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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, 1999 Commission file number 001-07763
MET-PRO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1683282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Cassell Road, P.O. Box 144
Harleysville, Pennsylvania 19438
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 723-6751
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of the Registrant's common stock (par
value $0.10 per share) is 6,391,755 as of October 31, 1999.
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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, 1999 and January 31, 1999....................................................... 2
Condensed consolidated statement of operations for the nine-month
and three-month periods ended October 31, 1999 and 1998..................................... 3
Condensed consolidated statement of stockholders' equity for the
nine-month periods ended October 31, 1999 and 1998.......................................... 4
Condensed consolidated statement of cash flows for the nine-month
periods ended October 31, 1999 and 1998..................................................... 5
Notes to condensed consolidated financial statements................................................. 6
Report of independent accountants.................................................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings................................................................................. 15
Item 2. Changes in Securities............................................................................. 15
Item 3. Defaults Upon Senior Securities................................................................... 15
Item 4. Submissions of Matters to a Vote of Security Holders.............................................. 15
Item 5. Other Information................................................................................. 15
Item 6. Exhibits and Reports on Form S-K
(a) Exhibits Required by Item 601 of Regulation S-K............................................... 15
(b) Reports on Form 8-K .......................................................................... 15
SIGNATURES.................................................................................................... 16
</TABLE>
-1-
<PAGE>
MET-PRO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
October 31, January 31,
ASSETS 1999 1999
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets
Cash and cash equivalents $5,190,041 $7,446,369
Accounts receivable, net of allowance for doubtful
accounts of approximately $312,000 and
$261,000, respectively 13,103,331 14,492,082
Inventories - Note 4 13,825,780 14,973,169
Prepaid expenses, deposits and other current assets 1,154,806 827,824
Deferred income taxes 944,009 944,009
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 34,217,967 38,683,453
Property, plant and equipment, net 13,614,515 13,931,276
Costs in excess of net assets of businesses acquired, net 18,896,102 19,260,591
Other assets 759,989 1,013,321
- ------------------------------------------------------------------------------------------------------------------------
Total assets $67,488,573 $72,888,641
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $2,006,657 $2,125,093
Accounts payable 4,028,230 5,213,770
Dividend payable 511,340 --
Accrued salaries, wages and expenses 5,870,691 5,804,235
Payroll and other taxes payable 38,598 216,822
Customers' advances 650,106 1,027,948
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 13,105,622 14,387,868
Long-term debt 10,436,120 11,941,954
Other non-current liabilities 394,011 328,838
Deferred income taxes 283,386 304,874
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities 24,219,139 26,963,534
- ------------------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.10 par value; 18,000,000 shares
authorized, 7,185,507 and 7,138,625 shares issued,
of which 793,752 and 343,727 shares were reacquired
and held in treasury at the respective dates 718,550 713,862
Additional paid-in capital 7,938,033 7,508,748
Retained earnings 44,976,775 42,718,355
Accumulated other comprehensive loss (235,940) (85,103)
Treasury stock, at cost (10,127,984) (4,930,755)
- ------------------------------------------------------------------------------------------------------------------------
Net stockholders' equity 43,269,434 45,925,107
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $67,488,573 $72,888,641
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</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,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $59,212,504 $46,617,291 $17,846,269 $17,087,560
Cost of goods sold 38,824,967 29,274,180 11,528,063 10,908,351
- ----------------------------------------------------------------------------------------------------------------------------------
Gross profit 20,387,537 17,343,111 6,318,206 6,179,209
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Operating expenses
Selling 5,558,747 4,219,151 1,809,594 1,513,383
General and administrative 6,690,014 5,190,958 2,154,514 1,912,917
- ----------------------------------------------------------------------------------------------------------------------------------
12,248,761 9,410,109 3,964,108 3,426,300
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Income from operations 8,138,776 7,933,002 2,354,098 2,752,909
Other Income, net 372,775 478,504 110,715 142,180
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Income before taxes 8,511,551 8,411,506 2,464,813 2,895,089
Provision for taxes 3,060,910 3,126,044 763,150 1,100,133
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Net income $5,450,641 $5,285,462 $1,701,663 $1,794,956
==================================================================================================================================
Earnings per share, basic (1) $.83 $.76 $.26 $.26
Earnings per share, diluted (2) $.82 $.76 $.26 $.26
Cash dividend per share - declared (3) $.48 $.30 $.08 $.00
Cash dividend per share - paid (3) $.40 $.30 $.08 $.00
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</TABLE>
(1) Basic earnings per share are based on the weighted average number of shares
of common stock outstanding of 6,592,232 and 6,936,273 in the nine-month
periods ended October 31, 1999 and 1998, respectively, and 6,619,678 and
6,947,502 in the three-month periods ended October 31, 1999 and 1998,
respectively.
(2) Diluted earnings per share are based on the weighted average number of
shares of common stock outstanding of 6,631,383 and 6,986,611 in the
nine-month periods ended October 31, 1999 and 1998, respectively, and
6,660,094 and 6,999,652 in the three-month periods ended October 31, 1999
and 1998, respectively.
(3) On February 23, 1998, the Company declared a cash dividend of $.30 per
share payable on April 24, 1998 to stockholders of record on April 10,
1998. On February 22, 1999, the Company declared an annual $.32 per share
cash dividend payable on April 23, 1999 for the fiscal year ended January
31, 1999 to stockholders of record on April 9, 1999. On June 2, 1999, the
Company declared a quarterly $.08 per share cash dividend payable on
September 10, 1999 to stockholders of record on August 20, 1999. On October
20, 1999, the Company declared a quarterly $.08 per share cash dividend
payable on December 10, 1999 to stockholders of record on November 26,
1999.
See accompanying notes to condensed consolidated financial statements.
-3-
<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 (Loss) Stock Total
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<S> <C> <C> <C> <C> <C> <C>
Balances, January 31, 1999 $713,862 $7,508,748 $42,718,355 ($85,103) ($4,930,755) $45,925,107
Comprehensive income:
Net income 5,450,641
Foreign currency translation (150,837)
Total comprehensive income 5,299,804
Dividends paid, $.40 per share (2,680,881) (2,680,881)
Dividends declared, $.08 per share (511,340) (511,340)
Proceeds from issuance of
common stock under dividend
reinvestment plan (46,882 4,688 456,465 461,153
shares)
Stock option transactions (27,180) 42,180 15,000
Purchase of 453,025 shares of
treasury stock (5,239,409) (5,239,409)
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Balances, October 31, 1999 $718,550 $7,938,033 $44,976,775 ($235,940) ($10,127,984) $43,269,434
====================================================================================================================================
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income/(Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<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
treasury stock (2,776,031) (2,776,031)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, October 31, 1998 $713,862 $7,508,748 $40,852,765 ($11,468) ($4,244,441) $44,819,466
====================================================================================================================================
</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,
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C>
Net cash provided by operating activities $7,715,350 $5,521,373
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property and equipment 12,048 6,600
Acquisitions of property and equipment (888,414) (989,647)
Acquisitions of other intangibles (7,281) (412,856)
Payment for acquisition of businesses -- (15,367,221)
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (883,647) (16,763,124)
- ------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from new borrowing -- 12,000,000
Reduction of debt (1,624,270) (1,143,238)
Exercise of stock options 15,000 362,228
Payment of dividends (2,219,728) (2,100,569)
Purchase of treasury shares (5,239,408) (2,776,031)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (9,068,406) 6,342,390
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (19,625) 27,400
- ------------------------------------------------------------------------------------------------------------------------
Net (decrease) in cash and cash equivalents (2,256,328) (4,871,961)
Cash and cash equivalents at February 1 7,446,369 11,253,380
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at October 31 $5,190,041 $6,381,419
========================================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $631,011 $186,391
Income taxes $2,739,675 $3,328,384
========================================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE>
MET-PRO CORPORATION MET-PRO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of Met-Pro
Corporation and its wholly owned subsidiaries, Strobic Air Corporation,
Flex-Kleen Canada Inc., and Mefiag B.V. (collectively "Met-Pro" or "the
Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation
NOTE 2 - BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed financial
statements contain all adjustments necessary to present fairly the financial
position as of October 31, 1999 and the results of operations for the nine-
month and three-month periods ended October 31, 1999 and 1998, and changes in
stockholders' equity and cash flows for the nine-month periods then ended. The
results of operations for the nine-month and three-month periods ended October
31, 1999 and 1998 are not necessarily indicative of the results to be expected
for the full year. These condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report on Form 10-K for the year ended
January 31, 1999.
NOTE 3 - ACQUISITION OF BUSINESS
On October 29, 1998, the Company, pursuant to an Asset Purchase Agreement,
purchased all of the operating assets of Flex-Kleen Corporation and Flex-Kleen
Canada Limited (collectively "Flex-Kleen") for a purchase price of approximately
$15,000,000 plus the assumption of ordinary business liabilities. The
acquisition was accounted for as a purchase transaction. Flex-Kleen is a
manufacturer of dry particulate collectors that are used primarily in the
process of manufacturing food products and pharmaceuticals. The condensed
consolidated statement of operations for the nine-months ended October 31, 1998
includes the operations of Flex-Kleen for the period since October 1, 1998.
The acquisition was completed by a cash payment of approximately $15,000,000,
plus acquisition costs, which resulted in approximately $12,150,000 of goodwill.
A bank loan totalling $12,000,000 having a ten-year term with a fixed interest
rate swap of 5.98% was used to finance the acquisition. Payments of principal
and interest are payable on a quarterly basis.
On a pro-forma basis, consolidated results of operations for the nine-month
period ended October 31, 1998 would have been as follows, if the acquisition had
been made as of February 1, 1998:
Net sales $58,542,291
Income before taxes 9,249,543
Net income 5,804,946
Earnings per share, basic $.84
Earnings per share, diluted $.83
-6-
<PAGE>
MET-PRO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVENTORIES
Inventories consisted of the following:
October 31, January 31,
1999 1999
------------ ------------
Raw material $6,677,852 $7,246,379
Work in progress 2,239,776 2,435,351
Finish goods 4,908,152 5,291,439
------------ ------------
$13,825,780 $14,973,169
============ ============
NOTE 5 - BUSINESS SEGMENT DATA
The Company's operations are conducted in two business segments as follows: the
manufacture and sale of pollution control systems and allied equipment, and the
manufacture and sale of fluid handling equipment.
No significant intercompany revenue is realized by either business segment.
Interest income and expense are not included in the measure of segment profit
reviewed by management. Income taxes are also not included in the measure of
segment operating profit reviewed by management.
Financial information by business segment is shown below.
<TABLE>
Nine Months Ended October 31,
1999 1998
--------------------------------------
<S> <C> <C>
Net sales
Pollution control systems and allied equipment $39,346,224 $26,689,206
Fluid handling equipment 19,866,280 19,928,085
------------ ------------
$59,212,504 $46,617,291
============ ============
Income from operations
Pollution control systems and allied equipment $5,518,948 $4,987,520
Fluid handling equipment 2,619,828 2,945,482
------------ ------------
$8,138,776 $7,933,002
============ ============
October 31,
1999 1998
--------------------------------------
Identifiable assets
Pollution control systems and allied equipment $42,049,189 $44,883,938
Fluid handling equipment 18,969,915 20,585,637
------------ ------------
61,019,104 65,469,575
Corporate 6,469,469 7,869,579
------------ ------------
$67,488,573 $73,339,154
============ ============
</TABLE>
-7-
<PAGE>
MET-PRO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - EMPLOYEE BENEFIT PLAN
Effective April 1, 1999, the Company implemented a 401(k) profit sharing plan.
Substantially all employees of the Company in the United States are eligible to
participate in the plan following their completion of one year of service and
attaining age 21. Pursuant to this plan, employees can contribute up to 15% of
their compensation to the plan. The Company will match in the form of Met-Pro
common stock up to 50% of the employee contribution up to 4% of compensation.
NOTE 7 - INTEREST EXPENSE
The Company's interest expense is included in general and administrative and is
comprised of the following:
October 31,
1999 1998
-------------------------------------
Nine months ended $620,896 $171,686
Three months ended 201,212 54,312
NOTE 8 - RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The adoption of this
pronouncement will have no immediate impact on Met-Pro's consolidated results of
operations, financial position or cash flows.
NOTE 9 - ACCOUNTANTS' 10-Q REVIEW
Margolis & Company P.C., the Company's auditors, has performed a limited review
of the financial information included herein. Their report on such review
accompanies this filing.
-8-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Met-Pro Corporation
Harleysville, Pennsylvania
We have reviewed the accompanying condensed consolidated balance sheet of
Met-Pro Corporation and its wholly owned subsidiaries as of October 31, 1999 and
the related condensed consolidated statements of operations for the nine-month
and three-month periods ended October 31, 1999 and 1998 and stockholders' equity
and cash flows for the nine-month periods ended October 31, 1999 and 1998. These
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of January 31, 1999 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the year then ended (not presented herein); and in our report dated February 25,
1999, we expressed an unqualified opinion on those financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of January 31, 1999 is fairly stated, in all material respects,
in relation to the balance sheet from which it has been derived.
/s/ Margolis & Company P.C.
----------------------------
Certified Public Accountants
Bala Cynwyd, Pennsylvania
November 16, 1999
-9-
<PAGE>
MET-PRO CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations:
Nine Months Ended October 31, 1999 vs Nine Months Ended October 31, 1998
Net sales for the nine-month period ended October 31, 1999 were $59,212,504
compared to $46,617,291 for the nine-month period ended October 31, 1998, an
increase of $12,595,213 or 27.0%. Sales in the Pollution Control Systems and
Allied Equipment segment were $12,657,018 or 47.4% higher than the nine-month
period ended October 31, 1998 due to the acquisition of Flex-Kleen Corporation
and Flex-Kleen Canada Limited (collectively "Flex-Kleen"), effective as of
October 1, 1998, coupled with higher demand primarily for our Pollution Control
and Allied Equipment. Sales in the Fluid Handling Equipment segment were $61,805
lower compared to the nine-month period ended October 31, 1998.
Backlog at October 31, 1999 totaled $12,877,852 or 17.4% lower than the backlog
of orders on hand at October 31, 1998 and 48.4% higher than the backlog of
orders on hand at July 31, 1999. In addition, the Company had an additional
$4,274,414 of orders which are not included in our backlog due to the Company's
long-standing policy of not including these orders in backlog until engineering
drawings are approved.
The gross margin for the nine-month period ended October 31, 1999 was 34.4%
versus 37.2% for the same period in the prior year due to lower gross margins
experienced in the Pollution Control Systems and Allied Equipment segment.
Selling expense increased $1,339,596 during the nine-month period ended October
31, 1999 compared to the same period last year. The increase in selling expense
is attributed to the inclusion of Flex-Kleen operations for the nine-month
period ended October 31, 1999 which in the previous year only included one month
for the comparative period. Selling expense as a percentage of net sales was
9.4% for the nine-month period ended October 31, 1999, a slight increase
compared to the nine-month period ended October 31, 1998.
General and administrative expense was $6,690,014 for the nine-month period
ended October 31, 1999 compared to $5,190,958 for the same period last year, an
increase of $1,499,056. The increase was due mainly to amortization, interest
expense and other administrative expenses connected with the inclusion of
Flex-Kleen, which in the previous year only included one month for the
comparative period. Interest expense for the nine-months ended October 31, 1999
and 1998 amounted to $620,896 and $171,686, respectively. General and
administrative expense as a percentage of net sales increased to 11.3% for the
nine-month period ended October 31, 1999 from 11.1% for the same period last
year.
Other income, net, decreased $105,729 for the nine-month period ended October
31, 1999 compared to the nine-month period ended October 31, 1998, due to less
interest earned on lower cash balances.
The effective tax rate for the nine-month period ended October 31, 1999 was 36%
compared to 37.2% for the nine-month period ended October 31, 1998.
Three Months Ended October 31, 1999 vs Three Months Ended October 31, 1998
Net sales for the three-month period ended October 31, 1999 were $17,846,269
compared to $17,087,560 for the three-month period ended October 31, 1998, an
increase of $758,709 or 4.4%. The sales increase can be attributed to the
acquisition of Flex-Kleen, which in the previous year only included one month
for the comparative period.
-10-
<PAGE>
MET-PRO CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations continued...
The gross margin for the three-month period ended October 31, 1999 was 35.4%
compared to 36.2% for the same period last year. The decrease is due to lower
gross margins experienced in Pollution Control and Allied Equipment segment.
Selling expenses increased $296,211 during the three-month period ended October
31, 1999 compared to the same period last year. As a percentage of net sales,
selling expense increased to 10.1% for the three-month period ended October 31,
1999 from 8.9% for the three-month period ended October 31, 1998. The increase
in selling expense is attributed to the inclusion of Flex-Kleen operations for
the three-month period ended October 31, 1999 which in the previous year only
included one month for the comparative period.
General and administrative expense was $2,154,514 during the three-month period
ended October 31,1999 compared to $1,912,917 during the three-month period ended
October 31, 1998, an increase of $241,597. Interest expense for the three-months
ended October 31, 1999 and 1998 amounted to $201,212 and $54,312, respectively.
General and administrative expense for the three-month period ended October 31,
1999 increased to 12.1% of net sales compared to 11.2% for the same period last
year. The increase in general and administrative expense is attributed to the
inclusion of Flex-Kleen operations for the three-month period ended October 31,
1999, which in the previous year only included one month of the comparative
period.
Other income, net, decreased $31,465 for the three-month period ended October
31, 1999 compared to the prior year's comparable three-month period due to less
interest earned on lower cash balances.
The effective tax rate for the three-month period ended October 31, 1999 was
31.0% compared to 38.0% for the three-month period ended October 31, 1998.
Liquidity:
The Company's cash and cash equivalents were $5,190,041 on October 31, 1999
compared to $7,446,369 on January 31, 1999, a decrease of $2,256,328. This
decrease is the net result of the payment of cash dividends amounting to
$2,219,728 (net of $461,153 of dividends utilized for stock purchased under the
Dividend Reinvestment Plan), payments on long-term debt totalling $1,624,270,
purchase of treasury stock amounting to $5,239,408, acquisition of other
intangibles amounting to $7,281 and investment in property and equipment
amounting to $888,414, offset by positive cash flow provided by operating
activities of $7,715,350, proceeds received from the exercise of stock options
of $15,000, and proceeds received from the sale of property and equipment
amounting to $12,048. The Company's cash flows from operating activities are
influenced by the timing of shipments and negotiated standard payment terms,
including retention associated with major projects.
Accounts receivable (net) amounted to $13,103,331 on October 31, 1999 compared
to $14,492,082 on January 31, 1999, which represents a decrease of $1,388,751.
The timing and size of shipments and retainage on contracts, especially in the
Pollution Control Systems and Allied Equipment segment, will influence accounts
receivable balances at any point in time.
Inventories were $13,825,780 on October 31, 1999 compared to $14,973,169 on
January 31, 1999, a decrease of $1,147,389. Inventory balances fluctuate
depending upon market demand, the size and timing of orders and varying lead
times required.
-11-
<PAGE>
MET-PRO CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations continued...
Current liabilities amounted to $13,105,622 on October 31, 1999 compared to
$14,387,868 on January 31, 1999, a decrease of $1,282,246. Accounts payable,
current portion of long term debt, customer advances and other taxes payable,
offset by the increase in accrued expenses and dividends declared but payable in
a subsequent period, accounted for the decrease.
The Company has consistently maintained a high current ratio and has not
utilized either the domestic line of credit or the foreign line of credit
totalling $5.0 million which are available for working capital purposes. Cash
flows, in general, have exceeded the current needs of the Company. The Company
presently foresees no change in this situation in the immediate future.
Capital Resources and Requirements:
Cash flows provided by operating activities during the nine-month period ended
October 31, 1999 amounted to $7,715,350 compared with $5,521,373 in the
nine-month period ended October 31, 1998, an increase of $2,193,977.
Cash flows used in investing activities during the nine-month period ended
October 31, 1999 amounted to $883,647 compared with $16,763,124 for the
nine-month period ended October 31, 1998. The Company's investing activities
principally represent the acquisitions of property, plant and equipment in the
two operating segments, combined with acquisition of businesses. One of those
acquisitions occurred on October 29, 1998, when the Company acquired all
operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited for
approximately $15,000,000 together with the assumption of ordinary business
liabilities. Flex-Kleen is a manufacturer of dry particulate collectors that are
used primarily in the process of manufacturing food products and
pharmaceuticals. The purchase price, exclusive of liabilities assumed, was paid
through the utilization of $3,000,000 from available resources and $12,000,000
from new borrowings of long-term debt from Mellon Bank, N.A. The purchase price
was allocated among operating assets, operating liabilities, covenant not to
compete, and goodwill. The other acquisition during the nine-month period ended
October 31, 1998, occurred when the Company acquired certain assets of a
distributor of its Stiles-Kem products, located in the Southeastern United
States, for a purchase price of approximately $400,000. The purchase price was
allocated to customer lists, covenants not to compete and goodwill.
Financing activities during the nine-month period ended October 31, 1999
utilized $9,068,406 of available resources compared to $6,342,390 of cash
provided for the nine-month period ended October 31, 1998. The 1999 activity is
the result of the payment of dividends amounting to $2,219,728 (net of $461,153
of dividends utilized for stock purchased under the Dividend Reinvestment Plan),
reduction of long-term debt totalling $1,624,270, plus the purchase of treasury
stock totalling $5,239,408, offset by proceeds provided by the exercise of stock
options totalling $15,000.
On February 22, 1999, the Board of Directors declared a $.32 per share annual
cash dividend (compared to the $.30 per share cash dividend paid on April 24,
1998) payable on April 23, 1999 to stockholders of record on April 9, 1999. The
dividend paid on April 23, 1999 represented 30.1% of the prior fiscal year
earnings. A total of $431,329 of such dividend was used by our stockholders to
purchase an aggregate of 44,218 shares through our dividend reinvestment plan.
-12-
<PAGE>
MET-PRO CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations continued...
Due to the strong cash flows generated from operating activities, the Company
announced the change from an annual dividend which was traditionally paid during
the month of April to an expected quarterly dividend.
On June 2, 1999, the Board of Directors declared a quarterly dividend of $.08
per share payable on September 10, 1999 to stockholders of record at the close
of business on August 20, 1999.
On October 20, 1999, the Board of Directors declared a quarterly dividend of
$.08 per share payable on December 10, 1999 to stockholders of record at the
close of business on November 26, 1999.
On June 3, 1998, the Company announced the initiation of a 350,000 share stock
repurchase program ("1998 Stock Repurchase Program"). On May 12, 1999, the
Company announced a new stock repurchase program for an additional 350,000
shares or approximately 5% of the Company's outstanding stock, to commence after
all shares have been repurchased under the 1998 Stock Repurchase Program. The
Company completed the 1998 Stock Repurchase Program, during the nine-month
period ended October 31, 1999. These stock repurchase programs were initiated
and are expected to be implemented because, in management's view, the prevailing
price of the Company's stock does not adequately reflect the stock's fair value.
Purchases will be made from time to time in open market transactions at the
prevailing prices and in accordance with applicable rules. The Company may
discontinue the program at any time. For the nine-month period ended October 31,
1999, the Company had repurchased 453,025 shares, 280,825 under the plan
effective May 12, 1999 and 172,200 shares under the 1998 Stock Repurchase
Program.
Consistent with past practices, the Company intends to continue to invest in new
product development programs, and to make capital expenditures to support the
on-going operations during the coming year. The Company expects to finance all
capital expenditure requirements through cash flows generated from operations.
Year 2000 Compliance:
The "Year 2000" issue refers to computer systems and other equipment operating
on software that uses only two digits to represent the year, rather than four
digits. As a result, these systems and equipment may not process information or
otherwise function properly when using the year "2000", since that year will be
indistinguishable from the year "1900".
The Company initiated a Year 2000 program to assess and develop plans to resolve
the issue both internally and externally. During 1997, the Company began
developing a plan to upgrade its business and operating systems to Year 2000
compliant software. Implementation of the upgrade began in 1998 with the initial
testing of the system on a limited basis prior to converting all of the
Company's locations. As of May 1998, the Company had substantially completed
implementation and testing of substantially all of its business and operating
systems at all of the Company's facilities.
The Company has surveyed its major suppliers, financial institutions, and
certain others with whom it does business to determine their Year 2000 readiness
and coordinate conversion efforts. Approximately 95% of the third party
suppliers surveyed have responded to the Company's surveys. At the current time,
respondents the Company considers critical to the operations of the Company have
indicated that they are, or reasonably believe that they will be, Year 2000
compliant. If a material risk arises, the Company is prepared to implement
procedures that will resolve the issues associated with the risks. Additionally,
the Company has established programs to ensure that future purchases of
equipment and software are Year 2000 compliant.
-13-
<PAGE>
MET-PRO CORPORATION MET-PRO CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations continued...
While reasonable actions have been taken to address the Year 2000 problem and
will continue to be taken in the future to mitigate such disruption, the
magnitude of all Year 2000 disturbances cannot be predicted. Management believes
that past or expected future capital requirements related to Year 2000
compliance issues will not have a material impact on the Company's consolidated
financial position or results of operations.
The information above contains forward-looking statements including, without
limitation, statements relating to the Company's plans, strategies, objectives,
expectations, intentions, and adequate resources that are made pursuant to the
"Safe Harbor" provisions of the Private Securities Litigation Reform Act of
1995. Readers are cautioned that forward-looking statements about the Year 2000
should be read in conjunction with the Company's disclosures under the heading:
Cautionary Statement Regarding Forward Looking Statements.
Cautionary Statement Regarding Forward Looking Statements:
As a cautionary note to investors, the Company and its representatives may make
oral or written statements from time to time that are "forward-looking
statements". This would include information concerning possible or assumed
future activities, plans, results of operations of the Company and statements
preceded by, followed by or that include the words "anticipates", "believes",
"designed to", "estimates", "expects", "foreseeable future", "goal", "intends",
"projects", "projection", "plans", "scheduled", "should" or similar expressions.
For those statements, the Company claims the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
There are a number of important factors which could cause actual results to
differ materially from those anticipated. The Company believes that its future
operating results will continue to be subject to quarterly variations based upon
a wide variety of factors including the cyclical nature of both the business
segments and the markets addressed by the Company's products, price erosion,
competitive factors, the timing of new product introductions, changes in product
mix, the availability and extent of utilization of manufacturing capacity,
product obsolescence, the effectiveness of the Company's cost control programs,
the availability of suitable acquisition opportunities and the ability to
develop and implement new technologies. The Company's operating results could
also be impacted by sudden fluctuations in customer requirements, currency
exchange rate fluctuations and other economic conditions affecting customer
demand and the cost of operations in one or more of the global markets in which
the Company does business. As a participant in the pollution control and fluid
handling industries, the Company operates in a rapidly changing and highly
competitive environment. The Company sells both custom and industrial products;
accordingly, changes in the conditions or composition of any of the Company's
customers may have an impact on the Company. While the Company cannot predict
what effect these various factors may have on its financial results, the
aggregate effect of these and other factors could result in volatility in the
Company's future performance and stock price.
-14-
<PAGE>
MET-PRO CORPORATION
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submissions of Matters to a Vote of Security Holders.
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form S-K
(a) Exhibits Required by Item 601 of Regulation S-K
None
(b) Reports on Form 8-K
There were no reports filed for the nine-month period ended October
31, 1999.
-15-
<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 1, 1999 /s/ William L. Kacin
-------------------------------------------
William L. Kacin,
Chairman, President and
Chief Executive Officer
December 1, 1999 /s/ Gary J. Morgan
-------------------------------------------
Gary J. Morgan,
Vice President of Finance,
Secretary and Treasurer, Chief
Financial Officer, Chief Accounting Officer
and Director
-16-
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