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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
or
 
[   ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 

 
For the quarter ended: April 30, 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


Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.   Yes  X      No       
 
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).   Yes  X     No       
 
As of April 30, 2004 the Registrant had 8,353,940 Common Shares, par value $.10 per share, issued and outstanding.
 

 
 
     

MET-PRO CORPORATION



INDEX
 
PART I – FINANCIAL INFORMATION
 
   Item 1. 
 
 
  
2
 
 
3
 
 
4
  
 
5
6
10
   
   Item 2.
 
 
11
       
   Item 3.
15
 
 
 
   Item 4.
15
       


PART II – OTHER INFORMATION

   Item 1.
15
      
   Item 2.
16
     
   Item 3.
16
     
   Item 4.
16
     
   Item 5.
16
     
   Item 6.
 
     
 
17
 
17

 
18

 
 
 
     

CONSOLIDATED BALANCE SHEET
(unaudited)

PART I – FINANCIAL INFORMATION
 
 
 
 
               
Item 1.  Financial Statements
 
 
 
 
 
   
 
 
 
 
April 30,
 
January 31,
   
ASSETS
2004
 
2004
  
Current assets 
 
 
 
 
     Cash and cash equivalents
$18,731,387
 
$16,996,253
 
     Accounts receivable, net of allowance for doubtful
 
    
 
 
         accounts of approximately $228,000 and
 
 
 
 
         $208,000, respectively
12,302,596
     
16,608,344
 
     Inventories
14,128,297
 
12,755,011
 
     Prepaid expenses, deposits and other current assets
1,244,056
   
 1,209,395
 
     Deferred income taxes
604,426
 
604,426
 
             Total current assets
47,010,762
 
48,173,429
 
              
Property, plant and equipment, net
11,406,917
 
11,514,199
 
Costs in excess of net assets of businesses acquired, net
20,798,913
 
20,798,913
 
Other assets
640,769
 
649,016
 
             Total assets
$79,857,361
   
$81,135,557
 
              
LIABILITIES AND SHAREHOLDERS' EQUITY
 
 
 
 
Current liabilities
 
 
 
 
     Current portion of long-term debt
$1,525,544
 
$1,533,866
 
     Accounts payable
4,140,374
 
5,073,554
 
     Accrued salaries, wages and expenses
6,323,361
 
6,542,306
 
     Dividend payable
605,661
 
602,755
   
     Customers' advances
532,851
 
476,982
 
             Total current liabilities
13,127,791
 
14,229,463
 
               
Long-term debt
5,061,573
 
5,447,869
 
Other non-current liabilities
39,367
 
38,818
 
Deferred income taxes
1,177,098
  
1,148,673
  
             Total liabilities
19,405,829
 
20,864,823
 
 
 
     
  
  
Shareholders' equity
 
       
 
  
     Common shares, $.10 par value; 18,000,000 shares
 
    
 
 
         authorized, 9,634,956 shares issued,
 
      
 
 
         of which 1,281,016 and 1,311,679 shares were reacquired
 
     
 
 
         and held in treasury at the respective dates
963,496
 
963,496
 
     Additional paid-in capital
7,926,997
 
7,955,459
 
     Retained earnings
63,935,327
 
63,727,425
 
     Accumulated other comprehensive loss
(398,222
 ) (328,616 ) 
     Treasury shares, at cost
(11,976,066
)
(12,047,030
 ) 
             Total shareholders' equity
60,451,532
 
60,270,734
 
             Total liabilities and shareholders' equity
$79,857,361
 
$81,135,557
 
See accompanying notes to consolidated financial statements.
 
 
 



 2

     
 
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
 
 
 
Three Months Ended 
    
 
April 30,
    
 
2004
 
2003
 
Net sales
$15,634,646
      
$17,002,269
 
            
Cost of goods sold
10,572,214
       
10,767,302
 
Gross profit
5,062,432
 
6,234,967
 
                   
Operating expenses
 
 
 
 
  Selling
1,932,368
 
1,919,048
 
  General and administrative
1,802,308
        
2,041,636
 
 
3,734,676
         
3,960,684
   
Income from operations
1,327,756
 
2,274,283
 
         
     
           
 
 
Interest expense
(96,847
)
(116,078
)
Other income/(expense), net 
2,804
 
(112,618
)
Income before taxes
1,233,713
 
2,045,587
   
 
 
      
 
 
Provision for taxes
419,464
        
695,499
 
Net income

$814,249

     

$1,350,088

    
Earnings per share, basic (1) (2)
$.10
      
$.16
 
          
Earnings per share, diluted (1) (3) 
$.10
  
$.16
  
       
         
          
     
 
Cash dividend per share – declared (1) (4)
$.0725
 
$.0675
 
      
   
       
      
 
Cash dividend per share – paid (1) (4)
$.0725
   $.0675  
 

 (1)
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 and number of shares outstanding have been restated to reflect the effect of the stock split.
 
  
(2) 
Basic earnings per share are based upon the weighted average number of shares outstanding of 8,342,386 and 8,288,492 for the three-month periods ended April 30, 2004 and 2003, respectively.
   
(3)
Diluted earnings per share are based upon the weighted average number of shares outstanding of 8,480,996 and 8,335,380 for the three-month periods ended April 30, 2004 and 2003, respectively.
   
(4)
The Board of Directors declared quarterly dividends of $.0725 per share payable on March 10, 2004 and June 9, 2004 to shareholders of record as of February 27, 2004 and May 28, 2004, respectively. Quarterly dividends of $.0675 per share were paid on March 10, 2003 and June 9, 2003 to shareholders of record as of February 21, 2003 and May 23, 2003, respectively.
             
See accompanying notes to consolidated financial statements.
 

3

     

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(unaudited)
 
 
 
 
    
  Accumulated
    
  
  
 
 
Additional
     
  Other
 
  
  
 
     Common
Paid-in
Retained
Comprehensive
Treasury
 
 
 
     Shares
Capital
Earnings
Income/(Loss)
Stock
  Total
  
Balances, January 31, 2004
$963,496
$7,955,459
 
$63,727,425
  
($328,616
)
($12,047,030
)
$60,270,734
 
                                
Comprehensive income:
      
      
  
      
   
 
 
     
 
      
 
   Net income
–
–
 
814,249
    
–
  
–
  
 
  
   Cumulative translation adjustment
–
–
  
–
 
(125,961
)
–
 
 
 
   Interest rate swap,                      
      net of tax of ($29,031)
–
–
 
–
     
56,355
  
–
  
 
   
         Total comprehensive income
   
   
  
     
 
  
 
 
 
 744,643
 
 
      
     
 
      
    
   
  
    
  
   
  
   Dividends declared, $.0725 per                      
      share
–
–
  
(606,347
)
–
 
–
 
(606,347
)
   Stock option transactions
–
(28,462
)

 –
 
–
 
552,651
 
524,189
 
    Purchase of 28,717 shares of                                   
      treasury stock
–
–
  
–
 
–
  
(481,687
)
(481,687
)
Balances, April 30, 2004
$963,496
$7,926,997
$63,935,327
 
($398,222
)
($11,976,066
)
$60,451,532
 


    
 
 
  
Accumulated
  
  
  
    
 
Additional
 
Other
 
 
 
 
     Common
Paid-in
Retained
Comprehensive
Treasury
 
 
 
     Shares
Capital
Earnings
 Income/(Loss)
Stock
Total
 
Balances, January 31, 2003
$722,630
$8,196,782
  
$59,705,267
 
($541,959
)
($12,036,835
)
$56,045,885
 
 
    
   
  
     
     
 
  
  
  
  
  
Comprehensive income:
    
    
  
       
  
 
  
    
 
 
 
   Net income
–
–
 
1,350,088
 
–
 
–
 
 
 
   Cumulative translation adjustment
–
–
–
 
148,033
 
–
 
 
 
   Interest rate swap,                               
      net of tax of $935
–
–
 
–
 
(22,869
)
–
 
 
 
         Total comprehensive income
  
  
 
      
 
 
 
 
 
1,475,252
 
   
 
  
 
      
 
 
 
 
 
 
 
Dividends declared, $.0675 per
                       
      share
–
–
  
(559,780
)
–
 
–
 
(559,780
)
Balances, April 30, 2003
$722,630
$8,196,782
$60,495,575
 
($416,795
)
($12,036,835
)
$56,961,357
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 

 4

     

CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
 
 
 
   
Three Months Ended
    
  
    
April 30,
 
   
  
 2004
 
2003
 
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities
    
    
 
    
 
 
   Net Income
 
 
$814,249
 
$1,350,088
 
   Adjustments to reconcile net income to net
 
 
 
    
 
  
          cash provided by operating activities:                  
      Depreciation and amortization
 
 
358,256
 
384,237
 
      Deferred income taxes
 
 
(606
)
(4,156
)
      Allowance for doubtful accounts
 
 
(19,736
)
27,776
 
      (Increase) decrease in operating assets:
      
      
   
      
    
 
          Accounts receivable
  
      
4,253,669
  
(1,258,163
)
          Inventories
  
 
(1,384,106
)
(432,860
)
          Prepaid expenses, deposits and other current assets
 
 
(39,497
)
123,078
 
          Other assets
  
 
(1,920
)
(1,890
)
      Increase (decrease) in operating liabilities:
 
 
 
 
 
 
          Accounts payable and accrued expenses
   
  
(1,121,513
)
2,045,561
 
          Customers’ advances
 
      
55,869
 
204,875
 
          Other non-current liabilities
 
 
549
     
549
 
        Net cash provided by operating activities
 
 
2,915,214
 
2,439,095
 
 
 
 
 
      
     
 
Cash flows from investing activities
 
 
 
 
 
 
   Acquisitions of property and equipment
 
 
(284,632
)
(299,947
)
        Net cash (used in) investing activities
 
   
 (284,632
)
(299,947
)
 
 
 
 
 
   
 
Cash flows from financing activities
 
 
 
 
 
 
   Reduction of debt
 
   
(309,232
)
(309,232
)
   Exercise of stock options
 
 
524,189
 
–
 
   Payment of dividends
 
 
(603,441
)
(559,473
)
   Purchase of treasury shares
  
   
(481,687
)
–
 
        Net cash (used in) financing activities
 
(870,171
)
(868,705
)
Effect of exchange rate changes on cash
 
      
(25,277
)
17,742
 
                
Net increase in cash and cash equivalents
    
1,735,134
  
1,288,185
  
              
Cash and cash equivalents at February 1
    
16,996,253
  
13,429,367
  
Cash and cash equivalents at April 30
    
$18,731,387
  
$14,717,552
  
See accompanying notes to consolidated financial statements.
            
 
 


5 

     
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Stock Options: The Company accounts for stock options under the provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”, and related interpretations. Accounting for the issuance of stock options under the provisions of APB No. 25 typically does not result in compensation expense for the Company since the exercise price of options is normally established at the market price of the Company’s Common Shares on the date granted. Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation”, provides that the related expense may be recorded in the basic financial statements or the pro forma effect on earnings may be disclosed in the financial statements.

Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which requires that the information be determined as if we had accounted for our stock options under the fair-value method. The fair value for these options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rates ranging from 3.1% to 3.6%, dividend yield ranging from 1.9% to 3.7%, expected volatility of the market price of the Company’s Common Shares of 32%, and an expected option life of five years.

The risk-free interest rates are based on the five year treasury bill rates. For the purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting periods.

The pro forma information compared to reported information for the three-month periods ended April 30, 2004 and 2003 is presented in the following table (adjusted for four-for-three stock split):
 
 
   Three Months Ended April 30,
  
2004
  
2003
 
 
Net Income:
    
    
    
  As reported
$814,249
  
$1,350,088
  Pro forma
761,645
  
1,311,382
Basic earnings per share:
 
     
 
  As reported
$.10
   
$.16
  Pro forma
.09
  
.16
Diluted earnings per share:
  
     
  
  As reported
$.10
   
$.16
  Pro forma
.09
   
.16
 
 
 
The pro forma effects of applying SFAS No. 123 to the three-month periods ended April 30, 2004 and 2003 may not be representative of the pro forma effects in future years. Based on the vesting schedule of the Company’s stock option grants, the pro forma effects on earnings are most pronounced in the early years following each grant. The timing and magnitude of any future grants are at the discretion of the Company’s Board of Directors and cannot be assured.

Non-employee directors of the Company are eligible to receive stock options for Common Shares. These stock options are accounted for the same as stock options granted to employees.

Recent Accounting Pronouncements: In January 2003, the Financial Accounting Standards Board ("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 su pport 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.
 

6

     
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Reclassifications: Certain reclassifications have been made to the financial statements for the three-month period ended April 30, 2003 to conform with the presentation of the financial statements for the three-month period ended April 30, 2004. Such reclassifications did not have any impact on shareholders’ equity and net income as of and for the three-month period ended April 30, 2003.
 
Stock Splits: On September 17, 2003, the Company’s Board of Directors declared a four-for-three stock split, effective in the form of a stock distribution, payable on October 15, 2003 to shareholders of record on October 1, 2003. The Company retained the current par value of $.10 per share for all common shares. All references in the financial statements and notes to the number of shares outstanding, per share amounts, and stock option data of the Company’s common shares have been restated to reflect the effect of the stock split for all periods presented.

Shareholders’ equity reflects the stock split by reclassifying from “Additional paid-in capital” to “Common shares” an amount equal to the par value of the additional shares arising from the split.



NOTE 2 – PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Met-Pro Corporation (“Met-Pro” or the “Company”) and its wholly-owned subsidiaries, Mefiag B.V., Flex-Kleen Canada Inc., Strobic Air Corporation, MPC Inc. and Pristine Hydrochemical Inc. Significant intercompany accounts and transactions have been eliminated.



NOTE 3 – BASIS OF PRESENTATION

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position as of April 30, 2004 and the results of operations, changes in shareholders’ equity and cash flows for the three-month periods ended April 30, 2004 and 2003. The results of operations for the three-month periods ended April 30, 2004 and 2003 are not necessarily indicative of the results to be expected for the full year. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended January 31, 2004.








 







7

     
MET-PRO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4 – INVENTORIES

Inventories consisted of the following:

 
April 30,
2004
       
January 31,
2004
 
 
Raw materials
  $7,830,480
     
  $7,069,349
Work in progress
  1,314,687
 
 1,186,898
Finished goods
  4,983,130
 
 4,498,764
 
 
 
 $14,128,297
 
 $12,755,011
 
 



NOTE 5 – SUPPLEMENTAL CASH FLOW INFORMATION

Net cash flows from operating activities reflect cash payments for interest and income taxes as follows:
 
  
Three Months Ended April 30,
 
 2004
 
2003
 
 
Cash paid during the period for:
 
 
 
   Interest
$86,306
 
$102,179
   Income taxes
51,800
 
77,993
 
 
 
NOTE 6 – OTHER INCOME/(EXPENSE), NET

Other income/(expense), net was comprised of the following:
 
 
 
Three Months Ended April 30,
 
2004
     
2003
  
 
Other, primarily interest income 
$80,465
 
 
$64,063
 
Unusual charge – patent litigation
(77,661
)
 
(176,681
)
 
 
 
$2,804
 
 
($112,618
)
 
 





 



8

     
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 7 – BUSINESS SEGMENT DATA

The Company’s operations are conducted in two business segments as follows: the manufacture and sale of product recovery/pollution control equipment, and the manufacture and sale of fluid handling equipment.

No significant intercompany revenue is realized by either business segment. Interest income and expense are not included in the measure of segment profit reviewed by management. Income taxes are also not included in the measure of segment operating profit reviewed by management.

Financial information by business segment is shown below:

 
   
Three Months Ended April 30,
 
 
 2004
 
 2003
   
Net sales
 
 
 
 
    Product recovery/pollution control equipment
 
$9,251,532
 
$11,451,879
    Fluid handling equipment
 
 6,383,114
 
5,550,390
     
   
 
 
$15,634,646
 
$17,002,269
   
 
  
   
   
   
   
Income from operations
 
 
 
 
    Product recovery/pollution control equipment 
 
$587,088
 
$1,643,297
    Fluid handling equipment
 
740,668
 
630,986
   
 
 
 
$1,327,756
 
$2,274,283
   
 
 
 
April 30,
     
January 31,
 
2004
 
2004
 
Identifiable assets
 
 
 
    Product recovery/pollution control equipment
$41,235,554
 
$44,613,967
    Fluid handling equipment
19,269,819
 
19,313,159
 
 
 
60,505,373
 
63,927,126
    Corporate
19,351,988
 
17,208,431
 
 
 
$79,857,361
 
$81,135,557
 
 


 

NOTE 8 – ACCOUNTANTS’ 10-Q REVIEW

Margolis & Company P.C., the Company’s independent accountants, has performed a limited review of the financial information included herein. Their report on such review accompanies this filing.




 

9

     
 
REPORT OF INDEPENDENT ACCOUNTANTS




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

We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of April 30, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the three-month periods ended April 30, 2004 and 2003. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2004, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 20, 2004, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 2004, is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.




                           /s/ Margolis & Company P.C.
                           Certified Public Accountants




Bala Cynwyd, Pennsylvania
May 19, 2004
 
 
 
 
 
 

10

     

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations:

The following table sets forth, for the three-month periods indicated, certain financial information derived from the Company’s consolidated statement of operations expressed as a percentage of net sales.

 
   
Three Months Ended
  
   

 April 30,

  
  2004      2003  
Net sales
100.0
%
 
100.0
%
Cost of goods sold
67.6
%
 
63.3
%
Gross profit
32.4
%
 
36.7
%
                          
Selling expenses
12.4
%
 
11.3
%
General and administrative expenses
11.5
%
 
12.0
%
Income from operations
8.5
%
 
13.4
%
 
 
 
 
 
 
Interest expense
(.6
%)
 
(.7
%)
Other income/(expense), net
–
 
   
(.7
%)
Income before taxes
7.9
%
 
12.0
%
Provision for taxes
2.7
%
 
4.1
%
Net income
5.2
%
 
7.9
%


Three Months Ended April 30, 2004 vs Three Months Ended April 30, 2003

Net sales for the three-month period ended April 30, 2004 were $15,634,646 compared to $17,002,269 for the three-month period ended April 30, 2003, a decrease of $1,367,623 or 8.0%. Sales in the Product Recovery/Pollution Control Equipment segment were $9,251,532 or 19.2% lower than the three-month period ended April 30, 2003, which was due primarily to customers rescheduling several large projects into the second and third quarters of this fiscal year. Sales in the Fluid Handling Equipment segment were $6,383,114 or 15.0% higher than the three-month period ended April 30, 2003.

Backlog at April 30, 2004 totaled $11,857,264 compared to $8,925,816 at April 30, 2003. In addition, at April 30, 2004, the Company had orders of $4,237,564 compared to $8,442,817 at April 30, 2003, which are not included in our backlog due to the Company’s long-standing policy of not including these orders in backlog until engineering drawings are approved.

Net income for the three-month period ended April 30, 2004 was $814,249 compared to $1,350,088 for the three-month period ended April 30, 2003, a decrease of $535,839 or 39.7%. The decrease in net income is principally related to the lower sales and gross margins resulting from product mix in the Product Recovery/Pollution Control Equipment segment.

The gross margin for the three-month period ended April 30, 2004 was 32.4% versus 36.7% for the same period in the prior year due to lower gross margins experienced in the Product Recovery/Pollution Control segment.

Selling expense increased $13,320 during the three-month period ended April 30, 2004 compared to the same period last year. Selling expense as a percentage of net sales was 12.4% for the three-month period ended April 30, 2004 compared to 11.3% for the three-month period ended April 30, 2003.
 

11

     
MET-PRO CORPORATION

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued…

General and administrative expense was $1,802,308 for the three-month period ended April 30, 2004 compared to $2,041,636 for the same period last year, a decrease of $239,328. General and administrative expense as a percentage of net sales was 11.5% for the three-month period ended April 30, 2004 compared to 12.0% for the same period last year. This decrease is primarily related to a decrease in accruals for our management incentive program.

Interest expense was $96,847 for the three-month period ended April 30, 2004 compared to $116,078 for the same period in the prior year, a decrease of $19,231.

Other income, net was $2,804 for the three-month period ended April 30, 2004 compared to other expense, net of $112,618 in the same period of the prior year. This decrease 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 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 for the three-month periods ended April 30, 2004 and April 30, 2003 was 34.0%.

Liquidity:

The Company’s cash and cash equivalents were $18,731,387 on April 30, 2004 compared to $16,996,253 on January 31, 2004, an increase of $1,735,134. This increase is the net result of the positive cash flows provided by operating activities of $2,915,214 and the exercise of stock options amounting to $524,189, offset by payment of the quarterly cash dividend amounting to $603,441, purchase of treasury shares amounting to $481,687, payments on long-term debt totaling $309,232, exchange rate changes of $25,277 and investment in property and equipment amounting to $284,632. The Company’s cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.

Accounts receivable (net) amounted to $12,302,596 on April 30, 2004 compared to $16,608,344 on January 31, 2004, which represents a decrease of $4,305,748. 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 were $14,128,297 on April 30, 2004 compared to $12,755,011 on January 31, 2004, an increase of $1,373,286. Inventory balances fluctuate depending on the size and timing of orders, and market demand, especially when major systems and contracts are involved.

Current liabilities amounted to $13,127,791 on April 30, 2004 compared to $14,229,463 on January 31, 2004, a decrease of $1,101,672.

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 together 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 April 30, 2004 and January 31, 2004, working capital was $33,882,971 and $33,943,966, respectively, and the current ratio was 3.6 and 3.4, respectively.

Capital Resources and Requirements:

Cash flows provided by operating activities during the three-month period ended April 30, 2004 amounted to $2,915,214 compared with $2,439,095 in the three-month period ended April 30, 2003, an increase of $476,119. This increase in cash flows from operating activities was due principally to a decrease in accounts receivable, offset by an increase in inventory and a decrease in accounts payable and net income.

Cash flows used in investing activities during the three-month period ended April 30, 2004 amounted to $284,632 compared with $299,947 for the three-month period ended April 30, 2003. The Company’s investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments.


12

     
MET-PRO CORPORATION
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued…

Consistent with past practices, the Company intends to continue to invest in new product development programs and to make capital expenditures to support the ongoing operations during the coming year. The Company expects to finance all routine capital expenditure requirements through cash flows generated from operations.

Financing activities during the three-month period ended April 30, 2004 utilized $870,171 of available resources compared to $868,705 for the three-month period ended April 30, 2003. The 2004 activity is the result of the payment of the quarterly cash dividend amounting to $603,441, purchase of treasury shares amounting to $481,687 and the reduction of long-term debt totaling $309,232, offset by the exercise of stock options amounting to $524,189.

The Board of Directors declared quarterly dividends of $.0725 per share payable on March 10, 2004 and June 9, 2004 to shareholders of record as of February 27, 2004 and May 28, 2004, respectively.

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 of America. 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 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. These assumptions 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.








13

     
MET-PRO CORPORATION
 
 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued…

Cautionary Statement Concerning Forward-Looking Statements:

Our prospects are subject to certain uncertainties and risk. This Quarterly Report on Form 10-Q 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 beliefs or expectations, 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 future results may differ materially from our 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 Quarterly Report on Form 10-Q, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:
 
l
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;
l
materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;
l
material changes in available technology;
l
changes in accounting rules promulgated by regulatory agencies, including the SEC, which could result in an impact on earnings;
l unexpected results in our product development activities;
l loss of key customers;
l
changes in product mix;
l changes in our existing management;
l
exchange rate fluctuations;
l
changes in federal laws, state laws and regulations;
l
lower than anticipated return on investments in the Company’s defined benefit plans, which could affect the amount of the Company’s pension liabilities;
l
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;
l
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;
l
the effect of acquisitions and other strategic ventures;
l
failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or production errors;
l
the cancellation or delay of purchase orders or shipments;
l
losses related to international sales; and/or
l
failure in execution of acquisition strategy.





14

     
 
 
Item 3.  Qualitative and Quantitative Disclosures about Market Risk

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

Item 4.  Controls and Procedures

With the participation of our Chief Executive Officer and Chief Financial Officer, management has carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a – 15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of April 30, 2004.

There were no changes in our internal controls over financial reporting (as defined in Rule 13a – 15(f) under the Securities Exchange Act of 1934) during the first quarter of fiscal 2005 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

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.

 
 
 
 
 
 
 
 
 
 

 

15

     
 

Item 2.  Changes in Securities, and Use of Proceeds and Issuer Purchases of Equity Securities

The following table summarizes Met-Pro’s purchases of its common shares for the quarter ending April 30, 2004:

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 1-29, 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
 
 
 
 
 
 
   Total
28,717
 
$16.77
 
28,717
 
216,763
 
 
 
 
 
 
 
 

(1)
These amounts consist of shares we purchased from non-employee directors who elected to pay the exercise price of their 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.
 
Item 3.  Defaults Upon Senior Securities

None

Item 4.  Submission of Matters to a Vote of Security Holders

None                               

Item 5.  Other Information

None
 
 
 
 
 

16

     


Item 6.  Exhibits and Reports on Form 8-K

 
(a)   Exhibits Required by Item 601 of Regulation S-K
 

Exhibit No.

 

Description

 

 

 

 
Certification of Chief Executive Officer,
 
 
under section 302 of the
 
 
Sarbanes-Oxley Act of 2002. *
 
 
 
 
Certification of Chief Financial Officer,
 
 
under section 302 of the
 
 
Sarbanes-Oxley Act of 2002. *
 
 
 
 
Certification of Chief Executive Officer,
 
 
Pursuant 18 U.S.C. Section 1350. *
 
 
 
 
Certification of Chief Financial Officer,
 
 
Pursuant 18 U.S.C. Section 1350. *
* Filed herewith.

(b)   Reports on Form 8-K

The following Current Reports on Form 8-K were filed with the Securities and Exchange Commission (“SEC”) during the quarterly period covered by this report and thereafter:

On February 25, 2004, the Company filed a Report on Form 8-K covering its press release announcing the Company’s fiscal year ended January 31, 2004 financial results, as required by SEC Release 33-8216.

On May 20, 2004, the Company filed a Report on Form 8-K covering its press release announcing the Company’s financial results for the first quarter ended April 30, 2004, as required by SEC Release 33-8216.

   

 





 

 










17

     
 
 
SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





 
June 3, 2004
                   
Met-Pro Corporation       
 
        
 (Registrant)
                             


June 3, 2004
                   
/s/ Raymond J. De Hont        
 
        
Raymond J. De Hont
 
                   
Chairman, President and Chief Executive Officer
 
 
 



June 3, 2004
                   
/s/ Gary J. Morgan            
 
        
Gary J. Morgan
 
                     
Vice President of Finance,
 
 
Secretary and Treasurer, Chief
 
 
Financial Officer, Chief Accounting
 
 
Officer and Director














 


18