NILES, IL--(Marketwire - Sep 14, 2011) - MFRI, Inc. (
MFRI also announced a 43% increase in its backlog during August to $108.1 million from $75.6 million at the second quarter ended July 31, 2011.
FISCAL QUARTER ENDED JULY 31, 2011
SALES -- Sales were $64.0 million, 3.4% higher than $61.9 million for the prior-year quarter. Sales increased in filtration products, industrial process cooling, and heating, ventilation and air conditioning ("HVAC," included in Corporate and Other). Piping systems' sales declined due to reduced activity at the United Arab Emirates ("U.A.E.") facility and no large project related revenue at the India facility.
GROSS PROFIT -- Gross profit of $10.8 million in 2011 decreased 21.5% from $13.7 million in the prior-year quarter. Gross margin was 17% compared to 22% in the prior-year quarter. Gross profit increased significantly in filtration products due to higher sales. Piping systems' gross profit decreased considerably due to lower volume at the U.A.E. facility and no large project related activity at the India facility. In addition, a temporary overstaffing condition resulted from the need to maintain experienced staff that will be transferred to the new plant in Saudi Arabia to support its rapid start-up later this year. In the quarter, piping systems also incurred a one-time warranty claim of approximately $0.5 million in respect to a current job.
EXPENSES -- Operating expenses decreased to $10.7 million or 16.7% of sales from $10.9 million from 17.6% of sales in the prior-year quarter. The reduction was mainly due to lower management incentive compensation expense.
TAXES -- In July 2011, the Company recorded a $1.8 million discrete tax expense associated with a one-time $3.1 million repatriation of foreign earnings. This tax expense included a payment of $0.5 million to the foreign tax authority and an accrual of $1.3 million U.S. tax on foreign source income. No cash will be paid for this tax in the U.S. since the Company has a net operating loss carryforward. The impact of this discrete tax item is shown in the table below:
| MFRI, INC. AND SUBSIDIARIES | Three Months Ended | Six Months Ended | ||||||||||||||
| (Unaudited) (000's except per share data) | July 31, | July 31, | ||||||||||||||
| Operating Statement Information | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| (Loss) income before income taxes | $ | (160 | ) | $ | 2,397 | $ | (2,274 | ) | $ | 1,853 | ||||||
| Income tax benefit before discrete item | (103 | ) | (485 | ) | (725 | ) | (545 | ) | ||||||||
| (Loss) income before discrete item | $ | (1,836 | ) | $ | 2,882 | $ | (3,329 | ) | $ | 2,398 | ||||||
| Weighted average number of common shares outstanding - diluted | 6,863 | 6,860 | 6,859 | 6,863 | ||||||||||||
| (Loss) earnings per share before discrete item diluted | $ | (0.01 | ) | $ | 0.42 | $ | (0.23 | ) | $ | 0.35 | ||||||
YEAR-TO-DATE (SIX MONTHS):
SALES -- Sales were $117.4 million, 5% higher than $111.7 million for the prior-year's first six months. Sales increased in filtration products, industrial process cooling and HVAC. Piping systems' sales declined due to reduced activity at the U.A.E. facility and no large project related revenue at the India facility.
GROSS PROFIT -- Gross profit of $19.0 million in 2011 decreased 22% from $24.5 million in the prior year. Gross margin was 16% compared to 22% in the prior year. Gross profit increased significantly in filtration products and industrial process cooling due to higher sales. Piping systems gross profit decreased considerably due to lower volume at the U.A.E. facility and no large project related activity at the India facility. In addition, a temporary overstaffing condition resulted from the need to maintain experienced staff that will be transferred to the new plant in Saudi Arabia to support its rapid start-up later this year. In the quarter, piping systems also incurred a one-time warranty claim of approximately $0.5 million in respect to a current job.
EXPENSES -- Operating expenses decreased to $20.6 million or 17.6% of sales from $21.8 million or 19.5% of sales in the prior year. The reduction was mainly due to lower management incentive compensation partially offset by higher commission expense.
NET LOSS -- Net loss for the first six months was $3.3 million compared to net income of $2.4 million in the prior year. The loss was due to lower sales in the U.A.E. and increased tax expense from the repatriation of foreign earnings. See above for the explanation of the one-time $1.8 million discrete tax expense.
CURRENT STATUS:
BACKLOG -- The Company's backlog on July 31, 2011 was $75.6 million, down $2.1 million or 3% from January 31, 2011 due to large second quarter sales by HVAC. Subsequent to the end of the second quarter, the Company had a 43% increase in backlog driven by approximately $33 million increase in piping systems as illustrated in the table below.
| Backlog | 8/31/2011 | 7/31/2011 | 1/31/2011 | 7/31/2010 | |||||||||
| Piping Systems | $ | 83,786 | $ | 50,444 | $ | 46,452 | $ | 34,389 | |||||
| Filtration Products | 15,933 | 14,710 | 17,177 | 18,691 | |||||||||
| Industrial Process Cooling | 5,200 | 6,263 | 4,332 | 3,700 | |||||||||
| Corporate and Other | 3,200 | 4,177 | 9,751 | 8,073 | |||||||||
| Total Backlog | $ | 108,119 | $ | 75,594 | $ | 77,713 | $ | 64,853 | |||||
Some of the major projects include:
- Insulated and heat traced sulfur pipeline in Abu Dhabi, U.A.E.
Contracts for the insulation and the Skin Effect Electrical Tracing ("SEET") system were awarded to TYCO and Perma-Pipe Middle East ("PPME") by Dodsal Engineering and Construction Pte. Ltd., as an important part of the overall contract for a sulfur transportation system. Liquid sulfur is produced as a byproduct in the processing of certain crude oil streams. At the Shah and Habshan Processing Plants in Abu Daubi, the separated liquid sulfur will be transported via insulated pipelines supplied by PPME using SEET supplied by TYCO Thermal Control, a subsidiary of TYCO International. The transported sulfur will then be granulated for use in fertilizers and other industrial products. PPME's work will commence in the fourth quarter of 2011 and be completed during 2012.
- Insulated crude oil cross country pipeline in Kuwait
Hyundai E&C awarded PPME a contract for insulation and leak detection of 207 kilometers (130 miles) of 24" diameter pipe. The work will be done in the new facility now under construction in Dammam, Saudi Arabia. Hyundai, one of the world's largest construction companies, is installing a low sulfur fuel oil and gas pipeline from Mina al-Ahmadi refinery in Kuwait to power stations in Subbiya, Kuwait and Doha, Qatar. PPME's work will commence during the fourth quarter of 2011 and be completed during 2012.
- Insulated, double contained and leak detected acid pipeline in Canada
Vale Newfoundland & Labrador Limited (Vale Inco NL) is the largest mining company in the Americas and the second largest nickel producer in the world. In response to increased world demand for nickel, Vale is developing a new nickel processing plant designated the Long Harbour Processing Plant, located south of Long Harbour, Newfoundland and Labrador, Canada. Sulphuric Acid is used in the processing of nickel and will be transferred from the delivery vessels to storage tanks on land. These cross site transfer lines will require piping systems to insulate approximately 10,000 feet of special alloy double contained, heat traced and leak detected piping.
PIPING SYSTEMS -- Construction and staffing of the manufacturing facility in Dammam, Saudi Arabia is on schedule for a fourth quarter opening. Subsequent to the end of the second quarter, in August 2011 the piping systems backlog increased $33.3 million or 66% versus July 31, 2011.
FILTRATION PRODUCTS -- Industrial markets show improvement, as indicated by a 25% increase in net sales and a 33% increase in gross profit for the first six months. Gross profit increased to $6.8 million in 2011 from $5.1 million in the prior-year period. New pricing models are being used in an effort to shift the mix of products sold and improve overall profitability.
INDUSTRIAL PROCESS COOLING -- Market conditions for industrial process cooling also show signs of improvement. In 2011, net sales and gross profit grew 23% for the first six months. This progress, coupled with expense control, resulted in a modest profit for the quarter.
David Unger, CEO, commented, "We believe that maintaining our diversified product mix and geographic reach during the difficult economic climate of recent years has benefited our Company. In 2011, new orders in North America, Europe and the Middle East show improvement over prior periods. We will continue to make strategic investments to facilitate growth for the long term. One example is our new pipe insulation facility in Saudi Arabia, which is on schedule for a fourth quarter opening. This represents a repositioning of our Middle East business strategy to build our presence where we believe the long-term market is growing and project funding is available. We are very glad to have the Kuwait cross country oil line be the start of activities at our new state of the art facility in Saudi Arabia. Our capabilities will be clearly illustrated to the Middle East oil, gas and infrastructure markets."
Brad Mautner, President and COO, said, "The second quarter showed continued year over year improvement in our filtration and industrial process cooling segments. Both businesses are trending in a positive direction and barring a setback in the world's major economies, should continue to grow. Our piping systems business saw an absence of large project revenue from international activities and the continued prolonged downturn in the Dubai district cooling market. These factors, coupled with ramp up costs for the Saudi and India markets, led to a very weak first half year. However, based on recent solid bookings we do expect a significantly improved second half contribution from this segment. As I noted earlier this year, a good part of 2011 will be spent investing in the piping segment to develop our India and Saudi Arabia initiatives. Although the large non-cash tax impact described above significantly lowers reported earnings we believe the right programs are in place to resume profitable growth later this year and into 2012."
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-Q for the period ended July 31, 2011 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 |
Three Months Ended | Six Months Ended | ||||||||||||||
| (Unaudited) (000's except per share data) | July 31, | July 31, | ||||||||||||||
| Operating Statement Information | 2011 | 2010 | 2011 | 2010 | ||||||||||||
| Net sales | ||||||||||||||||
| Piping Systems | $ | 26,339 | $ | 33,160 | $ | 45,366 | $ | 58,376 | ||||||||
| Filtration Products | 25,279 | 21,045 | 50,122 | 40,159 | ||||||||||||
| Industrial Process Cooling | 8,231 | 7,316 | 15,386 | 12,507 | ||||||||||||
| Corporate and Other | 4,141 | 366 | 6,517 | 695 | ||||||||||||
| Total | 63,990 | 61,887 | 117,391 | 111,737 | ||||||||||||
| Gross profit | ||||||||||||||||
| Piping Systems | 4,632 | 9,268 | 7,445 | 16,270 | ||||||||||||
| Filtration Products | 3,537 | 2,441 | 6,849 | 5,078 | ||||||||||||
| Industrial Process Cooling | 2,226 | 2,112 | 4,171 | 3,401 | ||||||||||||
| Corporate and Other | 389 | (78 | ) | 561 | (254 | ) | ||||||||||
| Total | 10,784 | 13,743 | 19,026 | 24,495 | ||||||||||||
| Income (loss) from operations | ||||||||||||||||
| Piping Systems | 927 | 5,487 | 704 | 8,923 | ||||||||||||
| Filtration Products | 516 | (514 | ) | 1,026 | (1,033 | ) | ||||||||||
| Industrial Process Cooling | 293 | 365 | 497 | 181 | ||||||||||||
| Corporate and Other | (1,648 | ) | (2,513 | ) | (3,784 | ) | (5,408 | ) | ||||||||
| Total | 88 | 2,825 | (1,557 | ) | 2,663 | |||||||||||
| Income (loss) from joint ventures | 84 | (24 | ) | (99 | ) | (121 | ) | |||||||||
| Interest expense, net | 332 | 404 | 619 | 689 | ||||||||||||
| (Loss) income before income taxes | (160 | ) | 2,397 | (2,274 | ) | 1,853 | ||||||||||
| Income tax expense (benefit) | 1,676 | (485 | ) | 1,055 | (545 | ) | ||||||||||
| Net (loss) income | $ | (1,836 | ) | $ | 2,882 | $ | (3,329 | ) | $ | 2,398 | ||||||
| Weighted average number of common shares outstanding | ||||||||||||||||
| Basic | 6,863 | 6,839 | 6,859 | 6,838 | ||||||||||||
| Diluted | 6,863 | 6,860 | 6,859 | 6,863 | ||||||||||||
| Earnings per share | ||||||||||||||||
| Basic and diluted | $ | (0.27 | ) | $ | 0.42 | $ | (0.49 | ) | $ | 0.35 | ||||||
See the Company's Form 10-Q for the period for notes to financial statements.