Annual Reports

 
Quarterly Reports

  • 10-Q (Jun 6, 2013)
  • 10-Q (Dec 6, 2012)
  • 10-Q (Sep 6, 2012)
  • 10-Q (Jun 8, 2012)
  • 10-Q (Dec 8, 2011)
  • 10-Q (Sep 1, 2011)

 
8-K

 
Other

Met-Pro 10-Q 2011

Documents found in this filing:

  1. 10-Q
  2. Ex-31.1
  3. Ex-31.2
  4. Ex-32.1
  5. Ex-32.2
  6. Ex-32.2
mpr10q20110430.htm
 


UNITED STATES 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

For the quarter ended: April 30, 2011
 
or

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

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 (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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes [    ]     No [    ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Large accelerated filer [    ] Accelerated filer [ X ] Non-accelerated filer [    ] Smaller reporting company [    ]

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [    ]     No [ X ]

As of June 2, 2011 the Registrant had 14,659,545 Common Shares, par value of $.10 per share, issued and outstanding.
 



 
 

 
 
PART I – FINANCIAL INFORMATION  
       
  Item 1.   Financial Statements  
 
 
 
  
  Consolidated Balance Sheets
 
   
as of April 30, 2011 and January 31, 2011
2
  Consolidated Statements of Income  
   
for the three-month periods ended April 30, 2011 and 2010
3
 
Consolidated Statements of Shareholders’ Equity
 
   
for the three-month periods ended April 30, 2011 and 2010
4
  Consolidated Statements of Cash Flows
 
    for the three-month periods ended April 30, 2011 and 2010
5
 
Notes to Consolidated Financial Statements
6
  Report of Independent Registered Public Accounting Firm
19
     
 
  Item 2.   20
       
  Item 3.   Qualitative and Quantitative Disclosures about Market Risk 27
       
  Item 4.   Controls and Procedures 27
       
       
PART II – OTHER INFORMATION  
       
  Item 1.   Legal Proceedings 28
       
  Item 1A.   Risk Factors 29
       
  Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds 29
       
  Item 3.   Defaults Upon Senior Securities 29
       
  Item 4.   Submission of Matters to a Vote of Security Holders 29
       
  Item 5.   Other Information 29
       
  Item 6.   Exhibits 30
       
       
SIGNATURES 31

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1


CONSOLIDATED BALANCE SHEETS

PART I – FINANCIAL INFORMATION
       
         
Item 1.  Financial Statements
       
         
 
April 30,
 
January 31,
 
ASSETS
2011
 
2011
 
Current assets
(unaudited)
 
 
 
      Cash and cash equivalents
$29,366,309
 
$32,400,814
 
      Short-term investments
497,155
 
497,155
 
      Accounts receivable, net of allowance for
       
         doubtful accounts of approximately
       
         $463,000 and $444,000, respectively
17,119,493
 
15,311,322
 
      Inventories
16,045,351
 
15,474,430
 
      Prepaid expenses, deposits and other current assets
1,602,533
 
1,578,176
 
      Deferred income taxes
84,698
 
84,155
 
               Total current assets
64,715,539
 
65,346,052
 
         
Property, plant and equipment, net
19,904,798
 
19,863,031
 
Goodwill
20,798,913
 
20,798,913
 
Other assets
2,056,720
 
2,038,332
 
               Total assets
$107,475,970
 
$108,046,328
 
         
LIABILITIES AND SHAREHOLDERS’ EQUITY
       
Current liabilities
       
      Current portion of debt
$949,149
 
$532,540
 
      Accounts payable
5,746,014
 
4,864,724
 
      Accrued salaries, wages and benefits
1,171,483
 
1,650,314
 
      Other accrued expenses
2,707,142
 
2,286,043
 
      Dividend payable
967,529
 
967,445
 
      Customers’ advances
856,184
 
907,107
 
               Total current liabilities
12,397,501
 
11,208,173
 
         
Long-term debt
2,934,671
 
3,011,988
 
Accrued pension retirement benefits
3,776,785
 
6,553,262
 
Other non-current liabilities
54,744
 
54,195
 
Deferred income taxes
2,746,780
 
2,745,786
 
               Total liabilities
21,910,481
 
23,573,404
 
         
Shareholders’ equity
       
      Common shares, $.10 par value; 36,000,000 shares
       
          authorized, 15,928,679 shares issued, of which
       
          1,269,134 and 1,270,417 shares were reacquired
       
          and held in treasury at the respective dates
1,592,868
 
1,592,868
 
      Additional paid-in capital
3,629,575
 
3,448,249
 
      Retained earnings
93,558,225
 
93,113,247
 
      Accumulated other comprehensive loss
(2,734,006
)
(3,201,767
)
      Treasury shares, at cost
(10,481,173
)
(10,479,673
)
              Total shareholders’ equity
85,565,489
 
84,472,924
 
              Total liabilities and shareholders’ equity
$107,475,970
 
$108,046,328
 
See accompanying notes to consolidated financial statements.
     
 
 
 
 
 
2


CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 
Three Months Ended
 
April 30,
 
2011
 
2010
 
         
Net sales
$23,429,903
 
$22,277,077
 
Cost of goods sold
15,371,698
 
14,295,538
 
Gross profit
8,058,205
 
7,981,539
 
 
       
Operating expenses
       
Selling
2,916,126
 
2,932,897
 
General and administrative
3,059,103
 
2,945,602
 
 
5,975,229
 
5,878,499
 
Income from operations
2,082,976
 
2,103,040
 
         
Interest expense
(48,801
)
(82,510
)
Other income, net
105,986
 
117,468
 
Income before taxes
2,140,161
 
2,137,998
 
         
Provision for taxes
727,654
 
726,920
 
Net income
$1,412,507
 
$1,411,078
 
Earnings per share, basic (1)
$.10
 
$.10
 
         
Earnings per share, diluted (2)
$.10
 
$.10
 
         
Cash dividend per share – declared (3)
$.066
 
$.06
 
         
Cash dividend per share – paid  (3)
$.066
 
$.06
 
 
 
(1)
Basic earnings per share are based upon the weighted average number of shares outstanding of 14,659,117 and 14,619,000 for the three-month periods ended April 30, 2011 and 2010, respectively.
     
 
(2)
Diluted earnings per share are based upon the weighted average number of shares outstanding of 14,841,720 and 14,693,035 for the three-month periods ended April 30, 2011 and 2010, respectively.
     
 
(3)
The Board of Directors declared quarterly dividends of $.066 per share payable on March 17, 2011 and June 15, 2011 to shareholders of record at the close of business on March 3, 2011 and June 1, 2011, respectively. The Board of Directors declared quarterly dividends of $.06 per share payable on March 12, 2010 and June 11, 2010 to shareholders of record at the close of business on February 26, 2010 and May 28, 2010, respectively.
     
     
     
See accompanying notes to consolidated financial statements.
 
 
 
 
 
 
 
 
 
 
 

 
3


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(unaudited)
 
                                   
                   
Accumulated
           
       
Additional
       
Other
           
 
Common
 
Paid-in
 
Retained
 
Comprehensive
 
Treasury
     
 
Shares
 
Capital
 
Earnings
 
Income/(Loss)
 
Shares
 
Total
 
Balances, January 31, 2011
$1,592,868
   
$3,448,249
   
$93,113,247
   
($3,201,767
)
 
($10,479,673
)
 
$84,472,924
 
                                   
Comprehensive income:
                                 
   Net income
-
   
-
   
1,412,507
   
-
   
-
       
   Foreign currency translation
                                 
     adjustment
-
   
-
   
-
   
468,020
   
-
       
   Interest rate swap,
                                 
     net of tax of $152
-
   
-
   
-
   
(259
)
 
-
       
       Total comprehensive income
                             
1,880,268
 
                                   
Dividends declared, $.066 per share
-
   
-
   
(967,529
)
 
-
   
-
   
(967,529
)
Stock-based compensation
-
   
179,826
   
-
   
-
   
-
   
179,826
 
Stock option transactions
-
   
1,500
   
-
   
-
   
41,300
   
42,800
 
Purchase of 3,717 treasury shares
-
   
-
   
-
   
-
   
(42,800
)
 
(42,800
)
Balances, April 30, 2011
$1,592,868
   
$3,629,575
   
$93,558,225
   
($2,734,006
)
 
($10,481,173
)
 
$85,565,489
 
 
 
                   
Accumulated
           
       
Additional
       
Other
           
 
Common
 
Paid-in
 
Retained
 
Comprehensive
 
Treasury
     
 
Shares
 
Capital
 
Earnings
 
Income/(Loss)
 
Shares
 
Total
Balances, January 31, 2010
$1,592,868
   
$2,988,950
   
$90,662,820
   
($3,679,641
)
 
($10,587,413
)
 
$80,977,584
 
                                   
Comprehensive income:
                                 
   Net income
-
   
-
   
1,411,078
   
-
   
-
       
   Foreign currency translation
                                 
     adjustment
-
   
-
   
-
   
(149,673
)
 
-
       
   Interest rate swap,
                                 
     net of tax of ($748)
-
   
-
   
-
   
1,273
   
-
       
       Total comprehensive income
                             
1,262,678
 
                                   
Dividends declared, $.06 per share
-
   
-
   
(877,941
)
 
-
   
-
   
(877,941
)
Stock-based compensation
-
   
161,472
   
-
   
-
   
-
   
161,472
 
Stock option transactions
-
   
3,926
   
-
   
-
   
208,818
   
212,744
 
Purchase of 22,803 treasury shares
-
   
-
   
-
   
-
   
(226,666
)
 
(226,666
)
Balances, April 30, 2010
$1,592,868
   
$3,154,348
   
$91,195,957
   
($3,828,041
)
 
($10,605,261
)
 
$81,509,871
 
 
See accompanying notes to consolidated financial statements.
 
 
 
 
 


 
 
 
 
 
4


CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)
         
 
Three Months Ended
 
 
April 30,
 
 
2011
 
2010
 
         
Cash flows from operating activities
       
   Net income
$1,412,507
 
$1,411,078
 
   Adjustments to reconcile net income to net
           cash provided by (used in) operating activities:
       
       Depreciation and amortization
481,932
 
445,252
 
       Deferred income taxes
(606
)
(597
)
       Stock-based compensation
179,826
 
161,472
 
       Allowance for doubtful accounts
19,215
 
(18,557
)
       Change in operating assets and liabilities:
       
           Accounts receivable
(1,636,920
)
(1,556,207
)
           Inventories
(388,008
)
395,944
 
           Prepaid expenses, deposits and other assets
(38,705
)
250,155
 
           Accounts payable and accrued expenses
687,771
 
1,608,371
 
           Customers’ advances
(52,906
)
(511,077
)
           Accrued pension retirement benefits
(2,776,476
)
112,894
 
           Other non-current liabilities
549
 
549
 
Net cash provided by (used in) operating activities
(2,111,821
)
2,299,277
 
         
Cash flows from investing activities
       
   Acquisitions of property and equipment
(235,679
)
(210,475
)
Net cash used in investing activities
(235,679
)
(210,475
)
         
Cash flows from financing activities
       
   Proceeds from new borrowings
407,731
 
-
 
   Reduction of debt
(123,023
)
(132,845
)
   Exercise of stock options
42,800
 
212,744
 
   Payment of dividends
(967,445
)
(877,021
)
   Purchase of treasury shares
(42,800
)
(226,666
)
Net cash used in financing activities
(682,737
)
(1,023,788
)
Effect of exchange rate changes on cash
(4,268
)
4,421
 
         
Net increase (decrease) in cash and cash equivalents
(3,034,505
)
1,069,435
 
         
Cash and cash equivalents at February 1
32,400,814
 
30,662,104
 
Cash and cash equivalents at April 30
$29,366,309
 
$31,731,539
 
See accompanying notes to consolidated financial statements.
       
 
 
 
 
 
 
 
 
 
 
 

 
5

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 


Basis of Presentation:

The consolidated financial statements include the accounts of Met-Pro Corporation (“Met-Pro” or the “Company”) and its wholly-owned subsidiaries: Mefiag B.V., Met-Pro Product Recovery/Pollution Control Technologies Inc., Strobic Air Corporation, MPC Inc., Pristine Water Solutions Inc., Mefiag (Guangzhou) Filter Systems Ltd., Met-Pro (Hong Kong) Company Limited, Met-Pro Industrial Services, Inc. and Bio-Reaction Industries Inc. Significant intercompany accounts and transactions have been eliminated.

In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary to present fairly the financial position of the Company as of April 30, 2011 and the results of operations for the three-month periods ended April 30, 2011 and 2010, and changes in shareholders’ equity and cash flows for the three-month periods then ended. The results of operations for the three-month periods ended April 30, 2011 and 2010 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, 2011.  In addition, the January 31, 2011 Balance Sheet data, presented herein, was derived from the audited consolidated financial statements, but does not include all disclosures required by Generally Accepted Accounting Principles (“GAAP”).

Recent Accounting Pronouncements:

In October 2009, the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) No. 2009-13, “Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force”, an amendment of ASC Topic 605, “Revenue Recognition”.  ASU No. 2009-13 provides amendments to the criteria for separating consideration in multiple-deliverable arrangements.  As a result of these amendments, multiple-deliverable revenue arrangements will be separated in more circumstances than under existing U.S. GAAP.  The ASU does this by establishing a selling price hierarchy for determining the selling price of a deliverable.  The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available.  A vendor will be required to determine its best estimate of selling price in a manner that is consistent with that used to determine the price to sell the deliverable on a standalone basis.  This ASU also eliminates the residual method of allocation and will require that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method, which allocates any discount in the overall arrangement proportionally to each deliverable based on its relative selling price.  Expanded disclosures of qualitative and quantitative information regarding application of the multiple-deliverable revenue arrangement guidance are also required under the ASU.  The ASU does not apply to arrangements for which industry specific allocation and measurement guidance exists, such as long-term construction contracts and software transactions.  ASU No. 2009-13 was effective for the Company in this fiscal year beginning February 1, 2011.  The adoption of this update to ASU No. 2009-13 did not have a material impact on our financial position, results of operations or cash flows.

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements”. This update provides amendments to Subtopic 820-10 that require new disclosures on 1) the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and reasons for the transfers and 2) in the reconciliation for Level 3 fair value measurements, the separate presentation of information about purchases, sales, issuances and settlements. The new disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this update to ASC Topic 820 did not have a material impact on our financial position, results of operations or cash flows.
 
 
 
 
 
 
6

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs”.  The amendments in this update are the result of the work of the FASB and the International Accounting Standards Board (“IASB”) to develop common requirements for measuring fair value and for disclosing information about fair value measurements.  The amendments change the wording used to describe many of the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements.  The amendments clarify that a reporting entity should disclose quantitative information about the unobservable inputs used in a fair value measurement that is categorized within Level 3 of the fair value hierarchy in order to increase the comparability of disclosures between reporting entities applying U.S. GAAP and those applying IFRSs.  Additionally, the amendments expand the disclosures for fair value measurements categorized within Level 3 where a reporting entity will need to include the valuation processes used and the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any.  For many of the requirements, the FASB does not intend for the amendments to result in a change in the application of the requirements in ASC Topic 820.  The amendments in this update are to be applied prospectively and are effective during interim and annual periods beginning after December 15, 2011.  The Company is currently evaluating the impact ASU No. 2011-04 will have on our financial position, results of operations or cash flows.


NOTE 2 – FAIR VALUE OF FINANCIAL INSTRUMENTS

Cash and cash equivalents:

Cash and cash equivalents at April 30, 2011 and January 31, 2011 amounted to $29,366,309 and $32,400,814, respectively. The cash and cash equivalents balance at April 30, 2011 was comprised of the following: (i) cash amounting to $2,788,965 and (ii) cash equivalents consisting of money market funds amounting to $26,577,344.  The Company evaluates the creditworthiness of the financial institutions and financial instruments in which it invests and places its cash deposits and temporary cash investments with financial institutions, that at times, may be uninsured or in deposit accounts that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit.  At April 30, 2011, the Company’s cash and cash equivalents were held at 19 financial institutions.

Short-term investments:

Short-term investments at April 30, 2011 and January 31, 2011 amounted to $497,155 and were comprised of certificates of deposit with twelve month maturity dates. The Company evaluates the creditworthiness of the financial institutions and the financial instruments in which it invests.

Long-term investment:

Long-term investment at April 30, 2011 and January 31, 2011 amounted to $248,063, which is reported in other assets on the consolidated balance sheets.  The long-term investment at April 30, 2011 was comprised of a certificate of deposit with a fourteen month maturity date. The Company evaluates the creditworthiness of the financial institutions and the financial instruments in which it invests.

Debt:

The estimated fair value and carrying amount of long-term debt were as follows:

   
April 30,
  January 31,
   
2011
   
2011
 
Estimated fair value
 
$4,225,625
   
$3,858,888
 
Carrying amount
 
3,883,820
   
3,544,528
 

Valuations for long-term debt are determined based on borrowing rates currently available to the Company for loans with similar terms and maturities.
 
 
 
7

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
The Company uses an interest rate swap (see Note 8) to minimize its exposure to fluctuations in interest rates.  The interest rate differential to be paid or received under these agreements is recognized over the term of the loan and is included in interest expense.

The Company’s financial instruments are not held for trading purposes.

Fair value measurements:

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, provides guidance for measuring fair value and requires certain disclosures.  This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost).  The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels.

The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the consolidated balance sheets at April 30, 2011 and January 31, 2011:

     
Quoted Prices
       
     
in Active
       
     
Markets for
 
Significant
 
Significant
     
Identical
 
Observable
 
Unobservable
 
Balance at
 
Assets
 
Inputs
 
Inputs
 
April 30, 2011
 
 (Level 1)
 
(Level 2)
 
 (Level 3)
Cash and cash equivalents
$29,366,309
 
$29,366,309
 
$0
 
$0
Short-term investments
497,155
 
497,155
 
-
 
-
Long-term investments
248,063
 
248,063
 
-
 
-
Cash surrender value -  life insurance policies
958,291
 
-
 
958,291
 
-
Interest rate swap agreement
(274,719
)
-
 
(274,719
)
-
 
$30,795,099
 
$30,111,527
 
$683,572
 
$0

     
Quoted Prices
       
     
in Active
       
     
Markets for
 
Significant
 
Significant
     
Identical
 
Observable
 
Unobservable
 
Balance at
 
Assets
 
Inputs
 
Inputs
 
January 31, 2011
 
 (Level 1)
 
(Level 2)
 
 (Level 3)
Cash and cash equivalents
$32,400,814
 
$32,400,814
 
$0
 
$0
Short-term investments
497,155
 
497,155
 
-
 
-
Long-term investments
248,063
 
248,063
 
-
 
-
Cash surrender value -  life insurance policies
912,417
 
-
 
912,417
 
-
Interest rate swap agreement
(274,308
)
-
 
(274,308
)
-
 
$33,784,141
 
$33,146,032
 
$638,109
 
$0

There were no transfers of assets or liabilities between Level 1 and Level 2 in the three-month period ended April 30, 2011 or the fiscal year ended January 31, 2011.

The predominance of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.  The Company’s cash surrender value of life insurance policies and the interest rate swap agreement are valued using Level 2 measurements.
 
 
 
 
8

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 3 – EARNINGS PER SHARE COMPUTATIONS
 
Basic earnings per share is based on the weighted average number of common shares outstanding. Diluted earnings per share is based on the weighted average number of common shares outstanding and potentially dilutive shares. The dilutive effect of employee stock options is included in the computation of diluted earnings per share. The dilutive effect of stock options is calculated using the treasury stock method and expected proceeds upon exercise of the stock options. The following table summarizes the shares used in computing basic and diluted net income per common share:

   
  Three Months Ended
April 30,
     
2011
   
2010
Numerator:
         
 
Net income
 
$1,412,507
   
$1,411,078
Denominator:
         
 
Weighted average common shares outstanding during the period for basic
    computation
 
14,659,117
   
14,619,000
 
Dilutive effect of stock-based compensation plans
 
182,603
   
74,035
 
Weighted average common shares outstanding during the period for diluted
    computation
 
14,841,720
   
14,693,035
           
Earnings per share, basic
 
$.10
   
$.10
Earnings per share, diluted
 
$.10
   
$.10
 
For the three months ended April 30, 2011, employee stock options to purchase 125,448 common shares were excluded from the calculations of diluted earnings per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common shares during this period. For the three months ended April 30, 2010, employee stock options to purchase 583,005 common shares were excluded from the calculations of diluted earnings per share as the calculated proceeds from the options’ exercise were greater than the average market price of the Company’s common shares during this period.


NOTE 4 – STOCK-BASED COMPENSATION

The Company grants equity awards to its senior executives and non-employee Directors, typically in December of each year.  Historically, this has consisted of stock option awards. In December 2010, the Company’s Board of Directors approved a change in practice to begin awarding non-employee Directors restricted stock units (“RSUs”).

Restricted Stock Units:
 
On December 17, 2010, the Company awarded an aggregate of 12,315 RSUs to its five non-employee Directors. Each RSU entitles the grantee to receive, from the Company, one common share at the one year anniversary vesting date in accordance with the terms of the award agreement. The award agreements provide for accelerated vesting in certain instances such as a “change in control” or death, and for pro-rata vesting in the event of a non-cause departure from the Board of Directors prior to the one year anniversary of the award. The weighted average grant fair value per unit for awards granted on December 17, 2010 was $12.18 (which is the average of the high and low price of the Company’s common shares as quoted on the NYSE that day). As of January 31, 2011, there was $149,997 of unrecognized compensation expense for these RSUs, which will be recognized in the fiscal year ending January 31, 2012. Prior to December 17, 2010, the Company had never granted any RSUs.
 
 
 
 
 
 

 
 
9

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
The following table summarizes RSU transactions for the three-month period ended April 30, 2011:

 
Units
 
Non-vested at February 1, 2011
12,315
 
Granted
-
 
Vested
-
 
Forfeited
-
 
Non-vested at April 30, 2011
12,315
 

Stock options:

On December 17, 2010, December 11, 2009, and December 3, 2008, the Company issued 125,448, 236,083 and 206,600 stock options, respectively, with one-third exercisable one year from the grant date and the remaining two-thirds vesting two and three years from grant date, respectively.  The December 2010 awards were made to the Company’s senior executives; the awards in the prior two years were made to the Company’s senior executives as well as the Company’s non-employee Directors. In the event of a “change of control”, any unvested options shall become immediately exercisable.  Typically, the duration of options is for up to ten years from the date of grant, subject to earlier termination under various conditions.  The fair value of options that we grant is amortized into compensation expense on a straight-line basis over their respective vesting period, net of estimated forfeitures. We estimate the fair value of options as of the grant date using the Black-Scholes option valuation model. The per share fair value weighted-averages at the date of grant for stock options granted in the month of December during the fiscal years ended January 31, 2011, 2010 and 2009 were  $3.95, $3.26 and $3.41 per option, respectively.

The application of this valuation model relies on the following assumptions that are judgmental and sensitive in the determination of the compensation expense:

 
Three Months Ended
 
April 30,
 
2011
 
2010
Expected term (years)
5.0
 
5.0
Risk-free interest rate
1.68% - 2.11%
 
1.90% - 3.53%
Expected volatility
39% - 45%
 
29% - 45%
Dividend yield
2.12% - 2.48%
 
1.88% - 2.48%

Historical information was the principal basis for the selection of the expected term and dividend yield. The expected volatility is based on a weighted-average combination of historical and implied volatilities over a time period that approximates the expected term of the option. The risk-free interest rate was selected based upon the U.S. Treasury Bill rates in effect at the time of grant for the expected term of the option.

 

 
 
 

 










 
10

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

The following table summarizes stock option transactions for the three-month period ended April 30, 2011:

         
Weighted
 
       
Weighted
Average
 
       
Average
Remaining
Aggregate
   
Shares
 
Exercise Price
Life (years)
Intrinsic Value
Options:
         
 
Outstanding at February 1, 2011
1,274,204
 
$10.1942
6.29
 
 
Granted
-
 
-
   
 
Forfeited
-
 
-
   
 
Expired
(13,000
)
11.7500
   
 
Exercised
(5,000
)
8.5600
   
 
Outstanding at April 30, 2011
1,256,204
 
$10.1846
6.13
$2,177,836
             
 
Exercisable at April 30, 2011
934,358
 
$9.9268
5.19
$1,835,079

There were 5,000 options exercised during the three-month period ended April 30, 2011 and 25,780 options exercised during the three-month period ended April 30, 2010.

The following table summarizes information about the options outstanding and options exercisable as of April 30, 2011:

 
 
Options Outstanding
 
Options Exercisable
     
Weighted Average
       
     
Remaining
Weighted Average
   
Weighted Average
   
Shares
Life (years)
Exercise Price
 
Shares
Exercise Price
Range of prices:
                       
$5.50 – 6.99
 
39,825
 
1.32
 
$5.5328
   
39,825
 
$5.5328
 
$7.00 – 8.99
 
116,450
 
3.82
 
7.4110
   
116,450
 
7.4110
 
$9.00 – 9.99
 
470,344
 
6.02
 
9.4848
   
326,949
 
9.3948
 
$10.00 – 10.99
 
155,337
 
5.52
 
10.8975
   
155,337
 
10.8975
 
$11.00 – 11.99
 
348,800
 
6.61
 
11.5503
   
295,797
 
11.5871
 
$12.00 – 12.99
 
125,448
 
9.64
 
12.1800
   
-
 
-
 
   
1,256,204
 
6.13
 
$10.1846
   
934,358
 
$9.9268
 

As of April 30, 2011, there was $935,956 (excludes an unrecognized compensation cost of $149,997 related to RSUs) of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans. The cost is expected to be recognized over a weighted average period of 1.9 years.


NOTE 5 – INVENTORIES

Inventories consisted of the following:

 
April 30,
2011
 
January 31,
2011
Raw materials
$11,883,487
 
$11,639,410
Work in progress
2,168,300
 
1,914,412
Finished goods
1,993,564
 
1,920,608
 
$16,045,351
 
$15,474,430
 
 
 
 
 
11

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
NOTE 6 – 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,
   
2011
   
2010
  Cash paid during the period for:
         
     Interest
   
$49,030
   
$55,575
     Income taxes
  
228,584
   
59,584


NOTE 7 – INCOME TAXES

The Company follows the provisions of FASB ASC Topic 740, “Income Taxes”, and recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company applies ASC Topic 740 to all tax positions for which the statute of limitations remains open.

As of the fiscal year ended January 31, 2011, the Company evaluated its position with regard to state, federal and foreign tax matters and concluded that the Company did not have an unrecognized tax benefit.  As of April 30, 2011, the Company re-evaluated its position with regard to current state, federal and foreign tax matters and has determined that there have been no changes in tax position since the fiscal year ended January 31, 2011.

The Company and its subsidiaries are subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. With few exceptions, the Company and its subsidiaries are no longer subject to U.S. federal or non-U.S. income tax examinations by tax authorities for the years before 2007.













 

 



 
 
 

 



 
12

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 8 – DEBT

The Company and its subsidiaries have domestic and foreign uncommitted, unsecured lines of credit totaling $4,444,300 which can be used for working capital.  Of the total lines of credit available, the foreign unsecured line of credit totals $444,300 (300,000 Euro).  As of April 30, 2011 and January 31, 2011 the Company had zero outstanding borrowings from its domestic line of credit.  The Company’s foreign line of credit had outstanding borrowings of $418,911 and zero as of April 30, 2011 and January 31, 2011, respectively.

Short-term and long-term debt consisted of the following:

 
April 30,
 
January 31,
 
2011
 
2011
       
Bond payable, bank, payable in quarterly installments of
     
 $58,460, plus interest at a rate equal to the greater of
     
 (i) 16 basis points below the ninety day LIBOR rate
     
 or (ii) 250 basis points (effective interest rate of 2.50%
     
 at April 30, 2011), maturing April, 2021, collateralized
     
 by the Telford, PA building
$2,338,418
 
$2,396,878
       
Note payable, bank, payable in quarterly installments of
     
 $37,025 (25,000 Euro), plus interest at a fixed rate of 3.82%,
     
 maturing January, 2016
703,475
 
684,600
       
Equipment note, payable in monthly installments of
     
 $13,482, no interest, maturing March 2012
148,297
 
188,742
       
Line of credit, $418,911 (282,857 Euro), payable upon
     
 demand, plus interest at a rate of 70 basis points over
     
 the thirty day EURIBOR rate (effective interest rate of
     
 1.94% at April 30, 2011)
418,911
 
-
       
 
3,609,101
 
3,270,220
Less current portion
949,149
 
532,540
 
2,659,952
 
2,737,680
Fair market value of interest rate swap liability
274,719
 
274,308
Long-term portion
$2,934,671
 
$3,011,988

One of the notes payable and the bond payable are subject to certain covenants, including maintenance of prescribed amounts of leverage and fixed charge coverage ratios.  As of April 30, 2011, the Company was in compliance with all applicable covenants.

The Company has an interest rate swap agreement to hedge against the potential impact on earnings from increases in market interest rates.  Effective April 3, 2006, the Company entered into a fifteen-year interest rate swap agreement for a notional amount equal to the balance on the bond payable maturing April 2021.  The Company swapped the ninety-day LIBOR for a fixed rate of 4.87%.  As of April 30, 2011, the effective fixed interest rate was 7.07% as a result of the swap agreement plus the interest rate floor provision of 250 basis points.  The interest rate swap agreement is accounted for as a cash flow hedge that qualifies for treatment under the short-cut method of measuring effectiveness in accordance with FASB ASC Topic 815, “Derivatives and Hedging”.  There was no hedge ineffectiveness as of April 30, 2011.  The fair value of the interest rate swap agreement resulted in a decrease in equity of $173,073 (net of tax) as of April 30, 2011 and a decrease in equity of $172,814 (net of tax) as of January 31, 2011.  The change in the fair value of the interest rate swap agreement resulted in a $259 (net of tax) equity decrease from the fiscal year ended January 31, 2011.  These results are recorded in the accumulated other comprehensive loss section of shareholders’ equity.
 
 
13

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
The bank has issued and has outstanding standby letters of credit to customers totaling $1,322,762 as of April 30, 2011, which have expiration dates during the fiscal years ending January 31, 2012 and 2013 in the amounts of $68,185 and $1,254,577, respectively.

Maturities of short-term and long-term debt are as follows:

As of
   
April 30,
   
2012
$949,149
 
2013
381,940
 
2014
381,940
 
2015
381,940
 
2016
344,915
 
Thereafter
1,169,217
 
 
$3,609,101
 


NOTE 9 – ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss consisted of the following:

 
April 30,
 
January 31,
 
 
2011
 
2011
 
Interest rate swap, net of tax
($173,073
($172,814
)
Foreign currency translation adjustment
1,506,143
 
1,038,123
 
Minimum pension liability adjustment, net of tax
(4,067,076
(4,067,076
)
 
($2,734,006
($3,201,767
)


NOTE 10 – OTHER INCOME, NET
Other income, net consisted of the following:
   
Three Months Ended
April 30,
 
 
2011
 
 2010
 
Interest income
 
$44,543
 
$81,234
 
Other miscellaneous income
 
61,443
 
36,234
 
   
$105,986
 
$117,468
 



 
 

 








 
14

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 11 – EMPLOYEE BENEFIT PLANS

The Company has several defined benefit pension plans covering eligible employees in the United States.  In the third quarter ended October 31, 2006, the Company amended its defined benefit pension plans to freeze the accrual of future benefits for all its salaried and non-union hourly employees effective on December 31, 2006. Effective December 31, 2008, the Company amended its defined benefit pension plan to freeze the accrual of future benefits for union hourly employees.  The net periodic pension cost is based on estimated values provided by our independent actuary.

The following table provides the components of net periodic pension (income) cost:

 
Three Months Ended
April 30,
 
 
 2011
 
 2010
 
Service cost
$51,400
 
$17,000
 
Interest cost
280,400
 
272,750
 
Expected return on plan assets
(350,500
)
(243,250
)
Amortization of transition asset
-
 
-
 
Amortization of prior service cost
-
 
-
 
Recognized net actuarial loss
52,500
 
56,000
 
Net periodic pension cost
$33,800
 
$102,500
 

The Company elected to contribute $2,926,061 to its pension and defined contribution plans during the three-month period ended April 30, 2011 which was above the minimum funding requirement.  The Company expects to make an additional contribution of $71,516 during the nine-month period ending January 31, 2012.


NOTE 12 – BUSINESS SEGMENT DATA

The segment discussion outlined below represents the adjusted segment structure as determined by management in accordance with FASB ASC Topic 280, “Segment Reporting”.

As reported in the Company’s Annual Report on Form 10-K as of January 31, 2011, the Company has five operating segments which are aggregated into three reportable segments: Product Recovery/Pollution Control Technologies, Fluid Handling Technologies and Mefiag Filtration Technologies, and one other segment (Filtration/Purification Technologies). The Filtration/Purification Technologies segment is comprised of two operating segments that do not meet the criteria for aggregation outlined in ASC Topic 280-10-50-12. The Company’s analysis is that ASC Topic 280-10-50-12 permits the aggregation of operating segments if, individually, each operating segment does not meet any of the following quantitative thresholds: (i) reported revenue is 10% or more of combined revenue of all reported operating segments, (ii) the absolute amount of reported profit or loss is 10% or more of the greater, in absolute amounts, of either the combined reported profit of all operating segments that did not report a loss or the combined reported loss of all operating segments that did report a loss, and (iii) its assets are 10% or more of the combined assets of all operating segments.  As of the fiscal quarter ended April 30, 2011, none of the operating segments included in the Filtration/Purification Technologies segment met these criteria, and at least 75% of total consolidated revenue was included in the Product Recovery/Pollution Control Technologies, Fluid Handling Technologies and Mefiag Filtration Technologies reporting segments; therefore, the Company determined the aggregation of these operating segments into this other segment was appropriate under ASC Topic 280-10-50-12.

The Company expects, based upon the current financial performance of its business units, the segmentation reporting will continue to be presented in future periods using the three reportable segments and the one other segment.
 
 
 
 

 
 
15

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

The following is a description of each segment:

Product Recovery/Pollution Control Technologies: This reportable segment consists of one operating segment that manufactures products for the purification of air or liquids.  Many of these products are custom designed and engineered to solve a customer’s product recovery or pollution control issues.  The products are sold worldwide through Company sales personnel and a network of manufacturer’s representatives.  This reporting segment is comprised of the Met-Pro Environmental Air Solutions (the combination of the Duall, Systems, Flex-Kleen, Bio-Reaction Industries and Met-Pro Industrial Services product brands), Met-Pro Product Recovery/Pollution Control Technologies Inc., and Strobic Air Corporation business units.

Fluid Handling Technologies: This reportable segment consists of one operating segment that manufactures high-quality centrifugal pumps that are suitable for difficult applications, including the pumping of acids, brines, caustics, bleaches, seawater, high-temperature liquids and a wide variety of waste liquids.  A variety of pump configurations make these products adaptable to almost any pumping application.  These products are sold worldwide through an extensive network of distributors.  This reporting segment is comprised of Met-Pro Global Pump Solutions business unit (consisting of the Dean Pump, Fybroc and Sethco product brands).

Mefiag Filtration Technologies:  This reportable segment consists of one operating segment that produces filter systems using horizontal disc technology for tough, corrosive applications in the plating, metal finishing and printing industries.  These products are sold worldwide through Company sales personnel and a network of distributors.  This reporting segment is comprised of the Mefiag, Mefiag B.V. and Mefiag (Guangzhou) Filter Systems Ltd. business units.
 
Filtration/Purification Technologies: This other segment consists of two operating segments that produce the following products: proprietary chemicals for the treatment of municipal drinking water systems and boiler and cooling tower systems; cartridges and filter housings; and filtration products for difficult industrial air and liquid applications.  This other segment is comprised of the Keystone Filter and Pristine Water Solutions operating segments.

The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies. The Company evaluates the performance of these segments based on many factors including sales, sales trends, margins and operating performance.
 
No significant intercompany revenue is realized in these reporting segments. 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.






 
 
 
 
 

 









 
16

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

The financial segmentation information, adjusted as a result of the ASC Topic 280 aggregation criteria, is shown below:
 
 
 
Three Months Ended
April 30,
 
2011
 
2010
Net sales
 
 
 
Product Recovery/Pollution Control Technologies
$8,331,972
 
$11,013,225
Fluid Handling Technologies
 9,553,104
 
 6,530,571
Mefiag Filtration Technologies
 3,139,917
 
 2,434,249
Filtration/Purification Technologies
2,404,910
 
2,299,032
 
$23,429,903
 
$22,277,077
       
Income (loss) from operations
     
Product Recovery/Pollution Control Technologies
($480,285
)
$516,161
Fluid Handling Technologies
 2,240,696
 
 1,288,796
Mefiag Filtration Technologies
221,472
 
206,519
Filtration/Purification Technologies
101,093
 
91,564
 
$2,082,976
 
$2,103,040
       
       
 
April 30,
 
January 31,
 
2011
 
2011
Identifiable assets
 
 
 
Product Recovery/Pollution Control Technologies
$33,147,390
 
$34,003,251
Fluid Handling Technologies
20,072,721
 
18,114,257
Mefiag Filtration Technologies
14,193,775
 
12,814,143
Filtration/Purification Technologies
8,235,261
 
8,369,385
 
75,649,147
 
73,301,036
Corporate
31,826,823
 
34,745,292
 
$107,475,970
 
$108,046,328




 

 




 

 










 
17

MET-PRO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

NOTE 13 – CONTINGENCIES

Beginning in 2002, the Company began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that the Company, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs.  Counsel has advised that more recent cases typically allege more serious claims of mesothelioma.  The Company believes that it has meritorious defenses to the cases which have been filed 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 has been dismissed from or settled a large number of these cases. The sum total of all payments through June 2, 2011 to settle cases involving asbestos-related claims was $626,500, all of which has been paid by the Company’s insurers including legal expenses, except for corporate counsel expenses, with an average cost per settled claim, excluding legal fees, of approximately $31,325. As of June 2, 2011, there were a total of 118 cases pending against the Company (with a majority of those cases pending in New York, West Virginia, Pennsylvania, Connecticut and Mississippi), as compared with 93 cases that were pending as of March 17, 2011, the date which our Annual Report on Form 10-K for the fiscal year ended January 31, 2011 was filed with the Securities and Exchange Commission.  During the period March 17, 2011 through June 2, 2011, 33 new cases were filed against the Company, and the Company was dismissed from seven cases and settled one case.  Most of the pending cases have not advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial.  On April 27, 2011, a liquidation order was entered against Atlantic Mutual Insurance Company, who had been providing defense and indemnity to the Company, and its affiliate, Centennial Insurance Company, who provided umbrella coverage to the Company. It appears that our remaining insurers have assumed prospectively the share of the defense and indemnity obligations that Atlantic Mutual Insurance Company had agreed to assume, and despite the liquidation of Atlantic Mutual Insurance Company and Centennial Insurance Company, the Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts; however, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage.  The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.
 
At any given time, the Company is typically also party to a small number of other legal proceedings arising in the ordinary course of business. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based upon the present information, including the Company’s assessment of the facts of each particular claim as well as accruals, the Company believes that no pending proceeding will have a material adverse impact upon the Company’s results of operations, liquidity, or financial condition.


NOTE 14 – ACCOUNTANTS’ 10-Q REVIEW

Marcum LLP, the Company’s independent registered public accountants, performed a limited review of the financial information included herein. Their report on such review accompanies this filing.
 
 
 
 
 
 
 
 
 
 
 
 
 

 

To the Audit Committee of the Board of Directors
and Shareholders of Met-Pro Corporation

We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of April 30, 2011, and the related consolidated statements of income for the three-month periods ended April 30, 2011 and 2010, and the consolidated statements of shareholders’ equity and cash flows for the three-month periods ended April 30, 2011 and 2010.  These financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures 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 the Public Company 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 in order for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board, the consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of January 31, 2011, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated March 17, 2011, 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, 2011 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.




/s/ Marcum LLP

Marcum LLP
Bala Cynwyd, Pennsylvania
June 2, 2011
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 
19



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

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

   
Three Months Ended
 
   
April 30,
 
   
2011
 
2010
 
           
Net sales
 
100.0
%
100.0
%
Cost of goods sold
 
65.6
%
64.2
%
Gross profit
 
34.4
%
35.8
%
           
Selling expenses
 
12.4
%
13.2
%
General and administrative expenses
 
13.1
%
13.2
%
Income from operations
 
8.9
%
9.4
%
           
Interest expense
 
(0.2
%)
(0.3
%)
Other income, net
 
0.4
%
0.5
%
Income before taxes
 
9.1
%
9.6
%
           
Provision for taxes
 
3.1
%
3.3
%
Net income
 
6.0
%
6.3
%


Three Months Ended April 30, 2011 vs. Three Months Ended April 30, 2010:

Net sales for the three-month period ended April 30, 2011 were $23,429,903 compared with $22,277,077 for the three-month period ended April 30, 2010, an increase of $1,152,826 or 5.2%.

Sales in the Product Recovery/Pollution Control Technologies reporting segment were $8,331,972, or $2,681,253 lower than the $11,013,225 of sales for the three-month period ended April 30, 2010, a decrease of 24.3%.  The sales decrease in the Product Recovery/Pollution Control Technologies reporting segment was due to lower sales for our Strobic Air laboratory fume hood exhaust systems.  We attribute the decrease in sales for our Strobic Air systems to the varying delivery schedules of booked orders as well as the delayed release of customer funds related to projects for which Strobic Air is in a position to receive and execute.

Sales in the Fluid Handling Technologies reporting segment totaled $9,553,104, or $3,022,533 higher than the $6,530,571 of sales for the three-month period ended April 30, 2010, an increase of 46.3%.  Sales in the Fluid Handling Technologies reporting segment were higher as compared with the same period last year due to higher sales for all the product brands within this segment.  The largest percentage of the sales increase in this reporting segment came from the Fybroc product brand due to shipping the remaining $2.4 million of the $3.7 million order which was previously announced on October 12, 2010.

Sales in the Mefiag Filtration Technologies reporting segment were $3,139,917, or $705,668 higher than the $2,434,249 of sales for the three-month period ended April 30, 2010, an increase of 29.0%.  The sales increase in the Mefiag Filtration Technologies reporting segment was due to increased sales across all Mefiag product lines which we attribute to an apparent improvement in the economic environment of the industrial markets serviced by this reporting segment which are primarily the automotive and housing industries.


 
 

 

 
20

MET-PRO CORPORATION


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

Sales in the Filtration/Purification Technologies segment were $2,404,910, or $105,878 higher than the $2,299,032 of sales for the three-month period ended April 30, 2010, an increase of 4.6%.  This increase was due primarily to increased demand in our Keystone Filter business unit partially offset by decreased demand in our Pristine Waters Solutions business unit as a result of inclement weather as well as a weakness in the municipal markets served by this business unit, which appear to be recovering more slowly from the economic slowdown.

The Company’s backlog of orders totaled $20,066,943 and $17,291,239 as of April 30, 2011 and 2010, respectively.  The rate of the Company’s bookings of new orders varies from month to month.  Orders have varying delivery schedules, and as of any particular date, the Company’s backlog may not be predictive of actual revenues for any succeeding specific period, in part due to potential customer requested delays in delivery of which the extent and duration of which may vary widely from period to period.  We have also observed a trend over the last several years where larger projects are more frequently booked and shipped in the same quarter in which we receive the customer’s purchase order due to improved project execution and shorter lead times, resulting in such projects not appearing in publicly disclosed annual or quarterly backlog figures.  Additionally, the Company’s customers typically have the right to cancel a given order, although the Company has historically experienced a very low rate of cancellation.  The Company expects that substantially all of the backlog that existed as of April 30, 2011 will be shipped during the current fiscal year.

Income from operations for the three-month period ended April 30, 2011 was $2,082,976 compared with $2,103,040 for the three-month period ended April 30, 2010, a decrease of $20,064, or 1.0%.

The loss from operations in the Product Recovery/Pollution Control Technologies reporting segment totaled $480,285, or $996,446 lower than the income of $516,161 for the three-month period ended April 30, 2010.  The decrease in income from operations in the Product Recovery/Pollution Control Technologies reporting segment was primarily related to lower sales for our Strobic Air laboratory fume hood exhaust systems.
 
Income from operations in the Fluid Handling Technologies reporting segment totaled $2,240,696, or $951,900 higher than the $1,288,796 for the three-month period ended April 30, 2010, an increase of 73.9%.  The increase in income from operations was due primarily to the increase in sales for all product brands within this reporting segment.

Income from operations in the Mefiag Filtration Technologies reporting segment totaled $221,472, or $14,953 higher than the $206,519 for the three-month period ended April 30, 2010, an increase of 7.2%.

Income from operations in the Filtration/Purification Technologies segment was $101,093 or $9,529 higher than the $91,564 for the three-month period ended April 30, 2010, an increase of 10.4%.

Net income for the three-month period ended April 30, 2011 was $1,412,507 compared with $1,411,078 for the three-month period ended April 30, 2010, an increase of $1,429, or 0.1%.

The gross margins for the three-month period ended April 30, 2011 and April 30, 2010 were 34.4% and 35.8%, respectively.  The decrease in gross margin for the current period was the result the Company’s overall product mix as we experienced lower gross margins in our Product Recovery/Pollution Control Technologies and Mefiag Filtration Technologies reporting segments as compared with the same period last year, partially offset by higher gross margin in our Fluid Handling Technologies reporting segment as compared with the same period last year.  The current period gross margin in our Filtration/Purification Technologies segment was relatively flat as compared with the same period last year.

Selling expense was $2,916,126 for the three-month period ended April 30, 2011, a slight decrease of $16,771 compared with selling expense of $2,932,897 for last year’s first quarter.  Selling expense as a percentage of net sales was 12.4% for the three-month period ended April 30, 2011, compared with 13.2% for the same period last year.

General and administrative expense was $3,059,103 for the three-month period ended April 30, 2011 compared with $2,945,602 for the same period last year, an increase of $113,501.  This increase was primarily related to higher payroll and related payroll benefit expenses.  General and administrative expense as a percentage of net sales was 13.1% for the three-month period ended April 30, 2011, compared with 13.2% for the same period last year.
 
 
 
21

MET-PRO CORPORATION


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued:
 
Interest expense was $48,801 for the three-month period ended April 30, 2011, compared with $82,510 for the same period in the prior year, a decrease of $33,709.  As disclosed in the Company’s Form 10-Q for the quarter ended July 31, 2010, the actual interest expense for the first quarter ended April 30, 2010 should have been reported as $54,798 and is the result of correcting, in the second quarter July 31, 2010, the three-month period ended April 30, 2010 elimination of interest income and expense related to an intercompany loan between the Company and one of its subsidiaries. Comparing the interest expense of $48,801 for the first quarter ended April 30, 2011 versus the first quarter ended April 30, 2010, adjusted interest expense of $54,798 results in a slight decrease of $5,997.  This slight decrease was due principally to fluctuations in the effective interest rate of the bond payable (see Note 8 in the accompanying consolidated financial statements). The omission of the intercompany loan interest income and expense elimination from the three-month period ended April 30, 2010, and subsequent correction in the second quarter July 31, 2010, did not have an impact on reported net income for either period.

Other income, net, was $105,986 for the three-month period ended April 30, 2011 compared with $117,468 for the same period in the prior year, a decrease of $11,482.  The decrease in other income, net, related to lower interest income earned on our cash balance, partially offset by an increase in gains on currency exchange.  As mentioned in the preceding paragraph, the Company corrected, in the second quarter July 31, 2010, the three-month period ended April 30, 2010 elimination of interest income and expense related to an intercompany loan between the Company and one of its subsidiaries.  The actual other income, net for the first quarter ended April 30, 2010 was $89,755. Comparing the other income, net of $105,986 for the first quarter ended April 30, 2011 versus the first quarter ended April 30, 2010 adjusted other income, net of $89,755 results in a slight increase of $16,231.  The slight increase in other income, net, primarily related to lower interest income earned on our cash balance, partially offset by an increase in gains on currency exchange.  The omission of the intercompany loan interest income and expense elimination from the three-month period ended April 30, 2010, and subsequent correction in the second quarter July 31, 2010, did not have an impact on reported net income for either period.

The effective tax rates for the three-month period ended April 30, 2011 and 2010 were 34.0%.  Our analysis of our current tax position led us to continue using 34.0% as our effective tax rate for the first quarter of fiscal year 2012.  We will continue to analyze our tax position in future quarters, and could increase or decrease our effective tax rate depending upon our analysis at that time.


Liquidity:

The Company’s cash and cash equivalents were $29,366,309 on April 30, 2011 compared with $32,400,814 on January 31, 2011, a decrease of $3,034,505.  This decrease is primarily the net result of cash flows used in operating activities of $2,111,821, the payment of the quarterly cash dividends amounting to $967,445, investment in property and equipment amounting to $235,679 and payments on debt totaling $123,023, offset by proceeds from new borrowings amounting to $407,731.  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, as well as other factors including changes in inventories and accounts receivable balances. In addition, with respect to the cash flows used in operating activities for the three-month period ended April 30, 2011, the Company elected to contribute a total of $2,926,061 to its hourly and salary pension plans, which was a major factor in the decrease in cash and cash equivalents.  This contribution was above our minimum funding requirement.  We expect that this contribution will improve the funded status of the pension plans and, along with the accrual of future benefits being frozen, will therefore improve our risk profile.  For the remaining nine months of fiscal year ending January 31, 2012 the Company expects to make an additional contribution of $71,516.

Accounts receivable (net) totaled $17,119,493 on April 30, 2011 compared with $15,311,322 on January 31, 2011, which represents an increase of $1,808,171.  This increase in accounts receivable is reflective of the higher sales in the quarter ended April 30, 2011.  In addition to changes in sales volume, the timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Technologies reporting segment, will, among other factors, influence accounts receivable balances at any given point in time.  We endeavor to closely monitor payments and developments which may signal possible customer credit issues.  We currently have not identified any potential material impact on our liquidity resulting from customer credit issues.
 
 
 
 
22

MET-PRO CORPORATION


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued:
 
Inventories totaled $16,045,351 on April 30, 2011 compared with $15,474,430 on January 31, 2011, an increase of $570,921. Inventory balances fluctuate depending on sales, market demand and the timing and size of shipments, especially when major systems and contracts are involved.  We have been reducing our inventory where possible.

Current liabilities amounted to $12,397,501 on April 30, 2011, compared with $11,208,173 on January 31, 2011, an increase of $1,189,328.  This increase is due primarily to increases in accounts payable, other accrued expenses and current portion of debt, partially offset by a decrease in customers’ advances as well as a decrease in accrued salaries, wages and benefits.

As of April 30, 2011 and January 31, 2011, working capital was $52,318,038 and $54,137,879, respectively, and the current ratio was 5.2 and 5.8, respectively.

We expect that our major source of funding for normalized operations during the fiscal year 2012 and the immediate future thereafter will be our operating cash flow and our cash, cash equivalents, and short-term investments.  We believe we have sufficient liquidity for the next several years to fund, at anticipated levels of growth, operations, research and development, capital expenditures, scheduled debt repayments and dividend payments.

The Company and its subsidiaries also have access to $4.4 million uncommitted, unsecured lines of credit through November 2011, subject to terms thereof.  If market conditions are favorable, the Company may seek to enter into negotiations with its bank group prior to the expiration date to renew and extend these credit arrangements.

The existing domestic credit agreements include two financial covenants: a liability/tangible net worth ratio and a fixed charge coverage ratio. At April 30, 2011, we were in compliance with both financial covenants.  The required liability/tangible net worth ratio, which measures total liabilities to tangible net worth, is a maximum of 1.20 times.  At April 30, 2011 and January 31, 2011, our liability/tangible net worth ratio using this measure was 0.35 times and 0.39 times, respectively.  The required fixed charge coverage ratio, which is an adjusted earnings measure as defined by our facility, compared with the aggregate of interest expense, debt service, dividends and capital expenditures, is a ratio of at least 1.05 times. At April 30, 2011 and January 31, 2011, our fixed charge coverage ratio using this measure was 1.32 times and 1.43 times, respectively.

Our debt instruments contain customary event of default provisions, which allow the lenders the option of accelerating all obligations upon the occurrence of certain events. In addition, the majority of our debt instruments contain a cross default provision, whereby a default on one debt obligation of the Company in excess of a specified amount, also would be considered a default under the terms of another debt instrument. As of April 30, 2011, we were in compliance with all such provisions.

Management is not aware of any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in our liquidity or an increase in liquidity beyond the historical rate of increase. In addition, other than items discussed, there are no known material trends, favorable or unfavorable, in our capital resources and no expected material changes in the mix and relative cost of such resources.


Capital Resources and Requirements:

Cash flows used in operating activities during the three-month period ended April 30, 2011 amounted to $2,111,821 compared with cash provided by operating activities of $2,299,277 in the three-month period ended April 30, 2010, a decrease of $4,411,098.  The decrease in cash flows from operating activities, as compared with the same period last year, was due principally to the following: (i) a decrease in accrued pension retirement benefits of $2,776,476 compared with an increase in accrued pension retirement benefits of $112,894 for the same period last year, or a period-to-period cash outflow of $2,889,370, (ii) an increase in accounts payable and accrued expenses of $687,771 compared with an increase in accounts payable and accrued expenses of $1,608,371 for the same period last year, or a period-to-period cash outflow of $920,600, (iii) an increase in inventory of $388,008 compared with a decrease in inventory of $395,944 for the same period last year, or a period-to-period cash outflow of $783,952, and (iv) an increase in prepaid expenses,
 
 
 
23

MET-PRO CORPORATION>


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued:
 
deposits and other assets of $38,705 compared with a decrease in prepaid expenses, deposits and other assets of $250,155 for the same period last year, or a period-to-period cash outflow of $288,860.  The previously listed cash outflows were partially offset by a decrease in customers’ advances of $52,906 compared with a decrease in customers’ advances of $511,077 for the same period last year, or a period-to-period cash inflow of $458,171.

Cash flows used in investing activities during the three-month period ended April 30, 2011 amounted to $235,679 compared with cash flows used in investing activities of $210,475 for the three-month period ended April 30, 2010, an increase of $25,204.

Consistent with past practices, the Company intends to continue to invest in new product development programs and to make capital expenditures required to support the ongoing operations during the fiscal 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 31, 2011 utilized $682,737 of available resources, compared with $1,023,788 utilized during the three-month period ended April 30, 2010.  The decrease in cash utilized is due primarily to the proceeds received from the Company’s foreign line of credit at Mefiag B.V. partially off-set by the increase in the dividend payment.

The Board of Directors declared quarterly dividends of $.066 per share payable on March 17, 2011 and June 15, 2011 to shareholders of record at the close of business on March 3, 2011 and June 1, 2011, respectively.


Critical Accounting Policies and Estimates:

Management’s Discussion and Analysis of Financial Position and Results of Operations is 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:

Revenue Recognition:

The Company recognizes revenues from product sales or services provided when the following revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured.  FASB ASC Topic 605, “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 FASB ASC Topic 605.

Depreciation and Amortization:

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.  Property, plant and equipment, as well as intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Goodwill:

In accordance with FASB ASC Topic 350-20, “Goodwill”, the Company’s unamortized goodwill balance is being assessed, at least annually, for impairment.  The Company performs its annual impairment test for each reporting unit using a fair value approach.  The test for goodwill impairment involves significant judgment in estimating projections of fair value generated through future performance of each of the reporting units, which comprise our operating segments.  In calculating the fair value of the reporting units using the present value of estimated future cash flows method, we rely on a number of assumptions including sales and related gross margin projections, operating margins, anticipated working
 
 
capital requirements and market rate of returns used in discounting projected cash flows.  These assumptions were based upon market and industry outlooks, our business plans and historical data.  Inherent uncertainties exist in determining and applying such factors.  The discount rate used in the projection of fair value represents a weighted average cost of capital applicable to the Company.

During the fiscal year ended January 31, 2011, we performed an impairment analysis on each of the Company’s reporting units that carry goodwill on their balance sheets.  In each case, the fair value exceeded the carrying amount, including goodwill, by a significant amount, except for Flex-Kleen which represents 53.5% of the total Company-wide goodwill.  For Flex-Kleen, the carrying value as of January 31, 2011 and 2010 amounted to $9.1 million and $9.5 million, respectively.  The fair value of Flex-Kleen as of January 31, 2011 and 2010 totaled $12.3 million and $12.1 million, respectively.   As a result, the fair value exceeded the carrying amount, including goodwill, by $3.2 million and $2.6 million at January 31, 2011 and 2010, respectively.  Therefore, as of January 31, 2011, Flex-Kleen’s goodwill was not impaired.

Flex-Kleen, which initially performed well after being acquired in 1998, 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 years ended January 31, 2007, 2008 and 2009.  In the fiscal years ended January 31, 2007, 2008 and 2009, actual results exceeded the projected results used in our impairment model.  During the fiscal year ended January 31, 2010, Flex-Kleen’s net sales and operating profit were below the projections in our impairment model, which we believe was a reflection of the downturn in global business and economic conditions during this period of time and was not due to any new development specific to Flex-Kleen. In the fiscal year ended January 31, 2011, Flex-Kleen’s net sales were below the projections but operating profit was slightly above the projections in our impairment model. Our impairment model requires that Flex-Kleen’s sales and operating profit improve during each of the next several fiscal years in order for us to avoid a potential impairment charge.

Because of market conditions and/or potential changes in strategy and product portfolio, it is possible that forecasts used to support asset carrying values may change in the future, which could result in non-cash charges that would adversely affect our results of operations and financial condition.  Based on current projections, a one percent decrease in revenue growth, a one percent decrease in gross margin or a one percent increase in the weighted average cost of capital would reduce the fair value for Flex-Kleen by $1.9 million, $1.1 million, and $1.0 million, respectively.  Additionally, the Company cannot predict the occurrence of unknown events that might adversely affect the reportable value of its goodwill.

Pension Obligations:

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 include, among others, the discount rate and the expected long-term rate of return on plan assets.  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.


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.
 
 
 
25

MET-PRO CORPORATION


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

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 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 goodwill, as a result of the determination that the acquired business is impaired.  Flex-Kleen, 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 years ended January 31, 2007, 2008 and 2009.  During the fiscal year ended January 31, 2010, Flex-Kleen’s net sales and operating profit were below the projections in our impairment model, which we believe was a reflection of the downturn in global business and economic conditions during this period of time and was not due to any new development specific to Flex-Kleen.  In the fiscal year ended January 31, 2011, Flex-Kleen’s net sales were below that which is required by our impairment model, while the fiscal year 2011 operating profit was slightly higher than the amount which is required by our impairment model.  During the fiscal year ended January 31, 2011, we performed an impairment analysis of the $11.1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment had occurred.  Our impairment model requires that Flex-Kleen’s sales and operating profit improve during each of the next several fiscal years in order for us to avoid a potential impairment charge. For the three-month period ended April 30, 2011, the annualized projection for net sales and operating profit for Flex-Kleen currently exceeds the projections used in our annual impairment model for the fiscal year ended January 31, 2012 and we anticipate that Flex-Kleen’s performance during the fiscal year ending January 31, 2012 will be sufficient to avoid an impairment charge. Our projections are forward-looking statements where the actual results may not be as we presently anticipate;
 
· 
materially adverse changes in economic conditions (i) in the markets served by us or (ii) 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, the insolvency or liquidation of our insurance carriers, or other adverse developments in the availability of insurance coverage. On April 27, 2011, a liquidation order was entered against Atlantic Mutual Insurance Company, who had been providing defense and indemnity to the Company, and its affiliate, Centennial Insurance Company, who provided umbrella coverage to the Company. It appears that our remaining insurers have assumed prospectively the share of the defense and indemnity obligations that Atlantic Mutual Insurance Company had agreed to assume, and despite the liquidation of Atlantic Mutual Insurance Company and Centennial Insurance Company, the Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts; however, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to 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;
 
· 
weaknesses in our internal control over financial reporting, which either alone or combined with actions by our employees intended to circumvent our internal control over financial reporting, to violate our policies, or to commit fraud or other bad acts, could lead to incorrect reporting of financial results.  We believe that our internal control over financial reporting as of April 30, 2011 is effective; however, there are limits to any control system and we cannot give absolute assurance that our internal control is effective or that financial statement misstatements will not occur or that policy violations and/or fraud within the Company will not occur;
 
· 
unexpected results in our product development activities;
 
 
26

MET-PRO CORPORATION


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations continued:
 
 
· 
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 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 are exposed to certain market risks, primarily changes in interest rates.  There have been no significant changes in our exposure to market risks since January 31, 2011.  Refer to “Item 7A. Quantitative and Qualitative Disclosure About Market Risks” of the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2011 for additional information.



As of the end of the period covered by this report, the Company’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the Company’s disclosure controls and procedures related to the recording, processing, summarizing and reporting of information in the Company’s periodic reports that it files with the SEC.  These disclosure controls and procedures have been designed by the Company to ensure that (a) material information relating to the Company, including its consolidated subsidiaries, is accumulated and made known to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, by other employees of the Company and its subsidiaries as appropriate to allow timely decisions regarding required disclosure, and (b) this information is recorded, processed, summarized, evaluated and reported, as applicable, within the time periods specified in the SEC’s rules and forms.  Due to the inherent limitations of control systems, not all misstatements may be detected.  These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake, or because of intentional acts designed to circumvent controls.

Accordingly, as of April 30, 2011 the Chief Executive Officer and Chief Financial Officer of the Company concluded that the Company’s disclosure controls and procedures were effective to accomplish their objectives.  The Company continually strives to improve its disclosure controls and procedures to enhance the quality of its financial reporting and to maintain dynamic systems that change as conditions warrant.
 
 
 
 
 

 


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 “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.

Beginning in 2002, the Company began to be named in asbestos-related lawsuits filed against a large number of industrial companies including, in particular, those in the pump and fluid handling industries. In management’s opinion, the complaints typically have been vague, general and speculative, alleging that the Company, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries (including death) and loss to the plaintiffs.  Counsel has advised that more recent cases typically allege more serious claims of mesothelioma.  The Company believes that it has meritorious defenses to the cases which have been filed 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 has been dismissed from or settled a large number of these cases. The sum total of all payments through June 2, 2011 to settle cases involving asbestos-related claims was $626,500, all of which has been paid by the Company’s insurers including legal expenses, except for corporate counsel expenses, with an average cost per settled claim, excluding legal fees, of approximately $31,325.  As of June 2, 2011, there were a total of 118 cases pending against the Company (with a majority of those cases pending in New York, West Virginia, Pennsylvania, Connecticut and Mississippi), as compared with 93 cases that were pending as of March 17, 2011, the date which our Annual Report on Form 10-K for the fiscal year ended January 31, 2011 was filed with the Securities and Exchange Commission.  During the period March 17, 2011 through June 2, 2011, 33 new cases were filed against the Company, and the Company was dismissed from seven cases and settled one case.   Most of the pending cases have not advanced beyond the early stages of discovery, although a number of cases are on schedules leading to, or are scheduled for trial.  On April 27, 2011, a liquidation order was entered against Atlantic Mutual Insurance Company, who had been providing defense and indemnity to the Company, and its affiliate, Centennial Insurance Company, who provided umbrella coverage to the Company. It appears that our remaining insurers have assumed prospectively the share of the defense and indemnity obligations that Atlantic Mutual Insurance Company had agreed to assume, and despite the liquidation of Atlantic Mutual Insurance Company and Centennial Insurance Company, the Company believes that its insurance coverage is adequate for the cases currently pending against the Company and for the foreseeable future, assuming a continuation of the current volume, nature of cases and settlement amounts; however, the Company has no control over the number and nature of cases that are filed against it, nor as to the financial health of its insurers or their position as to coverage.  The Company also presently believes that none of the pending cases will have a material adverse impact upon the Company’s results of operations, liquidity or financial condition.
 
At any given time, the Company is typically also party to a small number of other legal proceedings arising in the ordinary course of business. Although the ultimate outcome of any legal matter cannot be predicted with certainty, based upon the present information, including the Company’s assessment of the facts of each particular claim as well as accruals, the Company believes that no pending proceeding will have a material adverse impact upon the Company’s results of operations, liquidity, or financial condition.




 
 
 
 
 
 
 
 

 

 
28

MET-PRO CORPORATION

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended January 31, 2011 as filed with the Securities and Exchange Commission on March 17, 2011, which could materially affect our business, financial condition, financial results or future performance.  Additionally, we refer you to Part 1, “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Cautionary Statement Concerning Forward-Looking Statements” of this report, and in particular the first item as to the potential write-down of goodwill for our Flex-Kleen business unit.


 
(a)  During the first quarter ended April 30, 2011, we 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, 2011:
 
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, 2011
 
0
 
$           -
 
0
 
187,357
 
March 1-31, 2011
 
3,717
 
11.515
 
3,717
 
183,640
 
April 1-30, 2011
 
0
 
-
 
0
 
183,640
 
Total
 
3,717
 
$ 11.515
 
3,717
 
183,640
 


(1)  
On November 3, 2008, our Board of Directors authorized a common share repurchase program that was publicly announced on November 5, 2008, for up to 300,000 shares.  The program has no fixed expiration date.



None.



None.



None.
 
 
29

MET-PRO CORPORATION

 
 
Item 6. Exhibits
     
                 (a)   
Exhibits Required by Item 601 of Regulation S-K
     
   
Exhibit No.
 
Description
         
   
(31.1)
 
         
   
(31.2)
 
         
   
(32.1)
 
         
   
(32.2)
 
         
         
         
         
         
         
         
         
*  Filed herewith.
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 2, 2011
 
/s/ Raymond J. De Hont
   
Raymond J. De Hont
   
Chairman, Chief Executive Officer
   
and President
     
     
June 2, 2011
 
/s/ Gary J. Morgan
   
Gary J. Morgan
   
Senior Vice President of Finance,
   
Secretary and Treasurer, Chief
   
Financial Officer, Chief Accounting
   
Officer and Director


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
31

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