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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, 2003 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
------------------- ----------------
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
---
Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). Yes X No
--- ---
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average of the bid and asked price of such
common equity, as of the last business day of the registrant's most recently
completed second fiscal quarter: $78,291,983
The number of shares outstanding of the Registrant's Common Stock was
6,216,369 as of April 18, 2003.
DOCUMENTS INCORPORATED BY REFERENCE
Form 10-K
Part Number
-----------
Portions of Registrant's Definitive Proxy Statement filed
pursuant to Regulation 14A in connection with Registrant's Annual
Meeting ofStockholders to be held on June 11, 2003.......................III
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INDEX
Page
PART I ----
Item 1. Business................................................................................................. 1
Item 2. Properties............................................................................................... 8
Item 3. Legal Proceedings........................................................................................ 9
Item 4. Submission of Matters to a Vote of Security Holders...................................................... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.................................... 10
Item 6. Selected Financial Data.................................................................................. 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 12
Item 7A. Quantitative and Qualitative Disclosure About Market Risks............................................... 16
Item 8. Financial Statements and Supplementary Data.............................................................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................... 37
PART III
Item 10. Directors and Executive Officers of the Registrant....................................................... 37
Item 11. Executive Compensation................................................................................... 37
Item 12. Security Ownership of Certain Beneficial Owners and Management........................................... 37
Item 13. Certain Relationships and Related Transactions........................................................... 37
PART IV
Item 14. Controls and Procedures.................................................................................. 38
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 38
SIGNATURES................................................................................................................. 39
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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 Operations - 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 five 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, where
it currently trades under the symbol "MPR".
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. Our web site address is www.met-pro.com.
We will endeavor to make available on our web site our Annual Reports on
Form 10-K, our Quarterly Reports on Form 10-Q, and our Current Reports on Form
8-K, as soon as reasonably practicable after we electronically file these
reports with the Securities and Exchange Commission ("SEC"), beginning with this
Annual Report on Form 10-K, which is being filed on April 28, 2003. Other
reports that we filed during our fiscal year ended January 31, 2003 with SEC
under the Securities Exchange Act of 1934 may at present be accessed through our
web site.
Except where otherwise indicated by the context used herein, references
to the "Company", "we", "our" and "us" refer to 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 seven divisions and/or
subsidiaries of the Company: Flex-Kleen Division; Stiles-Kem Division; Pristine
Hydrochemical Inc.; 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.
1
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 48 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.
Pristine Hydrochemical Inc., located in Williston, North Dakota, sells
the Pristine Polymer product line with its patented chlorine dioxide treatment
program. This product line improves water clarity, reduces sludge volume and
also helps customers reduce trihalomethane, as required by the EPA. In addition,
Pristine sells boiler and water cooling chemicals and services to industrial and
commercial markets allowing customers to maximize their heat transfer efficiency
and save operating revenues through energy conservation. The products are sold
directly through regional sales representatives located in the United States.
The business of Pristine was acquired by the Company in May 2002.
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 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, the 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.
2
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.
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.
United States Sales versus Foreign Sales:
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,
2003 2002 2001
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United States 84.7% 84.3% 79.5%
Foreign 15.3% 15.7% 20.5%
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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.
3
The Company is unable to state with certainty its relative market
position in all aspects of its businesses.
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 $0.6 million, $1.0 million and
$0.8 million for each of the years ended January 31, 2003, 2002 and 2001,
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, totalled $7,375,383 and $9,931,016 as of January 31, 2003 and 2002,
respectively. This does not include an additional $8,422,701 and $4,319,024 of
orders in-house as of January 31, 2003 and 2002, 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, 2003 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, 2003, the Company employed 328 people, of whom 129
were involved in manufacturing, and 199 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 71, is Chairman of the Board of Directors of the
Company, a position he has held since June 1999. Mr. Kacin served as President
and Chief Executive Officer of the Company and from February 1993 to March 2003.
Prior to that, he was Vice President and General Manager of the Company's Sethco
Division for seventeen years.
Raymond J. De Hont, age 49, is President, Chief Executive Officer and
Director of the Company. He was elected President and Chief Executive Officer in
March 2003 and a Director of the Company in February 2003. Mr. De Hont served as
the Chief Operating Officer of the Company from June 2000 to March 2003 and Vice
President and General Manager of the Company's Fybroc Division from June 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 48, 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 53, is Vice President of the Company and General
Manager of the Sethco Division, to which offices he was elected in June 1993. He
joined the Company in 1972.
James G. Board, age 49, is Vice President of the Company and General
Manager of Dean Pump and Fybroc Divisions, to which offices 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 49, is Vice President of the Company and General
Manager of the Systems Division, to which offices 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 49, is Vice President of the Company and General
Manager of the Keystone Filter Division, to which offices 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 52, 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 48, is Vice President of the Company and General
Manager of the Duall Division, to which offices 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 49, is Vice President of the Company and General
Manager of the Stiles-Kem Division and Vice President and General Manager of
Pristine Hydrochemical Inc. to which offices he was elected in October 1996 and
May 2002, respectively. 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 62, 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 44, is Vice President of the Company and General
Manager of Strobic Air Corporation, to which offices 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.
6
Dennis M. Wierzbicki, age 45, is Vice President of the Company, General
Manager of the Flex-Kleen Division and Vice President and General Manager of
Flex-Kleen Canada Inc., to which offices he was elected in February 2003. For
more than five years prior thereto, Mr. Wierzbicki was employed by American Air
Filter, as Vice President and General Manager of its Air Quality Equipment
Division since October 2000 and as Vice President of Marketing and Sales of its
Global Air Filtration Division since April 1996.
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.
7
Item 2. Properties:
The following manufacturing and production facilities were owned or leased
by the Company at January 31, 2003:
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
Pristine Hydrochemical Inc. 1,500 square feet office and Williston, North Dakota Leased
warehouse facility
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 expi res on February 9, 2005.
(2) Flex-Kleen Division's lease for the operation in Itasca, Illinois expires on
December 31, 2007.
(3) Flex-Kleen Division's lease for the warehouse in Sharpsburg, North Carolina
expires on October 29, 2004.
(4) Flex-Kleen Canada Inc.'s lease for the sales and warehouse facility in
Markham, Ontario, Canada expires on March 31, 2005.
8
Item 3. Legal Proceedings:
Recently there appears to have been a significant increase, in certain
states, in asbestos-related litigation claims against numerous industrial
companies, particularly companies in the pump and fluid handling industries.
During the last year, the Company was named as one of many defendants in a
number of such cases filed in one of these states, Mississippi. The Company,
along with the other defendants, is alleged to have sold products containing
asbestos, although as of January 31, 2003, none of the Company's products have
been specifically identified by any plaintiff in any case as a cause of the
alleged injuries. The Company believes that it has defenses to the claims that
have been asserted. Although the Company is vigorously defending all of the
cases, the amount expended by the Company to date in responding to these cases
has not been material, as most of the costs have been paid by insurance. Given
the current status of these cases, it is not possible to determine the Company's
potential liability, if any, and no provision has been made in the Company's
financial statements for any such claims.
In addition, the Company is party in a small number of legal proceedings
arising out of the ordinary course of business. Management does not currently
believe that these proceedings will materially impact the Company's results of
operations, liquidity or financial condition.
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, 2003.
9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters:
(a) Market Information. 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, 2003 April July October January
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Price range of common stock:
High $15.55 $16.02 $14.30 $14.50
Low 13.05 12.45 12.50 13.00
Cash dividend paid .085 .085 .085 .09
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
(b) Holders. There were 527 registered stockholders at January 31, 2003, and
the Company estimates that there are approximately 2,000 additional stockholders
with stock held in street name.
(c) Dividends. The Board of Directors declared quarterly dividends of $.085
per share payable on March 8, 2002, June 7, 2002, and September 6, 2002 to
stockholders of record at the close of business on February 22, 2002, May 24,
2002 and August 23, 2002, respectively. The Board of Directors declared
quarterly dividends of $.09 per share payable on December 9, 2002 and March 10,
2003 to stockholders of record as of November 29, 2002 and February 21, 2003,
respectively.
We expect to continue to pay comparable dividends during at least the next
fiscal year.
(d) Securities Authorized For Issuance under Equity Compensation Plans. Set
forth below is information aggregated as of January 31, 2003 with respect to two
equity compensation plans previously approved by the Company's stockholders,
being the 1997 Stock Option Plan and 2001 Equity Incentive Plan. Also shown is
information with respect to the Company's Year 2000 Employee Stock Purchase
Plan. The data does not include any options under the 1992 Stock Option Plan,
insofar as there were no options issued and outstanding as of January 31, 2003
nor were any options available for issuance as of such date.
Number of Securities
Remaining Available
Number of Securities For Future Issuance
to be Issued Upon Weighted-Average Under Equity
Exercise of Exercise Price of Compensation Plans
Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column (A))
- ------------------------------------------------------------------------------------------------------------------------------------
(A) (B) (C)
Equity compensation plans approved by
security holders 260,550 $11.97 559,425
Equity compensation plans not approved
by security holders - - -
10
(e) Recent Sales of Unregistered Securities. In May 2002, the Company issued
to one person an aggregate of 113,475 shares of Common Stock valued at
$1,600,000 as part of the purchase price for the stock of Pristine
Hydrochemical, Inc. These shares were not registered under the Securities Act of
1933 and were issued in reliance upon the exemption from registration afforded
by Section 4(2) of the Securities Act. The purchaser of these shares represented
to his investment intent in connection with such acquisition.
(f) Stock Repurchases. During the fiscal year ended January 31, 2003, the
Company repurchased an aggregate of 19,941 shares, at a total cost of $0.3
million, pursuant to a 300,000 share stock repurchase program authorized on
December 15, 2000. To date, an aggregate of 69,032 shares have been repurchased
through such repurchase program.
Item 6. Selected Financial Data:
Years ended January 31,
2003 2002 2001 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------
Selected Operating Statement Data
Net sales $69,619,382 $70,088,446 $81,203,550 $78,449,992 $67,390,488
Income from operations 9,154,986 9,451,925 12,513,886 11,410,679 11,199,867
Net income 5,888,379 6,189,317 7,773,720 7,072,642 7,151,052
EBITDA (a) 10,714,343 11,497,932 14,736,541 13,826,535 13,287,878
Earnings per share, basic .95 1.01 1.26 1.08 1.04
Earnings per share, diluted .95 1.01 1.26 1.08 1.03
Selected Balance Sheet Data
Current assets $40,631,745 $37,411,679 $37,412,259 $35,722,971 $38,683,453
Current liabilities 9,750,309 10,151,149 12,957,995 13,681,578 14,387,868
Working capital 30,881,436 27,260,530 24,454,264 22,041,393 24,295,585
Current ratio 4.2 3.7 2.9 2.6 2.7
Total assets 73,754,671 68,070,192 69,151,341 68,641,983 72,888,641
Long-term obligations 7,111,995 7,125,195 8,100,000 9,933,014 11,941,954
Total stockholders' equity 56,045,885 50,279,394 47,061,366 44,206,333 45,925,107
Total capitalization 63,157,880 57,404,589 55,161,366 54,139,347 57,867,061
Return on average total assets, % 8.3 9.0 11.3 10.0 10.9
Return on average stockholders' equity, % 11.1 12.7 17.0 15.7 15.9
Other Financial Data
Net cash flows from operating activities $5,831,186 $8,301,567 $10,047,845 $10,204,749 $7,990,115
Capital expenditures 752,125 1,631,356 1,023,682 1,193,559 1,191,616
Stockholders' equity per share 9.02 8.27 7.73 6.92 6.76
Cash dividends paid per share (b) .345 .34 .32 .48 .30
Average common shares, basic 6,179,618 6,109,141 6,152,325 6,542,210 6,907,654
Average common shares, diluted 6,221,496 6,143,837 6,173,437 6,576,820 6,955,892
Shares of common stock outstanding 6,216,369 6,083,172 6,090,155 6,391,242 6,794,898
==============================================================================================================================
(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.
11
Item7. 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,
2003 2002 2001
- -------------------------------------------------------------------------------------------
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 65.3% 65.7% 65.6%
- -------------------------------------------------------------------------------------------
Gross profit 34.7% 34.3% 34.4%
Selling, general and administrative expense 21.6% 20.8% 19.0%
- -------------------------------------------------------------------------------------------
Income from operations 13.1% 13.5% 15.4%
Interest expense (.7%) (.8%) (.8%)
Other income, net .4% 1.2% .6%
- -------------------------------------------------------------------------------------------
Income before taxes 12.8% 13.9% 15.2%
Provision for taxes 4.4% 5.1% 5.6%
- -------------------------------------------------------------------------------------------
Net income 8.4% 8.8% 9.6%
===========================================================================================
FYE 2003 vs FYE 2002:
Net sales for the fiscal year ended January 31, 2003 were $69.6 million
compared to $70.1 million for the fiscal year ended January 31, 2002, a decrease
of $0.5 million. Sales in the Product Recovery/Pollution Control Equipment
segment increased to $46.1 million, 3.6% higher than the prior year due
primarily to increased demand for our fume and odor control equipment. Sales in
the Fluid Handling Equipment segment were $23.5 million, 8.1% lower than the
prior fiscal year due to decreased demand for our specialty pump equipment.
Foreign sales decreased to $10.7 million for the fiscal year ended
January 31, 2003, compared to $11.0 million for the same period last year, a
3.2% decrease. Foreign sales decreased 10.5% in the Fluid Handling Equipment
segment from the prior fiscal year, and the Product Recovery/Pollution Control
Equipment segment foreign sales were 7.7% higher than the prior fiscal year due
to higher demand for our fume and odor control equipment.
Net income for the fiscal year ended January 31, 2003 was $5.9 million
compared to $6.2 million for the fiscal year ended January 31, 2002, a decrease
of $0.3 million. The decrease in net income is principally related to a $0.4
million net gain on the sale of property and equipment associated with the
Systems Division's operations during the fiscal year ended January 31, 2002,
combined with lower sales in the Company's Fluid Handling Equipment segment
during the current fiscal year.
The gross margin for the fiscal year ended January 31, 2003 increased to
34.7% versus 34.3% for the prior year. This increase can be attributed to higher
gross margins experienced in the Product Recovery/Pollution Control Equipment
segment.
Selling expense was $7.1 million for the fiscal year ended January 31,
2003 or an increase of $0.1 million over the prior year. Selling expense as a
percentage of net sales was 10.3% compared to 10.0% for the prior fiscal year.
12
General and administrative expense was $7.9 million for the fiscal year
ended January 31, 2003 compared to $7.6 million in the prior fiscal year.
General and administrative expense as a percentage of net sales was 11.3% for
the fiscal year ended January 31, 2003 compared to 10.8% for the prior fiscal
year. This increase, in dollars, is principally related to increased pension and
health care costs, offset by the reduction in amortization expense for goodwill
that is no longer being amortized per Statement of Financial Accounting
Standards ("SFAS") No. 142.
Interest expense was $0.5 million for the fiscal year ended January 31,
2003 compared to $0.6 million in the prior fiscal year.
Other income, net was $0.3 million for the fiscal year ended January 31,
2003 compared to $0.9 million for the same period in the prior year, a decrease
of $0.6 million. The reduction is the result of recording a $0.4 million net
gain on the sale of property and equipment associated with the Systems
Division's operations in West Chester, Pennsylvania during the fiscal year ended
January 31, 2002, combined with the reduction in interest rates on our
short-term investments during the current fiscal year.
The effective tax rate decreased to 34.0% for the fiscal year ended
January 31, 2003 from 36.5% for the prior year.
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.
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.
13
Liquidity:
Cash and cash equivalents were $13.4 million on January 31, 2003, an
increase of $1.6 million over the previous year. This increase is the net result
of positive cash flows provided by operating activities of $5.8 million,
proceeds from the exercise of stock options amounting to $0.4 million, offset by
the payment of cash dividends amounting to $2.0 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 totalling $1.2
million, purchase of treasury stock amounting to $0.3 million, a cash payment of
$0.4 million as part of the purchase price for Pristine Hydrochemical, and
investment in property and equipment amounting to $0.8 million.
Accounts receivable were $12.2 million at January 31, 2003, an increase
of $1.8 million compared to the prior year. The timing and size of shipments and
retainage on contracts, especially in the Product Recovery/Pollution Control
Equipment segment, will influence accounts receivable balances at any point in
time.
Inventories totalled $13.4 million at January 31, 2003, a decrease of
$0.3 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 $10.2 million at January 31, 2002 to
$9.8 million at January 31, 2003, or $0.4 million. A reduction in accounts
payable and customer advances, offset by an increase in the current portion of
long-term debt and accrued expenses, accounted for the decrease.
The Company has consistently maintained a high current ratio and has not
utilized either the domestic line of credit or the foreign line of credit
totalling $5.0 million which are available for working capital purposes. Cash
flows, in general, have exceeded the current needs of the Company. The Company
presently foresees no change in this situation in the immediate future. As of
January 31, 2003 and January 31, 2002, working capital was $30.9 million and
$27.3 million, respectively, and the current ratio was 4.2 and 3.7,
respectively.
Capital Resources and Requirements:
Cash flows provided by operating activities during the fiscal year ended
January 31, 2003 amounted to $5.8 million compared to $8.3 million during the
prior fiscal year. This decrease in cash flows from operating activities was due
principally to an increase in accounts receivable and a decrease in net income
(of which $0.4 million in the fiscal year ended January 31, 2002 was due to the
net gain on the sale of property and equipment associated with the Systems
Division's operations) and customer advances for the fiscal year ended January
31, 2003, offset by a reduction in inventory balances. Per share, our cash flows
from operating activities decreased to $.94 per share compared to $1.35 per
share for the prior year.
Cash flows used in investing activities during the fiscal year ended
January 31, 2003 amounted to $1.2 million compared to $0.5 million during the
fiscal year ended January 31, 2002. The Company's investing activities for the
fiscal year ended January 31, 2003, principally represent the acquisition of a
business during the fiscal year ended January 31, 2003 and the purchase of
property, plant and equipment in the two operating segments during both years.
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, 2003 used
$3.2 million of available resources compared to $4.4 million during the prior
fiscal year. The 2003 activity is the result of the payment of quarterly cash
dividends amounting to $2.0 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), reduction of long-term debt totalling $1.2 million, and the
purchase of treasury stock totalling $0.3 million, offset by proceeds received
by the exercise of stock options amounting to $0.4 million.
The Company paid $1.2 million of scheduled debt during the current
fiscal year. The percentage of long-term debt to equity at January 31, 2003
decreased to 12.7% compared to 14.2% at January 31, 2002.
During the fiscal year ended January 31, 2003, the Company repurchased
an aggregate of 19,941 shares at a cost of $0.3 million under the 300,000 share
stock repurchase program authorized on December 15, 2000.
14
The Board of Directors declared quarterly dividends of $.085 per share
payable on March 8, 2002, June 7, 2002 and September 6, 2002 to stockholders of
record at the close of business on February 22, 2002, May 24, 2002 and August
23, 2002, respectively, and a quarterly dividend of $.09 per share payable on
December 9, 2002 to stockholders of record as of November 29, 2002. On December
19, 2002, the Board of Directors declared a quarterly dividend of $.09 per
share, which was paid on March 10, 2003 to stockholders of record at the close
of business on February 21, 2003.
The Company accounts for its defined benefit plans in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 87, "Employers'
Accounting for Pensions". SFAS No. 87 requires a liability ("minimum pension
liability") be recorded when the accumulated benefit obligation exceeds the fair
value of plan assets. The Company has recently experienced a decline in the fair
market value of assets in the Company's non-contributory defined benefit pension
plan trust. This decline is due, in large part, to the generally weak economy
and general declines in the market value of investments. In connection with the
decline in the fair market value of these assets, at January 31, 2003, the
Company recorded an after-tax charge to stockholders' equity of $0.1 million.
As part of our commitment to the future, the Company expended $0.6
million and $1.0 million on research and development for the fiscal years ended
January 31, 2003 and 2002, 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 December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which provides
alternative methods of transition for a voluntary change to fair value based
method of accounting for stock-based employee compensation as prescribed in SFAS
No. 123. Additionally, SFAS No. 148 requires more prominent and more frequent
disclosures in financial statements about the effects of stock-based
compensation. The provisions of this Statement are effective for fiscal years
ending after December 15, 2002. Management does not expect the adoption of this
Statement to have a material impact on the Company's financial condition or
results of operations.
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. In accordance with SFAS No.142, "Goodwill and Other Intangible
Assets", which supersedes Accounting Principles Board ("APB") No.17, "Intangible
Assets", effective February 1, 2002, the Company's unamortized goodwill balance
is not being amortized over its estimated useful life; rather, it is being
assessed at least annually for impairment.
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 10 to the
consolidated financial statements and include, among others, 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.
15
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 changes in our accounting rules promulgated by regulatory agencies,
including the SEC, which could result in an impact on earnings;
o the write-down of costs in excess of net assets of businesses acquired
(goodwill), as a result of the determination that the acquired business is
impaired;
o unexpected results in our product development activities;
o loss of key customers;
o changes in product mix;
o changes in our existing management;
o exchange rate fluctuations;
o changes in federal, state laws and regulations;
o lower than anticipated return on investments, which could affect the amount
of the Company's pension liabilities;
o the assertion of litigation claims that the Company's products, including
products produced by companies acquired by the Company, infringe third party
patents or have caused injury, loss or damage;
o adverse developments in the asbestos cases that have been filed against the
Company, including without limitations adverse developments in the
availability of insurance coverage in these cases;
o the effect of acquisitions and other strategic ventures;
o failure to properly quote and/or execute customer orders, including
misspecifications, design, engineering or production errors;
o losses related to international sales; and/or
o failure in execution of acquisition strategy.
Item 7A. Quantitative and Qualitative Disclosure About Market Risks:
We have no disclosure to make with respect to this Item.
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 ................................................................................... 37
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, 2003 and 2002,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended January 31, 2003.
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, 2003 and 2002, and the
results of their operations and their cash flows for each of the three years in
the period ended January 31, 2003 in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, effective
February 1, 2002, the Company adopted Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets".
/s/ Margolis & Company P.C.
---------------------------
Bala Cynwyd, Pennsylvania
February 21, 2003
17
MET-PRO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
Years ended January 31,
2003 2002 2001
- -------------------------------------------------------------------------------------------------------------
Net sales $69,619,382 $70,088,446 $81,203,550
Cost of goods sold 45,439,557 46,060,214 53,242,396
- -------------------------------------------------------------------------------------------------------------
Gross profit 24,179,825 24,028,232 27,961,154
- -------------------------------------------------------------------------------------------------------------
Operating expenses
Selling 7,139,082 6,998,234 7,043,540
General and administrative 7,885,757 7,578,073 8,403,728
- -------------------------------------------------------------------------------------------------------------
15,024,839 14,576,307 15,447,268
- -------------------------------------------------------------------------------------------------------------
Income from operations 9,154,986 9,451,925 12,513,886
Interest expense (505,394) (557,855) (694,112)
Other income, net 278,126 852,885 524,729
- -------------------------------------------------------------------------------------------------------------
Income before taxes 8,927,718 9,746,955 12,344,503
Provision for taxes 3,039,339 3,557,638 4,570,783
- -------------------------------------------------------------------------------------------------------------
Net income $5,888,379 $6,189,317 $7,773,720
=============================================================================================================
Earnings per share
Basic $.95 $1.01 $1.26
Diluted $.95 $1.01 $1.26
=============================================================================================================
Average number of common and
common equivalent shares outstanding
Basic 6,179,618 6,109,141 6,152,325
Diluted 6,221,496 6,143,837 6,173,437
=============================================================================================================
The notes to consolidated financial statements are an integral part of the above
statement.
18
MET-PRO CORPORATION
CONSOLIDATED BALANCE SHEET
January 31,
ASSETS 2003 2002
- --------------------------------------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $13,429,367 $11,832,260
Accounts receivable, net of allowance for
doubtful accounts of approximately
$263,000 and $229,000, respectively 12,217,315 10,465,069
Inventories 13,374,128 13,701,676
Prepaid expenses, deposits and other current assets 979,714 911,457
Deferred income taxes 631,221 501,217
- --------------------------------------------------------------------------------------------------------------
Total current assets 40,631,745 37,411,679
Property, plant and equipment, net 11,950,422 12,505,114
Costs in excess of net assets of businesses acquired, net 20,798,913 17,780,767
Other assets 373,591 372,632
- --------------------------------------------------------------------------------------------------------------
Total assets $73,754,671 $68,070,192
==============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------
Current liabilities
Current portion of long-term debt $1,536,926 $1,231,469
Accounts payable 2,810,002 3,094,300
Accrued salaries, wages and expenses 4,827,241 4,558,576
Dividend payable 559,167 517,070
Customers' advances 16,973 749,734
- --------------------------------------------------------------------------------------------------------------
Total current liabilities 9,750,309 10,151,149
Long-term debt 7,111,995 7,125,195
Other non-current liabilities 36,621 34,424
Deferred income taxes 809,861 480,030
- --------------------------------------------------------------------------------------------------------------
Total liabilities 17,708,786 17,790,798
- --------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' equity
Common stock, $.10 par value; 18,000,000 shares
authorized, 7,226,303 and 7,219,165 shares issued,
of which 1,009,934 and 1,135,993 shares were reacquired
and held in treasury at the respective dates 722,630 721,916
Additional paid-in capital 8,196,782 7,879,368
Retained earnings 59,705,267 55,990,079
Accumulated other comprehensive loss (541,959) (827,737)
Treasury stock, at cost (12,036,835) (13,484,232)
- --------------------------------------------------------------------------------------------------------------
Total stockholders' equity 56,045,885 50,279,394
- --------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $73,754,671 $68,070,192
==============================================================================================================
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,
2003 2002 2001
- -----------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities
Net income $5,888,379 $6,189,317 $7,773,720
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,559,357 2,046,007 2,222,655
Deferred income taxes 379,874 155,419 256,998
(Gain) loss on sales of property and equipment, net (5,247) (472,895) 12,656
Allowance for doubtful accounts 34,188 10,721 (6,576)
(Increase) decrease in operating assets,
net of acquisition
Accounts receivable (1,420,024) 3,658,676 (515,006)
Inventories 591,932 (687,317) 631,810
Prepaid expenses and other current assets (52,207) 115,808 92,357
Other assets (8,408) (8,092) (52,309)
Increase (decrease) in operating liabilities,
net of acquisition
Accounts payable and accrued expenses (406,094) (2,933,944) (181,137)
Customers' advances (732,761) 140,289 (270,987)
Other non-current liabilities 2,197 87,578 83,664
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,831,186 8,301,567 10,047,845
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sales of property and equipment 19,347 1,095,456 2,000
Acquisitions of property and equipment (752,125) (1,631,356) (1,023,682)
Payment for purchase of acquisition (465,673) - -
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) investing activities (1,198,451) (535,900) (1,021,682)
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Proceeds from new borrowing 16,373 - -
Reduction of debt (1,235,974) (1,741,711) (2,008,940)
Exercise of stock options 353,229 1,092,253 -
Payment of dividends (2,029,579) (1,934,132) (1,806,361)
Purchase of treasury shares (289,218) (1,793,435) (3,018,786)
- -----------------------------------------------------------------------------------------------------------
Net cash (used in) financing activities (3,185,169) (4,377,025) (6,834,087)
- -----------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash 149,541 (66,427) (13,587)
- -----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,597,107 3,322,215 2,178,489
Cash and cash equivalents at beginning of year 11,832,260 8,510,045 6,331,556
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $13,429,367 $11,832,260 $8,510,045
===========================================================================================================
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, 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
Comprehensive income:
Net income - - 5,888,379 - -
Cumulative translation adjustment - - - 617,563 -
Interest rate swap, net of tax of $109,056 - - - (202,802) -
Minimum pension liability adjustment,
net of tax of $70,991 - - - (128,983) -
Total comprehensive income 6,174,157
Issuance of treasury stock for acquisition
of business - 250,782 - - 1,349,218 1,600,000
Dividends paid, $.345 per share - - (1,614,024) - - (1,614,024)
Dividend declared, $.09 per share - - (559,167) - - (559,167)
Proceeds from issuance of common
stock under dividend reinvestment
plan (7,138 shares) 714 100,801 - - - 101,515
Stock option transactions - (34,169) - - 387,397 353,228
Purchase of 19,941 shares of
treasury stock - - - - (289,218) (289,218)
- ------------------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 2003 $722,630 $8,196,782 $59,705,267 ($541,959) ($12,036,835) $56,045,885
====================================================================================================================================
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,
2003 2002 2001
- -------------------------------------------------------------------------------------------------
Net sales to unaffiliated customers
Product recovery/pollution control equipment $46,094,834 $44,498,316 $51,650,730
Fluid handling equipment 23,524,548 25,590,130 29,552,820
- -------------------------------------------------------------------------------------------------
$69,619,382 $70,088,446 $81,203,550
Includes foreign sales of:
Product recovery/pollution control equipment $4,777,495 $4,437,309 $7,787,437
Fluid handling equipment 5,907,012 6,598,746 8,846,889
- -------------------------------------------------------------------------------------------------
$10,684,507 $11,036,055 $16,634,326
=================================================================================================
Income from operations
Product recovery/pollution control equipment $6,039,173 $5,144,940 $7,066,793
Fluid handling equipment 3,115,813 4,306,985 5,447,093
- -------------------------------------------------------------------------------------------------
$9,154,986 $9,451,925 $12,513,886
=================================================================================================
Depreciation and amortization expense
Product recovery/pollution control equipment $859,590 $1,303,761 $1,450,025
Fluid handling equipment 699,767 742,246 772,630
- -------------------------------------------------------------------------------------------------
$1,559,357 $2,046,007 $2,222,655
=================================================================================================
Capital expenditures
Product recovery/pollution control equipment $301,437 $675,435 $442,662
Fluid handling equipment 315,409 746,241 448,685
- -------------------------------------------------------------------------------------------------
616,846 1,421,676 891,347
Corporate 135,279 209,680 132,335
- -------------------------------------------------------------------------------------------------
$752,125 $1,631,356 $1,023,682
=================================================================================================
Identifiable assets at January 31
Product recovery/pollution control equipment $41,396,626 $38,945,179 $40,274,449
Fluid handling equipment 18,417,187 18,209,157 18,785,577
- -------------------------------------------------------------------------------------------------
59,813,813 57,154,336 59,060,026
Corporate 13,940,858 10,915,856 10,091,315
- -------------------------------------------------------------------------------------------------
$73,754,671 $68,070,192 $69,151,341
=================================================================================================
The Company follows the practice of allocating general corporate expenses,
including depreciation and amortization expense, between the segments.
22
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001
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., Strobic Air
Corporation ("Strobic Air"), MPC Inc. and Pristine Hydrochemical Inc.
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
4).
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 5).
Costs in excess of net assets of businesses acquired:
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 was 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 became effective for
the Company 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 is required to test
goodwill for impairment at least annually. The Company performed its
annual impairment test in the second quarter of the fiscal year ended
January 31, 2003 using a fair value approach. No impairment was present
upon performing this test. At January 31, 2003, costs in excess of net
assets of businesses acquired associated with the Company's reportable
business segments totalled $20,798,913. The Company cannot predict the
occurrence of certain events that might adversely affect the reportable
value of costs in excess of net assets of businesses acquired.
23
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
If SFAS No. 142 had been in effect during the years ended January 31,
2002 and 2001, the Company's earnings would have been improved because
of reduced amortization, as described below:
January 31,
2003 2002 2001
---------------------------------------------------------------------------------------------------------
Net income as reported $5,888,379 $6,189,317 $7,773,720
Add: amortization - 314,775 312,294
---------------------------------------------------------------------------------------------------------
Adjusted net income $5,888,379 $6,504,092 $8,086,014
=========================================================================================================
Basic earnings per share as reported $.95 $1.01 $1.26
Add: amortization - .05 .05
---------------------------------------------------------------------------------------------------------
Adjusted basic earnings per share $.95 $1.06 $1.31
=========================================================================================================
Diluted earnings per share as reported $.95 $1.01 $1.26
Add: amortization - .05 .05
---------------------------------------------------------------------------------------------------------
Adjusted diluted earnings per share $.95 $1.06 $1.31
=========================================================================================================
The changes in the carrying amount of costs in excess of net assets of
businesses acquired by business segment for the fiscal year ended
January 31, 2003 are as follows:
Product Recovery/
Pollution Control Fluid Handling
Equipment Equipment Total
---------------------------------------------------------------------------------------------------------
Balance as of February 1, 2002 $16,048,285 $1,732,482 $17,780,767
Goodwill acquired during the period 3,018,146 - 3,018,146
---------------------------------------------------------------------------------------------------------
Balance as of January 31, 2003 $19,066,431 $1,732,482 $20,798,913
=========================================================================================================
Revenue recognition:
Revenues are generally recognized when products are shipped.
Advertising:
Advertising costs are charged to operations in the year incurred and
were $1,299,908, $1,403,366 and $1,344,231 for the years ended January
31, 2003, 2002 and 2001, respectively.
Research and development:
Research and development costs are charged to operations in the year
incurred and were $624,098, $979,813 and $788,777 for the years ended
January 31, 2003, 2002 and 2001, respectively.
Earnings per share:
Basic earnings per share are computed based on the weighted average
number of common shares outstanding during each year.
Diluted earnings per share are computed based on the weighted average
number of shares outstanding plus all potential dilutive common shares
outstanding (stock options) during each year.
24
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
Dividends:
On December 19, 2002, the Board of Directors declared a $.09 per share
quarterly cash dividend payable on March 10, 2003 to stockholders of
record on February 21, 2003, amounting to $559,167.
Stock options:
The Company accounts for stock options under the provisions of
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. Accounting for
the issuance of stock options under the provisions of APB No. 25
typically does not result in compensation expense for the Company since
the exercise price of options is normally established at the market
price of the Company's Common Stock on the date granted. SFAS No. 123,
"Accounting for Stock-Based Compensation", provides that the related
expense may be recorded in the basic financial statements or the pro
forma effect on earnings may be disclosed in the financial statements.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, which requires that the information be
determined as if we had accounted for our stock options under the
fair value method. The fair value for these options was estimated at the
date of grant using the Black-Scholes pricing model with the following
assumptions: risk-free interest rates ranging from 2.5% to 5.9%,
dividend yield ranging from 2.8% to 3.9%, expected volatility of the
market price of the Company's Common Stock ranging from 26% to 30%, and
an expected option life of five years.
The risk-free interest rate is based on five-year treasury bill rates.
For the purposes of pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting periods.
The pro forma information compared to reported information for the three
years ended January 31 is presented in the following table:
2003 2002 2001
-----------------------------------------------
Net income:
As reported $5,888,379 $6,189,317 $7,773,720
Pro forma 5,788,478 6,097,825 7,709,076
Basic earnings per share:
As reported $.95 $1.01 $1.26
Pro forma .94 1.00 1.25
Diluted earnings per share:
As reported $.95 $1.01 $1.26
Pro forma .93 .99 1.25
===============================================
The pro forma effects of applying SFAS No. 123 to fiscal 2003, 2002 and
2001 may not be representative of the pro forma effects in future years.
Based on the vesting schedule of the Company's stock option grants, the
pro forma effects on earnings are most pronounced in the early years
following each grant. The timing and magnitude of any future grants is
at the discretion of the Company's Board of Directors and cannot be
assured.
Non-employee directors of the Company are eligible to receive stock
options for Common Stock. These stock options are accounted for the same
as stock options granted to employees.
25
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist of cash and cash equivalents (see
Note 2), and trade accounts receivable. 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. It is the policy of management to review the
outstanding accounts receivable at the end of each reporting period, as
well as the bad debt write-offs experienced in the past, and establish
an allowance for doubtful accounts for uncollectable amounts.
Supplemental cash flow information:
2003 2002 2001
-----------------------------------------------------------------------
Cash paid during the year for:
Interest $465,728 $560,697 $819,054
Income taxes $2,732,862 $3,431,219 $3,689,100
=======================================================================
Recent accounting pronouncements:
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure", which provides
alternative methods of transition for a voluntary change to a fair value
based method of accounting for stock-based employee compensation as
prescribed in SFAS No. 123. Additionally, SFAS No. 148 requires more
prominent and more frequent disclosures in financial statements about
the effects of stock-based compensation. The provisions of this
Statement are effective for fiscal years ending after December 15, 2002.
Management does not expect the adoption of this Statement to have a
material impact on the Company's financial condition or results of
operations.
Reclassifications:
Certain reclassifications have been made to the financial statements for
the fiscal year ended January 31, 2002 to conform with the presentation
of the financial statements for the fiscal year ended January 31, 2003.
Such reclassifications did not have any impact on stockholders' equity
and net income as of and for the year ended January 31, 2002.
NOTE 2: FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents:
Short-term investments at January 31, 2003 and 2002 were valued at cost
(approximating market) and amounted to $12,526,044 and $10,686,472,
respectively. Short-term investments consist principally of commercial
paper with an original maturity of six 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.
26
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
Debt:
The fair value and carrying amount of long-term debt was as follows:
January 31,
2003 2002
----------------------------------------------------------------------
Fair value $8,693,870 $8,350,325
Carrying amount 8,648,921 8,356,664
======================================================================
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 6) 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.
NOTE 3: ACQUISITION OF BUSINESS
Effective May 22, 2002, the Company, pursuant to an Agreement and Plan
of Merger, acquired 100% of the Common Stock of Pristine Hydrochemical
Inc. ("Pristine") for a purchase price of approximately $3,200,000. The
results of Pristine's operations have been included in the consolidated
financial statements since that date. The acquisition was accounted for
as a purchase transaction. Pristine sells water treatment chemicals and
services to municipal water utilities, and boiler and water cooling
chemicals and services to industrial and commercial markets. It is
expected that Pristine will complement the operations of the Company's
Stiles-Kem Division.
The acquisition was completed by issuing Common Stock from the treasury
valued at $1,600,000 (113,475 shares), a cash payment of $400,000,
promissory notes payable for $1,200,000, plus acquisition costs. The
notes are payable over a four-year period in installments of $300,000
annually, plus interest at a fixed rate of 4.75% (see Note 6). Goodwill
totalling approximately $3,018,000 was acquired.
The following unaudited pro forma summary presents the consolidated
results of operations for the fiscal years ended January 31, 2003 and
2002 as if the Company had acquired Pristine on February 1, 2001:
January 31,
2003 2002
-------------------------------------
Net sales $70,391,540 $72,306,135
Income before taxes 9,085,238 10,199,364
Net income 5,996,257 6,476,596
Earnings per share, basic $.97 $1.06
Earnings per share, diluted $.96 $1.05
=====================================
27
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
NOTE 4: INVENTORIES
Inventories consisted of the following:
January 31,
2003 2002
----------------------------------------------------------------------
Raw materials $7,066,298 $7,369,965
Work in process 1,366,127 1,559,273
Finished goods 4,941,703 4,772,438
----------------------------------------------------------------------
$13,374,128 $13,701,676
======================================================================
At January 31, 2003 and 2002, inventories valued at the last-in,
first-out method ("LIFO") were $2,257,859 and $2,211,522, respectively.
The LIFO value of inventories was lower than replacement cost by
$942,516 and $909,793 at January 31, 2003 and 2002, respectively.
The book basis of LIFO inventories exceeded the tax basis by
approximately $1,026,000 at both January 31, 2003 and 2002 as a result
of applying the provisions of Accounting Principles Board Opinion No.
16, "Business Combinations", to an acquisition completed in a prior
year.
NOTE 5: PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
January 31,
2003 2002
------------------------------------------------------------
Land $2,057,581 $1,963,882
Buildings and improvements 11,040,510 10,808,463
Machinery and equipment 11,324,083 10,391,578
Furniture and fixtures 4,485,052 4,300,390
Automotive equipment 982,895 1,016,212
Construction in progress 87,059 619,089
------------------------------------------------------------
29,977,180 29,099,614
Less accumulated depreciation 18,026,758 16,594,500
------------------------------------------------------------
$11,950,422 $12,505,114
============================================================
Depreciation of property, plant and equipment charged to operations
amounted to $1,486,083, $1,461,478 and $1,454,467 for the years ended in
2003, 2002 and 2001, respectively.
28
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
NOTE 6: DEBT
Short-term debt:
The Company has available both domestic and foreign unsecured lines of
credit totalling $5,000,000 which can be used for working capital. The
lines of credit were not used during either year.
Long-term debt:
Long-term debt consisted of the following:
January 31,
2003 2002
----------------------------------------------------------------------------
Note payable, bank, payable in
quarterly installments of $300,000,
plus interest at a fixed rate swap of
5.98%, maturing October, 2008 $6,900,000 $8,100,000
Various equipment notes, payable in monthly
installments ranging from $455 to
$1,074, maturing November
2004 through March 2005, no
interest 71,702 91,303
Notes payable, payable in annual
installments of $300,000, plus
interest at a fixed rate of 4.75%,
maturing May, 2006 1,200,000 -
-----------------------------------------------------------------------------
8,171,702 8,191,303
Less current portion 1,536,926 1,231,469
-----------------------------------------------------------------------------
6,634,776 6,959,834
Fair market value of interest rate
swap liability 477,219 165,361
-----------------------------------------------------------------------------
Long-term portion $7,111,995 $7,125,195
=============================================================================
The note payable, bank is subject to certain covenants, including
maintenance of prescribed amounts of leverage and fixed charge coverage
ratios.
29
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
Maturities of long-term debt are as follows:
Year Ending
January 31,
---------------------------------------------------------------
2004 $1,536,926
2005 1,533,866
2006 1,500,910
2007 1,500,000
2008 1,200,000
Thereafter 900,000
---------------------------------------------------------------
$8,171,702
===============================================================
Interest expense was $505,394, $557,855 and $694,112 for the years ended
in 2003, 2002 and 2001, respectively.
NOTE 7: 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, 2003, the Company repurchased 19,941 shares of its Common
Stock at a cost of $0.3 million. At January 31, 2003, the Company had
the authority to repurchase 230,968 shares under the December 15, 2000
stock repurchase program.
The Company has a Shareholders' 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 8: INCOME TAXES
The provision for income taxes was comprised of the following:
2003 2002 2001
-----------------------------------------------------------------------
Current
Federal $2,291,842 $2,675,479 $3,408,005
State 275,729 552,851 662,757
Foreign 91,894 173,889 243,023
-----------------------------------------------------------------------
2,659,465 3,402,219 4,313,785
Deferred 379,874 155,419 256,998
-----------------------------------------------------------------------
$3,039,339 $3,557,638 $4,570,783
=======================================================================
30
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (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:
2003 2002
-------------------------------------------------------------------------------
Deferred tax assets
Inventory cost capitalization $152,674 $163,501
Pension cost 639,327 597,996
Non-compete agreements 395,783 463,236
Excess of tax over book basis of
property acquired in acquisition 8,954 -
Other 449,226 181,374
-------------------------------------------------------------------------------
Total deferred tax assets 1,645,964 1,406,107
-------------------------------------------------------------------------------
Deferred tax liabilities
Accelerated depreciation 478,219 308,424
Inventory - Dean Pump Division 364,438 374,706
Excess of book over tax basis of
property acquired in acquisitions - 8,893
Goodwill 981,947 692,897
-------------------------------------------------------------------------------
Total deferred tax liabilities 1,824,604 1,384,920
-------------------------------------------------------------------------------
Net deferred tax assets/(liabilities) ($178,640) $21,187
===============================================================================
A reconciliation of the federal statutory rate and the Company's
effective tax rate is presented as follows:
2003 2002 2001
----------------------------------------------------------------------------------------------------------------------
Computed expected
tax expense
(federal) $3,035,424 34.0% $3,313,965 34.0% $4,197,131 34.0%
State income taxes,
net of federal
income tax benefit 188,981 2.1 306,012 3.2 403,528 3.2
Other (185,066) (2.1) (62,339) (.7) (29,876) (.2)
----------------------------------------------------------------------------------------------------------------------
Effective income taxes $3,039,339 34.0% $3,557,638 36.5% $4,570,783 37.0%
======================================================================================================================
NOTE 9: 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, 2003 were as follows:
2004 $260,829
2005 201,419
2006 147,761
2007 119,189
2008 107,206
Rental expense for the above operating leases during the years ended in
2003, 2002 and 2001 was $466,911, $474,910 and $411,929, respectively.
31
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
NOTE 10: 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.
A minimum pension liability adjustment was recorded in the fourth
quarter of the fiscal year ended January 31, 2003 as a liability with a
corresponding decrease to stockholders' equity. At January 31, 2003, the
Company recorded an after-tax charge to stockholders' equity of
$128,983.
Net periodic pension cost (income) included the following components:
2003 2002 2001
--------------------------------------------------------------------------------
Service cost - benefits earned
during the period $574,129 $570,695 $583,387
Interest cost on projected
benefit obligation 881,278 836,860 788,141
Expected return on assets (1,064,136) (1,178,322) (1,158,685)
Amortization 31,332 (440,135) (515,449)
--------------------------------------------------------------------------------
$422,603 ($210,902) ($302,606)
================================================================================
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, 2003 and 2002:
2003 2002
---------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at beginning of year $12,876,395 $10,532,088
Service cost 574,129 570,695
Interest cost 881,278 836,860
Actuarial (gain) loss (302,479) 911,170
Benefits paid (666,722) (634,258)
Other 44,698 659,840
---------------------------------------------------------------------------------------
Benefit obligation at end of year $13,407,299 $12,876,395
---------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year $12,125,268 $15,003,327
Actual loss on plan assets (1,080,918) (2,303,801)
Employer contribution 460,000 60,000
Benefits paid (666,722) (634,258)
---------------------------------------------------------------------------------------
Fair value of plan assets at end of year $10,837,628 $12,125,268
---------------------------------------------------------------------------------------
Funded status ($2,569,671) ($751,127)
Unrecognized actuarial (gain) loss 130,739 (1,766,672)
Unrecognized transition (asset) (112,920) (123,435)
Unrecognized prior service costs 936,738 988,723
Contribution after measurement date, prior year 15,000 15,000
---------------------------------------------------------------------------------------
Net amount recognized ($1,600,114) ($1,637,511)
---------------------------------------------------------------------------------------
Amounts recognized in the balance sheet consist of:
Accrued benefit liability ($1,600,114) ($1,637,511)
=======================================================================================
32
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
Assumptions used in the accounting for pension costs were:
2003 2002 2001
----------------------------------------------------------------------
Discount rate 7.00% 7.00% 7.75%
Rate of increase in
compensation levels
(where applicable) 4.50% 4.50% 4.50%
Expected long-term rate of
return on assets 9.00% 9.00% 8.00%
======================================================================
Directors' Benefit Plan:
The Company also provides a non-qualified pension plan for Directors
which is presently 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 $711,693 and $708,881 at January 31, 2003 and 2002,
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:
The Company has a 401(k) profit sharing plan in which 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 $206,257, $206,866 and $208,975, for the years
ended January 31, 2003, 2002 and 2001, 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 for the fiscal years ended in 2003,
2002 and 2001. 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:
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"). As
of January 31, 2003, the Company had not granted any options from the
2001 Plan. All of these plans contain anti-dilution provisions that
apply to stock splits and stock dividends declared by the Company.
33
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
The status of the plans was as follows:
1992 Plan 2003 2002 2001
----------------------------------------------------------------------------------------------------------
Options outstanding, beginning - 121,025 121,025
Grants - - -
Exercises - 113,525 -
Cancellations - 7,500 -
Options outstanding, ending - - 121,025
Options price range at January 31 - $5.00 $5.00
to to
$13.13 $13.13
Options exercisable at January 31 - - 121,025
----------------------------------------------------------------------------------------------------------
Options available for grant at January 31 0 0 0
1997 Plan 2003 2002 2001
----------------------------------------------------------------------------------------------------------
Options outstanding, beginning 203,375 132,075 134,950
Grants 93,500 83,800 1,325
Exercises 32,525 12,500 -
Cancellations 3,800 - 4,200
Options outstanding, ending 260,550 203,375 132,075
Options price range at January 31 $9.75 $9.75 $9.75
to to to
$15.50 $15.50 $15.50
----------------------------------------------------------------------------------------------------------
Options exercisable at January 31 230,781 145,655 95,324
----------------------------------------------------------------------------------------------------------
Options available for grant at January 31 9,425 102,925 186,725
==========================================================================================================
The weighted average exercise prices of the Company's employee stock
option plans were as follows:
2003 2002 2001
----------------------------------------------------------------------------------------------------------
Options outstanding, beginning $11.26 $ 9.75 $9.76
Grants $13.15 $12.08 $9.75
Exercises $10.86 $ 8.67 -
Cancellations $12.87 $13.13 $9.88
Options outstanding, ending $11.97 $11.26 $9.75
==========================================================================================================
34
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
NOTE 11: OTHER INCOME, NET
Other income, net, was comprised of the following:
2003 2002 2001
------------------------------------------------------------------
Gain/(loss) on sales of property
and equipment $5,248 $472,895 ($12,656)
Other, primarily interest income 272,878 379,990 537,385
------------------------------------------------------------------
$278,126 $852,885 $524,729
NOTE 12: 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 13: GEOGRAPHIC INFORMATION
Transfers between geographic areas are accounted for at cost and
consistent with rules and regulations of governing tax authorities. Such
transfers are eliminated in the consolidated financial statements.
Income from operations by geographic segment includes an allocation of
general corporate expenses. Identifiable assets are those that can be
directly associated with the geographic area. Geographic information for
the three years ended January 31 is presented in the following table:
2003 2002 2001
---------------------------------------------------------------------------------------------------
Net sales:
United States $58,934,875 $59,052,391 $64,569,224
Foreign 10,684,507 11,036,055 16,634,326
---------------------------------------------------------------------------------------------------
$69,619,382 $70,088,446 $81,203,550
===================================================================================================
Income from operations:
United States $8,093,077 $8,337,026 $10,822,911
Foreign 1,061,909 1,114,899 1,690,975
---------------------------------------------------------------------------------------------------
$9,154,986 $9,451,925 $12,513,886
===================================================================================================
Total assets:
United States $69,012,399 $63,813,498 $64,620,734
Foreign 4,742,272 4,256,694 4,530,607
---------------------------------------------------------------------------------------------------
$73,754,671 $68,070,192 $69,151,341
===================================================================================================
35
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 (Continued)
NOTE 14: CONTINGENCIES
Recently there appears to have been a significant increase, in certain
states, in asbestos-related litigation claims against numerous
industrial companies, particularly companies in the pump and fluid
handling industries. During the last year, the Company was named as one
of many defendants in a number of such cases filed in one of these
states, Mississippi. The Company, along with the other defendants, is
alleged to have sold products containing asbestos, although as of
January 31, 2003, none of the Company's products have been specifically
identified by any plaintiff in any case as a cause of alleged injuries.
The Company believes that it has defenses to the claims that have been
asserted. Although the Company is vigorously defending all of the cases,
the amount expended by the Company to date in responding to these cases
has not been material, as most of the costs have been paid by insurance.
Given the current status of these cases, it is not possible to determine
the Company's potential liability, if any, and no provision has been
made in the Company's financial statements for any such claims.
In addition, the Company is party in a small number of legal proceedings
arising out of the ordinary course of business. Management does not
currently believe that these proceedings will materially impact the
Company's results of operations, liquidity or financial condition.
36
QUARTERLY FINANCIAL DATA (Unaudited)
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
Earnings Earnings
Per Share, Per Share,
2003 Net Sales Gross Profit Net Income Basic Diluted
- -----------------------------------------------------------------------------------------------------------------
First Quarter $16,193,880 $5,528,831 $1,200,128 $.20 $.20
Second Quarter 18,278,083 6,176,474 1,433,166 .23 .23
Third Quarter 16,671,696 6,045,425 1,440,616 .23 .23
Fourth Quarter 18,475,723 6,429,095 1,814,469 .29 .29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure:
During the period since before February 1, 2001, the Company's
independent auditors have been the same firm.
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 2003
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 2003 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 2003 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 2003 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.
37
PART IV
Item 14. Controls and Procedures:
Within the ninety (90) day period prior to the date of this Annual
Report on Form 10-K, we carried out an evaluation, under the supervision of and
with the participation of our management including the Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of
our disclosure controls and procedures pursuant to Rule 13a-14 and 15d-14 of the
Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that
evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosures are effective in timely alerting them to material
information relating to us, including our consolidated subsidiaries, required to
be included in our Exchange Act filing.
There have been no significant changes in our internal controls or in
other factors that could significantly affect controls subsequent to the date we
carried out our evaluation.
Item 15. 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. Reports on Form 8-K:
The Company did not file any Current Reports on Form 8-K during the
fourth quarter of the fiscal year covered by this Annual Report.
C. Exhibits, Including Those Incorporated by Reference:
See the Exhibit Index which follows.
38
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 28, 2003 By: /s/ Raymond J. De Hont
- ------------------ --------------------------------
Date Raymond J. De Hont
Chief Executive Officer
and Director
Pursuant to the requirement of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ---------
/s/ William L. Kacin Chairman, April 28, 2003
- ----------------------------
William L. Kacin
/s/ Raymond J. De Hont President, April 28, 2003
- ---------------------------- Chief Executive
Raymond J. De Hont Officer and
Director
/s/ Gary J. Morgan Vice President-Finance, April 28, 2003
- ---------------------------- Secretary, Treasurer,
Gary J. Morgan Chief Financial Officer,
Chief Accounting Officer
and Director
/s/ Alan Lawley Director April 28, 2003
- ----------------------------
Alan Lawley
/s/ Nicholas DeBenedictis Director April 28, 2003
- ----------------------------
Nicholas DeBenedictis
/s/ Jeffrey H. Nicholas Director April 28, 2003
- ----------------------------
Jeffrey H. Nicholas
/s/ Michael J. Morris Director April 28, 2003
- ----------------------------
Michael J. Morris
39
MET-PRO CORPORATION
CERTIFICATION UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Raymond J. De Hont, certify that:
1. I have reviewed this Annual Report on Form 10-K of Met-Pro
Corporation;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Annual Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Annual Report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within ninety (90) days
prior to the filing date of this Annual Report (the "Evaluation
Date"); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in
this Annual Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Raymond J. De Hont April 28, 2003
- -------------------------
Raymond J. De Hont
Chief Executive Officer
40
MET-PRO CORPORATION
CERTIFICATION UNDER SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Gary J. Morgan, certify that:
1. I have reviewed this Annual Report on Form 10-K of Met-Pro
Corporation;
2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this Annual Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this Annual Report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
Annual Report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within ninety (90) days
prior to the filing date of this Annual Report (the "Evaluation
Date"); and
c) presented in this Annual Report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this Annual Report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
/s/ Gary J. Morgan April 28, 2003
- ----------------------------
Gary J. Morgan
Chief Financial Officer
41
Exhibit Index
Exhibit No. Description
----------- -----------
(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.*
(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.*
42
Exhibit Index
Exhibit No. Description
----------- -----------
(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 Retirement Plan, incorporated by
reference to Company's Annual Report on Form 10-K filed on May
4, 2001.*
(10)(k) Amendment No. 1 to the Company's Director's Retirement Plan,
incorporated by reference to Company's Annual Report on Form
10-K filed on May 4, 2001.*
(10)(l) Amendment No. 2 to the Company's Director's Retirement 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 to 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 Equity Incentive Plan, incorporated by reference to
Company's Registration Statement on Form S-8 filed August 22,
2001.*
(10)(q) Year 2000 Employee Stock Purchase Plan, incorporated by
reference to the Company's Registration Statement on Form S-8
filed on June 13, 2000.*
(10)(r) Salaried Pension Plan Amended and Restated effective September
1, 2000.*
(10)(s) First Amendment to the Company's Salaried Pension Plan dated
August 15, 2002.*
(10)(t) Second Amendment to the Company's Salaried Pension Plan dated
October 23, 2002.*
(10)(u) Amendment No. 3 to the Company's Directors' Retirement Plan
dated as of February 24, 2003.*
(10)(v) Amendment No. 1 to the Company's Additional 1 % Supplemental
Executive Plan dated as of March 21, 2003.*
(10)(w) Directors Retirement Plan Trust dated as of February 11,
2000.*
(10)(x) Amendment No. 1 to the Company's Directors' Retirement Plan
Trust dated as of February 24, 2003.*
(10)(y) Amendment No. 2 to the Company's Directors' Retirement Plan
Trust dated as of February 24, 2003.*
(10)(z) Restoration and Supplemental Executive Retirement Plan Trust
Agreement dated as of February 11, 2000.*
(10)(aa) Amendment No. 1 to the Company's Restoration and Supplemental
Executive Retirement Plan Trust Agreement dated as of February
24, 2003.*
(11) Statement Re-computation of Per Share Earnings. See page 18 of
Item 8.
43
Exhibit Index
Exhibit No. Description
----------- -----------
(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
MPC Inc. Delaware MPC Inc.,
a wholly-owned subsidiary of
Met-Pro Corporation
Pristine Hydrochemical Inc. Delaware Pristine Hydrochemical Inc.,
a wholly-owned subsidiary of
Met-Pro Corporation
(23) Consent of Independent Auditors.
(99.1) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.2) Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
* Indicates management contract or compensatory plan or arrangement.
44