SOURCE: MFRI

MFRI

April 16, 2010 20:05 ET

MFRI Announces Results for Fiscal Year Ended January 31, 2010 and Expects New Opportunities in Current Year

NILES, IL--(Marketwire - April 16, 2010) - MFRI, Inc. (NASDAQ: MFRI) announced today sales and earnings for the fiscal year ended January 31, 2010 ("2009"). The Company's net sales in 2009 were $230.4 million, 24.0% less than $303.1 million for the prior year; net income in 2009 was $4.7 million or $0.68 per diluted share, compared to $6.7 million or $0.98 per diluted share, in the prior year.

The Company also announced that fourth quarter 2009 sales were $49.1 million, 40.6% less than $82.6 million for the prior-year's fourth quarter. Net loss for the fourth quarter was $5.8 million or ($0.85) per share, compared to a net loss of $0.8 million or ($0.12) per share, in the prior-year period.

FISCAL YEAR ENDED 1/31/2010

SALES -- Sales for the year ended January 31, 2010 were $230.4 million, 24.0% less than $303.1 million for the prior year. Sales decreased in all of our businesses except for the heating, ventilation and air conditioning ("HVAC") business included in Corporate and Other. The lower market demand across virtually all lines was a reflection of the economic recession.

GROSS PROFIT -- As a result of the volume decline described above, the year's gross profit decreased to $51.9 million from $58.9 million in the prior year. At the same time, gross profit as a percent of sales reached 22.5% up from last year's 19.5%. This increase in gross profit percentage was primarily due to sales product mix and material costs savings in the piping systems business and more effective cost controls across the piping systems' product lines.

EXPENSES -- Operating expenses decreased to $44.7 million or 19.4% of sales from $48.2 million or 15.9% of sales in the prior year. The prior year included a non-cash goodwill impairment charge of $2.8 million. The remaining decrease in expenses was primarily due to reduced staffing and other operating expense reductions related to the lower volumes.

NET INCOME -- Net income declined to $4.7 million or $0.68 per diluted share, compared to $6.7 million or $0.98 per diluted share in the prior year. This decrease was due to the reduced volume primarily in the fourth quarter of the piping systems business unit in Fujairah, United Arab Emirates ("U.A.E."), the lack of oil and gas related pipe insulating projects in the Gulf of Mexico and losses in the Filtration Products and Industrial Process Cooling Equipment business segments. The effective income tax rate was less than the statutory U. S. federal income tax rate mainly due to the impact of tax-free foreign income in the U.A.E.

OPERATING CASH FLOW -- During 2009, the Company made a focused and successful effort to maximize operating cash flow. Overall cash provided by operations was $34.6 million compared to a negative cash flow from operations of $2.2 million in the prior year. The major elements of the increased operating cash flow were $24.3 million from a 39.5% reduction in accounts receivable and $15.3 million from a 32.4% decrease in inventories. These reductions in accounts receivables and inventories were in part a result of the decrease in sales but still represented a significant achievement.

FOURTH QUARTER

SALES -- Sales for the fourth quarter compared to prior-year's quarter decreased in all segments and geographies. In the piping systems business, district heating and cooling as well as oil and gas products experienced softer market conditions. Other contributing factors were the completion of the India pipeline project in the third quarter and the dramatically weaker market conditions in Dubai. The HVAC business also showed decreased sales as construction decisions for new projects have been deferred.

GROSS PROFIT -- Gross profit for the quarter decreased to $6.1 million or 12.4% of sales from $15.3 million or 18.5% in the prior-year's quarter. This decrease in gross profit was due to the pressure on margins as the segments competed for the lower available sales volume, partially offset by reduced factory labor and increased production efficiencies.

EXPENSES -- Operating expenses decreased to $10.4 million or 21.2% of sales in the fourth quarter of 2009 from $15.1 million or 18.3% of sales in the prior-year's quarter. One major item that caused the higher expenses in the prior-year's quarter was the non-cash goodwill impairment charge of $2.8 million. The increase in expense as a percent of sales was primarily due to the effect of lower sales. The decrease for expenses aside from the goodwill impairment charge was the result of reduced personnel and program reductions across the Company.

NET LOSS -- The fourth quarter produced a net loss of $5.8 million or ($0.85) per share, compared to a net loss of $0.8 million or ($0.12) per share, in the prior-year's quarter. Net loss increased due to lower sales in all segments and compressed margins due to competitive factors.

INDIA PIPELINE PROJECT -- In October 2009, the piping systems business completed the insulating and jacketing services for the 600 kilometer (370 mile), 600 millimeter (24 inch) diameter heat-traced crude oil pipeline in India, which was a significant contributor to prior sales and earnings. In January 2010, we received an order to insulate and jacket at least an additional 150 kilometer (93 mile) of pipeline for this project. This new work will begin in May 2010 and is expected to be completed by the end of the year. The work will be performed in our existing Mundra, India facility.

BACKLOG AND RECENT SALES ACTIVITY -- The Company's backlog on January 31, 2010 was $73.3 million, down $34.5 million or 32.0% from January 31, 2009. The principal factors of the backlog decline in recent quarters was the completion of the heated oil pipeline in India, the severe drop in business activity in the U.A.E., the low level of activity for oil and gas gathering lines in the Gulf of Mexico and the completion of HVAC projects. Some more recent developments with respect to new business are:

PIPING SYSTEMS -- In addition to the India Pipeline Project described above, we expanded our selling presence into other suitable countries in the region such as Saudi Arabia, Egypt, Kuwait, Qatar, Bahrain and Oman to compensate for the economic conditions in Dubai. We added sales personnel and representation in these areas which has resulted in several new orders. In late 2009, we received several substantial orders of approximately $26.6 million for chilled and hot water distribution for the new Princess Noura University in Saudi Arabia, the Muscat International Airport in Oman, the South Utility Tunnel in Qatar and the Smart Village in Cairo, Egypt. Early in 2010, we received a large order for the Fox Hills project in Qatar, adding significantly to the backlog.

FILTRATION PRODUCTS -- Quotes and orders in 2009 were at low levels, as the industrial markets we serve were under pressure. Early in 2010, there has been some improvement in the economy that is reflected in higher filter consumption by end users. We believe that our effort to generate business in new markets is positively impacting our business. Pleated product sales and bookings are up at our United States and European cartridge filter plants. We believe that we are gaining market share through our sales actions and that we will benefit from the economic upturn when it occurs.

INDUSTRIAL PROCESS COOLING -- Quoting activity and orders have shown increased strength over the past several months, both domestically and internationally. Several large orders were secured and the base business seems to be solidifying.

HVAC CONTRACTING -- The market for new HVAC projects remained constrained by economic conditions. Quoting activity for HVAC projects has maintained reasonably high levels and in early 2010, an $8 million contract was obtained for a Chicago project. We expect field work on this new project to begin late in the second quarter of 2010.

David Unger, CEO said, "Our global expansion strategy of manufacturing products in foreign countries to serve their local markets has resulted in growth opportunities for our Company. We continue to seek market potential around the world to grow our volume and profitability. This also helps us to provide expanded economic opportunities for our people. When the current economic recession ends, we believe the mix of domestic and global sales should position the Company for further growth."

Brad Mautner, President and COO said, "The cumulative impact of the economic storm that began in the fall of 2008, coupled with completion of significant piping and HVAC projects led to the poor fourth quarter. Even so, the Company was profitable for 2009 and our previously mentioned focus on expense control and capital management contributed $34.6 million of operating cash flow. While visibility on industrial demand remains clouded, we will bring new products to market in 2010 and invest in new opportunities for expansion, while at the same time maintaining our focus on capital management and expense control. These efforts are targeted towards increasing sales in certain strategic areas and to improving margins."

MFRI, Inc. is a multi-line company engaged in the following businesses: pre-insulated specialty piping systems for oil and gas gathering, district heating and cooling and other applications; custom-designed industrial filtration products to remove particulates from dry gas streams; industrial process cooling equipment to remove heat from molding, printing and other industrial processes; and installation of heating, ventilation and air conditioning for large buildings.

Form 10-K for the period ended January 31, 2010 will be accessible at http://www.sec.gov/. For more information visit the Company's website www.mfri.com or contact the company directly.

Statements and other information contained in this announcement which can be identified by the use of forward-looking terminology such as "anticipate," "may," "will," "expect," "continue," "remain," "intend," "aim," "should," "prospects," "could," " position," "future," "potential," "believes," "plans," "likely," " seems," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties include, but are not limited to, economic conditions, market demand and pricing, competitive and cost factors, raw material availability and prices, global interest rates, currency exchange rates, labor relations and other risk factors.

MFRI, INC. AND SUBSIDIARIES
Condensed Statements of
 Operations and Related Data
 (Audited) (In 000's except per  Three Months Ended    Fiscal Year Ended
  share data)                       January 31,           January 31,
Operating Statement Information   2010       2009       2010       2009
                                ---------  ---------  ---------  ---------
Net sales:
  Piping Systems                $  20,778  $  44,725  $ 111,665  $ 151,792
  Filtration Products              21,598     25,976     80,819    105,390
  Industrial Process Cooling
   Equipment                        5,268      6,006     21,818     31,738
  Corporate and Other (1)           1,466      5,916     16,079     14,146
                                ---------  ---------  ---------  ---------
     Total                      $  49,110  $  82,623  $ 230,381  $ 303,066
                                ---------  ---------  ---------  ---------
Gross profit:
  Piping Systems                $   4,011  $  11,891  $  37,974  $  37,871
  Filtration Products                 726      1,325      6,733     11,424
  Industrial Process Cooling
   Equipment                        1,178      1,321      4,977      7,919
  Corporate and Other                 185        768      2,262      1,734
                                ---------  ---------  ---------  ---------
     Total                      $   6,100  $  15,305  $  51,946  $  58,948
                                ---------  ---------  ---------  ---------
Income (loss) from operations
  Piping Systems                $     185  $   7,570  $  22,399  $  24,037
  Filtration Products              (2,306)    (3,694)    (5,290)    (2,936)
  Industrial Process Cooling
   Equipment                         (681)    (1,784)    (1,935)    (1,765)
  Corporate and Other              (1,466)    (1,881)    (7,977)    (8,544)
                                ---------  ---------  ---------  ---------
     Total                      $  (4,268) $     211  $   7,197  $  10,792
                                ---------  ---------  ---------  ---------

Income from joint venture              87          5         21        104

Interest expense - net                323        813      1,912      2,834

                                ---------  ---------  ---------  ---------
(Loss) income before income
 taxes                             (4,504)      (597)     5,306      8,062

Income taxes                        1,277        230        635      1,373

                                ---------  ---------  ---------  ---------
Net (loss) income               $  (5,781) $    (827) $   4,671  $   6,689
                                ---------  ---------  ---------  ---------

Weighted average common shares
 outstanding basic                  6,835      6,808      6,824      6,797

(Loss) earnings per share basic $   (0.85) $   (0.12) $    0.68  $    0.98

Weighted average common shares
 outstanding diluted                6,835      6,808      6,855      6,853

(Loss) earnings per share
 diluted                        $   (0.85) $   (0.12) $    0.68  $    0.98



Backlog:                         1/31/10   10/31/09    1/31/09
                                ---------  ---------  ---------
Piping Systems                  $  48,770  $  40,041  $  52,385
Filtration Products                21,397     25,286     35,549
Industrial Process Cooling
 Equipment                          2,377      2,997      3,835
Corporate and Other                   788      1,610     16,051
                                ---------  ---------  ---------
Total Backlog                   $  73,332  $  69,934  $ 107,820
                                =========  =========  =========

(1) Corporate and Other includes activity for the installation of heating,
    ventilation and air conditioning systems.

See the Company's Form 10-K for the period for notes to financial statements.