MFRI Reports 2012 Year End Financial Results and Expects Strong Growth in 2013

MFRI Reports 2012 Year End Financial Results and Expects Strong Growth in 2013 
NILES, IL -- (Marketwired) -- 05/01/13 --  MFRI, Inc. (NASDAQ: MFRI)
announced today sales and earnings for the fiscal year ended January
31, 2013 ("2012"). The Company's sales in 2012 were $212 million, a
decrease of 9% from $233 million last year; net loss in 2012 was
$18.5 million or $2.67 per diluted share, compared to net loss of $5
million or $0.72 per diluted share, in 2011. In the fourth quarter of
2012, the Company recorded a full valuation allowance on domestic
deferred tax assets. This resulted in a $12.5 million non-cash
charge. The Company also recorded a non-cash $1.5 million asset
impairment charge, together making up $2.03 of the loss per share in
2012. Before non-cash charges described above, the net loss was $4.5
million compared to net loss of $5 million in 2011. Increased
professional costs and filtration products' decrease in gross profit
contributed to the increased loss. This was partially offset by
piping systems' increase in gross profit. Backlog, at the end of
2012, increased by 78% over prior year. 
FISCAL YEAR ENDED 1/31/2013 
SALES - Net sales were $212 million in 2012, a decrease of 9% from
$233.5 million in 2011. Reduced market demand for fabric filters led
to a decrease of $14.6 million in filtration products. Piping systems
sales decreased $7.3 million, driven by a decline in U.S. sales in
the second and third quarters partially offset by an increase in
sales in the Middle East. Corporate and other sales decreased by $4.6
million due to customer decisions to extend project completion dates.
Industrial process cooling sales increased $5 million as order intake
continued to improve. 
GROSS PROFIT - Despite the decrease in sales, gross margin improved
by 2 percentage points to 18% of net sales compared to 16% of net
sales in 2011. Gross profit of $38.1 million in 2012 increased 5%
from $36.3 million in 2011. Gross profit increased significantly in
piping systems due to higher volume from the plant in the United Arab
Emirates and from strong sales in industrial process cooling while
filtration products gross profit decreased due to lower demand. 
EXPENSES - Operating expenses increased 9.6% to $45.4 million from
$41.4 million. The primary increase was a $1.5 million non-cash
charge related to the fixed asset impairment of an idle facility in
the filtration products business. Strategic consulting, audit and tax
consulting increased a total of $1.5 million. Start-up costs for the
Saudi Arabia facility amounted to $0.9 million. Industrial process
cooling added staff and increased management incentive compensation
expense related to improved performance. 
TAXES - The Company recorded non-cash tax expenses of $10.8 million,
which included the full valuation allowance of $12.5 million on the
domestic deferred tax assets. A portion of this valuation allowance
will be reversed in 2013 when the sale of Thermal Care's assets has
been recorded. 
NET LOSS - Before non-cash charges described above, the net loss was
$4.5 million compared to net loss of $5 million in 2011. Increased
professional costs and filtration products' decrease in gross profit
contributed to the loss. This was partially offset by piping systems'
increase in gross profit. 
CURRENT STATUS: 
BACKLOG - The Company's backlog on January 31, 2013 was $148 million,
up 78% from the prior year. Additionally, since January 31, 2013,
piping systems has received approximately $27 million of additional
orders, which were highlighted in a February 5, 2013 press release. 


 
                                                                          
                                                                 % Year   
  Backlog ($ in thousands):              1/31/13     1/31/12     Change   
                                       ----------  ----------  ---------  
    Piping Systems                     $   89,508  $   53,769         66% 
    Filtration Products                    25,834      14,473         78% 
    Industrial Process Cooling              4,665       6,431        (27%)
    Other                                  28,176       8,539        230% 
                                       ----------  ----------  ---------  
  Total                                $  148,183  $   83,212         78% 
                                       ==========  ==========  =========  

 
PIPING SYSTEMS - Piping systems has been investing in its new plant in
Saudi Arabia for the last two years. In April 2012, the Company
opened the new factory in Dammam, Saudi Arabia. Since November 2012,
the Company has announced receipt of several orders totaling
approximately $50 million primarily for two landmark projects in
Saudi Arabia: the Grand Mosque in Mecca and the King Abdul-Aziz
International Airport in Jeddah. 
Sales volume at the Company's domestic facilities declined,
reflecting the adverse effect from the continuing decrease in federal
and state spending for government funded construction activity in the
U.S. 
FILTRATION PRODUCTS - Reduced market demand for fabric filters led to
a decrease in filtration product sales. Filtration products gained
some sizeable orders for the coming 24 months, resulting in a backlog
increase of 78% over the prior year period. Of the $26 million in
backlog, approximately $12 million of those orders are scheduled for
delivery in 2014. 
INDUSTRIAL PROCESS COOLING - This segment showed improvements in net
sales of 16% over prior year and more than doubled its income from
operations. On April 26, 2013, the Company announced the signing of a
definitive agreement to sell the domestic assets of its subsidiary
Thermal Care, Inc. to IPEG, Inc. The transaction closed on April 30,
2013. Upon closing, the Company transferred the applicable assets,
liabilities and employees of the business to the buyer. In future
periods, industrial process cooling will be reported as a
discontinued operation. 
Brad Mautner, President and CEO, said, "The information in our 2012
annual report filing, this press release and our recent announcement
of the sale of the U.S. assets of our Thermal Care business describe
an important time for our Company. We have taken the strategic
decision to focus our resources on our two large reportable segments:
filtration products and piping systems. From an operating standpoint,
we are largely a project driven company. Therefore, the dramatic 78%
growth in backlog, not including the additional orders won during the
first quarter this year will take time to turn into sales and
profits. Fiscal 2012 was difficult operationally, as extremely weak
market demand for fabric filters continued and we built backlog in
piping, but did not yet realize the benefits. We expect to realize
these benefits in 2013 and are working actively to size the fabric
filter business to the lower demand expected in the near term. There
are also programs now under way to lower manufacturing costs, improve
working capital turns and control capital expenses. However, based on
the recent results, accounting rules require us to record the large
non-cash impairments that resulted in 75% of the reported loss per
share for the year. I fully expect that we will perform in our core
businesses at a level that will ultimately make use of tax benefits
that have now been fully reserved.  
"This year also contained some unusual expenses for audit, tax
consulting and other professional services related to our strategic
initiatives to drive improved operating performance in filtration and
piping systems. Additionally, we invested nearly $1 million in
startup costs for Saudi Arabia in 2012. It has taken two years of
development and investment, but we have now transitioned from the
startup phase to being fully operational. Therefore, those costs will
not recur and we expect profitable revenue to begin this year. The
momentum we have built is important, and we are focused on getting
the most out of our opportunities this year. We also know that in
order to drive ongoing profitable growth, we must explore new product
initiatives, geographical expansion opportunities and alliances to
further enhance our future for 2014 and beyond." 
Bradley Mautner continued: "The decision to generate and redeploy
capital from the sale of Thermal Care U.S. assets was not an easy
one. It is a business started by the predecessor of MFRI in the
1960's, and it has generally been a steady contributor to the
Company. More recently, the team led by Steve Buck did an excellent
job of managing its recovery from the deep and lengthy recession that
began in 2008. As we studied the various choices to support our
emerging growth initiatives and larger market places, it became
apparent that this was the appropriate choice for MFRI and our
shareholders. We appreciate the efforts of the Thermal Care team and
know they will bring a strong level of expertise and professionalism
to complement IPEG's portfolio. We certainly wish them all the best
going forward." 
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; and installation of heating, ventilation and
air conditioning for large buildings. 
Form 10-K for the period ended January 31, 2013 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 (Audited)             Fiscal Year Ended  
($ in 000's except per share data)                          January 31,     
                                                          2013       2012   
                                                       ---------  --------- 
Net sales:                                                                  
  Piping Systems                                       $  89,664  $  96,977 
  Filtration Products                                     79,143     93,705 
  Industrial Process Cooling                              37,131     32,112 
  Corporate and Other                                      6,080     10,702 
                                                       ---------  --------- 
    Total                                                212,018    233,496 
                                                       ---------  --------- 
Gross profit:                                                               
  Piping Systems                                          17,020     14,410 
  Filtration Products                                     10,474     12,466 
  Industrial Process Cooling                              10,240      8,541 
  Corporate and Other                                        373        904 
                                                       ---------  --------- 
    Total                                                 38,107     36,321 
                                                       ---------  --------- 
(Loss) income from operations                                               
  Piping Systems                                           3,452      1,143 
  Filtration Products                                     (2,962)       614 
  Industrial Process Cooling                               1,954        810 
  Corporate and Other                                     (9,709)    (7,630)
                                                       ---------  --------- 
    Total                                                 (7,265)    (5,063)
                                                       ---------  --------- 
                                                                            
Income from joint venture                                  1,386      1,558 
                                                                            
Interest expense - net                                     1,816      1,437 
                                                                            
                                                       ---------  --------- 
Loss before income taxes                                  (7,695)    (4,942)
                                                                            
Income tax expense                                        10,790         17 
                                                                            
                                                       ---------  --------- 
Net loss                                               $ (18,485) $  (4,959)
                                                       ---------  --------- 
                                                                            
Weighted average common shares outstanding                                  
  Basic and diluted                                        6,922      6,878 
Loss per share:                                                             
  Basic and diluted                                    $   (2.67) $   (0.72)

 
See the Company's Form 10-K for the period for notes to financial
statements. 
CONTACT: 
Brad Mautner
CEO
David Unger
Chairman 
7720 North Lehigh Avenue
Niles, Illinois 60714-3491
(847) 966-1000
Fax (847) 966-8563