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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, 2002 Commission file number 001-07763
MET-PRO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 23-1683282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
160 Cassell Road, P. O. Box 144
Harleysville, Pennsylvania 19438
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 723-6751
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, par value $0.10 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.10 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. X
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The number of shares outstanding of the Registrant's Common Stock was
6,086,608 as of April 25, 2002. The aggregate market value of the voting stock
held by non-affiliates of the Registrant was $92,212,111 as of April 25, 2002.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Part Number
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Portions of Registrant's Definitive Proxy Statement filed pursuant
to Regulation 14A in connection with Registrant's Annual Meeting of
Stockholders to be held on June 12, 2002.................................III
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INDEX
Page
PART I
Item 1. Business................................................................................................. 1
Item 2. Properties............................................................................................... 7
Item 3. Legal Proceedings........................................................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 8
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 9
Item 6. Selected Financial Data.................................................................................. 10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 11
Item 7A. Quantitative and Qualitative Disclosure About Market Risks............................................... 15
Item 8. Financial Statements and Supplementary Data.............................................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 34
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................... 34
Item 11. Executive Compensation................................................................................... 34
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 34
Item 13. Certain Relationships and Related Transactions........................................................... 34
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 35
SIGNATURES................................................................................................................. 38
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Met-Pro's prospects are subject to certain uncertainties and risks. This Annual
Report on Form 10-K also contains certain forward-looking statements within the
meaning of the Federal securities laws. Met-Pro's future results may differ
materially from its current results and actual results could differ materially
from those projected in the forward-looking statements as a result of certain
risk factors. Readers should pay particular attention to the considerations
described in the section of this report entitled "Management's Discussion and
Analysis of Financial Condition and Results of Operation - Factors that May
Affect Future Results." Readers should also carefully review the risk factors
described in the other documents Met-Pro files from time to time with the
Securities and Exchange Commission.
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PART I
Item 1. Business:
General:
Met-Pro Corporation ("Met-Pro" or the "Company"), incorporated in the State
of Delaware on March 30, 1966, manufactures and sells product recovery/pollution
control equipment for purification of air and liquids, and fluid handling
equipment for corrosive, abrasive and high temperature liquids. The Company,
which operates through ten divisions and three wholly-owned subsidiaries,
markets and sells 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
Company was taken public on April 6, 1967 and traded on the American Stock
Exchange from July 25, 1978 until June 18, 1998, at which time the Company's
Common Stock began trading on the New York Stock Exchange. The Company's
principal executive offices are located at 160 Cassell Road, Harleysville,
Pennsylvania and the telephone number at that location is (215) 723-6751. Except
where otherwise indicated by the context used herein, references to the
"Company" means Met-Pro Corporation, its divisions and its wholly-owned
subsidiaries.
Products, Services and Markets:
The Company operates in two segments, the Product Recovery/Pollution
Control Equipment Segment and the Fluid Handling Equipment Segment. For
financial information concerning the Company's industry segments, reference is
made to "Consolidated Business Segment Data" contained within the Company's
Consolidated Financial Statements that form a part of this Report on Form 10-K.
A narrative description of the Company's operations within these two segments is
as follows:
Product Recovery/Pollution Control Equipment Segment
This segment is composed of the following six divisions and/or subsidiaries
of the Company: Flex-Kleen Division; Stiles-Kem Division; Sethco Division;
Strobic Air Corporation; Duall Division; and Systems Division.
Flex-Kleen Division, located in Itasca, Illinois, operating with the
Company's wholly-owned subsidiary, Flex-Kleen Canada Inc., is a leading supplier
of product recovery and dry particulate collectors that are used primarily in
the process of manufacturing food products and pharmaceuticals. While some of
Flex-Kleen's products are also used for nuisance collection of particulates to
conform to environmental concerns, the overwhelming portion of its sales
activity is for product collection and is process driven. At present,
Flex-Kleen's products are sold through 77 manufacturer's representatives in 37
offices located across the United States and 12 manufacturer's representatives
located in four offices throughout Canada.
Stiles-Kem Division, located in Waukegan, Illinois, is a leading manufacturer of
safe and reliable water treatment compounds which have been used in the public
drinking water industry for 47 years. Stiles-Kem products are designed to
eliminate problems created by high iron and manganese levels in municipal water
systems and to reduce scaling and general corrosion tendencies within water
distribution piping systems. These food grade products are NSF/ANSI approved for
health considerations in municipal drinking water supplies and are certified to
meet existing state and federal guidelines. The products are sold both directly
through regional sales representatives and through a network of distributors
located in the United States and Canada.
1
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's products are sold through a network of non-exclusive
distributors, as well as to catalog houses and original equipment manufacturers.
Our products are sold internationally through Met-Pro's International Division
and our Mefiag B.V. subsidiary.
Strobic Air Corporation, located in Harleysville, Pennsylvania, designs,
manufactures and holds patents on specialty blowers and industrial fans for
industrial applications including university laboratories, hospitals,
semiconductor manufacturers, government laboratories, pharmaceutical, chemical,
petrochemical plants and other testing laboratory facilities. Sales, engineering
and customer service are provided through a network of 225 manufacturer's
representatives located throughout the United States and Canada.
Duall Division, located in Owosso, Michigan, is a leading manufacturer of
industrial and municipal air and water quality control systems. The Division's
major products include odor control systems, fume and emergency gas scrubbers,
particulate collectors, air strippers, ducting and exhaust fans. All equipment
is fabricated from corrosion resistant materials. Duall's support services
include pilot studies, engineering, installation and performance testing. Duall
products are sold both domestically and internationally to the metal finishing,
wastewater treatment, composting, food processing, chemical, printed circuit,
semiconductor, steel pickling, pharmaceutical, battery manufacturing and
groundwater remediation markets. At present, 90 factory trained manufacturer's
representatives sell Duall's engineered systems to industrial and municipal
clients.
Systems Division, located in Kulpsville, Pennsylvania, is a leader in the
supply of custom designed and manufactured air and water pollution control
equipment. Systems Division's air pollution control capabilities include: carbon
adsorption systems for the concentration and recovery of volatile solvents,
thermal and catalytic oxidation systems and the supply of abatement catalysts.
These systems are custom engineered for clients in the automotive, aerospace and
furniture industries. Additional applications include painting, pharmaceutical,
chemical, electronics, food processing and printing industries. Systems Division
also offers a full range of catalyst products for the oxidation of pollutants,
which include catalysts for the oxidation of chlorinated solvents, low
temperature oxidation catalysts and a catalyst specially designed for
regenerative catalytic oxidizer applications.
Fluid Handling Equipment Segment
This segment is composed of the following four divisions and/or
subsidiaries of the Company: Mefiag; Keystone Filter Division; Dean Pump
Division; and Fybroc Division.
Mefiag(R), operating with the Company's wholly-owned subsidiary, Mefiag
B.V., located in Heerenveen, Holland, and the Mefiag Division, located in
Harleysville, Pennsylvania, designs and manufactures filter systems utilizing
horizontal disc technology for superior performance, particularly in high
efficiency and high-flow applications. Mefiag(R) filters are used in tough,
corrosive applications in the plating, metal finishing and printing industries.
Worldwide sales are accomplished through qualified, market-based distributors
and original equipment manufacturers located throughout Europe, United States,
Asia and other major markets throughout the world.
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 a diversity of applications such as the nuclear power industry,
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.
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 worldwide through an extensive network of
distributors.
2
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, seawater and a wide variety of
waste liquids. Fybroc's second generation epoxy resin, EY-2, allows the Company
to offer the first corrosion resistant and high temperature FRP thermoset pumps
suitable for solvent applications. The EY-2 material also expands Fybroc's
pumping capabilities to include certain acid applications such as high
concentration sulfuric acid (75-98%). During the year, Fybroc continued to
expand the FRP centrifugal magnetic drive pump line which now offers five sizes
available in both our standard vinyl ester resin and our EY-2 epoxy resin. We
have also added three additional sizes to the metric version of this pump in
order to attract and expand our international product coverage. Fybroc pumps are
sold to many markets including the chemical, steel, pulp and paper, electric
utility, aquaculture, aquarium, and industrial and municipal waste treatment
industries. Fybroc's EY-2 material is expected to allow it to enter new markets
such as pharmaceutical, petrochemical, fertilizer and pesticides. A worldwide
distributor network provides sales, engineering and customer service.
The 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,
2002 2001 2000
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United States 84.3% 79.5% 83.7%
Foreign 15.7% 20.5% 16.3%
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Net Sales 100.0% 100.0% 100.0%
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Customers:
During each of the past three fiscal years, no single customer accounted
for 10% or more of the total net sales of the Company in any year. The Company
does not believe that it would be materially adversely affected by the loss of
any single customer.
Seasonality:
The Company does not consider its business to be seasonal in nature.
Competition:
The Company experiences competition from a variety of sources with respect
to virtually all of its products. The Company knows of no single entity that
competes with it across the full range of its products and systems. The lines of
business in which the Company is engaged are highly competitive. Competition in
the markets served is based on a number of considerations, which may include
price, technology, applications experience, know-how, reputation, product
warranties, service and distribution.
With respect to the Fluid Handling Equipment segment, specifically the pump
manufacturing operations, several companies, including Ingersoll-Dresser Pumps
Co. (a subsidiary of Flowserve Corporation), Goulds Industrial Pumps, Inc. (a
subsidiary of ITT Industries), and Durco Pumps, Inc. (a subsidiary of Flowserve
Corporation), dominate the industry with several smaller companies, including
Met-Pro, competing in selected product lines and niche markets.
With respect to the Product Recovery/Pollution Control Equipment segment,
there are numerous competitors of both comparable and larger size which may have
greater resources than the Company, but there are no companies that dominate the
market.
The Company is unable to state with certainty its relative market position
in all aspects of its businesses.
3
Research and Development:
The Company engages in research and development on an operational basis.
Due to the wide range of the Company's products, the research and development
effort is not centralized. Research is directed towards the development of new
products related to current product lines, and the improvement and enhancement
of existing products.
The principal goals of the Company's research programs are maintaining the
Company's technological capabilities in the production of product
recovery/pollution control equipment, and fluid handling equipment; developing
new products; and providing technological support to the manufacturing
operations.
Research and development expenses were $1.0 million, $0.8 million and $0.8
million for each of the years ended January 31, 2002, 2001 and 2000,
respectively.
Patents and Trademarks:
The Company has a small number of patents and trademarks. The Company
considers these rights important to its business, although it considers no
individual right material to its business.
Regulatory Matters:
The Company is subject to environmental laws and regulations concerning air
emissions, discharges to water processing facilities, and the generation,
handling, storage and disposal of waste materials in all operations. All of the
Company's production and manufacturing facilities are controlled under permits
issued by federal, state and local regulatory agencies. The Company believes it
is presently in compliance in all material respects with these laws and
regulations. To date, compliance with federal, state and local provisions
relating to protection of the environment has had no material effect upon
capital expenditures, earnings or the competitive position of the Company.
Backlog:
Generally, the Company's customers do not enter into long-term contracts,
but rather issue purchase orders that are accepted by the Company. The rate of
booking new orders varies from month to month. In addition, the orders have
varying delivery schedules, and the Company's backlog as of any particular date
may not be representative of actual revenues for any succeeding period. The
dollar amount of the Company's backlog of orders, considered to be firm, totaled
$9,931,016 and $9,529,541 as of January 31, 2002 and 2001, respectively. This
does not include an additional $4,319,024 and $5,469,863 of orders in-house as
of January 31, 2002 and 2001, respectively, which, according to our longstanding
policy, are not included in the backlog until completed drawings have been
approved. The Company expects that substantially all of the backlog that existed
as of January 31, 2002 will be shipped during the ensuing fiscal year.
Raw Materials:
The Company procures its raw materials and supplies from various sources.
The Company believes it could secure substitutes for the raw materials and
supplies should they become unavailable, but there are no assurances that the
substitutes would perform as well or be priced competitively. The Company has
not experienced any significant difficulty in securing raw materials and
supplies, and does not anticipate any significant difficulty in procurement in
the coming year or foreseeable future.
Employees:
As of January 31, 2002, the Company employed 361 people, of whom 140 were
involved in manufacturing, and 221 were engaged in administration, sales,
engineering, supervision and clerical work. The Company has had no work
stoppages during the past 20 years and considers its employee relations to be
good.
4
Foreign Operations:
Most of the Company's operations and assets are located in the United
States. The Company also owns a manufacturing operation in Heerenveen, Holland
through its wholly-owned subsidiary, Mefiag B.V., and operates a sales office
and warehouse in Markham, Ontario, Canada through its wholly-owned subsidiary,
Flex-Kleen Canada Inc.
Large export sales are typically made on the basis of confirmed irrevocable
letters of credit or time drafts to selected customers in U.S. dollars. The
Company believes that currency fluctuation and political and economic
instability do not constitute substantial risks to its business.
For information concerning foreign net sales on a segment basis, reference
is made to the Consolidated Business Segment Data contained on page 22.
5
Executive Officers of the Company:
The following table sets forth certain information regarding the Executive
Officers of the Company:
William L. Kacin, age 70, is Chairman of the Board of Directors, Chief
Executive Officer and President of the Company. He was elected Chairman of the
Board of Directors in June 1999 and Chief Executive Officer, President and
Director in February 1993. Prior to that, he was Vice President and General
Manager of the Company's Sethco Division for seventeen years.
Raymond J. De Hont, age 48, is Chief Operating Officer of the Company, to
which office he was elected in June 2000. Mr. De Hont served as Vice President
and General Manager of the Company's Fybroc Division from 1995 to June 2000. In
October 1999, he also assumed the responsibilities of General Manager for the
Company's Dean Pump Division. Prior to joining Met-Pro Corporation, Mr. De
Hont's management positions at Air and Water Technologies included Vice
President and General Manager of Flex-Kleen Corporation, which is now a division
of Met-Pro Corporation.
Gary J. Morgan, CPA, age 47, is Vice President-Finance, Chief Financial
Officer, Secretary, Treasurer and a Director of the Company. He was elected Vice
President-Finance, Chief Financial Officer, Secretary and Treasurer in October
1997, and a Director of the Company in February 1998. Mr. Morgan joined the
Company in 1980 and served as the Company's Corporate Controller immediately
prior to October 1997.
Mark A. Betchaver, age 52, is Vice President of the Company and General
Manager of the Sethco Division, to which office he was elected in June 1993. He
joined the Company in 1972.
James G. Board, age 48, is Vice President and General Manager of the
Company's Dean Pump and Fybroc Divisions, to which office he was elected in
December 2000. For more than five years prior thereto, Mr. Board was employed by
Tuthill Energy Systems since September 1997, as Director of Sales and prior to
joining Tuthill Energy Systems held the position as Salesman for Oliver and
Laughten Equipment Company, Inc. since September 1982.
Thomas V. Edwards, age 48, is Vice President of the Company and General
Manager of the Systems Division, to which office he was elected in December
1998. Mr. Edwards joined the Company in June 1995 and prior to his present
position, held the position of Assistant to the President. For more than five
years prior thereto, Mr. Edwards was employed by Lockheed Martin as Engineering
Manager.
Sonja M. Haggert, age 48, is Vice President of the Company and General
Manager of the Keystone Filter Division, to which office she was elected in
February 1993. She joined the Company in 1978, and prior to her present
position, held the position of Distributor Sales Manager of the Division.
Hans J. D. Huizinga, age 51, is the Managing Director of Mefiag B.V., a
wholly-owned subsidiary of the Company, located in Heerenveen, Holland, an
office to which he was elected in August 1993. He was employed by Mefiag B.V.
for over five years as Managing Director for the predecessor of Mefiag B.V.
prior to becoming an employee of the Company's subsidiary on June 30, 1993, when
we acquired that company.
Gregory C. Kimmer, age 47, is Vice President of the Company 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 48, is Vice President of the Company and General
Manager of the Stiles-Kem Division, to which office he was elected in October
1996. He joined the Company in June 1995 as National Sales Manager. For more
than five years prior thereto, Mr. Mersch was employed by ANCO Corporation, in
which his last position was Vice President Sales and Marketing.
Robert P. Replogle, age 61, is Vice President of the Company and Director
of the International Sales Division and the Mefiag Division, to which offices he
was elected in December 1995. He joined the Company in December 1973 and prior
to his present position, held the position of Director of the International
Sales Division and the Mefiag Division.
Paul A. Tetley, age 43, is Vice President of the Company and General
Manager of Strobic Air Corporation, to which office he was elected in December
1999. Mr. Tetley joined the Company in 1996 in connection with the Company's
acquisition of Strobic Air Corporation and prior to his present position held
the position of Director of Operations. For more than five years prior thereto,
Mr. Tetley was employed by the predecessor entity as a Plant Manager.
Richard J. Wilmoth, age 55, is Vice President of the Company and General
Manager of the Flex-Kleen Division, to which office he was elected in April
2001. For more than five years prior thereto, Mr. Wilmoth was employed by UOP
LLC, as Managing Director of the UOP Asia joint venture.
There are no family relationships between any of the Directors or Executive
Officers of the Company. Each officer serves at the pleasure of the Board of
Directors.
6
Item 2. Properties:
The following manufacturing and production facilities were owned or leased
by the Company at January 31, 2002:
Name Structure Property/Location Status
Executive Offices, 73,000 square feet, cement 17 acres in Harleysville, Owned
International Division, building, with finestone facing, Pennsylvania
Mefiag Division and built 1976
Strobic Air Corporation
Sethco Division 30,000 square feet, cement 4 acres in Hauppauge, Owned
block with brick facing Long Island, New York
built 1982
Fybroc Division 47,500 square feet, cement 8 acres in Telford, Owned
building with brick facing, Pennsylvania
built 1991
Keystone Filter Division 31,000 square feet, cement 2.3 acres in Hatfield, Owned
block, built 1978 Pennsylvania
Systems Division 3,375 square feet, Kulpsville, Pennsylvania Leased(1)
brick building
Dean Pump Division 66,000 square feet, metal 17.1 acres in Owned
building Indianapolis, Indiana
Duall Division 63,000 square feet, metal 7 acres in Owosso, Owned
and masonry building Michigan
Stiles-Kem Division 22,000 square feet, cement 2.55 acres in Owned
block building, built 1996 Waukegan, Illinois
Flex-Kleen Division 13,760 square feet, brick Itasca, Illinois Leased(2)
building
37,320 square feet, metal Sharpsburg, North Carolina Leased(3)
building
Mefiag B.V. 17,200 square feet, metal 1.1 acres in Owned
and masonry building Heerenveen, Holland
Vacant land 3 acres in Heerenveen, Holland Owned
Flex-Kleen Canada Inc. 5,880 square feet, masonry Markham, Ontario, Canada Leased(4)
building
(1) Systems Division's lease for the Sales and Engineering facility in
Kulpsville, Pennsylvania expires on February 9, 2003. The term of this
lease may be extended by Systems Division for two one (1) year periods.
(2) Flex-Kleen Division's lease for the operation in Itasca, Illinois expires
on November 30, 2002. The term of this lease may be renewed by Flex-Kleen
Division for an additional five year period.
(3) Flex-Kleen Division's lease for the warehouse in Sharpsburg, North Carolina
expires on October 29, 2003.
(4) Flex-Kleen Canada Inc.'s lease for the sales and warehouse facility in
Markham, Ontario, Canada expires on March 31, 2003.
7
Item 3. Legal Proceedings:
There are no material pending legal proceedings to which the Company 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, 2002.
8
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters:
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "MPR". The high and low selling prices of the Common Stock for each
quarterly period for the last two fiscal years, as reported on the New York
Stock Exchange, are shown below.
Quarter ended
Year ended January 31, 2002 April July October January
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Price range of common stock:
High $13.17 $15.25 $14.08 $13.44
Low 11.00 12.65 9.90 11.17
Cash dividend paid .085 .085 .085 .085
Year ended January 31, 2001 April July October January
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Price range of common stock:
High $10.19 $10.63 $10.45 $11.72
Low 8.75 8.38 9.56 9.75
Cash dividend paid .08 .08 .08 .08
There were 727 registered stockholders at January 31, 2002, and the Company
estimates that there are approximately 2,000 additional stockholders with stock
held in street name.
The Board of Directors declared quarterly dividends of $.085 per share
payable on March 9, 2001, June 8, 2001, September 10, 2001 and December 10, 2001
to stockholders of record as of February 23, 2001, May 25, 2001, August 31, 2001
and November 30, 2001.
During the third quarter of fiscal year ended 2002, the Company completed
the purchase of 350,000 shares of its Common Stock, which was authorized under a
stock buyback program approved by the Board of Directors on February 21, 2000.
On December 15, 2000, the Board of Directors authorized an additional
300,000 share stock buyback program after the balance of the shares remaining
from the Company's February 21, 2000 stock buyback program are purchased. The
Company repurchased an aggregate of 145,590 shares under the combined stock
buyback programs during the year ended January 31, 2002.
9
Item 6. Selected Financial Data:
Years ended January 31,
2002 2001 2000 1999 1998
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Selected Operating Statement Data
Net sales $70,088,446 $81,203,550 $78,449,992 $67,390,488 $62,387,870
Income from operations 9,451,925 12,513,886 11,410,679 11,199,867 11,021,314
Net income 6,189,317 7,773,720 7,072,642 7,151,052 7,116,481
EBITDA (a) 11,497,932 14,736,541 13,826,535 13,287,878 12,851,944
Earnings per share, basic 1.01 1.26 1.08 1.04 1.01
Earnings per share, diluted 1.01 1.26 1.08 1.03 1.00
Selected Balance Sheet Data
Current assets $37,411,679 $37,412,259 $35,722,971 $38,683,453 $36,067,260
Current liabilities 9,598,600 12,957,995 13,681,578 14,387,868 11,267,545
Working capital 27,813,079 24,454,264 22,041,393 24,295,585 24,799,715
Current ratio 3.9 2.9 2.6 2.7 3.2
Total assets 68,070,192 69,151,341 68,641,983 72,888,641 57,984,240
Long-term obligations 7,125,195 8,100,000 9,933,014 11,941,954 2,242,047
Total stockholders' equity 50,279,394 47,061,366 44,206,333 45,925,107 43,840,829
Total capitalization 57,404,589 55,161,366 54,139,347 57,867,061 46,082,876
Return on average total assets, % 9.0 11.3 10.0 10.9 12.5
Return on average stockholders' equity, % 12.7 17.0 15.7 15.9 16.9
Other Financial Data
Net cash flows from operating activities $8,301,567 $10,047,845 $10,204,749 $7,990,115 $7,351,850
Capital expenditures 1,631,356 1,023,682 1,193,559 1,191,616 1,356,065
Stockholders' equity per share 8.27 7.73 6.92 6.76 6.27
Cash dividends paid per share (b) .34 .32 .48 .30 .27
Average common shares, basic 6,109,141 6,152,325 6,542,210 6,907,654 7,053,071
Average common shares, diluted 6,143,837 6,173,437 6,576,820 6,955,892 7,144,931
Shares of common stock outstanding 6,083,172 6,090,155 6,391,242 6,794,898 6,993,473
==============================================================================================================================
(a) EBITDA represents income from operations before taxes, interest expense,
interest income, and depreciation and amortization expenses.
(b) Fiscal year ended January 31, 2000 included an annual dividend of $.32 per
share payable on April 23, 1999 and quarterly dividends of $.08 per share
payable on September 10, 1999 and December 10, 1999, resulting from the
Company's change from an annual to a quarterly dividend.
10
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 together with "Factors that May Affect Future Results" elsewhere in
this Management's Discussion and Analysis of Financial Condition and Result of
Operations.
Results of Operations:
The following table sets forth for the periods indicated the percentage of
total net sales that such items represent in the Consolidated Statement of
Operations.
Years ended January 31,
2002 2001 2000
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Net sales 100.0% 100.0% 100.0%
Cost of goods sold 65.7% 65.6% 65.8%
- -------------------------------------------------------------------------------------------------------
Gross profit 34.3% 34.4% 34.2%
Selling, general and administrative expense 20.8% 19.0% 19.6%
- -------------------------------------------------------------------------------------------------------
Income from operations 13.5% 15.4% 14.6%
Interest expense (.8%) (.8%) (1.1%)
Other income, net 1.2% .6% .6%
- -------------------------------------------------------------------------------------------------------
Income before taxes 13.9% 15.2% 14.1%
Provision for taxes 5.1% 5.6% 5.1%
- -------------------------------------------------------------------------------------------------------
Net income 8.8% 9.6% 9.0%
=======================================================================================================
FYE 2002 vs FYE 2001:
Net sales for the fiscal year ended January 31, 2002 were $70.1 million
compared to $81.2 million for the fiscal year ended January 31, 2001, a decrease
of $11.1 million. Sales in the Product Recovery/Pollution Control Equipment
segment were $44.5 million, $7.2 million lower than the same period last year.
Sales in the Fluid Handling Equipment segment were $25.6 million, $4.0 million
lower compared to the fiscal year ended January 31, 2001. We believe that the
decreased demand in both business segments is attributed to a slowing economy.
Foreign sales decreased to $11.0 million for the fiscal year ended January
31, 2002, compared to $16.6 million for the same period last year. Foreign sales
decreased 25.4% in the Fluid Handling Equipment segment from the prior fiscal
year, and the Product Recovery/Pollution Control Equipment segment foreign sales
were 43.0% lower than the prior fiscal year due to lower demand for our fume and
odor control equipment.
Net income for the fiscal year ended January 31, 2002 was $6.2 million
compared to $7.8 million for the fiscal year ended January 31, 2001, a decrease
of $1.6 million. The decrease in net income is principally related to lower
sales in both business segments during the period.
The gross margin for the fiscal year ended January 31, 2002 decreased
slightly to 34.3% versus 34.4% for the prior year.
Selling expense was $7.0 million for the fiscal year ended January 31, 2002
or a slight decrease from the prior fiscal year. Selling expense as a percentage
of net sales was 10.0% compared to 8.7% for the prior fiscal year.
11
General and administrative expense was $7.6 million for the fiscal year
ended January 31, 2002 compared to $8.4 million for the same period last year.
General and administrative expense as a percentage of net sales was 10.8% for
the fiscal year ended January 31, 2002 compared to 10.3% for the prior fiscal
year. This reduction, in dollars, is related to the overall reduction in
compensation expense and amortization expenses for certain intangible assets
which are fully amortized.
Interest expense was $0.6 million for the fiscal year ended January 31,
2002 compared to $0.7 million in the prior fiscal year. During the fiscal year
ended January 31, 2002, the Company reduced its long-term debt by $1.7 million.
Other income totaling $0.9 million for the fiscal year ended January 31,
2002 consisted of interest income on short-term investments and a $0.5 million
gain on the sale of property and equipment. In September 2001, the Company sold
property and equipment associated with the Systems Division's operations in West
Chester, Pennsylvania resulting in the majority of this gain. These operations
were relocated to a leased facility in Kulpsville, Pennsylvania. Other income of
$0.5 million for the fiscal year ended January 31, 2001 consisted primarily of
interest income on short-term investments.
The effective tax rate decreased to 36.5% for the fiscal year ended January
31, 2002 from 37.0% for the prior year.
FYE 2001 vs FYE 2000:
Net sales for the fiscal year ended January 31, 2001 set a new record of
$81.2 million compared to $78.4 million for the fiscal year ended January 31,
2000, an increase of $2.8 million. This was the eighth consecutive year that net
sales achieved a new record. Sales in the Product Recovery/Pollution Control
Equipment segment decreased slightly to $51.7 million due primarily to decreased
demand for our product recovery and pollution control equipment. Sales in the
Fluid Handling Equipment segment were $29.6 million, 11.2% higher than the prior
fiscal year, due to an increased demand for our specialty pump equipment.
Foreign sales increased to $16.6 million for the fiscal year ended January
31, 2001, which is 30.4% higher than the prior year. This increase was due to
higher sales in Europe and Pacific Rim markets. Foreign sales increased 26.9% in
the Fluid Handling Equipment segment from the prior fiscal year, and the Product
Recovery/Pollution Control Equipment segment foreign sales were 34.7% higher
than the prior fiscal year due to higher demand for our fume and odor control
equipment.
Net income of $7.8 million for the fiscal year ended January 31, 2001 was
the highest in the Company's history, 9.9% higher than the earnings level of the
prior year.
The gross margin for the fiscal year ended January 31, 2001 increased to
34.4% versus 34.2% for the prior year. This increase can be attributed to higher
gross margins experienced in the Fluid Handling Equipment segment.
Selling expense was $7.0 million for the fiscal year ended January 31, 2001
or a slight decrease from the prior fiscal year. Selling expense as a percentage
of net sales was 8.7% compared to 9.1% for the prior fiscal year.
General and administrative expense was $8.4 million for the fiscal year
ended January 31, 2001 compared to $8.3 million in the prior fiscal year.
General and administrative expense as a percentage of net sales was 10.3% for
the fiscal year ended January 31, 2001 compared to 10.5% for the prior fiscal
year.
Interest expense was $0.7 million for the fiscal year ended January 31,
2001 compared to $0.8 million in the prior fiscal year. During the fiscal year
ended January 31, 2001, the Company reduced its long-term debt by $2.0 million.
Other income was $0.5 million for each of the fiscal years ended January
31, 2001 and 2000. Other income consisted primarily of interest income on
short-term investments in both years.
The effective tax rate increased to 37.0% for the fiscal year ended January
31, 2001 from 36.1% for the prior year.
12
Liquidity:
Cash and cash equivalents were $11.8 million on January 31, 2002, an
increase of $3.3 million over the previous year. This increase is the net result
of positive cash flows provided by operating activities of $8.3 million,
proceeds from the sale of property and equipment totalling $1.1 million and
proceeds from the exercise of stock options amounting to $1.1 million, offset by
the payment of cash dividends amounting to $1.9 million (net of $0.1 million of
dividends returned to the Company in the form of stock purchases under the
Company's Dividend Reinvestment Plan), payments of scheduled debt totaling $1.7
million, purchase of treasury stock amounting to $1.8 million and investment in
property and equipment amounting to $1.6 million.
Accounts receivable were $10.5 million at January 31, 2002, a decrease of
$3.7 million compared to the prior year. The size of orders, the timing of
shipments to meet customer requirements and retainage on contracts will
influence accounts receivable balances at any point in time.
Inventories totalled $13.7 million at January 31, 2002, an increase of $0.6
million compared to the prior year. Inventory balances will fluctuate depending
on the size and timing of orders and market demand, especially when major
systems and contracts are involved.
Current liabilities decreased from $13.0 million at January 31, 2001 to
$9.6 million at January 31, 2002, or $3.4 million. A reduction in accounts
payable and accrued expenses and the current portion of long-term debt, offset
by an increase in customer advances 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
totaling $5.0 million which are available for working capital purposes. As of
January 31, 2002 and January 31, 2001, working capital was $27.8 million and
$24.5 million, respectively, and the current ratio was 3.9 and 2.9,
respectively.
Capital Resources and Requirements:
Cash flows provided by operating activities during the fiscal year ended
January 31, 2002 amounted to $8.3 million compared to $10.0 million during the
prior fiscal year. This decrease in cash flows from operating activities was due
principally to the increase in inventories and a decrease in net income,
accounts payable and accrued expenses for the fiscal year ended January 31,
2002, offset by an increase in accounts receivable collections. Per share, our
cash flows from operating activities decreased to $1.35 per share compared to
$1.63 per share for the prior year.
Cash flows used in investing activities during the fiscal year ended
January 31, 2002 amounted to $0.5 million compared to $1.0 million during the
fiscal year ended January 31, 2001. The Company's investing activities for the
fiscal year ended January 31, 2002, principally represent the acquisition of
property, plant and equipment in both business segments offset by proceeds
received from the sale of property and equipment associated with the Systems
Division's operations in West Chester, Pennsylvania. 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 that we serve.
Financing activities during the fiscal year ended January 31, 2002 used
$4.4 million of available resources compared to $6.8 million during the prior
fiscal year. The 2002 activity is the result of the payment of quarterly cash
dividends amounting to $1.9 million (net of $0.1 million of dividends utilized
by stockholders for stock purchases under the Dividend Reinvestment Plan),
reduction of long-term debt totaling $1.7 million, and the purchase of treasury
stock totaling $1.8 million, offset by proceeds received by the exercise of
stock options amounting to $1.1 million.
The Company paid $1.7 million of scheduled debt during the current fiscal
year. The percentage of long-term debt to equity at January 31, 2002 decreased
to 14.2% compared to 17.2% at January 31, 2001.
During the fiscal year ended January 31, 2002, the Company continued to
repurchase shares outstanding on the open market at prevailing prices under the
350,000 share stock repurchase program authorized on February 21, 2000 which was
completed on September 19, 2001, following which the Company began to make
additional purchases under an additional 300,000 share stock repurchase program
authorized on December 15, 2000. For the fiscal year ended January 31, 2002, the
Company repurchased 145,590 shares, 49,091 shares under the plan effective
December 15, 2000 and 96,499 shares under the plan effective February 21, 2000,
at a cost of $1.8 million.
13
The Board of Directors declared dividends of $.085 per share payable on
March 9, 2001, June 8, 2001, September 10, 2001 and December 10, 2001 to
stockholders of record at the close of business on February 23, 2001, May 25,
2001, August 31, 2001 and November 30, 2001, respectively. On December 20, 2001,
the Board of Directors declared a quarterly dividend of $.085 per share, which
was paid on March 8, 2002 to stockholders of record at the close of business on
February 22, 2002.
As part of our commitment to the future, the Company expended $1.0 million
and $0.8 million on research and development for the fiscal years ended January
31, 2002 and 2001, respectively.
The Company will continue to invest in new product development to maintain
and enhance its competitive position in the markets in which we participate.
Capital expenditures will be made to support operations and expand our capacity
to meet market demands. The Company intends to finance capital expenditures in
the coming year through cash flows from operations and will secure third party
financing, when deemed appropriate.
Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets". SFAS
No. 141, which is effective for business combinations completed after June 30,
2001, requires among other things, that (1) the purchase method of accounting be
used for all business combinations, (2) specific criteria be established for the
recognition of intangible assets separately from goodwill and (3) additional
information about acquired intangible assets be provided. SFAS No. 142, which
will become effective for the Company prospectively as of February 1, 2002,
primarily addresses the accounting for goodwill and intangible assets subsequent
to their acquisition. Among other things, it requires that goodwill not be
amortized for financial statement purposes; instead, management will be required
to test goodwill for impairment at least annually. While the Company is still
analyzing the effect of SFAS No. 142 on the financial statements, a preliminary
estimate of the annual amortization of goodwill and indefinite-lived intangible
assets that will cease in the fiscal year ending January 31, 2003 is
approximately $0.5 million.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which excludes from the definition
of long-lived assets goodwill and other intangibles that are not amortized in
accordance with SFAS No. 142. SFAS No. 144 requires that long-lived assets to be
disposed of by sale be measured at the lower of carrying amount or fair value
less cost to sell, whether reported in continuing operations or in discontinued
operations. SFAS No. 144 also expands the reporting of discontinued operations
to include components of an entity that have been or will be disposed of rather
than limiting such discontinuance to a segment of a business. The provisions of
SFAS No. 144 are effective in fiscal years beginning after December 15, 2001,
with early adoption permitted and, in general, are to be applied prospectively.
The Company plans to adopt SFAS No. 144 effective February 1, 2002 and does not
expect that the adoption will have a material impact on its consolidated results
of operations and financial position.
Critical Accounting Policies and Estimates:
Management's discussion and analysis of its financial position and results
of operations are based upon the Company's consolidated financial statements,
which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue and expenses and related disclosure of
contingent assets and liabilities. The significant accounting policies which we
believe are the most critical to aid in fully understanding and evaluating our
reported financial results include the following:
The Company's revenues are recognized when products are shipped to
unaffiliated customers. The Securities and Exchange Commission's Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition", provides guidance on
the application of generally accepted accounting principles to selected revenue
recognition issues. The Company has concluded that its revenue recognition
policy is appropriate and in accordance with generally accepted accounting
principles and SAB No. 101.
Property, plant and equipment, intangible and certain other long-lived
assets are depreciated and amortized over their useful lives. Useful lives are
based on management's estimates of the period that the assets will generate
revenue. Intangible assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Costs in excess of net assets of businesses acquired (goodwill),
14
subsequent to October 31, 1970, totaling approximately $17.0 million are being
amortized over forty (40) years through January 31, 2002. Subsequent to January
31, 2002, goodwill will no longer be amortized; instead management will be
required to test for impairment of goodwill annually. A preliminary estimate of
the annual amortization of goodwill that will cease in the fiscal year ending
January 31, 2003 is approximately $.5 million.
The determination of our obligation and expense for pension benefits is
dependent on our selection of certain assumptions used by actuaries in
calculating such amounts. Those assumptions are described in Note 9 to the
consolidated financial statements and include, among other, the discount rate,
expected long-term rate of return on plan assets and rates of increase in
compensation. In accordance with generally accepted accounting principles,
actual results that differ from our assumptions are accumulated and amortized
over future periods and therefore, generally affect our recognized expense and
recorded obligation in such future periods. While we believe that our
assumptions are appropriate, significant differences in our actual experience or
significant changes in our assumptions may materially affect our pension
obligations and our future expense.
Factors that May Affect Future Results:
Met-Pro's prospects are subject to certain uncertainties and risk. This
Annual Report on Form 10-K also contains certain forward-looking statements
within the meaning of the Federal securities laws. Met-Pro's results may differ
materially from its current results and actual results could differ materially
from those suggested in the forward-looking statements as a result of certain
risk factors, including but not limited to those set forth below, other one time
events, other important factors disclosed previously and from time to time in
Met-Pro's other filings with the Securities and Exchange Commission.
The following important factors, along with those discussed elsewhere in
this Annual Report, could affect future results and could cause those results to
differ materially from those expressed in the forward-looking statements:
o materially adverse changes in economic conditions in the markets served by
us or in significant customers of ours;
o material changes in available technology;
o failure in execution of acquisition strategy;
o losses related to international sales;
o changes in our accounting rules promulgated by regulatory agencies,
including the SEC, which could result in an impact on earnings;
o unexpected results in our product development activities;
o changes in our existing management;
o failure to properly execute customer orders, including misspecifications,
design, engineering or production errors; and
o changes in federal or state laws.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks:
Not Applicable
15
Item 8. Financial Statements and Supplementary Data:
Index to Consolidated Financial Statements and Supplementary Data:
Page
Consolidated Financial Statements: ----
Independent Auditor's Report ............................................................................... 17
Consolidated Statement of Operations........................................................................ 18
Consolidated Balance Sheet.................................................................................. 19
Consolidated Statement of Cash Flows........................................................................ 20
Consolidated Statement of Stockholders' Equity.............................................................. 21
Consolidated Business Segment Data ......................................................................... 22
Notes to Consolidated Financial Statements ................................................................. 23
Supplementary Data:
Quarterly Financial Data ................................................................................... 34
16
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
Met-Pro Corporation
Harleysville, Pennsylvania
We have audited the accompanying consolidated balance sheet of Met-Pro
Corporation and its wholly-owned subsidiaries as of January 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 2002.
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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2002 in conformity with accounting principles
generally accepted in the United States of America.
/s/ Margolis & Company P.C.
---------------------------
Bala Cynwyd, Pennsylvania
February 21, 2002
17
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended January 31,
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------------------------------
Net sales $70,088,446 $81,203,550 $78,449,992
Cost of goods sold 46,060,214 53,242,396 51,645,593
- -----------------------------------------------------------------------------------------------------------------------------------
Gross profit 24,028,232 27,961,154 26,804,399
- -----------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Selling 6,998,234 7,043,540 7,128,258
General and administrative 7,578,073 8,403,728 8,265,462
- -----------------------------------------------------------------------------------------------------------------------------------
14,576,307 15,447,268 15,393,720
- -----------------------------------------------------------------------------------------------------------------------------------
Income from operations 9,451,925 12,513,886 11,410,679
Interest expense (557,855) (694,112) (815,805)
Other income, net 852,885 524,729 471,008
- -----------------------------------------------------------------------------------------------------------------------------------
Income before taxes 9,746,955 12,344,503 11,065,882
Provision for taxes 3,557,638 4,570,783 3,993,240
- -----------------------------------------------------------------------------------------------------------------------------------
Net income $6,189,317 $7,773,720 $7,072,642
===================================================================================================================================
Earnings per share
Basic $1.01 $1.26 $1.08
Diluted $1.01 $1.26 $1.08
===================================================================================================================================
Average number of common and
common equivalent shares outstanding
Basic 6,109,141 6,152,325 6,542,210
Diluted 6,143,837 6,173,437 6,576,820
===================================================================================================================================
The notes to consolidated financial statements are an integral part of the above
statement.
18
MET-PRO CORPORATION
CONSOLIDATED BALANCE SHEET
January 31,
ASSETS 2001 2000
- --------------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $11,832,260 $8,510,045
Accounts receivable, net of allowance for
doubtful accounts of approximately
$229,000 and $218,000, respectively 10,465,069 14,208,689
Inventories 13,701,676 13,085,969
Prepaid expenses, deposits and other current assets 911,457 958,722
Deferred income taxes 501,217 648,834
- --------------------------------------------------------------------------------------------------------------
Total current assets 37,411,679 37,412,259
Property, plant and equipment, net 12,505,114 13,009,247
Costs in excess of net assets of businesses acquired, net 17,780,767 18,276,472
Other assets 372,632 453,363
- --------------------------------------------------------------------------------------------------------------
Total assets $68,070,192 $69,151,341
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $1,231,469 $1,833,014
Accounts payable 3,094,300 4,284,687
Accrued salaries, wages and expenses 4,003,382 5,704,372
Payroll and other taxes payable 2,645 8,808
Dividend payable 517,070 517,669
Customers' advances 749,734 609,445
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 9,598,600 12,957,995
Long-term debt 7,125,195 8,100,000
Other non-current liabilities 586,973 499,395
Deferred income taxes 480,030 532,585
- --------------------------------------------------------------------------------------------------------------
Total liabilities 17,790,798 22,089,975
- --------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity
Common stock, $.10 par value; 18,000,000 shares
authorized, 7,219,165 and 7,206,583 shares issued,
of which 1,135,993 and 1,116,428 shares were reacquired
and held in treasury, at the respective dates 721,916 720,658
Additional paid-in capital 7,879,368 8,139,799
Retained earnings 55,990,079 51,880,800
Accumulated other comprehensive loss (827,737) (491,163)
Treasury stock, at cost (13,484,232) (13,188,728)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 50,279,394 47,061,366
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $68,070,192 $69,151,341
==============================================================================================================
The notes to consolidated financial statements are an integral part of the above
statement.
19
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended January 31,
2002 2001 2000
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net income $6,189,317 $7,773,720 $7,072,642
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,046,007 2,222,655 2,415,856
Deferred income taxes 155,419 256,998 266,073
(Gain) loss on sales of property and equipment, net (472,895) 12,656 (1,096)
Allowance for doubtful accounts 10,721 (6,576) (36,524)
(Increase) decrease in operating assets,
net of acquisitions
Accounts receivable 3,658,676 (515,006) 681,168
Inventories (687,317) 631,810 1,131,608
Prepaid expenses and other current assets 115,808 92,357 (320,752)
Other assets (8,092) (52,309) (24,187)
Increase (decrease) in operating liabilities,
net of acquisitions
Accounts payable, accrued expenses and taxes (2,933,944) (181,137) (918,189)
Customers' advances 140,289 (270,987) (148,743)
Other non-current liabilities 87,578 83,664 86,893
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 8,301,567 10,047,845 10,204,749
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sales of property and equipment 1,095,456 2,000 14,690
Acquisitions of property and equipment (1,631,356) (1,023,682) (1,193,559)
Payment for purchase of acquisitions,
net of cash acquired - - (7,281)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (535,900) (1,021,682) (1,186,150)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Reduction of debt (1,741,711) (2,008,940) (2,125,093)
Exercise of stock options 1,092,253 - 15,000
Payment of dividends (1,934,132) (1,806,361) (2,694,860)
Purchase of treasury shares (1,793,435) (3,018,786) (5,281,367)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (4,377,025) (6,834,087) (10,086,320)
- -----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (66,427) (13,587) (47,092)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 3,322,215 2,178,489 (1,114,813)
Cash and cash equivalents at beginning of year 8,510,045 6,331,556 7,446,369
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $11,832,260 $8,510,045 $6,331,556
===========================================================================================================
The notes to consolidated financial statements are an integral part of the above
statement.
20
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income/(Loss) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1999 $713,862 $7,508,748 $42,718,355 ($85,103) ($4,930,755) $45,925,107
Comprehensive income:
Net income - - 7,072,642 - -
Cumulative translation adjustment - - - (318,890) -
Total comprehensive income 6,753,752
Dividends paid, $.48 per share - - (3,192,222) - - (3,192,222)
Dividend declared, $.08 per share - - (511,299) - - (511,299)
Proceeds from issuance of common
stock under dividend reinvestment
plan (50,569 shares) 5,057 492,305 - - - 497,362
Stock option transactions - (27,180) - - 42,180 15,000
Purchase of 457,225 shares of
treasury stock - - - - (5,281,367) (5,281,367)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 2000 718,919 7,973,873 46,087,476 (403,993) (10,169,942) 44,206,333
Comprehensive income:
Net income - - 7,773,720 - -
Cumulative translation adjustment - - - (87,170) -
Total comprehensive income 7,686,550
Dividends paid, $.32 per share - - (1,462,727) - - (1,462,727)
Dividend declared, $.085 per share - - (517,669) - - (517,669)
Proceeds from issuance of common
stock under dividend reinvestment
plan (17,389 shares) 1,739 165,926 - - - 167,665
Purchase of 318,476 shares of
treasury stock - - - - (3,018,786) (3,018,786)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 2001 720,658 8,139,799 51,880,800 (491,163) (13,188,728) 47,061,366
Comprehensive income:
Net income - - 6,189,317 - -
Cumulative translation adjustment - - - (231,570) -
Interest rate swap, net of tax of $60,357 - - - (105,004) -
Total comprehensive income 5,852,743
Dividends paid, $.34 per share - - (1,562,968) - - (1,562,968)
Dividend declared, $.085 per share - - (517,070) - - (517,070)
Proceeds from issuance of common
stock under dividend reinvestment
plan (12,582 shares) 1,258 145,247 - - - 146,505
Stock option transactions - (405,678) - - 1,497,931 1,092,253
Purchase of 145,590 shares of
treasury stock - - - - (1,793,435) (1,793,435)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 2002 $721,916 $7,879,368 $55,990,079 ($827,737) ($13,484,232) $50,279,394
====================================================================================================================================
The notes to consolidated financial statements are an integral part of the above
statement.
21
MET-PRO CORPORATION
CONSOLIDATED BUSINESS SEGMENT DATA
Years ended January 31,
2002 2001 2000
- -----------------------------------------------------------------------------------------------
Net sales to unaffiliated customers
Product recovery/pollution control equipment $44,498,316 $51,650,730 $51,883,604
Fluid handling equipment 25,590,130 29,552,820 26,566,388
- -----------------------------------------------------------------------------------------------
$70,088,446 $81,203,550 $78,449,992
Includes foreign sales of:
Product recovery/pollution control equipment $4,437,309 $7,787,437 $5,780,112
Fluid handling equipment 6,598,746 8,846,889 6,971,799
- -----------------------------------------------------------------------------------------------
$11,036,055 $16,634,326 $12,751,911
===============================================================================================
Income from operations
Product recovery/pollution control equipment $5,144,940 $7,066,793 $7,431,748
Fluid handling equipment 4,306,985 5,447,093 3,978,931
- -----------------------------------------------------------------------------------------------
$9,451,925 $12,513,886 $11,410,679
===============================================================================================
Depreciation and amortization expense
Product recovery/pollution control equipment $1,303,761 $1,450,025 $1,633,097
Fluid handling equipment 742,246 772,630 782,759
- -----------------------------------------------------------------------------------------------
$2,046,007 $2,222,655 $2,415,856
===============================================================================================
Capital expenditures
Product recovery/pollution control equipment $675,435 $442,662 $571,629
Fluid handling equipment 746,241 448,685 531,435
- -----------------------------------------------------------------------------------------------
1,421,676 891,347 1,103,064
Corporate 209,680 132,335 90,495
- -----------------------------------------------------------------------------------------------
$1,631,356 $1,023,682 $1,193,559
===============================================================================================
Identifiable assets at January 31
Product recovery/pollution control equipment $38,945,179 $40,274,449 $42,803,505
Fluid handling equipment 18,209,157 18,785,577 18,662,280
- -----------------------------------------------------------------------------------------------
57,154,336 59,060,026 61,465,785
Corporate 10,915,856 10,091,315 7,176,198
- -----------------------------------------------------------------------------------------------
$68,070,192 $69,151,341 $68,641,983
===============================================================================================
The Company follows the practice of allocating general corporate expenses,
including depreciation and amortization expense, among the segments.
22
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations:
The Company manufactures and sells product recovery/pollution control
equipment for purification of air and liquids, and fluid handling
equipment for corrosive, abrasive and high temperature liquids.
Basis of presentation:
The consolidated financial statements include the accounts of Met-Pro
Corporation ("Met-Pro" or the "Company") and its wholly-owned
subsidiaries, Mefiag B.V., Flex-Kleen Canada Inc. and Strobic Air
Corporation ("Strobic Air"). Significant intercompany accounts and
transactions have been eliminated.
Use of estimates:
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.
Foreign currency translation:
Assets and liabilities of the Company's foreign subsidiaries are
translated at current exchange rates, while income and expenses are
translated at average rates for the period. Translation gains and losses
are reported as a component of other comprehensive income in the
Statement of Stockholders' Equity.
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
3).
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 4).
Costs in excess of net assets of businesses acquired:
Costs in excess of net assets of businesses acquired prior to November
1, 1970, totaling $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,
totaling $17,198,254, are being amortized over 40 years. The Company
monitors the recoverability of goodwill using a fair value approach (See
comments under "Recent Accounting Pronouncements" on the next page).
Revenue recognition:
Revenues are generally recognized when products are shipped.
23
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
Advertising:
Advertising costs are charged to operations in the year incurred and
were $1,403,366, $1,344,231 and $1,289,803 for the years ended January
31, 2002, 2001 and 2000, respectively.
Research and development:
Research and development costs are charged to operations in the year
incurred and were $979,813, $788,777 and $798,507 for the years ended
January 31, 2002, 2001 and 2000, respectively.
Earnings per share:
Basic earnings per share are computed based on the weighted average
number of common shares actually outstanding during each year.
Diluted earnings per share are computed based on the weighted average
number of shares actually outstanding plus all potential dilutive common
shares outstanding (stock options) during each year.
Dividends:
On December 20, 2001, the Board of Directors declared an $.085 per share
quarterly cash dividend payable on March 8, 2002 to stockholders of
record on February 22, 2002, amounting to $517,070.
Accounts receivable credit risk:
The Company believes concentrations of accounts receivable credit risk
are limited due to the number of customers, and dispersion among the
business segments and geographic areas.
Supplemental cash flow information:
2002 2001 2000
-----------------------------------------------------------------------
Cash paid during the year for:
Interest $560,697 $819,054 $826,635
Income taxes $3,431,219 $3,689,100 $3,885,098
=======================================================================
Recent accounting pronouncements:
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 141, "Business
Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets".
SFAS No. 141, which is effective for business combinations completed
after June 30, 2001, requires, among other things, that (1) the purchase
method of accounting be used for all business combinations, (2) specific
criteria be established for the recognition of intangible assets
separately from goodwill and (3) additional information about acquired
intangible assets be provided. SFAS No. 142, which will become effective
for the Company prospectively as of February 1, 2002, primarily
addresses the accounting for goodwill and intangible assets subsequent
to their acquisition. Among other things, it requires that goodwill not
be amortized for financial statement purposes; instead, management will
be required to test goodwill for impairment at least annually. While the
Company is still analyzing the effect of SFAS No. 142 on the financial
statements, a preliminary estimate of the annual amortization of
goodwill and indefinite-lived intangible assets that will cease in the
fiscal year ending January 31, 2003 is approximately $0.5 million.
24
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", which excludes from the
definition of long-lived assets goodwill and other intangibles that are
not amortized in accordance with SFAS No. 142. SFAS No. 144 requires
that long-lived assets to be disposed of by sale be measured at the
lower of carrying amount or fair value less cost to sell, whether
reported in continuing operations or in discontinued operations. SFAS
No. 144 also expands the reporting of discontinued operations to include
components of an entity that have been or will be disposed of rather
than limiting such discontinuance to a segment of a business. The
provisions of SFAS No. 144 are effective in fiscal years beginning after
December 15, 2001, with early adoption permitted and, in general, are to
be applied prospectively. The Company plans to adopt SFAS No. 144
effective February 1, 2002 and does not expect that the adoption will
have a material impact on its consolidated results of operations and
financial position.
NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents:
Short-term investments at January 31, 2002 and 2001 were valued at cost
(approximating market) and amounted to $10,686,472 and $6,480,666,
respectively. Short-term investments consist principally of commercial
paper with an original maturity of three months or less, 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,
2002 2001
----------------------------------------------------------------------
Fair value $8,350,325 $9,764,997
Carrying amount 8,356,664 9,933,014
======================================================================
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 uses an interest rate swap (see Note 5) to minimize its
exposure to fluctuations in interest rates. The interest rate
differential to be paid or received under this agreement is recognized
over the term of the loan and is included in interest expense.
The Company's financial instruments are not held for trading purposes.
25
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
NOTE 3: INVENTORIES
Inventories consisted of the following:
January 31,
2002 2001
----------------------------------------------------------------------
Raw materials $7,369,965 $7,770,874
Work in process 1,559,273 1,573,802
Finished goods 4,772,438 3,741,293
----------------------------------------------------------------------
$13,701,676 $13,085,969
======================================================================
At January 31, 2002 and 2001, inventories valued at the last-in,
first-out method ("LIFO") were $2,211,522 and $2,284,381, respectively.
The LIFO value of inventories was lower than replacement cost by
$909,793 and $899,223 at January 31, 2002 and 2001, respectively.
The book basis of LIFO inventories exceeded the tax basis by
approximately $1,026,000 at both January 31, 2002 and 2001 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 4: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
January 31,
2002 2001
------------------------------------------------------------
Land $1,963,882 $1,794,088
Buildings and improvements 10,808,463 11,378,228
Machinery and equipment 10,391,578 11,605,401
Furniture and fixtures 4,300,390 3,158,346
Automotive equipment 1,016,212 985,818
Construction in progress 619,089 154,266
------------------------------------------------------------
29,099,614 29,076,147
Less accumulated depreciation 16,594,500 16,066,900
------------------------------------------------------------
$12,505,114 $13,009,247
============================================================
Depreciation of property, plant and equipment charged to operations
amounted to $1,461,478, $1,454,467 and $1,556,191 for the years ended in
2002, 2001 and 2000, respectively.
26
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
NOTE 5: DEBT
Short-term debt:
The Company has available both domestic and foreign unsecured lines of
credit totaling $5,000,000 which can be used for working capital. The
lines of credit were not used during either year.
Long-term debt:
Long-term debt consisted of the following:
January 31,
2002 2001
------------------------------------------------------------------------------
Note payable, bank, payable in
quarterly installments of $300,000,
plus interest at a fixed rate swap of
5.98%, maturing October, 2008 $8,100,000 $9,300,000
Various equipment notes, payable in monthly
installments ranging from $489 to
$1,074, maturing November
2004 through January 2005, no
interest. 91,303 -
Notes payable, bank, payable in
quarterly installments of $87,500,
plus interest at a fixed rate of
7.51%, maturing September, 2001 - 262,500
Notes payable, bank, payable in
quarterly installments of $87,500,
plus interest at a variable rate
ranging from 6.87% to 7.33%,
maturing September, 2001 - 262,500
Mortgage note payable, collateralized
by property, payable $10,267
monthly (including principal
and interest), at a fixed interest
rate of 8.5%, maturing
January, 2002 - 108,014
------------------------------------------------------------------------------
8,191,303 9,933,014
Less current portion 1,231,469 1,833,014
------------------------------------------------------------------------------
6,959,834 8,100,000
Fair market value of interest rate
swap liability 165,361 -
------------------------------------------------------------------------------
Long-term portion $7,125,195 $8,100,000
==============================================================================
These notes are subject to certain covenants, including maintenance of
prescribed amounts of leverage and fixed charge coverage ratios.
27
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
Maturities of long-term debt are as follows:
Year Ending
January 31,
---------------------------------------------------------------
2003 $1,231,469
2004 1,231,469
2005 1,228,365
2006 1,200,000
2007 1,200,000
Thereafter 2,100,000
---------------------------------------------------------------
$8,191,303
===============================================================
Interest expense was $557,855, $694,112 and $815,805 for the years ended
in 2002, 2001 and 2000, respectively.
NOTE 6: STOCKHOLDERS' EQUITY
On December 15, 2000, the Company announced a 300,000 share stock
repurchase program, which began after the Company's February 21, 2000
stock repurchase program was completed. During the fiscal year ended
January 31, 2002, the Company repurchased 145,590 shares of its common
stock at a cost of $1.8 million. At January 31, 2002, the Company had
the authority to repurchase 250,909 shares under the December 15, 2000
stock repurchase program.
The Company has a Shareholder's Rights Plan, under which the Company's
Board of Directors declared a dividend of one Right for each share of
Company common stock owned. The Plan provides, under certain conditions
involving acquisition of the Company's common stock, that holders of
Rights, except for the acquiring entity, would be entitled to purchase
shares of common stock of the Company, or acquiring company, having a
value of twice the Rights' exercise price. The Rights under the Plan
expire in 2010.
NOTE 7: INCOME TAXES
The provision for income taxes was comprised of the following:
2002 2001 2000
-----------------------------------------------------------------------
Current
Federal $2,675,479 $3,408,005 $2,859,285
State 613,208 662,757 556,607
Foreign 173,889 243,023 311,275
-----------------------------------------------------------------------
3,462,576 4,313,785 3,727,167
Deferred 95,062 256,998 266,073
-----------------------------------------------------------------------
$3,557,638 $4,570,783 $3,993,240
=======================================================================
28
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
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
(liabilities) were as follows:
2002 2001
------------------------------------------------------------------------
Deferred tax assets
Inventory cost capitalization $163,501 $169,848
Pension cost 597,996 757,001
Non-compete agreements 463,236 525,952
Other 181,374 127,333
------------------------------------------------------------------------
Total deferred tax assets 1,406,107 1,580,134
------------------------------------------------------------------------
Deferred tax liabilities
Accelerated depreciation 308,424 493,256
Inventory - Dean Pump Division 374,706 400,257
Excess of book over tax basis of
property acquired in acquisitions 8,893 37,582
Goodwill 692,897 532,790
------------------------------------------------------------------------
Total deferred tax liabilities 1,384,920 1,463,885
------------------------------------------------------------------------
Net deferred tax assets $21,187 $116,249
========================================================================
A reconciliation of the federal statutory rate and the Company's
effective tax rate is presented as follows:
2002 2001 2000
----------------------------------------------------------------------------------------------------------------------
Computed expected
tax expense
(federal) $3,313,965 34.0% $4,197,131 34.0% $3,762,400 34.0%
State income taxes,
net of federal
income tax benefit 306,012 3.2 403,528 3.2 367,361 3.3
Foreign tax differential 1,864 - (7,293) - (30,703) (.3)
Foreign tax credit - - (11,831) (.1) (5,606) -
Other (64,203) (.7) (10,752) (.1) (100,212) (.9)
----------------------------------------------------------------------------------------------------------------------
Effective income taxes $3,557,638 36.5% $4,570,783 37.0% $3,993,240 36.1%
======================================================================================================================
NOTE 8: LEASES AND OTHER COMMITMENTS
The Company has various real estate operating leases for warehouse space
and office space for sales, general and administrative purposes. Future
minimum lease payments under these non-cancelable operating leases at
January 31, 2002 were as follows:
2003 $334,246
2004 62,720
Rental expense for the above operating leases during the years ended in
2002, 2001 and 2000, was $474,910, $411,929 and $408,487, respectively.
29
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
NOTE 9: EMPLOYEE BENEFIT PLANS
Pension Plans:
The Company has several 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 (income) included the following components:
2002 2001 2000
----------------------------------------------------------------------------------
Service cost - benefits earned
during the period $570,695 $583,387 $597,400
Interest cost on projected
benefit obligation 836,860 788,141 750,170
Expected return on assets (1,178,322) (1,158,685) (1,169,061)
Amortization (440,135) (515,449) (210,591)
----------------------------------------------------------------------------------
($210,902) ($302,606) ($32,082)
==================================================================================
The following table sets forth the plans' change in benefit obligations,
change in plan assets and amounts recognized in the Company's balance
sheet at January 31, 2002 and 2001:
2002 2001
---------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $10,532,088 $9,625,064
Service cost 570,695 583,387
Interest cost 836,860 788,141
Actuarial (gain) loss 911,170 (145,217)
Benefits paid (634,258) (594,139)
Other 659,840 274,852
---------------------------------------------------------------------------------------
Benefit obligation at end of year $12,876,395 $10,532,088
---------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $15,003,327 $14,702,989
Actual return on plan assets (2,303,801) 765,117
Employer contribution 60,000 129,360
Benefits paid (634,258) (594,139)
---------------------------------------------------------------------------------------
Fair value of plan assets at end of year $12,125,268 $15,003,327
---------------------------------------------------------------------------------------
Funded status ($751,127) $4,471,239
Unrecognized actuarial (gain) (1,766,672) (6,704,284)
Unrecognized transition (asset) (123,435) (133,950)
Unrecognized prior service costs 988,723 410,966
Contribution after measurement date, prior year 15,000 15,000
---------------------------------------------------------------------------------------
Net amount recognized ($1,637,511) ($1,941,029)
---------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability ($1,637,511) ($1,941,029)
=======================================================================================
30
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
Assumptions used in the accounting for pension costs were:
2002 2001 2000
----------------------------------------------------------------------
Discount rate 7.00% 7.75% 7.00%
Rate of increase in
compensation levels
(where applicable) 4.50% 4.50% 4.50%
Expected long-term rate of
return on assets 9.00% 8.00% 9.00%
======================================================================
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
aggregate benefit obligation payable in the future under the terms of
the plan was $708,881 and $659,997 at January 31, 2002 and 2001,
respectively. The amounts applicable are included in the tables above.
This plan was discontinued in December 1999 as to non-vested Directors.
Defined Contribution 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 completion of one year
of service and attaining age 21. Pursuant to this plan, employees can
contribute up to 25% of their compensation to the plan. The Company will
match, in the form of Met-Pro common stock, up to 50% of the employee's
contribution up to 4% of compensation. The Company provided for cash
contributions to the 401(k) profit sharing plan of $206,866, $208,975
and $221,786, in the years ended January 31,2002, 2001, 2000,
respectively.
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. There were no contributions to the
Employees' Stock Ownership Trust in the fiscal years ended in 2002, 2001
and 2000. 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.
Stock Option Plans:
The Company accounts for 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 1991, the Board of Directors of the Company approved a stock option
plan covering 100,000 shares (increased to 225,000 shares after giving
effect to stock splits and stock dividends), that was approved by the
Company's stockholders at the 1992 meeting of stockholders (the "1992
Plan"). In 1997, the Board of Directors of the Company approved a stock
option plan covering 350,000 shares that was approved by the Company's
stockholders at the 1997 meeting of stockholders (the "1997 Plan"). In
2001, the Board of Directors of the Company approved an equity incentive
plan covering 350,000 shares that was approved by the Company's
stockholders at the 2001 meeting of stockholders (the "2001 Plan"). All
of these plans contain anti-dilution provisions that apply to stock
splits and stock dividends declared by the Company.
31
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
The status of the plans was as follows:
1992 Plan 2002 2001 2000
-----------------------------------------------------------------------------------------
Options outstanding at February 1 121,025 121,025 135,525
Grants - - -
Exercises 113,525 - 3,000
Cancellations 7,500 - 11,500
Options outstanding at January 31 - 121,025 121,025
Options price range at January 31 $5.00 $5.00 $5.00
to to to
$13.13 $13.13 $13.13
Options exercisable at January 31 - 121,025 121,025
-----------------------------------------------------------------------------------------
Options available for grant at January 31 0 0 0
=========================================================================================
1997 Plan 2002 2001 2000
-----------------------------------------------------------------------------------------
Options outstanding at February 1 132,075 134,950 33,500
Grants 83,800 1,325 118,450
Exercises 12,500 - -
Cancellations - 4,200 17,000
Options outstanding at January 31 203,375 132,075 134,950
Options price range at January 31 $9.75 $9.75 $9.98
to to to
$15.50 $15.50 $15.50
Options exercisable at January 31 145,655 95,324 55,151
-----------------------------------------------------------------------------------------
Options available for grant at January 31 102,925 186,725 188,050
=========================================================================================
2001 Plan 2002
-----------------------------------------------------------------------------------------
Options outstanding at June 20 350,000
Grants -
Exercises -
Cancellations -
Options outstanding at January 31 350,000
Options exercisable at January 31 -
-----------------------------------------------------------------------------------------
Options available for grant at January 31 350,000
=========================================================================================
The weighted average exercise prices of the Company's employee stock
option plans were as follows:
2002 2001 2000
-----------------------------------------------------------------------------------------
Options outstanding at February 1 $9.75 $9.76 $9.68
Grants $12.08 $9.75 $10.12
Exercises $8.67 - $5.00
Cancellations $13.13 $9.88 $11.31
Options outstanding at January 31 $11.26 $9.75 $9.76
=========================================================================================
32
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2002, 2001 AND 2000 (Continued)
NOTE 10: OTHER INCOME, NET
Other income, net, was comprised of the following:
2002 2001 2000
------------------------------------------------------------------
Gain/(loss) on sales of property
and equipment $472,895 ($12,656) $1,096
Other, primarily interest income 379,990 537,385 469,912
------------------------------------------------------------------
$852,885 $524,729 $471,008
==================================================================
NOTE 11: BUSINESS SEGMENT DATA
The Company's operations are conducted in two business segments as
follows: the manufacture and sale of product recovery/pollution control
equipment, and the manufacture and sale of fluid handling equipment.
No significant intercompany revenue is realized by either business
segment. Interest income and expense are not included in the measure of
segment profit reviewed by management. Income taxes are also not
included in the measure of segment operating profit reviewed by
management.
Financial information by business segment is shown on page 22.
NOTE 12: 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
the three years ended January 31 is presented in the following table:
2002 2000 2000
---------------------------------------------------------------------------------------------------
Net sales:
United States $59,052,391 $64,569,224 $65,698,081
Foreign 11,036,055 16,634,326 12,751,911
---------------------------------------------------------------------------------------------------
$70,088,446 $81,203,550 $78,449,992
===================================================================================================
Income from operations:
United States $8,337,026 $10,822,911 $10,144,373
Foreign 1,114,899 1,690,975 1,266,306
---------------------------------------------------------------------------------------------------
$9,451,925 $12,513,886 $11,410,679
===================================================================================================
Total assets:
United States $63,813,498 $64,620,734 $63,774,777
Foreign 4,256,694 4,530,607 4,867,206
---------------------------------------------------------------------------------------------------
$68,070,192 $69,151,341 $68,641,983
===================================================================================================
33
QUARTERLY FINANCIAL DATA (Unaudited)
Earnings Earnings
Per Share, Per Share,
2001 Net Sales Gross Profit Net Income Basic Diluted
- -----------------------------------------------------------------------------------------------------------------
First Quarter $20,250,931 $6,777,556 $1,753,284 $.28 $.28
Second Quarter 20,258,228 7,142,582 1,930,519 .31 .31
Third Quarter 21,258,013 7,192,598 2,016,979 .33 .33
Fourth Quarter 19,436,378 6,848,418 2,072,938 .34 .34
Earnings Earnings
Per Share, Per Share,
2002 Net Sales Gross Profit Net Income Basic Diluted
- -----------------------------------------------------------------------------------------------------------------
First Quarter $17,556,044 $6,417,658 $1,635,715 $.27 $.27
Second Quarter 20,371,781 6,928,802 1,856,419 .30 .30
Third Quarter 16,363,945 5,357,408 1,355,325 .22 .22
Fourth Quarter 15,796,676 5,324,364 1,341,858 .22 .22
Item9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
During the fiscal year ended January 31, 2002, there has been no change in
accountants and no disagreements on accounting and financial disclosure.
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 6 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 of Certain Beneficial Owners and
Management" contained in the Company's definitive Proxy Statement for its 2002
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 2002
Annual Meeting of Stockholders, to be filed with the Securities and Exchange
Commission within 120 days following the end of the Company's fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management:
The information required by this Item is hereby incorporated by reference to
the information set forth under the caption "Security Ownership of Certain
Beneficial Owners and Management" contained in the Company's definitive Proxy
Statement for its 2002 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 Business Relationships" contained in the Company's definitive Proxy
Statement for its 2002 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.
34
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 16.
B. Exhibits:
The following exhibits are filed herewith or incorporated by
reference:
(2)(a) Agreement and Plan of Merger dated September 12, 1996 by
and between Met-Pro Corporation, Met-Pro Acquisition
Corporation, Strobic Air Corporation, Lynn T. Secrest,
Ronald H. Secrest, Richard P. Secrest and John W. Stone,
III. Incorporated by reference to Registrant's
Registration Statement on Form S-3 (File No. 333-13929),
declared effective December 31, 1996.
(2)(b) Asset Purchase Agreement dated October 29, 1998 among
Flex-Kleen Corporation, Flex-Kleen Canada Limited, Aqua
Alliance, Inc., AWT Air Company Inc., 1321249 Ontario
Limited and Met-Pro Corporation. Incorporated by
reference to Company's Registration Statement on Form
8-K filed on November 13, 1998 and amended on January
12, 1999.
(3)(a) Restated Certificate of Incorporation, incorporated by
reference to Company's Registration Statement on Form
8-A filed June 12, 1998.
(3)(b) Certificate of Amendment of Certificate of
Incorporation, incorporated by reference to Company's
Annual Report on Form 10-K filed April 24, 1998.
(3)(c) By-Laws as amended through February 7, 1968,
incorporated by reference to Company's Registration
Statement No. 2-26979, declared effective October 15,
1968.
(3)(d) Amendments to By-Laws adopted June 3, 1987, July 18,
1978 and June 15, 1977, incorporated by reference to
Company's Registration Statement on Form 8-A filed June
12, 1998.
(3)(e) Amendments to By-Laws adopted February 21, 2000,
incorporated by reference to the Company's Annual Report
on Form 10-K filed April 27, 2000.
(4) Stockholders' Rights Plan, incorporated by reference to
Company's Current Report on Form 8-K filed on January 6,
2000.
(10)(a) The 1992 Stock Option Plan, incorporated by reference to
Company's Registration Statement on Form S-8 filed June
13, 2000.*
(10)(b) The 1997 Stock Option Plan, incorporated by reference to
Company's Registration Statement on Form S-8 filed
January 16, 1998.*
(10)(c) Amendment No. 1 to the 1992 Stock Option Plan,
incorporated by reference to Company's Annual Report on
Form 10-K filed on May 4, 2001.*
(10)(d) Amendment No. 1 to the 1997 Stock Option Plan,
incorporated by reference to Company's Annual Report on
Form 10-K filed on May 4, 2001.*
(10)(e) Key Employee Severance Agreement between Met-Pro
Corporation and William L. Kacin, incorporated by
reference to Company's Annual Report on Form 10-K filed
on May 4, 2001.*
35
(10)(f) Key Employee Severance Agreement between Met-Pro
Corporation and Gary J. Morgan, incorporated by
reference to Company's Annual Report on Form 10-K filed
on May 4, 2001.*
(10)(g) Key Employee Severance Agreement between Met-Pro
Corporation and Raymond J. De Hont, incorporated by
reference to Company's Annual Report on Form 10-K filed
on May 4, 2001.*
(10)(h) Amendment to Key Employee Severance Agreement between
Met-Pro Corporation and William L. Kacin, incorporated
by reference to Company's Annual Report on Form 10-K
filed on May 4, 2001.*
(10)(i) Amendment to Key Employee Severance Agreement between
Met-Pro Corporation and Gary J. Morgan, incorporated by
reference to Company's Annual Report on Form 10-K filed
on May 4, 2001.*
(10)(j) The Company's Director's Pension Plan, incorporated by
reference to Company's Annual Report on Form 10-K filed
on May 4, 2001.*
(10)(k) Amendment No. 1 of the Company's Director's Pension
Plan, incorporated by reference to Company's Annual
Report on Form 10-K filed on May 4, 2001.*
(10)(l) Amendment No. 2 of the Company's Director's Pension
Plan, incorporated by reference to Company's Annual
Report on Form 10-K filed on May 4, 2001.*
(10)(m) Restoration Plan, effective February 1, 2000,
incorporated by reference to Company's Annual Report on
Form 10-K filed on May 4, 2001.*
(10)(n) Amendment No. 1 of the Company's Restoration Plan,
incorporated by reference to Company's Annual Report on
Form 10-K filed on May 4, 2001.*
(10)(o) Additional 1% Supplemental Executive Retirement Plan,
effective February 1, 2000, incorporated by reference to
Company's Annual Report on Form 10-K filed on May 4,
2001.*
(10)(p) The 2001 Stock Option Plan, incorporated by reference to
Company's Registration Statement on Form S-8 filed
August 22, 2001.*
(11) Statement Re-computation of Per Share Earnings. See page
18 of Item 8.
(21) List of Subsidiaries of Registrant:
Corporate Jurisdiction of Name under which Business
Name Incorporation is Conducted
--------- --------------- -------------------------
Mefiag B.V. The Netherlands Mefiag B.V., a wholly-
owned subsidiary of
Met-Pro Corporation
Flex-Kleen Canada Inc. Ontario, Canada Flex-Kleen Canada Inc.,
a wholly-owned subsidiary of
Met-Pro Corporation
Strobic Air Corporation Delaware Strobic Air Corporation,
a wholly-owned subsidiary of
Met-Pro Corporation
(23) Consent of Independent Auditors
36
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:
(9) Voting trust agreements.
(12) Statements re computation of ratios.
(13) Annual report to security holders.
(16) Letter re change in certifying accountant.
(18) Letter re change in accounting principles.
(22) Published report regarding matters submitted to vote of
security holders.
(24) Power of attorney.
(99) Additional exhibits.
- Notes -
* Indicates management contract or compensatory plan or arrangement.
C. Reports on Form 8-K:
No Current Reports on Form 8-K were filed during the three-month
period ended January 31, 2002.
37
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 30, 2002 By: /s/ William L. Kacin
- ---------------- -------------------------------
Date William L. Kacin
Chairman,
Chief Executive Officer
and President
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 Chairman, Chief April 30, 2002
- ---------------------------- Executive Officer
William L. Kacin and President
/s/ Gary J. Morgan Vice President-Finance, April 30, 2002
- ---------------------------- Secretary, Treasurer,
Gary J. Morgan Chief Financial Officer,
Chief Accounting Officer
and Director
/s/ Alan Lawley Director April 30, 2002
- ----------------------------
Alan Lawley
/s/ Nicholas DeBenedictis Director April 30, 2002
- ----------------------------
Nicholas DeBenedictis
/s/ Jeffrey H. Nicholas Director April 30, 2002
- ----------------------------
Jeffrey H. Nicholas
/s/ Michael J. Morris Director April 30, 2002
- ----------------------------
Michael J. Morris
38