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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, 1998 Commission file number 001-07763
MET-PRO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1683282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Cassell Road, P. O. Box 144
Harleysville, Pennsylvania 19438
(Address of principle 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 American 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 Registrants 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
6,999,298 as of April 10, 1998. The aggregate market value of the voting stock
held by non-affiliates of the Registrant was $104,989,470 as of April 10, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement filed pursuant to Regulation 14A Form 10-K
in connection with Registrant's Annual Meeting of Part Number
Stockholders to be held on -----------
June 3, 1998 ..................................................... III
<PAGE>
INDEX
PART I
Item 1. Business............................................. 2
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.................. 30
PART III
Item 10. Directors and Executive Officers of the Registrant... 30
Item 11. Executive Compensation............................... 30
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................ 30
Item 13. Certain Relationships and Related Transactions....... 30
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.............................. 31
SIGNATURES................................................................ 32
1
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PART I
ITEM 1. BUSINESS:
GENERAL:
Met-Pro Corporation ("Met-Pro" or the "Company") was incorporated in
the State of Delaware on March 30, 1960. The Company was taken public on April
6, 1967 and has been traded on the American Stock Exchange since July 25, 1978.
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 eight divisions and two 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.
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.
There were no other material changes in the nature of the business
conducted by the Company during the fiscal year ended January 31, 1998.
PRODUCTS, SERVICES AND MARKETS:
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.
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 the
toughest, most 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 Systems Division, located in West Chester, Pennsylvania, remains
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.
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. Over
ninety factory trained manufacturer's representatives sell Duall's engineered
systems to industrial and municipal clients.
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.
2
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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 us to
offer the first corrosion resistant and high temperature FRP thermoset pumps
suitable for solvent applications. The new EY-2 material also expands our
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. Our new EY-2
material will allow us to enter new markets such as pharmaceutical,
petrochemical, fertilizer and pesticides. A worldwide distributor network
provides outstanding levels of sales, engineering and customer service.
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.
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. A manufacturing and sales office has been established at the
Mefiag B.V. facility in Heerenveen, Holland. In the second quarter of this
fiscal year, our wholly owned subsidiary, Strobic Air Corporation, was
successfully relocated from Bensalem to Harleysville, Pennsylvania. The benefits
from this relocation are already evident in Strobic Air's operations and are
expected to continue.
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,
1998 1997 1996
------------------------------------------
United States 86.0% 87.6% 87.6%
Foreign 14.0% 12.4% 12.4%
------------------------------------------
Net Sales 100.0% 100.0% 100.0%
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CUSTOMERS:
Over the past three years, no single customer accounted for 10% or
more of the total net sales of the Company in any year.
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 Corp., Goulds Pumps, Inc., and The Duriron Company, 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 business.
3
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RESEARCH AND DEVELOPMENT:
The Company engages in research and development on an operational
basis. The research and development effort is not centralized due to the wide
range of products. 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 $0.7 million in 1998, $0.7
million in 1997 and $0.6 million in 1996.
PATENTS AND TRADEMARKS:
The Company maintains a small number of patents and trademarks. The
Company considers these items important to the business, although it considers
no individual item 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 with these laws and regulations.
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.
BACKLOG:
Generally, the Company's customers are not subject to long-term
contracts, but to purchase orders 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
$6,143,284 and $6,017,795 as of January 31, 1998 and 1997, respectively.
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, 1998, the Company employed approximately 387
persons, of whom 184 were involved in manufacturing, and 203 were engaged in
administration, sales, engineering, supervision and clerical work. The Company
has had no work stoppages during the past 15 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.
Large export sales are 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
18.
4
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EXECUTIVE OFFICERS OF THE REGISTRANT:
The following table sets forth certain information regarding the
executive officers of the Company.
Walter A. Everett, age 76, is Chairman of the Board of Directors of
the Company. He is the former President and Chief Executive Officer. 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 66, 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 43, 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 previously held the position of
Corporate Controller.
Mark A. Betchaver, age 48, is a Vice President of Registrant and
General Manager of the Sethco Division, to which he was elected in June, 1993.
He joined the Registrant in 1972 and was most recently Sales Manager of the
Division.
Carl W. Dean, age 51, 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. He
previously held the position of Sales Manager of the Division.
Raymond J. De Hont, age 44, is a Vice President of Registrant and
General Manager of the Fybroc Division, to which office he was elected in June,
1995. He joined the Registrant in June, 1995. 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.
Sonja M. Haggert, age 44, 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 previously held the
position of Distributor Sales Manager of the Division.
Hans J. D. Huizinga, age 47, 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 43, 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 44, 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. His last position was Vice President Sales and Marketing.
Robert P. Replogle, age 57, 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
previously held the position of Director of the International Sales Division and
the Mefiag Division.
Lynn T. Secrest, age 60, 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
Strobic Air Corporation 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
an employment agreement in connection with the acquisition of Strobic Air
Corporation.
5
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ITEM 2. PROPERTIES:
The Company owns and operates nine manufacturing and production
facilities as described below:
<TABLE>
<CAPTION>
NAME STRUCTURE PROPERTY/LOCATION STATUS
<S> <C> <C> <C>
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
Mefiag B.V. 17,200 square feet, metal 1.1 acres in Owned
and masonry building Heerenveen, Holland
</TABLE>
During the fiscal year ended January 31, 1998, the Company sold an
idle manufacturing facility located in Bensalem, Pennsylvania in which it
formerly housed the Strobic Air operations which were consolidated into the
Met-Pro Corporation headquarters in Harleysville, Pennsylvania. In addition, the
Company sold the idle manufacturing facility in Las Piedras, Puerto Rico which
housed its wholly owned subsidiary, Mefiag of Puerto Rico, Inc. On January 31,
1997, this subsidiary was merged into the Company's Harleysville, Pennsylvania
manufacturing operations to maximize capacity and improve economies of scale.
6
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ITEM 3. LEGAL PROCEEDINGS:
Subsequent to January 31, 1997, the Company was served with a
Complaint filed against the Company and several other corporations and
individuals in the United States District Court for the Eastern District of
Pennsylvania. The plaintiff, F. P. Woll, Inc., is the present owner of land and
building ("Site") in Lansdale, Pennsylvania which was occupied by the Company
and its predecessor for approximately 20 years prior to 1976. The other
defendants identified in the Complaint are entities which owned or occupied the
Site or neighboring properties at various times, or which insured entities that
owned or occupied the Site. The Complaint alleges that the plaintiff has been
ordered by the United States Environmental Protection Agency (the "EPA") to take
remedial action with respect to petroleum contamination allegedly detected on
the Site. The Complaint seeks declaratory relief and monetary damages under
federal and state statutes and the common law to recover from the defendants all
or some portion of the expenses which the plaintiff has incurred or may incur in
connection with the condition of the Site. The Company is vigorously defending
against the Complaint. The Company has answered the Complaint and is proceeding
with its investigation and discovery of plaintiff's allegations. Because
discovery has not yet been completed, it is not possible to assess the strength
of the plaintiff's claims or the nature of the Company's defense.
There are no other 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, 1998.
7
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS:
The Company's Common Stock is traded on the American 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 American
Stock Exchange, are shown below. The price of Common Stock and annual cash
dividend have been adjusted to reflect the 3-for-2 stock split occurring on July
8, 1996.
<TABLE>
<CAPTION>
QUARTER ENDED
YEAR ENDED JANUARY 31, 1998 APRIL JULY OCTOBER JANUARY
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<S> <C> <C> <C> <C>
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 - - -
YEAR ENDED JANUARY 31, 1997 APRIL JULY OCTOBER JANUARY
- ------------------------------------------------------------------------------------------------------------------------------------
Price range of common stock:
HIGH $11.50 $13.92 $13.38 $14.25
LOW 9.75 11.33 11.88 12.88
CASH DIVIDEND PAID .22 - - -
</TABLE>
There were 704 registered stockholders at January 31, 1998, and the
Company estimates that there are approximately 500 additional stockholders with
stock held in street name.
On February 24, 1997, the Board of Directors declared a $.27 per
share annual cash dividend payable on April 25, 1997 to stockholders of record
as of April 11, 1997.
The Company has paid either a cash or stock dividend for twenty-two
consecutive years. 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, 1998. 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.
On September 12, 1997, the Company completed the purchase of 100,000
shares of its Common Stock which was authorized under the stock repurchase
program approved by the Board of Directors on October 11, 1996.
On August 13, 1997 the Company adopted a program to repurchase
150,000 shares of its Common Stock during the next twelve months at prevailing
prices and in accordance with applicable rules in open market transactions
during the next twelve months. There were 81,500 shares repurchased under the
program as of January 31, 1998.
8
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ITEM 6. SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
SELECTED OPERATING STATEMENT DATA
Net sales $62,387,870 $60,853,278 $54,067,320 $50,005,577 $41,199,444
Income from operations 10,695,596 9,157,131 7,663,957 6,281,437 3,952,510
Net income 7,116,481 6,096,002 4,893,885 3,830,042 2,517,155
Earnings per share, basic 1.01 .87 .70 .55 .36
Earnings per share, diluted 1.00 .86 .69 .54 .35
SELECTED BALANCE SHEET DATA
Current assets $36,067,260 $32,088,546 $28,268,561 $26,595,928 $21,987,515
Current liabilities 11,267,545 11,374,115 10,250,506 9,506,301 7,177,206
Working capital 24,799,715 20,714,431 18,018,055 17,089,627 14,810,309
Current ratio 3.2 2.8 2.8 2.8 3.1
Total assets 57,984,240 56,079,391 47,626,587 45,168,544 40,917,481
Long-term obligations 2,242,047 3,683,419 1,692,962 2,877,386 4,048,119
Total stockholders' equity 43,840,829 40,352,926 35,012,578 32,084,010 29,187,306
Total capitalization 46,082,876 44,036,345 36,705,540 34,961,396 33,235,425
Return on average total assets, % 12.5 11.8 10.5 8.9 6.6
Return on average stockholders' equity, % 16.9 16.2 14.6 12.5 8.9
OTHER FINANCIAL DATA
Capital expenditures $1,356,065 $1,811,833 $2,436,419 $1,098,893 $2,415,385
Stockholders' equity per share 6.27 5.73 5.03 4.61 4.15
Cash dividends paid per share .27 .22 .20 .11 .11
Average common shares, basic 7,053,071 6,989,717 6,999,408 7,000,281 7,037,971
Average common shares, diluted 7,144,931 7,096,214 7,051,527 7,063,920 7,079,057
Shares of common stock outstanding 6,993,473 7,043,436 6,956,535 6,964,403 7,034,108
</TABLE>
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 Strobic Air Corporation ("Strobic Air"),
effective as of July 31, 1996. 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
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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.
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 63.8% 66.0% 65.9%
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 36.2% 34.0% 34.1%
Selling, general and administrative expense 19.1% 19.0% 19.9%
- ----------------------------------------------------------------------------------------------------------------------------
Income from operations 17.1% 15.0% 14.2%
Other income 1.6% 1.5% 1.0%
- ----------------------------------------------------------------------------------------------------------------------------
Income before taxes 18.7% 16.5% 15.2%
Provision for taxes 7.3% 6.5% 6.2%
- ----------------------------------------------------------------------------------------------------------------------------
Net income 11.4% 10.0% 9.0%
============================================================================================================================
</TABLE>
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 is 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 $8.8 million for the fiscal year ended
January 31, 1998 which is a 16.1% increase over the prior year. This increase
was due to higher sales in the Middle East region, Pacific Rim, South America
and Caribbean Market. Foreign sales increased 18.8% in the Fluid Handling
Equipment segment versus the prior fiscal year, while the Pollution Control
Systems and Allied Equipment segment increased 0.7% 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
is 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. The change in the effective tax
rate had virtually no effect on earnings per share for the fiscal year ended
January 31, 1998.
10
<PAGE>
FYE 1997 vs FYE 1996:
Net sales for the year ended January 31, 1997 were $60.9 million, a
new record, exceeding net sales for the year ended January 31, 1996 by $6.8
million, an increase of 12.6%. This is the fourth consecutive year that net
sales have achieved a new record. Sales in the Pollution Control Systems and
Allied Equipment segment were $3.5 million or 12.4% higher than the prior fiscal
year due to the acquisition of Strobic Air, effective as of July 31, 1996,
coupled with higher demand primarily for our fume and odor control equipment.
Sales in the Fluid Handling Equipment segment were $3.3 million or 12.7% higher
compared to the prior year due primarily to increased demand for our specialty
pump equipment.
Foreign sales increased to $7.5 million for the fiscal year ended
January 31, 1997 which is a 12.7% increase over the prior year. This increase
was due to higher sales in the Middle East region, Pacific Rim and the European
Common Market. Foreign sales increased 16.5% in the Fluid Handling segment
versus the prior fiscal year, while the Pollution Control Systems and Allied
Equipment segment were flat versus the prior fiscal year due to the timing of
fume and odor control orders.
Net income of $6.1 million for the fiscal year ended January 31,
1997 was $1.2 million or 24.6% above the earnings level of the prior year. This
is the fourth consecutive year of increased earnings.
The gross margin was 34.0% for the fiscal year ended January 31,
1997, equal to the prior year. The consistent gross margin is related to higher
sales volume and product mix in both business segments, and includes $0.3
million of costs associated with the relocation of the Puerto Rico operations
and the out-sourcing of the Systems Division's manufacturing operations.
Selling expense increased approximately $0.4 million or 8.1% over
the prior fiscal year. The Strobic Air acquisition accounted for $0.1 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 8.0% for the fiscal year ended January 31, 1997,
virtually equal to the prior fiscal year.
General and administrative expense was $6.7 million for the fiscal
year ended January 31, 1997 compared to $6.3 million in the prior fiscal year.
The $0.4 million increase can be attributed entirely to the acquisition of
Strobic Air. General and administrative expense as a percentage of net sales was
11.0% for the fiscal year ended January 31, 1997 compared to 11.6% for the prior
fiscal year.
Other income of $0.9 million for the fiscal year ended January 31,
1997 consisted primarily of interest income earned on short-term investments and
a $0.4 million net gain on the disposal of certain properties. Other income of
$0.6 million at January 31, 1996 consisted primarily of interest income on
short-term investments.
The effective tax rate for the fiscal year ended January 31, 1997
was 39.5% compared to 40.5% for the prior year. Earnings per share for the
fiscal year ended January 31, 1997 increased approximately $.01 as a result of
the decline in the effective tax rate compared to the prior year.
LIQUIDITY:
Cash and cash equivalents were $11.3 million on January 31, 1998, an
increase of $2.2 million over the previous year. The improvement is the result
of cash flows generated from operations combined with the proceeds received from
the sale of idle facilities.
Accounts receivable were $10.7 million at January 31, 1998, an
increase of $0.1 million compared to the prior year. 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 $12.2 million at January 31, 1998, an increase
of $1.6 million compared to the prior year. 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 decreased from $11.4 million at January 31, 1997
to $11.3 million at January 31, 1998 or $0.1 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 3.2 at January 31, 1998 versus a
ratio of 2.8 at January 31, 1997.
11
<PAGE>
CAPITAL RESOURCES AND REQUIREMENTS:
Cash flows provided by operating activities during the fiscal year
ended January 31, 1998 amounted to $7.4 million compared to $7.2 million during
the prior fiscal year. The increase of $0.2 million can be attributed to higher
operating profits in both business segments, customers' advances on projects in
progress, offset by higher inventory balances and the timing of the payment of
accounts payable.
Cash flows used in investing activities during the fiscal year ended
January 31, 1998 amounted to $0.1 million compared to $3.8 million during the
fiscal year ended January 31, 1997. The Company's investing activities for the
fiscal year ended January 31, 1998 represent the acquisition of property and
equipment in the combined operations, offset by proceeds received from the sale
of property and equipment associated with Strobic Air operations which were
consolidated with existing facilities in Harleysville, Pennsylvania, and the
sale of an idle manufacturing facility in Las Piedras, Puerto Rico. 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, 1998
utilized $5.1 million of available resources compared to $1.7 million during the
prior fiscal year.
The Company paid $1.6 million of scheduled long-term debt during the
current fiscal year. The long-term debt to equity ratio at January 31, 1998 was
5.1% compared to 9.1% at January 31, 1997.
A total of 84,337 stock options were exercised during the year ended
January 31, 1998 which provided cash proceeds of approximately $0.5 million.
The Company continued to repurchase shares outstanding on the open
market at prevailing prices under the stock buyback program authorized on
October 11, 1996. The Board of Directors also authorized one stock buyback
program totalling 150,000 shares during the fiscal year ended January 31, 1998.
The Company repurchased 134,300 shares at a cost of approximately $2.1 million
under the combined programs during the year ended January 31, 1998.
The Board of Directors also declared a cash dividend of $.27 per
share which was paid on April 25, 1997 to stockholders of record April 11, 1997.
This represented a 22.7% increase in the dividend payout rate, amounting to $1.9
million or 31.4% of prior year earnings.
As part of our commitment to the future, the Company expended $0.7
million on research and development for each of the fiscal years ended January
31, 1998 and 1997.
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 February 1997, the Financial Accounting Standards Board (the
"FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS No. 128 simplifies the standards for computing
earnings per share and is effective for financial statements for both interim
and annual periods ending after December 15, 1997. Basic earnings per share are
computed based on the weighted average number of common shares actually
outstanding during the year. Met-Pro implemented SFAS No. 128 in the financial
statements for the fiscal year ended January 31, 1998.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. Met-Pro is in the process of determining its
preferred format. The adoption of SFAS No. 130 will have no impact on Met-Pro's
consolidated results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
standards for the way public business enterprises report information about
segments in the annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. Financial statement disclosures for prior periods are
required to be restated. Met-Pro is in the process of evaluating the disclosure
requirements. The adoption of SFAS No. 131 will have no impact on Met-Pro's
consolidated results of operations, financial position or cash flows.
12
<PAGE>
In February 1998, the FASB issued SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits". SFAS No. 132
establishes standards for the disclosures of pension and other postretirement
benefit plans. It does not change the measurement and recognition standards for
those plans, but does revise and replace the prior disclosure requirements. SFAS
No. 132 is effective for fiscal years beginning after December 15, 1997.
Financial statement disclosures for prior periods are required to be restated.
Met-Pro is in the process of evaluating the disclosure requirements. The
adoption of SFAS No. 132 will have no impact on Met-Pro's consolidated results
of operations, financial position or cash flows.
YEAR 2000 COMPLIANCE:
During the fiscal year ended January 31, 1998, the Company began to
modify its computer software to correctly process dates for the Year 2000. The
Company presently believes that the modifications to its existing software are
complete. Although the Company does not expect that it will incur material sums
prior to the year 2000 in connection with computer software modifications
required in connection therewith, no assurances can be given as to this, nor as
to whether the Company will not be adversely affected by Year 2000 compliance
problems.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS:
As a cautionary note to investors, the Company and its
representatives may make oral or written statements from time to time that are
"forward-looking statements". This would include information concerning possible
or assumed future activities, plans, results of operations of the Company and
statements preceded by, followed by or that include the words "believes",
"expects", "anticipates", "intends" or similar expressions. For those
statements, the Company claims the protection of the safe harbor for forward-
looking statements contained in the Private Securities Litigation Reform Act
of 1995.
There are a number of important factors which could cause actual
results to differ materially from those anticipated. The Company believes that
its future operating results will continue to be subject to quarterly variations
based upon a wide variety of factors, including the cyclical nature of both the
business segments and the markets addressed by the Company's products, price
erosion, competitive factors, the timing of new product introductions, changes
in product mix, the availability and extent of utilization of manufacturing
capacity, product obsolescence and the ability to develop and implement new
technologies. The Company's operating results could also be impacted by sudden
fluctuations in customer requirements, currency exchange rate fluctuations and
other economic conditions affecting customer demand and the cost of operations
in one or more of the global markets in which the Company does business. As a
participant in the pollution control and fluid handling industries, the Company
operates in a rapidly changing and highly competitive environment. The Company
sells both custom products to customers, and industrial products; accordingly,
changes in the conditions or composition of any of the Company's customers may
have an impact on the Company. While the Company cannot predict what effect
these various factors may have on its financial results, the aggregate effect of
these and other factors could result in volatility in the Company's future
performance and stock price.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS:
Not Applicable
13
<PAGE>
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 Balance Sheet . . . . . . . . . . . . . 15
Consolidated Statement of Operations . . . . . . . . 16
Consolidated Statement of Stockholder's Equity . . . 16
Consolidated Statement of Cash Flows . . . . . . . . 17
Consolidated Business Segment Data . . . . . . . . . 18
Notes to Consolidated Financial Statements . . . . . 19
Supplementary Data:
Quarterly Financial Data . . . . . . . . . . . . . . 30
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Met-Pro Corporation and its Wholly Owned Subsidiaries
Harleysville, Pennsylvania
We have audited the accompanying consolidated balance sheet of Met-Pro
Corporation and its wholly owned subsidiaries as of January 31, 1998 and 1997,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 1998.
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, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 1998 in conformity with generally accepted
accounting principles.
/S/ MARGOLIS & COMPANY P.C.
---------------------------
Certified Public Accountants
Bala Cynwyd, Pennsylvania
February 19, 1998, except for
Note 15, as to which the date
is February 23, 1998
14
<PAGE>
MET-PRO CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JANUARY 31,
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents - Note 3 $11,253,380 $9,070,976
Accounts receivable, net of allowance for
doubtful accounts of approximately $280,000
and $233,000, respectively 10,664,310 10,570,528
Notes receivable, ESOT - Note 4 200,000 400,000
Inventories - Note 5 12,210,749 10,597,813
Prepaid expenses, deposits and other current assets 723,965 571,226
Deferred income taxes - Note 8 1,014,856 878,003
- ------------------------------------------------------------------------------------------------------------------------------
Total current assets 36,067,260 32,088,546
Property, plant and equipment, net -
Notes 6 and 7 13,787,596 14,346,995
Costs in excess of net assets of businesses acquired, net 7,198,915 7,502,470
Other assets 930,469 2,141,380
- ------------------------------------------------------------------------------------------------------------------------------
Total assets $57,984,240 $56,079,391
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt - Note 7 $1,441,964 $1,585,087
Accounts payable 2,648,943 2,996,065
Accrued salaries, wages and expenses - Note 10 6,523,442 6,424,709
Payroll and other taxes payable 5,746 19,685
Customers' advances 647,450 348,569
- ------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 11,267,545 11,374,115
Long-term debt - Note 7 2,242,047 3,683,419
Other non-current liabilities 249,037 172,941
Deferred income taxes - Note 8 384,782 495,990
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities 14,143,411 15,726,465
- ------------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies - Notes 9, 10 and 14
Stockholders' equity - Note 10
Common stock, $.10 par value; 18,000,000 and 10,000,000 shares authorized,
respectively, 7,138,625 shares issued at both dates, of which 145,152 and
95,189 shares were reacquired and held in treasury, respectively 713,862 713,862
Additional paid-in capital 7,868,357 8,260,289
Retained earnings 37,667,872 32,467,223
Cumulative translation adjustment (219,015) 19,121
Treasury stock, at cost (2,190,247) (1,107,569)
- ------------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 43,840,829 40,352,926
- ------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $57,984,240 $56,079,391
==============================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of the above
statement.
15
<PAGE>
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $62,387,870 $60,853,278 $54,067,320
Cost of goods sold 39,802,965 40,157,752 35,625,610
- ---------------------------------------------------------------------------------------------
Gross profit 22,584,905 20,695,526 18,441,710
- ---------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling 5,331,954 4,854,845 4,489,905
General and administrative 6,557,355 6,683,550 6,287,848
- ---------------------------------------------------------------------------------------------
11,889,309 11,538,395 10,777,753
- ---------------------------------------------------------------------------------------------
Income from operations 10,695,596 9,157,131 7,663,957
Other income, net - Note 11 970,767 918,905 561,060
- ---------------------------------------------------------------------------------------------
Income before taxes 11,666,363 10,076,036 8,225,017
Provision for taxes - Note 8 4,549,882 3,980,034 3,331,132
- ---------------------------------------------------------------------------------------------
NET INCOME $7,116,481 $6,096,002 $4,893,885
=============================================================================================
EARNINGS PER SHARE, BASIC $1.01 $.87 $.70
EARNINGS PER SHARE, DILUTED $1.00 $.86 $.69
</TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 1995 $319,342 $7,401,641 $24,816,542 $233,760 ($687,275) $32,084,010
Net income -- -- 4,893,885 -- -- 4,893,885
Dividends paid, $.20 per share -- -- (1,409,322) -- -- (1,409,322)
Stock split, 50% 156,580 -- (156,580) -- -- --
Cash in lieu of fractional shares -- -- (1,986) -- -- (1,986)
Stock option transactions - Note 10 -- 41,169 -- -- 265,570 306,739
Purchase of 61,003 shares of treasury stock -- -- -- -- (836,321) (836,321)
Cumulative translation adjustment -- -- -- (24,427) -- (24,427)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1996 475,922 7,442,810 28,142,539 209,333 (1,258,026) 35,012,578
Net income -- -- 6,096,002 -- -- 6,096,002
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 - Note 10 -- 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 - Note 2 -- 673,965 -- -- 1,726,055 2,400,020
Cumulative translation adjustment -- -- -- (190,212) -- (190,212)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1997 713,862 8,260,289 32,467,223 19,121 (1,107,569) 40,352,926
Net income -- -- 7,116,481 -- -- 7,116,481
Dividends paid, $.27 per share -- -- (1,915,832) -- -- (1,915,832)
Stock option transactions - Note 10 -- (391,932) -- -- 1,031,212 639,280
Purchase of 134,300 shares of treasury stock -- -- -- -- (2,113,890) (2,113,890)
Cumulative translation adjustment -- -- -- (238,136) -- (238,136)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1998 $713,862 $7,868,357 $37,667,872 ($219,015) ($2,190,247) $43,840,829
====================================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of the above
statement.
16
<PAGE>
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $7,116,481 $6,096,002 $4,893,885
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,830,630 1,707,547 1,613,391
Deferred income taxes (247,754) (379,520) (222,131)
(Gain) on sale of property and equipment, net (193,117) (369,100) (4,217)
Non-cash compensation expensed on
grant of stock options 122,595 286,733 --
Allowance for doubtful accounts 47,307 38,014 10,528
(Increase) decrease in operating assets,
net of acquisition of Strobic Air Corporation:
Accounts receivable (229,602) (617,027) (833,030)
Notes receivable, ESOT 200,000 -- (400,000)
Inventories (1,690,754) 496,743 400,946
Prepaid expenses and other current assets (158,739) 82,789 89,169
Other assets 411,562 (40,968) (38,929)
Increase (decrease) in operating liabilities,
net of acquisition of Strobic Air Corporation:
Accounts payable, accrued expenses and taxes (231,737) (106,710) 596,986
Customers' advances 298,881 (62,840) 139,022
Other non-current liabilities 76,097 71,595 66,498
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 7,351,850 7,203,258 6,312,118
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property and equipment 1,308,995 1,498,747 4,881
Acquisitions of property and equipment (1,356,065) (1,811,833) (2,436,419)
Payment for purchase of Strobic Air Corporation,
net of cash acquired -- (3,535,898) --
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (47,070) (3,848,984) (2,431,538)
- -----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from new borrowings -- 3,500,000 --
Reduction of debt (1,584,495) (1,919,659) (1,177,068)
Exercise of stock options 516,685 263,594 306,739
Payment of dividends (1,915,832) (1,530,693) (1,409,322)
Cash in lieu of fractional shares -- (2,685) (1,986)
Purchase of treasury shares (2,113,890) (1,982,411) (836,321)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (5,097,532) (1,671,854) (3,117,958)
- -----------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (24,844) (26,819) 4,373
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,182,404 1,655,601 766,995
Cash and cash equivalents at beginning of year 9,070,976 7,415,375 6,648,380
- -----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $11,253,380 $9,070,976 $7,415,375
===================================================================================================================================
</TABLE>
The notes to consolidated financial statements are an integral part of the above
statement.
17
<PAGE>
MET-PRO CORPORATION
CONSOLIDATED BUSINESS SEGMENT DATA
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES TO UNAFFILIATED CUSTOMERS
Pollution control systems and allied equipment $33,483,034 $31,578,749 $28,090,728
Fluid handling equipment 28,904,836 29,274,529 25,976,592
- ------------------------------------------------------------------------------------------------------------------------------------
$62,387,870 $60,853,278 $54,067,320
INCLUDES FOREIGN SALES OF:
Pollution control systems and allied equipment $1,114,044 $1,106,077 $1,164,509
Fluid handling equipment 7,637,304 6,431,167 5,521,619
- ------------------------------------------------------------------------------------------------------------------------------------
$8,751,348 $7,537,244 $6,686,128
====================================================================================================================================
INCOME FROM OPERATIONS
Pollution control systems and allied equipment $6,030,733 $5,048,313 $4,269,701
Fluid handling equipment 4,664,863 4,108,818 3,394,256
- ------------------------------------------------------------------------------------------------------------------------------------
$10,695,596 $9,157,131 $7,663,957
====================================================================================================================================
DEPRECIATION AND AMORTIZATION EXPENSE
Pollution control systems and allied equipment $980,869 $750,677 $506,260
Fluid handling equipment 849,761 956,870 1,107,131
- ------------------------------------------------------------------------------------------------------------------------------------
$1,830,630 $1,707,547 $1,613,391
====================================================================================================================================
CAPITAL EXPENDITURES
Pollution control systems and allied equipment $817,732 $797,799 $1,693,342
Fluid handling equipment 456,283 922,724 660,377
- ------------------------------------------------------------------------------------------------------------------------------------
1,274,015 1,720,523 2,353,719
Corporate 82,050 91,310 82,700
- ------------------------------------------------------------------------------------------------------------------------------------
$1,356,065 $1,811,833 $2,436,419
====================================================================================================================================
IDENTIFIABLE ASSETS AT JANUARY 31
Pollution control systems and allied equipment $24,625,574 $24,530,682 $16,370,893
Fluid handling equipment 19,826,486 20,601,654 21,726,465
- ------------------------------------------------------------------------------------------------------------------------------------
44,452,060 45,132,336 38,097,358
Corporate 13,532,180 10,947,055 9,529,229
- ------------------------------------------------------------------------------------------------------------------------------------
$57,984,240 $56,079,391 $47,626,587
====================================================================================================================================
</TABLE>
The Company follows the practice of allocating general corporate expenses,
including depreciation and amortization expense, among the segments.
18
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996
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. 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 $6,616,402, are being amortized over 40 years. The Company
monitors the recoverability of goodwill using a fair value approach.
REVENUE RECOGNITION:
Revenues are recognized when products are shipped.
ADVERTISING:
Advertising costs are charged to operations in the year incurred and
were $1,111,724, $809,476 and $767,507 for the years ended January 31,
1998, 1997 and 1996, respectively.
RESEARCH AND DEVELOPMENT:
Research and development costs are charged to operations in the year
incurred and were $726,278, $670,336 and $584,191 for the years ended
January 31, 1998, 1997 and 1996, respectively.
19
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (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. The weighted average number of shares outstanding was
7,053,071, 6,989,717 and 6,999,408 during each of the years ended in
1998, 1997 and 1996, respectively.
Diluted earnings per share are computed based on the weighted average
number of shares actually outstanding plus all dilutive potential common
shares outstanding (stock options) during each year. The weighted
average number of common shares outstanding was 7,144,931, 7,096,214 and
7,051,527 during each of the years ended in 1998, 1997 and 1996,
respectively.
STOCK SPLITS:
On May 12, 1995, the Company issued 1,565,803 shares of Common Stock in
connection with a 3-for-2 stock split, and on July 8, 1996, the Company
issued 2,379,197 shares of Common Stock in connection with a 3-for-2
stock split. Both stock splits were 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 splits.
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, 1998 and 1997.
SUPPLEMENTAL CASH FLOW INFORMATION:
1998 1997 1996
------------------------------------------------------------------------
Cash paid during the year for:
Interest $314,735 $228,841 $258,297
------------------------------------------------------------------------
Income taxes $4,530,301 $4,039,248 $3,148,038
------------------------------------------------------------------------
CHANGES IN ACCOUNTING POLICIES:
In June 1997, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 130, "Reporting Comprehensive Income" and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information".
In February 1998, the FASB also issued SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits". These
pronouncements are effective for fiscal years beginning after December
15, 1997, and thus do not effect any of the financial statements
reported on herein, but will become effective for our fiscal year
beginning February 1, 1998. The adoption of these pronouncements will
have no impact on Met-Pro's consolidated results of operations,
financial position or cash flows, but upon adoption will require
disclosures for prior periods to be restated.
20
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
NOTE 2: ACQUISITION OF BUSINESS
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 acquired and
will be amortized over 40 years.
On December 31, 1996, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-3 pursuant to
which the Company registered an aggregate of 195,920 shares of Common
Stock issued to the former stockholders of Strobic Air in connection
with the acquisition. The shares registered may be sold pursuant to the
plan of distribution described therein. An aggregate of 193,544 of such
shares were subject, through December 11, 1997, to certain contractual
restrictions.
The following unaudited pro forma summary presents the consolidated
results of operations for the year ended January 31, 1997 as if the
Company had acquired Strobic Air on February 1, 1996:
Net sales $64,060,415
Income before taxes 10,327,460
Net income 6,214,483
Earnings per share, basic $.89
Earnings per share, diluted $.88
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
CASH AND CASH EQUIVALENTS:
Short-term investments at January 31, 1998 and 1997 were valued at cost
(approximating market) and amounted to $10,652,199 and $8,495,100,
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.
DEBT:
The fair value and carrying amount of long-term debt was as follows:
JANUARY 31,
1998 1997
---------------------------------------------------------------------
Fair value $3,714,500 $5,276,656
Carrying amount 3,684,011 5,268,506
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.
21
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
NOTE 4: NOTES RECEIVABLE, ESOT
The Company advanced a total of $200,000 and $400,000 at January 31,
1998 and 1997, respectively, to the Employee Stock Ownership Trust to
acquire shares of the Company's stock, which are evidenced by demand
notes with interest rates ranging from 4.95% to 5.64% per annum.
NOTE 5: INVENTORIES
Inventories consisted of the following:
JANUARY 31,
1998 1997
---------------------------------------------------------------
Raw material $5,570,663 $4,784,192
Work in process 2,001,618 1,715,157
Finished goods 4,638,468 4,098,464
---------------------------------------------------------------
$12,210,749 $10,597,813
===============================================================
At January 31, 1998 and 1997, inventories valued at the last-in,
first-out method ("LIFO") were $2,950,755 and $2,548,477, respectively.
The LIFO value of inventories was lower than replacement cost by
$822,760 and $746,485 at January 31, 1998 and 1997, respectively.
The book basis of LIFO inventories exceeded the tax basis by
approximately $1,026,000 at both January 31, 1998 and 1997, 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.
NOTE 6: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
JANUARY 31,
1998 1997
-----------------------------------------------------------------------
Land $1,797,984 $1,906,387
Buildings and improvements 11,074,419 11,444,189
Machinery and equipment 10,028,107 11,614,730
Furniture and fixtures 2,590,708 2,599,240
Automotive equipment 948,203 928,420
Leasehold improvements 3,710 3,710
Construction in progress 110,180 --
-----------------------------------------------------------------------
26,553,311 28,496,676
Less accumulated depreciation 12,765,715 14,149,681
-----------------------------------------------------------------------
$13,787,596 $14,346,995
=======================================================================
Depreciation of property, plant and equipment charged to operations
amounted to $1,353,857, $1,295,483 and $1,160,717 for the years ended in
1998, 1997 and 1996, respectively.
22
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (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:
<TABLE>
<CAPTION>
JANUARY 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable, bank, payable in
quarterly installments ranging from $87,500 to $100,000,
plus interest at fixed rates ranging from 6.15% to
7.51%, maturing July, 1998 and September, 2001 $1,512,500 $2,262,500
Notes payable, bank, payable in quarterly
installments ranging from $87,500 to $100,000, plus
interest at variable rates ranging from 6.563% to
6.594%, maturing July, 1998 and September, 2001 1,512,500 2,262,500
Note payable, acquisition escrow account,
balloon payment due on April 2, 1998, plus interest at a
fixed rate of 5.90% 250,000 250,000
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 409,011 493,506
- ---------------------------------------------------------------------------------------------------------------
3,684,011 5,268,506
Less current portion 1,441,964 1,585,087
- ---------------------------------------------------------------------------------------------------------------
$2,242,047 $3,683,419
===============================================================================================================
</TABLE>
Interest expense was $325,718, $300,170 and $266,113 for the years
ended 1998, 1997 and 1996, respectively.
Maturities of long-term debt were as follows:
Year Ending
January 31,
-----------------------------------------------------------------
1999 $1,441,964
2000 800,093
2001 808,940
2002 633,014
-----------------------------------------------------------------
$3,684,011
=================================================================
23
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
NOTE 8: INCOME TAXES
The provision for income taxes was comprised of the following:
1998 1997 1996
-----------------------------------------------------------------------
Current
Federal $3,718,205 $3,048,214 $2,545,999
State 933,080 982,353 824,518
Foreign 146,658 250,729 207,366
-----------------------------------------------------------------------
4,797,943 4,281,296 3,577,883
Deferred (248,061) (301,262) (246,751)
-----------------------------------------------------------------------
$4,549,882 $3,980,034 $3,331,132
=======================================================================
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:
<TABLE>
<CAPTION>
1998 1997
----------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Inventory cost capitalization $203,851 $183,897
Pension cost 965,152 901,131
Non-compete agreements 372,124 334,999
Other 246,055 203,439
----------------------------------------------------------------------------------
Total deferred tax assets 1,787,182 1,623,466
----------------------------------------------------------------------------------
Deferred tax liabilities
Accelerated depreciation 568,547 568,128
Inventory - Dean Pump Division 400,202 410,463
Excess of book over tax basis of
property acquired in acquisitions 125,052 213,011
Goodwill 63,307 49,851
----------------------------------------------------------------------------------
Total deferred tax liabilities 1,157,108 1,241,453
----------------------------------------------------------------------------------
Net deferred tax assets $630,074 $382,013
==================================================================================
</TABLE>
A reconciliation of the federal statutory rate and the Company's
effective tax rate is presented as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed expected
tax expense
(federal) $3,966,563 34.0% $3,425,852 34.0% $2,796,506 34.0%
State income taxes,
net of federal
income tax benefit 615,833 5.3 648,353 6.4 544,180 6.6
Foreign tax differential (23) -- (59,709) (.6) (5,500) (.1)
Foreign tax credit (5,786) -- (5,140) -- (3,861) --
Other (26,705) (.3) (29,322) (.3) (193) --
- ------------------------------------------------------------------------------------------------------------------
Effective income taxes $4,549,882 39.0% $3,980,034 39.5% $3,331,132 40.5%
==================================================================================================================
</TABLE>
24
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
NOTE 9: LEASES AND OTHER COMMITMENTS
The Company leased two facilities under operating leases which expired
during the year ended in 1998.
Rental expense under all operating leases was $76,407, $50,622 and
$60,335 during the years ended in 1998, 1997 and 1996, 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:
1998 1997 1996
---------------------------------------------------------------------
Service cost-benefits earned
during the period $466,000 $461,000 $414,100
Interest cost on projected
benefit obligation 664,202 625,083 562,387
Return on assets (2,675,240) (1,624,484) (1,499,590)
Amortization (118,868) 58,205 (31,546)
Deferred gain
on investments 1,924,069 984,187 962,487
---------------------------------------------------------------------
$260,163 $503,991 $407,838
=====================================================================
25
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
The following table set forth the Plans' funded status and amounts
recognized in the Company's balance sheet at January 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------------------------------------------------------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
PLANS PLAN PLAN PLANS
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested $6,837,694 $438,300 $4,679,000 $2,208,200
Non-vested 386,892 11,400 131,000 91,700
--------------------------------------------------------------------------------------------------------
Accumulated benefit
obligation $7,224,586 $449,700 $4,810,000 $2,299,900
========================================================================================================
Projected benefit
obligation $9,007,113 $449,700 $6,269,000 $2,299,900
Plan assets at fair value 11,888,269 -- 7,585,508 1,908,531
--------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected
benefit obligation 2,881,156 (449,700) 1,316,508 (391,369)
Unrecognized net gain (5,025,655) 39,200 (2,897,814) (456,947)
Unrecognized transition
(obligation) asset (365,095) 199,600 (381,958) 205,948
Unrecognized prior
service cost 233,353 -- 64,828 168,093
--------------------------------------------------------------------------------------------------------
Accrued pension expense
included in accounts
payable and accrued
expenses ($2,276,241) ($210,900) ($1,898,436) ($474,275)
========================================================================================================
</TABLE>
Assumptions used in the accounting for pension cost were:
1998 1997 1996
------------------------------------------------------------------------
Discount rate 7.25% 7.50% 7.50%
Rate of increase in
compensation levels
(where applicable) 6.00% 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
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 $200,000 in
each of the years ended in 1998, 1997 and 1996. 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.
26
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (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:
<TABLE>
<CAPTION>
1987 PLAN 1998 1997 1996
<S> <C> <C> <C>
------------------------------------------------------------------------------
Options outstanding at February 1 65,087 60,300 108,338
Grants -- 40,500 27,000
Exercises 65,087 35,713 75,038
Options outstanding at January 31 -- 65,087 60,300
Options price range at January 31 $3.38 $3.38 $3.38
to to to
$7.17 $7.17 $7.17
Options exercisable at January 31 0 65,087 33,300
------------------------------------------------------------------------------
Options available for grant
at January 31 0 1,238 41,738
==============================================================================
1992 PLAN 1998 1997 1996
------------------------------------------------------------------------------
Options outstanding at February 1 202,500 197,625 73,125
Grants -- 21,000 133,500
Exercises 19,250 12,375 9,000
Cancellations -- 3,750 --
Options outstanding at January 31 183,250 202,500 197,625
Options price range at January 31 $5.00 $5.00 $5.00
to to to
$13.13 $13.13 $9.08
Options exercisable at January 31 171,750 143,251 59,625
-------------------------------------------------------------------------------
Options available for grant
at January 31 0 0 17,250
===============================================================================
</TABLE>
27
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (CONTINUED)
1997 PLAN 1998 1997 1996
----------------------------------------------------------------------
Options outstanding at February 1 -- -- --
Grants 20,000 -- --
Exercises -- -- --
Cancellations -- -- --
Options outstanding at January 31 20,000 -- --
Options price range at January 31 $12.00 -- --
-- --
Options exercisable at January 31 20,000 -- --
----------------------------------------------------------------------
Options available for grant
at January 31 330,000 0 0
======================================================================
The weighted average exercise prices of the Company's stock option
plans were as follows:
1998 1997 1996
-------------------------------------------------------------------
Options outstanding at February 1 $7.75 $7.19 $4.33
Grants $12.00 $8.40 $8.56
Exercises $6.13 $5.48 $3.65
Cancellations -- $9.08 --
Options outstanding at January 31 $8.84 $7.75 $7.19
NOTE 11: OTHER INCOME, NET
Other income, net, was comprised of the following:
1998 1997 1996
------------------------------------------------------------------------
Gain on sale of property
and equipment $193,117 $369,100 $4,217
Other, primarily interest income 777,650 549,805 556,843
------------------------------------------------------------------------
$970,767 $918,905 $561,060
========================================================================
NOTE 12: BUSINESS SEGMENT DATA
The Company operates in two business segments as shown on page 18.
28
<PAGE>
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998, 1997 AND 1996 - (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:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
United States $53,636,522 $53,316,034 $47,381,192
Foreign 8,751,348 7,537,244 6,686,128
--------------------------------------------------------------------------------
$62,387,870 $60,853,278 $54,067,320
================================================================================
Income from operations:
United States $ 9,987,312 $ 8,499,378 $ 7,119,170
Foreign 708,284 657,753 544,787
--------------------------------------------------------------------------------
$10,695,596 $ 9,157,131 $ 7,663,957
================================================================================
Total assets:
United States $53,995,274 $51,916,885 $43,348,162
Foreign 3,988,966 4,162,506 4,278,425
--------------------------------------------------------------------------------
$57,984,240 $56,079,391 $47,626,587
================================================================================
</TABLE>
NOTE 14: CONTINGENT LIABILITIES
During the year ended January 31, 1998, the Company was served a
complaint relating to environmental remediation costs for a property
which it had occupied prior to 1976. The Company believes that the
outcome of any resultant litigation will not have a materially adverse
effect on the Company's financial condition or its operations.
NOTE 15: SUBSEQUENT EVENT
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 on April 10, 1998.
29
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
EARNINGS EARNINGS
PER SHARE, PER SHARE,
1997 NET SALES GROSS PROFIT NET INCOME BASIC DILUTED
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
First Quarter $13,731,982 $4,975,320 $1,421,437 $.20 $.20
Second Quarter 14,759,594 5,000,697 1,457,021 .21 .21
Third Quarter 16,255,744 5,431,110 1,567,402 .22 .22
Fourth Quarter 16,105,958 5,288,399 1,650,142 .23 .23
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
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
During the fiscal year ended January 31, 1998, 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 Directors" and "Security Ownership" contained in the Company's
definitive Proxy Statement for its 1998 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 1998 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 "Principal Security
Holders" contained in the Company's definitive Proxy Statement for its 1998
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
Directors" and "Certain Transactions" contained in the Company's definitive
Proxy Statement for its 1998 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.
30
<PAGE>
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) 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.
(3) Certificate of Amendment of Certificate of Incorporation.
(11) Statement re Computation of Per Share Earnings. See page 16 of
Item 8.
(21) List of Subsidiaries of Registrant:
<TABLE>
<CAPTION>
CORPORATE JURISDICTION OF NAME UNDER WHICH BUSINESS
NAME INCORPORATION IS CONDUCTED
--------- --------------- -------------------------
<S> <C> <C>
Mefiag B.V. The Netherlands Mefiag B.V., a wholly
owned subsidiary of
Met-Pro Corporation
Strobic Air Corporation Delaware Strobic Air Corporation,
a wholly owned subsidiary of
Met-Pro Corporation
</TABLE>
(23) Consent of Independent Public Accountants.
(27) Financial Data Schedule.
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.
(28) Information from reports furnished to state insurance
regulatory authorities.
(99) Additional exhibits.
C. REPORTS ON FORM 8-K:
No reports on Form 8-K were filed during the three month period
ended January 31, 1998.
31
<PAGE>
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 24, 1998 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 24, 1998
- ------------------------- Officer and Director
William L. Kacin
/S/ Gary J. Morgan Vice President-Finance, April 24, 1998
- ------------------------- Secretary, Treasurer,
Gary J. Morgan Chief Financial Officer,
Chief Accounting Officer
and Director
/S/ Walter A. Everett Director, Chairman April 24, 1998
- -------------------------
Walter A. Everett
/S/ Thomas F. Hayes Director April 24, 1998
- -------------------------
Thomas F. Hayes
/S/ Richard P. Klopp Director April 24, 1998
- -------------------------
Richard P. Klopp
/S/ Alan Lawley Director April 24, 1998
- -------------------------
Alan Lawley
/S/ Nicholas DeBenedictis Director April 24, 1998
- -------------------------
Nicholas DeBenedictis
/S/ Jeffrey H. Nicholas Director April 24, 1998
- -------------------------
Jeffrey H. Nicholas
32
<PAGE>
EXHIBIT (3)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MET-PRO CORPORATION
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is: Met-Pro Corporation.
SECOND: The corporation hereby amends its Certificate of Incorporation
as follows: Paragraph FOURTH of the Certificate of
Incorporation, relating to the capital stock of the
corporation, is hereby amended to read as follows:
"FOURTH: The total number of shares of stock which the
corporation shall have authority to issue is Eighteen Million
(18,000,000), each share to be designated Common Stock
and to have a par value of Ten Cents ($.10), amounting to
aggregate capital of One Million Eight Hundred Thousand
Dollars ($1,800,000)."
THIRD: The amendment effected herein was authorized by the affirmative
vote of the holders of a majority of the outstanding shares
entitled to vote thereon at a meeting of stockholders, pursuant
to Sections 222 and 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 4th day of
June, 1997.
MET-PRO CORPORATION
By: /s/ William L. Kacin
------------------------------
Willam L. Kacin, President
ATTEST:
/s/ WILLIAM F. MOFFITT
- ------------------------------
William F. Moffitt, Secretary
<PAGE>
EXHIBIT (23)
CONSENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated February 19, 1998 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 and Form S-3
Registration Statement File Number 333-13929.
/s/ MARGOLIS & COMPANY P.C.
----------------------------
Margolis & Company P.C.
Certified Public Accountants
Bala Cynwyd, Pennsylvania
April 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> JAN-31-1998
<CASH> 11,253,380
<SECURITIES> 0
<RECEIVABLES> 10,664,310
<ALLOWANCES> (280,293)
<INVENTORY> 12,210,749
<CURRENT-ASSETS> 36,067,260
<PP&E> 26,553,311
<DEPRECIATION> (12,765,715)
<TOTAL-ASSETS> 57,984,240
<CURRENT-LIABILITIES> 11,267,545
<BONDS> 3,684,011
<COMMON> 713,862
0
0
<OTHER-SE> 43,126,967
<TOTAL-LIABILITY-AND-EQUITY> 57,984,240
<SALES> 62,387,870
<TOTAL-REVENUES> 62,387,870
<CGS> 39,802,965
<TOTAL-COSTS> 51,692,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 325,718
<INCOME-PRETAX> 11,666,363
<INCOME-TAX> 4,549,882
<INCOME-CONTINUING> 7,116,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,116,481
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
</TABLE>
