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