. Secrest, with whom the Company entered into a three year employment agreement in connection with the 1996 acquisition of the predecessor to Strobic Air Corporation. 5 Item 2. Properties: The following manufacturing and production facilities were owned or leased by the Company at January 31, 1999:
Name Structure Property/Location Status Executive Offices, 73,000 square feet, cement 17 acres in Harleysville, Owned International Division, building, with finestone facing, Pennsylvania Mefiag Division and built 1976 Strobic Air Corporation Sethco Division 30,000 square feet, cement 4 acres in Hauppauge, Owned block with brick facing, Long Island, New York built 1982 Fybroc Division 47,500 square feet, cement 8 acres in Telford, Owned building with brick facing, Pennsylvania built 1991 Keystone Filter Division 31,000 square feet, cement 2.3 acres in Hatfield, Owned block, built 1978 Pennsylvania Systems Division 15,000 square feet, cement 2 acres in West Chester, Owned block, brick and composition Pennsylvania facing, built 1984 Dean Pump Division 66,000 square feet, metal 17.1 acres in Owned building Indianapolis, Indiana Duall Division 63,000 square feet, metal 7 acres in Owosso, Owned and masonry building Michigan Stiles-Kem Division 22,000 square feet, cement 2.55 acres in Owned block building, built 1996 Waukegan, Illinois Flex-Kleen Division 13,760 square feet, brick Itasca, Illinois Leased(1) building 37,320 square feet, metal Sharpsburg, North Carolina Leased(2) building Mefiag B.V. 17,200 square feet, metal 1.1 acres in Owned and masonry building Heerenveen, Holland Flex-Kleen Canada Inc. 5,880 square feet, masonry Markham, Ontario, Canada Leased(3) building
(1) Flex-Kleen Division's lease for the operation in Itasca, Illinois expires on November 30, 2002. (2) Flex-Kleen Division's lease for the warehouse in Sharpsburg, North Carolina expires on October 28, 1999. (3) Flex-Kleen Canada Inc.'s lease for the sales and warehouse facility in Markham, Ontario, Canada expires on March 31, 2000. 6 Item 3. Legal Proceedings: There are no material pending legal proceedings to which the Company or any of its wholly owned subsidiaries is a party as of the date of this Annual Report. Item 4. Submission of Matters to a Vote of Security Holders: No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 1999. 7 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters: The Company's Common Stock is traded on the New York Stock Exchange under the symbol "MPR". The high and low selling prices of the Common Stock for each quarterly period for the last two fiscal years, as reported on the New York Stock Exchange, are shown below.
Quarter ended Year ended January 31, 1999 April July October January - ----------------------------------------------------------------------------------------------------------- Price range of common stock: High $16.44 $16.00 $13.06 $14.25 Low 14.81 12.88 10.63 11.50 Cash dividend paid .30 - - - Year ended January 31, 1998 April July October January - ----------------------------------------------------------------------------------------------------------- Price range of common stock: High $14.25 $16.13 $18.50 $17.00 Low 12.25 12.25 16.00 14.81 Cash dividend paid .27 - - -
There were 675 registered stockholders at January 31, 1999, and the Company estimates that there are approximately 500 additional stockholders with stock held in street name. On February 23, 1998, the Board of Directors declared a $.30 per share annual cash dividend payable on April 24, 1998 to stockholders of record as of April 10, 1998. On February 22, 1999, the Board of Directors declared a $.32 per share annual cash dividend payable on April 23, 1999 to stockholders of record as of April 9, 1999. The Company has paid either a cash or stock dividend for twenty-three consecutive years, excluding the current dividend payable on April 23, 1999. The Company expects that it will declare a dividend following the end of the next fiscal year in the amount approximately equal to that declared following the fiscal year ended January 31, 1999. Payment of future dividends will depend upon future earnings and capital requirements of the Company and is at the discretion of the Board of Directors. During the second quarter of fiscal year ended 1999, the Company completed the purchase of 150,000 shares of its Common Stock which was authorized under the stock buy back program approved by the Board of Directors on August 13, 1997. On June 3, 1998, the Board of Directors authorized an additional 350,000 share stock buy back program. The Company repurchased 246,300 shares under the combined programs during the year ended January 31, 1999. 8 Item 6. Selected Financial Data:
Years ended January 31, 1999 1998 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- Selected Operating Statement Data Net sales $67,390,488 $62,387,870 $60,853,278 $54,067,320 $50,005,577 Income from operations 10,801,816 10,695,596 9,157,131 7,663,957 6,281,437 Net income 7,151,052 7,116,481 6,096,002 4,893,885 3,830,042 Earnings per share, basic 1.04 1.01 .87 .70 .55 Earnings per share, diluted 1.03 1.00 .86 .69 .54 Selected Balance Sheet Data Current assets $38,683,453 $36,067,260 $32,088,546 $28,268,561 $26,595,928 Current liabilities 14,387,868 11,267,545 11,374,115 10,250,506 9,506,301 Working capital 24,295,585 24,799,715 20,714,431 18,018,055 17,089,627 Current ratio 2.7 3.2 2.8 2.8 2.8 Total assets 72,888,641 57,984,240 56,079,391 47,626,587 45,168,544 Long-term obligations 11,941,954 2,242,047 3,683,419 1,692,962 2,877,386 Total stockholders' equity 45,925,107 43,840,829 40,352,926 35,012,578 32,084,010 Total capitalization 57,867,061 46,082,876 44,036,345 36,705,540 34,961,396 Return on average total assets, % 10.9 12.5 11.8 10.5 8.9 Return on average stockholders' equity, % 15.9 16.9 16.2 14.6 12.5 Other Financial Data Net cash flows from operating activities $7,990,115 $7,351,850 $7,203,258 $6,312,118 $5,667,504 Capital expenditures 1,191,616 1,356,065 1,811,833 2,436,419 1,098,893 Stockholders' equity per share 6.76 6.27 5.73 5.03 4.61 Cash dividends paid per share .30 .27 .22 .20 .11 Average common shares, basic 6,907,654 7,053,071 6,989,717 6,999,408 7,000,281 Average common shares, diluted 6,955,892 7,144,931 7,096,214 7,051,527 7,063,920 Shares of common stock outstanding 6,794,898 6,993,473 7,043,436 6,956,535 6,964,403
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations: The following discussion should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K. General: The Company acquired substantially all of the operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen") effective as of October 1, 1998, pursuant to an Asset Purchase Agreement. The acquisition was accounted for as a purchase transaction. Accordingly, the consolidated financial data for the year ended January 31, 1999 incorporates Flex-Kleen's operations for a four-month period. The Company acquired Strobic Air Corporation ("Strobic Air"), effective as of July 31, 1996, pursuant to an Agreement and Plan at Merger. The acquisition was accounted for as a purchase transaction. Accordingly, the consolidated financial data for the year ended January 31, 1997 incorporates Strobic Air's operations for a six-month period. 9 Results of Operations: The following table sets forth for the periods indicated the percentage of total net sales that such items represent in the Consolidated Statement of Operations.
Years ended January 31, 1999 1998 1997 - --------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold 64.3% 63.8% 66.0% - --------------------------------------------------------------------------------------------- Gross profit 35.7% 36.2% 34.0% Selling, general and administrative expense 19.7% 19.1% 19.0% - --------------------------------------------------------------------------------------------- Income from operations 16.0% 17.1% 15.0% Other income .9% 1.6% 1.5% - --------------------------------------------------------------------------------------------- Income before taxes 16.9% 18.7% 16.5% Provision for taxes 6.3% 7.3% 6.5% - --------------------------------------------------------------------------------------------- Net income 10.6% 11.4% 10.0% =============================================================================================
FYE 1999 vs FYE 1998: Net sales for the year ended January 31, 1999 were $67.4 million, a new record, exceeding net sales for the year ended January 31, 1998 by $5.0 million, an increase of 8.0%. This is the sixth consecutive year that net sales have achieved a new record. Sales in the Pollution Control Systems and Allied Equipment segment were $40.1 million or 19.8% higher than the prior fiscal year due to the acquisition of Flex-Kleen, effective as of October 1, 1998, coupled with higher demand primarily for our fume and odor control equipment. Sales in the Fluid Handling Equipment segment were $27.3 million or 5.7% lower compared to the prior year due primarily to decreased demand for our specialty pump equipment from the Pacific Rim countries. Foreign sales increased to $11.2 million for the fiscal year ended January 31, 1999 which is 8.6% higher than the prior year. This increase was due to higher sales in Canada and Europe, offset by lower sales in the Pacific Rim countries. Foreign sales decreased 21.2% in the Fluid Handling segment versus the prior fiscal year, while the Pollution Control Systems and Allied Equipment segment were 170.4% higher than the prior fiscal year due to the impact of the Flex-Kleen acquisition and higher demand for our fume and odor control, and catalytic oxidizer equipment. Net income of $7.2 million for the fiscal year ended January 31, 1999 was slightly above the earnings level of the prior year. This is the sixth consecutive year of increased earnings. The gross margin for the fiscal year ended January 31, 1999, decreased to 35.7% versus 36.2% for the prior year. This slight decline in gross margin can be attributed to product mix and the recent acquisition of Flex-Kleen. Selling expense increased approximately $0.5 million or 10.3% over the prior fiscal year. The Flex-Kleen acquisition accounted for substantially all of the increase. Selling expense as a percentage of net sales was 8.7% for the fiscal year ended January 31, 1999, which was slightly higher than the prior fiscal year. General and administrative expense was $7.4 million for the fiscal year ended January 31, 1999 compared to $6.6 million in the prior fiscal year. The $0.8 million increase can be attributed entirely to the operation of Flex-Kleen. General and administrative expense as a percentage of net sales was 10.9% for the fiscal year ended January 31, 1999 compared to 10.5% for the prior fiscal year. Other income of $0.6 million for the fiscal year ended January 31, 1999 consisted primarily of interest income earned on short-term investments. Other income of $1.0 million for the fiscal year ended January 31, 1998 consisted primarily of interest income on short-term investments and a $0.2 million net gain on the disposal of certain properties. The effective tax rate for the fiscal year ended January 31, 1999 was 37.4% compared to 39.0% for the prior year. 10 FYE 1998 vs FYE 1997: Net sales for the year ended January 31, 1998 were $62.4 million, a new record, exceeding net sales for the year ended January 31, 1997 by $1.5 million, an increase of 2.5%. This was the fifth consecutive year of record net sales. Sales in the Pollution Control Systems and Allied Equipment segment were $1.9 million or 6.0% higher than the prior fiscal year due to the acquisition of Strobic Air, effective as of July 31, 1996, combined with higher demand primarily for our fume and odor control equipment. Sales in the Fluid Handling Equipment segment were $0.4 million or 1.3% lower than the prior year. Foreign sales increased to $10.3 million for the fiscal year ended January 31, 1998 which was a 14.6% increase over the prior year. This increase was due to higher sales in the Middle East region, Pacific Rim, South America and Caribbean markets. Foreign sales increased 18.1% in the Fluid Handling Equipment segment versus the prior fiscal year, while the Pollution Control Systems and Allied Equipment segment decreased 1.5% versus the prior fiscal year. Net income of $7.1 million for the fiscal year ended January 31, 1998 was $1.0 million or 16.7% above the earnings level of the prior year. This was the fifth consecutive year of increased earnings. The gross margin for the fiscal year ended January 31, 1998 increased to 36.2% versus 34.0% for the prior fiscal year. The improvement in gross margin can be attributed to a combination of factors including product mix, production efficiencies and the out-sourcing of the Systems Division's manufacturing operations. Selling expense increased approximately $0.5 million or 9.8% over the prior fiscal year. The Strobic Air acquisition accounted for $0.3 million of the increase, combined with increased staffing and marketing efforts in existing operations to position the Company for future growth. Selling expense as a percentage of net sales was 8.5% for the fiscal year ended January 31, 1998, compared to 8.0% for the prior fiscal year. General and administrative expense was $6.6 million for the fiscal year ended January 31, 1998 compared to $6.7 million in the prior fiscal year. Our continued focus on cost controls enables us to decrease overall general and administrative expenses. General and administrative expense as a percentage of net sales was 10.5% for the fiscal year ended January 31, 1998 compared to 11.0% for the prior fiscal year. Other income of $1.0 million for the fiscal year ended January 31, 1998 consisted primarily of interest income earned on short-term investments and a $0.2 million net gain on the disposal of certain properties. Other income of $0.9 million at January 31, 1997 consisted of interest income on short-term investments and a $0.4 million net gain on the disposal of certain properties. The effective tax rate for the fiscal year ended January 31, 1998 was 39.0% compared to 39.5% for the prior year. Liquidity: Cash and cash equivalents were $7.4 million on January 31, 1999, a decrease of $3.8 million over the previous year. The decrease was related to the use of $3.5 million of cash for the purchase of treasury shares and $3.3 million of cash used in the acquisition of Flex-Kleen, which was purchased for $15.0 million, plus the assumption of ordinary business liabilities. Accounts receivable were $14.5 million at January 31, 1999, an increase of $3.8 million compared to the prior year. The acquisition of Flex-Kleen increased accounts receivable by approximately $3.2 million. The size of orders, the timing of shipments to meet customer requirements and retainage on contracts, combined with increased sales volume in the Pollution Control and Allied Equipment segment, will influence accounts receivable balances at any point in time. Inventories totalled $15.0 million at January 31, 1999, an increase of $2.8 million compared to the prior year. Flex-Kleen accounted for $1.7 million of the increase in inventory. Inventory balances will fluctuate depending upon the size and timing of orders and market demand, especially when major systems and contracts are involved. Current liabilities increased from $11.3 million at January 31, 1998 to $14.4 million at January 31, 1999, or $3.1 million. Flex-Kleen's operations accounted for $2.8 million of the increase while debt financing associated with the acquisition amounted to $1.2 million. The Company has consistently maintained a high current ratio and has not utilized lines of credit totalling $5.0 million which are available for working capital purposes. The current ratio was 2.7 at January 31, 1999 versus a ratio of 3.2 at January 31, 1998. 11 Capital Resources and Requirements: Cash flows provided by operating activities during the fiscal year ended January 31, 1999 amounted to $8.0 million compared to $7.4 million during the prior fiscal year. Cash flows used in investing activities during the fiscal year ended January 31, 1999 amounted to $17.0 million compared to $0.1 million during the fiscal year ended January 31, 1998. During October 1998, the Company acquired all of the operating assets of Flex-Kleen pursuant to an Asset Purchase Agreement for approximately $15.0 million, plus the assumption of ordinary business liabilities. The acquisition was accounted for as a purchase transaction. The Company also invested $1.2 million in machinery and equipment in the combined operations. The Company continues to invest in machinery and equipment, tooling, patterns and molds to improve efficiency and maintain our position as leaders in the markets in which we serve. Financing activities during the fiscal year ended January 31, 1999 provided $5.2 million of available resources compared to a usage of $5.1 million during the prior fiscal year. The Flex-Kleen acquisition was financed through an unsecured bank loan of $12.0 million, payable with interest at a fixed rate swap of 5.98%. The Company paid $1.6 million of scheduled long-term debt during the current fiscal year. The percentage of long-term debt to equity at January 31, 1999 was 26.0% compared to 5.1% at January 31, 1998. A total of 47,725 stock options were exercised during the year ended January 31, 1999 which provided cash proceeds of approximately $0.4 million. The Company continued to repurchase shares outstanding on the open market at prevailing prices under the stock buy back program authorized on August 13, 1997. The Board of Directors also authorized one stock buy back program totalling 350,000 shares during the fiscal year ended January 31, 1999. The Company repurchased 246,300 shares at a cost of approximately $3.5 million under the combined programs during the year ended January 31, 1999. The Board of Directors also declared a cash dividend of $.30 per share which was paid on April 24, 1998 to stockholders of record as of April 10, 1998. This represented an 11.1% increase in the dividend payout rate, amounting to $2.1 million or 29.5% of the prior year earnings. As part of our commitment to the future, the Company expended $0.8 million and $0.7 million on research and development for each of the fiscal years ended January 31, 1999 and 1998, respectively. The Company will continue to invest in new product development to maintain and enhance our market position as leaders in the markets in which we participate. Capital expenditures will be made to support operations and expand our capacity to meet market demands. The Company intends to finance capital expenditures in the coming year through cash flows from operations and will secure third party financing, when deemed appropriate. Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities". This pronouncement is effective for the fiscal year ending January 31, 2000. The adoption of this pronouncement is expected to have no impact on Met-Pro's consolidated results of operations, financial position, or cash flows. 12 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 completed implementation and testing of its business and operating systems at all of the Company's facilities. In order to identify potential Year 2000 problems at key suppliers, the Company has initiated external surveys to assess their level of compliance. The Company expects by May 1999 to complete its assessment of outside parties and develop the appropriate actions to be taken. The Company is also in the process of reviewing embedded software in its equipment and facilities to identify potential Year 2000 issues. Equipment manufacturers are being requested to certify their compliance and assist the Company in developing solutions where they are currently non-compliant. The Company expects to complete the assessment and testing process by August 1999. 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 its 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 "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. Item 7A. Quantitative and Qualitative Disclosure About Market Risks: Not Applicable 13 Item 8. Financial Statements and Supplementary Data: Index to Consolidated Financial Statements and Supplementary Data: Page ---- Consolidated Financial Statements: Independent Auditor's Report .................................... 14 Consolidated Statement of Operations ............................ 16 Consolidated Balance Sheet ...................................... 17 Consolidated Statement of Cash Flows ............................ 18 Consolidated Statement of Stockholders' Equity .................. 19 Consolidated Business Segment Data .............................. 20 Notes to Consolidated Financial Statements ...................... 21 Supplementary Data: Quarterly Financial Data ........................................ 33 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Stockholders Met-Pro Corporation Harleysville, Pennsylvania We have audited the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly owned subsidiaries as of January 31, 1999 and 1998, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Met-Pro Corporation and its wholly owned subsidiaries as of January 31, 1999 and 1998 and the results of their operations and their cash flows for each of the three years in the period ended January 31, 1999 in conformity with generally accepted accounting principles. /s/ MARGOLIS & COMPANY P.C. --------------------------- Bala Cynwyd, Pennsylvania February 25, 1999 14 [THIS PAGE INTENTIONALLY LEFT BLANK] 15 MET-PRO CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS
Years ended January 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------- Net sales $67,390,488 $62,387,870 $60,853,278 Cost of goods sold 43,340,575 39,802,965 40,157,752 - ------------------------------------------------------------------------------------------------- Gross profit 24,049,913 22,584,905 20,695,526 - ------------------------------------------------------------------------------------------------- Operating expenses Selling 5,880,080 5,331,954 4,854,845 General and administrative 7,368,017 6,557,355 6,683,550 - ------------------------------------------------------------------------------------------------- 13,248,097 11,889,309 11,538,395 - ------------------------------------------------------------------------------------------------- Income from operations 10,801,816 10,695,596 9,157,131 Other income, net 618,707 970,767 918,905 - ------------------------------------------------------------------------------------------------- Income before taxes 11,420,523 11,666,363 10,076,036 Provision for taxes 4,269,471 4,549,882 3,980,034 - ------------------------------------------------------------------------------------------------- Net income $7,151,052 $7,116,481 $6,096,002 ================================================================================================= Earnings per share Basic $1.04 $1.01 $.87 Diluted $1.03 $1.00 $.86 ================================================================================================= Average number of common and common equivalent shares outstanding Basic 6,907,654 7,053,071 6,989,717 Diluted 6,955,892 7,144,931 7,096,214 =================================================================================================
The notes to consolidated financial statements are an integral part of the above statement. 16 MET-PRO CORPORATION CONSOLIDATED BALANCE SHEET
January 31, ASSETS 1999 1998 - ------------------------------------------------------------------------------------------------ Current assets Cash and cash equivalents $ 7,446,369 $ 11,253,380 Accounts receivable, net of allowance for doubtful accounts of approximately $261,000 and $280,000, respectively 14,492,082 10,664,310 Notes receivable, ESOT - 200,000 Inventories 14,973,169 12,210,749 Prepaid expenses, deposits and other current assets 827,824 723,965 Deferred income taxes 944,009 1,014,856 - ------------------------------------------------------------------------------------------------ Total current assets 38,683,453 36,067,260 Property, plant and equipment, net 13,931,276 13,787,596 Costs in excess of net assets of businesses acquired, net 19,260,591 7,198,915 Other assets 1,013,321 930,469 - ------------------------------------------------------------------------------------------------ Total assets $ 72,888,641 $ 57,984,240 ================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------ Current liabilities Current portion of long-term debt $ 2,125,093 $ 1,441,964 Accounts payable 5,213,770 2,648,943 Accrued salaries, wages and expenses 5,804,235 6,523,442 Payroll and other taxes payable 216,822 5,746 Customers' advances 1,027,948 647,450 - ------------------------------------------------------------------------------------------------ Total current liabilities 14,387,868 11,267,545 Long-term debt 11,941,954 2,242,047 Other non-current liabilities 328,838 249,037 Deferred income taxes 304,874 384,782 - ------------------------------------------------------------------------------------------------ Total liabilities 26,963,534 14,143,411 - ------------------------------------------------------------------------------------------------ Commitments and contingencies Stockholders' equity Common stock, $.10 par value; 18,000,000 shares authorized, 7,138,625 shares issued, of which 343,727 and 145,152 shares were reacquired and held in treasury, respectively 713,862 713,862 Additional paid-in capital 7,508,748 7,868,357 Retained earnings 42,718,355 37,667,872 Accumulated other comprehensive income (85,103) (219,015) Treasury stock, at cost (4,930,755) (2,190,247) - ------------------------------------------------------------------------------------------------ Net stockholders' equity 45,925,107 43,840,829 - ------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $ 72,888,641 $ 57,984,240 ================================================================================================
The notes to consolidated financial statements are an integral part of the above statement. 17 MET-PRO CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended January 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities Net income $ 7,151,052 $ 7,116,481 $ 6,096,002 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,088,011 1,830,630 1,707,547 Deferred income taxes (9,185) (247,754) (379,520) (Gain) on sale of property and equipment, net (6,590) (193,117) (369,100) Non-cash compensation expensed on grant of stock options - 122,595 286,733 Allowance for doubtful accounts (18,827) 47,307 38,014 (Increase) decrease in operating assets, net of acquisitions Accounts receivable (492,274) (229,602) (617,027) Notes receivable, ESOT 200,000 200,000 - Inventories (1,007,069) (1,690,754) 496,743 Prepaid expenses and other current assets 9,494 (158,739) 82,789 Other assets 10,346 411,562 (40,968) Increase (decrease) in operating liabilities, net of acquisitions Accounts payable, accrued expenses and taxes (244,547) (231,737) (106,710) Customers' advances 229,903 298,881 (62,840) Other non-current liabilities 79,801 76,097 71,595 - ------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 7,990,115 7,351,850 7,203,258 - ------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Proceeds from sale of property and equipment 6,600 1,308,995 1,498,747 Acquisitions of property and equipment (1,191,616) (1,356.065) (1,811,833) Payment for purchase of acquisitions, net of cash acquired (15,811,625) - (3,535,898) - ------------------------------------------------------------------------------------------------------------ Net cash (used in) investing activities (16,996,641) (47,070) (3,848,984) - ------------------------------------------------------------------------------------------------------------ Cash flows from financing activities Proceeds from new borrowings 12,000,000 - 3,500,000 Reduction of debt (1,616,964) (1,584,495) (1,919,659) Exercise of stock options 362,229 516,685 263,594 Payment of dividends (2,100,569) (1,915,832) (1,530,693) Cash in lieu of fractional shares - - (2,685) Purchase of treasury shares (3,462,346) (2,113,890) (1,982,411) - ------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 5,182,350 (5,097,532) (1,671,854) - ------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash 17,165 (24,844) (26,819) - ------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents (3,807,011) 2,182,404 1,655,601 Cash and cash equivalents at beginning of year 11,253,380 9,070,976 7,415,375 - ------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 7,446,369 $11,253,380 $ 9,070,976 ============================================================================================================
The notes to consolidated financial statements are an integral part of the above statement. 18 MET-PRO CORPORATION CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings Income/(Loss) Stock Total - ----------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1996 $475,922 $7,442,810 $28,142,539 $209,333 ($1,258,026) $35,012,578 Comprehensive income: Net income - - 6,096,002 - - Cumulative translation adjustment - - - (190,212) - Total comprehensive income 5,905,790 Dividends paid, $.22 per share - - (1,530,693) - - (1,530,693) Stock split, 50% 237,940 - (237,940) - - - Cash in lieu of fractional shares - - (2,685) - - (2,685) Stock option transactions - 143,514 - - 406,813 550,327 Purchase of 156,900 shares of treasury stock - - - - (1,982,411) (1,982,411) Acquisition of Strobic Air Corporation - 673,965 - - 1,726,055 2,400,020 - ----------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1997 713,862 8,260,289 32,467,223 19,121 (1,107,569) 40,352,926 Comprehensive income: Net income - - 7,116,481 - - Cumulative translation adjustment - - - (238,136) - Total comprehensive income 6,878,345 Dividends paid, $.27 per share - - (1,915,832) - - (1,915,832) Stock option transactions - (391,932) - - 1,031,212 639,280 Purchase of 134,300 shares of treasury stock - - - - (2,113,890) (2,113,890) - ----------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1998 713,862 7,868,357 37,667,872 (219,015) (2,190,247) 43,840,829 Comprehensive income: Net income - - 7,151,052 - - Cumulative translation adjustment - - - 133,912 - Total comprehensive income 7,284,964 Dividends paid, $.30 per share - - (2,100,569) - - (2,100,569) Stock option transactions - (359,609) - - 721,838 362,229 Purchase of 246,300 shares of treasury stock - - - - (3,462,346) (3,462,346) - ----------------------------------------------------------------------------------------------------------------------------------- Balances, January 31, 1999 $713,862 $7,508,748 $42,718,355 ($85,103) ($4,930,755) $45,925,107 ===================================================================================================================================
The notes to consolidated financial statements are an integral part of the above statement. 19 MET-PRO CORPORATION CONSOLIDATED BUSINESS SEGMENT DATA
Years ended January 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net sales to unaffiliated customers Pollution control systems and allied equipment $40,128,412 $33,483,034 $31,578,749 Fluid handling equipment 27,262,076 28,904,836 29,274,529 - -------------------------------------------------------------------------------------------------------- $67,390,488 $62,387,870 $60,853,278 Includes foreign sales of: Pollution control systems and allied equipment $4,323,506 $ 1,598,778 $ 1,623,232 Fluid handling equipment 6,837,293 8,679,624 7,349,137 - -------------------------------------------------------------------------------------------------------- $11,160,799 $10,278,402 $ 8,972,369 ======================================================================================================== Income from operations Pollution control systems and allied equipment $ 6,581,531 $ 6,030,733 $ 5,048,313 Fluid handling equipment 4,220,285 4,664,863 4,108,818 - -------------------------------------------------------------------------------------------------------- $10,801,816 $10,695,596 $ 9,157,131 ======================================================================================================== Depreciation and amortization expense Pollution control systems and allied equipment $ 1,250,163 $ 980,869 $ 750,677 Fluid handling equipment 837,848 849,761 956,870 - -------------------------------------------------------------------------------------------------------- $ 2,088,011 $ 1,830,630 $ 1,707,547 ======================================================================================================== Capital expenditures Pollution control systems and allied equipment $ 893,003 $ 817,732 $ 797,799 Fluid handling equipment 269,585 456,283 922,724 - -------------------------------------------------------------------------------------------------------- 1,162,588 1,274,015 1,720,523 Corporate 29,028 82,050 91,310 - -------------------------------------------------------------------------------------------------------- $ 1,191,616 $ 1,356,065 $ 1,811,833 ======================================================================================================== Identifiable assets at January 31 Pollution control systems and allied equipment $44,137,192 $24,625,574 $24,530,682 Fluid handling equipment 20,321,860 19,826,486 20,601,654 - -------------------------------------------------------------------------------------------------------- 64,459,052 44,452,060 45,132,336 Corporate 8,429,589 13,532,180 10,947,055 - -------------------------------------------------------------------------------------------------------- $72,888,641 $57,984,240 $56,079,391 ========================================================================================================
The Company follows the practice of allocating general corporate expenses, including depreciation and amortization expense, among the segments. 20 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of operations: The Company manufactures and sells pollution control and allied equipment for purification of air and liquids, and fluid handling equipment for corrosive, abrasive and high temperature liquids. Basis of presentation: The consolidated financial statements include the accounts of Met-Pro Corporation ("Met-Pro" or the "Company") and its wholly owned subsidiaries, Mefiag B.V., Flex-Kleen Canada Inc. and Strobic Air Corporation ("Strobic Air"). Significant intercompany accounts and transactions have been eliminated. Accounts denominated in foreign currencies have been remeasured into the functional currency in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translation," using the U. S. dollar as the functional currency. 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 and disclosure of contingent 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. Inventories: Inventories generally are stated at the lower of cost (principally first-in, first-out) or market except for the inventory at the Dean Pump Division which is determined on the last-in, first-out basis (see Note 5). Property, plant and equipment: Property, plant and equipment are stated at cost. Depreciation is computed principally by the straight-line method over estimated useful lives. Expenditures for maintenance and repairs are charged to expense as incurred. Renewals and betterments are capitalized (see Note 6). Costs in excess of net assets of businesses acquired: Costs in excess of net assets of businesses acquired prior to November 1, 1970, totalling $582,513, are not being amortized because management believes that there has been no impairment in value. Costs in excess of net assets of businesses acquired subsequent to October 31, 1970, totalling $18,678,078, are being amortized over 40 years. The Company monitors the recoverability of goodwill using a fair value approach. Revenue recognition: Revenues are generally recognized when products are shipped. Advertising: Advertising costs are charged to operations in the year incurred and were $1,151,535, $1,111,724 and $809,476 for the years ended January 31, 1999, 1998 and 1997, respectively. Research and development: Research and development costs are charged to operations in the year incurred and were $752,648, $726,278 and $670,336 for the years ended January 31, 1999, 1998 and 1997, respectively. 21 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) Earnings per share: During the year ended January 31, 1998, the Company adopted SFAS No. 128, "Earnings Per Share". SFAS 128 establishes standards for computing basic and diluted earnings per share and is effective for periods ending after December 15, 1997. Basic earnings per share are computed based on the weighted average number of common shares actually outstanding during each year. Diluted earnings per share are computed based on the weighted average number of shares actually outstanding plus all potential dilutive common shares outstanding (stock options) during each year. Dividends: On February 22, 1999, the Board of Directors declared a $.32 per share annual cash dividend payable on April 23, 1999 to stockholders of record on April 9, 1999. Stock splits: On July 8, 1996, the Company issued 2,379,197 shares of Common Stock in connection with a 3-for-2 stock split. The stock split was in the form of a 50% stock dividend. Per share figures and other information included in the financial statements and notes are based on the increased number of shares after giving affect to the stock split. Concentrations of credit risk: The Company believes concentrations of credit risk are limited due to the number of customers, and dispersion among the business segments and geographic areas. The Company had no significant concentrations of credit risk as of January 31, 1999 and 1998. Supplemental cash flow information: 1999 1998 1997 --------------------------------------------------------------------- Cash paid during the year for: Interest $ 415,893 $ 314,735 $ 228,841 --------------------------------------------------------------------- Income taxes $4,691,163 $4,530,301 $4,039,248 --------------------------------------------------------------------- Recent accounting pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This pronouncement is effective for the fiscal year ending January 31, 2000. The adoption of this pronouncement will have no impact on Met-Pro's consolidated results of operations, financial position, or cash flows. Reclassifications: Certain reclassifications have been made to the financial statements for the fiscal years ended January 31, 1998 and 1997 to conform to the presentation of the financial statements for the fiscal year ended January 31, 1999. 22 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) NOTE 2: SIGNIFICANT ACQUISITIONS Flex-Kleen: During October 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 consolidated statement of operations for the fiscal year ended January 31, 1999 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 $12,142,456 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 (see Note 7). The following unaudited pro forma information presents results of operations as if the acquisition of Flex-Kleen had occurred at the beginning of the respective years presented. 1999 1998 ----------------------------------------------------------- Net sales $79,315,488 $81,783,870 Income before taxes 12,538,227 12,556,791 Net income 7,844,029 7,659,643 Earnings per share, basic $1.14 $1.09 Earnings per share, diluted $1.13 $1.07 Strobic Air: Effective July 31, 1996, the Company, pursuant to an Agreement and Plan of Merger, acquired the common stock of Strobic Air for a purchase price of approximately $5,000,000. The acquisition was accounted for as a purchase transaction. Strobic Air designs, manufactures and markets the patented Tri-Stack(R) direct drive mixed flow exhaust fans which are state-of-the-art design. The acquisition was completed by issuing common stock from the treasury valued at $2,400,020 (195,920 shares), a cash payment of $2,150,000, a promissory note payable for $250,000, plus acquisition costs. As part of the transaction, the Company entered into a non-compete agreement in the amount of $1,000,000 having a four-year term. Bank loans totalling $3,500,000, consisting of two $1,750,000 notes, one with a floating interest rate and one with a fixed interest rate (see Note 7), were used to finance the purchase. Goodwill totalling $3,914,602 was recorded. NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents: Short-term investments at January 31, 1999 and 1998 were valued at cost (approximating market) and amounted to $5,911,046 and $10,652,199, respectively. Short-term investments consist principally of commercial paper maturing within three months and money market funds, both of which are considered to be cash equivalents. The Company evaluates the creditworthiness of the financial institutions and financial instruments in which it invests. 23 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) Debt: The fair value and carrying amount of long-term debt was as follows: January 31, 1999 1998 ------------------------------------------------------ Fair value $13,891,334 $ 3,714,500 Carrying amount 14,067,047 3,684,011 Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities. The Company's financial instruments are not held for trading purposes. NOTE 4: NOTES RECEIVABLE, ESOT The Company advanced a total of $200,000 at January 31, 1998 to the Employee Stock Ownership Trust to acquire shares of the Company's stock. The advances were evident by demand notes with interest rates of approximately 4.9% per annum. NOTE 5: INVENTORIES Inventories consisted of the following: January 31, 1999 1998 ------------------------------------------------------------- Raw material $ 7,246,379 $ 5,570,663 Work in process 2,435,351 2,001,618 Finished goods 5,291,439 4,638,468 ------------------------------------------------------------- $14,973,169 $12,210,749 ============================================================= At January 31, 1999 and 1998, inventories valued at the last-in, first-out method ("LIFO") were $2,989,763 and $2,950,755, respectively. The LIFO value of inventories was lower than replacement cost by $868,015 and $822,760 at January 31, 1999 and 1998, respectively. The book basis of LIFO inventories exceeded the tax basis by approximately $1,026,000 at both January 31, 1999 and 1998, as a result of applying the provisions of Accounting Principles Board Opinion ("APB") No. 16, "Business Combinations", to an acquisition completed in a prior year. 24 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) NOTE 6: PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of the following: January 31, 1999 1998 ----------------------------------------------------------------------- Land $ 1,802,386 $ 1,797,984 Buildings and improvements 11,374,411 11,074,419 Machinery and equipment 10,655,454 10,028,107 Furniture and fixtures 2,954,289 2,590,708 Automotive equipment 1,031,960 948,203 Leasehold improvements 3,710 3,710 Construction in progress 56,680 110,180 ----------------------------------------------------------------------- 27,878,890 26,553,311 Less accumulated depreciation 13,947,614 12,765,715 ----------------------------------------------------------------------- $13,931,276 $13,787,596 ======================================================================= Depreciation of property, plant and equipment charged to operations amounted to $1,443,458, $1,353,857 and $1,295,483 for the years ended in 1999, 1998 and 1997, respectively. 25 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) NOTE 7: DEBT Short-term debt: The Company has available both domestic and foreign unsecured lines of credit totalling $5,000,000 which can be used for working capital. The lines of credit were not used during either year. Long-term debt: Long-term debt consisted of the following: January 31, 1999 1998 ------------------------------------------------------------------- Note payable, bank, payable in quarterly installments of $300,000, plus interest at a fixed rate swap of 5.98%, maturing October, 2008 $11,700,000 $ - Notes payable, bank, payable in quarterly installments of $87,500, plus interest at a fixed rate of 7.51%, maturing September, 2001 962,500 1,512,500 Notes payable, bank, payable in quarterly installments of $87,500, plus interest at a variable rate ranging from 6.25% to 6.59%, maturing September, 2001 962,500 1,512,500 Notes payable, acquisition escrow accounts, balloon payments in the amounts of $50,000 and $75,000 due on April 8, 1999 and June 11, 1999, plus interest at a fixed rate of 5.98% 125,000 250,000 Mortgage note payable, collateralized by property, payable in $10,267 monthly installments (including principal and interest), at a fixed interest rate of 8.50%, maturing January, 2002 317,047 409,011 ------------------------------------------------------------------- 14,067,047 3,684,011 Less current portion 2,125,093 1,441,964 ------------------------------------------------------------------- $11,941,954 $2,242,047 =================================================================== The above notes are subject to certain covenants, including maintenance of prescribed amounts of leverage and fixed charge coverage ratios. 26 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) Maturities of long-term debt were as follows: Year Ending January 31, --------------------------------------------------------- 2000 $ 2,125,093 2001 2,008,940 2002 1,833,014 2003 1,200,000 2004 1,200,000 Thereafter 5,700,000 --------------------------------------------------------- $14,067,047 ========================================================= Interest expense was $398,051, $325,718 and $300,170 for the years ended in 1999, 1998 and 1997, respectively. NOTE 8: INCOME TAXES The provision for income taxes was comprised of the following: 1999 1998 1997 -------------------------------------------------------------- Current Federal $3,216,200 $3,718,205 $3,048,214 State 878,903 933,080 982,353 Foreign 183,429 146,658 250,729 -------------------------------------------------------------- 4,278,532 4,797,943 4,281,296 Deferred (9,061) (248,061) (301,262) -------------------------------------------------------------- $4,269,471 $4,549,882 $3,980,034 ============================================================== Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the net deferred tax assets were as follows: 1999 1998 ------------------------------------------------------------------ Deferred tax assets Inventory cost capitalization $ 233,572 $ 203,851 Pension cost 982,444 965,152 Non-compete agreements 431,383 372,124 Other 128,190 246,055 ------------------------------------------------------------------ Total deferred tax assets 1,775,589 1,787,182 ================================================================== Deferred tax liabilities Accelerated depreciation 522,596 568,547 Inventory - Dean Pump Division 400,197 400,202 Excess of book over tax basis of property acquired in acquisitions 96,001 125,052 Goodwill 117,660 63,307 ------------------------------------------------------------------ Total deferred tax liabilities 1,136,454 1,157,108 ------------------------------------------------------------------ Net deferred tax assets $ 639,135 $ 630,074 ================================================================== 27 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) A reconciliation of the federal statutory rate and the Company's effective tax rate is presented as follows:
1999 1998 1997 ---------------------------------------------------------------------------------------------------- Computed expected tax expense (federal) $3,882,978 34.0% $3,966,563 34.0% $3,425,852 34.0% State income taxes, net of federal income tax benefit 580,076 5.1 615,833 5.3 648,353 6.4 Foreign tax differential (5,277) - (23) - (59,709) (.6) Foreign tax credit (10,924) (.1) (5,786) - (5,140) - Other (177,382) (1.6) (26,705) (.3) (29,322) (.3) ---------------------------------------------------------------------------------------------------- Effective income taxes $4,269,471 37.4% $4,549,882 39.0% $3,980,034 39.5% ====================================================================================================
NOTE 9: LEASES AND OTHER COMMITMENTS The Company has various real estate operating leases for warehouse space and office space for sales, general and administrative purposes. Future minimum lease payments under these non-cancelable operating leases at January 31, 1999 were as follows: 2000 $253,027 2001 182,597 2002 178,867 2003 149,056 Rental expense under all operating leases was $153,711, $76,407 and $50,622 during the years ended in 1999, 1998 and 1997, respectively. NOTE 10: EMPLOYEE BENEFIT PLANS Pension Plans: The Company has several tax-qualified defined benefit pension plans covering eligible employees in the United States. The Company contributes amounts to the plans equal to the amounts that are tax deductible. Net periodic pension cost included the following components:
1999 1998 1997 -------------------------------------------------------------------------------- Service cost - benefits earned during the period $527,196 $466,000 $461,000 Interest cost on projected benefit obligation 708,083 664,202 625,083 Return on assets (1,707,281) (2,675,240) (1,624,484) Amortization (195,466) (118,868) 58,205 Deferred gain on investments 769,701 1,924,069 984,187 -------------------------------------------------------------------------------- $102,233 $260,163 $503,991 ================================================================================
28 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) The following table set forth the Plans' change in benefit obligations, change in plan assets and amounts recognized in the Company's balance sheet at January 31, 1999 and 1998:
1999 1998 --------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $ 9,456,813 $ 8,568,900 Service cost 527,196 466,000 Interest cost 708,083 664,202 Actuarial loss 133,720 93,855 Benefits paid (491,212) (336,144) --------------------------------------------------------------------------------- Benefit obligation at end of year $10,334,600 $ 9,456,813 --------------------------------------------------------------------------------- Change in plan assets: Fair value of plan assets at beginning of year $11,888,269 $ 9,494,039 Actual return on plan assets 1,707,281 2,633,544 Employer contribution 53,959 75,551 Benefits paid (477,912) (314,865) --------------------------------------------------------------------------------- Fair value of plan assets at end of year $13,171,597 $11,888,269 --------------------------------------------------------------------------------- Funded status $ 2,836,997 $ 2,431,456 Unrecognized actuarial (gain) (5,419,671) (4,986,455) Unrecognized transition (asset) (154,980) (165,495) Unrecognized prior service costs 212,701 233,353 --------------------------------------------------------------------------------- Net amount recognized ($2,524,953) ($2,487,141) --------------------------------------------------------------------------------- Amounts recognized in the balance sheet consist of: Accrued benefit liability ($2,524,953) ($2,487,141) ---------------------------------------------------------------------------------
Assumptions used in the accounting for pension cost were:
1999 1998 1997 ---------------------------------------------------------------------------------- Discount rate 7.00% 7.25% 7.50% Rate of increase in compensation levels (where applicable) 4.50% 6.00% 6.00% Expected long-term rate of return on assets 8.00% 8.00% 8.00%
Directors' Benefit Plan: The Company also provides a non-qualified pension plan for Directors which is unfunded. The plan is designed to provide pension benefits based on the category of the Director and length of service. The benefits obligation was $601,600 and $449,700 at January 31, 1999 and 1998, respectively. The amounts applicable are included in the tables above. Employees' Stock Ownership Trust: The Company sponsors an employee stock ownership plan under which it makes discretionary contributions to the trust either in cash or in stock of the Company for salaried employees in the United States eligible to participate in the Plan. The Company provided for cash contributions to the Employees' Stock Ownership Trust of $225,000, $200,000 and $200,000 in each of the years ended in 1999, 1998 and 1997, respectively. All shares are considered to be allocated to participants or to be released for allocation to participants, and are included in the earnings per share computations. 29 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) Incentive Stock Option Plans: The Company accounts for employee stock options in accordance with APB No. 25, "Accounting for Stock Issued to Employees" and related Interpretations. The pro forma disclosures required by SFAS No. 123, "Accounting for Stock-Based Compensation", are not presented since the impact on the Company's financial statements for the periods presented is de minimis. In 1987 ("1987 Plan"), the Company adopted an incentive stock option plan under which 100,000 shares (354,375 after stock splits and dividends) of the Company's Common Stock were reserved for employees as selected by the Board of Directors. Effective April 9, 1997, the 1987 Plan terminated and the remaining shares available for grant expired. At the Company's annual meeting held June 3, 1992, a resolution for an additional 100,000 shares (225,000 after stock splits and dividends), as adopted by the Board of Directors on October 10, 1991 ("1992 Plan"), was approved. During the Company's annual meeting held June 4, 1997, a similar resolution for an additional 350,000 shares, as adopted by the Board of Directors on February 24, 1997 ("1997 Plan"), was approved. Each of the Plans provides for anti-dilution provisions. The status of the Plans was as follows:
1987 Plan 1999 1998 1997 ------------------------------------------------------------------------- Options outstanding at February 1 - 65,087 60,300 Grants - - 40,500 Exercises - 65,087 35,713 Options outstanding at January 31 - - 65,087 Options price range at January 31 - $ 3.38 $ 3.38 to to - $ 7.17 $ 7.17 Options exercisable at January 31 - - 65,087 ------------------------------------------------------------------------- Options available for grant at January 31 0 0 1,238 ========================================================================= 1992 Plan 1999 1998 1997 ------------------------------------------------------------------------- Options outstanding at February 1 183,250 202,500 197,625 Grants - - 21,000 Exercises 47,725 19,250 12,375 Cancellations - - 3,750 Options outstanding at January 31 135,525 183,250 202,500 Options price range at January 31 $ 5.00 $ 5.00 $ 5.00 to to to $ 13.13 $ 13.13 $ 13.13 Options exercisable at January 31 131,025 171,750 143,251 ------------------------------------------------------------------------- Options available for grant at January 31 0 0 0 =========================================================================
30 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued)
1997 Plan 1999 1998 1997 ------------------------------------------------------------------------------------------ Options outstanding at February 1 20,000 - - Grants 23,500 20,000 - Exercises - - - Cancellations 10,000 - - Options outstanding at January 31 33,500 20,000 - Options price range at January 31 $12.00 $12.00 - to $15.50 Options exercisable at January 31 22,500 20,000 - ------------------------------------------------------------------------------------------ Options available for grant at January 31 306,500 330,000 0 ==========================================================================================
The weighted average exercise prices of the Company's stock option plans were as follows:
1999 1998 1997 ------------------------------------------------------------------------------------------ Options outstanding at February 1 $ 8.84 $ 7.75 $7.19 Grants $13.69 $12.00 $8.40 Exercises $ 7.59 $ 6.13 $5.48 Cancellations $12.00 - $9.08 Options outstanding at January 31 $ 9.68 $ 8.84 $7.75
NOTE 11: OTHER INCOME, NET Other income, net, was comprised of the following:
1999 1998 1997 --------------------------------------------------------------------------------------------- Gain on sale of property and equipment $ 6,590 $193,117 $369,100 Other, primarily interest income 612,117 777,650 549,805 --------------------------------------------------------------------------------------------- $618,707 $970,767 $918,905 =============================================================================================
NOTE 12: 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 on page 20. 31 MET-PRO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED JANUARY 31, 1999, 1998 AND 1997 - (Continued) NOTE 13: GEOGRAPHIC INFORMATION Transfers between geographic areas are accounted for at cost and consistent with rules and regulations of governing tax authorities. Such transfers are eliminated in the consolidated financial statements. Income from operations by geographic segment includes an allocation of general corporate expenses. Identifiable assets are those that can be directly associated with the geographic area. Geographic information for three years ended January 31 is presented in the following table: 1999 1998 1997 ------------------------------------------------------------------- Net sales: United States $56,229,689 $52,109,468 $51,880,909 Foreign 11,160,799 10,278,402 8,972,369 ------------------------------------------------------------------- $67,390,488 $62,387,870 $60,853,278 =================================================================== Income from operations: United States $ 9,619,936 $ 9,710,802 $ 8,257,191 Foreign 1,181,880 984,794 899,940 ------------------------------------------------------------------- $10,801,816 $10,695,596 $ 9,157,131 =================================================================== Total assets: United States $68,284,881 $53,995,274 $51,916,885 Foreign 4,603,760 3,988,966 4,162,506 ------------------------------------------------------------------- $72,888,641 $57,984,240 $56,079,391 =================================================================== 32 QUARTERLY FINANCIAL DATA (Unaudited)
Earnings Earnings Per Share, Per Share, 1998 Net Sales Gross Profit Net Income Basic Diluted - ------------------------------------------------------------------------------------- First Quarter $14,912,736 $ 5,692,460 $ 1,696,367 $.24 $.24 Second Quarter 15,866,826 5,662,541 1,789,765 .25 .25 Third Quarter 16,265,312 5,869,957 1,859,329 .26 .26 Fourth Quarter 15,342,996 5,359,947 1,771,020 .25 .25 Earnings Earnings Per Share, Per Share, 1998 Net Sales Gross Profit Net Income Basic Diluted - ------------------------------------------------------------------------------------- First Quarter $14,940,888 $ 5,702,899 $ 1,737,544 $.25 $.25 Second Quarter 14,588,843 5,461,003 1,752,962 .25 .25 Third Quarter 17,087,560 6,179,209 1,794,956 .26 .26 Fourth Quarter 20,773,197 6,706,802 1,865,590 .28 .27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure: During the fiscal year ended January 31, 1999, there has been no change in accountants and no disagreements on accounting and financial disclosures. PART III Item 10. Directors and Executive Officers of the Registrant: The information required by this Item (except for the information set forth on page 5 with respect to Executive Officers of the Registrant) is hereby incorporated by reference to the information set forth under the captions "Election of Director" and "Security Ownership of Certain Beneficial Owners and Management" contained in the Company's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. Item 11. Executive Compensation: The information required by this Item is hereby incorporated by reference to the information set forth under the caption "Executive Compensation and Other Information" contained in the Company's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. Item 12. Security Ownership of Certain Beneficial Owners and Management: The information required by this Item is hereby incorporated by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" contained in the Company's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. Item 13. Certain Relationships and Related Transactions: The information required by this Item is hereby incorporated by reference to the information set forth under the captions "Election of Director" and "Certain Business Relationships" contained in the Company's definitive Proxy Statement for its 1999 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission within 120 days following the end of the Company's fiscal year. 33 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K: A. Financial statements: Financial statements filed as part of this report are listed in the Index to Consolidated Financial Statements and Supplementary Data on page 14. B. Exhibits: The following exhibits are filed herewith or incorporated by reference: (2)(a) Agreement and Plan of Merger dated September 12, 1996 by and between Met-Pro Corporation, Met-Pro Acquisition Corporation, Strobic Air Corporation, Lynn T. Secrest, Ronald H. Secrest, Richard P. Secrest and John W. Stone, III. Incorporated by reference to Registrant's Registration Statement on Form S-3 (File No. 333-13929), declared effective December 31, 1996. (2)(b) Asset Purchase Agreement dated October 29, 1998 among Flex-Kleen Corporation, Flex-Kleen Canada Limited, Aqua Alliance, Inc., AWT Air Company Inc., 1321249 Ontario Limited and Met-Pro Corporation. Incorporated by reference to Company's Registration Statement on Form 8-K filed on November 13, 1998 and amended on January 12, 1999. (3)(a) Restated Certificate of Incorporation (incorporated by reference to Company's Registration Statement on Form 8-A filed June 12, 1998). (3)(b) Certificate of Amendment of Certificate of Incorporation (incorporated by reference to Company's annual report on Form 10-K filed April 24, 1998). (3)(c) By-Laws as amended through February 7, 1968 (incorporated by reference to Company's Registration Statement No. 2-26979, declared effective October 15, 1968). (3)(d) Amendments to By-Laws adopted June 3, 1987, July 18, 1978 and June 15, 1977 (incorporated by reference to Company's Registration Statement on Form 8-A filed June 12, 1998). (11) Statement re Computation of Per Share Earnings. See page 16 of Item 8. (21) List of Subsidiaries of Registrant:
Corporate Jurisdiction of Name under which Business Name Incorporation is Conducted --------- --------------- ------------------------- Mefiag B.V. The Netherlands Mefiag B.V., a wholly owned subsidiary of Met-Pro Corporation Flex-Kleen Canada Inc. Ontario, Canada Flex-Kleen Canada Inc., a wholly owned subsidiary of Met-Pro Corporation Strobic Air Corporation Delaware Strobic Air Corporation, a wholly owned subsidiary of Met-Pro Corporation
(23) Consent of Independent Public Accountants. (27) Financial Data Schedule. 34 The following exhibits required under Item 601 of Regulation S-K promulgated by the Securities & Exchange Commission have been omitted because they are either inapplicable or non-existent: (4) Instruments defining the rights of security holders. (9) Voting trust agreements. (10) Material contracts. (12) Statements re computation of ratios. (13) Annual report to security holders. (16) Letter re change in certifying accountant. (18) Letter re change in accounting principles. (22) Published report regarding matters submitted to vote of security holders. (24) Power of attorney. (99) Additional exhibits. C. Reports on Form 8-K: The Company filed a Report on Form 8-K with the Securities and Exchange Commission on November 13, 1998 as amended on January 12, 1999 pertaining to the acquisition of assets of Flex-Kleen Corporation, a Delaware corporation, and Flex-Kleen Canada Limited, an Ontario, Canada corporation. The unaudited pro forma consolidated balance sheet at July 31, 1998 and January 31, 1998, together with pro forma consolidated statements of operations for the six months ended July 31, 1998 and the year ended January 31, 1998, giving effect to the acquisition of Flex-Kleen as if the acquisition had been consummated as of the beginning of the respective periods, were filed within this Form 8-K. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 April 23, 1999 By: /S/ WILLIAM L. KACIN - ----------------------- ----------------------------- Date William L. Kacin President, Chief Executive Officer and Director Pursuant to the requirement 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.
Signature Title Date - --------- ----- ---- /S/ William L. Kacin President, Chief Executive April 23, 1999 - -------------------------- Officer and Director William L. Kacin /S/ Gary J. Morgan Vice President-Finance, April 23, 1999 - -------------------------- Secretary, Treasurer, Gary J. Morgan Chief Financial Officer, Chief Accounting Officer and Director /S/ Walter A. Everett Director, Chairman April 23, 1999 - -------------------------- Walter A. Everett /S/ Thomas F. Hayes Director April 23, 1999 - -------------------------- Thomas F. Hayes /S/ Alan Lawley Director April 23, 1999 - -------------------------- Alan Lawley /S/ Nicholas DeBenedictis Director April 23, 1999 - -------------------------- Nicholas DeBenedictis /S/ Jeffrey H. Nicholas Director April 23, 1999 - -------------------------- Jeffrey H. Nicholas
36 EX-23 2 EXHIBIT 23 Exhibit (23) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 25, 1999 included or incorporated by reference in this annual report on Form 10-K, into the Company's previously filed: Form S-8 Registration Statement, File Number 333-44471; Form S-3 Registration Statement, File Number 333-13929; and Form S-3 Registration Statement, File Number 333-74481. /s/ MARGOLIS & COMPANY P.C. ---------------------------- Margolis & Company P.C. Certified Public Accountants Bala Cynwyd, Pennsylvania April 19, 1999 EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS JAN-31-1999 JAN-31-1999 7,446,369 0 14,492,082 261,466 14,973,169 38,683,453 27,878,890 13,947,614 72,888,641 14,387,868 14,067,047 0 0 713,862 45,211,245 72,888,641 67,390,488 67,390,488 43,340,575 56,588,672 0 0 398,051 11,420,523 4,269,471 7,151,052 0 0 0 7,151,052 1.04 1.03
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