10-K 1 fye2004-10k.htm 10K FISCAL YEAR END 01/31/04 10K Fiscal Year End 01/31/04
 
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, 2004

Commission file number 001-07763

 
MET-PRO CORPORATION
(Exact name of registrant as specified in its charter)
 
Pennsylvania
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 Shares, par value $0.10 per share

  

New York Stock Exchange

 
Securities registered pursuant to Section 12(g) of the Act:

Common Shares, 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: $94,302,728
 
The number of Registrant’s outstanding Common Shares was 8,349,940 as of April 13, 2004.
   
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 of Shareholders to be held on June 9, 2004.
  

III

 
 
     
 
 



 
     

Index

 


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 – Forward-Looking Statements; 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.
 



 
General:

   Met-Pro Corporation (“Met-Pro” or the “Company”), incorporated in the State of Delaware on March 30, 1966 and reincorporated in the State of Pennsylvania on July 31, 2003, 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 Shares 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 website address is www.met-pro.com.

   Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K filed pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended, are made available free of charge on or through our website at www.met-pro.com as reasonably practicable after such reports are filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). Copies of our (i) Corporate Governance Guidelines, (ii) charters for the Audit Committee, Compensation and Stock Option Committee, and Corporate Governance and Nominating Committee, and (iii) Code of Business Conduct and Ethics are available at www.met-pro.com under the “Investor Relations – Corporate Governance” captions. Copies will also be provided to any shareholder upon written request to Secretary, Met-Pro Corporation, 160 Cassell Road, P.O. Box 144, Harleysville, Pennsylvania 19438.

   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
 
 

1

     

Index

 
present, Flex-Kleen’s products are sold through 47 manufacturer’s representatives in 25 offices located across the United States and 12 manufacturer’s representatives located in four offices throughout Canada.

Stiles-Kem Division, located in Waukegan, Illinois, is a leading manufacturer of safe and reliable water treatment compounds which have been used in the public drinking water industry for 49 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.

Sethco Division, located on Long Island, New York, designs, manufactures and sells corrosion resistant pumps, filter housings and filter systems with flow rates to about 250 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 laboratory fume hood exhaust systems and 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 in 74 offices worldwide.

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 chemical and biological odor control systems, fume and emergency gas scrubbers, Hydro-Lance™, particulate collectors, air strippers and degasifiers for contaminated groundwater treatment, 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, regenerative thermal oxidizers, enclosed flares 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®, 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® 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

2

     

Index

 
provides standard filters for water purification and industrial applications. Sales and customer service are provided through a non-exclusive distributor network.

Dean Pump Division, located in Indianapolis, Indiana, designs and manufactures high quality pumps that handle a broad range of industrial applications. Users such as the chemical, petrochemical, refinery, pharmaceutical, plastics, pulp and paper, and food processing industries choose Dean Pump products particularly for their high temperature applications. The Division’s products are sold worldwide through an extensive network of distributors.

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 eight sizes available in both our standard vinyl ester resin and our EY-2 epoxy resin. We also have a metric version of this pump line 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,

 

2004
 

2003
 

2002

 
United States

82.6%

  

84.7%

  

84.3%

Foreign

17.4%

  

15.3%

  

15.7%

 
Net Sales

100.0%

  

100.0%

  

100.0%

 
 
 
Customers:

During each of the past three fiscal years, no single customer accounted for 10% or more of the total net sales of the Company in any year. The Company does not believe that it would be materially adversely affected by the loss of any single customer.


Seasonality:

The Company does not consider its business to be seasonal in nature.


Competition:

The Company experiences competition from a variety of sources with respect to virtually all of its products. The Company knows of no single entity that competes with it across the full range of its products and systems. The lines of business in which the Company is engaged are highly competitive. Competition in the markets served is based on a number of considerations, which may include price, technology, applications experience, know-how, reputation, product warranties, service and distribution.

With respect to the Fluid Handling Equipment segment, specifically the pump manufacturing operations, several companies, including Ingersoll-Dresser Pumps Co. (a subsidiary of Flowserve Corporation), Goulds Industrial Pumps, Inc. (a subsidiary of ITT Industries), and Durco Pumps, Inc. (a subsidiary of Flowserve Corporation), dominate the industry with several smaller companies, including Met-Pro, competing in selected product lines and niche markets.

With respect to the Product Recovery/Pollution Control Equipment segment, there are numerous competitors of both comparable and larger size which may have greater resources than the Company, but there are no companies that dominate the market.
   
The Company is unable to state with certainty its relative market position in all aspects of its businesses.
 

3

     

Index

 
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 $0.7 million, $0.6 million and $1.0 million for each of the years ended January 31, 2004, 2003 and 2002, respectively.


Patents and Trademarks:

The Company has a number of patents and trademarks. The Company considers these rights important to its business, although it considers no individual right material to its business.


Regulatory Matters:
 
The Company is subject to environmental laws and regulations concerning air emissions, discharges to water processing facilities, and the generation, handling, storage and disposal of waste materials in all operations. All of the Company’s production and manufacturing facilities are controlled under permits issued by federal, state and local regulatory agencies. The Company believes it is presently in compliance in all material respects with these laws and regulations. To date, compliance with federal, state and local provisions relating to protection of the environment has had no material effect upon capital expenditures, earnings or the competitive position of the Company.


Backlog:
 
Generally, the Company’s customers do not enter into long-term contracts, but rather issue purchase orders that are accepted by the Company. The rate of booking new orders varies from month to month. In addition, the orders have varying delivery schedules, and the Company’s backlog as of any particular date may not be representative of actual revenues for any succeeding period. The dollar amount of the Company’s backlog of orders, considered to be firm, totaled $7,332,386 and $7,375,383 as of January 31, 2004 and 2003, respectively. This does not include an additional $5,652,153 and $8,442,701 of orders in-house as of January 31, 2004 and 2003, 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, 2004 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, 2004, the Company employed 330 people, of whom 128 were involved in manufacturing, and 202 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

     

Index

 
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 Barrie, 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

     

Index

 
   
The following table sets forth certain information regarding the Executive Officers of the Registrant:
 
Raymond J. De Hont, age 50, is Chairman of the Board, Chief Executive Officer and President of the Company. Mr. De Hont was elected Chairman of the Board in September 2003. 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 December 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 49, is Vice President-Finance, Chief Financial Officer, Secretary, Treasurer and a Director of the Company. He was appointed Vice President-Finance, Chief Financial Officer, Secretary and Treasurer in October 1997, and became 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.
 
James G. Board, age 50, is Vice President of the Company and General Manager of Dean Pump and Fybroc Divisions, to which offices he was appointed in December 2000. For more than five years prior thereto, Mr. Board was employed by Tuthill Energy Systems, most recently as Director of Sales.
 
Thomas V. Edwards, age 50, is Vice President of the Company and General Manager of the Systems Division, to which offices he was appointed 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.
 
Hans J. D. Huizinga, age 53, 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 appointed in August 1993. He was employed for over five years before than as Managing Director for the predecessor of Mefiag B.V.
 
Gregory C. Kimmer, age 49, is Vice President of the Company and General Manager of the Duall Division, to which offices he was appointed in October 1989. For more than five years prior thereto, Mr. Kimmer was employed by the predecessor to our division in various capacities.
 
William F. Mersch, age 50, is Vice President of the Company, General Manager of the Stiles-Kem Division and Vice President and General Manager of Pristine Hydrochemical Inc., to which offices he was appointed 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 63, is Vice President of the Company and General Manager of Mefiag and Sethco Divisions, to which offices he was appointed in August 2003. He joined the Company in December 1973 and prior to his present position held the position of Director of the International Sales Division and Vice President and General Manager of Mefiag Division.
 
Paul A. Tetley, age 45, is Vice President of the Company and General Manager of Strobic Air Corporation, to which offices he was appointed in December 1999. Mr. Tetley joined the Company in 1996 in connection with the Company’s acquisition of the predecessor company, 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 the Engineering/Production Manager.
 
Dennis M. Wierzbicki, age 46, 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 appointed in February 2003 when he joined Flex-Kleen Division. 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 until he joined Flex-Kleen Division, and as Vice President of Marketing and Sales of its Global Air Filtration Division from April 1996 until October 2000.

There are no family relationships between any of the Directors or Executive Officers of the Registrant. Each officer serves at the pleasure of the Board of Directors.
 
 

6

     

Index

 
 
The following manufacturing and production facilities were owned or leased by the Company as of the date of filing this report:


 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.
3,187 square feet, masonry
Barrie, Ontario, Canada
Leased(4)
 
building
 
 

(1) Systems Division’s lease for the Sales and Engineering facility in Kulpsville, Pennsylvania expires 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 February 28, 2005.
 
(4) Flex-Kleen Canada Inc.’s lease for the sales and warehouse facility in Barrie, Ontario, Canada expires on February 28, 2007.
 
 

 7

     

Index

 
 
There appears to have been a significant increase during the last several years in asbestos-related litigation claims filed in particular states on a mass basis by large numbers of plaintiffs against a large number of industrial companies in the pump and fluid handling industries, and beginning in 2002, the Company began to be named as one of many defendants in a number of such cases, predominantly in Mississippi. The allegations against the Company are vague, general and speculative, but in general allege that the Company, along with the numerous other defendants, sold asbestos-containing products that caused injuries and loss to the plaintiffs. Most of these cases have not advanced beyond the early stages of discovery, and as of the date of the filing of this Report, none of the Company’s products have been determined to be a cause of any alleged injuries. The Company’s insurers have hired attorneys who together with the Company are vigorously defending these cases. The Company believes that these cases are without merit and that none of its products were a cause of any injury or loss to any of the plaintiffs. Given the current status of these cases, the Company does not presently believe that these proceedings will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.

The Company is also party to a small number of other legal proceedings arising out of the ordinary course of business or other proceedings that the Company does not presently believe will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition. After the end of the fiscal year on January 31, 2004, the Company settled a case in which the costs of defending the case were material to the fiscal year ended January 31, 2004. Neither the legal fees incurred after January 31, 2004 nor the settlement will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition during the fiscal year ending January 31, 2005.


 
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 2004.
 
 
 







 








 




 


 
 

 8

     

Index

 


(a) Market Information. The Company’s Common Shares are traded on the New York Stock Exchange under the symbol “MPR”. The high and low selling prices of the Common Shares for each quarterly period for the last two fiscal years, as reported on the New York Stock Exchange, are shown below (adjusted for four-for-three stock split paid on October 15, 2003).

 

   Quarter ended

Year ended January 31, 2004

 April

 July

 October

 January
Price range of common shares:        
High

 $10.58

$11.47

$14.50

$18.00

Low

9.53

9.98

11.44

14.06

Cash dividend paid

.0675

.0675

.0675

.0725

         
Year ended January 31, 2003

April

July

October

January
Price range of common shares:        
High

$11.66

$12.02

$10.73

$10.88

Low

9.79

9.34

9.38

9.75

Cash dividend paid

.0638

 .0638

.0638

.0675

 
(b) Holders. There were 644 registered shareholders at January 31, 2004, and the Company estimates that there are approximately 2,000 additional shareholders with shares held in street name.
 
(c) Stock Split. On September 17, 2003, the Board of Directors declared a four-for-three stock split which was paid on October 15, 2003 to shareholders of record on October 1, 2003. All references to per share amounts, number of shares outstanding, and number of shares covered by stock option and other plans have been restated to reflect the effect of the stock split.
 
(d) Dividends. The Board of Directors declared quarterly dividends of $.0675 per share payable on March 10, 2003, June 9, 2003, and September 9, 2003 to shareholders of record at the close of business on February 21, 2003, May 23, 2003 and August 27, 2003, respectively. The Board of Directors declared quarterly dividends of $.0725 per share payable on December 10, 2003 and March 10, 2004 to shareholders of record as of November 28, 2003 and February 27, 2004, respectively.

We expect to continue to pay comparable dividends during at least the next fiscal year.

(e) Securities Authorized For Issuance under Equity Compensation Plans. Set forth below is information aggregated as of January 31, 2004 with respect to two equity compensation plans previously approved by the Company’s shareholders, 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, 2004 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
356,831
$9.21
625,490
Equity compensation plans not approved
by security holders
-
  -
-



 9

     

Index

 
(f) Recent Sales of Unregistered Securities. In May 2002, the Company issued to two individuals an aggregate of 151,300 Common Shares (adjusted for stock split) valued at $1,600,000 as part of the purchase price for the shares 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 purchasers of these shares represented to their investment intent in connection with such acquisition.

(g) Stock Repurchases. During the fiscal year ended January 31, 2004, the Company repurchased an aggregate of 62,480 shares, at a total cost of $0.9 million, pursuant to a 400,000 (adjusted for stock split) share stock repurchase program authorized by the Company’s Board of Directors on December 15, 2000. As of January 31, 2004, an aggregate of 154,520 shares have been repurchased through such repurchase program.

 
 
 

 Years ended January 31,

 

 2004

  
 2003
  
 2002
  
 2001
  
 2000
Selected Operating Statement Data
 
  
 
  
 
  
 
  
 
Net sales
$75,058,929
  
$69,619,382
  
$70,088,446
  
$81,203,550
  
$78,449,992
Income from operations
11,167,238
  
9,154,986
  
9,451,925
  
12,513,886
  
11,410,679
Net income
6,346,579
  
5,888,379
  
6,189,317
  
7,773,720
  
7,072,642
Earnings per share, basic (a)
.76
  
.71
  
.76
  
.95
  
.81
Earnings per share, diluted (a)
.76
  
.71
  
.76
  
.94
  
.81
 
 
  
 
  
 
  
 
  
 
Selected Balance Sheet Data
 
  
 
  
 
  
 
  
 
Current assets
$48,173,429
  
$40,631,745
  
$37,411,679
  
$37,412,259
  
$35,722,971
Current liabilities
14,229,463
  
9,750,309
  
10,151,149
  
12,957,995
  
13,681,578
Working capital
33,943,966
  
30,881,436
  
27,260,530
  
24,454,264
  
22,041,393
Current ratio
3.4
  
4.2
  
3.7
  
2.9
  
2.6
Total assets
81,135,557
  
73,754,671
  
68,070,192
  
69,151,341
  
68,641,983
Long-term obligations
5,447,869
  
7,111,995
  
7,125,195
  
8,100,000
  
9,933,014
Total shareholders’ equity
60,270,734
  
56,045,885
  
50,279,394
  
47,061,366
  
44,206,333
Total capitalization
65,718,603
  
63,157,880
  
57,404,589
  
55,161,366
  
54,139,347
Return on average total assets, %
8.2
  
8.3
  
 9.0
  
11.3
  
 10.0
Return on average shareholders’ equity, %
10.9
  
11.1
  
12.7
  
17.0
15.7
 
 
  
 
  
 
  
 
  
Other Financial Data
 
  
 
  
 
  
 
  
 
Net cash flows from operating activities
$8,232,851
$5,831,186
$8,301,567
  
$10,047,845
$10,204,749
Capital expenditures
952,812
752,125
1,631,356
  
1,023,682
1,193,559
Shareholders’ equity per share (a)
7.24
6.76
6.20
5.80
5.19
Cash dividends paid per share (a) (b)
.275
.259
.255
.24
.36
Average common shares, basic (a)
8,297,668
8,239,491
8,145,521
8,203,100
8,722,947
Average common shares, diluted (a)
8,398,256
8,295,328
8,191,783
8,231,249
8,769,093
Common shares outstanding (a)
8,323,277
8,288,492
8,110,896
8,120,207
8,521,656
(a)   All references to per share amounts, average common shares and shares outstanding have been restated to reflect the effect of the four-for-three stock split effective October 15, 2003.
 
(b)   Fiscal year ended January 31, 2000 included an annual dividend of $.24 per share payable on April 23, 1999 and quarterly dividends of $.06 per share payable on September 10, 1999 and December 10, 1999, resulting from the Company’s change from an annual to a quarterly dividend.

10

     

Index

 
 
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 “Forward-Looking Statements; 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,
 
2004
 
2003
 
2002
 
Net sales
100.0
%
100.0
%
100.0
%
Cost of goods sold
64.5
%
65.3
%
65.7
%
 
 
 
 
 
 
 
Gross profit
35.5
%
34.7
%
34.3
%
Selling, general and administrative expense
20.6
%
21.6
%
20.8
%
 
  
 
 
 
 
 
Income from operations
14.9
%
13.1
%
13.5
%
 
 
 
 
 
 
 
Interest expense
(.6
%)
(.7
%)
(.8
%)
Other income/(expense), net
(1.5
%)
.4
%
1.2
%
             
Income before taxes
12.8
%
12.8
%
13.9
%
 
 
 
 
 
 
 
Provision for taxes
4.4
%
4.4
%
5.1
%
Net income
8.4
%
8.4
%
8.8
%
 
FYE 2004 vs FYE 2003:

Net sales for the fiscal year ended January 31, 2004 were $75.1 million compared to $69.6 million for the fiscal year ended January 31, 2003, an increase of $5.5 million. Sales in the Product Recovery/Pollution Control Equipment segment increased to $50.8 million, 10.1% higher than the prior year due primarily to increased demand for laboratory fume hood exhaust systems. Sales in the Fluid Handling Equipment segment were $24.3 million, or 3.3% higher compared to the fiscal year ended January 31, 2003.

Foreign sales increased to $13.0 million for the fiscal year ended January 31, 2004, compared to $10.7 million for the same period last year, a 22.1% increase. Foreign sales increased 32.2% in the Fluid Handling Equipment segment from the prior fiscal year, and the Product Recovery/Pollution Control Equipment segment foreign sales were 9.6% higher than the prior fiscal year due to higher demand for our laboratory fume hood exhaust systems.

Net income for the fiscal year ended January 31, 2004 was $6.3 million compared to $5.9 million for the fiscal year ended January 31, 2003, an increase of $0.4 million. The increase in net income is principally related to higher sales and gross margin in the Product Recovery/Pollution Control Equipment segment during the current fiscal year.

The gross margin for the fiscal year ended January 31, 2004 increased to 35.5% versus 34.7% 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 $7.7 million for the fiscal year ended January 31, 2004, an increase of $0.5 million over the prior year. Selling expense as a percentage of net sales was 10.2% compared to 10.3% for the prior fiscal year.


11

     

Index

 
General and administrative expense was $7.8 million for the fiscal year ended January 31, 2004 compared to $7.9 million in the prior fiscal year. General and administrative expense as a percentage of net sales was 10.4% for the fiscal year ended January 31, 2004 compared to 11.3% for the prior fiscal year.

Interest expense was $0.4 million for the fiscal year ended January 31, 2004 compared to $0.5 million in the prior fiscal year. This decrease was due primarily to a reduction of existing long-term debt.

Other expense, net, increased $1.4 million for the fiscal year ended January 31, 2004 compared to the prior fiscal year. This increase is principally related to an unusual charge for legal expenses incurred in defending allegations that products sold by one of the Company’s divisions infringed on a competitor’s intellectual property rights. We settled this case in February 2004. Neither the settlement nor the legal fees incurred after January 31, 2004 are expected to be material in the fiscal year ending January 31, 2005.

The effective tax rate was 34.0% for the fiscal years ended January 31, 2004 and 2003.


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 in the prior 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.

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 year ended January 31, 2003.

The effective tax rate decreased to 34.0% for the fiscal year ended January 31, 2003 from 36.5% for the prior year.



12

     

Index

 
Liquidity:

Cash and cash equivalents were $17.0 million on January 31, 2004, an increase of $3.6 million over the previous year. This increase is the net result of the following occurring during the fiscal year: cash flows provided by operating activities of $8.2 million, proceeds received from the exercise of stock options totaling $0.9 million, exchange rate changes of $0.1 million, offset by the payment of quarterly cash dividends amounting to $2.3 million, payment of long-term debt totaling $1.5 million, purchases of treasury shares amounting to $0.9 million and investments in property, plant and equipment amounting to $1.0 million. The Company’s cash flows for operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.

Accounts receivable were $16.6 million on January 31, 2004, an increase of $4.4 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 totaled $12.8 million on January 31, 2004, a decrease of $0.6 million compared to the prior year. Inventory balances will fluctuate depending on the size and timing of orders and market demand, especially when major systems and contracts are involved.

Current liabilities amounted to $14.2 million on January 31, 2004 compared to $9.8 on January 31, 2003, an increase of $4.4 million. Increases in accounts payable, customers’ advances and accrued expense accounted for a substantial amount of the increase.

The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit totaling $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, 2004 and January 31, 2003, working capital was $33.9 million and $30.9 million, respectively, and the current ratio was 3.4 and 4.2, respectively.


Capital Resources and Requirements:

Cash flows provided by operating activities during the fiscal year ended January 31, 2004 amounted to $8.2 million compared to $5.8 million during the prior fiscal year, an increase of $2.4 million. This increase in cash flows from operating activities was principally related to an increase in net income, accounts payable, accrued expenses, customers’ advances and a decrease in inventories, offset by an increase in accounts receivable. Per share, our cash flows from operating activities increased to $.98 per share compared to $.70 per share for the prior year.

Cash flows used in investing activities during the fiscal year ended January 31, 2004 amounted to $1.0 million compared to $1.2 million during the fiscal year ended January 31, 2003. The Company’s investing activities principally represent the acquisition of property, plant and equipment in the two operating segments during both years, and the acquisition of a business during the fiscal year ended January 31, 2003. 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, 2004 used $3.8 million of available resources compared to $3.2 million during the prior fiscal year. The 2004 activity is the result of the payment of quarterly cash dividends amounting to $2.3 million, reduction of long-term debt totaling $1.5 million, and the purchase of treasury shares totaling $0.9 million, offset by proceeds received by the exercise of stock options amounting to $0.9 million.

The Company paid $1.5 million of scheduled debt during the current fiscal year. The percentage of long-term debt to equity at January 31, 2004 decreased to 9.0% compared to 12.7% at January 31, 2003.

During the fiscal year ended January 31, 2004, the Company repurchased an aggregate of 62,480 shares at a cost of $0.9 million under the 400,000 share stock repurchase program authorized by the Board of Directors on December 15, 2000.

The Board of Directors declared quarterly dividends of $.0675 per share payable on March 10, 2003, June 9, 2003 and September 9, 2003 to shareholders of record at the close of business on February 21, 2003, May 23, 2003 and August 27, 2003, respectively, and a quarterly dividend of $.0725 per share payable on December 10, 2003 to shareholders of record as of November 28, 2003. On December 15, 2003, the Board of Directors declared a quarterly dividend of $.0725 per share, which was paid on March 10, 2004 to shareholders of record at the close of business on February 27, 2004.

On September 17, 2003, the Board of Directors declared a four-for-three stock split which was paid on October 15, 2003 to shareholders of record on October 1, 2003. All references in the financial statements to per share amounts, number of shares outstanding, and number of shares covered by stock option and similar plans have been restated to reflect the effect of the stock split.
 

13

     

Index

 
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 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 decline in the market value of investments during the fiscal year ended January 31, 2003 combined with a reduction in the discount rate from 7.00% to 6.25% in the fiscal year ended January 31, 2004. In connection with the decline in the fair market value of these assets, the Company recorded an after-tax charge to shareholders’ equity of $0.3 million during the fiscal year ended January 31, 2004.

As part of our commitment to the future, the Company expended $0.7 million and $0.6 million on research and development for the fiscal years ended January 31, 2004 and 2003, 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 Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition 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. The adoption of this Statement did not have a material impact on the Company’s financial condition or results of operations.

In January 2003, the FASB issued Finance Interpretation (“FIN”) No. 46, “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”. In October 2003, the FASB issued FASB Staff Position FIN 46-6, “Effective Date of FASB Interpretation No. 46, Consolidation of Variable Interest Entities”, deferring the effective date for applying the provisions of FIN 46 for public entities’ interests in variable interest entities or potential variable interest entities created before February 1, 2003 for financial statements of interim or annual periods that end after December 15, 2003. FIN 46 establishes accounting guidance for consolidation of variable interest entities that function to support the activities of the primary beneficiary. The Company has no investment in or contractual relationship or other business relationship with a variable interest entity and therefore the adoption of this interpretation did not have any impact on its financial condition or results of operations.

On April 30, 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. This statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain pre-existing contracts. We adopted SFAS No. 149 on a prospective basis at its effective date July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and pre-existing instruments as of the beginning of the first interim period that commences after June 15, 2003, except for mandatory redeemable financial instruments. Mandatory redeemable financial instruments are subject to the provisions of this statement beginning on January 1, 2004. We have not entered into or modified any financial instruments subsequent to May 31, 2003 affected by this statement. The adoption of this statement did not have a material impact on our 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:

 

14

     

Index

 
The Company’s revenues are generally 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. 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.


Forward-Looking Statements; Factors that May Affect Future Results:

Our 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. These forward-looking statements may be identified by words describing our belief or expectation, such as where we say that we “believe”, “expect” or “anticipate”, or where we characterize something in a manner in which there is an express or implicit reference to the future, such as “non-recurring” or “unusual”. The content of the other statements may indicate that the statement is “forward-looking”. We claim the “safe harbor” provided by The Private Securities Reform Act of 1995 for forward-looking statements.

Our 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 of Form 10-K, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:
  • 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. Our Flex-Kleen Division, which initially performed well after being acquired by Met-Pro, has experienced declining performance during the last several years due primarily to a general weakness in its served markets. During the fiscal year ended January 31, 2004 we performed an impairment analysis of the $11.1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment has occurred. However, if Flex-Kleen’s performance does not improve sufficiently in the current fiscal year, we may be required to write off some or all of the goodwill;
  • materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;
  • material changes in available technology;
  • changes in our accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;
  • unexpected results in our product development activities;
  • loss of key customers;
  • changes in product mix;
  • changes in our existing management;
  • exchange rate fluctuations;
  • changes in federal, state laws and regulations;
  • lower than anticipated return on investments in the Company’s defined benefit plans, which could affect the amount of the Company’s pension liabilities;
  • 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;
  • 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;
  • the effect of acquisitions and other strategic ventures;
  • failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;

 

15

     

Index

  • losses related to international sales; and/or
  • failure in execution of acquisition strategy.
 
 
We have no disclosure to make with respect to this Item.


 
Index to Consolidated Financial Statements and Supplementary Data:


























16

     

Index



To the Board of Directors and Shareholders
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, 2004 and 2003, and the related consolidated statements of operations, shareholders’ equity, and cash flows for each of the three years in the period ended January 31, 2004. 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, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2004 in conformity with accounting principles generally accepted in the United States of America.


/s/ Margolis & Company P.C.


Bala Cynwyd, Pennsylvania
February 20, 2004
 

 
17
     

Index

MET-PRO CORPORATION



 
 
Years ended January 31,
 
 
2004
 
2003
 
2002
 
Net sales
 
$75,058,929
 
$69,619,382
 
$70,088,446
 
Cost of goods sold
 
48,406,090
 
45,439,557
 
46,060,214
 
Gross profit
 
26,652,839
 
24,179,825
 
24,028,232
 
 
 
 
 
 
 
 
 
Operating expenses
 
 
 
 
 
 
 
Selling
 
7,662,594
 
7,139,082
 
6,998,234
 
General and administrative
 
7,823,007
 
7,885,757
 
7,578,073
 
 
 
15,485,601
 
15,024,839
 
14,576,307
 
Income from operations
 
11,167,238
 
9,154,986
 
9,451,925
 
 
 
 
 
 
 
 
 
Interest expense
 
(441,704
)
(505,394
)
(557,855
)
Other income/(expense), net
 
(1,109,506
)
278,126
 
852,885
 
Income before taxes
 
9,616,028
 
8,927,718
 
9,746,955
 
               
Provision for taxes
 
3,269,449
 
3,039,339
 
3,557,638
 
Net income
 
$6,346,579
 
$5,888,379
 
$6,189,317
 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic (adjusted for stock split)
 
$.76
 
$ .71
 
$.76
 
Diluted (adjusted for stock split)
 
$.76
 
$ .71
 
$.76
 
 
 
 
 
 
 
 
 
Average number of common and
common equivalent shares outstanding
 
 
 
 
 
 
 
Basic (adjusted for stock split)
 
8,297,668
 
8,239,491
 
8,145,521
 
Diluted (adjusted for stock split)
 
8,398,256
 
8,295,328
 
8,191,783
 
The notes to consolidated financial statements are an integral part of the above statement.
 
 
 
 
 
 
 

 

18

     

Index

MET-PRO CORPORATION


 
 
 
 
January 31,
  
ASSETS
   2004
 
   2003
 
Current assets
 
 
 
 
Cash and cash equivalents
$16,996,253
 
$13,429,367
 
Accounts receivable, net of allowance for
 
 
 
 
doubtful accounts of approximately
 
 
 
 
$208,000 and $263,000, respectively
16,608,344
 
12,217,315
 
Inventories
12,755,011
 
13,374,128
 
Prepaid expenses, deposits and other current assets
1,209,395
 
979,714
 
Deferred income taxes
604,426
 
631,221
 
Total current assets
48,173,429
 
40,631,745
 
         
Property, plant and equipment, net
11,514,199
 
11,950,422
 
Costs in excess of net assets of businesses acquired, net
20,798,913
 
20,798,913
 
Other assets
649,016
 
373,591
 
Total assets
$81,135,557
 
$73,754,671
 
 
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
 
Current liabilities
 
 
 
 
Current portion of long-term debt
$1,533,866
 
$1,536,926
 
Accounts payable
5,073,554
 
2,810,002
 
Accrued salaries, wages and expenses
6,542,306
 
4,827,241
 
Dividend payable
602,755
 
559,167
 
Customers’ advances
476,982
 
16,973
 
Total current liabilities
14,229,463
 
9,750,309
 
 
 
 
 
 
Long-term debt
5,447,869
 
7,111,995
 
Other non-current liabilities
38,818
 
36,621
 
Deferred income taxes
1,148,673
 
809,861
 
Total liabilities
20,864,823
 
17,708,786
 
Commitments
 
 
 
 
         
Shareholders’ equity
 
 
 
 
Common shares, $.10 par value; 18,000,000 shares
 
 
 
 
authorized, 9,634,956 and 9,635,071 shares issued,
 
 
 
 
of which 1,311,679 and 1,346,579 shares were reacquired
 
 
 
 
and held in treasury at the respective dates
963,496
 
722,630
 
Additional paid-in capital
7,955,459
 
8,196,782
 
Retained earnings
63,727,425
 
59,705,267
 
Accumulated other comprehensive loss
(328,616
)
(541,959
)
Treasury shares, at cost
(12,047,030
)
(12,036,835
)
Total shareholders’ equity
60,270,734
 
56,045,885
 
Total liabilities and shareholders’ equity
$81,135,557
 
$73,754,671
 
The notes to consolidated financial statements are an integral part of the above statement.


19

     

Index

MET-PRO CORPORATION



 

Years ended January 31,

  
 

2004

  
2003
  
2002
  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
 
Cash flows from operating activities            
Net income
$6,346,579
 
$5,888,379
 
$6,189,317
 
Adjustments to reconcile net income to net
 
 
 
 
 
 
cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
1,571,482
 
1,559,357
 
2,046,007
 
Deferred income taxes
471,652
 
379,874
 
155,419
 
(Gain) loss on sales of property and equipment, net
24,906
 
(5,247
)
(472,895
)
Allowance for doubtful accounts
(55,077
)
34,188
 
10,721
 
(Increase) decrease in operating assets,
 
 
 
 
 
 
net of acquisition of business:
 
 
 
 
 
 
Accounts receivable
(4,156,402
)
(1,420,024
)
3,658,676
 
Inventories
766,704
 
591,932
 
(687,317
)
Prepaid expenses, deposits and other current assets
(214,988
)
(52,207
)
115,808
 
Other assets
(336,490
)
(8,408
)
(8,092
)
Increase (decrease) in operating liabilities,
 
 
 
 
 
 
net of acquisition of business:
 
 
 
 
 
 
Accounts payable and accrued expenses
3,352,279
 
(406,094
)
(2,933,944
)
Customers’ advances
460,009
 
(732,761
)
140,289
 
Other non-current liabilities
2,197
 
2,197
 
 87,578
 
Net cash provided by operating activities

8,232,851

  
5,831,186
  
8,301,567
  
             
Cash flows from investing activities            
Proceeds from sale of property and equipment
-
  
19,347
  
1,095,456
  
Acquisitions of property and equipment
(952,812
)
(752,125
 )
(1,631,356
 )
Payment for acquisition of business
-
  
(465,673
 )
-
  
Net cash (used in) investing activities
(952,812
)
(1,198,451
)
(535,900
)
             
Cash flows from financing activities            
Proceeds from new borrowing

-

  
16,373
  

-

  
Reduction of debt
(1,536,927
) 
(1,235,974
)
(1,741,711
)
Exercise of stock options
884,339
353,229
  
1,092,253
  
Payment of dividends
(2,280,833
)
(2,029,579
)
(1,934,132
)
Purchase of treasury shares
(893,570
)
(289,218
)
(1,793,435
)
Payment of cash in lieu of fractional shares
(1,421
)

-

  

-

  
Net cash (used in) financing activities
(3,828,412
)
(3,185,169
)
(4,377,025
)
Effect of exchange rate changes on cash
115,259
  
149,541
  
(66,427
)
Net increase in cash and cash equivalents
3,566,886
  
1,597,107
  
3,322,215
  
             
Cash and cash equivalents at beginning of year
13,429,367
  
11,832,260
  
8,510,045
  
Cash and cash equivalents at end of year
$16,996,253
  
$13,429,367
  
$11,832,260
  
The notes to consolidated financial statements are an integral part of the above statement.

 
20
     

Index

MET-PRO CORPORATION

 
 
 
 
 
 
 
 
 
 
 
 
 
 Accumulated
 
 
 
 
 
Additional
 
 Other
 
 
 
 
 Common
Paid-in
Retained
 Comprehensive
 Treasury
    
 
   Shares
Capital
 Earnings
 Income/(Loss)
 Shares
  Total
 
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, $.255 per share
-
-
 
(1,562,968
)
-
 
-
 
(1,562,968
)
Dividend declared, $.0638 per share
-
-
 
(517,070
)
-
 
-
 
(517,070
)
Proceeds from issuance of common
 
 
 
 
 
 
 
 
 
 
 
shares under dividend reinvestment
                    
plan (16,776 shares)
1,258
145,247
 
-
 
-
 
-
 
146,505
 
Stock option transactions
-
(405,678
)
-
 
-
 
1,497,931
 
1,092,253
 
Purchase of 194,120 treasury shares
-
-
 
-
 
-
 
(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 shares for acquisition
                    
of business
-
250,782
 
-
 
-
 
1,349,218
 
1,600,000
 
Dividends paid, $.2588 per share
-
-
 
(1,614,024
)
-
 
-
 
(1,614,024
)
Dividend declared, $.0675 per share
-
-
 
(559,167
)
-
 
-
 
(559,167
)
Proceeds from issuance of common
 
 
 
 
 
 
 
 
 
 
 
shares under dividend reinvestment
                      
plan (9,517 shares)
714
100,801
 
-
 
-
 
-