| MET PRO CORP Item 1A Risk Factors: Any of the events discussed as risk factors below may occur |
| If they do, our business, financial condition, results of operations and cash flows could be materially adversely affected |
| Additional risks and uncertainties not identified in this or other SEC filings, or that we currently deem immaterial, may also impair our business operations |
| We sell our products in highly competitive markets, which puts pressure on our profit margins and limits our ability to maintain or increase the market share of our products |
| The markets for our products are fragmented and highly competitive |
| We compete against a very diverse number of companies across our many markets |
| Depending upon the market, our competitors include large and well-established national and global companies; regional and local companies; low cost replicators of spare parts; and in-house maintenance departments of our end user customers |
| We compete based on price, technical expertise, timeliness of delivery, previous installation history and reputation for quality and reliability, with price competition tending to be more significant for sales to original equipment manufacturers |
| Some of our customers are attempting to reduce the number of vendors from which they purchase in order to reduce the size and diversity of their inventory |
| To remain competitive, we will need to invest continuously in manufacturing, marketing, customer service and support and our distribution networks |
| No assurances can be made that we will have sufficient resources to continue to make the investment required to maintain or increase our market share or that our investments will be successful |
| If we do not compete successfully, our business, our financial condition, results of operations and cash flows could be adversely affected |
| If we fail to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, our business prospects and stock valuation could be adversely affected |
| Section 404 of the Sarbanes-Oxley Act of 2002 requires our management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting |
| We have expended significant resources to comply with our obligations under Section 404 with respect to the years ended January 31, 2006 and 2005 |
| If we are unable to comply with our obligations under Section 404 in the future or experience delays in future reports of our management and outside auditors on our internal control over financial reporting, or if we fail to respond timely to any changes in the Section 404 requirements, we may be unable to timely file with the SEC our periodic reports and may be subject to, among other things, regulatory or enforcement actions by the SEC and the NYSE, including delisting from the NYSE, securities litigation, events of default under our credit facilities, debt rating agency downgrades or rating withdrawals and a general loss of investor confidence, any one of which could adversely affect our business prospects and the valuation of our Common Shares |
| We are party to asbestos-containing product litigation that could adversely affect our financial condition, results of operations and cash flows |
| Beginning in 2002, the Company and/or one of its divisions began to be named as one of many defendants in asbestos-related lawsuits filed predominantly in Mississippi on a mass basis by large numbers of plaintiffs against a large number of industrial companies including in particular those in the pump and fluid handling industries |
| More recently, the Company and/or this division have been named as one of many pump and fluid handling defendants in asbestos-related lawsuits filed in New York and Maryland by individual plaintiffs, sometimes husband and wife |
| To a lesser extent, the Company and/or this division have also been named together with many other pump and fluid handling defendants in these type of cases in other states as well |
| The complaints filed against the Company and/or this division have been vague, general and speculative, alleging that the Company, and/or the division, along with the numerous other defendants, sold unidentified asbestos-containing products and engaged in other related actions which caused injuries and loss to the plaintiffs |
| The Company believes that it and/or the division have meritorious defenses to the cases which have been filed and that none of its and/or the division’s products were a cause of any injury or loss to any of the plaintiffs |
| The Company’s insurers have hired attorneys who together with the Company are vigorously defending these cases |
| The Company and/or the division have been dismissed from or settled a number of these cases |
| Most of these cases have not advanced beyond the early stages of discovery, although several cases in different jurisdictions are on schedules leading to trial |
| The Company presently believes that these proceedings will not have a material adverse impact upon the Company’s results of operations, liquidity or financial condition |
| [55]Index 7 ______________________________________________________________________ If we are unable to obtain raw materials at favorable prices, our operating margins and results of operations will be adversely affected |
| We purchase substantially all electric power and other raw materials we use in the manufacturing of our products from outside sources |
| The costs of these raw materials have been volatile historically and are influenced by factors that are outside our control |
| In recent years, the prices for energy, metal alloys and certain other of our raw materials have increased, with the prices for energy currently exceeding historical averages |
| If we are unable to pass increases in the costs of our raw materials to our customers, our operating margins and results of operations will be adversely affected |
| Significant changes in pension fund investment performance or assumptions relating to pension costs may have a material effect on the valuation of our obligations under our defined benefit pension plans, the funded status of these plans and our pension expense |
| We maintain defined benefit pension plans that we must fund |
| In these plans’ fiscal years ended October 31, 2005, we contributed approximately dlra1dtta9 million to these plans |
| As of January 31, 2006, our unfunded pension liability was approximately dlra4dtta9 million |
| The amount of this pension liability is materially affected by the discount rate used to measure our pension obligations and, in the case of the plans such as ours that are required to be funded, the level of plan assets available to fund those obligations and the expected long-term rate of return on plan assets |
| A change in the discount rate can result in a significant increase or decrease in the valuation of pension obligations, affecting the reported status of our pension plans and our pension expense |
| Significant changes in investment performance or a change in the portfolio mix of invested assets can result in increases and decreases in the valuation of plan assets or in a change of the expected rate of return on plan assets |
| Changes in the expected return on plan assets assumption can result in significant changes in our pension expense |
| We may incur material costs as a result of product liability and warranty claims, which could adversely affect our financial condition, results of operations and cash flows |
| We may be exposed to product liability and warranty claims in the event that the use of our products results, or is alleged to result, in bodily injury and/or property damage or our products actually or allegedly fail to perform as expected |
| While we maintain insurance coverage with respect to certain product liability claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against product liability claims |
| In addition, product liability claims can be expensive to defend and can divert the attention of management and other personnel for significant periods of time, regardless of the ultimate outcome |
| An unsuccessful defense of a product liability claim could have an adverse affect on our business, results of operations and financial condition and cash flows |
| Even if we are successful in defending against a claim relating to our products, claims of this nature could cause our customers to lose confidence in our products and our company |
| Warranty claims are not covered by insurance, and we may incur significant warranty costs in the future for which we would not be reimbursed |
| Natural or man-made disasters could negatively affect our business |
| Future disasters caused by earthquakes, hurricanes, floods, terrorist attacks or other events, and any potential response by the US government or military, could have a significant adverse effect on the general economic, market and political conditions, which in turn could have a material adverse effect on our business |
| We plan to expand the international distribution and manufacturing of our products, which will subject us to additional business risks |
| As part of our business strategy, we intend to increase our international sales, although we cannot assure you that we will be able to do so |
| In the fiscal year ended January 31, 2006, through an indirectly wholly-owned subsidiary we established manufacturing operations for our Mefiag business in the Peoples Republic of China, in addition to our long-standing Mefiag manufacturing operations in The Netherlands |
| Conducting business outside of the United States subjects us to significant additional risks, including: · export and import restrictions, tax consequences and other trade barriers, · currency fluctuations, · greater difficulty in accounts receivable collections, · economic and political instability, · foreign exchange controls that prohibit payment in US dollars, and · increased complexity and costs of managing and staffing international operations |
| [56]Index 8 ______________________________________________________________________ Our products could infringe the intellectual property rights of others and we may be exposed to costly litigation |
| The products we sell are continually changing as a result of improved technology |
| Although we and our suppliers attempt to avoid infringing known proprietary rights of third parties in our products, we may be subject to legal proceedings and claims for alleged infringement by us, our suppliers or our distributors, of third partyapstas patents, trade secrets, trademarks or copyrights |
| We incurred significant expense, consisting of primarily attorneys fees, in defending one such claim in our fiscal year ended January 31, 2004 |
| Any claims relating to the infringement of third-party proprietary rights, even if not meritorious, could result in costly litigation, divert managementapstas attention and resources, or require us to either enter into royalty or license agreements which are not advantageous to us or pay material amounts of damages |
| In addition, parties making these claims may be able to obtain an injunction, which could prevent us from selling our products |
| We may increasingly be subject to infringement claims as we expand our product offerings |
| Our ability to operate our Company effectively could be impaired if we fail to attract and retain key personnel |
| Our ability to operate our businesses and implement our strategies depends, in part, on the efforts of our executive officers and other key employees |
| In addition, our future success will depend on, among other factors, our ability to attract and retain qualified personnel, particularly research professionals, technical sales professionals and engineers |
| The loss of the services of any key employee or the failure to attract or retain other qualified personnel could have a material adverse effect on our business or business prospects |
| If our goodwill or indefinite-lived intangible assets become impaired, we may be required to record a significant charge to earnings |
| We carry approximately dlra20dtta8 million of goodwill on our balance sheet, or approximately 23prca of our total assets |
| Approximately dlra11dtta1 million of the dlra20dtta8 million relates to our Flex-Kleen Division |
| Under United States generally accepted accounting principles, goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis or more frequently whenever events or changes in circumstances indicate that their carrying value may not be recoverable |
| Flex-Kleen Division, which initially performed well after being acquired by Met-Pro, thereafter had several years of declining performance which we attributed primarily to a general weakness in its served markets, followed by improved performance in the fiscal years ended January 31, 2006 and 2005 |
| We have also made management changes at Flex-Kleen which we believe are helping to improve Flex-Kleen’s performance |
| During the fiscal year ended January 31, 2006, we performed an impairment analysis of the dlra11dtta1 million of goodwill that the Company carries for Flex-Kleen and concluded that no impairment has occurred |
| Flex-Kleen’s performance needs to continue to improve in order for us not to be required to write-off some or all of its goodwill |
| If in the future we determine that there has been an impairment of Flex-Kleen’s goodwill, we will be required to record a charge to earnings, to the extent of the impairment, during the period in which any impairment of our goodwill or indefinite-lived intangible assets is determined, which would produce an adverse impact upon our results of operations |
| Changes in accounting may affect our reported earnings |
| For many aspects of our business, United States generally accepted accounting principles, including pronouncements, implementation guidelines, and interpretations, are highly complex and require subjective judgments |
| Additionally, changes in these accounting principles, including their interpretation and application, could significantly change our reported earnings, adding significant volatility to our reported results without a comparable underlying change in our cash flows |
| For example, in our fiscal year ending January 31, 2007, pursuant to a newly effective accounting statement, SFAS Nodtta 123(R), we expect to begin recording an expense relating to our stock option awards over the vesting periods, and this will reduce our reported net income |
| If SFAS Nodtta 123(R) had been in effect in our fiscal year ended January 31, 2006, we believe that our net income would have been reduced by approximately dlra300cmam000, or $ |
| 02 per share on basic earnings and $ |
| 03 per share on diluted earnings |
| Additional Risks to the Company |
| The Company is subject to various risks occurring in the normal course of business |
| The Forward-Looking Statements; Factors That May Affect Future Results in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report sets forth a list of risks, including those identified above, that may adversely affect the Company and is incorporated herein by reference |