Perma-Pipe International Holdings, Inc. Annual Report 2014

FY2014 Annual Report · Perma-Pipe International Holdings, Inc.

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2014 Annual Report

MFRI is a multi-line company with interests
in specialty piping systems (Perma-Pipe)
and custom-designed industrial filtration
elements (Midwesco Filter).

Perma-Pipe is one of the largest U.S.

Midwesco Filter Resources designs

manufacturers of specialty piping

and manufactures value-added

systems for district heating and

industrial air filtration solutions for

cooling, secondary containment and

dust collectors, baghouses and air

oil and gas gathering flowlines.

inlet houses on a worldwide basis.

District heating and cooling systems

provide efficient energy distribution.

Secondary containment piping

systems, consisting of a product pipe

inside a containment pipe, securely

transports hazardous liquids and

petroleum products. Oil and gas

These systems are box-like

structures containing filter elements

which remove particulates from

exhaust gases or circulating air.

Major markets served include power

generation, metals, minerals and

general industry.

gathering flowlines are used to

There are more than 10,000 styles of

transport crude oil from the well

filter elements designed to fit

head, either on land or on the ocean

almost any baghouse, cartridge type

floor, to the offloading point.

Perma-Pipe’s leak detection and

location systems are sold as part of

many of its piping systems and on

a stand-alone basis, to monitor areas

where fluid may contaminate the

environment or damage equipment

and property.

industrial filtration system or gas

turbine air inlet system. Midwesco

Filter makes filter elements for both

original equipment manufacturers

and aftermarket users.

Dear Fellow Shareholders:

In last year’s shareholder letter, we discussed the significant success MFRI enjoyed in fiscal 2013.
As we predicted then, fiscal 2014 was, by contrast, a transitional period. We began the second half
of this year with a relatively low backlog position, which dampened our full-year financial results. In
addition, as the year progressed, we incurred higher than anticipated product introduction costs in our
filtration segment for certain high-efficiency products. Despite all of these headwinds, we finished
the year with $3.3 million of pretax earnings from continuing operations.

After tax, we were essentially breakeven from continuing operations, as we recorded an
extraordinarily high effective tax rate of 97% for the year. This was driven primarily by two factors.
First, we are maintaining a full valuation allowance against domestic deferred tax assets. Second was
our decision to declare certain foreign earnings not permanently reinvested outside the U.S., which
recognizes that there are opportunities to redeploy those earnings in other growth initiatives,
particularly in piping. It should be noted that even though we recorded a 97% book tax rate, no cash
taxes were paid in the U.S.

Although 2014 was challenging and we expect the beginning of 2015 to be so as well, we believe
that, overall, we are now successfully positioned for a much improved full year. Our confidence
stems from knowing that since the fiscal year ended on January 31, 2015, we have secured business
and are working on opportunities that we expect to change our trajectory later in 2015 – and,
hopefully, in future years as well. In fact, in mid-April, we announced $45.5 million in new orders
secured since January 31st by Perma-Pipe to supply engineered and insulated piping products for
many large scale construction projects.

Piping Systems
Over the past year, we have focused intensely on capturing new business opportunities that further
leverage work Perma-Pipe has done since 2006 for the resurgent growth of large-scale infrastructure
needs in the Middle East. The recent awards are a testament to the high-quality products and
services Perma-Pipe has been delivering and the reputation for excellence it has established in the
region.

We are delighted to have been selected to supply insulated chilled water piping systems for the early
phases of several marquee, world-class projects in Saudi Arabia and Qatar. Our Company’s analyses
indicate that Perma-Pipe is now the undisputed market leader for these types of projects in the
Middle East and, specifically, in the Gulf Cooperation Council market. And, as we write this letter,
our quotation activities in the region are at their highest level ever. All of the projects for which
Perma-Pipe has been selected offer significant future business opportunities as their development is
planned to continue for many years to come. For example, recent project awards include Pilgrim’s
City, a 395 acre (160 hectare) multi-use city being constructed near the Prophet’s Mosque in Medina
that will eventually accommodate 6 million pilgrims; Jubail City Center, a new state-of-the art city
center in Jubail Industrial City in Saudi Arabia being developed to house 1.3 million residents by
2040; and a large-scale, mixed-use project on the outskirts of Doha, Qatar.

Large-scale projects are exciting and important to our progress, but we are also forging ahead on
many other strategic initiatives to diversify and grow our piping business. Along those lines, we are
pursuing approvals to provide value-added services in corrosion protection from several major oil
companies and, over time, expect this type of business to help balance the inherent variability in

project-based activities that drive much of our business today. We are very pleased that, in an
example of this initiative, Perma-Pipe Middle East recently received its first order from a major
Oman-based oil company to provide thermally sprayed aluminum pipe coating. To further expand
our capabilities, we are now offering specialty coatings and contract manufacturing through
partnerships with select companies to leverage our channels to market in the region.

Filtration Products
In MFRI’s filtration segment, sales declined slightly in 2014, reflecting continuing weak demand
from coal-fired power and certain international markets. Although we implemented many expense
controls in fiscal 2013 to maintain this segment’s gross margin, during fiscal 2014 we processed a
large low-margin original equipment manufacturer fabric filter order that negatively impacted results.
This project will be complete no later than the third quarter of fiscal 2015. To mitigate its impact on
fiscal 2015, we have intensified our focus on pleated filter growth and diversified our geographic
presence. As part of this effort, we recently opened a cartridge filter manufacturing facility in the
Middle East to expand our presence in the region’s growing gas turbine power generation and
industrial dust collection markets.

Repurchase Program
In February 2015, our board of directors authorized a $2 million share repurchase program. The
repurchase program – the first in MFRI’s history – demonstrates our board’s confidence in the
Company’s strategy and long-term prospects.

Board Addition
In April 2015, we welcomed David B. Brown to our board of directors. David, who has 30 years of
global business experience, was the interim chief financial officer of MV Transportation, Inc., the
largest private provider of paratransit services and the largest privately owned passenger
transportation contracting firm based in the U.S. David has worked with major corporations
worldwide, including both public and private equity-sponsored companies. His in-depth
international experience and financial acumen will add valuable perspective to our board and the
continuing development of MFRI’s strategic initiatives.

In closing, although the nature of the markets we serve make predicting the timing of project awards
difficult, we look forward to a much improved 2015. We believe MFRI is well positioned to win
additional orders that will drive our Company’s growth and profitability.

As always, we appreciate the trust of our customers, the support of our shareholders, and the all-
important contributions of our employees worldwide.

Sincerely,

DAVID UNGER
Chairman

BRADLEY E. MAUTNER
President and Chief Executive Officer

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 31, 2015
Commission File No. 0-18370
MFRI, Inc.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)
7720 N. Lehigh Avenue, Niles, Illinois
(Address of principal executive offices)

36-3922969
(I.R.S. Employer Identification No.)
60714
(Zip Code)

(847) 966-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $.01 per share

Name of each exchange on which registered
The NASDAQ Stock Market LLC

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained
herein and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" in Rule
12b-2 of the Exchange Act. (Check one): Large accelerated filer
reporting company

Non-accelerated filer

Accelerated filer

Smaller

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant (the exclusion of
the market value of the shares owned by any person shall not be deemed an admission by the registrant that such person is an
affiliate of the registrant) was $69,518,913 based on the closing sale price of $11.01 per share as reported on the NASDAQ
Global Market on July 31, 2014.

The number of shares of the registrant's common stock outstanding at April 7, 2015 was 7,246,010.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2015 Annual Meeting of Stockholders are incorporated by reference in Part III.

MFRI, Inc.

FORM 10-K

For the fiscal period ended January 31, 2015

TABLE OF CONTENTS

Item
Part I
1.

1A.
1B.
2.
3.
4.

Part II
5.

7A.

9A.

9B.

Part III
10.
11.
12.

13.
14.

Part IV
15.

Business
Piping Systems
Filtration Products
Employees
International
Executive Officers of the Registrant
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data

Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions and Director Independence
Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules

Report of Independent Registered Public Accounting Firm
Signatures

Page

1
1
3
4
4
5
5
8
8
9
9

19
19
19

19
19

21
54

Forward Looking Statements

PART I

Statements in this Form 10-K that are not historical facts, so-called "forward-looking statements," are made
pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are
cautioned that all forward-looking statements involve risks and uncertainties, including those detailed in MFRI's
filings with the Securities and Exchange Commission ("SEC"). See "Risk Factors" in Item 1A.

Available Information

The Company files with and furnishes to the SEC, reports including annual meeting materials, Annual Reports on
Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, as well as amendments thereto. The
Company maintains a website, www.mfri.com, where these reports and related materials are available free of charge
as soon as reasonably practicable after the Company electronically delivers such material to the SEC. The
information on the Company's website is not part of this Annual Report on Form 10-K and is not incorporated into
this or any other filings by the Company with the SEC.

Item 1. BUSINESS

MFRI, Inc., collectively with its subsidiaries ("MFRI", "Company" or "Registrant"), is engaged in the manufacture
and sale of products in two reportable segments: Piping Systems and Filtration Products. The Company's fiscal
year ends on January 31. Years and balances described as 2014 and 2013 are the fiscal years ended
January 31, 2015 and 2014, respectively. At January 31, 2015, one customer in Piping Systems accounted for
11.2% of the Company's net sales. At January 31, 2014, one customer in Piping Systems accounted for 10.6% of
the Company's net sales. At January 31, 2015, one customer in Piping Systems accounted for 30.7% of accounts
receivable. At January 31, 2014 one customer in Piping Systems accounted for 24.5% of accounts receivable.

MFRI, Inc.'s Operating Units

Piping Systems

Filtration Products

Perma-Pipe, Inc.

Niles, IL

New Iberia, LA

Lebanon, TN

Perma-Pipe Middle East FZC

Midwesco Filter Resources, Inc.

Winchester, VA

TDC Filter Manufacturing, Inc.

Bolingbrook, IL

Nordic Air Filtration A/S

Fujarah, United Arab Emirates

Nakskov, Denmark

Perma-Pipe Saudi Arabia, LLC

Dammam, Kingdom of Saudi Arabia

Perma-Pipe India Pvt. Ltd

Gandidham, India

Bayou Perma-Pipe Canada, Ltd.

Alberta, Canada

All operating units shown are, directly or indirectly, wholly owned by MFRI except Bayou Perma-Pipe
Canada, Ltd., which is owned 49% by MFRI and 51% by an unrelated party.

Piping Systems

Products and services. The Company engineers, designs, manufactures and sells specialty piping and leak
detection and location systems. Piping Systems include (i) industrial and secondary containment piping systems for

transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating and
cooling ("DHC") piping systems for efficient energy distribution to multiple locations from central energy plants,
(iii) subsea oil and gas gathering flow and (iv) above ground long lines for oil and mineral transportation. The leak
detection and location systems are sold with some of its piping systems and also on a stand-alone basis to monitor
areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair
essential services or damage equipment or property.

Piping Systems frequently engineers and custom fabricates to job site dimensions and incorporates provisions for
thermal expansion due to varying temperatures. This custom fabrication helps to minimize the amount of field
labor required by the installation contractor. Most of the piping systems are produced for underground installations
and, therefore, require trenching, which is done by unaffiliated installation contractors.

The Piping Systems segment is based on large discrete projects, and domestic Piping Systems is seasonal. See
"Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - Piping
Systems."

Customers. The customer base is industrially and geographically diverse. In the United States of America ("U.S."),
the Company employs national and regional sales managers who use and assist a network of independent
manufacturers' representatives, none of whom sells products that are competitive with the Company's Piping
Systems. The Company employs a direct sales force as well as an exclusive agent network for several countries in
the Middle and Far East to market and sell products and services.

Intellectual property. The Company owns several patents covering its piping and electronic leak detection systems.
The patents are not material either individually or in the aggregate overall because the Company believes sales
would not be materially reduced if patent protection were not available. The Company owns numerous trademarks
connected with its piping and leak detection systems including the following U.S. trademarks: Perma-Pipe®, Chil-
Gard®, Double Quik®, Escon-A®, FluidWatch®, Galva-Gard®, Polytherm®, Pal-AT®, Stereo-Heat®,
LiquidWatch®, PalCom®, Xtru-therm®, Auto-Therm®, Pex-Gard®, Multi-Therm®, Ultra-Therm®, Cryo-Gard®
, Sleeve-Gard®, Electro-Gard® and Sulphur-Therm™. The Company also owns a number of trademarks
throughout the world. Some of the Company's more significant trademarks include: Auto-Therm®, Cryo-Gard®,
Electro-Gard®, Sleeve-Gard®, Permalert®, Pal-AT®, , Perma-Pipe®, Polytherm®, Ric-Wil®, and Xtru-therm®.

Raw materials. Basic raw materials used in production are pipes and tubes made of carbon steel, alloy, copper,
ductile iron, plastics and various chemicals such as polyols, isocyanate, urethane resin, polyethylene and fiberglass,
mostly purchased in bulk quantities. The Company believes there are currently adequate supplies and sources of
availability of these needed raw materials.

The sensor cables used in the leak detection and location systems are manufactured to the Company's specifications
by companies regularly engaged in manufacturing such cables. The Company owns patents for some of the features
of its sensor cables. The Company assembles the monitoring component of the leak detection and location systems
from components purchased from many sources.

Competition. Piping Systems is highly competitive and believes its principal competition consists of between ten
and twenty major competitors and more small competitors. The Company believes quality, service, a
comprehensive product line and price are key competitive factors. The Company also believes it has a more
comprehensive line for DHC than any competitor. Some competitors have greater financial resources and cost
advantages as a result of manufacturing a limited range of products.

Government regulation. The demand for the Company's leak detection and location systems and secondary
containment piping systems, a small percentage of the total annual piping sales, is driven by federal and state
environmental regulation with respect to hazardous waste. The Federal Resource Conservation and Recovery Act
requires, in some cases, that the storage, handling and transportation of fluids through underground pipelines feature
secondary containment and leak detection. The National Emission Standard for hydrocarbon airborne particulates
requires reduction of airborne volatile organic compounds and fugitive emissions. Under this regulation, many

major refineries are required to recover fugitive vapors and dispose of the recovered material in a process sewer
system, which then becomes a hazardous secondary waste system that must be contained. Although there can be no
assurances as to the ultimate effects of these governmental regulations, the Company believes such regulations may
increase the demand for its Piping Systems products.

Filtration Products

Products and services. The Company manufactures and sells a wide variety of filter elements for cartridge
collectors and baghouse air filtration and particulate collection systems. The principal types of industrial air
filtration and particulate collection systems in use are baghouses, cartridge collectors, electrostatic precipitators,
scrubbers and mechanical collectors. This equipment is used to eliminate particulates from the air by passing
particulate laden gases through fabric filters (filter bags) or pleated media filter elements, in the case of baghouses
or cartridge collectors, between electrically charged collector plates, in the case of electrostatic precipitators and
contact with liquid reagents (scrubbers). The Company manufactures filter elements in standard industry sizes,
shapes and filtration media and to custom specifications, maintaining manufacturing standards for more than 10,000
styles of filter elements to suit substantially all industrial applications. Filter elements are manufactured from
industrial yarn, fabric and paper purchased in bulk. Most filter elements are produced from cellulose, acrylic,
fiberglass, polyester, aramid, laminated membranes, or polypropylene fibers. The Company also manufactures
filter elements from more specialized materials, sometimes using special finishes.

The Company markets numerous filter related products and accessories used during the installation, operation and
maintenance of cartridge collectors and baghouses, including wire cages used to support filter bags, spring
assemblies for proper tensioning of filter bags and clamps and hanger assemblies for attaching filter elements. In
addition, the Company markets hardware items used in the operation and maintenance of cartridge collectors and
baghouses. The Company also provides maintenance services, consisting primarily of air filtration system
inspection and filter element replacement, using a network of independent contractors.

Over the past three years, Filtration Products supplied filter elements to more than 4,000 user locations. The
Company has particular expertise in supplying filter bags for use with electric arc furnaces in the steel industry.
The Company believes its production capacity and quality control procedures make it a leading supplier of filter
bags to large users in the electric power industry. Orders from the electric power industry tend to be substantial in
size, but are usually at lower margins than other industries.

Customers. The customer base is industrially and geographically diverse. These products and services are used
primarily by operators of utility and industrial coal-fired boilers, incinerators and cogeneration plants and by
producers of metals, cement, chemicals and other industrial products.

Filtration Products have an integrated sales program, which consists of field-based sales personnel, manufacturers'
representatives, a telemarketing operation and computer-based customer information systems. The Company
believes the computer-based information systems are instrumental in increasing sales of filter-related products and
accessories and maintenance services, as well as sales of filter elements. Filtration Products are marketed
domestically under the names Midwesco Filter and TDC Filter Manufacturing.

The Company markets its U.S. manufactured Filtration Products internationally using domestically based sales
resources to target major users in foreign countries. The Denmark filtration facility markets pleated filter elements
under the name Nordic Filtration throughout Europe, Asia and the Middle East, primarily to original equipment
manufacturers.

Intellectual property. The Company owns the following trademarks covering Filtration Products: Seamless Tube®,
Leak Seeker®, Prekote®, We Take the Dust Out of Industry®, Pleatkeeper®, Pleat Plus® and EFC®. The
trademarks are not material either individually or in the aggregate overall because the Company believes sales
would not be materially reduced if trademark protection were not available.

Raw materials. The basic raw materials used are industrial fibers and media supplied by leading producers of such
materials. The majority of raw materials purchased are woven fiberglass fabric, yarns for manufacturing Seamless
Tube® products and other woven, felted, spun bond, laminated membranes and cellulose media. Only a limited
number of suppliers are available for some of these materials. The Company believes supplies of all materials are
adequate to meet current demand.

Competition. The filtration products industry is highly competitive. In addition, new installations of cartridge
collectors and baghouses are subject to competition from alternative technologies including electrostatic
precipitators, scrubbers and mechanical collectors described above under Products and Services. The Company
believes, based on domestic sales that its chief competitors consist of approximately five major and at least 50
smaller businesses, most of which are doing business on a regional or local basis. In Europe, several companies
supply filtration products, and the Company is a relatively small participant in that market. Some of the Company's
competitors have greater financial resources than the Company.

The Company believes quality, service and price are the most important competitive factors in filtration products.
Often, a manufacturer has a competitive advantage when its products have performed successfully for a particular
customer in the past. Additional effort is required by a competitor to market products to such a customer. In certain
applications, the Company believes its proprietary Seamless Tube® product and customer support provide the
Company with a competitive advantage. Some competitors may have a competitive advantage with respect to their
own proprietary products and processes, such as specialized fabrics and fabric finishes. In addition, some
competitors may have cost advantages with respect to products as a result of lower wage rates and/or greater
vertical integration.

Government regulation. The sale of filtration products is influenced by governmental regulation of air pollution at
the federal and state levels. The regulatory standards are implemented by each state individually. Emission
standards are continually becoming more stringent, and this drives the requirements for product performance. End
users' success in securing delay in implementing required regulation reduces demand for fabric products.

Employees

As of January 31, 2015, the Company had 1,040 employees, of whom 53% worked outside the U.S.

International

The Company's international operations as of January 31, 2015 include subsidiaries and a joint venture in five
foreign countries on three continents. The Company's international operations contributed approximately 37.6% of
revenue in 2014 and 49.6% of revenue in 2013.

Refer to the Business descriptions on pages 1 through 4 above and Note 1 - Business and segment information in
the Notes to Consolidated Financial Statements for additional information on international activities. International
operations are subject to risks inherent in conducting business in foreign countries, including price controls,
exchange controls, limitations on participation in local enterprises, nationalization, expropriation and other
governmental action, and changes in currency exchange rates.

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth information regarding the executive officers of the Company as of April 1, 2014:

Name
Bradley E. Mautner Director, President and Chief Executive Officer; Age 59

Offices and positions, if any, held with the Company; age

Karl J. Schmidt

Vice President and Chief Financial Officer; Age 61

Wayne Bosch

Vice President, Chief Human Resources Officer; Age 58

Fati A. Elgendy

President and Chief Operating Officer, Perma-Pipe; Age 66

Stephen C. Buck

President, Midwesco Filter; Age 66

All of the executive officers serve at the discretion of the Board of Directors.

Executive officer of
the Company or its
predecessor since
1994

2013

1990

2007

Bradley E. Mautner, Chief Executive Officer since February 2013. President since December 2004; Chief
Operating Officer from December 2004 to January 2013; Executive Vice President from December 2002 to
December 2004;Vice President from December 1996 through December 2002; Director since 1994.

Karl J. Schmidt, Appointed Vice President and Chief Financial Officer in January 2013. From 2010 to 2012, Mr.
Schmidt served as the Chief Financial Officer of Atkore International (previously Tyco Electrical and Metal
Products), a manufacturer of steel pipe and tube products, electrical conduits, cable, and cable management
systems. From 2002 to 2009, Mr. Schmidt served as the Executive Vice President and Chief Financial Officer of
Sauer-Danfoss, Inc., a global manufacturer of hydraulic, electrical, and electronic components and solutions for off-
road vehicles.

Wayne Bosch, Appointed Vice President and Chief Human Resources Officer in December 2013. From 2010 to
2012, Mr. Bosch was Vice President of Human Resources at Pactiv, a $4 billion global manufacturer and distributor
of food packaging products. Prior to Pactiv, he lead the human resource activities at the North American segment of
Barilla America, a $6.3 billion global pasta, sauces and bakery manufacturer and was the Chief Human Resources
Officer for water filtration leader Culligan International.

Fati A. Elgendy, President and Chief Operating Officer of Perma-Pipe since March 1995.

Stephen C. Buck, President of Midwesco Filter since May 2013. President of Thermal Care Inc., ("Thermal Care")
a subsidiary of the Company whose assets were sold in April 2013, from October 2007 to April 2013.

Item 1A. RISK FACTORS

The Company's business, financial condition, results of operations and cash flows are subject to various risks,
including, but not limited to those set forth below, which could cause actual results to vary materially from recent
results or from anticipated future results. These risk factors should be considered together with information
included elsewhere in this Annual Report on Form 10-K.

Economic factors. If the economy experienced a severe and prolonged downturn, it could adversely impact all of
the Company's businesses, directly or indirectly. Downturns in such general economic conditions can significantly
affect the business of our customers, which in turn affects demand, volume, pricing, and operating margin for our
services and products. A downturn in one or more of our significant markets could have a material adverse effect
on the Company's business, results of operations or financial condition. Because economic and market conditions

vary within the Company's segments, the Company's performance by segment will also vary. In addition, the
Company is exposed to fluctuations in currency exchange rates and commodity prices. Failure to successfully
manage any of these risks could have an adverse impact on the Company's financial position, results of operations
and cash flow.

Project Cycles. Since the Piping Systems segment is based on large discrete projects, operating results could be
negatively impacted in the future as a result of large variations in the level of market demand.

Customer access to capital funds. Uncertainty about economic market conditions poses risks that the Company's
customers may postpone spending for capital improvement and maintenance projects in response to tighter credit
markets or negative financial news, which could have a material negative effect on the demand for the Company's
products. The continuing decrease in federal and state spending on projects using the Company's products has
significantly decelerated government funded construction activity in the U.S., negatively impacting sales volume at
the Company's domestic facilities.

Risks related to international business. International sales represent a significant portion of the Company's total
sales. During 2014, the Company's international sales decreased from 49.6% to 37.6% and included sales to one
customer for 11.2%. The Company's anticipated growth and profitability may require maintaining current
international sales volume and may necessitate further international expansion. The Company's financial results
could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S.
and non U.S. governments, agencies and similar organizations. These conditions include, but are not limited to,
changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing
and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights
in some countries, changes in the regulatory or legal environment, restrictions on currency exchange activities,
burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing
social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced international
sales and reduced profitability associated with such sales.

Government regulation. Demand for the Company's leak and location detection products and secondary
containment piping systems is driven by government regulation with respect to hazardous waste. Laws such as the
Federal Resource Conservation and Recovery Act and standards such as the National Emission Standard for
Hydrocarbon Airborne Particulates have increased the demand for the Company's leak and location detection
products and secondary containment piping systems. Filtration products, to a large extent, are dependent on
governmental regulation of air pollution at the federal and state levels. The Company believes that continuing
growth in the sale of filtration products and services will be materially dependent on continuing enforcement of
environmental laws such as the Clean Air Act. Although changes in such environmental regulations could
significantly alter the demand for the Company's products and services, the Company does not believe such a
change is likely to decrease demand in the foreseeable future.

Financing. If there were an event of default under the Company's current revolving credit facilities, the holders of
the defaulted debt could cause all amounts outstanding with respect to that debt to be due and payable immediately.
The Company cannot assure that the assets or cash flow would be sufficient to fully repay amounts due under any
of the financing arrangements, if accelerated upon an event of default, or, that the Company would be able to repay,
refinance or restructure the payments under any such arrangements. Complying with the covenants under the
Company's revolving credit facility may limit management's discretion by restricting options such as:

incurring additional debt;
entering into transactions with affiliates;

·
·
· making investments or other restricted payments;
·
·

paying dividends or making other distributions; and
creating liens.

Any additional financing the Company may obtain could contain similar or more restrictive covenants. The
Company's ability to comply with any covenants may be adversely affected by general economic conditions,
political decisions, industry conditions and other events beyond management's control.

Competition. The businesses in which the Company is engaged are highly competitive. Many of the competitors
are larger and have more resources than the Company. Additionally, many of the Company's products are also
subject to competition from alternative technologies and alternative products. In periods of declining demand, the
Company's fixed cost structure may limit ability to cut costs, which may be a competitive disadvantage compared to
firms with lower cost structures, or may result in reduced operating margins and operating losses.

Suppliers. To the extent the Company relies upon a single source for key components of several of its products, the
Company believes there are alternate sources available for such components; however, there can be no assurance
that the interruption of supplies of such components would not have an adverse effect on the financial condition of
the Company and that the Company, if required to do so, would be able to negotiate agreements with alternative
sources on acceptable terms.

Backlog. The Company defines backlog as the revenue value in dollars resulting from confirmed customer
purchase orders that have not yet been recognized as revenue. However, by industry practice, orders may be
canceled or modified at any time. If a customer cancels an order, the customer is normally responsible for all
finished goods, all direct and indirect costs incurred and also for a reasonable allowance for anticipated profits. No
assurance can be given that these amounts will be recovered after cancellation. Any cancellation or delay in orders
may result in lower than expected revenue.

Attracting and retaining senior management and key personnel. The Company's ability to meet strategic and
financial goals will depend to a significant extent on the continued contributions of senior management. Future
success will also depend in large part on the ability to identify, attract, motivate, effectively utilize and retain highly
qualified managerial, sales, marketing and technical personnel. The loss of senior management or other key
personnel or the inability to identify, attract and retain qualified personnel in the future could make it more difficult
to manage the business and could adversely affect operations and financial results.

Rapid growth of business. Expansion may result in unanticipated adverse consequences, including significant
strain on management, operations and financial systems as well as on the Company's ability to attract and retain
competent employees. In the future, the Company may seek to grow the business by investing in new or existing
facilities, making acquisitions, entering into partnerships and joint ventures, or constructing new facilities, which
could entail a number of additional risks, including:

•
•
•
•
•
•
•

strain on working capital;
diversion of management from other activities, which could impair the operation of existing businesses;
failure to successfully integrate the acquired businesses or facilities into existing operations;
inability to maintain key pre-acquisition business relationships;
loss of key personnel of the acquired business or facility;
exposure to unanticipated liabilities; and
failure to realize efficiencies, synergies and cost savings.

As a result of these and other factors, including the general economic risk, the Company may not be able to realize
the expected benefits from any recent or future acquisitions, new facility developments, partnerships, joint ventures
or other investments.

Percentage-of-completion revenue recognition. All divisions recognize revenues under the stated revenue
recognition policy except for sizable domestic complex contracts that require periodic recognition of income. For
these contracts, the Company uses the "percentage of completion" accounting method. This methodology allows
revenue and profits to be recognized proportionally over the life of a contract by comparing the amount of the cost
incurred to date against the total amount of cost expected to be incurred. The effect of revisions to revenue and
total estimated cost is recorded when the amounts are known or can be reasonably estimated. These revisions can
occur at any time and could be material. On a historical basis, management believes that reasonably reliable
estimates of the progress towards completion on long-term contracts have been made. However, given the
uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously
made, which may result in reductions or reversals of previously recorded revenue and profits.

Income Taxes. Changes in, or interpretations of, tax rules and regulations may adversely affect our effective tax
rates. The Company is a United States-based multinational company subject to tax in multiple U.S. and foreign tax
jurisdictions. A significant portion of earnings for the current fiscal year were earned by foreign subsidiaries. In
addition to providing for U.S. income taxes on earnings from the U.S., the Company provides for U.S. income taxes
on the earnings of foreign subsidiaries unless the subsidiaries’ earnings are considered permanently reinvested
outside the U.S.. If certain foreign earnings previously treated as permanently reinvested are repatriated, the related
U.S. tax liability may be reduced by any foreign income taxes paid on these earnings.

Regulatory and legal requirements. As a public company, the Company is required to comply with the reporting
obligations of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Keeping informed of and in
compliance with, changing laws, regulations and standards relating to corporate governance, public disclosure and
accounting standards, including the Sarbanes-Oxley Act, Dodd-Frank Act, as well as new and proposed SEC
regulations and accounting standards, has required an increased amount of management attention and external
resources. Compliance with such requirements has resulted in increased general and administrative expenses and
an increased allocation of management time and attention to compliance activities.

Item 1B. UNRESOLVED STAFF COMMENTS - None.

Item 2. PROPERTIES Principal properties at January 31, 2015:
Piping Systems

Illinois
Louisiana
Tennessee
Canada

India

Kingdom of
Saudi Arabia
United Arab
Emirates

Owned production facilities and office space
Owned production facilities and leased land
Owned production facilities and office space
Joint venture owned production facilities and
office space
Leased production facilities, office space and
land
Owned production facilities on leased land

16,800 square feet
30,000 square feet on approximately 8 acres
131,800 square feet on approximately 23.5 acres
87,160 square feet on approximately 128 acres

33,700 square feet on approximately 1.2 acres

91,000 square feet on approximately 21 acres

Leased office space and production facilities on
leased land

133,600 square feet on approximately 23 acres

Filtration Products

Illinois

Virginia

Denmark

Bolingbrook - owned production facilities and office space
101,500 square feet on 5.5 acres
Cicero - owned production facilities and office space, currently idle 130,700 square feet on 2.8 acres
97,500 square feet on 5.0 acres
Owned production facilities
6,000 square feet
Leased office space
69,800 square feet on 3.5 acres
Owned production facilities and office space

The Company's principal executive offices, which occupy approximately 23,400 square feet of space in Niles,
Illinois, are owned by the Company. The Company believes its properties and equipment are well maintained and
in good operating condition and that productive capacities will be adequate for present and currently anticipated
needs.

The Company has several significant operating lease agreements as follows:

• Nine acres of land in the Kingdom of Saudi Arabia is leased through 2030 and an additional ten acres of land is

leased through 2031.

• Land for production facilities in the United Arab Emirates, ("U.A.E.") of approximately 80,200 square feet is

leased until June 30, 2030. Office space and land for production facilities of approximately 37,700 square feet in
the U.A.E. is leased until July 2032.

• Office space of approximately 6,000 square feet in Virginia is leased through August 31, 2015.

For further information, see Note 7 - Lease information, in the Notes to Consolidated Financial Statements.

Item 3. LEGAL PROCEEDINGS - The Company had no material pending litigation.

Item 4. MINE SAFETY DISCLOSURES - Not applicable.

PART II

Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER

MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company's fiscal year ends on January 31. Years and balances described as 2014 and 2013 are the fiscal years
ended January 31, 2015 and 2014, respectively.

The Company's Common Stock is traded on the Nasdaq Global Market under the symbol "MFRI". The following
table sets forth, for the periods indicated, the high and low Common Stock sale prices as reported by the Nasdaq
Global Market for 2014 and 2013.

Fiscal 2014
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2013
Fourth Quarter
Third Quarter
Second Quarter
First Quarter

High

Low

$9.03
13.40
12.57
16.80

16.45
12.08
11.39
7.55

$5.46
8.62
9.62
9.19

11.19
9.87
6.99
6.02

As of March 18, 2015, there were 69 stockholders of record and other additional stockholders for whom securities
firms acted as nominees.

The Company has never declared or paid a cash dividend and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. Management presently intends to retain all available funds for the
development of the business and for use as working capital. Future dividend policy will depend upon the
Company's earnings, capital requirements, financial condition and other relevant factors. The Company's line of
credit agreement does not permit the payment of dividends. For further information, see "Financing" in Item 7 and
Note 6 - Debt, in the Notes to Consolidated Financial Statements.

Neither the Company nor any "affiliated purchaser" as defined in Rule 10b-18 purchased any shares of the
Company's Common Stock during the period covered by this report. See Note 14 - Subsequent events, in the Notes
to Consolidated Financial Statements for disclosure of the Company's share repurchase program. The Company has
not made any sale of unregistered securities during the preceding three years.

The Transfer Agent and Registrar for the Common Shares is Continental Stock Transfer & Trust Company, 17
Battery Place, New York, New York 10004, (212) 509-4000.

Equity Compensation Plan Information

The following table provides information regarding the number of shares of Common Stock that may be issued
upon exercise of outstanding options, warrants and rights under the Company's equity compensation plans and the
weighted average exercise price and number of shares of Common Stock remaining available for issuance under
those plans as of January 31, 2015.

Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(1)

Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(1)

Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)

763,825

$11.45

333,569

Plan Category
Equity compensation plans approved
by stockholders

(1) The amounts shown in columns (a) and (b) of the above table do not include 33,396 outstanding deferred stock
units granted under the Company's Deferred Stock Purchase Plan and the 2013 Omnibus Stock Incentive Plan as
amended June 14, 2013 ("Omnibus Plan").

ITEM 6. SELECTED FINANCIAL DATA - Not applicable.

Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

The statements contained under the caption MD&A and other information contained elsewhere in this Annual
Report on Form 10-K, 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 Exchange Act 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 as a result of many factors, including, but not limited to, those under the heading Item 1A.
Risk Factors.

CONSOLIDATED RESULTS OF OPERATIONS

Consolidated Backlog ($ in thousands):
Piping Systems
Filtration Products
Total

January 31,
2015
$30,715
16,383
$47,098

2014
$60,555
22,938
$83,493

MFRI, Inc. is engaged in the manufacture and sale of products in two reportable segments: Piping Systems and
Filtration Products. Since the Piping Systems segment is based on large discrete projects, operating results could be
negatively impacted in the future as a result of large variations in the level of market demand in both geographies
and reporting periods.

The analysis presented below and discussed in more detail throughout the MD&A was organized to provide
instructive information for understanding the business going forward. However, this discussion should be read in
conjunction with the Consolidated Financial Statements in Item 8 of this report, including the notes thereto and the
risk factors contained herein. An overview of the segment results is provided in Note 1 - Business and segment
information, in the Notes to Consolidated Financial Statements.

For the year ended January 31, 2015, one customer in Piping Systems accounted for 11.2% of the Company's net
sales, and for the year ended January 31, 2014, one customer in Piping Systems accounted for 10.6% of the
Company's net sales.

At January 31, 2015, one customer in Piping Systems accounted for 30.7% of accounts receivable. At
January 31, 2014 one customer in Piping Systems accounted for 24.5% of accounts receivable.

In October 2013, the Company decided to sell its remaining industrial process cooling business in Denmark. This
business was sold on February 28, 2014 and was previously reported as Industrial Process Cooling. This business is
reported as discontinued operations in the consolidated financial statements. Loss from discontinued operations net
of tax was $0.3 million and income from discontinued operations net of tax was $8.2 million for the years ended
January 31, 2015 and 2014, respectively. For further information, see Note 3 - Discontinued operations, in the
Notes to Consolidated Financial Statements.

2014 Compared to 2013

Net sales were $194.9 million in 2014, a decrease of 14% from $226.8 million in 2013. Piping Systems sales
decreased 20% or $31.5 million compared to the prior year due to lower volume in Saudi Arabia and the U.A.E..
The first phases of major projects expanding the Grand Mosque in Mecca and the King Abdul-Aziz International
Airport in Jeddah are largely complete. The decrease was partially offset by an increase in domestic oil and gas
projects.

Gross profit decreased 26% to $38.5 million in 2014 from $52.2 million in 2013 due to the sales volume decrease in
Piping Systems. Filtration Products gross profit decreased 12.2% to $7.9 million in 2014 from $8.9 million in 2013
resulting from costs associated with the introduction of new products as well as overall product mix.

Operating expenses decreased 7.2% to $36.3 million from $39.1 million due to lower management incentive and
deferred compensation expenses and a decrease in stock compensation expense. These decreases were partially
offset by an increase in professional fees related to compliance. Operating expenses as a percent of net sales
increased to 18.6% from 17.3%.

Pretax income from continuing operations was $3.3 million versus $12.3 million in the prior year. Factors
contributing to the 2014 results were lower volume in the Middle East partially offset by a profitable performance
by the Canadian joint venture and lower interest expense.

The Company's worldwide effective income tax rates on continuing operations for 2014 and 2013 were 97.5% and
negative 4.0%, respectively. The 2014 effective income tax rate was affected primarily by the impact of the full
valuation allowance maintained against domestic deferred tax assets and anticipated repatriation of foreign
earnings. See the Income Taxes paragraphs later in the MD&A.

Net loss was $0.3 million in 2014 compared to net income of $21.0 million in 2013. The prior-year's net income
included the sale of most of Thermal Care's domestic assets.

Piping Systems

Since the Piping Systems segment is based on large discrete projects, operating results could be negatively
impacted in the future as a result of large variations in the level of market demand in both geographies and reporting
periods.

($ in thousands)
Net sales

Gross profit
Percentage of net sales

Income from operations
Percentage of net sales

Income from joint venture

2014
$126,923

2013
$158,422

30,676
24%

12,665
10.0%

43,273
27%

24,213
15.3%

% Increase
(Decrease)
(19.9)%

(29.1)%

(47.7)%

1,960

528

271.2 %

Net sales of $126.9 million decreased 20% from $158.4 million in the prior year. The decrease was attributed to
lower volume related to the aforementioned projects being largely complete in Saudi Arabia and the U.A.E., offset
by an increase in domestic oil and gas projects.

Gross margin decreased to 24% of net sales from 27% of net sales in the prior year. Gross profit decreased due to
the lower volume produced at the Saudi Arabian and U.A.E. piping facilities, partially offset by the domestic oil and
gas projects.

General and administrative expenses decreased to $12.3 million in 2014 from $14.0 million in 2013 due to lower
management incentive compensation expense due to lower earnings in the period, as well as lower bank fees.
General and administrative expenses as a percentage of net sales increased to 9.7% in 2014 from 8.8% in the prior
year.

Selling expenses increased to $5.7 million from $5.1 million due to additional staffing, advertising and travel costs.
As a percentage of net sales, selling expenses increased to 4.5% in 2014 from 3.2% in the prior year.

Income from the joint venture in 2014 was $2.0 million, an increase of $1.4 million over prior year, driven by
growth in revenues.

Filtration Products

The timing of large orders can have a material effect on net sales and gross profit from period to period. Pricing on
large orders was extremely competitive and therefore resulted in comparatively low gross margins in all periods.

Filtration Products' demand is partially impacted by government regulation of air quality at the federal and state
levels. The Company believes that growth in the domestic sales of its filtration products and services will be
materially dependent on continued enforcement of environmental laws such as the Clean Air Act. Although there
can be no assurance what the ultimate effect of the Clean Air Act will be on filtration products, the Company
believes the Clean Air Act is likely to have a positive long-term effect on demand for the Company's filtration
products and services.

($ in thousands)
Net sales

Gross profit
Percentage of net sales

Loss from operations
Percentage of net sales

2014
$67,934

2013
$68,413

7,854
11.6 %

(3,565)
(5.2)%

8,942
13.1 %

(1,629)
(2.4)%

% Increase
(Decrease)
(0.7)%

(12.2)%

118.8 %

Net sales of $67.9 million in 2014 decreased 0.7% from $68.4 million in 2013. Sales declines were the result of
generally weaker demand from international markets.

Gross margin decreased to 11.6% of net sales in 2014 from 13.1% of net sales in 2013. Gross profit decreased due
to product mix and costs associated with the introduction of new products. Over the past year, the Company has
implemented many initiatives to resize the fabric filter business and lower manufacturing costs in all plants. The
Company continues to expand its geographic market coverage and improve its margin through expense controls to
strengthen this segment.

General and administrative expense increased to $5.0 million in 2014 from $4.6 million in 2013. The net increase
in expenses was the result of the addition of allocated expenses previously carried as corporate expenses. The prior
year also included foreign exchange gain. General and administrative expenses as a percentage of net sales
increased to 7.4% in 2014 from 6.8% in 2013.

Selling expense increased to $6.4 million in 2014 from $5.9 million in 2013. Increased sales staffing was the
primary contributor to the net increase in expenses. As a percentage of net sales, selling expense increased to 9.4%
in 2014 from 8.6% in 2013.

Corporate

Corporate expenses include interest expense and general and administrative expenses that are not allocated to the
segments. General and administrative expenses decreased 27% to $6.9 million in 2014 from $9.5 million in 2013.
As a percentage of sales, it decreased to 3.5% from 4.2%. The spending decreased due to lower management
incentive and deferred compensation expenses and a decrease in stock compensation expense. The stock
compensation benefit is related to the cancellation of stock options from former employees of the discontinued
operations. The decrease in general and administrative expenses was also due to rental income related to the space
occupied by the divested operations. Allocating expenses previously carried as corporate expenses to the segments

contributed to the net decrease in expenses. These decreases were partially offset by an increase in professional
fees related to compliance. The prior year included a $0.1 million loss on an interest rate swap.

Interest expense decreased to $1.4 million in 2014 from $1.9 million in 2013 due to a reduction in interest rates and
lower borrowing volume on the domestic borrowings relative to the prior year.

INCOME TAXES

The Company's worldwide effective tax rates ("ETR") were 97.5% and negative 4.0% in 2014 and 2013,
respectively. The ETR in 2014 was higher than the statutory U.S. federal income tax rate, mainly due to the impact
of the full valuation allowance maintained against domestic deferred tax assets and repatriation of foreign earnings.
Although the domestic deferred tax assets had a full valuation allowance in both years, there was no impact last
year due to the intraperiod allocation rules and the tax expense allocated to discontinued operations. This had the
effect of fully benefiting the continuing operation domestic loss last year, versus no benefit this year. The Company
remains in an NOL carryforward position.

During the third quarter of 2014, the Company received a distribution of foreign earnings of $0.8 million from a
Denmark subsidiary. These foreign earnings were previously considered to be indefinitely reinvested outside the
U.S. The repatriation by the Denmark subsidiary was a one-time nonrecurring event. The Company has not
provided Federal tax on remaining unremitted earnings of its Denmark and Middle East subsidiaries. The Company
does not believe that it will be necessary to repatriate earnings from these subsidiaries. The Company intends and
has the ability to reinvest these earnings for the foreseeable future outside the U.S. If these amounts were
distributed to the U.S., in the form of dividends or otherwise, the Company could be subject to additional U.S.
income taxes. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not
practicable, because such liability, if any, is dependent on circumstances existing if and when remittance occurs.

During the fourth quarter of 2014, the Company has concluded that not all of the undistributed earnings of Perma-
Pipe India Ltd, will remain permanently reinvested outside the U.S. and are now available for use in the U.S. or in
entities in other foreign countries. As a result of that position, the Company has provided deferred taxes on a
portion of the outside basis differences in the stock of this subsidiary. In the fourth quarter of 2014, MFRI recorded
$0.8 million in tax expense related to withholding tax that would be paid to the Indian government in the event that
a dividend of up to $4.2 million is paid to its foreign parent company. Future earnings related to this subsidiary will
not be deemed permanently reinvested. No U.S. cash tax payments will be made upon distribution of these foreign
earnings as long as the Company is in a net loss operating position.

A reconciliation of the ETR to the U.S. Statutory tax rate is as follows:

Statutory tax rate
Valuation allowance for domestic deferred tax assets
Repatriation
Foreign tax credit
Nontaxable income from the Canadian joint venture
Valuation allowance for state deferred tax assets
Differences in foreign tax rate
Research tax credit
Valuation allowance for foreign NOLs
State taxes, net of federal benefit
All other, net expense
Effective income tax rate

2014
34.0 %
53.5 %
25.5 %
(23.9)%
(20.1)%
3.6 %
13.7 %
(0.9)%
0.5 %
(1.9)%
13.5 %
97.5 %

2013
34.0 %
— %
— %
— %
(1.5)%
— %
(24.8)%
— %
(9.8)%
(1.6)%
(0.3)%
(4.0)%

For further information, see Note 8 - Income taxes, in the Notes to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents as of January 31, 2015 were $10.5 million, compared to $13.4 million at
January 31, 2014. At January 31, 2015, $0.7 million was held in the U.S. and $9.8 million was held in the foreign
subsidiaries. The Company's working capital was $35.9 million at January 31, 2015 compared to $47.6 million at
January 31, 2014. Cash provided by operations in 2014 was $4.1 million compared to $6.4 million in 2013.

During the fourth quarter of 2014, the Company has concluded that not all of the undistributed earnings of Perma-
Pipe India Ltd, will remain permanently reinvested outside the U.S. and are now available for use in the U.S. or in
entities in other foreign countries. As a result of that conclusion, the Company has provided deferred taxes on a
portion of the outside basis differences in the stock of this subsidiary. In the fourth quarter of 2014, MFRI recorded
$0.8 million in tax expense related to withholding tax that would be paid to the Indian government in the event that
a dividend of up to $4.2 million is paid to its foreign parent company. No U.S. cash tax payments will be made
upon distribution of these foreign earnings as long as the Company is in a net loss operating position.

Net cash provided by investing activities in 2014 was $5.7 million. The Company estimates that capital
expenditures for 2015 could be as high as $18.7 million, and the Company may finance capital expenditures
through real estate mortgages, term loans, equipment financing loans, internally generated funds and its revolving
line of credit. The majority of such expenditures relates to expected capacity expansion for Piping Systems in the
Middle East.

Debt totaled $18.3 million at January 31, 2015, a decrease of $13.5 million since January 31, 2014. Net cash used
in financing activities was $0.5 million. For additional information, see Note 6 - Debt, in the Notes to Consolidated
Financial Statements. Other long-term liabilities of $3.8 million were composed primarily of accrued pension cost
and deferred revenue.

The following table summarizes the Company's estimated contractual obligations at January 31, 2015.

($ in thousands)

Contractual obligations

Revolving line domestic (1)
Mortgages (2)

Revolving line foreign (3)

Term loans (2)

Subtotal

Capitalized lease obligations

Operating lease obligations (4)

Projected pension contributions (5)

Deferred compensation (6)

Employment agreements (7)

Contractual obligations of
discontinued operations (8)

Uncertain tax position obligations (9)

Year Ending January 31,

Total

$11,353
13,826

2,875

3,180

31,234

2,041

20,327

3,659

6,749

101

116

2016

2017

$11,353
875

2,875

1,904

17,007

783

1,707

352

189

—

$—
876

—

719

1,595

746

1,389

349

6,560

—

2018

$—
4,033

—

557

4,590

254

1,287

371

—

2019

2020 Thereafter

$—
602

—

602

120

$—
600

—

600

124

1,247

368

1,187

382

—

$—
6,840

—

6,840

13,510

1,837

—

101

—

116

Total

$64,288

$20,099

$10,639

$6,502

$2,337

$2,293

$22,418

Notes to contractual obligations table
(1) Interest obligations exclude floating rate interest on debt payable under the domestic revolving line of credit.
Based on the amount of such debt at January 31, 2015, and the weighted average interest rate of 2.95% on that
debt, such interest was being incurred at an annual rate of approximately $0.3 million.

(2) Scheduled maturities, including interest.
(3) Scheduled maturities of foreign revolver line, including interest.
(4) Minimum contractual amounts, assuming no changes in variable expenses.
(5) Includes estimated future benefit payments.
(6) Non-qualified deferred compensation plan - The Company had a Supplemental Retirement and Deferred

Compensation Plan ("Supplemental Plan"), pursuant to which key employees deferred compensation, that was
terminated on April 10, 2014. Refer to Note 9 - Retirement plans, in the Notes to Consolidated Financial
Statements.

(7) Refer to the proxy statement for a description of compensation plans for Named Executive Officers.
(8) Included payments for other liabilities.
(9) Refer to Note 8 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the

uncertain tax position obligations.

Financing

On September 24, 2014, the Company entered into a credit and security agreement with a financial institution (as
amended, "Credit Agreement"). Under the terms of the Credit Agreement, which matures on September 24, 2019,
the Company can borrow up to $25.0 million, subject to borrowing base and other requirements, under a revolving
line of credit. The Credit Agreement covenants restrict debt, liens, and certain investments, and require attainment
of specific levels of profitability and cash flows when reaching certain levels of availability when reaching certain
levels of availability. Interest rates are based on options selected by the Company as follows: (a) a margin in effect
plus a base rate, if below certain availability limits; or (b) a margin in effect plus the Eurodollar rate for the
corresponding interest period. As of January 31, 2015, the Company had borrowed $11.4 million at 3.25% and
1.7% and had $8.2 million available to it under the revolving line of credit. In addition, $0.1 million of availability
was used under the Credit Agreement primarily to support letters of credit to guarantee amounts committed for
inventory purchases. Cash required for operations is provided by draw-downs on the line of credit. The Credit
Agreement replaces a secured loan and security agreement with a bank originally signed on July 11, 2002, as
amended, which provided a revolving line of credit up to $25.0 million ("Prior Loan Agreement"). The outstanding
amount under the Prior Loan Agreement was paid off in full.

At January 31, 2015, the Company was in compliance with all covenants under the Credit Agreement. Subsequent
to January 31, 2015, the Company was not in compliance with the specific level of Borrowing Base availability for
the period ended March 31, 2015. While not a covenant violation, the financial institution has the right in the
Credit Agreement to have all domestic receipts deposited in a bank account from which all funds may only be used
to serve the revolving line of credit under the Credit Agreement. However, the financial institution has not
exercised that right. The domestic revolving line balance as of January 31, 2015 has been classified as a current
liability in the accompanying financial statements.

Revolving lines foreign. The Company also has credit arrangements used by its Danish and Middle Eastern
subsidiaries. These credit arrangements are in the form of overdraft facilities and project financing at rates
competitive in the countries in which the Company operates. Some credit arrangement covenants requires a
minimum tangible net worth to be maintained. At January 31, 2015, the Company was in compliance with the
covenants under the credit arrangement. Interest rates are 4.0% per annum below National Bank of Fujairah Base
Rate, minimum 3.5% per annum and Emirates Inter Bank Offered Rate (EIBOR) plus 3.50% per annum. The
Company's interest rates range from 3.5% to 6.0%. At January 31, 2015, the Company can borrow $36.3 million
under these credit arrangements. The Company borrowed $2.8 million and had $24.0 million available under these
credit arrangements as of January 31, 2015. In addition, $9.5 million of availability was used to support letters of
credit to guarantee amounts committed for inventory purchases. For further information, see Note 6 - Debt, in the
Notes to Consolidated Financial Statements.

On April 1, 2015, the Company obtained a loan with no maturity date in the amount of $1.9 million, sourced from
the cash surrender value of certain life insurance policies. The loan carries interest at a rate of approximately 5%
and requires interest only payments annually.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K. The application of certain of these policies requires
significant judgments or a historical based estimation process that can affect the results of operations and financial
position of the Company as well as the related footnote disclosures. The Company bases its estimates on historical
experience and other assumptions that it believes are reasonable. If actual amounts ultimately differ from previous
estimates, the revisions are included in the Company's results of operations for the period in which the actual
amounts become known.

Revenue recognition. The Company recognizes revenues, including shipping and handling charges billed to
customers, when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has
occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv)
collectability is reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues
upon shipment or delivery of goods or services when title and risk of loss pass to customers.

Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue
recognition policy except for sizable domestic complex contracts that require periodic recognition of income. For
these contracts, the Company uses the "percentage of completion" accounting method. Under this approach,
income is recognized in each reporting period based on the status of the uncompleted contracts and the current
estimates of costs to complete. The choice of accounting method is made at the time the contract is received based
on the expected length and complexity of the project. The percentage of completion is determined by the
relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses
on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job
conditions, and estimated profitability, including those arising from contract penalty provisions and final contract
settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they
are determined. Claims for additional compensation due to the Company are recognized in contract revenues when
realization is probable and the amount can be reliably estimated.

Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out
method for all inventories.

Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in the
basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary
differences have been recorded at the current tax rate. The Company assesses its deferred tax assets for realizability
at each reporting period.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant
tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more
likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater
than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Equity-based compensation. Stock compensation expense for employee equity awards is recognized ratably over
the requisite service period of the award. The Black-Scholes option-pricing model is utilized to estimate the fair
value of option awards. Determining the fair value of stock options using the Black-Scholes model requires
judgment, including estimates for (1) risk-free interest rate - an estimate based on the yield of zero-coupon treasury
securities with a maturity equal to the expected life of the option; (2) expected volatility - an estimate based on the
historical volatility of the Company's Common Stock; and (3) expected life of the option - an estimate based on
historical experience including the effect of employee terminations.

Fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and
accounts payable are based upon reasonable estimates of their fair value due to their short-term nature. The
carrying value of the cash surrender value of life insurance policies approximated fair value and was based on the
market value of the underlying investments, which may increase or decrease due to fluctuations in the overall
financial markets. The carrying amount of the Company's short-term debt, revolving line of credit and long-term
debt approximate fair value because the majority of the amounts outstanding accrue interest at variable rates.

The Company entered into an interest rate swap agreement to reduce its exposure to market risks from changing
interest rates under the revolving credit agreement. Any differences paid or received on the interest rate swap
agreements are recognized as adjustments to interest expense over the life of the swap, thereby adjusting the
effective interest rate on the underlying obligation.

New accounting pronouncements. See Recent accounting pronouncements in Note 2 - Significant accounting
policies, in the Notes to Consolidated Financial Statements.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not

applicable.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of the Company for each of the two years in the periods ended as of
January 31, 2015 and 2014 and the notes thereto are set forth as an exhibit hereto.

Item 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.

Item 9A.

CONTROLS AND PROCEDURES

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company's
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act as of
January 31, 2015. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that
the Company's disclosure controls and procedures were effective as of January 31, 2015 to ensure that information
required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC's rules and forms and is accumulated and
communicated to the issuer's management, including the principal executive and financial officers, to allow timely
decisions regarding required disclosure.

Management's Report on Internal Control Over Financial Reporting. The Company's management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, MFRI's management
carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of its internal control over financial reporting as of the end of the last fiscal year. The framework on
which such evaluation was based is contained in the report entitled "Internal Control-Integrated Framework" issued
by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO 2013 Framework").

The Company's system of internal control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.

Based on its assessment, management has concluded that the Company has maintained effective internal control
over financial reporting as of January 31, 2015, based on criteria in the COSO 2013 Framework.

Item 9B.

OTHER INFORMATION - None.

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE