================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended: July 31, 1999 Commission file number 001-07763 MET-PRO CORPORATION (Exact name of registrant as specified in its charter) Delaware 23-1683282 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 160 Cassell Road, P.O. Box 144 Harleysville, Pennsylvania 19438 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (215) 723-6751 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of the Registrant's common stock (par value $0.10 per share) is 6,548,716 (as of July 31, 1999). ================================================================================ MET-PRO CORPORATION INDEX PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheet as of July 31, 1999 and January 31, 1999.......................................................... 2 Condensed consolidated statement of operations for the six-month and three-month periods ended July 31, 1999 and 1998........................................ 3 Condensed consolidated statement of stockholders' equity for the six-month periods ended July 31, 1999 and 1998.............................................. 4 Condensed consolidated statement of cash flows for the six-month periods ended July 31, 1999 and 1998........................................................ 5 Notes to condensed consolidated financial statements................................................. 6 Report of independent accountants.................................................................... 9 Item 2. Management's discussion and analysis of the financial condition and results of operations.................................................................. 10 PART II - OTHER INFORMATION Item 4. Submission of matters to a vote of security holders......................................... 15 Item 6(b). Reports on Form 8-K......................................................................... 15 SIGNATURES.................................................................................................... 16 -1- MET-PRO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (unaudited) PART I - FINANCIAL INFORMATION Item 1. Financial Statements July 31, January 31, ASSETS 1999 1999 - ------------------------------------------------------------------------------------------------------------------------ Current assets Cash and cash equivalents $6,955,831 $7,446,369 Accounts receivable, net of allowance for doubtful accounts of approximately $334,000 and $261,000, respectively 13,517,911 14,492,082 Inventories - Note 4 13,300,730 14,973,169 Prepaid expenses, deposits and other current assets 1,173,798 827,824 Deferred income taxes 944,009 944,009 - ------------------------------------------------------------------------------------------------------------------------ Total current assets 35,892,279 38,683,453 Property, plant and equipment, net 13,660,207 13,931,276 Costs in excess of net assets of businesses acquired, net 19,020,029 19,260,591 Other assets 838,984 1,013,321 - ------------------------------------------------------------------------------------------------------------------------ Total assets $69,411,499 $72,888,641 ======================================================================================================================== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------ Current liabilities Current portion of long-term debt $2,004,423 $2,125,093 Accounts payable 3,936,502 5,213,770 Dividend payable 527,681 -- Accrued salaries, wages and expenses 6,701,920 5,804,235 Payroll and other taxes payable 15,503 216,822 Customers' advances 861,059 1,027,948 - ------------------------------------------------------------------------------------------------------------------------ Total current liabilities 14,047,088 14,387,868 Long-term debt 10,938,637 11,941,954 Other non-current liabilities 372,287 328,838 Deferred income taxes 290,533 304,874 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities 25,648,545 26,963,534 - ------------------------------------------------------------------------------------------------------------------------ Stockholders' equity Common stock, $.10 par value; 18,000,000 shares authorized, 7,182,843 and 7,138,625 shares issued, of which 634,127 and 343,727 shares were reacquired and held in treasury at the respective dates 718,284 713,862 Additional paid-in capital 7,908,475 7,508,748 Retained earnings 43,781,573 42,718,355 Accumulated other comprehensive loss (210,530) (85,103) Treasury stock, at cost (8,434,848) (4,930,755) - ------------------------------------------------------------------------------------------------------------------------ Net stockholders' equity 43,762,954 45,925,107 - ------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity $69,411,499 $72,888,641 ======================================================================================================================== See accompanying notes to condensed consolidated financial statements. -2- MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) Six Months Ended Three Months Ended July 31, July 31, 1999 1998 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Net sales $41,366,235 $29,529,731 $20,538,207 $14,588,843 Cost of goods sold 27,296,904 18,365,829 13,570,589 9,127,840 - --------------------------------------------------------------------------------------------------------------------------------- Gross profit 14,069,331 11,163,902 6,967,618 5,461,003 - --------------------------------------------------------------------------------------------------------------------------------- Operating expenses Selling 3,749,153 2,705,768 1,871,066 1,298,311 General and administrative 4,535,500 3,278,041 2,195,909 1,640,631 - --------------------------------------------------------------------------------------------------------------------------------- 8,284,653 5,983,809 4,066,975 2,938,942 - --------------------------------------------------------------------------------------------------------------------------------- Income from operations 5,784,678 5,180,093 2,900,643 2,522,061 Other income, net 262,060 336,324 126,994 145,927 - --------------------------------------------------------------------------------------------------------------------------------- Income before taxes 6,046,738 5,516,417 3,027,637 2,667,988 Provision for taxes 2,297,760 2,025,911 1,150,501 915,026 - --------------------------------------------------------------------------------------------------------------------------------- Net income $ 3,748,978 $ 3,490,506 $ 1,877,136 $ 1,752,962 ================================================================================================================================= Earnings per share, basic (1) $.56 $.50 $.28 $.25 Earnings per share, diluted (2) $.56 $.50 $.28 $.25 Cash dividend per share - declared (3) $.40 $.30 $.08 $.00 Cash dividend per share - paid (3) $.32 $.30 $.00 $.00 ================================================================================================================================= (1) Basic earnings per share are based on the weighted average number of common shares outstanding of 6,669,627 and 6,974,394 in the six-month periods ended July 31, 1999 and 1998, respectively, and 6,693,898 and 6,989,563 in the three-month periods ended July 31, 1999 and 1998, respectively. (2) Diluted earnings per share are based on the weighted average number of common shares outstanding of 6,711,457 and 7,032,673 in the six-month periods ended July 31, 1999 and 1998, respectively, and 6,734,268 and 7,049,815 in the three-month periods ended July 31, 1999 and 1998, respectively. (3) On February 23, 1998, the Company declared a cash dividend of $.30 per share payable on April 24, 1998 to stockholders of record on April 10, 1998. On February 22, 1999, the Company declared an annual $.32 per share cash dividend payable on April 23, 1999 for the fiscal year ending January 31, 1999 to stockholders of record on April 9, 1999. On June 2, 1999, the Company declared a quarterly $.08 per share cash dividend payable on September 10, 1999 to stockholders of record on August 20, 1999. See accompanying notes to condensed consolidated financial statements. -3- MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (unaudited) Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings (Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------------------------ Balances, January 31, 1999 $713,862 $7,508,748 $42,718,355 ($85,103) ($4,930,755) $45,925,107 Comprehensive income: Net income 3,748,978 Foreign currency translation (125,427) Total comprehensive income 3,623,551 Dividends paid, $.32 per share (2,158,079) (2,158,079) Dividends declared, $.08 per share (527,681) (527,681) Proceeds from issuance of common stock under dividend reinvestment plan (44,218 4,422 426,907 431,329 shares) Stock option transactions (27,180) 42,180 15,000 Purchase of 293,400 shares of treasury stock (3,546,273) (3,546,273) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, July 31, 1999 $718,284 $7,908,475 $43,781,573 ($210,530) ($8,434,848) $43,762,954 ==================================================================================================================================== Accumulated Additional Other Common Paid-in Retained Comprehensive Treasury Stock Capital Earnings Income/(Loss) Stock Total - ------------------------------------------------------------------------------------------------------------------------------------ Balances, January 31, 1998 $713,862 $7,868,357 $37,667,872 ($219,015) ($2,190,247) $43,840,829 Comprehensive income: Net income 3,490,506 Foreign currency translation 62,362 Total comprehensive income 3,552,868 Dividends paid, $.30 per share (2,100,569) (2,100,569) Stock option transactions (359,609) 721,838 362,229 Purchase of 144,600 shares of treasury stock (2,214,426) (2,214,426) - ------------------------------------------------------------------------------------------------------------------------------------ Balances, July 31, 1998 $713,862 $7,508,748 $39,057,809 ($156,653) ($3,682,835) $43,440,931 ==================================================================================================================================== See accompanying notes to condensed consolidated financial statements. -4- MET-PRO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) Six Months Ended July 31, 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Net cash provided by operating activities $6,431,201 $2,940,460 - ------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities Proceeds from sale of property and equipment 8,000 -- Acquisitions of property and equipment (526,868) (817,462) Acquisitions of other intangibles (7,281) (412,856) - ------------------------------------------------------------------------------------------------------------------------ Net cash (used in) investing activities (526,149) (1,230,318) - ------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities Reduction of debt (1,123,987) (945,009) Exercise of stock options 15,000 362,229 Payment of dividends (1,726,750) (2,100,569) Purchase of treasury shares (3,546,273) (2,214,426) - ------------------------------------------------------------------------------------------------------------------------ Net cash (used in) financing activities (6,382,010) (4,897,775) - ------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (13,580) 7,491 - ------------------------------------------------------------------------------------------------------------------------ Net (decrease) in cash and cash equivalents (490,538) (3,180,142) Cash and cash equivalents at February 1 7,446,369 11,253,380 - ------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at July 31 $6,955,831 $8,073,238 ======================================================================================================================== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest $429,045 $138,316 Income taxes $1,816,716 $2,218,572 ======================================================================================================================== See accompanying notes to condensed consolidated financial statements. -5- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - PRINCIPLES OF CONSOLIDATION The condensed consolidated financial statements include the accounts of Met-Pro Corporation and its wholly owned subsidiaries Strobic Air Corporation, Flex-Kleen Canada Inc., and Mefiag B.V. (collectively "Met-Pro" or the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation. NOTE 2 - BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the financial position as of July 31, 1999 and the results of operations for the six-month and three-month periods ended July 31, 1999 and 1998, and changes in stockholders' equity and cash flows for the six-month periods then ended. The results of operations for the six-month and three-month periods ended July 31, 1999 and 1998 are not necessarily indicative of the results to be expected for the full year. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended January 31, 1999. NOTE 3 - ACQUISITION OF BUSINESS On October 29, 1998, the Company, pursuant to an Asset Purchase Agreement, purchased all of the operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen") for a purchase price of approximately $15,000,000 plus the assumption of ordinary business liabilities. The acquisition was accounted for as a purchase transaction. Flex-Kleen is a manufacturer of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. The condensed consolidated statement of operations for the six-months ended July 31, 1999 includes the operations of Flex-Kleen. The acquisition was completed by a cash payment of approximately $15,000,000, plus acquisition costs, which resulted in approximately $12,150,000 of goodwill. A bank loan totalling $12,000,000 having a ten-year term with a fixed interest rate swap of 5.98% was used to finance the acquisition. Payments of principal and interest are payable on a quarterly basis. On a pro-forma basis, consolidated results of operations for the six-month period ended July 31, 1998 would have been as follows, if the acquisition had been made as of February 1, 1998: Net sales $38,511,731 Income before taxes on income 6,281,611 Net Income 3,894,611 Earnings per share, basic $.56 Earnings per share, diluted $.55 -6- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 4 - INVENTORIES Inventories consisted of the following: July 31, January 31, 1999 1999 ----------- ----------- Raw material $6,436,989 $7,246,379 Work in progress 2,163,333 2,435,351 Finished goods 4,700,408 5,291,439 ----------- ----------- $13,300,730 $14,973,169 =========== =========== NOTE 5 - BUSINESS SEGMENT DATA The Company's operations are conducted in two business segments as follows: the manufacture and sale of pollution control systems and allied equipment, and the manufacture and sale of fluid handling equipment. No significant intercompany revenue is realized by either business segment. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management. Financial information by business segment is shown below. Six Months Ended July 31, 1999 1998 ---------------------------- Net sales Pollution control systems and allied equipment $28,077,235 $16,252,033 Fluid handling equipment 13,289,000 13,277,698 ----------- ----------- $41,366,235 $29,529,731 Income from operations Pollution control systems and allied equipment $4,004,708 $3,137,751 Fluid handling equipment 1,779,970 2,042,342 ----------- ----------- $5,784,678 $5,180,093 =========== =========== July 31, 1999 1998 ---------------------------- Identifiable assets Pollution control systems and allied equipment $42,240,578 $24,884,264 Fluid handling equipment 19,213,025 20,673,539 ----------- ----------- 61,453,603 45,557,803 Corporate 7,957,896 10,361,102 ----------- ----------- $69,411,499 $55,918,905 =========== =========== -7- MET-PRO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 6 - EMPLOYEE BENEFIT PLAN Effective April 1, 1999, the Company implemented a 401(k) profit sharing plan. Substantially all employees of the Company in the United States are eligible to participate in the plan following their completion of one year of service and attaining age 21. Pursuant to this plan, employees can contribute up to 15% of their compensation to the plan. The Company will match up to 50% of the employee contribution up to 4% of compensation in the form of Met-Pro common stock. NOTE 7 - RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The adoption of this pronouncement will have no immediate impact on Met-Pro's consolidated results of operations, financial position or cash flows. NOTE 8 - ACCOUNTANTS' 10-Q REVIEW Margolis & Company P.C., the Company's auditors, has performed a limited review of the financial information included herein. Their report on such review accompanies this filing. -8- REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors Met-Pro Corporation Harleysville, Pennsylvania We have reviewed the accompanying condensed consolidated balance sheet of Met-Pro Corporation and its wholly owned subsidiaries as of July 31, 1999 and the related condensed consolidated statements of operations for the six-month and three-month periods ended July 31, 1999 and 1998 and stockholders' equity and cash flows for the six-month periods ended July 31, 1999 and 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 31, 1999 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated February 25, 1999, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of January 31, 1999 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived. /s/ Margolis & Company P.C. Certified Public Accountants Bala Cynwyd, Pennsylvania August 16, 1999 -9- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations Results of Operations: Six Months Ended July 31, 1999 vs Six Months Ended July 31, 1998 Net sales for the six-month period ended July 31, 1999 were $41,366,235 compared to $29,529,731 for the six-month period ended July 31, 1998, an increase of $11,836,504 or 40.1%. Sales in the Pollution Control Systems and Allied Equipment segment were $28,077,235 or 72.8% higher than the six-month period ended July 31, 1998 due to the acquisition of Flex-Kleen Corporation and Flex-Kleen Canada Limited (collectively "Flex-Kleen"), effective as of October 1, 1998, coupled with higher demand primarily for our fume and odor control equipment. Sales in the Fluid Handling Equipment segment were $13,289,000 or .1% higher compared to the six-month period ended July 31, 1998. Backlog at July 31, 1999 totaled $8,680,575 or 55% higher than the backlog of orders on hand at July 31, 1998. In addition, the Company had an additional $6,811,915 of orders which are not included in our backlog due to the Company's long-standing policy of not including these orders in backlog until engineering drawings are approved. Net income for the six-month period ended July 31, 1999 was $3,748,978 compared to $3,490,506 for the six-month period ended July 31, 1998, an increase of $258,472 or 7.4%. The increase in net income is related to the higher sales volume and continuing improvements in controlling costs for the six-month period ended July 31, 1999. The gross margin for the six-month period ended July 31, 1999 was 34.0% versus 37.8% the same period in the prior year due to lower gross margins experienced in the Pollution Control Systems and Allied Equipment segment. Selling expense increased $1,043,385 during the six-month period ended July 31, 1999 compared to the same period last year. Selling expense as a percentage of net sales was 9.1% for the six-month period ended July 31, 1999, a slight decrease compared to the six-month period ended July 31, 1998. General and administrative expense was $4,535,500 for the six-month period ended July 31, 1999 compared to $3,278,041 for the same period last year, an increase of $1,257,459. The increase was due mainly to amortization, interest, and other administrative expenses connected with the inclusion of Flex- Kleen. Interest expense for the six-months ended July 31, 1999 and 1998 amounted to $429,007 and $152,426, respectively. General and administrative expense as a percentage of net sales decreased to 11.0% for the six-month period ended July 31, 1999 from 11.1% for the same period last year. Other income, net, decreased $74,264 for the six-month period ended July 31, 1999 compared to the six- month period ended July 31, 1998, due to less interest earned on lower cash balances. The effective tax rate for the six-month period ended July 31, 1999 was 38% compared to 36.7% for the six-month period ended July 31, 1998. Three Months Ended July 31, 1999 vs Three Months Ended July 31, 1998 Net sales for the three-month period ended July 31, 1999 were $20,538,207 compared to $14,588,843 for the three-month period ended July 31, 1998, an increase of $5,949,364 or 40.8%. The sales increase can be attributed to higher sales for the Pollution Control Systems and Allied Equipment segment as well as the acquisition of Flex-Kleen. -10- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... Net income for the three-month period ended July 31, 1999 was $1,877,136 compared to $1,752,962 for the three-month period ended July 31, 1998, an increase of $124,174 or 7.1%. The increase in net income is related to the higher sales volume of the Pollution Control Systems and Allied Equipment segment for the three-month period ended July 31, 1999. The gross margin for the three-month period ended July 31, 1999 was 33.9% compared to 37.4% for the same period last year. The decrease is due to lower gross margins experienced in Pollution Control Systems and Allied Equipment segment. Selling expenses increased $572,755 during the three-month period ended July 31, 1999 compared to the same period last year. As a percentage of net sales, selling expense increased to 9.1% for the three-month period ended July 31, 1999 from 8.9% for the three-month period ended July 31, 1998. General and administrative expense was $2,195,909 during the three-month period ended July 31,1999 compared to $1,640,631 during the three-month period ended July 31, 1998, an increase of $555,278. General and administrative expense for the three-month period ended July 31, 1999 decreased to 10.7% of net sales compared to 11.2% for the same period last year. Other income, net, decreased $18,933 for the three-month period ended July 31, 1999 compared to the prior three-month period due to less interest earned on lower cash balances. The effective tax rate for the three-month period ended July 31, 1999 was 38.0% compared to 34.3% for the three-month period ended July 31, 1998. Liquidity: The Company's cash and cash equivalents were $6,955,831 on July 31, 1999 compared to $7,446,369 on January 31, 1999, a decrease of $490,538. This decrease is the net result of the payment of the annual cash dividend amounting to $1,726,750 (net of $431,329 of dividends utilized for stock purchased under the Dividend Reinvestment Plan), payments on long-term debt totalling $1,123,987, purchase of treasury stock amounting to $3,546,273, acquisition of other intangibles amounting to $7,281 and investment in property and equipment amounting to $526,868, offset by positive cash flow provided by operating activities of $6,431,201, proceeds received from the exercise of stock options of $15,000, and proceeds received from the sale of property and equipment amounting to $8,000. The Company's cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects. Accounts receivable (net) amounted to $13,517,911 on July 31, 1999 compared to $14,492,082 on January 31, 1999, which represents a decrease of $974,171. The timing and size of shipments and retainage on contracts, especially in the Pollution Control Systems and Allied Equipment segment, will influence accounts receivable balances at any point in time. Inventories were $13,300,730 on July 31, 1999 compared to $14,973,169 on January 31, 1999, a decrease of $1,672,439. Inventory balances fluctuate depending upon market demand, the size and timing of orders and varying lead times required. Current liabilities amounted to $14,047,088 on July 31, 1999 compared to $14,387,868 on January 31, 1999, a decrease of $340,780. Accounts payable, current portion of long term debt, customer advances and other taxes payable offset by the increase in accrued expenses and dividends payable accounted for the decrease. -11- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit totalling $5.0 million which are available for working capital purposes. Cash flows, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. Capital Resources and Requirements: Cash flows provided by operating activities during the six-month period ended July 31, 1999 amounted to $6,431,201 compared with $2,940,460 in the six-month period ended July 31, 1998, an increase of $3,490,741. Cash flows used in investing activities during the six-month period ended July 31, 1999 amounted to $526,149 compared with $1,230,318 for the six-month period ended July 31, 1998. The Company's investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments. During the six-month period ended July 31, 1998, the Company acquired certain assets of a distributor of its Stiles-Kem products, located in the Southeastern United States, for a purchase price of approximately $400,000. The purchase price was allocated to customer lists, covenants not to compete and goodwill. Financing activities during the six-month period ended July 31, 1999 utilized $6,382,010 of available resources compared to $4,897,775 for the six-month period ended July 31, 1998. The 1999 activity is the result of the payment of the annual cash dividend amounting to $1,726,750 (net of $431,329 of dividends utilized for stock purchased under the Dividend Reinvestment Plan), reduction of long-term debt totalling $1,123,987, plus the purchase of treasury stock totalling $3,546,273, offset by proceeds provided by the exercise of stock options totalling $15,000. On October 29, 1998, the Company acquired all of the operating assets of Flex-Kleen Corporation and Flex-Kleen Canada Limited from Aqua Alliance, Inc. Flex-Kleen is a manufacturer of dry particulate collectors that are used primarily in the process of manufacturing food products and pharmaceuticals. The Company paid approximately $15,000,000 in the transaction through the utilization of $3,000,000 from available resources and $12,000,000 from new borrowings of long-term debt from Mellon Bank, N.A., exclusive of assumed liabilities. On February 22, 1999, the Board of Directors declared a $.32 per share annual cash dividend (compared to the $.30 per share cash dividend paid on April 24, 1998) payable on April 23, 1999 to stockholders of record on April 9, 1999. The dividend paid on April 23, 1999 in cash and in 44,218 newly issued shares purchased by stockholders through our dividend reinvestment program represented 30.1% of the prior fiscal year earnings. On June 3, 1998, the Company announced the initiation of a 350,000 share stock repurchase program ("1998 Stock Repurchase Program"). The Company completed this stock repurchase program, during the six-month period ended July 31, 1999. On May 12, 1999, the Company announced a new stock repurchase program for an additional 350,000 shares or approximately 5% of the Company's outstanding stock, to commence after all shares have been repurchased under the 1998 Stock Repurchase Program. The new program was initiated, because in management's view, the current stock price does not reflect the true stock value. Purchases will be made from time to time in open market transactions at the prevailing prices and in accordance with applicable rules. The Company may discontinue the program at any time. For the six-month period ended July 31, 1999, the Company had repurchased 293,400 shares, 121,200 under the plan effective May 12, 1999 and 172,200 shares under the 1998 Stock Repurchase Program. -12- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... On June 2, 1999, the Board of Directors declared a quarterly dividend of $.08 per share payable on September 10, 1999 to shareholders of record at the close of business on August 20, 1999. Due to the strong cash flows generated from operating activities, the Company announced the change from an annual dividend which was traditionally paid during the month of April to a regular quarterly dividend that is expected to be paid every three months beginning in September 1999. Consistent with past practices, the Company intends to continue to invest in new product development programs, and to make capital expenditures to support the on-going operations during the coming year. The Company expects to finance all capital expenditure requirements through cash flows generated from operations. Year 2000 Compliance: The "Year 2000" issue refers to computer systems and other equipment operating on software that uses only two digits to represent the year, rather than four digits. As a result, these systems and equipment may not process information or otherwise function properly when using the year "2000", since that year will be indistinguishable from the year "1900". The Company initiated a Year 2000 program to assess and develop plans to resolve the issue both internally and externally. During 1997, the Company began developing a plan to upgrade its business and operating systems to Year 2000 compliant software. Implementation of the upgrade began in 1998 with the initial testing of the system on a limited basis prior to converting all of the Company's locations. As of May 1998, the Company had completed implementation and testing of its business and operating systems at all of the Company's facilities. The Company has surveyed its suppliers, financial institutions, and others with which it does business to determine their Year 2000 readiness and coordinate conversion efforts. Approximately 90% of third party suppliers have responded to the Company's surveys. At the current time, respondents critical to the operations of the Company have indicated that they are, or reasonably believe that they will be, Year 2000 compliant. If a material risk arises, the Company is prepared to implement procedures that will resolve the issues associated with the risks. Additionally, the Company has established programs to ensure that future purchases of equipment and software are Year 2000 compliant. While reasonable actions have been taken to address the Year 2000 problem and will continue to be taken in the future to mitigate such disruption, the magnitude of all Year 2000 disturbances cannot be predicted. Management believes that past or expected future capital requirements related to Year 2000 compliance issues will not have a material impact on the Company's consolidated financial position or results of operations. The information above contains forward-looking statements including, without limitation, statements relating to the Company's plans, strategies, objectives, expectations, intentions, and adequate resources that are made pursuant to the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995. Readers are cautioned that forward-looking statements about the Year 2000 should be read in conjunction with the Company's disclosures under the heading: Cautionary Statement Regarding Forward Looking Statements. -13- MET-PRO CORPORATION Item 2. Management's Discussion and Analysis of the Financial Condition and Results of Operations continued... Cautionary Statement Regarding Forward Looking Statements: As a cautionary note to investors, the Company and its representatives may make oral or written statements from time to time that are "forward-looking statements". This would include information concerning possible or assumed future activities, plans, results of operations of the Company and statements preceded by, followed by or that include the words "anticipates", "believes", "designed to", "estimates", "expects", "foreseeable future", "goal", "intends", "projects", "projection", "plans", "scheduled", "should" or similar expressions. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. There are a number of important factors which could cause actual results to differ materially from those anticipated. The Company believes that its future operating results will continue to be subject to quarterly variations based upon a wide variety of factors including the cyclical nature of both the business segments and the markets addressed by the Company's products, price erosion, competitive factors, the timing of new product introductions, changes in product mix, the availability and extent of utilization of manufacturing capacity, product obsolescence and the ability to develop and implement new technologies. The Company's operating results could also be impacted by sudden fluctuations in customer requirements, currency exchange rate fluctuations and other economic conditions affecting customer demand and the cost of operations in one or more of the global markets in which the Company does business. As a participant in the pollution control and fluid handling industries, the Company operates in a rapidly changing and highly competitive environment. The Company sells both custom and industrial products; accordingly, changes in the conditions or composition of any of the Company's customers may have an impact on the Company. While the Company cannot predict what effect these various factors may have on its financial results, the aggregate effect of these and other factors could result in volatility in the Company's future performance and stock price. -14- MET-PRO CORPORATION PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of the Company's stockholders was held on June 2, 1999. At that meeting, two proposals were submitted to a vote of the Company's stockholders. Proposal 1 was a proposal to elect one Director (with Jeffrey H. Nicholas being the nominee) to serve until the 2002 Annual Meeting of Stockholders. Proposal 2 was to ratify the selection of Margolis & Company P. C. as independent certified public accountants for the Company's fiscal year ending January 31, 2000. At the close of business on the record date for the meeting (which was April 9, 1999), there were 6,743,998 shares of common stock outstanding and entitled to be voted at the meeting. Holders of 6,553,893 shares of common stock (representing a like number of votes) were present at the meeting, either in person or by proxy. The following table sets forth the results of the voting on each of the proposals: Number of Votes Proposals For Against Abstain - -------------------------------------------------------------------------------------------------------------------- Proposal 1 -- Election of Director: Jeffrey H. Nicholas 6,169,770 384,123 -- - -------------------------------------------------------------------------------------------------------------------- Proposal 2 -- Selection of Margolis & Company P. C. 6,501,196 16,057 36,640 - -------------------------------------------------------------------------------------------------------------------- Consequently, all proposals were passed by the stockholders. Item 6(b). Reports on Form 8-K There were no reports on Form 8-K filed for the six-month period ended July 31, 1999. -15- MET-PRO CORPORATION SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Met-Pro Corporation ------------------------------------------- (Registrant) August 27, 1999 /s/ William L. Kacin ------------------------------------------- William L. Kacin, Chairman, President and Chief Executive Officer August 27, 1999 /s/ Gary J. Morgan ------------------------------------------- Gary J. Morgan, Vice President of Finance, Secretary and Treasurer, Chief Financial Officer, Chief Accounting Officer and Director -16-