10-K 1 mpr10k2005.htm 10K 10K
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, 2005  
 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: $118,047,167

The number of Registrant’s outstanding Common Shares was 8,388,575 as of April 13, 2005.
 
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 8, 2005 
III
 
 


 














 
 
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.

 
PART I


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 and 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 and Current Reports on Form 8-K filed pursuant to Section 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), are made available free of charge on or through our website at www.met-pro.com as soon 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 the 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 industrial and consumer goods, food products and pharmaceuticals. While some of Flex-Kleen’s products are used for nuisance collection of particulates to conform to environmental concerns, the larger portion of its sales activity is for product collection and is process driven. Flex-Kleen’s products are sold through manufacturer’s representatives located across the United States and Canada.
 
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Stiles-Kem Division, operating with the Company’s wholly-owned subsidiary, Pristine Hydrochemical Inc., 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 since 1955. Stiles-Kem’s Aquadene™ 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. Stiles-Kem’s products have also been used extensively to help municipalities meet soluble lead and copper limits in drinking water. These food grade products are NSF/ANSI approved for health considerations in municipal drinking water supplies and are certified to meet or exceed existing state and federal guidelines. The division also markets a line of Bio-Purge™ products for drinking well water remediation.

Pristine Hydrochemical’s product line includes PHI coagulant and flocculent polymer products for both municipal and industrial applications as well as a chlorine dioxide treatment program for municipal drinking water sterilization, which improves water clarity, reduces sludge volume and also helps customers reduce trihalomethane formation as required by the EPA. In addition, Pristine Hydrochemical 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.

Both Stiles-Kem’s and Pristine Hydrochemical’s products are sold directly through regional sales representatives or agents and through a network of distributors located in the United States and Canada, and both offer technical and laboratory customer support from the Waukegan facilities.

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 250 gallons per minute. These products are used extensively in the metal finishing, electronics, chemical processing and waste water treatment industries. Sethco’s products are sold directly through regional sales managers and through a worldwide network of non-exclusive distributors, catalog houses and original equipment manufacturers.

Strobic Air Corporation, located in Harleysville, Pennsylvania, designs and manufactures patented 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 both internally and through a network of manufacturer’s representatives located in 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, wet 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. Market specific sales managers and 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, ethanol, 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 and low temperature oxidation catalysts. Systems Division products are sold worldwide by a combination of in-house personnel and manufacturer’s representatives.

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, the Netherlands, and the Mefiag Division, located in Harleysville, Pennsylvania, designs, manufactures and sells 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 directly through regional sale representatives, qualified market-based distributors and original equipment manufacturers located throughout Europe, the United States, Asia and other major markets around the world.

Keystone Filter Division, located in Hatfield, Pennsylvania, is an established custom pleater and filter cartridge manufacturer in the United States.  The Division provides custom designed and engineered products which are currently used in a diversity of  applications
 
2
 
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 directly through regional sales managers and 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 and commercial applications. Industrial users include the chemical, petrochemical, refinery, pharmaceutical, plastics, pulp and paper, and food processing industries. Commercial users include hospitals, universities and laboratories. Both groups 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%). Fybroc pumps are sold to many markets including the chemical, petrochemical, pharmaceutical, fertilizer, pesticides, steel, pulp and paper, electric utility, aquaculture, aquarium, commercial marine/navy, desalination/water reuse, and industrial and municipal waste treatment industries. 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,
 
2005
  
2004
  
2003
  
United States  
78.6
%
82.6
%
84.7
%
Foreign
21.4
%
17.4
%
15.3
%
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.

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Research and Development:

Due in part to the diversity of the Company’s products, research and development activities are typically initiated and conducted on a divisional or subsidiary basis, and are not centralized in the Company’s corporate offices. 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 $0.8 million, $0.7 million and $0.6 million for each of the years ended January 31, 2005, 2004 and 2003, respectively.


Patents and Trademarks:

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


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. Certain orders may be placed subject to customer approvals, such as approval of engineering drawings. 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 $11,663,558 and $7,332,386 as of January 31, 2005 and 2004, respectively. The Company expects that substantially all of the backlog that existed as of January 31, 2005 will be shipped during the ensuing fiscal year. The backlog amount does not include an additional $8,219,193 and $5,652,153 of orders in-house as of January 31, 2005 and 2004, respectively, which, in accordance with our longstanding policy, are not considered firm, and not included in the backlog amount, until completed engineering drawings have been approved.


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 as 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, 2005, the Company employed 333 people, of whom 134 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 five years and considers its employee relations to be good.
 
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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, The Netherlands 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. Subsequent to January 31, 2005, the Company announced that it is in the process of establishing a wholly-owned subsidiary in the People’s Republic of China to produce the Mefiag line of products initially for sale to China’s domestic plating and metal-finishing industry.

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 26.

 

 


































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The following table sets forth certain information regarding the Executive Officers of the Registrant:
 
Raymond J. De Hont, age 51, 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. From June 1995 to December 2000, Mr. De Hont was Vice President and General Manager of the Company’s Fybroc Division, during which time, starting in October 1999, he also served as General Manager for the Company’s Dean Pump Division. Prior to joining Met-Pro Corporation, Mr. De Hont was employed by Air and Water Technologies, where among other positions he was Vice President and General Manager of Flex-Kleen Corporation, the business of which is now owned by Met-Pro Corporation.
 
Gary J. Morgan, CPA, age 50, 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 51, 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 51, 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 54, is the Managing Director of Mefiag B.V., a wholly-owned subsidiary of the Company, located in Heerenveen, The Netherlands, an office to which he was appointed in August 1993. He was employed for over five years before that as Managing Director for the company whose business is now owned by Mefiag B.V.
 
Gregory C. Kimmer, age 50, 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 company whose business is now operated as the Duall Division.
 
Lewis E. Osterhoudt, age 54, is Vice President of the Company and General Manager of the Keystone Filter Division, to which offices he was appointed in June 2004. Mr. Osterhoudt joined the Company in March 2004, initially serving as Assistant to the President. For more than five years prior thereto, Mr. Osterhoudt was employed by Hardy Machine and Design Inc. and I.O. Gold Systems Inc., most recently as Operations Manager and President, respectively.
 
Robert P. Replogle, age 64, is Vice President of the Company and General Manager of Mefiag and Sethco Divisions. Mr. Replogle assumed the duties with respect to Mefiag in July 1993 and Sethco in August 2003, at which time he relinquished his position as Director of the International Sales Division.
 
Paul A. Tetley, age 46, 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 business now conducted by Strobic Air Corporation, where he had worked as the Engineering/Production Manager. Prior to his present position with the Company, Mr. Tetley held the position of Director of Operations.
 
Vincent J. Verdone, age 57, was elected a Vice President of the Company in February 2005, following his appointment in January 2005 as General Manager of the Company’s Stiles-Kem Division and subsidiary Pristine Hydrochemical Inc. For more than five years prior thereto, Mr. Verdone was employed by Ashland Inc., in which his last position was North American Corporate Sales Manager.
 
Dennis M. Wierzbicki, age 47, 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, subject, however, to agreements we have with certain officers providing for compensation in the event of termination of employment following a change in control of the Company. See “Security Ownership of Certain Beneficial Owners and Management” referenced in Item 12 of this Report.
 
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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.
600 square feet
  
Bismarck, North Dakota
    Leased(2)
 
warehouse facility
      
         
Flex-Kleen Division
13,760 square feet, brick
  
Itasca, Illinois
    Leased(3)
 
Building
      
         
 
37,320 square feet, metal
  
Sharpsburg, North Carolina
    Leased(4)
 
Building
      
         
Mefiag B.V.
17,200 square feet, metal
  
1.1 acres in
Owned
 
and masonry building
  
Heerenveen, The Netherlands
  
         
 
Vacant land
  
3 acres in
Owned
     
Heerenveen, The Netherlands
  
         
Flex-Kleen Canada Inc.
3,187 square feet, masonry
  
Barrie, Ontario, Canada
    Leased(5)
 
Building
      

(1)  Systems Division’s lease for the Sales and Engineering facility in Kulpsville, Pennsylvania expires on February 9, 2006. We anticipate no difficulties either renewing this lease or in otherwise finding suitable facilities for Systems Division.
(2) Pristine Hydrochemical Inc.’s lease for the warehouse in Bismarck, North Dakota is on a month to month basis.
(3)
Flex-Kleen Division’s lease for the operation in Itasca, Illinois expires on December 31, 2007.
(4)
Flex-Kleen Division’s lease for the warehouse in Sharpsburg, North Carolina is on a month to month basis.
(5) Flex-Kleen Canada Inc.’s lease for the sales and warehouse facility in Barrie, Ontario, Canada expires on February 28, 2007.
 
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Certain of the statements made in this Item 3 (and elsewhere in this Report) are “forward-looking” statements which are subject to the considerations set forth in “Forward-Looking Statements; Factors That May Affect Future Results” located in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, and we refer you to these considerations.

There appears to have been a significant increase during the last several years in asbestos-related litigation claims filed in particular states on both a single plaintiff and on a mass basis by large numbers of plaintiffs against a large number of industrial companies including those in the pump and fluid handling industries, and beginning in 2002 and continuing through the date of this Report, the Company and/or one of its divisions began to be named as one of many defendants in a number of such cases, predominantly in Mississippi. The allegations against the Company and/or this division are vague, general and speculative, but in general allege that the Company, or the division, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries and loss to the plaintiffs. 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. The Company’s insurers have hired attorneys who together with the Company are vigorously defending these cases. The Company and/or the division has resolved and been dismissed from a number of these cases. Most of these cases have not advanced beyond the early stages of discovery, although several cases have been scheduled for trial. 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 patent litigation 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 had a material adverse impact upon the Company’s results of operations, liquidity or financial condition during the fiscal year ended January 31, 2005.



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 31, 2005.





 









8



(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, 2005
April
  
July
  
October
  
January
               
Price range of common shares:
              
High
$17.75
  
$17.37
  
$15.26
  
$14.05
Low
15.00
  
14.01
  
12.65
  
12.82
Cash dividend paid
.0725
  
.0725
  
.0725
  
.0775
               
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

(b) Holders. There were 630 registered shareholders at January 31, 2005, 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 $.0725 per share payable on March 10, 2004, June 9, 2004, and September 9, 2004 to shareholders of record at the close of business on February 27, 2004, May 28, 2004 and August 27, 2004, respectively. The Board of Directors declared quarterly dividends of $.0775 per share payable on December 9, 2004 and March 8, 2005 to shareholders of record as of November 26, 2004 and February 25, 2005, 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, 2005 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.

     
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
394,851
$11.60
522,196
Equity compensation plans not approved
 
 
 
by security holders
           -
         -
           -
 
9

(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, 2005, the Company repurchased an aggregate of 32,881 shares, at a total cost of $0.5 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, 2005, an aggregate of 187,401 shares have been repurchased through such repurchase program.

The following table summarizes Met-Pro’s purchases of its Common Shares during the fiscal year ended January 31, 2005:


Issuer Purchases of
Equity Securities
Period
  
Total
Number of Shares
Purchased
 
(1)
Average
Price Paid
Per Share
  
Total
Number of
Shares
Purchased
As Part of
Publicly
Announced
Plans or
Programs
  
Maximum
Number of
Shares
That May
Yet Be
Purchased
Under the
Plan or
Programs
 
 
 
 
 
 
 
 
 
(2)
February 1-28, 2004
  
0
  
$ -
 
0
  
245,480
  
March 1-31, 2004
  
28,717
  
16.77
  
28,717
  
216,763
  
April 1-30, 2004
  
0
  
-
 
0
  
216,763
  
May 1-31, 2004
  
0
  
-
 
0
  
216,763
  
June 1-30, 2004
  
0
  
-
 
0
  
216,763
  
July 1-31, 2004
  
0
  
-
 
0
  
216,763
  
August 1-31, 2004
  
0
  
-
 
0
  
216,763
  
September 1-30, 2004
  
0
  
-
 
0
  
216,763
  
October 1-31, 2004
  
0
  
-
 
0
  
216,763
  
November 1-30, 2004
  
0
  
-
 
0
  
216,763
  
December 1-31, 2004
  
0
  
-
 
0
  
216,763
  
January 1-31, 2005
  
4,164
  
13.65
  
4,164
  
212,599
  
Total
  
32,881
  
$16.37
 
32,881
  
212,599
  
 
(1)
These amounts consist of shares we purchased from non-employee directors and an employee who both elected to pay the exercise price of certain stock options upon exercise by delivering to us (and, thus, selling) Met-Pro Common Shares in accordance with the terms of our equity incentive plans that were previously approved by our shareholders and disclosed in our proxy statements. We purchased these shares at their fair market value, as determined by reference to the average of the high and low price of our Common Shares on the day after the option exercise. The Company expects to continue to repurchase shares in this manner, but is not obligated to do so.
   
(2)
On December 15, 2000, our Board of Directors authorized a Common Share repurchase program that was publicly announced on December 19, 2000, for up to 400,000 (adjusted for stock split) shares. The program has no fixed expiration date.
 

 

10
 


   
Years ended January 31,
  
 
2005    
2004    
2003    
2002    
2001    
           
Selected Operating Statement Data
          
Net sales
$72,116,289
$75,058,929
$69,619,382
$70,088,446
$81,203,550
Income from operations
7,513,049
11,167,238
9,154,986
9,451,925
12,513,886
Net income
4,814,679
6,346,579
5,888,379
6,189,317
7,773,720
Earnings per share, basic (a)
.58
.76
.71
.76
.95
Earnings per share, diluted (a)
.57
.76
.71
.76
.94
           
Selected Balance Sheet Data
          
Current assets
$50,270,495
$48,173,429
$40,631,745
$37,411,679
$37,412,259
Current liabilities
13,867,892
14,229,463
9,750,309
10,151,149
12,957,995
Working capital
36,402,603
33,943,966
30,881,436
27,260,530
24,454,264
Current ratio
3.6
3.4
4.2
3.7
2.9
Total assets
82,924,066
81,135,557
73,754,671
68,070,192
69,151,341
Long-term obligations
4,039,068
5,447,869
7,111,995
7,125,195
8,100,000
Total shareholders’ equity
63,165,191
60,270,734
56,045,885
50,279,394
47,061,366
Total capitalization
67,204,259
65,718,603
63,157,880
57,404,589
55,161,366
Return on average total assets, %
5.9
8.2
8.3
9.0
11.3
Return on average shareholders’ equity, %
7.8
10.9
11.1
12.7
17.0
           
Other Financial Data
          
Net cash flows from operating activities
$8,545,521
$8,232,851
$5,831,186
$8,301,567
$10,047,845
Capital expenditures
1,193,767
952,812
752,125
1,631,356
1,023,682
Shareholders’ equity per share (a)
7.54
7.24
6.76
6.20
5.80
Cash dividends paid per share (a)
.295
.275
.259
.255
.24
Average common shares, basic (a)
8,359,382
8,297,668
8,239,491
8,145,521
8,203,100
Average common shares, diluted (a)
8,463,005
8,398,256
8,295,328
8,191,783
8,231,249
Common shares outstanding (a)
8,368,042
8,323,277
8,288,492
8,110,896
8,120,207
 
(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.

 
 
 
 
 
 
 
 
 
 
 


11


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” located in the Management’s Discussion and Analysis of Financial Condition and Results 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,
  
2005
  
2004
  
2003
  
             
Net sales
100.0
%
100.0
%
100.0
%
Cost of goods sold
68.6
%
64.5
%
65.3
%
             
Gross profit
31.4
%
35.5
%
34.7
%
Selling, general and administrative expense
21.0
%
20.6
%
21.6
%
             
Income from operations
10.4
%
14.9
%
13.1
%
             
Interest expense
(.5
%)
(.6
%)
(.7
%)
Other income/(expense), net
.2
%
(1.5
%)
.4
%
             
Income before taxes
10.1
%
12.8
%
12.8
%
             
Provision for taxes
3.4
%
4.4
%
4.4
%
             
Net income
6.7
%
8.4
%
8.4
%

 
FYE 2005 vs FYE 2004:

Net sales for the fiscal year ended January 31, 2005 were $72.1 million compared to $75.1 million for the fiscal year ended January 31, 2004, a decrease of $3.0 million. Sales in the Fluid Handling Equipment segment were $29.2 million or 20.3% higher than the fiscal year ended January 31, 2004.  Sales in the Product Recovery/Pollution Control Equipment segment were $42.9 million or 15.5% lower than the fiscal year ended January 31, 2004. The decreased sales in the Product Recovery/Pollution Control Equipment segment have been adversely impacted by an overall softness in the higher dollar capital equipment and systems markets, combined with atypical customer delays in issuing expected purchase orders for several large dollar projects.

Foreign sales increased to $15.5 million for the fiscal year ended January 31, 2005, compared to $13.0 million for the same period last year, an 18.4% increase. Foreign sales increased 31.4% in the Fluid Handling Equipment segment from the prior fiscal year, and the Product Recovery/Pollution Control Equipment segment foreign sales were slightly lower than the prior fiscal year.

Net income for the fiscal year ended January 31, 2005 was $4.8 million compared to $6.3 million for the fiscal year ended January 31, 2004, a decrease of $1.5 million. The decrease in net income was primarily attributable to the decreased sales in the Product Recovery/Pollution Control segment, as discussed above, and by a decrease in gross margin, as discussed below.

The gross margin for the fiscal year ended January 31, 2005 was 31.4% compared to 35.5% for the same period in the prior year due to lower gross margins experienced in both operating segments. The decrease in gross margin is principally due to product mix, competitive pricing pressures, and higher raw material and in-bound freight costs, combined with the profit erosion sustained on a Product Recovery/Pollution Control project which reduced our net income by approximately $260,000 or 0.6% of the overall reduction in the gross margin for the fiscal year.
 
Selling expense was $7.5 million for the fiscal year ended January 31, 2005, a decrease of $0.1 million over the prior year. Selling expense as a percentage of net sales was 10.4% compared to 10.2% for the prior fiscal year.
 
12

General and administrative expense was $7.6 million for the fiscal year ended January 31, 2005 compared to $7.8 million in the prior fiscal year. General and administrative expense as a percentage of net sales was 10.6% for the fiscal year ended January 31, 2005 compared to 10.4% for the prior fiscal year.

Interest expense was approximately $0.4 million for each of the fiscal years ended January 31, 2005 and 2004.

Other income, net, was $0.2 million for the fiscal year ended January 31, 2005 compared to other expense, net, of $1.1 million in the prior year. This change is principally related to a reduction in legal expenses incurred in defending against allegations that products sold by one of the Company’s divisions infringed 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 were material in the fiscal year ended January 31, 2005.

The effective tax rate was 34.0% for each of the fiscal years ended January 31, 2005 and 2004.


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.

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.

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


Liquidity:

The Company’s cash and cash equivalents were $20.9 million on January 31, 2005 compared to $17.0 million on January 31, 2004, an increase of $3.9 million. This increase is the net result of the positive cash flows provided by operating activities of $8.5 million,  the exercise of stock options amounting to $0.7 million and the effect of exchange rate changes totaling $0.1 million, offset by payments of the quarterly cash dividends amounting to $2.5 million, the purchase of treasury shares amounting to $0.5 million, payments on long-term debt totaling $1.2 million and investment in property and equipment amounting to $1.2 million. The Company’s cash flows from operating activities are influenced, in part, by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.
 
13
 
Accounts receivable were $13.6 million on January 31, 2005, a decrease of $3.0 million compared to the prior fiscal year. The timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Equipment segment, will, among other factors, influence accounts receivable balances at any point in time.

Inventories totaled $13.8 million on January 31, 2005, an increase of $1.1 million compared to the prior fiscal year. Inventory balances will fluctuate, in part, with the size and timing of orders and market demand, especially when major systems and contracts are involved.

Current liabilities amounted to $13.9 million on January 31, 2005 compared to $14.2 million on January 31, 2004, a decrease of $0.3 million. A decrease in accounts payable and accrued expenses, offset by an increase in customers’ advances, accounted for this decrease.

The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit totaling $5.0 million which are available for working capital purposes. 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, 2005 and January 31, 2004, working capital was $36.4 million and $33.9 million, respectively, and the current ratio was 3.6 and 3.4, respectively.


Capital Resources:

Cash flows provided by operating activities during the fiscal year ended January 31, 2005 amounted to $8.5 million compared with $8.2 million in the fiscal year ended January 31, 2004, an increase of $0.3 million. This increase in cash flows from operating activities was due principally to (i) the decrease in accounts receivable and (ii) the increase in customers’ advances, which were offset by (i) the decrease in net income and accounts payable and accrued expenses, and (ii) the increase in inventory.

Cash flows used in investing activities during the fiscal year ended January 31, 2005 amounted to $1.2 million compared to $1.0 million during the fiscal year ended January 31, 2004. The Company’s investing activities principally represent the acquisition 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, 2005 used $3.5 million of available resources compared to $3.8 million during the prior fiscal year. The 2005 activity is the result of the payment of quarterly cash dividends amounting to $2.5 million, reduction of long-term debt totaling $1.2 million, and the purchase of treasury shares totaling $0.5 million, offset by proceeds received by the exercise of stock options amounting to $0.7 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, 2005 decreased to 6.4 % compared to 9.0% at January 31, 2004.

During the fiscal year ended January 31, 2005, the Company repurchased an aggregate of 32,881 shares at a cost of $0.5 million under the 400,000 (adjusted for stock split) share stock repurchase program authorized by the Board of Directors on December 15, 2000.

The Board of Directors declared quarterly dividends of $.0725 per share payable on March 10, 2004, June 9, 2004 and September 9, 2004 to shareholders of record at the close of business on February 27, 2004, May 28, 2004 and August 27, 2004, respectively, and quarterly dividends of $.0775 per share payable on December 9, 2004 and March 8, 2005 to shareholders of record at the close of business on November 26, 2004 and February 25, 2005, respectively.

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.

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. On October 31, 2004, the Company’s annual measurement date, the accumulated benefit obligation related to the Company’s pension plans exceeded the fair value of the pension plan assets (such excess is referred to as an unfunded accumulated benefit obligation). This difference is due to the decline in the market value of assets in the Company’s non-contributory defined benefit pension plan trust 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 this difference, the Company’s minimum pension liability as of January 31, 2005 was $570,262.
 
14
 
As part of our commitment to the future, the Company expended $0.8 million and $0.7 million on research and development for the fiscal years ended January 31, 2005 and 2004, 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.


Off-Balance Sheet Arrangements:
 
We have no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures that is material to investors.


Contractual Obligations:
 
The following table summarizes the Company's contractual cash obligations by required payment periods:
 
 
Payments Due By
Period
  
Long-Term
Debt
  
Purchase Obligations
  
Operating
Leases
  
Total Contractual
 Cash Obligations
Less than 1 Year  
 
$1,500,910  
 
$5,539,401  
 
$206,207  
 
$7,246,518  
1 - 3 Years  
 
2,700,000  
 
-  
 
240,857  
 
2,940,857  
3 - 5 Years  
 
1,200,000  
 
-  
 
-  
 
1,200,000  
More than 5 Years  
 
-  
 
-  
 
-  
 
-  
Total  
 
$5,400,910  
 
$5,539,401  
 
$447,064  
 
$11,387,375  

Future expected obligations under the Company's pension plans have not been included in the contractual cash obligations table above.  The Company's pension plan policy allows it to fund an amount, which could be in excess of the pension cost expensed, subject to the limitations imposed by current tax regulations.  The Company currently projects that it will be required to contribute approximately $720,000 to its pension and deferred contribution plans during the fiscal year ended January 31, 2006. 


Recent Accounting Pronouncements:

In December 2003, the Financial Accounting Standards Board (“FASB”) issued Finance Interpretation (“FIN”) No. 46(R), “Consolidation of Variable Interest Entities”. FIN No. 46(R) addresses the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN No. 46(R) was effective for the Company on February 1, 2004 and had no impact on its financial condition or results of operations.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs". The new Statement amends Accounting Research Bulletin No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material. This Statement requires that those items be recognized as current period charges and requires that allocation of fixed production overheads to the cost of conversion be based on the normal capacity of the production facilities. This statement is effective for fiscal years beginning after June 15, 2005. We do not expect adoption of this Statement to have a material impact on the Company’s financial condition or results of operations.

In December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”. This Statement replaces SFAS No. 123 and supersedes Accounting Principles Board (“APB”) No. 25. SFAS No. 123(R) will require the fair value of all stock option awards issued to employees to be recorded as an expense over the related vesting period. The Statement also requires the recognition of compensation expense for the fair value of any unvested stock option awards outstanding at the date of adoption. As permitted by SFAS No. 123, the Company currently accounts for share-based payments to employees using the APB No. 25 intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS No. 123(R)’s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. Had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and earnings per share on page 29.

15
 
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 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 APB Opinion 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.



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,” or where we express that our view is based upon the “current status” of a given matter, or upon facts as we know them as of the date of the statement. The content and/or context of other statements that we make may indicate that the statement is “forward-looking”. We claim the “safe harbor” provided by The Private Securities Reform Act of 1995 for all 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 on Form 10-K, could affect our future financial condition and results of operations, and could cause our future financial condition and results of operations to differ materially from those expressed in our SEC filings and in our 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, thereafter had several years of declining performance which we attributed primarily to a general weakness in its served markets, followed by improved performance in the fiscal year ended January 31, 2005 as compared to the prior year. During the fiscal year ended January 31, 2005, 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. Flex-Kleen’s performance needs to continue to improve in order for us not to be required to write-off some or all of its goodwill;
·  
materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;
·  
material changes in available technology;
·  
adverse developments in the asbestos cases that have been filed against the Company, including without limitation the exhaustion of insurance coverage, the imposition of punitive damages or other adverse developments in the availability of insurance coverage;
·  
changes in accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;
 
16
 
·  
the cost of compliance with Sarbanes-Oxley and other applicable legal and listing requirements, and the unanticipated possibility that Met-Pro may not meet these requirements;
·  
unexpected results in our product development activities;
·  
loss of key customers;
·  
changes in product mix and the cost of materials, with effect on margins;
·  
changes in our existing management;
·  
exchange rate fluctuations;
·  
changes in federal laws, 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;
·  
the effect of acquisitions and other strategic ventures;
·  
failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;
·  
the cancellation or delay of purchase orders or shipments;
·  
losses related to international sales; and/or
·  
failure in execution of acquisition strategy.



We have no disclosure to make with respect to this Item.




 
 
 


















 
17


Index to Consolidated Financial Statements and Supplementary Data:
 








 


 
 
 














 
18
 
 

The management of Met-Pro Corporation (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the Chief Executive and Chief Financial Officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
 
As of January 31, 2005, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of January  31, 2005 is effective to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
 
Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on our financial statements.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005, has been audited by Margolis & Company P.C., an independent registered public accounting firm, as stated in their report appearing herein, which expresses unqualified opinions on management’s assessment and on the effectiveness of the Company’s internal control over financial reporting as of January 31, 2005.

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, does not expect that our internal control over financial reporting will prevent or detect all errors and all frauds. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.


/s/ Raymond J. De Hont
Raymond J. De Hont
President and Chief Executive Officer


/s/ Gary J. Morgan
Gary J. Morgan
Chief Financial Officer

Harleysville, Pennsylvania
February 25, 2005

19
 


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, 2005 and 2004, and the related consolidated statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended January 31, 2005. 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 the standards of the Public Company Accounting Oversight Board (United States). 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, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Met-Pro Corporation’s internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 25, 2005 expressed an unqualified opinion on management’s assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.


/s/ Margolis & Company P.C.

Bala Cynwyd, Pennsylvania
February 25, 2005
 
20
 


To the Board of Directors and Shareholders
Met-Pro Corporation
Harleysville, Pennsylvania

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Met-Pro Corporation and its wholly-owned subsidiaries (the “Company”) maintained effective internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of January 31, 2005 is fairly stated, in all material respects, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2005, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated balance sheets of the Company as of January 31, 2005 and 2004 and the related statements of operations, shareholders’ equity and cash flows for each of the three years in the period ended January 31, 2005, and our report dated February 25, 2005 expressed an unqualified opinion.


/s/ Margolis & Company P.C.

Bala Cynwyd, Pennsylvania
February 25, 2005

 
21
MET-PRO CORPORATION


 
                  Years ended January 31,
 
2005    
  
2004    
  
2003    
  
Net sales
$72,116,289
  
$75,058,929
  
$69,619,382
  
Cost of goods sold
49,441,456
  
48,406,090
  
45,439,557
  
Gross profit
22,674,833
  
26,652,839
  
24,179,825
  
             
Operating expenses
            
Selling
7,537,508
  
7,662,594
  
7,139,082
  
General and administrative
7,624,276
  
7,823,007
  
7,885,757
  
 
15,161,784
  
15,485,601
  
15,024,839
  
Income from operations
7,513,049
  
11,167,238
  
9,154,986
  
             
Interest expense
(371,345
)
(441,704
)
(505,394
)
Other income/(expense), net
153,266
  
(1,109,506
)
278,126
  
Income before taxes
7,294,970
  
9,616,028
  
8,927,718
  
             
Provision for taxes
2,480,291
  
3,269,449
  
3,039,339
  
Net income
$4,814,679
  
$6,346,579
  
$5,888,379
  
 
            
Earnings per share
            
Basic (adjusted for stock split)
$.58
  
$.76
  
$ .71
  
Diluted (adjusted for stock split)
$.57
  
$.76
  
$ .71
  
             
Average number of common and
            
common equivalent shares outstanding
            
Basic (adjusted for stock split)
8,359,382
  
8,297,668
  
8,239,491
  
Diluted (adjusted for stock split)
8,463,005
  
8,398,256
  
8,295,328
  
The notes to consolidated financial statements are an integral part of the above statement.
 


22
MET-PRO CORPORATION
 

 
 
         January 31,
  
ASSETS
2005     
 
2004      
 
Current assets
        
Cash and cash equivalents
$20,889,476
  
$16,996,253
  
Accounts receivable, net of allowance for
        
doubtful accounts of approximately
        
$213,000 and $208,000, respectively
13,637,599
  
16,608,344
  
Inventories
13,843,171
  
12,755,011
  
Prepaid expenses, deposits and other current assets
1,250,098
  
1,209,395
  
Deferred income taxes