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
For the quarterly period ended April 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission file number 0-18370
MFRI, INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3922969
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7720 Lehigh Avenue Niles, Illinois 60714
(Address of principal executive offices) (Zip code)
(847) 966-1000
(Registrant's telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report
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, (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
On June 13, 1996, there were 4,524,376 shares of the Registrant's common stock
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
MFRI, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<CAPTION>
April30,1996 Jan31,1996
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents 280,000 449,000
Trade accounts receivable, net 15,961,000 16,137,000
Costs and estimated earnings in excess
of billings on uncompleted contracts 4,879,000 4,032,000
Deferred income taxes 2,175,000 1,733,000
Inventories 13,233,000 13,205,000
Prepaid expenses and other current assets 695,000 1,309,000
TOTAL CURRENT ASSETS 37,223,000 36,865,000
RESTRICTED FUNDS HELD FOR CAPITAL PROJECTS 4,275,000 5,046,000
PROPERTY, PLANT AND EQUIPMENT, at cost 14,518,000 13,636,000
Less allowances for depreciation 3,999,000 3,752,000
TOTAL PROPERTY, PLANT AND EQUIPMENT 10,519,000 9,884,000
OTHER ASSETS
Goodwill, net 4,675,000 4,733,000
Other, net 2,481,000 2,457,000
TOTAL OTHER ASSETS 7,156,000 7,190,000
TOTAL ASSETS $59,173,000 $58,985,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Drafts payable $ 3,845,000 $ 2,209,000
Accounts payable 3,878,000 4,807,000
Commissions payable 4,955,000 4,509,000
Current maturities of long-term debt 2,281,000 3,031,000
Billings in excess of costs and estimated
earnings on uncompleted contracts 556,000 490,000
Other current liabilities 1,640,000 2,142,000
TOTAL CURRENT LIABILITIES 17,155,000 17,188,000
LONG-TERM LIABILITIES
Long-term debt -- less current portion 14,131,000 14,267,000
Deferred income taxes and other 1,279,000 1,307,000
TOTAL LONG-TERM LIABILITIES 15,410,000 15,574,000
STOCKHOLDERS' EQUITY
Common stock, $ .01 par value,
authorized -- 15,000,000 shares;
outstanding - 4,524,000 shares 45,000 45,000
Additional paid-in capital 17,967,000 17,967,000
Retained earnings 8,642,000 8,248,000
Cumulative foreign currency
translation adjustment (46,000) (37,000)
TOTAL STOCKHOLDERS' EQUITY 26,608,000 26,223,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $59,173,000 $58,985,000
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
MFRI, INC.
<CAPTION>
Three Months Ended April 30,
(Unaudited)
1996 1995
<S> <C> <C>
Net Sales $18,813,000 $18,021,000
Cost of sales 14,701,000 14,582,000
GROSS PROFIT 4,112,000 3,439,000
Selling expense 1,263,000 1,023,000
General and administrative expense 1,948,000 1,696,000
INCOME FROM OPERATIONS 901,000 720,000
Interest expense 257,000 202,000
INCOME BEFORE INCOME TAX 644,000 518,000
Income tax expense 250,000 196,000
NET INCOME $ 394,000 $ 322,000
Net income per average common share $ .09 $ .07
Average outstanding common and equivalent shares 4,557,000 4,529,000
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MFRI, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<CAPTION>
Stockholders' Equity
Common Stock
Cumulative
Foreign Foreign
Number Additional Currency
of Paid-In Retained Translation
Shares Amount Capital Earnings Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
February 1, 1996 4,524,000 $45,000 $17,967,000 $8,248,000 $(37,000) $26,233,000
Net income for the
period (unaudited) - - - 394,000 - 394,000
Foreign currency
translation adjustment - - - - (9,000) (9,000)
Balance at
April 30, 1996 4,524,000 $45,000 $17,967,000 $8,642,000 $(46,000) $26,608,000
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
MFRI, INC.
<CAPTION>
Three Months Ended April 30,
(Unaudited)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 394,000 $ 322,000
Adjustments to reconcile net income
to net cash flows from operating activities:
Provision for depreciation and amortization 305,000 243,000
Deferred income taxes (446,000) (126,000)
Change in operating assets and liabilities:
Trade accounts receivable 176,000 396,000
Costs and estimated earnings in excess of
billings on uncompleted contracts 847,000) (1,122,000)
Inventories (28,000) (241,000)
Prepaid expenses and other current assets 614,000 140,000
Current liabilities 717,000 (166,000)
Other operating assets and liabilities (43,000) (23,000)
NET CASH FLOWS FROM
OPERATING ACTIVITIES 842,000 (577,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash from
Industrial Revenue Bonds 771,000 -
Net purchase of properties (549,000) (179,000)
NET CASH FLOWS FROM
INVESTING ACTIVITIES 222,000 (179,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capitalized lease obligations (84,000) (47,000)
Proceeds from (repayment of) long-term debt (1,149,000) 534,000
NET CASH FLOWS FROM
FINANCING ACTIVITIES (1,233,000) 487,000
NET DECREASE IN CASH
AND CASH EQUIVALENTS (169,000) (269,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 449,000 484,000
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 280,000 $ 215,000
See notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MFRI, INC.
APRIL 30, 1996
1. The condensed consolidated balance sheets as of April 30 and
January 31, 1996, and the condensed consolidated statements of income and
cash flows for the quarter then ended, in the opinion of the Company, reflect
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position for those periods. Certain information
and footnote disclosures have been condensed or omitted pursuant to S.E.C.
rules and regulations. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's annual report to stockholders for
the year ended January 31, 1996.
2. The results of operations for the quarters ended April 30, 1996 and 1995 are
not necessarily indicative of the results to be expected for the full year.
<TABLE>
3. Inventories consisted of the following:
<CAPTION>
April 30, 1996 January 31, 1996
<S> <C> <C>
Raw materials (net of
inventory reserves) $10,363,000 $10,265,000
Work in process 984,000 960,000
Finished goods 1,886,000 1,980,000
Total $13,233,000 $13,205,000
</TABLE>
<PAGE>
MFRI, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
April 30, 1996
Results of Operations
Filtration Products Business
Net sales for the quarter ended April 30, 1996 decreased 1.3% from $9,094,000 to
$8,977,000 from the comparable quarter one year ago. The decline is primarily
the result of lower filter bag-related product sales.
Gross profit as a percent of net sales increased from 20.8% to 26.9%. This
increase resulted from improved pricing, improved manufacturing plant
efficiencies, and a favorable product mix.
Selling expense for the quarter ended April 30, 1996 increased to $739,000 from
$604,000 for the comparable quarter last year. This increase is mostly
attributable to higher international expenses and higher gross margin related
commissions.
General and administrative expense for the quarter ended April 30, 1996
increased to $518,000 from $410,000 for the comparable period a year ago.
This increase is primarily the result of increased profit-related incentive
compensation.
Piping System Products Business
Net sales for the quarter ended April 30, 1996 increased 10.2% from $8,927,000
to $9,836,000, due primarily to the year-earlier, two-week work stoppage at
the Company's Lebanon, Tennessee facility and increased international
sales resulting from the December, 1995 acquisition of SZE Hagenuk, partially
offset by weather-related delays in sales releases by our customers in the
current quarter.
Gross profit as a percent of net sales was essentially unchanged, decreasing
from 17.4% to 17.2%
Selling expense increased from $419,000 to $524,000 and selling expense as a
percent of net sales increased from 4.7% to 5.3%, due primarily to the
addition of SZE Hagenuk.
General and administrative expense increased from $881,000 to $966,000 and as a
percent of sales decreased from 9.9% to 9.8%, due to increased staffing for
customer service and the addition of SZE Hagenuk, partially offset by a
redeployment of certain executive salaries from Perma-Pipe to MFRI, Inc.
<PAGE>
General Corporate Expenses
General corporate expenses include general and administrative expense not
allocated to business segments and interest expense.
General and administrative expense increased from $405,000 to $464,000; general
and administrative expense as a percent of consolidated net sales increased from
2.2% to 2.5%. The increase resulted primarily from increased administrative,
financial management and accounting salaries expense, and higher management
information systems expense. The increased administrative, financial
management and accounting salaries expense reflects shifts in time devoted to
corporate administrative matters from other areas, with some offsetting
decrease in Perma-Pipe administrative expense.
Interest expense increased from $202,000 to $257,000, due primarily to higher
borrowings under the Company's term loan, line of credit and industrial
revenue bonds, mainly to finance working capital, fixed asset acquisitions,
and the acquisition of SZE Hagenuk.
<PAGE>
Liquidity and Capital Resources
The Company believes its working capital and investment needs will be financed
primarily through operations and its $7,000,000 revolving line of credit. The
Company has drawn $6,950,000 from this line of credit as of April 30, 1996.
To finance a September, 1994 acquisition, MFRI borrowed $4,000,000 from a bank
under a term loan which is repayable in sixteen consecutive quarterly
installments which commenced January 31, 1995.
On September 14, 1995, and October 18, 1995, respectively, Midwesco Filter and
Perma-Pipe received the proceeds of Industrial Revenue Bonds. Such proceeds
are available for capital expenditures related to manufacturing capacity
expansions and efficiency improvements during a three-year period commencing
in the fourth quarter of 1994 in the Filtration Business in Winchester,
Virginia ($3,150,000) and the Piping System Products Business in Lebanon,
Tennessee ($3,150,000). The bonds mature approximately twelve years from the
date of issuance, but the Company's agreement with the bank whose letter of
credit secures payment of the bonds requires equal annual principal reductions
sufficient to amortize the bonds in full beginning approximately four years
after issuance. The bonds bear interest at a variable rate, which initially
approximates 5%, including letter of credit and remarketing fees. Each bond
indenture establishes a trusteed project fund for deposit of the bond proceeds.
The trustee is authorized to make disbursements from the project fund upon
requisition from the Company to pay costs of capital expenditures which comply
with the requirements of the loan agreement for each bond. Pending such
disbursements, the trustee invests the balance of the project fund in
investments defined by the indenture and limited by applicable law. Such
invested funds totaled $4,275,000 at April 30, 1996. The bonds are secured by
bank letters of credit which expire approximately two years from the date of
issuance; the Company expects to arrange for renewal, reissuance or extension
of the letter of credit prior to each expiration date during the term of the
bonds.
As of April 30, 1996, the Company had contracted for the purchase of a 10.3-acre
parcel of land with a 67,700-square foot building adjacent to its Filtration
Products property in Winchester, Virginia, to accommodate the Company's
growing marketing effort. The purchase was completed on May 8, 1996, with the
approximately $1.1 million purchase price financed 80% by a new, seven-year
mortgage and 20% by the aforementioned revenue bonds.
<PAGE>
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit No. 11 - Statement regarding computation of per share
earnings.
(b) Reports on Form 8-K -- None
<PAGE>
SIGNATURE
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.
MFRI, INC.
Date: June 14, 1996 /s/ Henry M. Mautner
Henry M. Mautner
Vice Chairman of the Board of Directors
Date: June 14, 1996 /s/ Michael D. Bennett
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
<PAGE>
Exhibit 11
<TABLE>
MFRI, Inc. and Subsidiaries
Computations of Earnings Per Common Share
<CAPTION>
Primary Primary Fully Diluted Fully Diluted
Three Months Three Months Three Months Three Months
Ended Ended Ended Ended
April 30, 1996 April 30, 1995 April 30, 1996 April 30, 1995
<S> <C> <C> <C> <C>
Net income $ 394,000 $ 322,000 $ 394,000 $ 322,000
Weighted average number of
common shares outstanding:
Shares outstanding from
beginning of period 4,524,000 4,429,000 4,524,000 4,529,000
Common share equivalents:
Assumed exercise of common
stock options 33,000 - 33,000 -
Weighted average common
and common stock
equivalents 4,557,000 4,529,000 4,557,000 4,529,000
Net income per share $0.09 $0.07 $0.09 $0.07
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1996 AND THE CONDENSED CONSOLIDATED
STATEMENTS OF INCOME AND CASH FLOWS FOR THE QUARTER THEN ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> APR-30-1996
<CASH> 280000
<SECURITIES> 0
<RECEIVABLES> 15961000
<ALLOWANCES> 0
<INVENTORY> 13233000
<CURRENT-ASSETS> 37223000
<PP&E> 14518000
<DEPRECIATION> 3999000
<TOTAL-ASSETS> 59173000
<CURRENT-LIABILITIES> 17155000
<BONDS> 14131000
0
0
<COMMON> 45000
<OTHER-SE> 26563000
<TOTAL-LIABILITY-AND-EQUITY> 59173000
<SALES> 18813000
<TOTAL-REVENUES> 18813000
<CGS> 14701000
<TOTAL-COSTS> 14701000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257000
<INCOME-PRETAX> 644000
<INCOME-TAX> 250000
<INCOME-CONTINUING> 394000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394000
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
