SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549








FORM 10-Q








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








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








For the quarter ended: October 31, 2003
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. Employerincorporation or organization)

Identification No.)160 Cassell Road, P.O. Box 144Harleysville, Pennsylvania

19438(Address of principal executive offices)

(Zip Code)








Registrants telephone number, including area code: (215) 723-6751













Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes  X      NoAs of October 31, 2003, the Registrant had 8,303,543 common shares, par value $.10 per share, issued and outstanding.











MET-PRO CORPORATION






INDEX










PART I  FINANCIAL INFORMATIONItem 1.
Financial Statements
 
 Consolidated balance sheet as ofOctober 31, 2003 and January 31, 2003
2Consolidated statement of operations for the nine-monthand three-month periods ended October 31, 2003 and 2002
3Consolidated statement of shareholders equity for thenine-month periods ended October 31, 2003 and 2002
4Consolidated statement of cash flows for the nine-monthperiods ended October 31, 2003 and 2002
5Notes to consolidated financial statements
6Report of independent accountants
10
 
 Item 2.
Managements Discussion and Analysis of Financial Conditionand Results of Operations
11Item 3.
Qualitative and Quantitative Disclosures about Market Risk
16Item 4.
Controls and Procedures
16
 
 
 PART II  OTHER INFORMATIONItem 1.
Legal Proceedings
16Item 2.
Changes in Securities and Use of Proceeds
16Item 3.
Defaults Upon Senior Securities
16Item 4.
Submission of Matters to a Vote of Security Holders
16Item 5.
Other Information
17Item 6.
Exhibits and Reports on Form 8-K
 
 (a)
Exhibits Required by Item 601 of Regulation S-K
17(b)
Reports on Form 8-K
17
 
 
 SIGNATURES
18






1Back to IndexMET-PRO CORPORATION





CONSOLIDATED BALANCE SHEET





(unaudited)





**PART I  FINANCIAL INFORMATION**Item 1.***Financial Statements***October 31,

January 31,ASSETS
2003

2003Current assetsCash and cash equivalents
$16,577,857

$13,429,367Accounts receivable, net of allowance for doubtfulaccounts of approximately $308,000 and$263,000, respectively
14,837,475

12,217,315Inventories
13,234,849

13,374,128Prepaid expenses, deposits and other current assets
1,084,195

979,714Deferred income taxes
631,221

631,221Total current assets
46,365,597

40,631,745Property, plant and equipment, net
11,974,939

11,950,422Costs in excess of net assets of businesses acquired, net
20,798,913

20,798,913Other assets
330,644

373,591Total assets
$79,470,093

$73,754,671LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilitiesCurrent portion of long-term debt
$1,536,926

$1,536,926Accounts payable
4,522,648

2,810,002Accrued salaries, wages and expenses
6,483,653

4,827,241Dividend payable
604,091

559,167Customers' advances
488,031

16,973****Total current liabilities
13,635,349

9,750,309Long-term debt
5,769,479

7,111,995Other non-current liabilities
38,269

36,621Deferred income taxes
848,323

809,861****Total liabilities
20,291,420

17,708,786Shareholders' equityCommon shares, $.10 par value; 18,000,000 sharesauthorized, 9,634,956 and 9,635,071 shares issued,of which 1,331,413 and 1,346,579 shares were reacquiredand held in treasury at the respective dates
963,496

722,630Additional paid-in capital
7,929,043

8,196,782Retained earnings
62,555,579

59,705,267Accumulated other comprehensive loss
(258,062
)
(541,959
)Treasury stock, at cost
(12,011,383
)
(12,036,835
)****Total shareholders' equity
59,178,673

56,045,885Total liabilities and shareholders' equity
$79,470,093

$73,754,671See accompanying notes to consolidated financial statements.














2Back to Index******MET-PRO CORPORATION**




CONSOLIDATED STATEMENT OF OPERATIONS





(unaudited)





Nine Months Ended
October 31,

**Three Months Ended**October 31**,**2003

2002

2003

2002Net sales
$55,440,022

$51,143,659

$19,811,544

$16,671,696Cost of goods sold
35,606,780

33,392,929

12,861,737

10,626,271Gross profit
19,833,242

17,750,730

6,949,807

6,045,425Operating expensesSelling
5,903,475

5,464,514

2,093,009

1,821,017General and administrative
6,036,950

5,792,008

1,902,429

1,944,24011,940,425

11,256,522

3,995,438

3,765,257Income from operations
7,892,817

6,494,208

2,954,369

2,280,168Interest expense
(336,868
)
(379,236
)
(109,071
)
(128,493
)Other income/(expense), net
(626,168
)
201,168

(336,922
)
81,838Income before taxes
6,929,781

6,316,140

2,508,376

2,233,513Provision for taxes
**2,356,125**

2,242,230

**852,847**

792,897Net income
$4,573,656

$4,073,910

$1,655,529

$1,440,616**Earnings per share, basic (1)(2)**
$.55

$.50

$.20

$.18**Earnings per share, basic****(1)(3)**
$.55

$.49

$.20

$.17**Cash dividend per share  declared****(1)(4)**
$.2075

$.1950

$.0725

$.0675**Cash dividend per share  paid (1)(4)**
$.2025

$.1913

$.0675

$.0638




(1)
On September 17, 2003, the Board of Directors declared a four-for-three stock split which was paid on October 15, 2003 to shareholders of record on October 1, 2003. All references in the financial statements to per share amounts and number of shares outstanding have been restated to reflect the effect of the stock split.(2)
Basic earnings per share are based upon the weighted average number of shares outstanding of8,291,748 and 8,224,164 in the nine-month periods ended October 31, 2003 and 2002, respectively,and 8,290,133 and 8,215,979 in the three-month periods ended October 31, 2003 and 2002, respectively.(3)
Diluted earnings per share are based on the weighted average number of shares outstanding of8,371,848 and 8,280,247 in the nine-month periods ended October 31, 2003 and 2002, respectively,and 8,363,065 and 8,274,473 in the three-month periods ended October 31, 2003 and 2002, respectively.(4)
The Board of Directors declared quarterly dividends of $.0675 per share payable on March 10, 2003, June 9, 2003 and September 9, 2003 to shareholders of record as of February 21, 2003, May 23, 2003 and August 27, 2003, respectively, and a quarterly dividend of $.0725 per share payable on December 10, 2003 to shareholders of record as of November 28, 2003. Quarterly dividends of $.0638 per share were payable on March 8, 2002, June 7, 2002 and September 6, 2002 to shareholders of record as of February 22, 2002, May 24, 2002 and August 23, 2002, respectively, and a quarterly dividend of $.0675 per share payable on December 9, 2002 to shareholders of record as of November 29, 2002.





See accompanying notes to consolidated financial statements.




3Back to IndexMET-PRO CORPORATION






CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY





(unaudited)


AccumulatedAdditional

OtherCommon
Paid-in
Retained
Comprehensive
TreasuryShares
Capital
Earnings
Income/(Loss)
Stock
Total





Balances, January 31, 2003
$722,630
$8,196,782

$59,705,267

($541,959
)
($12,036,835
)
$56,045,885Comprehensive income:Net income
-
-

4,573,656

-

-Cumulative translation adjustment
-
-

-

215,274

-Interest rate swap,
net of tax of ($46,198)
-
-

-

68,623

-Total comprehensive income









4,857,553Stock split four-for-three
240,866
(240,866
)
-

-

-

-Cash in lieu of fractional shares
-
(1,421
)
-

-

-

(1,421
)Dividends paid, $.1350 per share
-
-

(1,119,253
)
-

-

(1,119,253
)Dividends declared, $.0725 pershare
-
-

(604,091
)
-

-

(604,091
)Stock option transactions
-
(25,452
)
-

-

423,457

398,005Purchase of 31,768 shares oftreasury stock
-
-

-

-

(398,005
)
(398,005
)Balances, October 31, 2003
$963,496
$7,929,043

$62,555,579

($258,062
)
($12,011,383
)
$59,178,673  AccumulatedAdditional

OtherCommon
Paid-in
Retained
Comprehensive
TreasuryShares
Capital
Earnings
Income/(Loss)
Stock
Total
 
 Balances, January 31, 2002
$721,916
$7,879,368

$55,990,079

($827,737
)
($13,484,232
)
$50,279,394Comprehensive income:Net income
-
-

4,073,910

-

-Cumulative translation adjustment
-
-

-

432,541

-Interest rate swap,net of tax of $118,290
-
-

-

(219,581
)
-Total comprehensive income









4,286,870Issuance of treasury stockfor acquisition of business
-
250,782

-

-

1,349,218

1,600,000Dividends paid, $.1275 per share
-
-

(1,054,854
)
-

-

(1,054,854
)Dividends declared, $.0675 per share
-
-

(559,167
)
-

-

(559,167
)Proceeds from issuance ofcommon shares under dividendreinvestment plan (9,517shares)
714
100,819

-

-

-

101,533Stock option transactions
-
(36,251
)
-

-

346,870

310,619Purchase of 26,588 shares oftreasury stock
-
-

-

-

(289,218
)
(289,218
)Balances, October 31, 2002
$722,630
$8,194,718

$58,449,968

($614,777
)
($12,077,362
)
$54,675,177


See accompanying notes to consolidated financial statements.





4Back to IndexMET-PRO CORPORATION





CONSOLIDATED STATEMENT OF CASH FLOWS





(unaudited )


Nine Months EndedOctober 31,2003

2002





INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS





Cash flows from operating activitiesNet Income


$4,573,656

$4,073,910Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation and amortization


1,175,381

1,180,155Deferred income taxes


(7,736
)
(131,676
)(Gain)/loss on sale of property and equipment, net


21,909

(5,441
)Allowance for doubtful accounts


45,170

106,406(Increase) decrease in operating assets,
net of acquisition of business:Accounts receivable


(2,575,609
)
96,461Inventories


243,050

(437,849
)Prepaid expenses and other current assets


(97,549
)
(105,074
)Other assets


(6,564
)
(6,294
)Increase (decrease) in operating liabilities,
net of acquisition of business:Accounts payable, accrued expenses and taxes


3,261,231

(293,700
)Customers advances


471,058

(65,165
)Other non-current liabilities


1,648

1,648Net cash provided by operating activities


7,105,645

4,413,381Cash flows from investing activitiesProceeds from sale of property and equipment


-

19,112Acquisitions of property and equipment


(1,101,598
)
(650,503
)Payment for acquisition of business


-

(465,673
)Net cash (used in) investing activities


(1,101,598
)
(1,097,064
)Cash flows from financing activitiesProceeds from new borrowing


-

16,373Reduction of debt


(1,227,695
)
(808,452
)Exercise of stock options


398,005

310 ,619Payment of dividends


(1,678,421
)
(1,470,392
)Purchase of treasury shares


(398,005
)
(289,218
)Cash in lieu of fractional shares


(1,421
)
-Net cash (used in) financing activities


(2,907,537
)
(2,241,070
)Effect of exchange rate changes on cash


51,980

136,830Net increase in cash and cash equivalents


3,148,490

1,212,077Cash and cash equivalents at February 1


13,429,367

11,832,260Cash and cash equivalents at October 31


$16,577,857

$13,044,337See accompanying notes to consolidated financial statements.





5Back to IndexMET-PRO CORPORATION




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 1  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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





Pro forma information regarding net income and earnings per share is required by SFAS No. 123, which requires that the information be determined as if we had accounted for our stock options under the fair-value method. The fair value for these options was established at the date of grant using the Black-Scholes pricing model with the following assumptions: risk-free interest rates ranging from 2.8% to 2.9%, dividend yield ranging from 2.9% to 3.9%, expected volatility of the market price of the Companys Common Shares of 28%, and an expected option life of five years.





The risk-free interest rate is based on five-year treasury bill rates. For the purpose of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period.





The pro forma information compared to reported information for the nine-month and three-month periods ended October 31, 2003 and 2002 is presented in the following table:





Nine Months Ended

Three Months EndedOctober 31,

October 31,2003

2002

2003

2002Net Income:As reported
$4,573,656

$4,073,910

$1,655,529

$1,440,616Pro forma
4,457,538

3,998,984

1,616,824

1,415,642Basic earnings per share:(adjusted for stock split)As reported
$.55

$.50

$.20

$.18Pro forma
$.54

$.49

$.20

$.17Diluted earnings per share:(adjusted for stock split)As reported
$.55

$.49

$.20

$.17Pro forma
$.53

$.48

$.19

$.17








The pro forma effects of applying SFAS No. 123 to the nine-month and three-month periods ended October 31, 2003 and 2002, may not be representative of the pro forma effects in future periods. Based on the vesting schedule of the Companys stock option grants, the pro forma effects on earnings are most pronounced in the early years following each grant. The timing and magnitude of any future grants is at the discretion of the Companys Board of Directors and cannot be assured.





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





**Recent accounting pronouncements:** In December 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 148, "Accounting for Stock-Based Compensation  Transition Disclosure", which provides alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based employee compensation as prescribed in SFAS No. 123. Additionally, SFAS No. 148 requires more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The provisions of this Statement are effective for fiscal years ending after December 15, 2002. Management does not expect the adoption of this Statement to have a material impact on the Companys financial condition or results of operations.





On April 30, 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities". This statement amends and clarifies accounting for derivative  instruments, including certain  derivative




6Back to IndexMET-PRO CORPORATION


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








instruments embedded in  other contracts, and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain pre-existing contracts. We adopted SFAS No. 149 on a prospective basis at its effective date on July 1, 2003. The adoption of this statement did not have a material impact on our financial condition or results of operations.





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





**Reclassifications:** During the three-month period ended October 31, 2003, the Company reclassified certain unusual legal expenses related to a patent infringement claim incurred during the year, from general and administrative expense to other income/expense. Such reclassification did not have any impact on shareholders equity and net income for the nine-month period ended October 31, 2003.





**Stock Splits:** On September 17, 2003, the Companys Board of Directors declared a four-for-three stock split, effected in the form of a stock distribution, payable on October 15, 2003 to shareholders of record on October 1, 2003. The Company retained the current par value of $.10 per share for all common shares. All references in the financial statements and notes to the number of shares outstanding, per share amounts, and stock option data of the Companys common shares have been restated to reflect the effect of the stock split for all periods presented.





Shareholders equity reflects the stock split by reclassifying from "Additional Paid-in Capital" to "Common Shares" an amount equal to the par value of the additional shares arising from the split.








NOTE 2  PRINCIPLES OF CONSOLIDATION





The consolidated financial statements include the accounts of Met-Pro Corporation and its wholly-owned subsidiaries, Strobic Air Corporation, Flex-Kleen Canada Inc., Mefiag B.V. and Pristine Hydrochemical Inc. (collectively "Met-Pro" or the "Company"). All significant intercompany accounts and transactions have been eliminated in consolidation.








NOTE 3  BASIS OF PRESENTATION





In the opinion of management, the accompanying unaudited financial statements contain all adjustments necessary, to present fairly the financial position as of October 31, 2003 and the results of operations for the nine-month and three-month periods ended October 31, 2003 and 2002, and changes in shareholders equity and cash flows for the nine-month periods then ended. The results of operations for the nine-month and three-month periods ended October 31, 2003 and 2002 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, 2003.








NOTE 4  ACQUISITION OF BUSINESS





Effective May 22, 2002, the Company, pursuant to an Agreement and Plan of Merger, acquired 100% of the Common Stock of Pristine Hydrochemical Inc. ("Pristine") for a purchase price of approximately $3,200,000. The results of Pristines operations have been included in the consolidated financial statements since that date. The acquisition was accounted for as a purchase transaction. Pristine sells water treatment chemicals and services to municipal water utilities, and boiler and water cooling chemicals and services to industrial and commercial markets. It is expected that Pristine will complement the operations of the Companys Stiles-Kem Division.





The acquisition was completed by issuing Common Stock from the treasury valued at $1,600,000 (151,300 shares, adjusted for stock split), a cash payment of $400,000, promissory notes payable for $1,200,000, plus acquisition costs. The notes are payable over a four-year period in installments of $300,000 annually, plus interest at a fixed rate of 4.75%. Goodwill totaling approximately $3,018,000 was acquired.






7Back to IndexMET-PRO CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








The following unaudited pro-forma summary presents the consolidated results of operations for the nine-month period ended October 31, 2002 as if the Company had acquired Pristine on February 1, 2002:








Net sales
$51,915,817Income before taxes
6,473,660Net income
4,175,511Earnings per share, basic (adjusted for stock split)
$.51Earnings per share, diluted (adjusted for stock split)
$.50











NOTE 5  INVENTORIES





Inventories consisted of the following:





October 31,
2003

January 31,
2003Raw materials
$6,992,709

$7,066,298Work in progress
1,351,900

1,366,127Finished goods
4,890,240

4,941,703$13,234,849

$13,374,128


NOTE 6  SUPPLEMENTAL CASH FLOW INFORMATION
 
 Net cash flows from operating activities reflect cash payments for interest and income taxes as follows:
 
  Nine Months Ended October 31,2003

2002Cash paid during the period for:Interest
$303,996

$353,937Income taxes
2,018,428

2,006,171






NOTE 7  OTHER INCOME/(EXPENSE), NET





Other income/(expense), net was comprised of the following:







Nine Months Ended October 31,
Three Months Ended October 31,2003


2002


2003


2002(Loss)/gain on sale of property and
equipment
($21,909
)

$5,442


$-


$3,851Other, primarily interest income
175,015


195,726


21,385


77,987Unusual charge - patent litigation
(779,274
)

-


(358,307
)

-($626,168
)

$201,168


($336,922
)

$81,838


















8Back to IndexMET-PRO CORPORATION





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






NOTE 8 BUSINESS SEGMENT DATA





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





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








Financial information by business segment is shown below:








Nine Months Ended October 31,
Three Months Ended October 31,2003

2002


2003

2002**Net sales**Product recovery/pollution control equipment
$37,257,235

$33,329,846


$13,499,144

$10,761,339Fluid handling equipment
18,182,787

17,813,813


6,312,400

5,910,357$55,440,022

$51,143,659


$19,811,544

$16,671,696**Income from operations**Product recovery/pollution control equipment
$5,689,106

$4,134,415


$2,215,560

$1,427,136Fluid handling equipment
2,203,711

2,359,793


738,809

853,032$7,892,817

$6,494,208


$2,954,369

$2,280,168







October 31,

January 31,2003

2003**Identifiable assets**Product recovery/pollution control equipment
$43,704,982

$41,396,626Fluid handling equipment
18,939,392

18,417,18762,644,374

59,813,813Corporate
16,825,719

13,940,858$79,470,093

$73,754,671




NOTE 9 - ACCOUNTANTS 10-Q REVIEW





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














9Back to IndexMET-PRO CORPORATION  REPORT OF INDEPENDENT ACCOUNTANTS

















To the Board of Directors


Met-Pro Corporation


Harleysville, Pennsylvania





We have reviewed the accompanying consolidated balance sheet of Met-Pro Corporation and its wholly-owned subsidiaries as of October 31, 2003, and the related consolidated statements of operations for the nine-month and three-month periods ended October 31, 2003 and 2002, and shareholders equity and cash flows for the nine-month periods ended October 31, 2003 and 2002. These financial statements are the responsibility of the Companys management.





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





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





We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of January 31, 2003, and the related consolidated statements of operations, shareholders equity, and cash flows for the year then ended (not presented herein); and in our report dated February 21, 2003, 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, 2003 is fairly stated, in all material respects, in relation to the balance sheet from which it has been derived.














/s/ Margolis & Company P.C.


Certified Public Accountants














Bala Cynwyd, Pennsylvania


November 19, 2003















10Back to IndexMET-PRO CORPORATION






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




**Results of Operations**


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




**Nine Months Ended**October 31,****

**Three Months Ended**
**October 31,**2003

2002

2003

2002Net sales
100.0%

100.0%

100.0%

**100.0%**Cost of goods sold
64.2%

65.3%

64.9%

**63.7%**Gross profit
35.8%

34.7%

35.1%

**36.3%**Selling expenses
10.7%

10.7%

10.6%

**10.9%**General and administrative expenses
10.9%

11.3%

9.6%

**11.7%**Income from operations
14.2%

12.7%

14.9%

**13.7%**Interest expense
(.6%
**)**
(.7%
**)**
(.5%
**)**
**(.8%**
)Other income/(expense), net
(1.1%
**)**
.4%

(1.7%
**)**
**.5%**Income before taxes
12.5%

12.4%

12.7%

**13.4%**Provision for taxes
4.3%

4.4%

4.3%

**4.8%**Net income
8.2%

8.0%

8.4%

8.6%








Nine Months Ended October 31, 2003 vs Nine Months Ended October 31, 2002





Net sales for the nine-month period ended October 31, 2003 were $55,440,022 compared to $51,143,659 for the nine-month period ended October 31, 2002, an increase of $4,296,363 or 8.4%. Sales in the Product Recovery/Pollution Control Equipment segment were $37,257,235 or 11.8% higher than the nine-month period ended October 31, 2002. Sales in the Fluid Handling Equipment segment were $18,182,787 or slightly higher compared to the nine-month period ended October 31, 2002.





Backlog at October 31, 2003 totaled $10,606,653 compared to $11,516,999 at October 31, 2002. In addition, at October 31, 2003 the Company had orders of $5,488,629, compared to $6,576,590 at October 31, 2002, which are not included in our backlog due to the Companys long-standing policy of not including these orders in backlog until engineering drawings are approved.





Net income for the nine-month period ended October 31, 2003 was $4,573,656 compared to $4,073,910 for the nine-month period ended October 31, 2002, an increase of $499,746 or 12.3%. The increase in net income is principally related to the higher sales and gross margin in the Product Recovery/Pollution Control Equipment segment during the current fiscal year.





The gross margin for the nine-month period ended October 31, 2003 was 35.8% versus 34.7% for the same period in the prior year due to higher gross margins experienced in the Product Recovery/Pollution Control Equipment segment.





Selling expense increased $438,961 during the nine-month period ended October 31, 2003 compared to the same period last year. Selling expense as a percentage of net sales was 10.7% for the nine-month periods ended October 31, 2003 and 2002.










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


***continued...***


**


General and administrative expense was $6,036,950 for the nine-month period ended October 31, 2003 compared to $5,792,008 for the same period last year, an increase of $244,942. General and administrative expense as a percentage of net sales was 10.9% for the nine-month period ended October 31, 2003 compared to 11.3% for the same period last year.





Interest expense was $336,868 for the nine-month period ended October 31, 2003 compared to $379,236 for the same period in the prior year, a decrease of $42,368. This decrease was due primarily to a reduction of existing long-term debt.





Other income/expense, net increased $827,336 for the nine-month period ended October 31, 2003 compared to the nine-month period ended October 31, 2002. This increase is principally related to an unusual charge for legal expenses incurred in defending against allegations that products sold by one of the Companys divisions infringe on a competitors intellectual property rights.





The effective tax rate for the nine-month periods ended October 31, 2003 and 2002 was 34.0% and 35.5%, respectively.





*Three Months Ended October 31, 2003 vs Three Months Ended October 31, 2002*





Net sales for the three-month period ended October 31, 2003 were $19,811,544 compared to $16,671,696 for the three-month period ended October 31, 2002, an increase of $3,139,848. Sales in the Product Recovery/Pollution Control Equipment segment were $13,499,144 or $2,737,805 higher than the three-month period ended October 31, 2002. Sales in the Fluid Handling Equipment segment were $6,312,400 or $402,043 higher than the three-month period ended October 31, 2002.





Net income for the three-month period ended October 31, 2003 was $1,655,529 compared to $1,440,616 for the three-month period ended October 31, 2002, an increase of $214,913 or 14.9%. The increase in net income is related to higher net sales and gross margins experienced in the Product Recovery/Pollution Control Equipment segment.





The gross margin for the three-month period ended October 31, 2003 was 35.1% compared to 36.3% for the same period last year due to lower gross margins experienced in the Fluid Handling Equipment segment.





Selling expenses increased $271,992 during the three-month period ended October 31, 2003 compared to the same period last year. As a percentage of net sales, selling expenses were 10.6% for the three-month period ended October 31, 2003 compared to 10.9% for the three-month period ended October 31, 2002.





General and administrative expense was $1,902,429 for the three-month period ended October 31, 2003 compared to $1,944,240 for the three-month period ended October 31, 2002, a decrease of $41,811. General and administrative expense for the three-month period ended October 31, 2003 was 9.6% of net sales, compared to 11.7% of net sales for the same period last year.





Interest expense was $109,071 for the three-month period ended October 31, 2003 compared to $128,493 for the same period in the prior year, a decrease of 15.1%. This decrease was due principally to a reduction of existing long-term debt.





Other income/expense, net increased $418,760 for the three-month period ended October 31, 2003 compared to the three-month period ended October 31, 2002. This increase is principally related to an unusual charge for legal expenses incurred in defending against allegations that products sold by one of the Companys divisions infringe on a competitors intellectual property rights.








12Back to IndexMET-PRO CORPORATION


****


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


*continued...*





The effective tax rate for the three-month period ended October 31, 2003 was 34.0% compared to 35.5% for the three-month period ended October 31, 2002.





Liquidity:





The Companys cash and cash equivalents were $16,577,857 on October 31, 2003 compared to $13,429,367 on January 31, 2003, an increase of $3,148,490. This increase is the net result of the following occurring during this nine-month period: cash flows provided by operating activities of $7,105,645, proceeds received from the exercise of stock options totaling $398,005, exchange rate changes of $51,980, offset by the payment of quarterly cash dividends amounting to $1,678,421, payments on long-term debt totaling $1,227,695, purchases of treasury stock amounting to $398,005 and investment in property, plant and equipment amounting to $1,101,598. The Companys cash flows from operating activities are influenced by the timing of shipments and negotiated standard payment terms, including retention associated with major projects.





Accounts receivable (net) amounted to $14,837,475 on October 31, 2003 compared to $12,217,315 on January 31, 2003, an increase of $2,620,160. The timing and size of shipments and retainage on contracts, especially in the Product Recovery/Pollution Control Equipment segment, will influence accounts receivable balances at any point in time.





Inventories were $13,234,849 on October 31, 2003 compared to $13,374,128 on January 31, 2003, a decrease of $139,279. Inventory balances fluctuate depending on the size and timing of orders and market demand, especially when major systems and contracts are involved.





Current liabilities amounted to $13,635,349 on October 31, 2003 compared to $9,750,309 on January 31, 2003, an increase of $3,885,040. Increases in accounts payable and accrued expenses accounted for a substantial amount of the increase.





The Company has consistently maintained a high current ratio and has not utilized either the domestic line of credit or the foreign line of credit, together totaling $5 million, which are available for working capital purposes. Cash flows, in general, have exceeded the current needs of the Company. The Company presently foresees no change in this situation in the immediate future. As of October 31, 2003 and January 31, 2003, working capital was $32,730,248 and $30,881,436, respectively, and the current ratio was 3.4 and 4.2, respectively.





Capital Resources and Requirements:





Cash flows provided by operating activities during the nine-month period ended October 31, 2003 amounted to $7,105,645 compared with $4,413,381 for the nine-month period ended October 31, 2002, an increase of $2,692,264. This increase in cash flows from operating activities was due principally to an increase in net income, customers advances, accounts payable, accrued expenses and a decrease in inventories, offset by an increase in accounts receivable.







Cash flows used in investing activities during the nine-month period ended October 31, 2003 amounted to $1,101,598 compared with $1,097,064 for the nine-month period ended October 31, 2002. The Companys investing activities principally represent the acquisitions of property, plant and equipment in the two operating segments during both years, and the acquisition of a business during the nine-month period ended October 31, 2002.













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


***continued...***





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





Financing activities during the nine-month period ended October 31, 2003 utilized $2,907,537 of available resources compared to $2,241,070 for the nine-month period ended October 31, 2002. The 2003 activity is the result of the payment of the quarterly cash dividends amounting to $1,678,421, reduction of long-term debt totaling $1,227,695, plus the purchase of treasury stock totaling $398,005 and cash paid in lieu of fractional shares in the amount of $1,421, offset by the proceeds received from the exercise of stock options totaling $398,005.





The Board of Directors declared quarterly dividends (as adjusted for the stock split described below) of $.0675 per share payable on March 10, 2003, June 9, 2003 and September 9, 2003 to shareholders of record as of February 21, 2003, May 23, 2003 and August 27, 2003, respectively, and a quarterly dividend of $.0725 per share payable on December 10, 2003 to shareholders of record as of November 28, 2003.





On September 17, 2003, the Board of Directors declared a four-for-three stock split which was paid on October 15, 2003 to shareholders of record on October 1, 2003.





Critical Accounting Policies and Estimates:





Managements discussion and analysis of the Companys 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 of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. The significant accounting policies which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:





The Companys revenues are recognized when products are shipped to unaffiliated customers. The Securities and Exchange Commissions Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition", provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. The Company has concluded that its revenue recognition policy is appropriate and in accordance with generally accepted accounting principles and SAB No. 101.





Property, plant and equipment, intangible and certain other long-lived assets are depreciated and amortized over their useful lives. Useful lives are based on managements estimates of the period that the assets will generate revenue. Intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", which supersedes Accounting Principles Board ("APB") No. 17, "Intangible Assets", effective February 1, 2002, the Companys unamortized goodwill balance is not being amortized over its estimated useful life; rather, it is being assessed annually for impairment.





The determination of our obligation and expense for pension benefits is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. These assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore generally affect our recognized expense and recorded obligation in such future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension obligations and our future expense.














14Back to IndexMET-PRO CORPORATION   **Item 2.   *Managements Discussion and Analysis of Financial Condition and Results of Operations***
 ***continued...***





Cautionary Statement Concerning Forward-Looking Statements:





In this Managements Discussion and Analysis, and elsewhere in this Quarterly Report, we have made forward-looking statements. These statements are based on our estimates and assumptions and are subject to risk and uncertainties. Forward-looking statements include the information concerning our possible or assumed future results of operations. Forward-looking statements also include those preceded or followed by the words "anticipates", "plans", "believes", "expects", "estimates", "hopes" or other similar expressions. For those statements, we claim protection of the safe harbor for all forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.





The following important factors, along with those discussed elsewhere in our filings with the Securities and Exchange Commission including without limitation our Annual Report on Form 10-K for the year ended January 31, 2003, could affect future results and could cause those results to differ materially from those expressed in the forward-looking statements:





materially adverse changes in economic conditions in the markets served by us or in significant customers of ours;material changes in available technology;changes in accounting  rules promulgated by regulatory  agencies, including the SEC, which could  result in an impact on earnings;the write-down of costs in excess of net assets of businesses acquired (goodwill), as a result of the determination that the acquired business is impaired;unexpected results in our product development activities;loss of key customers;changes in product mix;changes in our existing management;exchange rate fluctuations;changes in federal laws, state laws and regulations;lower than anticipated return on investments in  the Companys defined benefit plans, which could affect the amount of the Companys pension liabilities;the assertion of litigation claims that the Companys products, including products produced by companies acquired by  the Company, infringe third party patents or have caused injury, loss or damage;adverse developments in the asbestos cases that have been filed against the Company, including without limitation adverse developments in the availability of insurance coverage in these cases;the effect of acquisitions and other strategic ventures;failure to properly quote and/or execute customer orders, including misspecifications, design, engineering or product errors;losses related to international sales; and/orfailure in execution of acquisition strategy.
















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Item 3. Qualitative and Quantitative Disclosures about Market Risk


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





Item 4. Controls and Procedures





As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision of and with the participation of our management including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls are effective in timely alerting them to material information relating to us, including our consolidated subsidiaries, required to be included in this Exchange Act filing.








PART II  OTHER INFORMATION





Item 1.   Legal Proceedings





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





The Company is also party to a small number of other legal proceedings arising out of the ordinary course of business or other proceedings that the Company does not presently believe will have a material adverse impact upon the Companys results of operations, liquidity or financial condition, except that the legal fees incurred in defending one such case, which involves allegations that products sold by one of the Companys divisions infringe on a competitors intellectual property rights, are material in the current fiscal year. The Company believes this case is without merit and is vigorously defending this lawsuit, and therefore no liability has been accrued.





Item 2. Changes in Securities and Use of Proceeds





None





Item 3. Defaults Upon Senior Securities





None





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





None























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Item 5. Other Information





None





Item 6.   Exhibits and Reports on Form 8-K








(a)
Exhibits Required by Item 601 of Regulation S-KExhibit No.

Description31.1

Certification of Chief Executive Officer,Pursuant to Rule 13a-14(a) under theSecurities and Exchange Act of 193431.2

Certification of Chief Financial Officer,Pursuant to Rule 13a-14(a) under theSecurities and Exchange Act of 193432.1

Certification of Chief Executive Officer,Pursuant 18 U.S.C. Section 135032.2

Certification of Chief Financial Officer,Pursuant 18 U.S.C. Section 1350
 
 (b)
Reports on Form 8-KThe following Current Reports on Form 8-K were furnished to the Securities and Exchange Commission ("SEC") during the quarterly period covered by this report and thereafter:On August 6, 2003, the Company filed a Report on Form 8-K covering the Companys change in incorporation from Delaware to Pennsylvania effective July 31, 2003.On August 20, 2003, the Company filed a Report on Form 8-K covering its press release announcing the Companys second quarter financial results for the second quarter ended July 31, 2003, as required by SEC Release 33-8216.On November 20, 2003, the Company filed a Report on Form 8-K covering its press release announcing the Companys third quarter financial results for the third quarter ended October 31, 2003, as required by SEC Release 33-8216.















































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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)December 10, 2003
/s/ Raymond J. De Hont**Raymond J. De Hont****Chairman, President and Chief Executive****Officer**December 10, 2003
/s/ Gary J. Morgan**Gary J. Morgan****Vice President of Finance,****Secretary and Treasurer, Chief****Financial Officer, Chief Accounting****Officer and Director**























































































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