UNITED STATES
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 July 31, 2004
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-18370
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MFRI, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3922969
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7720 Lehigh Avenue Niles, Illinois 60714
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(Address of principal executive offices) (Zip Code)
(847) 966-1000
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(Registrant's telephone number, including area code)
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(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
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Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes No X
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On September 13, 2004, there were 4,922,364 shares of the registrant's common
stock outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The accompanying interim condensed consolidated financial statements of MFRI,
Inc. and subsidiaries (the "Company") are unaudited, but include all adjustments
which the Company's management considers necessary to present fairly the
financial position and results of operations for the periods presented. These
adjustments consist of normal recurring adjustments. Certain information and
footnote disclosures have been condensed or omitted pursuant to Securities and
Exchange Commission 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 on Form 10-K/A for the year ended January 31, 2004. Certain
reclassifications have been made in prior-year financial statements to conform
to the current-year presentation. The results of operations for the quarter
ended July 31, 2004 are not necessarily indicative of the results to be expected
for the full year ending January 31, 2005.
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except per share information)
Three Months Ended Six Months Ended
July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $ 38,068 $ 33,148 $ 70,196 $ 61,158
Cost of sales 29,116 25,467 55,338 48,283
-------- -------- -------- --------
Gross profit 8,952 7,681 14,858 12,875
Operating expenses:
Selling expense 2,494 2,564 5,106 5,164
General and administrative expense 3,946 3,786 7,403 7,329
-------- -------- -------- --------
Total operating expenses 6,440 6,350 12,509 12,493
-------- -------- -------- --------
Income from operations 2,512 1,331 2,349 382
Income (loss) from joint venture (33) 176 (10) 186
Interest expense - net 455 528 875 1,020
-------- -------- -------- --------
Income (loss) before income taxes 2,024 979 1,464 (452)
Income taxes (benefit) 655 376 424 (190)
-------- -------- -------- --------
$ 1,369 $ 603 $ 1,040 (262)
Net income (loss) ======== ======== ======== ========
Weighted average common shares outstanding
basic 4,922 4,922 4,922 4,922
Weighted average common shares outstanding
diluted 4,997 4,922 4,987 4,922
Basic earnings per share
Net income (loss) $ 0.28 $ 0.12 $ 0.21 $ (0.05)
Diluted earnings per share
Net income (loss) $ 0.27 $ 0.12 $ 0.21 $ (0.05)
See notes to condensed consolidated financial statements.
1
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
July 31, January 31,
Assets 2004 2004
- --------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents $ 693 $ 154
Restricted cash 1,034 238
Trade accounts receivable, net 24,112 18,353
Accounts receivable - related companies 872 853
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,488 1,115
Income taxes receivable 473 393
Inventories 18,980 18,275
Deferred income taxes 1,651 1,639
Prepaid expenses and other current assets 970 857
-------- --------
Total current assets 50,273 41,877
Property, plant and equipment, net 25,954 28,828
Other Assets:
Patents, net of accumulated amortization 627 716
Goodwill 2,500 2,549
Other assets 4,881 4,957
-------- --------
Total other assets 8,008 8,222
-------- --------
Total Assets $ 84,235 $ 78,927
======== ========
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current Liabilities:
Trade accounts payable $ 13,633 $ 12,337
Accrued compensation and payroll taxes 2,520 2,673
Other accrued liabilities 3,524 2,835
Commissions payable 3,470 3,046
Current maturities of long-term debt 3,418 11,864
Billings in excess of costs and estimated earnings
on uncompleted contracts 380 299
Income taxes payable 657 64
-------- --------
Total current liabilities 27,602 33,118
Long-Term Liabilities:
Long-term debt, less current maturities 26,563 16,661
Other 2,340 2,275
-------- --------
Total long-term liabilities 28,903 18,936
Stockholders' Equity:
Common stock, $.01 par value, authorized - 50,000
shares in July 2004 and January 2004;
4,922 issued and outstanding in July 2004 and
January 2004 49 49
Additional paid-in capital 21,397 21,397
Retained earnings 6,140 5,100
Accumulated other comprehensive loss 144 327
-------- --------
Total stockholders' equity 27,730 26,873
-------- --------
Total Liabilities and Stockholders' Equity $ 84,235 $ 78,927
======== ========
See notes to condensed consolidated financial statements.
2
MFRI, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands) Six Months Ended
July 31,
---------------------
2004 2003
-------- --------
Cash Flows from Operating Activities:
Net income (loss) $ 1,040 $ (262)
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
(Income) loss from joint venture 10 (186)
Provision for depreciation and amortization 1,911 2,023
Provision for uncollectible accounts 63 65
(Gain)loss on sale of property, plant and equipment 17 (21)
Change in operating assets and liabilities:
Trade accounts receivable (5,822) (1,556)
Costs and estimated earnings in excess of
billings on uncompleted contracts (293) (199)
Inventories (781) 502
Prepaid expenses and other current assets (580) 512
Current liabilities 1,199 135
Other operating assets and liabilities 985 560
-------- --------
Net Cash Flows from Operating Activities (2,249) 1,573
-------- --------
Cash Flows from Investing Activities:
Proceeds from sale of property and equipment 1,786 466
Purchases of property and equipment (635) (2,804)
-------- --------
Net Cash Flows from Investing Activities 1,152 (2,338)
-------- --------
Cash Flows from Financing Activities:
Payments on capitalized lease obligations (38) (75)
Borrowings under revolving, term and mortgage loans 9,061 11,669
Repayment of debt (7,429) (11,019)
-------- --------
Net Cash Flows from Financing Activities 1,594 575
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 42 48
-------- --------
Net Increase (Decrease) in Cash and Cash Equivalents 539 (142)
Cash and Cash Equivalents - Beginning of Period 154 346
-------- --------
Cash and Cash Equivalents - End of Period $ 693 $ 204
======== ========
Supplemental cash flow information:
Cash paid for:
Interest, net of capitalized amounts $ 1,008 $ 1,016
Income taxes paid (refunded) (99) 5
See notes to condensed consolidated financial statements.
3
MFRI, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JULY 31, 2004
1. The unaudited financial statements herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. The accompanying interim financial statements have been
prepared under the presumption that users of the interim financial
information have either read or have access to the audited financial
statements for the latest fiscal year ended January 31, 2004. Accordingly,
footnote disclosures which would substantially duplicate the disclosures
contained in the January 31, 2004 audited financial statements have been
omitted from these interim financial statements. Certain reclassifications
have been made in prior-year financial statements to conform to the
current-year presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America
have been condensed or omitted pursuant to such rules and regulations.
Although the Company believes that the disclosures are adequate to make the
information presented not misleading, it is suggested that these interim
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest Annual Report on
Form 10-K/A.
2. Inventories consisted of the following:
July 31, January 31,
(In thousands) 2004 2004
-------- --------
Raw materials $ 14,895 $ 13,593
Work in process 1,929 1,905
Finished goods 2,156 2,777
-------- --------
Total $ 18,980 $ 18,275
======== ========
3. Goodwill: Goodwill represents the excess cost over fair value of the net
assets of purchased businesses. The Company does not amortize goodwill. The
Company performs an annual impairment assessment of goodwill in the first
quarter of each year, based on the fair value of the related reporting
unit. When performing its annual impairment assessment, the Company
compares the fair value of the related reporting unit to its carrying
value. Fair values are determined by discounting estimated future cash
flows. If the fair value of an operating unit is less than its carrying
value, an impairment loss is recorded. The Company's annual impairment test
at February 1, 2004 did not result in an impairment. Goodwill was
$2,500,000 and $2,549,000 at July 31, 2004 and January 31, 2004,
respectively. The change in Goodwill was due to foreign currency
translation.
4. Other intangible assets with definite lives: Patents are capitalized and
amortized on a straight-line basis over a period not to exceed the legal
lives of the patents. Patents, net of accumulated amortization, were
$627,000 and $716,000 at July 31, 2004 and January 31, 2004, respectively.
Accumulated amortization was $1,542,000 and $1,453,000 at July 31, 2004 and
January 31, 2004, respectively. Future amortization over the next five
years ending January 31, will be 2005 - $180,500, 2006 - $180,500, 2007 -
$173,800, 2008 - $29,400 and 2009 - $26,400.
4
5. Employee Retirement Plans: The market-related value of plan assets at July
31, 2004 and January 31, 2004 were $2,751,036 and $2,682,942 respectively.
Net cost recognized for the six months ended July 31 is as follows:
Three Months Ended Six Months Ended
(In thousands) July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Components of net periodic benefit cost:
Service cost $ 25 $ 24 $ 50 $ 48
Interest cost 47 42 94 85
Expected return on plan assets (56) (42) 112 (83
Amortization of prior service cost 21 14 41 29
Recognized actuarial loss 20 24 39 49
-------- -------- -------- --------
Net periodic benefit cost $ 57 $ 62 $ 112 $ 128
Expected employer contributions for fiscal year ending 1/31/2005 are
$329,000. In May 2004, a $66,238 contribution was made.
6. The basic weighted average shares reconcile to diluted weighted average
shares as follows:
Three Months Ended Six Months Ended
(In thousands) July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss) $ 1,369 $ 603 $ 1,040 $ (262)
======== ======== ======== ========
Basic weighted average common
shares outstanding 4,922 4,922 4,922 4,922
Dilutive effect of stock options 75 - 65 -
-------- -------- -------- --------
Weighted average common shares
outstanding assuming full dilution 4,997 4,922 4,987 4,922
======== ======== ======== ========
Basic earnings per share
Net income (loss) $ 0.28 $ 0.12 $ 0.21 $ (0.05)
Diluted earnings per share
Net income (loss) $ 0.27 $ 0.12 $ 0.21 $ (0.05)
7. The weighted average number of stock options not included in the
computation of diluted earnings per share of common stock because the
option exercise prices exceeded the average market prices of the common
shares were 106,000 and 1,002,000 for the three months ended July 31, 2004
and 2003, respectively, and 792,000 and 971,000 for the six months ended
July 31, 2004 and 2003, respectively. At July 31, 2004, 914,650 stock
options had an exercise price below the average stock price for the three
month period. At July 31, 2004, 227,250 stock options had an exercise price
below the average stock price for the six month period. However these
options were outstanding as no shares were exercised. There were no stock
options below the average stock price at July 31, 2003.
5
8. The components of comprehensive income (loss), net of tax, were as follows:
Three Months Ended Six Months Ended
(In thousands) July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss) $ 1,369 $ 603 $ 1,040 $ (262)
Change in foreign currency translation adjustments 20 19 (183) 171
-------- -------- -------- --------
Comprehensive income (loss) $ 1,389 $ 622 $ 857 $ (91)
======== ======== ======== ========
Accumulated other comprehensive loss presented on the accompanying
condensed consolidated balance sheet consists of the following:
July 31, January 31,
(In thousands) 2004 2004
-------- --------
Accumulated translation adjustment $ 499 $ 682
Minimum pension liability adjustment (net of
tax benefit of $217 at July 31 and
January 31, 2004) (355) (355)
-------- --------
Total $ 144 $ 327
======== ========
6
9. The Company has three reportable segments under the criteria of Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of
an Enterprise and Related Information." The Filtration Products Business
manufactures and sells a wide variety of filter elements for air filtration
and particulate collection systems. The Piping Systems Business engineers,
designs, manufactures and sells specialty piping systems and leak detection
and location systems. The Industrial Process Cooling Equipment Business
engineers, designs, manufactures and sells chillers, cooling towers, plant
circulating systems and accessories for industrial process applications.
Three Months Ended Six Months Ended
(In thousands) July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net Sales:
Filtration Products $ 15,370 $ 14,587 $ 31,666 $ 27,977
Piping Systems 14,997 12,148 23,987 20,953
Industrial Process Cooling Equipment 7,701 6,413 14,543 12,228
-------- -------- -------- --------
Total Net Sales $ 38,068 $ 33,148 $ 70,196 $ 61,158
======== ======== ======== ========
Gross Profit:
Filtration Products $ 3,248 $ 3,060 $ 6,125 $ 5,335
Piping Systems 3,433 2,804 4,632 4,078
Industrial Process Cooling Equipment 2,271 1,817 4,101 3,462
-------- -------- -------- --------
Total Gross Profit $ 8,952 $ 7,681 $ 14,858 $ 12,875
======== ======== ======== ========
Income (loss) from Operations:
Filtration Products $ 992 $ 761 $ 1,770 $ 959
Piping Systems 2,119 1,551 2,228 1,656
Industrial Process Cooling Equipment 646 273 785 281
Corporate (1,245) (1,254) (2,434) (2,514)
-------- -------- -------- --------
Income from Operations $ 2,512 $ 1,331 $ 2,349 $ 382
======== ======== ======== ========
10. In December 2003, the Financial Accounting Standards Board (FASB) issued a
revision to SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." This Statement retains the disclosures previously
required by SFAS 132 but adds additional disclosure requirements about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. It
also calls for the required information to be provided separately for
pension plans and for other postretirement benefit plans. In addition to
expanded annual disclosures, the standard improves information available to
investors in interim financial statements. SFAS 132R is effective for
fiscal years ending after December 15, 2003, and for quarters beginning
after December 15, 2003. The adoption of SFAS 132R did not have a material
impact on the Company's financial statements, however, required interim
disclosures have been reflected in the current financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation requires the
recognition of certain guarantees as liabilities at fair market value and
is effective for guarantees issued or modified after December 31, 2002.
Adoption of the provisions of the Interpretation has not had and will not
have a material effect on the financial statements of the Company, based on
guarantees in effect on July 31, 2004.
11. The Company's stock option plans are accounted for using the intrinsic
value method and, accordingly, no compensation cost has been recognized.
Had compensation cost been determined using the fair value method in 2004
and 2003, the Company's pro forma net income (loss) and earnings (loss) per
share would have been as follows:
7
Three Months Ended Six Months Ended
(In thousands) July 31, July 31,
--------------------- ---------------------
2004 2003 2004 2003
-------- -------- -------- --------
Net income (loss) - as reported (in
thousands) $ 1,369 $ 603 $ 1,040 $ (262)
Compensation cost under fair-market
value-based accounting method, net
of tax (in thousands) (26) (45) (54) (79)
Net income (loss) - pro forma (in
thousands) $ 1,343 $ 558 $ 986 $ (341)
Net income (loss) per common share -
basic, as reported $ 0.28 $ 0.12 $ 0.21 $ (0.05)
Net income (loss) per common share -
basic, pro forma $ 0.27 $ 0.11 $ 0.20 $ (0.07)
Net income (loss) per common share -
diluted, as reported $ 0.27 $ 0.12 $ 0.21 $ (0.05)
Net income (loss) per common share -
diluted, pro forma $ 0.27 $ 0.11 $ 0.20 $ (0.07)
12. On April 26, 2002, Midwesco Filter borrowed $3,450,000 under two mortgage
notes secured by two parcels of real property and improvements owned by
Midwesco Filter in Winchester, Virginia. Proceeds from the mortgages, net
of a prior mortgage loan, were approximately $2,700,000 and were used to
make principal payments to the lenders under the Prior Term Loans and the
Bank. On June 17, 2004, Midwesco Filter sold one of its buildings located
in Winchester, Virginia. The building sold consisted of 66,998 square feet
on 10 acres. The mortgage of $1,088,000 was paid at the closing. The note
on the remainder property bears interest at 7.10% with a monthly payment of
$23,616 for both principal and interest, and the note's amortization
schedule and term are ten years.
On September 14, 1995, Midwesco Filter in Winchester, Virginia received
$2,050,000 of proceeds of Industrial Revenue Bonds, which mature on August
1, 2007. These bonds are fully secured by bank letters of credit. Due to
the sale of land and a building on June 17, 2004, the Company will redeem
the bonds in the third quarter of 2004.
On July 11, 2002, the Company entered into secured note purchase agreements
with certain institutional investors ("Note Purchase Agreements"). Under
the terms of the Note Purchase Agreements, the Company entered into a
five-year $6,000,000 term loan replacing prior term loans with an aggregate
original principal balance of $25,000,000 ("Prior Term Loans"). The
outstanding principal balance of the Prior Term Loans at July 11, 2002 was
$16,000,000. The Company borrowed $10,000,000 from its new revolving line
of credit from another financial institution (described below) to pay down
this loan from $16,000,000 to $6,000,000. Interest rates under the Note
Purchase Agreements are 12% per annum if the outstanding principal is
greater than $5,000,000 or 10% per annum if the outstanding principal is
$5,000,000 or less. The Company is scheduled to pay $188,000 in aggregate
principal on the last days of March, June, September and December in each
year, commencing on September 30, 2002 and ending on June 30, 2007. In
addition, the Company is scheduled to make annual prepayments of excess
cash flow (as defined in the Note Purchase Agreements). Finally, the Loan
Agreement (defined below) and the Note Purchase Agreements permit voluntary
prepayments sufficient to reduce the outstanding term loan principal to
$5,000,000 subject to certain conditions. The Company met such conditions
and made such a prepayment on July 31, 2002.
At January 31, 2004 and April 30, 2004, the Company was not in compliance
with one covenant under the Note Purchase Agreements. Waivers have been
obtained for violation of debt covenants for fiscal periods ending on or
prior to April 30, 2004. At July 31, 2004, the Company was in compliance
with covenants under the Loan Agreement.
8
On July 11, 2002, the Company entered into a secured loan and security
agreement with a financial institution ("Loan Agreement"). Under the terms
of the Loan Agreement, which matures on July 10, 2006, the Company can
borrow up to $27,000,000, subject to borrowing base and other requirements,
under a revolving line of credit. Interest rates generally are based on
options selected by the Company as follows: (a) a margin in effect plus a
prime rate; or (b) a margin in effect plus the LIBOR rate for the
corresponding interest period. At July 31, 2004, the prime rate was 4.25%,
and the margins added to the prime rate and the LIBOR rate, which are
determined each quarter based on the applicable financial statement ratio,
were 1.25 and 3.25 percentage points, respectively. As of July 31, 2004,
the Company had borrowed $11,290,000 and had $1,776,000 available to it
under the revolving line of credit. In addition, $6,694,000 of availability
was used under the Loan Agreement primarily to support letters of credit to
guarantee amounts owed for Industrial Revenue Bond borrowings. The Loan
Agreement provides that all payments by the Company's customers are
deposited in a bank account from which all funds may only be used to pay
the debt under the Loan Agreement. At July 31, 2004, the amount of
restricted cash was $1,034,000. Cash required for operations is provided by
draw-downs on the line of credit.
At January 31, 2004 and April 30, 2004, the Company was not in compliance
with covenants under the Loan Agreement. Waivers have been obtained for
violation of debt covenants for fiscal periods ending on or prior to April
30, 2004. At July 31, 2004, the Company was in compliance with covenants
under the Loan Agreement.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The statements contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and certain
other information contained elsewhere in this report, which can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "continue," "remains," "intend," "aim," "should," "prospects,"
"could," "future," "potential," "believes," "plans," "likely," 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
could cause actual results to differ materially from those projected. These
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.
RESULTS OF OPERATIONS
MFRI, Inc.
Three months ended July 31
Net sales of $38,068,000 for the quarter increased 14.8% from $33,148,000 for
the comparable quarter in the prior year. (See discussion of each business
segment below.)
Gross profit of $8,952,000 increased 16.6% from $7,681,000 in the prior year
quarter, and gross margin increased to 23.5% of net sales in the current year
from 23.2% of net sales in the prior year. (See discussion of each business
segment below.)
Net income rose to $1,369,000 in the current quarter from $603,000 in the prior
year quarter. The increase in net income was due to increased revenue at level
margins. (See discussion of each business segment below.)
9
Six months ended July 31
Net sales of $70,196,000 for the six months increased 14.8% from $61,158,000 for
the comparable period in the prior year. (See discussion of each business
segment below.)
Gross profit of $14,858,000 increased 15.4% from $12,875,000 for the comparable
period in the prior year, while gross margin increased to 21.2% of net sales in
the current year from 21.1% of net sales in the prior year. (See discussion of
each business segment below.)
Net income rose to $1,040,000 for the six months from a loss of $262,000 for the
comparable period in the prior year. The increase in net income was due to
increased revenue at level margins. (See discussion of each business segment
below.)
Filtration Products Business
Three months ended July 31
Net sales for the quarter increased 5.4% to $15,370,000 from $14,587,000 for the
comparable quarter in the prior year. This increase is primarily due to a better
economic environment including improved conditions in the domestic steel
industry.
Gross profit as a percent of net sales increased from 21.0% in the prior year to
21.1% in the current year, primarily as a result of improved manufacturing
efficiency on higher unit volume.
Selling expense decreased to $1,363,000 or 8.9% of net sales from $1,421,000 or
9.7% of net sales for the comparable quarter last year.
General and administrative expenses increased from $877,000 or 6.0% of net sales
in the prior-year quarter to $894,000 or 5.8% of net sales in the current-year
quarter. This increase is primarily due to increased professional services
expenses.
Six months ended July 31
Net sales for the six months increased 13.2% to $31,666,000 from $27,977,000 for
the comparable period in the prior year. This increase is primarily due to a
better economic environment including improved conditions in the domestic steel
industry.
Gross profit as a percent of net sales increased from 19.1% in the prior year to
19.3% in the current year, primarily as a result of improved manufacturing
efficiency on higher unit volume.
Selling expense for the six months decreased to $2,795,000 or 8.8% of net sales
from $2,852,000 or 10.2% of net sales for the comparable period in the prior
year.
General and administrative expenses increased from $1,523,000 or 5.4% of net
sales in the prior-year period to $1,561,000 or 4.9% of net sales in the current
year period. This increase is primarily due to increased professional services
expenses.
Piping Systems Business
Three months ended July 31
Net sales increased 23.5% from $12,148,000 in the prior-year quarter to
$14,997,000 for the current quarter. This increase is primarily due to some
recovery from the weak economy.
Gross profit as a percent of net sales decreased from 23.1% to 22.9% due to an
increase in the price of steel.
10
Selling expense decreased from $346,000 or 2.9% of net sales for the prior-year
quarter to $276,000 or 1.8% of net sales in the current year quarter. The
decrease is primarily due to lower travel and marketing costs.
General and administrative expense increased from $909,000 in the prior year
quarter to $1,038,000 in the current year quarter, and decreased as a percent of
net sales from 7.5% to 6.9%. The dollar increase is primarily due to expenses
associated with implementation of a new enterprise resource planning system and
higher incentive expenses.
Six months ended July 31
Net sales of $23,987,000 for the six months increased 14.5% from $20,953,000 for
the comparable period in the prior year. This increase is primarily due to some
recovery from the weak economy.
Gross profit as a percent of net sales decreased from 19.5% to 19.3%, mainly due
to an increase in the price of steel.
Selling expense decreased from $687,000 or 3.3% of net sales in the prior year
period to $599,000 or 2.5% of net sales in the current year period. The dollar
decrease is primarily due to lower travel and marketing costs.
General and administrative expense increased to $1,805,000, compared with
$1,736,000 in the prior year period, and decreased as a percent of net sales
from 8.3% to 7.5%. The increase is primarily due to expenses associated with
implementation of a new enterprise resource planning system and higher incentive
expenses.
Industrial Process Cooling Equipment Business
Three months ended July 31
Net sales of $7,701,000 for the quarter increased 20.1% from $6,413,000 for the
comparable quarter in the prior year. The increase is due primarily to some
recovery from the weak economy. Sales increased in both the domestic and
international markets.
Gross profit increased to 29.5% of net sales from 28.3% of net sales in the
prior-year quarter, primarily due to improved pricing and production
efficiencies.
Selling expense increased to $855,000 or 11.1% of net sales in the current-year
quarter from $797,000 or 12.4% of net sales in the prior-year quarter. The
dollar increase is due to the higher commissions associated with increased sales
and greater export sales.
General and administrative expense increased to $769,000 or 10.0% of net sales
from $746,000 or 11.6% of net sales in the prior-year quarter. This dollar
increase is due to costs for the international operation resulting from
additional headcount.
Six months ended July 31
Net sales of $14,543,000 for the six months increased 18.9% from $12,228,000 for
the comparable period in the prior year, mainly due to some recovery from the
weak economy. Sales increased in both the domestic and international markets.
Gross margin decreased from 28.3% of net sales in the prior year to 28.2% of net
sales in the current year, primarily due to sales to direct markets.
Selling expense increased to $1,712,000 or 11.8% of net sales in the current
year period from $1,625,000 or 13.3% of net sales in the prior year. The dollar
increase is primarily due to the higher commissions associated with increased
sales and greater export sales.
11
General and administrative expense increased to $1,603,000 or 11.0% of net sales
in the current year period from $1,556,000 or 12.7% of net sales in the prior
year. This increase is due to costs for the international operation resulting
from additional headcount and increased product development costs.
General Corporate Expense
General corporate expense includes interest expense and general and
administrative expense incurred by MFRI, Inc. Corporate that have not been
allocated to the business segments.
Three months ended July 31
General and administrative expense decreased from $1,254,000 in the prior year
quarter to $1,245,000 in the current year quarter, and decreased as a percentage
of net sales from 3.8% in the prior year quarter to 3.3% in the current year
quarter. The decrease is mainly due to lower repairs and maintenance expense,
lower utilities cost and reduced staff size.
Interest expense decreased to $455,000 for the current year quarter from
$528,000 in the prior year quarter. The decrease is primarily due to a lower
debt balance than the prior year.
Six months ended July 31
General and administrative expense decreased from $2,514,000 in the prior year
period to $2,434,000 in the current-year six-month period, and decreased as a
percentage of net sales from 4.1% in the prior year period to 3.5% in the
current year period. The decrease is mainly due to lower repairs and maintenance
expense, lower utilities cost and reduced staff size.
Interest expense decreased to $875,000 for the current year period from
$1,020,000 for the comparable period in the prior year. The decrease is
primarily due to a lower debt balance than the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of July 31, 2004 were $693,000 as compared to
$154,000 at January 31, 2004. The Company used $2,249,000 from operations during
the first six months. Operating cash flows decreased by $3,822,000 from the same
period in the prior year. The cash from investing activities of $1,152,000
mainly resulted from the sale of a building and land to a third party in June
2004. These cash flows, plus borrowings of $1,594,000 from the Company's credit
facility, were used to support $635,000 in capital spending.
Trade receivables increased $5,822,000 and inventories increased $781,000 from
January 31, 2004 due to sales seasonality. Prepaid expenses and other current
assets including restricted cash increased $580,000 due to customer payments
received on the last day of the month. Other operating assets and liabilities
increased $985,000 from January 31, 2004 due to increased commission liability
and increased accrued liabilities.
Net cash flow from investing activities for the six months ended July 31, 2004
was $1,152,000. Net cash used for investing activities for the six months ended
July 31, 2003 was $2,338,000. Proceeds from sale of property and equipment
increased $1,320,000 from the prior year. On June 17, 2004, the Company sold one
of its buildings located in Winchester, Virginia. The building sold consisted of
66,998 square feet on 10 acres. The Company is leasing from the Buyer
approximately 12,000 square feet of the building. There was not a material gain
or loss on the sale. Capital expenditures decreased $2,169,000 from the prior
year. The prior year's capital additions of $2,804,000 mainly related to the
Company's construction of a new building for one of its foreign subsidiaries.
Current capital expenditures relate to a new ERP business applications software
and equipment purchases.
12
Debt totaled $29,981,000, an increase of $1,456,000 since the beginning of the
year. Net cash inflows from financing activities were $1,594,000, consisting of
borrowings of $9,061,000 and payments of $7,429,000 and $38,000 used for
payments on capitalized lease obligations.
The following table summarizes the Company's estimated contractual obligations,
excluding the revolving lines of credit at July 31, 2004:
Total 1/31/05 1/31/06 1/31/07 1/31/08 1/31/09 Thereafter
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Mortgages $ 9,227,400 $237,200 $502,800 $ 533,900 $ 567,600 $603,600 $6,782,300
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Senior Debt 3,500,000 375,000 750,000 750,000 1,625,000 - -
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
IRB Payable (1) 5,200,000 2,050,000 - - 3,150,000 - -
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Term Loans 117,700 117,700
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Capitalized Lease 37,700 29,100 6,000 2,000 - - -
Obligations
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Sub Total (2) $18,802,200 $2,809,000 $1,258,000 1,285,900 5,668,600 $603,600 $6,782,300
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Operating lease
Obligations $ 2,070,800 $340,000 $520,000 $426,800 $366,500 $ 53,000 $ 364,500
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Purchase Committments (3) 8,133,300 7,492,800 551,700 88,800 - - -
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
Total 28,286,300 $10,641,800 $2,330,500 $1,801,500 $5,709,100 $656,000 $7,146,800
- ----------------------- -------------- -------------- ------------- ------------- -------------- ------------- ---------------
(1) Due to the sale of land and building, the Bond related to the Virginia
buildings will be redeemed (paid in full) in the 3rd quarter of 2004, not
effecting the Tennessee Bond which expires in 2008
(2) Scheduled maturities, excluding the revolving line of credits
(3) Purchase commitments are for purchases made in the normal course of
business to meet operational and capital expenditure requirements.
Other long term liability of $2,340,000 is composed of accrued pension cost and
deferred compensation.
The Company's working capital was approximately $22,671,000 at July 31, 2004
compared to approximately $8,759,000 at January 31, 2004. The change is
primarily due to the reclassification of $12,000,000 from current debt to
long-term debt.
The Company's current ratio was 1.8 to 1 and 1.3 to 1 at July 31, 2004 and
January 31, 2004, respectively. Debt to total capitalization at July 31, 2004
increased to 52.0% from 51.5% at January 31, 2004.
On April 26, 2002, Midwesco Filter borrowed $3,450,000 under two mortgage notes
secured by two parcels of real property and improvements owned by Midwesco
Filter in Winchester, Virginia. Proceeds from the mortgages, net of a prior
mortgage loan, were approximately $2,700,000 and were used to make principal
payments to the lenders under the Prior Term Loans and the Bank. On June 17,
2004, Midwesco Filter sold one of its buildings located in Winchester, Virginia.
The sold building consisted of 66,998 square feet on 10 acres. The mortgage of
$1,088,000 was paid at the closing. The note on the remainder property bears
interest at 7.10% with a monthly payment of $23,616 for both principal and
interest, and the note's amortization schedule and term are ten years.
On September 14, 1995, Midwesco Filter in Winchester, Virginia received
$2,050,000 of proceeds of Industrial Revenue Bonds, which mature on August 1,
2007. These bonds are fully secured by bank letters of credit. Due to the sale
of land and a building on June 17, 2004, the Company will redeem the bonds in
the third quarter of 2004.
On July 11, 2002, the Company entered into secured note purchase agreements with
certain institutional investors ("Note Purchase Agreements"). Under the terms of
the Note Purchase Agreements, the Company entered into a five-year $6,000,000
term loan replacing prior term loans with an aggregate original principal
balance of $25,000,000 ("Prior Term Loans"). The outstanding principal balance
of the Prior Term Loans at July 11, 2002 was $16,000,000. The Company borrowed
13
$10,000,000 from its new revolving line of credit from another financial
institution (described below) to pay down this loan from $16,000,000 to
$6,000,000. Interest rates under the Note Purchase Agreements are 12% per annum
if the outstanding principal is greater than $5,000,000 or 10% per annum if the
outstanding principal is $5,000,000 or less. The Company is scheduled to pay
$188,000 in aggregate principal on the last days of March, June, September and
December in each year, commencing on September 30, 2002 and ending on June 30,
2007. In addition, the Company is scheduled to make annual prepayments of excess
cash flow (as defined in the Note Purchase Agreements). Finally, the Loan
Agreement (defined below) and the Note Purchase Agreements permit voluntary
prepayments sufficient to reduce the outstanding term loan principal to
$5,000,000 subject to certain conditions. The Company met such conditions and
made such a prepayment on July 31, 2002.
At January 31, 2004 and April 30, 2004, the Company was not in compliance with
one covenant under the Note Purchase Agreements. Waivers have been obtained for
violation of debt covenants for fiscal periods ending on or prior to April 30,
2004. At July 31, 2004, the Company was in compliance with covenants under the
Loan Agreement.
On July 11, 2002, the Company entered into a secured loan and security agreement
with a financial institution ("Loan Agreement"). Under the terms of the Loan
Agreement, which matures on July 10, 2006, the Company can borrow up to
$27,000,000, subject to borrowing base and other requirements, under a revolving
line of credit. Interest rates generally are based on options selected by the
Company as follows: (a) a margin in effect plus a prime rate; or (b) a margin in
effect plus the LIBOR rate for the corresponding interest period. At July 31,
2004, the prime rate was 4.25%, and the margins added to the prime rate and the
LIBOR rate, which are determined each quarter based on the applicable financial
statement ratio, were 1.25 and 3.25 percentage points, respectively. As of July
31, 2004, the Company had borrowed $11,290,000 and had $1,776,000 available to
it under the revolving line of credit. In addition, $6,694,000 of availability
was used under the Loan Agreement primarily to support letters of credit to
guarantee amounts owed for Industrial Revenue Bond borrowings. The Loan
Agreement provides that all payments by the Company's customers are deposited in
a bank account from which all funds may only be used to pay the debt under the
Loan Agreement. At July 31, 2004, the amount of restricted cash was $1,034,000.
Cash required for operations is provided by draw-downs on the line of credit.
At January 31, 2004 and April 30, 2004, the Company was not in compliance with
covenants under the Loan Agreement. Waivers have been obtained for violation of
debt covenants for fiscal periods ending on or prior to April 30, 2004. At July
31, 2004, the Company was in compliance with covenants under the Loan Agreement.
ACCOUNTING PRONOUNCEMENTS
In December 2003, the Financial Accounting Standards Board (FASB) issued a
revision to SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." This Statement retains the disclosures previously
required by SFAS 132 but adds additional disclosure requirements about the
assets, obligations, cash flows, and net periodic benefit cost of defined
benefit pension plans and other defined benefit postretirement plans. It also
calls for the required information to be provided separately for pension plans
and for other postretirement benefit plans. In addition to expanded annual
disclosures, the standard improves information available to investors in interim
financial statements. SFAS 132R is effective for fiscal years ending after
December 15, 2003, and for quarters beginning after December 15, 2003. The
adoption of SFAS 132R did not have a material impact on the Company's financial
statements, however, required interim disclosures have been reflected in the
current financial statements.
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others." This Interpretation requires the recognition of certain
guarantees as liabilities at fair market value and is effective for guarantees
issued or modified after December 31, 2002. Adoption of the provisions of the
Interpretation has not had and will not have a material effect on the financial
statements of the Company, based on guarantees in effect on July 31, 2004.
14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Foreign currency exchange rate risk
is mitigated through maintenance of local production facilities in the markets
served, invoicing of customers in the same currency as the source of the
products and use of foreign currency denominated debt in Denmark. The Company
also utilizes foreign currency forward contracts to reduce exposure to exchange
rate risks. The forward contracts are short-term in duration, generally one year
or less. The major currency exposure hedged by the Company is the Canadian
dollar. The contract amounts, carrying amounts and fair values of these
contracts were not significant at July 31, 2004 or January 31, 2004.
The changeover from national currencies to the Euro began on January 1, 2002 and
has not materially affected, and is not expected to materially affect, the
Company's foreign currency exchange risk profile, although some customers may
require the Company to invoice or pay in Euros rather than the functional
currency of the manufacturing entity.
The Company has attempted to mitigate its interest rate risk by maintaining a
balance of fixed-rate long-term debt with floating rate debt.
Commodity price risk is the possibility of higher or lower costs due to changes
in the prices of commodities, such as ferrous alloys (e.g., steel) which we use
in the production of piping systems. The Company attempts to mitigate such risks
by obtaining price commitments from its commodity suppliers and, when it appears
appropriate, purchasing quantities in advance of likely price increases.
Item 4. Controls and Procedures
As of July 31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rule
13a-14 under the Securities Exchange Act of 1934, as amended. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company required to be included in
the Company's periodic SEC filings. There have been no significant changes in
the Company's internal controls, or in other factors that could significantly
affect these controls, subsequent to the date of that evaluation.
15
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of the stockholders of the Company was held on June 24, 2004.
David Unger, Henry M. Mautner, Bradley E. Mautner, Arnold F. Brookstone, Eugene
Miller, Stephen B. Schwartz and Dennis Kessler were elected as directors of the
Company at the meeting. The following is a tabulation of the votes cast for, or
against, with respect to each nominee:
For Against
---------- ----------
David Unger 3,090,161 11,600
Henry M. Mautner 3,090,161 11,600
Bradley E. Mautner 3,090,161 11,600
Arnold F. Brookstone 2,413,861 687,900
Eugene Miller 2,413,861 687,900
Stephen B. Schwartz 2,413,861 687,900
Dennis Kessler 2,413,861 687,900
At that meeting, the stockholders also voted on and approved the Company's 2004
Stock Incentive Plan which plan replaced the Company's 1993 Stock Option Plan
and Amended and Restated 1994 Stock Option Plan, both of which had expired by
their terms since the date of the 2003 annual meeting of the stockholders. The
following is a tabulation of the votes cast for and against the approval of the
Company's 2004 Stock Incentive Plan at the meeting:
For Against
---------- ----------
Approval of the Company's
2004 Stock Incentive Plan: 2,226,502 875,259
Item 6. Exhibits and Reports on Form 8-K.
Exhibits:
(31) Rule 13a - 14(a)/15d - 14(a) Certifications
(1) Chief Executive Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(2) Chief Financial Officer certification pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
(32) Section 1350 Certifications
(1) Chief Executive Officer certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(2) Chief Financial Officer certification pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
16
SIGNATURES
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: September 14, 2004 /s/ David Unger
--------------------------------------------
David Unger
Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Date: September 14, 2004 /s/ Michael D. Bennett
--------------------------------------------
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
17
Exhibit 31.1
I, David Unger, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 14, 2004
/s/ David Unger
- ---------------------------
David Unger
Director and Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
I, Michael D. Bennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of MFRI, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act rules 13a-15(e) and 15d-15(e)) for the registrant and we
have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to
the registrant's auditors and the audit committee of the registrant's board
of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
Date: September 14, 2004
/s/ Michael D. Bennett
- ---------------------------
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
Exhibit 32.1
Certification of Principal Executive Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, David Unger, President and Chief Executive Officer (principal executive
officer) of MFRI, Inc. (the "Registrant"), certify that, to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-Q for the
period ended July 31, 2004 of the Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Registrant.
/s/ David Unger
- ------------------------------
David Unger
Director and Chairman of the Board of Directors,
President and Chief Executive Officer
(Principal Executive Officer)
September 14, 2004
A signed original of this written statement required by Section 906 has been
provided to MFRI, Inc. and will be retained by MFRI, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of Principal Financial Officer
Pursuant to 18 U.S.C. 1350
(Section 906 of the Sarbanes-Oxley Act of 2002)
I, Michael D. Bennett, Chief Financial Officer (principal financial officer) of
MFRI, Inc. (the "Registrant"), certify that, to the best of my knowledge, based
upon a review of the Quarterly Report on Form 10-Q for the period ended July 31,
2004 of the Registrant (the "Report"):
(1) The Report fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the
Registrant.
/s/ Michael D. Bennett
- ------------------------------
Michael D. Bennett
Vice President, Secretary and Treasurer
(Principal Financial and Accounting Officer)
September 14, 2004
A signed original of this written statement required by Section 906 has been
provided to MFRI, Inc. and will be retained by MFRI, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.