Back to GetFilings.com





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, 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

 
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, 2005 the Registrant had 8,388,575 Common Shares, par value of $.10 per share, issued and outstanding.
 

MET-PRO CORPORATION

INDEX

PART I - FINANCIAL INFORMATION  
     
  Item 1.  Financial Statements  

2
3
 
4
 
5
6
10
   
  Item 2.
  and Results of Operations

11

   
  Item 3. Qualitative and Quantitative Disclosures about Market Risk

15

   
  Item 4. Controls and Procedures

15

   
   
PART II - OTHER INFORMATION
   
  Item 1. Legal Proceedings

15

   
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

16

   
  Item 3. Defaults Upon Senior Securities

16

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

16

   
  Item 5. Other Information

16

   
  Item 6. Exhibits

17

   
   
SIGNATURES

18





 
1
MET-PRO CORPORATION
 
CONSOLIDATED BALANCE SHEET

(unaudited)

PART I - FINANCIAL INFORMATION
        
         
Item 1. Financial Statements
        
         
 
April 30,
  
January 31,
  
ASSETS
2005
  
2005
  
Current assets
        
     Cash and cash equivalents
$19,807,864
  
$20,889,476
 
     Accounts receivable, net of allowance for doubtful
        
          accounts of approximately $236,000 and
        
          $213,000, respectively
13,366,843
  
13,637,599
 
     Inventories
16,224,188
  
13,843,171
  
     Prepaid expenses, deposits and other current assets
1,189,342
  
1,250,098
  
     Deferred income taxes
650,151
  
650,151
  
               Total current assets
51,238,388
  
50,270,495
  
         
Property, plant and equipment, net
11,141,929
  
11,287,253
 
Costs in excess of net assets of businesses acquired, net
20,798,913
  
20,798,913
  
Other assets
561,619
  
567,405
  
               Total assets
$83,740,849
  
$82,924,066
 
         
LIABILITIES AND SHAREHOLDERS' EQUITY
        
Current liabilities
        
     Current portion of long-term debt
$1,500,000
  
$1,500,910
 
     Accounts payable
4,664,685
  
5,028,074
 
     Accrued salaries, wages and expenses
5,482,855
  
5,397,195
 
     Dividend payable
650,115
  
648,381
  
     Customers' advances
1,914,386
  
1,293,332
  
               Total current liabilities
14,212,041
  
13,867,892
  
         
Long-term debt
3,696,942
  
4,039,068
 
Other non-current liabilities
41,564
  
41,015
 
Deferred income taxes
1,825,603
  
1,810,900
  
               Total liabilities
19,776,150
  
19,758,875
 
         
Shareholders' equity
        
     Common shares, $.10 par value; 18,000,000 shares
        
          authorized, 9,634,956 shares issued,
       
          of which 1,246,381 and 1,266,914 shares were reacquired
       
          and held in treasury at the respective dates
963,496
  
963,496
 
     Additional paid-in capital
7,922,603
  
7,930,646
 
     Retained earnings
66,700,406
  
66,032,446
  
     Accumulated other comprehensive income
48,037
  
100,635
  
     Treasury shares, at cost
(11,669,843
)
(11,862,032
)
               Total shareholders' equity
63,964,699
  
63,165,191
  
               Total liabilities and shareholders' equity
$83,740,849
  
$82,924,066
 
See accompanying notes to consolidated financial statements.
      
 
2
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)
 
        
  Three Months Ended   
 
April 30,   
 
2005
  
2004
  
Net sales
$17,927,612
  
$15,634,646
  
Cost of goods sold
11,973,337
  
10,572,214
  
Gross profit
5,954,275
  
5,062,432
  
 
        
Operating expenses
        
   Selling
1,954,263
  
1,932,368
  
   General and administrative
2,093,458
  
1,802,308
  
 
4,047,721
  
3,734,676
  
         
Income from operations
1,906,554
  
1,327,756
  
         
Interest expense
(66,052
)
(96,847
)
Other income, net
126,989
  
2,804
  
Income before taxes
1,967,491
  
1,233,713
  
         
Provision for taxes
649,273
  
419,464
  
Net income
$1,318,218
  
$814,249
  
Earnings per share, basic (1)
$.16
  
$.10
 
     
 
  
Earnings per share, diluted (2) 
$.16
  
$.10
  
         
Cash dividend per share - declared (3)
$.0775
  
$.0725
  
         
Cash dividend per share - paid (3)
$.0775
  
$.0725
  


(1) 
Basic earnings per share are based upon the weighted average number of shares outstanding of 8,381,731 and 8,342,386 for the three-month periods ended April 30, 2005 and 2004, respectively.
   
(2)
Diluted earnings per share are based upon the weighted average number of shares outstanding of 8,464,944 and 8,480,996 for the three-month periods ended April 30, 2005 and 2004, respectively.
   
(3)
The Board of Directors declared quarterly dividends of $.0775 per share payable on March 8, 2005 and June 8, 2005 to shareholders of record as of February 25, 2005 and May 27, 2005, respectively. Quarterly dividends of $.0725 per share were paid on March 10, 2004 and June 9, 2004 to shareholders of record as of February 27, 2004 and May 28, 2004, respectively.
 
See accompanying notes to consolidated financial statements.

3
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

(unaudited)

 
 
            
       
Accumulated
      
   
Additional
  
Other
      
 
Common
Paid-in
Retained
Comprehensive
Treasury
    
 
Shares
Capital
Earnings
Income/(Loss)
Shares
Total
 
Balances, January 31, 2005
$963,496
$7,930,646
  
$66,032,446
  
$100,635
  
($11,862,032
)
$63,165,191
  
                       
Comprehensive income:
                      
   Net income
-
-
  
1,318,218
  
-
  
-
      
   Cumulative translation adjustment
-
-
  
-
  
(79,432
)
-
      
   Interest rate swap,                      
     net of tax of ($15,292)
-
-
  
-
  
26,834
  
-
      
       Total comprehensive income
                  
1,265,620
  
                       
Dividends declared, $.0775 per
                     
     share
-
-
  
(650,258
)
-
  
-
  
(650,258
)
Stock option transactions
-
(8,043
)
-
  
-
  
192,189
  
184,146
  
Balances, April 30, 2005
$963,496
$7,922,603
  
$66,700,406
  
$48,037
  
($11,669,843
)
$63,964,699
  
               
               
       
Accumulated
      
   
Additional
  
Other
      
 
Common
Paid-in
Retained
Comprehensive
Treasury
    
 
Shares
Capital
Earnings
Income/(Loss)
Shares
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
  
See accompanying notes to consolidated financial statements
 

4
MET-PRO CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)
       
     
Three Months Ended
     
April 30,
     
2005
  
2004
  

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash flows from operating activities
            
    Net Income
    
$1,318,218
  
$814,249
  
    Adjustments to reconcile net income to net
            
            cash provided by (used in) operating activities:
            
        Depreciation and amortization
   
374,519
 
358,256
  
        Deferred income taxes
    
(589
)
(606
)
        Loss on sale of property and equipment, net
    
12,198
  
-
  
        Allowance for doubtful accounts
   
23,066
  
(19,736
)
        (Increase) decrease in operating assets:
            
            Accounts receivable
   
206,313
  
4,253,669
  
            Inventories
    
(2,402,889
)
(1,384,106
)
            Prepaid expenses, deposits and other current assets
   
57,228
  
(39,497
)
            Other assets
    
(1,950
)
(1,920
)
        Increase (decrease) in operating liabilities:
            
            Accounts payable and accrued expenses
   
(264,409
)
(1,121,513
)
            Customers’ advances
    
623,810
 
55,869
  
            Other non-current liabilities
    
549
  
549
  
         Net cash provided by (used in) operating activities
    
(53,936
)
2,915,214
  
             
Cash flows from investing activities
            
    Proceeds from sale of property and equipment
    
12,330
  
-
  
    Acquisitions of property and equipment
    
(261,596
)
(284,632
)
         Net cash (used in) investing activities
    
(249,266
)
(284,632
)
             
Cash flows from financing activities
            
    Reduction of debt
    
(300,910
)
(309,232
)
    Exercise of stock options
    
184,146
  
524,189
  
    Payment of dividends
    
(648,524
)
(603,441
)
    Purchase of treasury shares
    
-
  
(481,687
)
         Net cash (used in) financing activities
    
(765,288
)
(870,171
)
Effect of exchange rate changes on cash
    
(13,122
)
(25,277
)
             
Net increase (decrease) in cash and cash equivalents
    
(1,081,612
)
1,735,134
  
             
Cash and cash equivalents at February 1
    
20,889,476
  
16,996,253
  
Cash and cash equivalents at April 30
    
$19,807,864
  
$18,731,387
 
See accompanying notes to consolidated financial statements.    

 
5
MET-PRO CORPORATION
 
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 established at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rates ranging from 3.1% to 3.9%, dividend yield ranging from 2.3% to 3.7%, expected volatility of the market price of the Company’s Common Stock 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 purpose 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 period ended April 30, 2005 and 2004 is presented in the following table:

 
Three Months Ended
  April 30, 
 
2005
  
2004
Net income:
      
    As reported
$1,318,218
  
$814,249
    Pro forma
1,276,528
 
761,645
Basic earnings per share:
      
    As reported
$.16
  
$.10
    Pro forma
.15
  
.09
Diluted earnings per share:
      
    As reported
$.16
  
$.10
    Pro forma
.15
  
.09

The pro forma effects of applying SFAS No. 123 to the three-month periods ended April 30, 2005 and 2004 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 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.
 
6
MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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. 153, "Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29." SFAS No. 153 eliminates the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for fiscal periods beginning after June 15, 2005. The Company believes this statement will not have a material impact on its results of operations or financial position.

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. In April 2005, the effective date for this standard was changed to require adoption of the standard at the beginning of the next fiscal year after June 15, 2005. 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 6.

 
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, 2005 and the results of operations, changes in shareholders’ equity and cash flows for the three-month periods ended April 30, 2005 and 2004. The results of operations for the three-month periods ended April 30, 2005 and 2004 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, 2005.
 
7
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 
NOTE 4 - INVENTORIES
 
Inventories consisted of the following:

 
April 30,
   January 31,
 
2005
  
2005 
Raw materials
$9,335,623
  
$7,965,553
Work in progress
1,971,761
  
1,682,391
Finished goods
4,916,804
  
4,195,227
 
$16,224,188
  
$13,843,171


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,
 
2005
  
2004
Cash paid during the period for:
      
   Interest
$62,796
  
$86,306
   Income taxes
45,812
  
51,800


NOTE 6 - OTHER INCOME, NET

Other income, net was comprised of the following:


  Three Months Ended
 
April 30,
 
2005
  
2004
  
(Loss) on sale of property and equipment
($12,198
)
$        -
  
Other, primarily interest income
139,187
  
80,465
  
Unusual charge - patent litigation
-
  
(77,661
)
 
$126,989
  
$2,804
  

 
 

8
MET-PRO CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 7 - BUSINESS SEGMENT DATA

The Company’s operations are conducted in two business segments: 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,
 
  2005
  
2004
Net sales
      
      Product recovery/pollution control equipment
$10,244,280
  
$9,251,532
      Fluid handling equipment
7,683,332
  
6,383,114
 
$17,927,612
  
$15,634,646
       
Income from operations
      
      Product recovery/pollution control equipment
$929,992
  
$587,088
      Fluid handling equipment
976,562
  
740,668
 
$1,906,554
  
$1,327,756


 
 
April 30,
 
January 31,
 
2005
  
2005
Identifiable assets
      
      Product recovery/pollution control equipment
$42,609,496
  
$41,554,730
      Fluid handling equipment
20,216,194
  
19,784,083
 
62,825,690
  
61,338,813
      Corporate
20,915,159
  
21,585,253
 
$83,740,849
  
$82,924,066


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
MET-PRO CORPORATION
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 
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, 2005, and the related consolidated statements of operations, shareholders’ equity, and cash flows for the three-month periods ended April 30, 2005 and 2004. These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Accounting Oversight Board (United States). 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 the standards of Public Accounting Oversight Board, 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 interim consolidated financial statements for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Accounting Oversight Board, the consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2005, 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 25, 2005, 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, 2005, 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 18, 2005
 
 
 
 
 
 

 
10
MET-PRO CORPORATION
 
 
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,
 
2005
  
2004
  
Net sales
100.0
% 
100.0
%
Cost of goods sold
66.8
% 
67.6
% 
Gross profit
33.2
% 
32.4
% 
   
 
  
 
Selling expenses
10.9
% 
12.4
% 
General and administrative expenses
11.7
% 
11.5
% 
Income from operations
10.6
% 
8.5
% 
   
 
  
 
Interest expense
(.4
%)
(.6
%)
Other income, net
.8
% 
-
  
Income before taxes
11.0
% 
7.9
% 
   
 
  
 
Provision for taxes
3.6
% 
2.7
% 
Net income
7.4
% 
5.2
% 
 
Three Months Ended April 30, 2005 vs Three Months Ended April 30, 2004

Net sales for the three-month period ended April 30, 2005 were $17,927,612 compared to $15,634,646 for the three-month period ended April 30, 2004, an increase of $2,292,966 or 14.7%. Sales in the Fluid Handling Equipment segment were $7,683,332 or 20.4% higher compared to the three-month period ended April 30, 2004. Sales in the Product Recovery/Pollution Control Equipment segment were $10,244,280 or 10.7% higher than the three-month period ended April 30, 2004.

Backlog at April 30, 2005 totaled $18,261,846 compared to $11,857,264 at April 30, 2004. In addition, at April 30, 2005, the Company had orders of $3,977,076 compared to $4,237,564 at April 30, 2004, 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, 2005 was $1,318,218 compared to $814,249 for the three-month period ended April 30, 2004, an increase of $503,969 or 61.9%. The increase in net income was primarily related to higher sales in both operating segments, combined with higher gross margins in the Product Recovery/Pollution Control Equipment segment.

The gross margin for the three-month period ended April 30, 2005 was 33.2% compared to 32.4% for the same period last year. The increase in gross margin is due to higher gross margins in the Product Recovery/Pollution Control Equipment segment.

Selling expenses increased $21,895 during the three-month period ended April 30, 2005 compared to the same period last year. As a percentage of net sales, selling expenses were 10.9% for the three-month period ended April 30, 2005 compared to 12.4% for the same period last year.
 
11
MET-PRO CORPORATION


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


General and administrative expense was $2,093,458 for the three-month period ended April 30, 2005 compared to $1,802,308 for the three-month period ended April 30, 2004, an increase of $291,150. General and administrative expense for the three-month period ended April 30, 2005 was 11.7% of net sales, compared to 11.5% of net sales for the same period last year. This increase in part is related to higher health care costs combined with an increase in the accrual for the management incentive program.

Interest expense was $66,052 for the three-month period ended April 30, 2005 compared to $96,847 for the same period in the prior year, a decrease of 31.8%. This decrease was due principally to a reduction of existing long-term debt.

Other income, net, was $126,989 for the three-month period ended April 30, 2005 compared to $2,804 in the same period in the prior year. This change is related to higher interest income earned on the cash on hand, combined with the 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. 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 for the three-month periods ended April 30, 2005 and April 30, 2004 was 33.0% and 34.0%, respectively.

Liquidity:

The Company’s cash and cash equivalents were $19,807,864 on April 30, 2005 compared to $20,889,476 on January 31, 2005, a decrease of $1,081,612. This decrease is the net result of the cash flows used in operating activities totaling $53,936, payments of the quarterly cash dividends amounting to $648,524, payments on long-term debt totaling $300,910, exchange rate changes of $13,122 and investment in property and equipment amounting to $261,596, offset by the exercise of stock options amounting to $184,146 and the proceeds from the sale of property and equipment totaling $12,330. The Company’s cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.

Accounts receivable (net) amounted to $13,366,843 on April 30, 2005 compared to $13,637,599 on January 31, 2005, which represents a decrease of $270,756. 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 $16,224,188 on April 30, 2005 compared to $13,843,171 on January 31, 2005, an increase of $2,381,017. This increase is due to inventory purchased in the three-month period ended April 30, 2005 for projects which are expected to ship in the second and third quarters of this fiscal year. Inventory balances fluctuate depending on market demand and on the timing and size of shipments, especially when major systems and contracts are involved.

Current liabilities amounted to $14,212,041 on April 30, 2005 compared to $13,867,892 on January 31, 2005, an increase of $344,149. An increase in customers’ advances and accrued expenses accounted for this increase.

The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit together totaling $5 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, 2005 and January 31, 2005, working capital was $37,026,347 and $36,402,603, respectively, and the current ratio was 3.6 on both dates.

Capital Resources and Requirements:

Cash flows used in operating activities during the three-month period ended April 30, 2005 amounted to $53,936 compared with cash flows provided by operating activities amounting to $2,915,214 in the three-month period ended April 30, 2004. This decrease in cash flows from operating activities was due principally to (i) the increase in inventories, (ii) the decrease in accounts payable, which were offset by the increase in net income and customers’ advances and (iii) the decrease in accounts receivable for the three-month period ended April 30, 2004.
 
12
MET-PRO CORPORATION

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued… 
 
 
Cash flows used in investing activities during the three-month period ended April 30, 2005 amounted to $249,266 compared with $284,632 for the three-month period ended April 30, 2004. The Company’s investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments during both years.

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, 2005 utilized $765,288 of available resources compared to $870,171 for the three-month period ended April 30, 2004. The 2005 activity is the result of the payments of the quarterly cash dividends amounting to $648,524 and the reduction of long-term debt totaling $300,910, offset by the exercise of stock options amounting to $184,146.

The Board of Directors declared quarterly dividends of $.0775 per share payable on March 8, 2005 and June 8, 2005 to shareholders of record as of February 25, 2005 and May 27, 2005, respectively.

Critical Accounting Policies and Estimates:

Management’s discussion and analysis of 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 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 future results of operations and financial condition may differ materially from those suggested in forward-looking statements which we make in our Securities and Exchange Commission (“SEC”) filings and other public statements, as a result of events and occurrences relating to one or more of the factors set forth below, one time events or occurrences which are not reflected in the factors indicated below, or relating to factors disclosed previously or disclosed in the future in Met-Pro’s 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 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;
· 
 
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.
 
 
14
MET-PRO CORPORATION

 
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

(a) Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.

(b) Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.


PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

Certain of the statements made in this Item 1 (and elsewhere in this Report) are “forward-looking” statements which are subject to the considerations set forth in “Cautionary Statement Regarding Forward-Looking Statements” 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. Based upon the current status of 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. 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.


15
MET-PRO CORPORATION


Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

(a)    
During the first quarter ended April 30, 2005, the Company did not sell any of our equity securities that were not registered under the Securities Act of 1933.

(b)    
Not applicable

(c)    
The following table summarizes Met-Pro’s purchases of its Common Shares for the quarter ended April 30, 2005:

Issuer Purchases of
Equity Securities
Period
Total
Number of
 Shares
Purchased
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
 
 
 
 
 
 
 
 
 
 
 
(1)
                   
February 1-28, 2005
  
0
  
$                -
  
0
  
212,599
  
March 1-31, 2005
  
0
  
-
 
0
  
212,599
  
April 1-30, 2005
  
0
  
-
  
0
  
212,599
  
Total
  
0
  
$                -
 
0
  
212,599
  

(1)  
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
MET-PRO CORPORATION
 

Item 6.  Exhibits

(a)
Exhibits Required by Item 601 of Regulation S-K
       
 
Exhibit No.
  
Description
       
   
     
under Section 302 of the
     
Sarbanes-Oxley Act of 2002.*
       
   
     
under Section 302 of the
     
Sarbanes-Oxley Act of 2002.*
       
   
     
Pursuant 18 U.S.C. Section 1350.*
       
   
     
Pursuant 18 U.S.C. Section 1350.*

* Filed herewith.
 
 
 
 
 
 
 
 
 
 
 

 

17
MET-PRO CORPORATION

 
SIGNATURES


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

 
 
 
 
 
    Met-Pro Corporation
   
(Registrant)
     
           
 
 
 
June 1, 2005     /s/ Raymond J. De Hont
    Raymond J. De Hont
    Chairman, President and Chief Executive
    Officer


 
                   
June 1, 2005  
  
/s/ Gary J. Morgan
   
Gary J. Morgan
   
Vice President of Finance,
   
Secretary and Treasurer, Chief
    Financial Officer, Chief Accounting
    Officer and Director

 
 

 

 
 
 
 
18