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,Commission File No. 0-18370
Perma-Pipe International Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 36-3922969 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
6410 W. Howard Street, Niles, Illinois | 60714 |
(Address of principal executive offices) | (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 | Name of each exchange on which registered |
Common Stock, $.01 par value per share | The NASDAQ Stock Market LLC |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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).
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, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", and "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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 $35,417,613$68,544,111.75 based on the closing sale price of $5.61$9.05 per share as reported on the NASDAQ Global Market on
The number of shares of the registrant's common stock outstanding at April 22, 201610, 2019 was 7,403,9587,883,522.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2019 annual meeting of stockholders, which will be filed with the
FORM 10-K
For the fiscal periodyear ended
TABLE OF CONTENTS
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1B. | 10 | |
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5. | 11 | |
6. | 12 | |
7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 12 |
7A. | 18 | |
8. | 18 | |
9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 18 |
9A. | 19 | |
9B. | 20 | |
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10. | 20 | |
11. | 20 | |
12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 20 |
13. | Certain Relationships and Related Transactions, and Director Independence | 20 |
14. | 21 | |
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15. | 21 | |
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| 16. | Form 10-K Summary | 54 |
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| Item | Page | |
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| Filtration Products | 4 | |
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| 1A. | 5 | |
| 1B. | 8 | |
| 2. | 9 | |
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| 7. | 11 | |
| 7A. | 18 | |
| 8. | 18 | |
| 9. | 18 | |
| 9A. | 18 | |
| 9B. | 20 | |
| 10. | Directors, Executive Officers and Corporate Governance | 20 |
| 11. | Executive Compensation | 20 |
| 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 20 |
| 13. | Certain Relationships and Related Transactions, and Director Independence | 20 |
| 14. | Principal Accounting Fees and Services | 20 |
| 15. | 20 | |
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| 54 | ||
Cautionary Statements Regarding Forward Looking Statements
Certain statements contained 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.
the Company’s ability to effectively execute its strategic plan and achieve profitability and positive cash flows;
the impact of global economic weakness and volatility;
fluctuations in steel prices and the Company’s ability to offset increases in steel prices through price increases in its products;
the timing of orders for the Company’s products;
decreases in United States government spending on projects using the Company’s products, and challenges to the Company’s non-government customers’ liquidity and access to capital funds;
the Company’s ability to successfully negotiate progress-billing arrangements for its large contracts;
fluctuations in crude oil and natural gas prices;
risks and uncertainties related to the Company’s international business operations;
the Company’s ability to repay its debt and renew expiring international credit facilities;
aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company operates;
the Company’s ability to purchase raw materials at favorable prices and to maintain beneficial relationships with its suppliers;
the SEC.Company’s ability to manufacture products free of latent defects and to recover from suppliers who may provide defective materials to the Company;
reductions or cancellations of orders included in the Company’s backlog;
the Company’s ability to attract and retain senior management and key personnel;
the Company’s ability to achieve the expected benefits of its growth initiatives;
| • | the Company's ability to interpret changes in tax regulations and legislation; | |
• | reversals of previously recorded revenue and profits resulting from inaccurate estimates made in connection with the Company’s percentage-of-completion revenue recognition; |
the Company’s failure to establish and maintain effective internal control over financial reporting; and
the impact of cybersecurity threats on the Company’s information technology systems.
Perma-Pipe International Holdings, Inc., collectively with its subsidiaries ("MFRI"PPIH", "Company" or "Registrant"), is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. As described below, prior to January 29, 2016, theThe Company was also engagedincorporated in the manufacture and sale of products in the Filtration Products segment.Delaware on October 12, 1993. The Company's common stock is reported under ticker symbol "PPIH". The Company's fiscal year ends on January 31. Years and balances described as 20152018 and 20142017 are for the fiscal years ended January 31, 20162019 and 2015,2018, respectively.
Products and services.
The Company engineers, designs, manufactures and sells specialty piping systems, and leak detectionThe Company frequently engineers and custom fabricates to job site dimensions and incorporates provisions for thermal expansion due to varyingcycling temperatures. This custom fabrication helps to minimize the amount of field labor required by the installation contractor. Most of the Company's piping systems are produced for underground installations and, therefore, require trenching, which is the responsibility of the general contractor, and donecompleted by unaffiliated installation contractors.
The Piping Systems segment is based onCompany’s piping systems are typically sold as a part of large discrete projects, and both the domestic Piping Systems is seasonal.and Canadian customer demand varies by season. See "Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - Piping Systems.."
Operating Facilities: The Company operates its joint venture partner Aegion Corporation to acquire 100% ownership of BPPC, a coatingbusiness from the following locations:
Perma-Pipe, Inc. | Perma-Pipe Middle East FZC |
Niles, IL | Fujairah, United Arab Emirates |
New Iberia, LA | Perma-Pipe Saudi Arabia, LLC |
Lebanon, TN | Dammam, Kingdom of Saudi Arabia |
Perma-Pipe Canada, Ltd. | Perma-Pipe India Pvt. Ltd |
Camrose, Alberta, Canada | Gandhidham, India |
Customers and insulation company in Camrose, Alberta, which acquisition closed on February 4, 2016. MFRI had owned a 49% interest in BPPC since 2009, when the joint venture was formed with Aegion to serve the oil and gas industry in Western Canada.
On January 31, 2019 and January 31, 2018, no one customer accounted for more than 10% of the Company's net sales.
Three customers accounted for 42.0% and 34.9% of accounts receivable on January 31, 2019 and 2018, respectively.
Backlog. The Company’s backlog on January 31, 2019 was $61.0 million compared to $46.7 million on January 31, 2018, most of which is expected to be completed within the next 12 months. The Company defines backlog as the revenue value 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 produced or shipped, 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.
Intellectual property. The Company owns several patents covering its piping and electronic leak detection systems. The patents are not material to the Company either individually or in the aggregate overall, because the Company believes its 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™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®, Sulphur-Therm®, Ric-Wil®, and Xtru-therm®.
Suppliers. The basic raw materials used in production are pipes and tubes made of carbon steel, alloy,steel alloys, copper, ductile iron, plasticsor polymers 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 Company's 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 theits leak detection and location systems from components purchased from many sources.
Competition.
Research and cost advantages asDevelopment. The Company maintains 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, which is a small percentage of the Company's total annual piping sales, is driven by federal and state environmental regulation with respect to hazardous waste. The U.S. 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 U.S. 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 itsIn the United States and services.
As of
January 31,Available Information
The Company files with and a joint venture in four foreign countries on two continents. The Company's international operations contributed approximately 48.4% of revenue in 2015 and 43.7% of revenue in 2014.
The following table sets forth information regarding the executive officers of the Company as of April 1, 2016:
Executive officer of the | ||
Name | Offices and Positions; Age | Company since |
David J. Mansfield | Director, President and Chief Executive Officer; Age | 2016 |
D. Bryan Norwood | Vice President and Chief Financial Officer; Age | 2018 |
Wayne Bosch | Vice President, Chief Human Resources Officer; Age | 2013 |
David J. Mansfield: President and Chief Operating Officer, Perma-Pipe; Age 67
D. Bryan Norwood: Appointed Vice President and Chief Financial Officer in January 2013.November 2018. From 2014 to 2018 Mr. Norwood served as CFO of API Perforating, LLC an oilfield service company providing stage perforation and wireline services. From 2012 to 2014, Mr. Norwood served as CFO of Dupre’ Energy Services, LLC an oilfield service company offering multiple services lines. From 2010 to 2012, Mr. Schmidt served asNorwood was Vice President Finance for the Chief Financial OfficerEnvironmental Services Division of Atkore International (previously Tyco ElectricalPSC, LLC a hazardous waste disposal company. From 1992 to 2010, Mr. Norwood has held several senior leadership positions including CFO of Smith Equipment Rental and Metal Products)Services, LLC., a manufacturer of steel pipe and tube products, electrical conduits, cable, and cable management systems. From 2002 to 2009, Mr. Schmidt served as the Executiveregional oilfield service provider, Vice President and Chief Financial OfficerTreasurer of Sauer-Danfoss,Key Energy Services, Inc., an oilfield multi-service provider, and Corporate Controller and Vice President Finance-Americas with Bredero Shaw, a global manufacturer of hydraulic, electrical, and electronic components and solutions for off-road vehicles.
Wayne Bosch
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.
The Company has incurred net losses for its past two fiscal years and it may be unable to achieve profitability or positive cash flows in the future. The Company has experienced net losses for the past two fiscal years. Generating net income and positive cash flows in the future will depend on its ability to successfully complete and execute its strategic plan. There is no guarantee that the Company will be able to achieve profitability or positive cash flows in the future.The Company’s inability to successfully achieve profitability and positive cash flows may result in it experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.
Global economic weakness and volatility may adversely affect operating margins for the Company’s services and products.If the global economy experiencedexperiences a severe and prolonged downturn, it could adversely impact all of the Company's businesses,business, directly or indirectly. Downturns in such general economic conditions can significantly affect the business of ourthe Company's customers, which in turn affects demand, volume, pricing, and operating marginmargins for ourthe Company's services and products. A downturn in one or more of ourthe Company's 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 segment,geographic regions, the Company's performance will also vary. In addition, the Company is exposed to fluctuations in currency exchange rates and commodity prices. Failureprices, including rising steel prices and surcharges.
Fluctuations in the availability of, and price of steel, may affect the Company's results of operations. The steel industry is highly cyclical in nature, and at times, pricing can be highly volatile due to successfully manage anya number of factors beyond the Company's control, including general economic conditions, import duties, other trade restrictions and currency exchange rates. This volatility may negatively impact market conditions thus reducing project activity.
Through a series of Presidential Proclamations pursuant to Section 232 of the Trade Expansion Act of 1962, as of the date of this filing, U.S. imports of certain steel products are subject to a 25 percent tariff (exceptions are Australia, Argentina, Brazil and South Korea), with retaliatory tariffs imposed by importing countries. The Company expects these risksactions to increase steel costs and decrease supply availability. We routinely insulate steel pipe for our Canadian customers, and these tariffs may lead to project delays or cancellations while they are in place.
The Company regularly updates its quoting system for the movements in steel prices, and intends to recover these price differentials through price increases in the Company's products, however, the Company may not always be successful. Any increase in steel prices that is not offset by an increase in the Company's prices could have an adverse impacteffect on the Company's business, financial position, results of operations or cash flows. In addition, if the Company is unable to acquire timely steel supplies, it may need to decline bid and order opportunities, which could also have an adverse effect on the Company's business, financial position, results of operations or cash flow.
Delays in the timing of orders for the Company’s products may negatively impact the Company’s operating results. Since Piping Systems isthe Company's revenues are based on large discrete projects, the Company's operating results in any reporting period could be negatively impacted in the future as a result of large variations in the level of overall market demand or delays in both geographiesthe timing of project execution phases.
Decreases in government spending on projects using the Company’s products, and reporting periods.
The Company may not be able to successfully negotiate progress-billing arrangements for its large contracts, which could adversely impact the Company’s working capital needs and credit risk. The Company sells systems and products under contracts that allow the Company to either bill upon the completion of certain agreed upon milestones, or upon actual shipment of the system or product. The Company attempts to negotiate progress-billing milestones on large contracts to help manage its working capital and to reduce the credit risk associated with these large contracts. Consequently, shifts in the billing terms of the contracts in the backlog from period to period can increase the Company's requirements for working capital and can increase its exposure to credit risk.
Crude oil and natural gas prices are volatile, and the substantial and extended decline in commodity prices has had, and may continue to have, a material and adverse effect on demand and pricing in the Company's business.
Prices for crude oil and natural gas fluctuate widely. Among the factors that can or could cause these price fluctuations are:the level of consumer demand;
domestic and worldwide supplies of crude oil and natural gas;
domestic and international drilling activity;
the actions of other crude oil exporting nations and the Organization of Petroleum Exporting Countries;
worldwide economic and political conditions, including political instability or armed conflict in oil and gas producing regions; and
the price and availability of, and demand for, competing energy sources, including alternative energy sources.
Generally, when the prices for crude oil and natural gas will not decline further. Additionally,are higher, demand for the decline in oil prices has had budgetary impact on the governments of key Gulf Cooperation Council ("GCC") countries, delaying or canceling major planned infrastructure projects unrelated to oilCompany’s products increases and gas production. It is impossible to predict when and in what volume these planned projects will be implemented. The GCC is a political and economic alliance of six Middle Eastern countries—Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman. Now that the Company's focus is only on Piping Systems, the Company is able to negotiate higher prices. On the other hand, when the prices of crude oil and natural gas are lower, demand for the Company’s products decreases and the Company is forced to compete with lower prices and other concessions. Volatility in these commodity prices can also result in circumstances where demand for the Company’s products is suddenly high, but the Company is unable to negotiate higher prices, thereby adversely impacting the Company’s margins and capacity to accept new projects at higher margins.
The Company may be unable to repay its debt or renew its expiring credit facilities. If there were an event of default under the Company's current revolving credit facilities, the lenders could cause all amounts outstanding with respect to that debt to be due and payable immediately. The Company cannot assure that its cash flow will 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 domestic and/or foreign revolving credit facilities may limit management's discretion by restricting options such as:
incurring additional debt;
entering into transactions with affiliates;
making investments or other restricted payments;
repurchase of Company's shares;
payment of dividends, capital returns, repayment of intercompany obligations and other forms of repatriation; and
creating liens.
The Company’ credit arrangements used by its Middle Eastern subsidiaries are renewed on an annual basis. In addition to these credit arrangements, the Company also obtains project financing in the Middle East on a project-by-project basis. While the Company believes that it will be able to renew its Middle East credit arrangements and will have continued access to individual project financing, there is no assurance that such arrangements will be renewed or made available in similar amounts or be on similar terms and conditions as the current arrangements, or that such individual project financing will be available for projects that the Company is interested in pursuing.
Any replacement credit arrangements outside of the United States may further limit the Company’s ability to repatriate funds from abroad. Repatriation of funds from certain countries may become limited based upon regulatory restrictions or economically unfeasible because of the taxation of funds when moved to another subsidiary or to the parent company. In addition, any refinancing, replacement or additional financing the Company may obtain could contain similar or more concentrated,restrictive covenants than the Company is currently subject to. The Company’s ability to comply with any covenants may be adversely affected by general economic conditions, political decisions, industry conditions and these risk factorsother events beyond management’s control.
Aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company operates could potentiallydrive down the Company's profits and prohibit or slow the Company's growth. The Company's business is highly competitive. Some of the Company's 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 its ability to cut costs, which may be a greatercompetitive disadvantage compared to firms with more flexible cost structures, or may result in reduced operating margins and operating losses.
The Company may be unable to purchase raw materials at favorable prices, or maintain beneficial relationships with its suppliers, which could result in a shortage of supply, or increased pricing. 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 Company.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.
The Company may be subject to claims for damages for defective products. The Company warrants its products to be free of certain defects. The Company has, from time to time, had claims alleging defects in its products. The Company cannot be certain it will not experience material product liability losses in the future or that it will not incur significant costs to defend such claims. While the Company currently has product liability insurance, the Company cannot be certain that its product liability insurance coverage will be adequate for liabilities that may be incurred in the future or that such coverage will continue to be available to the Company on commercially reasonable terms. Any claims relating to defective products that result in liabilities exceeding the Company's insurance coverage could have an adverse effect on the Company's business, financial position, results of operations or cash flows.
Product and service orders included in the Company’s backlog may be reduced or cancelled. The Company defines backlog as the revenue value 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 produced or shipped, 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.
The Company may be unable to attract and retain its senior management and key personnel. The Company's ability to meet its strategic and financial goals will depend to a significant extent on the continued contributions of its senior management and key personnel. Future success will also depend in large part on the Company's 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 Company's business and could adversely affect operations and financial results.
The Company may not be able to achieve the expected benefits from its growth initiatives. The Company's cyclical or general 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 its 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's attention away 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 general economic risks, the Company may not be able to realize the expected benefits from future acquisitions, new facility developments, partnerships, joint ventures or other investments.
The Company's financial results could be adversely affected by changes in international regulations and other activities of U.S. and non-U.S. governmental agencies related to the Company’s international businessoperations. International sales represent a significant portion of the Company's total sales. During 2015, theThe Company's international sales to foreign customers increased to 61.0% in 2018 from 43.7% to 48.4%.59.5% in 2017. The Company's anticipated growth and profitability may require maintainingincreasing current internationalforeign sales volume and may necessitate further
Due to the Company's current revolving credit facilities, the holdersinternational scope of the defaulted debtCompany’s operations, it is subject to a complex system of commercial and trade regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding trade compliance anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries as well as new regulatory requirements regarding data privacy. The Company’s foreign subsidiaries are governed by laws, rules and business practices that differ from those of the U.S. If the activities of these entities do not comply with U.S. laws or business practices or the Company’s Code of Business Conduct, then violations of these laws may result in severe criminal or civil sanctions, which could cause all amounts outstanding with respect to that debt to be duedisrupt the Company’s business, and payable immediately.result in an adverse effect on the Company’s reputation, business and results of operations or financial condition. The Company cannot assure thatpredict the assetsnature, scope or cash flow wouldeffect of future regulatory requirements to which its operations might be sufficient to fully repay amounts due under any ofsubject or the financing arrangements, if accelerated upon an event of default,manner in which existing laws might be administered or that theinterpreted.
The Company wouldmay be able to repay, refinance or restructure the payments under any such arrangements. Complying with the covenants underimpacted by interpretations and changes in tax regulations and legislation which could adversely affect the Company's revolving credit facility may limit management's discretion by restricting options such as:
The Company may not be able to recover costs and damages from vendors that supply defective materials. The Company may receive defective materials from its vendors that are larger and have more resources than the Company. Additionally, many ofincorporated into the Company's products are also subjectduring the manufacturing process. The cost to competition from alternative technologies and alternative products. In periods of declining demand,repair, remake or replace defective products could be greater than 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.
The Company and that the Company, ifmay be required to do so, would be able to negotiate agreements with alternative sources on acceptable terms.
The Company’s failure to establish and regulations may adversely affect ourmaintain 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.
The Company's information technology systems may be negatively affected by cybersecurity threats. The Company faces risks relating to cybersecurity attacks that could cause the loss of confidential information and other business disruptions. The Company relies extensively on computer systems to process transactions and manage its business, and its business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain unauthorized access to data and computer systems. Attacks can be both individual and/ or highly organized attempts organized by very sophisticated hacking organizations. The Company employs a number of measures to prevent, detect and mitigate these threats, which include password encryption, frequent password change events, firewall detection systems, anti-virus software in-place and frequent backups; however, there is no guarantee such efforts will be successful in accordance with Section 404. Ifpreventing a cyber-attack. A successful attack could disrupt and otherwise adversely affect the Company does not remediate the material weaknesses described in Item 9A, or if other material weaknesses are identified in the future , the reported financialCompany's reputation and results of the Company could be materially misstated or could subsequently require restatement, which would require additional financial and management resources, and the market
Location Leased or Owned Size Illinois Leased production facilities and office space 31,650 square feet Louisiana Owned production facilities and leased land 30,000 square feet on approximately 5 acres Tennessee Owned production facilities and office space 131,800 square feet on approximately 23.5 acres Canada Owned production facilities with office space on owned land, leased land and leased office space 102,980 square feet on approximately India Leased production facilities, office space and land 33,700 square feet on approximately 1.2 acres Kingdom of Saudi Arabia Owned production facilities on leased land 89,000 square feet on approximately 11 acres United Arab Emirates Leased office space and production facilities on leased land 182,100 square feet on approximately For further information, see Note LEGAL PROCEEDINGS - As of January 31, 2019, the Company had no material pending litigation. MINE SAFETY DISCLOSURES - Not applicable. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Company's As of April The Company has never declared or paid a cash dividend and does not anticipate paying any cash dividends on its The Company has not made any sale of unregistered securities during the preceding three years. The Transfer Agent and Registrar for the Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain statements contained The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The analysis presented below and discussed in more detail throughout the MD&A was organized to provide instructive information for understanding the Consolidated Results of % Favorable ($ in thousands) 2018 2017 (Unfavorable) Net sales Gross profit Percentage of net sales General and administrative expenses Percentage of net sales Selling expense Percentage of net sales Interest expense, net 2018 Compared to Net sales: Net sales were Cost of sales and gross profit: Gross profit General and administrative expenses: General and administrative expenses Excluding one-time charges in Selling expenses: Selling expenses increased to Interest expense: Interest expense increased to $1.1 million in 2018 from $0.7 million in 2017 due to higher borrowings and increased interest rates. Operating results from operations before income taxes: Operating results from operations before income taxes improved to income of $1.6 million in 2018 compared to a loss of $10.2 million in 2017. The Accounts receivable: In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of The Company has been engaged in Income taxes: The Company's worldwide effective tax rates ("ETR") were The U.S. Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. Effective in 2018, the Due to the timing of the For further information, see Note Other The Company has made a bid to provide insulation of pipes to the East Africa Crude Oil Pipeline ("EACOP") project. The EACOP project is a 1,450 Km (900 mile) long heavy crude oil pipeline from Liquidity and capital resources Cash and cash equivalents as of January 31, Net cash used in investing activities during 2018 and 2017 was $1.4 million and $2.4 million, respectively. The following table summarizes the Company's estimated contractual obligations ($ in thousands) Year Ending January 31, Contractual obligations Total 2020 2021 2022 2023 2024 Thereafter Revolving line North America (1) Mortgages (2) Revolving line foreign (3) Subtotal Capitalized lease obligations Operating lease obligations (4) Employment agreements (5) Uncertain tax position obligations (7) Total Notes to contractual obligations (1) Interest obligations exclude floating rate interest on debt payable under the (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) Refer to the Exhibit Index for a description of compensation and separation plans. (6) Included payments for other liabilities included in discontinued operations. (7) Refer to Note Financing Revolving line North America. On September 20, 2018, the Company and The Company initially used borrowings under the new Senior Credit Facility to pay off outstanding amounts under the Prior Credit Agreement (which totaled approximately USD $3,773,823 plus CAD 4,794,528) and cash collateralize a letter of credit (USD $154,500). The Company has used proceeds from the new Senior Credit Facility for on-going working capital needs, and Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve consolidated net income (excluding the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) before interest, taxes, depreciation, amortization and certain other adjustments (“EBITDA”) of at least $1,807,000 for the period from August 1, 2018 through October 31, 2018; (ii) the North America Loan Parties to achieve EBITDA of at least $2,462,000 for the period from August 1, 2018 through January 31, 2019; (iii) the North America Loan Parties to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) to be not less than 1.10 to 1.00 for the nine-month period ending April 30, 2019 and for the quarter ending July 31, 2019 and each quarter end thereafter on a trailing four-quarter basis; and (iv) the Company Revolving lines foreign Critical accounting estimates and policies The Company's significant accounting policies are discussed Revenue recognition. Inventories. Income taxes. 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 Equity-based compensation. Fair value of financial instruments New accounting pronouncements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Company for each of the two years in the periods ended as of CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE - CONTROLS AND PROCEDURES Evaluation of Disclosure 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 Securities Exchange Act of 1934, as amended) as of January 31, Management's Report on Internal Control Over Financial Reporting. 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 As previously reported, Management previously identified a material weakness in the • Reviewed the categories that are underlying the calculations related to stock-based compensation, and has revised procedures for the calculation and review of effects from vested, forfeited and expired options; and The Company DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for the Information with respect to executive officers of the Company is included in Part I, Item 1, hereof under the caption "Executive Officers of the Registrant". EXECUTIVE COMPENSATION Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 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, 2019. Number of shares to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of shares remaining available for future grants under equity compensation plans (excluding shares reflected in column (a)) Plan Category (a)(1) (b)(1) (c)(2) Equity compensation plans approved by stockholders (1) The amounts shown in columns (a) and (b) of the above table do not include 283,285 outstanding restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended June 14, 2013 ("2013 Omnibus Plan") or the 2017 Omnibus Stock Incentive Plan as amended June 13, 2017 ("2017 Plan"). (2) Future grants will only be made out of the 2017 Plan The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for the CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for the PRINCIPAL ACCOUNTING FEES AND SERVICES Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for the EXHIBITS AND FINANCIAL STATEMENT SCHEDULES a. List of documents filed as part of this report: (1) Financial Statements - Consolidated Financial Statements of the Company Refer to Part II, Item 8 of this report. (2) Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts b. Exhibits: The exhibits, as listed in the Exhibit Index included herein, are submitted as a separate section of this report. c. The response to this portion of Item 15 is submitted under 15a(2) above. Board of Directors and Shareholders Perma-Pipe International Holdings, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Basis for opinion These financial statements We conducted our audits in accordance with the standards of the Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2004. Chicago, Illinois April CONSOLIDATED STATEMENTS OF OPERATIONS Year ended January 31, (In thousands, except per share data) 2019 2018 Net sales Cost of sales Gross profit Operating expenses: General and administrative expense Selling expense Total operating expenses Income/(loss) from operations Interest expense, net Income/(loss) from operations before income taxes Income tax expense/(benefit) Net loss Weighted average common shares outstanding Basic and diluted Loss per share Basic and diluted See accompanying Notes to Consolidated Financial Statements. Note: Earnings per share calculations could be impacted by rounding. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) 2019 2018 Net loss Other comprehensive (loss)/income Currency translation adjustments, net of tax Minimum pension liability adjustment, net of tax Other comprehensive (loss)/income Comprehensive loss See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE January 31, (In thousands, except per share data) 2019 2018 ASSETS Current assets Cash and cash equivalents Restricted cash Trade accounts receivable, less allowance for doubtful accounts of $536 on January 31, 2019 and $469 on January 31, 2018 Inventories Prepaid expenses and other current assets Costs and estimated earnings in excess of billings on uncompleted contracts Total current assets Property, plant and equipment, net of accumulated depreciation Other assets Deferred tax assets Goodwill Other assets Total other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable Commissions and management incentives payable Accrued compensation and payroll taxes Revolving line North America Current maturities of long-term debt Customers' deposits Liabilities of discontinued operations Outside commission liability Other accrued liabilities Billings in excess of costs and estimated earnings on uncompleted contracts Income tax payable Total current liabilities Long-term liabilities Long-term debt, less current maturities Deferred compensation liabilities Deferred tax liabilities Other long-term liabilities Total long-term liabilities Stockholders' equity Common stock, $.01 par value, authorized 50,000 shares; 7,854 issued and outstanding January 31, 2019 and 7,717 issued and outstanding January 31, 2018 Additional paid-in capital Accumulated deficit retained earnings Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Retained Earnings Accumulated Total Common Additional Treasury (Accumulated Other Comp. Stockholders' (In thousands, except share data) Stock Paid-in Capital Stock Deficit) Income (Loss) Equity Total stockholders' equity on January 31, 2017 Net loss Common stock issued under stock plans, net of shares used for tax withholding Stock-based compensation expense Pension liability adjustment Marketable security Foreign currency translation adjustment Tax expense on above items Total stockholders' equity on January 31, 2018 Net loss Common stock issued under stock plans, net of shares used for tax withholding Stock-based compensation expense Foreign currency translation adjustment Total stockholders' equity on January 31, 2019 Common stock shares 2018 2017 Balance beginning of year Treasury stock released Shares issued Balance end of year See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2019 2018 Operating activities Net loss Adjustments to reconcile net loss to net cash flows provided by/ (used in) operating activities Depreciation and amortization Gain on disposal of subsidiary Deferred tax benefit Stock-based compensation expense Provision on uncollectible accounts Loss on disposal of fixed assets Gain on sale of marketable securities Changes in operating assets and liabilities Accounts payable Accrued compensation and payroll taxes Inventories Customers' deposits Income taxes receivable and payable Prepaid expenses and other current assets Accounts receivable Costs and estimated earnings in excess of billings on uncompleted contracts Other assets and liabilities Net cash provided by/(used in) operating activities Investing activities Capital expenditures Proceeds from sale of marketable securities Proceeds from sales of property and equipment Net cash used in investing activities Financing activities Proceeds from revolving lines Payments of debt on revolving lines Debt issuance costs Payments of other debt Increase in drafts payable Proceeds (payments) on capitalized lease obligations Release of treasury stock Stock options exercised and taxes paid related to restricted shares vested Net cash provided by financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net decrease in cash, cash equivalents and restricted cash Cash, cash equivalents and restricted cash - beginning of period Cash, cash equivalents and restricted cash - end of period Supplemental cash flow information Interest paid Income taxes paid Fixed assets acquired under capital leases See accompanying Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED (Tabular dollars in thousands, except per share data) Note 1 - Business Perma-Pipe International Holdings, Inc. (" Fiscal year. Nature of business. Geographic information. (In thousands) 2018 2017 Net sales United States Canada Middle East India Other Total net sales Property, plant and equipment, net of accumulated depreciation United States Canada Middle East India Total Note 2 - Significant accounting policies Use of estimates. Revenue recognition. Shipping and handling. Sales tax. Operating cycle. Consolidation. Translation of foreign currency. Contingencies. Cash and cash equivalents. Accounts payable included drafts payable of Restricted cash. (In thousands) 2018 2017 Cash and cash equivalents Restricted cash Cash, cash equivalents and restricted cash shown in the statement of cash flows Accounts receivable. One of the Company’s accounts receivable in the total amount of $5.4 million as of January 31, 2018 (inclusive of a retention receivable amount of $3.7 million, of which $3.5 million and 3.2 million were included in the balance of other long-term assets as of January 31, 2019 and January 31, 2018, due to the long-term nature of the receivables) has been outstanding for several years. The Company completed all of its deliverables in 2015, and has been engaged in ongoing active efforts to collect this outstanding amount. During fiscal year 2018, the Company received payments of approximately $0.7 million, which reduced the balance of this receivable to $4.7 million as of January 31, 2019. Subsequent to January 31, 2019, the Company received a further $0.3 million, thus reducing this balance to $4.4 million. As a result, the Company did not reserve any allowance against this receivable as of January 31, 2019. The Company continues to engage with the customer to ensure full payment of open balances, and has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. However, if the Company’s efforts to collect on this account are not successful in fiscal 2019, then the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts. Three customers accounted for 39.4% and 34.9% of accounts receivable on January 31, 2019 and 2018, respectively. Concentration of credit risk. The Company has a broad customer base doing business in all regions of the U.S. as well as other areas in the world. Accumulated other comprehensive loss. (In thousands) 2018 2017 Equity adjustment foreign currency, gross Minimum pension liability, gross Marketable security, gross Subtotal excluding tax effect Tax effect of foreign exchange currency Tax effect of minimum pension liability Tax effect of marketable security Total accumulated other comprehensive loss Inventories. (In thousands) 2018 2017 Raw materials Work in process Finished goods Subtotal Less allowance Inventories Long-lived assets. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to 30 years. Leasehold improvements are depreciated over the remaining life of the lease or its useful life, whichever is shorter. Amortization of assets under capital leases is included in (In thousands) 2018 2017 Land, buildings and improvements Machinery and equipment Furniture, office equipment and computer systems Transportation equipment Subtotal Less accumulated depreciation Property, plant and equipment, net of accumulated depreciation Impairment of long-lived assets. Goodwill.The Foreign exchange (In thousands) January 31, 2018 change effect January 31, 2019 Goodwill The Company performs an impairment assessment of goodwill annually as of January 31, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. There Other intangible assets with definite lives. Research and development Income taxes. 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 Net loss per common share. Earnings per share ("EPS") Basic weighted average number of common shares outstanding (in thousands) 2018 2017 Basic weighted average number of common shares outstanding Dilutive effect of stock options and restricted stock units Weighted average number of common shares outstanding assuming full dilution Stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices Canceled options during the year Stock options with an exercise price below the average stock price Equity-based compensation. Segments. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the Fair value of financial instruments Recent accounting pronouncements In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the current guidance. The new guidance is effective for the Company beginning February 1, 2018, with early adoption permitted. The adoption of this guidance did not have a material impact on the Company's results of operations or financial position. In February 2016, the FASB issued In The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on the consolidated financial statements. Note The Company had a Filtration Products segment, which was sold in fiscal 2016, Note A retention receivable is Note 5 - Revenue recognition On February 1, 2018, the Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers," ("Topic 606"), using the modified retrospective method applied to contracts that were not completed as of that date. Under this methodology the effect, if any, of initially applying the new revenue standard was to be recorded as an adjustment to the opening balance of retained earnings, while periods prior to the adoption date were not to be adjusted and continue to be reported in accordance with the accounting policies in effect for those periods. The Company conducted a complete and thorough analysis of each single element of the five-step model of Topic 606 and concluded that there was no material impact to the Company as a result of the adoption of the new standard. As such, the Company was not required to make a cumulative adjustment to the opening balances of retained earnings, contract assets or contract liabilities upon its initial application of the new revenue standard. Revenue from contracts with customers: The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured. The Company’s standard revenue transactions are classified in to two main categories: 1) Systems - which include all bundled products in which Perma-Pipe designs, engineers, and manufactures pre-insulated specialty piping systems, insulates subsea flowline pipe, subsea oil production equipment, and land-lines. Additionally, this systems classification also includes coating applied to pipes and structures. 2) Products - which include cables, leak detection products, heat trace products sold under the PermAlert brand name, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract. Table of Contents In accordance with ASC 606-10-25-27 through 29, the Company recognizes specialty piping and coating systems revenue over time as the manufacturing process progresses because one of the following conditions exist: 1) the customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process; or 2) the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus seller’s profit margin for products that have no alternative use for the Company. Products revenue is recognized when goods are shipped or services are performed (ASC 606-10-25-30). 35 Table of Contents A breakdown of the Company's revenues by revenue class for fiscal years 2018 and 2017 are as follows: 2018 2017 Sales % to Total Sales % to Total Products 13,576 11% 8,495 8% Specialty Piping Systems and Coating Revenue recognized under input method 40,525 31% 39,891 38% Revenue recognized under output method 74,864 58% 56,862 54% Total 128,965 100% 105,248 100% The input method as noted in ASC 606-10-55-20 is used by the U.S. operating entities to measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract using the percentage-of-completion method. Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the percentage-of-completion method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are incurred. The output method as noted in ASC 606-10-55-17 is used by all other operating entities to measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract. Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced, or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped. Some of the Company’s operating entities invoice and collect milestones or other contractual obligations prior to the transfer of goods and services, but does not recognize revenue until the performance obligations are satisfied under the methods discussed above. Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified. Contract assets and liabilities: Contract assets represent revenue recognized in excess of amounts billed (unbilled receivables) for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs (unearned revenue) for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impacts the period end balances in these accounts. Table of Contents The Company anticipates that substantially all costs incurred for uncompleted contracts as of January 31, 2019 will be billed and collected within one year. The following tables set forth the changes in the Company's contract assets and liabilities for the periods indicated. The Company expects to recognize the remaining balances as of January 31, 2019 within one year. Contract Assets Balance January 31, 2018 $1,502 Costs and gross profit recognized during the period for uncompleted contracts from the prior period (6,458) Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period 6,609 Closing Balance at January 31, 2019 1,653 Contract Liabilities Balance January 31, 2018 $1,967 Revenue recognized during the period for uncompleted contracts from the prior period (3,222) New contracts entered into that are uncompleted at the end of the current period 2,824 Closing Balance at January 31, 2019 1,569 The following table shows the reconciliation of the cost in excess of billings: (In thousands) 2018 2017 Costs incurred on uncompleted contracts Estimated earnings Earned revenue Less billings to date Costs in excess of billings, net Balance sheet classification Contract assets: Costs and estimated earnings in excess of billings on uncompleted contracts Contract liabilities: Billings in excess of costs and estimated earnings on uncompleted contracts Costs in excess of billings, net Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration span more than one year. The Company applies practical expedient for these types of costs and as such are expensed in the period incurred. As the Company's contracts are less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period. Note 6 - (In thousands) 2018 2017 Revolving line North America Mortgage notes Revolving lines foreign Capitalized lease obligations Total debt Unamortized debt issuance costs Less current maturities Total long-term debt Current portion of long-term debt Unamortized debt issuance costs Total short-term debt The following table summarizes the Company's scheduled maturities (In thousands) Total 2020 2021 2022 2023 2024 Thereafter Revolving line North America Mortgages Revolving line foreign Capitalized lease obligations Total Revolving line North America. On September 20, 2018, the Company and certain of its U.S. and Canadian subsidiaries (collectively, together with the Company, the “North American Loan Parties”) entered into a new Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”), providing for a new three-year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”). The Senior Credit Facility replaced the Company’s then existing $15 million Credit and Security Agreement, dated September 24, 2014, among various subsidiaries of the Company The Company initially used borrowings under the new Senior Credit Facility to pay off outstanding amounts under the Prior Credit Agreement (which totaled approximately USD $3,773,823 plus CAD 4,794,528) and cash collateralize a letter of credit (USD $154,500). The Company has used proceeds from the new Senior Credit Facility for on-going working capital needs, and Subject to certain exceptions, borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company and certain of its North American subsidiaries. The North American Loan Parties’ obligations under the Senior Credit Facility are guaranteed by Perma-Pipe Canada, Inc. The Senior Credit Facility will mature on September The Senior Credit Facility also contains financial covenants requiring (i) the North America Loan Parties to achieve consolidated net income (excluding the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) before interest, taxes, depreciation, amortization and certain other adjustments (“EBITDA”) of at least $1,807,000 for the period from August 1, 2018 through October 31, 2018; (ii) the North America Loan Parties to achieve EBITDA of at least $2,462,000 for the period from August 1, 2018 through January 31, 2019; (iii) the North America Loan Parties to achieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and interest payments on the advances under the Senior Credit Facility (excluding from the calculation items related to the financial performance of the Company’s foreign subsidiaries not party to the Credit Agreement) to be not less than 1.10 to 1.00 for the nine-month period ending April 30, 2019 and for the quarter ending July 31, 2019 and each quarter end thereafter on a trailing four-quarter basis; and (iv) the Company As of January 31, Revolving lines foreign. The Company had a revolving line for 8.0 million Dirhams (approximately $2.2 million U.S. dollars at January 31, 2019) from a bank in the U.A.E. The loan had an interest rate of approximately 6.15% and expired on March 31, 2019. The Company is in current negotiations to renew and expand this facility. The Company has a revolving line for The Company’ credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company Mortgages. On July 28, 2016, the Company borrowed $8.0 million On June 19, 2012, Capital leases. On On May 5, 2017, the Company On August 5, 2016, the Company obtained a capital lease for 0.6 million Indian Rupees (approximately Note Property under capitalized leases (in thousands) 2018 2017 Machinery and equipment Transportation equipment Subtotal Less accumulated amortization Total The Company has several significant operating lease agreements as follows: Office Space of approximately 31,650 square feet in Niles, IL is leased until October, 2023. Five acres of land in Louisiana is leased through March, 2022. Thirty acres of land in Canada. Ten acres leased through October, 2019, and twenty acres leased through December, 2022. Nine acres of land in the Kingdom of Saudi Arabia is leased through April, 2030. Production facilities in the U.A.E. of approximately 80,200 square feet on approximately 107,600 square feet of land is leased until June, Office space of approximately 21,500 square feet and open land for production facilities of approximately Production facilities in the U.A.E. of approximately 78,100 square feet is leased until December, 2032. The Company On January 31, (In thousands) Operating Leases Capital Leases 2019 2020 2021 2022 2023 Thereafter Subtotal Less Amount representing interest Future minimum lease payments Rental expense for operating leases was Note Income/(loss) from continuing operations before income taxes (in thousands) 2018 2017 Domestic Foreign Total Components of income tax expense/(benefit) (in thousands) 2018 2017 Current Federal Foreign State and other Total current income tax expense (benefit) Deferred Federal Foreign State and other Total deferred income tax benefit Total income tax expense/(benefit) The Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company has made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of January 31, 2018, as permitted by SAB 118. The accounting for One-time transition tax The 2017 provisional estimate of the aggregate deferred foreign income inclusion of $23.2 million was adjusted to $22.2 million during 2018. At the time the provisional estimate was prepared, the Company expected to offset the inclusion with Net Operating Losses ("NOLs"). However, when preparing the tax return for the period the Company elected to claim foreign tax credits against the transition tax to preserve the NOLs. The net impact to the deferred balances was an increase in the NOL Deferred Tax Asset ("DTA") of $4.9 million and As a result of the onetime transition tax, the Company estimates that distributions from foreign subsidiaries will no longer be subject to U.S. tax. Earnings in the Company's subsidiaries in Canada, and Denmark, are not permanently reinvested, and earnings in the India subsidiary are partially permanently reinvested. The earnings will be subject to tax in their local jurisdiction, and the impact of the U.S. income and foreign withholding taxes have not been recognized on the Deferred tax effects As Global intangible low taxed income ("GILTI") Beginning for tax years starting after December 31, 2017, the Tax Act creates a new requirement that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. The Company has elected to account for the The difference between the provision for income taxes and the amount computed by applying the U.S. Federal (In thousands) 2018 2017 Tax benefit at federal statutory rate Federal rate change State benefit, net of federal income tax effect Excess income tax on share-based compensation Domestic valuation allowance Global Intangible Low Tax Income Inclusion Permanent differences other Valuation allowance for state NOLs Differences in foreign tax rate Tax effects of Canadian acquisition amalgamation Deferred tax on unremitted earnings All other, net expense Total income tax expense/(benefit) The Company's worldwide effective tax rates ("ETR") were 132.7% and 2.3% in 2018 and 2017, respectively. The change in the ETR from the prior year to the current year is largely due to the fact that the Company is in a positive operating income position in certain taxable jurisdictions. Additional factors include the tax benefit of a Canadian business combination which was realized in 2017, and the valuation allowance against the domestic deferred tax asset. Due to this, even relatively small changes to ordinary income will have a large impact to the ETR. The income tax expense in 2018 is $2.2 million, compared to income tax benefit of $0.2 million in 2017. The Company accrues taxes in various countries where they are generating income while applying a valuation allowance in the U.S. which attributes to the unusually large ETR. Components of deferred income tax assets (in thousands) 2018 2017 U.S. Federal NOL carryforward Deferred compensation Research tax credit Foreign NOL carryforward Foreign tax credit Stock compensation Other accruals not yet deducted State NOL carryforward Accrued commissions and incentives Inventory valuation allowance Other Deferred tax assets, gross Valuation allowance Total deferred tax assets, net of valuation allowances Components of the deferred income tax liability Depreciation Foreign subsidiaries unremitted earnings Prepaid Total deferred tax liabilities Deferred tax liability, net Balance sheet classification Long-term assets Long-term liability Total deferred tax liabilities, net of valuation allowances The Company has a gross U.S. Federal operating loss carryforward of The The Company has a DTA foreign NOL carryforward of The Company periodically reviews the adequacy of its valuation allowance in all of the tax jurisdictions in which it operates, evaluates future sources of taxable income and tax planning strategies and may make further adjustments based on management's outlook for continued profits in each For the year ending The Company has a deferred tax asset of The following table summarizes UTP activity, excluding the related accrual for interest and penalties: (In thousands) 2018 2017 Balance at beginning of the year Increases in positions taken in a prior period Increases in positions taken in a current period Decreases due to lapse of statute of limitations Decreases due to settlements Balance at end of the year Included in the total UTP liability The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company's management periodically estimates the probable tax obligations of the Company using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretation of tax regulations in the jurisdictions in which the Company transacts business. The judgments and estimates made at a point in time may change based on the outcome of tax audits, as well as changes to or further interpretations of regulations. If such changes take place, there is a risk that the tax rate may increase or decrease in any period. Tax accruals for tax liabilities related to potential changes in judgments and estimates for federal, foreign and state tax issues are included in Note Pension plan The defined benefit plan that covered the hourly rate employees of a non-operating filtration business unit, previously located in Winchester, Asset allocation The plans hold no securities of Level 1 Level 2 Level 3 (In thousands) 2018 2017 Level 1 market value of plan assets Equity securities U.S. bond market Real estate securities Subtotal Level 2 significant other observable inputs Money market fund Subtotal Investments measured at net asset value* Total * Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of benefit obligations, plan assets and funded status of plan. On January 31, Investment market conditions in Reconciliation of benefit obligations, plan assets and funded status of plan (in thousands) 2018 2017 Accumulated benefit obligations Vested benefits Accumulated benefits Change in benefit obligation Benefit obligation - beginning of year Interest cost Actuarial (gain)/loss Benefits paid Benefit obligation - end of year Change in plan assets Fair value of plan assets - beginning of year Actual (loss)/gain on plan assets Benefits paid Fair value of plan assets - end of year Unfunded status Balance sheet classification Prepaid expenses and other current assets Other assets Deferred compensation liabilities Net amount recognized Amounts recognized in accumulated other comprehensive loss Unrecognized actuarial loss Net amount recognized Weighted-average assumptions used to determine net cost and benefit obligations 2018 2017 End of year benefit obligation discount rate Service cost discount rate Expected return on plan assets The discount rate was based on a Citigroup pension discount curve of high quality fixed income investments with cash flows matching the plans' expected benefit payments. The Company determines the expected long-term rate of return on plan assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation approved by the Board of Directors and the underlying return fundamentals of each asset class. The Company's historical experience with the pension fund asset performance is also considered. Components of net periodic benefit cost (in thousands) 2018 2017 Net periodic benefit income Amounts recognized in other comprehensive income (in thousands) Actuarial gain/(loss) on obligation Actual (loss)/gain on plan assets Total in other comprehensive income Other comprehensive income is also affected by the tax effect of the valuation allowance recorded on the domestic deferred tax assets. Cash flows (in thousands) Expected employer contributions for the fiscal year ending January 31, 2020 Expected employee contributions for the fiscal year ending January 31, 2020 Estimated future plan benefit payments reflecting expected future service for the fiscal year(s) ending January 31,: 2020 2021 2022 2023 2024 401(k) plan The domestic employees of the Company participate in the Contributions to the 401(k) plan were Multi-employer plans The Company contributes to a multi-employer plan for certain collective bargaining U.S. employees. The risks of participating in this multi-employer plan are different from a single employer plan in the following aspects: Assets contributed to the multi-employer plans by one employer may be used to provide benefits to employees of other participating employers. If a participating employer ceases contributing to the plan, the unfunded obligations of the plan may be inherited by the remaining participating employers. If the Company chooses to stop participating in the multi-employer plan, the Company may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The Company has assessed and determined that the multi-employer plans to which it contributes are not significant to the Company's consolidated financial statements. The Company does not expect to incur a withdrawal liability or expect to significantly increase its contribution over the remainder of the contract period. The Company made contributions to the bargaining unit supported multi-employer pension Funded Collective Zone FIP/RP Status 2018 2017 Surcharge Bargaining Plan Name EIN Plan # Status Pending/Implemented Contribution Contribution Imposed Expiration Date Plumbers & Pipefitters Local 572 Pension Fund 626102837 001 Green No $188 $209 No 3/31/2022 Note At January 31, 2019, the 2017 Omnibus Stock Incentive Plan as Amended June 13, 2017, as amended, which stockholders approved in June 2017 (" The Company has prior incentive plans under which previously granted awards remain outstanding, but under which no new awards may be granted. At January 31, 2019, the Company had reserved a total of 834,182 shares for grants and While the 2017 Plan provides for the grant of Stock compensation expense The Company recognized the following stock based compensation expense: (In thousands) 2018 2017 Stock-based compensation expense Restricted stock based compensation expense Stock options Options vest ratably over (Shares in thousands) Options Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Outstanding on January 31, 2017 Exercised Expired or forfeited Outstanding on January 31, 2018 Options exercisable on January 31, 2018 Exercised Expired or forfeited Outstanding on January 31, 2019 Options exercisable on January 31, 2019 Unvested options outstanding (shares in thousands) Options Weighted- average grant date fair value Aggregate intrinsic value Outstanding on January 31, 2018 Granted Vested Outstanding on January 31, 2019 The fair value of stock options As of As part of As a result of certain events that occurred during second quarter of fiscal 2018, including a settlement of a stock-based award previously granted to a retiring member of the Company's Board of Directors, the Company changed its method of accounting for deferred stock compensation arrangements granted to the Company's directors from liability accounting treatment to equity accounting treatment and, as such, reclassified $0.7 million from a liability to additional paid in capital. (In thousands) 2018 2017 Deferred compensation liabilities Restricted stock The Company has granted restricted stock to (Shares in thousands) Restricted shares Weighted average price Aggregate intrinsic value Outstanding on January 31, 2017 Granted Issued Forfeited Outstanding on January 31, 2018 Granted Issued Forfeited Outstanding on January 31, 2019 The fair value of restricted stock vested was $1.1 million and $1.0 million in 2018 and 2017, respectively. As of Note On September 15, 2009, the Company entered into the Amendment ("Amendment") to Rights Agreement dated as of September 15, 1999. Among other things, the Amendment extends the term of the Rights Agreement until September 15, 2019 and amends definitions to include positions in derivative instruments related to the Company's common stock as constituting beneficial ownership of such stock. On September 15, 1999, the Company's Board of Directors declared a dividend of one common stock purchase right (a "Right") for each share of The Rights may not be exercised until 10 days after a person or group acquires 15% or more of the Company's common stock, or announces a tender offer that, if consummated, would result in 15% or more ownership of the Company's common stock. Separate Rights certificates will not be issued, and the Rights will not be traded separately from the stock until then. Should an acquirer become the beneficial owner of 15% or more of the Company's common stock, Rights holders other than the acquirer would have the right to buy common stock in The Rights will expire on Note (In thousands) 2018 2017 Interest expense Interest income Interest expense, net Perma-Pipe International Holdings, Inc. and Subsidiaries VALUATION AND QUALIFYING ACCOUNTS For the Years Ended (In thousands) Year Ended January 31, 2019 Allowance for possible losses in collection of trade receivables Year Ended January 31, 2018 Allowance for possible losses in collection of trade receivables (1) (2) The exhibits listed below are filed herewith except the exhibits described below as incorporated by reference. Exhibits not filed herewith are incorporated by reference to such exhibits filed by the Company under the location set forth under the caption Exhibit No. Description and Location 3(i) Certificate of Incorporation of 3(ii) 3(iii) 4(a) Specimen Common Stock Certificate [Incorporated by reference to Exhibit 4 to Registration Statement No. 33-70794] 4(b) 4(c) 10(a) 10(b) 10(c) 10(d) 10(e) 10(f) 10(g) 10(h) 10(i) 10(j) 10(k) 10(l) 10(m) 10(n) 10(o) 10(p) 10(q) EXHIBIT INDEX 10(r) 10(s) 10(t) 10(u) *Management contracts and compensatory plans or agreements Item 16. FORM 10-K SUMMARY - None. Pursuant to the requirements of Section 13 or 15(d) 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. /s/ David J. Mansfield Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. DAVID J. MANSFIELD Director, President and Chief Executive Officer (Principal Executive Officer) ) ) D. BRYAN NORWOOD* Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) ) April 16, 2019 ) DAVID S. BARRIE* Director and Chairman of the Board of Directors DAVID B. BROWN* Director ) JEROME T. WALKER* Director ) CYNTHIA BOITER* Director ) *By: /s/ David J. Mansfield Individually and as Attorney in Fact David J. Mansfield 55Item 2. PROPERTIES Principal properties at January 31, 2016:Piping SystemsIllinois16,800 square feetLouisianaOwned production facilities and leased land30,000 square feet on approximately 6 acresTennesseeOwned production facilities and office spaceCanadaTexasJoint venture owned production facilities andLeased office space87,1602,100 square feet128158 acres91,000108,3002316.4 acresFiltration ProductsIllinoisBolingbrook - owned production facilities and office space, currently idle101,500 square feet on 5.5 acresCicero - owned production facilities and office space, currently idle130,700 square feet on 2.8 acresVirginiaOwned production facilities97,500 square feet on 5.0 acresLeased office space6,000 square feetThe Company's principal executive offices, which occupy approximately 23,400 square feet of space in Niles, Illinois, are owned by the Company. This property is currently held for sale. In anticipation of this sale, the Company signed a lease in September 2015 for new office space currently under construction. The Company anticipates that it will begin occupying the new headquarters in the second quarter of 2016. The Company believes its properties and equipment are well maintained and in good operating condition and that production 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.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 21,500 square feet in the U.A.E. is leased until July 2032.87 - Lease information, Statements.Statements.10Item 3. LEGAL PROCEEDINGS - The Company had no material pending litigation.Item 4. MINE SAFETY DISCLOSURES - Not applicable.PART IIfiscal year ends on January 31. Years and balances described as 2015 and 2014 are the fiscal years ended January 31, 2016 and 2015, respectively.The Company's Common Stockcommon stock is traded on the Nasdaq Global Market under the symbol "MFRI""PPIH". 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 2015 and 2014. High Low Fiscal 2015 Fourth Quarter $6.88 $5.17 Third Quarter 5.68 4.52 Second Quarter 6.40 5.56 First Quarter 6.83 5.60 Fiscal 2014 Fourth Quarter 9.03 5.46 Third Quarter 13.40 8.62 Second Quarter 12.57 9.62 First Quarter 16.80 9.19 1, 2016,3, 2019, there were 69approximately 60 stockholders of record and other additional stockholders for whom securities firms acted as nominees.On February 5, 2015, the Company's Board of Directors approved a share repurchase program, which authorizes the Company to use up to $2 million for the purchase of its outstanding shares of common stock. Share repurchases were permitted to be executed through open market or privately negotiated transactions on or prior to December 31, 2015. There were no stock repurchases in the fourth quarter.The following table sets forth information with respect to repurchases by the Company of its shares of common stock during 2015:Period Total number of shares purchased Average price paid per share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the plans or programs February 28,066 6.64 28,066 1,813,632 March 16,500 6.27 16,500 1,710,342 April - December — — — — Total 44,566 6.50 44,566 Common Stockcommon stock in the foreseeable future. Management presently intends to retain all available funds for the development of the Company's 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. For further information, see "Financing" in Item 7 and Note 6 - Debt, Statements.Statements.Common SharesCompany's common stock is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004, (212) 509-4000.Broadridge Corporate Issuer Solutions, Inc., P.O. Box 1342 Brentwood, NY 11717, (877) 830-4936 or (720) 378-5591.11Equity Compensation Plan InformationThe 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, 2016. Number of shares to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) Plan Category (a)(1) (b)(1) (c) Equity compensation plans approved by stockholders 719,650 $11.38 205,576 (1) The amounts shown in columns (a) and (b) of the above table do not include 77,293 outstanding deferred stock units granted under the Company's Deferred Stock Purchase Plan and the 2013 Omnibus Stock Incentive Plan as amended June 14, 2013 ("Omnibus Plan").Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSTheunder the caption MD&A and other information contained elsewhere in this Annual Report on Form 10-K,Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely""likely," and "probable""probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the headingheadings Cautionary Statements Regarding Forward Looking Information and Item 1A. Risk Factors.CONSOLIDATED RESULTS OF OPERATIONS
January 31, ($ in thousands)2016 2015 Backlog $47,937 $30,715 As of January 31, 2016, MFRI, Inc.As described below, prior to January 29, 2016,The Company's website is www.permapipe.com. Since the Company was also engaged in the manufacture and sale of products in the Filtration Products segment. Since Piping Systems isCompany's revenues are based on large discrete projects, the Company's operating results in any reporting period could be negatively impacted in the future as a result of large variations in the level of overall market demand or delays in both geographies and reporting periods.the timing of the specific project phases. business going forward.Company's business. However, this discussionMD&A should be read in conjunction with the Consolidated Financial Statements in Item 8 of this report,Annual Report on Form 10-K, including the notes thereto and the risk factors contained herein. An overviewthe segment results is provided in Note 1 - Business and segment information, in the Notes to Consolidated Financial Statements.Operation: $ 128,965 $ 105,248 22.5 % 23,339 11,742 98.8 % 18.1 % 11.2 % 15,357 16,214 5.3 % 11.9 % 15.4 % 5,239 5,040 (3.9 %) 4.1 % 4.8 % 1,122 697 (61.0 %) Income/(loss) from operations before income taxes 1,621 (10,209 ) N/A 12At January 31, 2016, one customer accounted for 10.3%Table of the Company's net sales. At January 31, 2015, one customer accounted for 17.2% of the Company's net sales.ContentsTwo customers accounted for 46.4% of accounts receivable at January 31, 2016, and one customer accounted for 37.4% of accounts receivable at January 31, 2015. As of April 1, 2016, these customers have paid 40.4% of their receivables outstanding at January 31, 2016.In January 2016, the Company took a series of actions designed to refocus its business portfolio and cost structure to enhance the Company’s overall performance, including selling its filtration products business in Denmark and Illinois and intend to sell the domestic fabric filter business in Virginia. These businesses were previously reported as Filtration Products. These businesses are reported as discontinued operations in the consolidated financial statements, and the notes to consolidated financial statements have been restated to conform to the current year reporting of this business. The prior year financial statements have been revised to conform to the current year reporting. The Company sold its Illinois and international filtration businesses for $22.0 million, including cash proceeds of $18.4 million, of which $1.9 million is held in escrow until July 2017. Loss from discontinued operation net of tax was $6.0 million and $4.4 million for January 31, 2016 and 2015, respectively. For further information, see Note 4 - Discontinued operations, in the Notes to Consolidated Financial Statements.20152014Piping Systems($ in thousands) 2015 2014 % Increase (Decrease) Net sales $122,696 $126,923 (3.3 )% Gross profit 26,741 30,774 (13.1 )% Percentage of net sales 22 % 24 % General and administrative expenses 11,211 12,309 (8.9 )% Percentage of net sales 9.1 % 9.7 % Selling expense 4,994 5,725 (12.8 )% Percentage of net sales 4.1 % 4.5 % Income from operations 10,537 12,740 (17.3 )% Percentage of net sales 8.6 % 10.0 % Income from joint venture 602 1,960 (69.3 )% 2017$122.7$129.0 million in 20152018, a decreasean increase of 3%22.5% from $126.9$105.2 million in 20142017. This $4.2 million decrease compared to the prior year was due to lower volumeHigher revenues were driven by increased oil prices, favorable product mix and better sales and project execution, which resulted in domestic oil and gas projects and lower volume in Saudi Arabia due to a slower pace of new projects based on the deterioration of the price of oil.Gross profit decreased 13% to $26.7 million in 2015 from $30.8 million in 2014 due to lower volume. Gross margin decreased to 22% of net sales from 24% of netincreased sales in the prior year. Middle East, U.S. and Canadian markets. We also experienced higher demand for leak detection products.decreased dueincreased to the lower volume. An excess inventory reserve adjustment$23.3 million in 2018, an increase of $0.498.8% from 11.7 million was recorded at January 31, 2016 duein 2017. This increase is attributed to market condition changes.higher volumes, improved pricing and manufacturing efficiencies. decreased to 11.2 million in 2015 from $12.315.4 million in 2014 due2018 compared to lower management incentive compensation expense resulting from lower earnings in the period. General and administrative expenses as a percentage of net sales decreased to 9.1% in 2015 from 9.7% in the prior year.Selling expenses decreased to $5.0 million from $5.7$16.2 million in the prior year due to reduced staffing and commission expenses due to lower sales. As a percentage2017, an improvement of net sales, selling expenses decreased to 4.1%$0.9 million or 5.3%.2015 from 4.5% in the prior year.Income from the joint venture in 2015 was $0.6 million, a decrease of $1.4 million over prior year, driven by reduced sales volume.CorporateCorporate expenses include interest expense andboth periods, annually recurring general and administrative expenses that are not allocatedwere flat year over year at approximately $15.0 million. The one-time charges include $1.2 million in 2017 for internal control review fees incurred in the Middle East region and $0.4 million in 2018 primarily related to the segment. General and administrative expenses increased 11% to $7.7 million in 2015 from $6.9 million in 2014. As a percentageretirement cost of sales,our prior CFO. 6.2%$5.2 million from 5.4%$5.0 million. This increase is due to commission expense related to increased sales. spending rosepositive contributing factors were due to an increase in stock compensation expenseincreased volumes from all geographic served markets, improved pricing and professional service expenses. The prior year included a stock compensation benefit that relatedmanufacturing efficiencies, and lower selling and general administration costs due to the cancellationone-time charge in 2017. stock options from former employeesapproximately $41.9 million. The Company completed all of discontinued operations. The increaseits deliverables in general2015, and administrative expenses was alsohas since then collected approximately $37.5 million, with a remaining balance due in the amount of $4.4 million. Included in this balance is an amount of $3.7 million, which pertains to retention clauses within the agreements of our customer (contractor), and which become payable by the customer when this project is fully tested and commissioned. In the absence of a firm date for the final commissioning of the project, and due to temporary staffing costs partially offset by lower management incentive compensation expense and lower deferred compensation expense.Interest expense decreased to the long-term nature of this receivable, $1.03.5 million in 2015 from $1.0 million in 2014 due of this retention amount was reclassed to a reductionlong-term receivable account.interest ratesongoing active efforts to collect the outstanding amount, and lower borrowing volumehas collected $0.7 million during fiscal year 2018, and another $0.3 million subsequent to January 31, 2019. The Company has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. As a result, the Company did not reserve any allowance against this amount as of January 31, 2019. However, if the Company’s efforts to collect on this account are not successful in fiscal 2019, then the domestic revolver relativeCompany may be required to recognize an allowance for all, or substantially all, of any such then uncollected amounts in the prior year.INCOME TAXESfuture.45.7%132.7% and 41.9%2.3% in 20152018 and 2014,2017, respectively. The change in the ETR in 2015 was higher thanfrom the statutory U.S. federal income tax rate, mainlyprior year to the current year is largely due to the impactfact that the Company is in a positive operating income position in certain taxable jurisdictions. Additional factors include the tax benefit of a Canadian business combination which was realized in 2017, and the full valuation allowance maintained against the domestic deferred tax assets andasset. Due to this, even relatively small changes to ordinary income will have a large impact to the recognitionETR. The income tax expense in 2018 is $2.2 million, compared to income tax benefit of foreign earnings resulting from$0.2 million in 2017. The Company accrues taxes in various countries where they are generating income while applying a valuation allowance in the dispositions of certain foreign operations.U.S. which attributes to the unusually large ETR. The Company remains in an NOLa net operating loss ("NOL") carryforward position.Duringfourth quarter of 2015,Tax Act reduced the U.S. statutory tax rate from 35% to 21%, effective January 1, and created new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income tax and the base erosion anti-abuse tax, respectively. Since the Company sold its foreign filtration operations, the gain from which was taxable in the U.S. As such,is a fiscal taxpayer, the Company no longer considerswas subject to a blended federal rate of 33.83% as of January 31, 2018. In addition, in 2017 the Company was subject to the one-time transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The Company is subject to a current and deferred federal tax rate of 21% as of January 31, 2019.remaining Denmark subsidiary permanently reinvested. Therefore,enactment and the complexity involved in applying the provisions of the Tax Act, the Company has made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of January 31, 2018, as permitted by SAB 118. The accounting for the tax effects of the Tax Act was completed as of January 31, 2019, and the Company recorded a deferred tax liabilityexpense of $0.2less than $0.1 million related to the U.S. federal and state income taxes on approximately $0.7 million of undistributed earnings. The Company has not provided Federal tax on remaining unremitted earnings of its 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 concluded that not all of the undistributed earnings of Perma-Pipe India Ltd, will remain permanently reinvested outside the U.S. and are available for use in the U.S. or in entities in other foreign countries. As such, the Company recorded a deferred tax liability of $0.2 million and $0.9 million for the periods ending January 31, 2016 and 2015, respectively, related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $2.8 million and $4.2 million of undistributed earnings. The decrease in deferred tax liability primarily relates to a $2.0 million dividend paid during January 2016 along with a decrease in accumulated earnings and profits. Future earnings related to this subsidiary are not deemed permanently reinvested. No U.S. cash tax payments will be made upon distribution of these foreign earnings as long as the Company has sufficient tax attributes in the U.S. to reduce the cash tax consequences of potential repatriation.A reconciliation of the ETR to the U.S. Statutory tax rate is as follows: 2015 2014 Statutory tax rate 34.0 % 34.0 % Repatriation 30.2 % 21.2 % Valuation allowance for domestic deferred tax assets 29.6 % — % Permanent difference management fee allocation 22.8 % 27.0 % Permanent differences other 7.9 % (7.5 )% Foreign tax credit (28.0 )% (11.0 )% Differences in foreign tax rate (29.9 )% (4.1 )% Domestic deferred tax true ups (12.7 )% — % Nontaxable income from the Canadian joint venture (7.5 )% (9.2 )% Research tax credit (2.0 )% (0.4 )% Valuation allowance for state NOLs 3.2 % (4.4 )% Valuation allowance for foreign NOLs 1.2 % 0.5 % State taxes, net of federal benefit (2.1 )% (1.8 )% All other, net expense (1.0 )% (2.4 )% Effective income tax rate 45.7 % 41.9 % one-time transition tax.98 - Income taxes, Statements.Statements.14Net incomecontinuing operations was $1.6 millionthe Lake Albert Basin in 2015 comparedUganda to net income from continuing operationsthe Tanga port in Tanzania being developed by French oil company Total E&P, China National Offshore Oil Corporation and London-based Tullow Oil. The pipeline is 24 inches in diameter, and is electrically heat traced. Once completed, it will be the longest insulated and heat traced pipeline in the world. There can be no assurance that the Company will be successful in its bid for this project, and what the final terms of $4.2 million in 2014.LIQUIDITY AND CAPITAL RESOURCESany such potential engagement will be until the bid is awarded.20162019 and 2018 were $16.6$ 10.2 million compared to $9.9and $7.1 million, atrespectively. On January 31, 2015. At January 31, 2016, $0.22019, $0.1 million was held in the U.S., and $16.4$10.1 million was held in the foreign subsidiaries. The Company's working capital was $30.3$25.9 million aton January 31, 20162019 compared to $41.0$23.1 million aton January 31, 2015.2018. Of the working capital components, cash increased $4.4 million as a result of utilization of existing inventory in support of increased revenues. Cash provided by operations was $5.0 million in 2018 compared to cash used in operations in 2015 was $2.9 million compared to cash provided by operations of $3.5$1.8 million in 2014.In 2017. This improvement of $6.8 million is due to increased sales volume, combined with the use of existing inventory.In addition to paying down debt, the sale of the filtration business will give the Company the opportunity to focus resources on new Piping Systems growth opportunities such as the recent acquisition of 100% ownership of BPPC, which the Company believes creates a strong platform to diversify and expand Perma-Pipe's business into new markets and geographies.Foreign earnings from the remaining Denmark subsidiary are no longer considered to be indefinitely reinvested outside the U.S. As a result of that conclusion, the Company has provided deferred taxes on the unremitted earnings. Foreign earnings in the Middle East are considered to be indefinitely reinvested outside the U.S. The Company has not provided Federal tax on unremitted earnings of its Middle East subsidiaries. The Company does not believe that it will be necessary to repatriate investments from these subsidiaries.31, 2019. Net cash provided by investingfinancing activities in 20152018 and 2017 was $13.9 million compared to $5.7 million used in 2014 as a result of the Filtration divestiture. The Company estimates that capital expenditures for 2016 could be $3.1$1.1 million and $3.5 million, respectively. Since the Company may finance capital expenditures through real estate mortgages, term loans, equipmentgenerated cash from operations, the Company required less cash provided from financing loans, internallyactivities. This was primarily due to increased cash generated funds and its revolving line of credit. The majority of such expenditures relates to diversification and expansion of business in the Middle East.On February 5, 2015, the Board of Directors authorized a $2 million share repurchase program. Share repurchases were executed through open market or privately negotiated transactions on or prior to December 31, 2015. The Company repurchased 45 thousand shares.from operations. For additional information, see Note 126 - Treasury stock/share repurchase program, Debt, in the Notes to Consolidated Financial Statements.Debt totaled $15.5 million at January 31, 2016. Net cash used in financing activities was $3.0 million in 2015 compared to $0.5 million in 2014. The domestic revolver decreased $6.1 million mainly due to sales proceeds from the domestic sale of the Filtration business. The Denmark debt of $2.2 million was deducted from the sale price and paid at closing. The revolvers in the Middle East increased $5.4 million for their working capital needs. For additional information, see Note 7 - Debt, in the Notes to Consolidated Financial Statements.Statements. Other long-term liabilities of $0.2$0.7 million were composed primarily of Uncertain Tax Position liability and deferred revenue.rent.15at 2016.($ in thousands) Year Ending January 31, Contractual obligations Total 2017 2018 2019 2020 2021 Thereafter Revolving line domestic (1) $5,237 $5,237 $— $— $— $— $— Mortgages (2) 1,822 162 162 162 162 162 1,012 Revolving line foreign (3) 8,348 8,348 — — — — — Term loans (2) 261 175 86 — — — — Subtotal 15,668 13,922 248 162 162 162 1,012 Capitalized lease obligations 1,453 1,386 67 — — — — Operating lease obligations (4) 17,666 1,944 1,640 1,378 1,311 1,327 10,066 Projected pension contributions (5) 3,590 326 349 348 363 363 1,841 Deferred compensation (6) 6,167 6,167 — — — — — Employment agreements (7) 101 — — — — — 101 Contractual obligations of discontinued operations (8) 3,439 3,439 — — — — — Uncertain tax position obligations (9) 140 — — — — — 140 Total $48,224 $27,184 $2,304 $1,888 $1,836 $1,852 $13,160 2019.table: $ 8,890 $ 8,890 $ - $ - $ - $ - $ - 11,432 751 737 721 706 692 7,825 89 89 - - - - - 20,411 9,730 737 721 706 692 7,825 585 241 240 83 21 - - 19,944 2,516 2,193 2,149 2,110 1,979 8,997 2,194 157 - - - - 2,037 Contractual obligations of discontinued operations (6) 137 137 - - - - - 298 - - - - - 298 $ 43,569 $ 12,781 $ 3,170 $ 2,953 $ 2,837 $ 2,671 $ 19,157 table(1)$0.7 million.domesticNorth American revolving line of credit. Based on the amount of such debt at 2016,2019, and the weighted average interest rate of 4.19%6.43% on that debt, such interest was being incurred at an annual rate of approximately $0.1 million.(2)(3)(4)(5)Includes estimated future benefit payments.(6)Non-qualified deferred compensation plan - The Company had a Supplemental Retirement and Deferred Compensation Plan ("Supplemental Plan"), under which key employees deferred compensation. The Supplemental Plan was terminated on April 10, 2014. 98 - Retirement plans, .(7)Refer to the proxy statement for a description of compensation plans for Named Executive Officers.the uncertain tax position obligations.(8) Included payments for other liabilitiesmortgages for properties held for sale.(9) Refer to Note 8 - Income taxes, incertain of its U.S. and Canadian subsidiaries (collectively, together with the Notes to Consolidated Financial StatementsCompany, the “North American Loan Parties”) entered into a new Revolving Credit and Security Agreement (the “Credit Agreement”) with PNC Bank, National Association, as administrative agent and lender (“PNC”), providing for a description ofnew three-year $18 million Senior Secured Revolving Credit Facility, subject to a borrowing base including various reserves (the “Senior Credit Facility”). The Senior Credit Facility replaced the uncertain tax position obligations.FinancingOnCompany’s then existing $15 million Credit and Security Agreement, dated September 24, 2014, among various subsidiaries of the Company entered intoand Bank of Montreal, as successor by assignment to BMO Harris Bank N.A., as amended (the “Prior Credit Agreement”). security agreementexpects to continue using this facility to fund future capital expenditures, working capital needs, and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or London Interbank Offered Rate ("LIBOR"), plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility. Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally be payable in arrears on the last day of each interest period. Additionally, the Company is required to pay a financial institution (as amended, "Credit Agreement"). Under0.375% per annum facility fee on the termsunused portion of the Senior Credit Agreement, which maturesFacility. The facility fee is payable quarterly in arrears. 24,20, 2021. Subject to certain qualifications and exceptions, the Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties cannot allow capital expenditures to exceed $3 million annually (plus a limited carryover of unused amounts). can borrow upand its subsidiaries (including the Company’s foreign subsidiaries not party to $25.0 million, subjectthe Credit Agreement) to borrowing baseachieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and other requirements,interest payments on the advances under a revolving linethe Senior Credit Facility 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. 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 ratenot less than 1.10 to 1.00 for the corresponding interest period. Atnine-month period ending October 31, 2018 and for the quarter ending January 31, 2016, the2019 and each quarter end thereafter on a trailing four-quarter basis. The Company was in compliance with all covenants under the Credit Agreement. The domestic revolving line balancethis requirement as of January 31, 2015 and January 31, 2016 was included as a current liability on the consolidated balance sheets.2019.16At January 31, 2016, the Company was in compliance with all covenants under the Credit Agreement. The domestic revolving line balance asTable of January 31, 2016 has been classified as a current liability in the accompanying financial statements.ContentsAs of January 31, 2016, the Company had borrowed $5.2 million at 3.25% and 1.5% and had $8.3 million available to it under the revolving line of credit. In addition, $0.3 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.On February 29, 2016, the Company reduced the amount that can be borrowed under the Credit Agreement to $15.0 million.requiresrequire a minimum tangible net worth to be maintained. At maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On January 31, 2016,2019, the Company was in compliance with the covenants under the credit arrangement. Interestarrangements. On January 31, 2019, interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimumwere based on the EIBOR plus 3.5% per annum, and Emirates Inter Bank Offered Rate (EIBOR) plus 3.50%with a minimum interest rate of 4.5% per annum. TheOn January 31, 2019, the Company's interest rates rangeranged from 3.5%6.15% to 6.0%. At January 31, 20166.51%, with a weighted average rate of 6.51%, and the Company cancould borrow $43.8$9.1 million under these credit arrangements. The Company borrowed $8.1 million and had $28.7 million available under these credit arrangements as ofOn January 31, 2016. In addition, $7.02019, $7.9 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases. For further information, see Note 7 - Debt, purchases and for performance guarantees. On January 31, 2019, the Company had borrowed $0.1 million, and had an additional $1.1 million available. The foreign revolving lines balances as of January 31, 2019 and 2018, were included as current maturities of long-term debt in the Notes to Consolidated Financial Statements.CRITICAL ACCOUNTING ESTIMATES AND POLICIESCompany's consolidated balance sheets. The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. TheDuring 2018, and in accordance with Accounting Standards Update No. 2014-19, “Revenue from Contracts with Customers” (“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 5 - Revenue Recognition for more detail. During 2017, the Company recognized revenues, including shipping and handling charges billed to customers, when all the following criteria arewere met: (i) persuasive evidence of an arrangement exists,existed, (ii) delivery hashad occurred or services have been rendered, (iii) the seller's price to the buyer iswas fixed or determinable, and (iv) collectability iswas reasonably assured. All subsidiaries• Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue recognition policy except for 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. 17Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue recognition policy except for 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.the largesta significant benefit that has a greater than 50 percent50% likelihood of being realized upon ultimate settlement with the relevant tax authority.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.judgment. 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.Statements.Statements.Item 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA20162019 and 20152018 and the notes thereto are set forth as an exhibit hereto.Item 9A.CONTROLS AND PROCEDURES2016.2019. Based on that evaluation,upon the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company'sCompany’s disclosure controls and procedures were not effective as of January 31, 2016and operating to ensureprovide reasonable assurance that information required to be disclosed by the Company in the reports that are filedthe Company files or submittedsubmits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC'sSEC’s rules and forms, and to provide reasonable assurance that such information is accumulated and communicated to the issuer'sCompany’s management, including the principal executiveits Chief Executive Officer and financial officers,Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. This determination was based onThe Company's management, including its Chief Executive Officer and Chief Financial Officer, have further concluded that the matters discussed below under Management'sfinancial statements included in this Annual Report on Internal Control over Financial Reporting.Form 10-K present fairly, in all material respects, the Company's financial position, results of operations, and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.MFRI'sthe Company'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 "InternalInternal Control-Integrated Framework"Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO 2013 Framework").Commission.its assessment,this evaluation, the Company’s management has concluded that the Company has not maintained effectiveCompany’s internal control over financial reporting was effective as of January 31, 2016, based on criteria2019.COSO 2013 Framework.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.The Company's processes, procedures and controls related to management’s period end review over certain calculations and estimates did not operate effectively. Management discovered that it did not properly perform all of the required calculations to determine whether a current report on Form 8-K for a planned acquisition agreement would be required. Although the requisite calculations were subsequently made, such calculation were not performed properly as of the January 31, 2016 financial statement date. As such the current report on Form 8-K was not made on a timely basis.Management also found an error in estimating excess and obsolete inventory reserves. With respect to the excess and obsolete inventory reserve, management identified control deficiencies related to documentation and review. The Company did not appropriately factor in all pertinent information when estimating the excess and obsolete inventory reserve.These material weaknesses did not result in any material adjustments to the Registrant's financial statements, notes thereto, or other disclosures in this Annual Report on Form 10-K.Change in Internal Controls. Other than the material weaknesses noted above, there has been no change in internal control over financial reporting that occurredresulted from an accounting error identified by the Company during its preparation and review of the lastCompany's financial statements for the fiscal quarter that has materially affected, or is reasonably likelyended July 31, 2017 related to materially affect, internal control over financial reporting.Remediation Planthe Company's accounting for Material Weaknesses in Internal Control over Financial Reporting: Toequity-based compensation costs. The Company implemented the following changes to address the material weakness, regarding timely filingthe adjustment for equity awards that expired unexercised: Expanded the training of employees in financial technical accounting, reporting and disclosure-related positions;Reinforced the importance of a strong control environment, to emphasize the technical requirements for controls that are designed, implemented and operating effectively and to set the appropriate expectations on internal controls through establishing the related policies and procedures;Implemented a catalog of key accounting rules. In the review of any major journal entries for non-standard operational accounting matters, this catalog is being used as a checklist to validate that the required accounting treatment is applied and disclosures are made accordingly. Management has used, and will continue to use, this catalog to evaluate whether the accounting treatment follows the current report on Form 8-K,rules in the catalog, and will then decide whether outside firm expertise is warranted in such a review;Has validated and updated the catalog quarterly for any changes resulting from changed or newly pronounced accounting rules, and will continue to do so;• Implemented a robust and comprehensive equity compensation management and reporting software in the second quarter of 2018. has adopted revised policies to ensure that management’s review process over complex estimates and calculations properly factors in all relevant assumptions and required inputs and include inputs from outside advisors as appropriate.To addressconsidered the material weakness regarding excess and obsolete inventory reserves, we have also implemented certain remedial measures. The Company will ensure excess and obsolete inventory reserve calculations and qualitative assessments are reviewed by appropriate operations management as well as the Chief Financial Officer on a quarterly basis. The excess and obsolete inventory reserve methodology will now be calculated using the demand, the age of the inventory and specific identification determined based on extended value of excess inventory.Management will monitor the remediation progress of this material weakness against the revised policies that have been implemented.We anticipate the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to review over certain calculations and estimates, and will address the related material weakness that we identifiedinternal control fully remediated as of JanuaryOctober 31, 2016. However, the material weaknesses cannot be remediated fully until the remediation processes have been in operation for a period of time and successfully tested.Item 9B.OTHER INFORMATION - None.PART III20162019 annual meeting of stockholders.20162019 annual meeting of stockholders.AND RELATED STOCKHOLDER MATTERS 217,875 $8.60 337,599 20162019 annual meeting of stockholders.20162019 annual meeting of stockholders.Item 14.PRINCIPAL ACCOUNTANTING FEES AND SERVICES20162019 annual meeting of stockholders.PART IVa.List of documents filed as part of this report:(1)c.21REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMMFRIMFRI,Perma-Pipe International Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 31, 20162019 and 2015, and2018, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for each of the two years in the period ended January 31, 2016. Our audits2019, and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the basic consolidated financial statements includedCompany as of January 31, 2019 and 2018, and the financial statement schedule listedresults of its operations and its cash flows for each of the two years in the index appearing under Item 15 (a)(2). period ended January 31, 2019, in conformity with accounting principles generally accepted in the United States of America. and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesethe Company’s financial statements and financial statement schedule based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. Wemisstatement, whether due to error or fraud. The Company is not required to have, nor were notwe engaged to perform, an audit of the Company’sits internal control over financial reporting. OurAs part of our audits included considerationwe are required to obtain an understanding of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesstatements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of MFRI, Inc. and subsidiaries as of January 31, 2016 and 2015, and the results of their operations and their cash flows for each of the two years in the period ended January 31, 2016 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.28, 201616, 2019MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES $ 128,965 $ 105,248 105,626 93,506 23,339 11,742 15,357 16,214 5,239 5,040 20,596 21,254 2,743 (9,512 ) 1,122 697 1,621 (10,209 ) 2,150 (233 ) $ (529 ) $ (9,976 ) 7,812 7,680 $ (0.07 ) $ (1.30 ) Twelve months ended January 31, (In thousands, except per share data) 2016 2015 Net sales $122,696 $126,923 Cost of sales 95,955 96,149 Gross profit 26,741 30,774 Operating expenses: General and administrative expense 18,869 19,202 Selling expense 4,994 5,725 Total operating expenses 23,863 24,927 Income from operations 2,878 5,847 Income from joint venture 602 1,960 Interest expense, net 470 519 Income from continuing operations before income taxes 3,010 7,288 Income tax expense 1,375 3,051 Income from continuing operations 1,635 4,237 Loss from discontinued operations, net of tax (6,044 ) (4,418 ) Net loss ($4,409) ($181) Weighted average common shares outstanding Basic 7,280 7,251 Diluted 7,371 7,324 Earnings per share from continuing operations Basic and diluted $0.22 $0.58 Loss per share from discontinued operations Basic and diluted ($0.83) ($0.61) Loss per share Basic and diluted ($0.61) ($0.02) MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES Year ended January 31, $ (529 ) $ (9,976 ) (1,073 ) 1,185 (341 ) 165 Realized/unrealized gain/(loss) on marketable security, net of tax — (92 ) (1,414 ) 1,258 $ (1,943 ) $ (8,718 ) (In thousands) Twelve months ended January 31, 2016 2015 Net loss ($4,409) ($181) Other comprehensive income (loss) Currency translation adjustments, net of tax (481 ) (1,718 ) Minimum pension liability adjustment, net of tax 822 (1,612 ) Unrealized gain on marketable security, net of tax 118 — Interest rate swap, net of tax 91 (40 ) Other comprehensive income (loss) 550 (3,370 ) Comprehensive loss ($3,859) ($3,551) MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIESSHEETSSHEET $ 10,156 $ 7,084 2,581 1,237 32,508 32,936 12,289 16,856 3,773 2,703 1,653 1,502 62,960 62,318 30,398 34,509 458 391 2,269 2,423 6,120 4,943 8,847 7,757 $ 102,205 $ 104,584 $ 12,006 $ 14,186 1,866 787 1,544 1,580 8,890 7,273 640 753 3,708 5,236 — 137 1,743 1,800 3,856 4,122 1,569 1,967 1,266 1,339 37,088 39,180 6,751 7,728 3,883 4,098 1,435 1,242 688 524 12,757 13,592 79 77 58,793 56,304 (3,632 ) (3,103 ) (2,880 ) (1,466 ) 52,360 51,812 $ 102,205 $ 104,584 January 31, (In thousands, except per share data) 2016 2015 ASSETS Current assets Cash and cash equivalents $16,631 $9,900 Restricted cash 2,324 428 Trade accounts receivable, less allowance for doubtful accounts of $33 at January 31, 2016 and $31 at January 31, 2015 36,090 34,332 Inventories, net 15,625 13,685 Assets of discontinued operations 15,733 41,476 Assets held for sale 3,062 3,378 Cash surrender value on life insurance policies 3,049 3,255 Prepaid expenses and other current assets 1,744 2,550 Costs and estimated earnings in excess of billings on uncompleted contracts 2,463 700 Income tax receivable 327 — Total current assets 97,048 109,704 Property, plant and equipment, net of accumulated depreciation 25,400 24,165 Other assets Note receivable from joint venture 1,905 3,931 Investment in joint venture 9,112 8,514 Other assets 4,658 1,760 Total other assets 15,675 14,205 Total assets $138,123 $148,074 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable $11,026 $6,933 Commissions and management incentives payable 4,169 5,628 Deferred compensation liability 6,167 213 Accrued compensation and payroll taxes 4,274 4,021 Revolving line domestic 5,237 11,353 Current maturities of long-term debt 8,769 4,817 Customers' deposits 3,690 4,271 Liabilities of discontinued operations 15,465 21,379 Liabilities held for sale 3,439 3,342 Other accrued liabilities 965 1,100 Billings in excess of costs and estimated earnings on uncompleted contracts 1,176 681 Income tax payable 2,339 1,688 Total current liabilities 66,716 65,426 Long-term liabilities Long-term debt, less current maturities 1,493 2,355 Deferred compensation liabilities 495 6,560 Deferred tax liabilities - long-term 160 734 Other long-term liabilities 231 199 Total long-term liabilities 2,379 9,848 Stockholders' equity Common stock, $.01 par value, authorized 50,000 shares; 7,306 issued and outstanding January 31, 2016 and 7,291 issued and outstanding January 31, 2015 74 73 Additional paid-in capital 53,031 52,655 Treasury Stock 45 shares at January 31, 2016 and none at January 31, 2015 (290 ) — Retained earnings 20,193 24,602 Accumulated other comprehensive loss (3,980 ) (4,530 ) Total stockholders' equity 69,028 72,800 Total liabilities and stockholders' equity $138,123 $148,074 MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES $ 76 $ 55,358 $ (170 ) $ 6,873 $ (2,724 ) $ 59,413 (9,976 ) (9,976 ) 1 (215 ) 170 (44 ) 1,161 1,161 165 165 (142 ) (142 ) 1,141 1,141 94 94 $ 77 $ 56,304 $ - $ (3,103 ) $ (1,466 ) $ 51,812 (529 ) (529 ) 2 1,324 1,326 1,165 1,165 Pension liability adjustment (341 ) (341 ) (1,170 ) (1,170 ) Tax expense on above items 97 97 $ 79 $ 58,793 $ - $ (3,632 ) $ (2,880 ) $ 52,360 7,716,542 7,595,509 — 26,753 137,780 94,280 7,854,322 7,716,542 ($ in thousands, except share data) Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Common Stock Total stockholders' equity at January 31, 2014 $72 $52,144 $24,783 $0 ($1,160) $75,839 Net loss (181 ) (181 ) Stock options exercised — 330 330 Stock-based compensation expense 124 124 Deferred shares converted to common stock 1 57 58 Interest rate swap (51 ) (51 ) Pension liability adjustment (1,611 ) (1,611 ) Foreign currency translation adjustment (1,632 ) (1,632 ) Tax expense on above items (76 ) (76 ) Total stockholders' equity at January 31, 2015 $73 $52,655 $24,602 $0 ($4,530) $72,800 Net loss (4,409 ) (4,409 ) Stock options exercised 1 116 117 Repurchase of common stock (290 ) (290 ) Stock-based compensation expense 278 278 Shares issued less shares used for payroll taxes (18 ) (18 ) Interest rate swap 119 119 Pension liability adjustment 821 821 Marketable security 118 118 Foreign currency translation adjustment (486 ) (486 ) Tax expense on above items (22) (22) Total stockholders' equity at January 31, 2016 $74 $53,031 $20,193 ($290) ($3,980) $69,028 Common stock shares 2015 2014 Balance beginning of year 7,290,576 7,168,537 Treasury stock purchased (44,566 ) — Shares issued 59,915 122,039 Balance end of year 7,305,925 7,290,576 MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES Year ended January 31, $ (529 ) $ (9,976 ) 4,575 5,031 — (166 ) 215 (958 ) 1,165 1,447 71 15 46 219 — (142 ) (3,576 ) 4,551 1,226 (1,780 ) 4,360 (3,274 ) (1,517 ) 2,596 35 (75 ) (700 ) (471 ) (354 ) (1,076 ) (547 ) 1,455 508 762 4,978 (1,842 ) (1,361 ) (2,532 ) — 142 — 1 (1,361 ) (2,389 ) 64,736 40,485 (62,759 ) (37,354 ) (946 ) — (350 ) (211 ) 192 34 (250 ) 546 — 170 511 (214 ) 1,134 3,456 (335 ) 395 4,416 (380 ) 8,321 8,701 $ 12,737 $ 8,321 $ 1,298 $ 804 1,731 1,080 — 841 Twelve months ended January 31, ($ in thousands) 2016 2015 Operating activities Net loss ($4,409) ($181) Adjustments to reconcile net loss to net cash flows (used in) provided by operating activities Depreciation and amortization 5,929 5,897 Gain on disposal of discontinued operations (8,099 ) (188 ) Impairment expense on discontinued operation 6,480 — Deferred tax (benefit) expense (249 ) 1,231 Income from joint venture (602 ) (1,960 ) Stock-based compensation expense 278 124 Cash surrender value on life insurance policies 206 (145 ) Provision on uncollectible accounts (59 ) (80 ) Loss (gain) on disposal of fixed assets 101 (17 ) Changes in operating assets and liabilities Accounts payable 5,819 (4,612 ) Accrued compensation and payroll taxes 299 (3,055 ) Inventories 4,027 3,250 Customers' deposits (2,400 ) (28 ) Income taxes receivable and payable 620 (687 ) Prepaid expenses and other current assets 1,914 1,000 Accounts receivable (2,809 ) 3,314 Costs and estimated earnings in excess of billings on uncompleted contracts (1,268 ) (765 ) Notes receivable 273 849 Other assets and liabilities (8,948 ) (449 ) Net cash (used in) provided by operating activities (2,897 ) 3,498 Investing activities Net proceeds from sale of discontinued operations 16,373 109 Capital expenditures (6,457 ) (5,878 ) Payments on loan from joint venture 1,890 — Proceeds from sales of property and equipment 2,059 24 Net cash provided by (used in) investing activities 13,865 (5,745 ) Financing activities Proceeds from revolving lines 105,636 85,270 Proceeds from debt 918 661 Proceeds from borrowing against life insurance policies 1,916 — Payments of debt on revolving lines (105,378 ) (83,150 ) Payments of other debt (2,544 ) (3,641 ) Payments of borrowing against life insurance policies (1,916 ) — (Decrease) increase in drafts payable (467 ) 629 Payments on capitalized lease obligations (998 ) (704 ) Repurchase of common stock (290 ) — Stock options exercised and restricted shares issued 98 389 Net cash used in financing activities (3,025 ) (546 ) Effect of exchange rate changes on cash and cash equivalents (1,212 ) (702 ) Net increase (decrease) in cash and cash equivalents 6,731 (3,495 ) Cash and cash equivalents - beginning of period 9,900 13,395 Cash and cash equivalents - end of period $16,631 $9,900 Supplemental cash flow information Interest paid $749 $1,288 Income taxes paid 970 2,988 Fixed assets acquired under capital leases — 680 Funds held in escrow related to the sale of Filtration assets 1,905 — MFRI,PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES20162019 and 20152018and segment informationMFRI,MFRI"PPIH", the "Company", or the "Registrant") was incorporated in Delaware on 1993. As of January 31, 2016, MFRI1993. The Company is engaged in the manufacture and sale of products in one distinct segment: Piping Systems. As described below, prior to January 29, 2016, the Company was also engaged in the manufacture and sale of products in the Filtration Products segment.Piping.20152018 and 20142017 are the fiscal years ended January 31, 20162019 and 2015,2018, respectively.Piping SystemsThe Company engineers, designs, manufactures and sells specialty piping systems, and leak detection and location systems. This segment's specialtySpecialty piping systems includeinclude: (i) industrialinsulated and jacketed district heating and cooling ("DHC") piping systems for efficient energy distribution from central energy plants to multiple locations, (ii) primary and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating and cooling piping systems for efficient energy distribution to multiple locations from central energy plants, and (iii) the coating and/or insulation of oil and gas gathering flow and long lines for oil and mineral transportation. Piping Systems'transmission pipelines. The Company's leak detection and location systems are sold with many of its piping systems andor 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.Prior to January 29, 2016, the Company had a Filtration Products segment. This business is reported as discontinued operations in the consolidated financial statements and the notes to consolidated financial statements have been restated to conform to the current year reporting of this business. For further information, see Note 4 - Discontinued operations, in the Notes to Consolidated Financial Statements.Segment information was as follows: 2015 2014 Net sales Piping Systems $122,696 $126,923 Gross profit Piping Systems $26,741 $30,774 Income (loss) from operations Piping Systems $10,537 $12,740 Corporate (7,659) (6,893) Total income from operations $2,878 $5,847 Segment assets Piping Systems $112,161 $99,065 Corporate 10,229 7,533 Total segment assets $122,390 $106,598 Capital expenditures Piping Systems $4,762 $3,953 Corporate 289 485 Total capital expenditures $5,051 $4,438 Depreciation and amortization Piping Systems $3,735 $3,635 Corporate 469 552 Total depreciation and amortization $4,204 $4,187 are attributed to a geographic area are based on the destination of the product shipment. Sales to foreign customers was 52%61.0% in 20152018 compared to 50%59.5% in 2014.2017. Long-lived assets are based on the physical location of the assets and consist of property, plant and equipment used in the generation of revenues in the geographic area. $ 50,319 $ 42,648 34,789 31,206 35,117 26,322 3,755 1,317 4,985 3,755 $ 128,965 $ 105,248 $ 10,279 $ 11,307 11,862 13,868 8,103 9,119 154 215 $ 30,398 $ 34,509 2015 2014 Net sales United States $58,707 $64,063 Middle East 60,749 50,430 Europe 73 372 Canada 2,581 3,248 India 372 5,099 Other Americas 72 3,657 Other 142 54 Total net sales $122,696 $126,923 Property, plant and equipment, net of accumulated depreciation United States $13,822 $12,166 Middle East 11,211 11,608 India 367 391 Total $25,400 $24,165 TheDuring 2018, and in accordance with Accounting Standards Update No. 2014-19, “Revenue from Contracts with Customers” (“ASC 606”), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 5 - Revenue Recognition for more detail. During 2017, the Company recognized revenues, including shipping and handling charges billed to customers, when all the following criteria arewere met: (i) persuasive evidence of an arrangement exists,existed, (ii) delivery hashad occurred or services have been rendered, (iii) the seller's price to the buyer iswas fixed or determinable, and (iv) collectability iswas 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 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 the Company are recognized in contract revenues when realization is probable and the amount can be reliably estimated.• Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue recognition policy except for 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. piping systems contracts vary, but are typically less than one year. The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion of such contracts extends significantly beyond one year.significant intercompany balances and transactions have been eliminated. The Company accounts for the investment in joint venture using the equity method. The aggregated foreign exchange transaction loss recognized in the income statement was $0.1 million and $0.7 million for the years 2018 and 2017, respectively. $16.6$10.2 million and $9.9$7.1 million as of January 31, 20162019 and 2015,2018, respectively. At On January 31, 2016, $0.22019, $0.1 million was held in the U.S. and $16.4$10.1 million was held in the foreign subsidiaries. On January 31, 2018, $0.7 million was held in the U.S. and $6.4 million was held in the foreign subsidiaries.29$0.3$0.2 million and $0.6less than $0.1 million as of on January 31, 20162019 and 2015,2018, respectively.a foreign subsidiary were $2.3subsidiaries, was $1.1 million and $0.4$1.2 million as of January 31, 20162019 and 2015,2018, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees. $ 10,156 $ 7,084 2,581 1,237 $ 12,737 $ 8,321 materialsignificant orders. Accounts receivable are due within various time periods specified in the terms applicable to the specific customer and are stated at amounts due from customers net of an allowance for claims and doubtful accounts. Standard payment terms are net 30 days. The allowance for doubtful accounts is calculated using a percentage of sales method based upon collection history and an estimate of uncollectible accounts.on specifically identified amounts in customers' accounts, where future collectability is deemed uncertain. Management may exercise its judgment in adjusting the provision as a consequence of known items, such as current economic factors and credit trends. Past due trade accounts receivable balances are written off when the Company's collection efforts have been unsuccessful in collecting the amount due. Accounts receivable adjustments aredue and the amount is deemed uncollectible. The write off is recorded against the allowance for doubtful accounts.On January 31, 2019 and January 31, 2018, no one customer accounted for more than 10% of the Company's net sales.may exceedare below FDIC limits. The Company has not experienced any losses in such accounts. At January 31, 2016, one customer accounted for 10.3%30Two customers accounted for 46.4% of accounts receivable at January 31, 2016, and and one customer accounted for 37.4% of accounts receivable at January 31, 2015. As of April 1, 2016, these customers have paid 40.4% of their receivables outstanding at January 31, 2016.RepresentsAccumulated other comprehensive loss represents the change in equity from non-owner transactions and consisted of foreign currency translation, minimum pension liability and interest rate swaps.marketable securities. $ (1,438 ) $ (268 ) (1,648 ) (1,307 ) — — (3,086 ) (1,575 ) 91 (6 ) 115 115 — — $ (2,880 ) $ (1,466 ) 2015 2014 Equity adjustment foreign currency ($2,208 ) ($1,722 ) Minimum pension liability, gross (2,303) (3,124) Marketable security, gross 118 0 Interest rate swap, gross 0 (119) Subtotal excluding tax effect (4,393) (4,965) Tax effect of foreign exchange (69) (74) Tax effect of minimum pension liability 482 481 Tax effect of interest rate swap 0 28 Total other comprehensive loss ($3,980) ($4,530) $ 11,962 $ 17,166 488 291 731 1,024 13,181 18,481 892 1,625 $ 12,289 $ 16,856 2015 2014 Raw materials $15,291 $13,150 Work in process 1,168 887 Finished goods 722 715 Subtotal 17,181 14,752 Less allowances 1,556 1,067 Inventories, net $15,625 $13,685 depreciation and amortization.depreciation. Depreciation expense was approximately $4.2$4.5 million in 20152018 and $4.9 million in 2014.2017. $ 22,327 $ 22,796 47,168 47,009 4,335 4,504 3,311 3,490 77,141 77,799 46,743 43,290 $ 30,398 $ 34,509 2015 2014 Land, buildings and improvements $14,758 $13,704 Machinery and equipment 41,534 38,509 Furniture, office equipment and computer systems 5,632 5,945 Transportation equipment 40 43 Subtotal 61,964 58,201 Less accumulated depreciation and amortization 36,564 34,036 Property, plant and equipment, net $25,400 $24,165 ThereBased on the Company's review of the projected cash flows over the remaining useful lives of the assets, management had determined that there was no impairment of long-lived assets in continuing operations as of January 31, 2016 and2018. Since there was no triggering event in 2018, management has determined that there was no impairment of long-lived assets as of January 31, 2015.2019.31Company's headquarters' building in Niles, Illinoispurchase price of an acquired company is reportedallocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as held for sale atgoodwill. All identifiable goodwill as of January 31, 2016.2019 and 2018, is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC"). $ 2,423 $ (154 ) $ 2,269 arewas no indications of impairment related to this asset.goodwill during 2018 or 2017.$2.6 million and $2.7$2.6 million as of January 31, 20162019 and 2015, respectively.2018. Accumulated amortization was approximately $2.3$2.5 million and $2.3$2.4 million as of January 31, 20162019 and 2015, respectively.2018. Future amortizationsamortization over the next five years ending January 31 will be $42,900 in 2016, $39,900 in 2017, $30,900 in 2018, $27,900 in 2019, $21,700 in 2020, and $88,207 thereafter.Investment in joint venture. In October 2009, the Company invested $5.9 million, which consisted of $2.0 million for a 49% interest and $3.9 million for a note receivable, in a Canadian joint venture with The Bayou Companies, Inc., a subsidiary of Aegion Corporation. The joint venture operates in Camrose, Alberta, Canada. During the first six months of 2015, the Company received $1.9less than $0.1 million in principal repayments on the note receivable.On December 31, 2015, MFRI entered into a purchase agreement with its joint venture partner Aegion Corporationyears 2019 to acquire 100% ownership2023 and less than $0.1 million thereafter. Amortization expense is expected to be recognized over the weighted-average period of BPPC, which acquisition closed on February 4, 2016. The purchase price was approximately $9.6 million in cash and debt at closing and is subject to certain post-closing adjustments.The Company accounts for the investment in joint venture using the equity method. The financial results are included in the Company's consolidated financial statements. 2015 2014 Share of income from joint venture $602 $1,960 The following information summarizes the joint venture financial data: 2015 2014 Current assets $8,274 $13,820 Noncurrent assets 12,284 14,023 Current liabilities 2,438 4,499 Noncurrent liabilities 3,908 9,013 Equity 14,212 14,331 Revenue 22,228 40,397 Gross profit 3,465 8,451 Income from continuing operations 1,938 6,397 Net income 1,228 4,000 7.3 years.$1.1$0.2 million and $0.3 million in 20152018 and $1.2 million in 2014.2017, respectively.50 percent50% likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note 98 - Income taxes Statements.Statements.32areis computed by dividing net loss by the weighted average number of common shares outstanding (basic). The years 2014Company reported net losses in 2018 and 2015 had net losses;2017; therefore, the diluted loss per share was identical to the basic loss per share rather than assuming conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share. The years 2014 and 2015 had earnings from continuing operations. The EPS from continuing are computed by dividing income by the weighted average number of common shares outstanding (basic). The dilutive shares are in the following table: 7,812 7,680 — — 7,812 7,680 82 139 (63 ) (131 ) 136 219 Basic weighted average number of common shares outstanding 2015 2014 Basic weighted average number of common shares outstanding 7,280 7,251 Dilutive effect of stock options, deferred stock and restricted stock units 91 73 Weighted average number of common shares outstanding assuming full dilution 7,371 7,324 Weighted average number of stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices 710 261 Canceled options during the year (77 ) (64 ) Stock options with an exercise price below the average stock price 10 503 CompensationNon-cash compensation expense associated with restricted and deferred stock is based on the fair value of the common stock at the date of grant, and amortized using the straight line method over the vesting period. Compensation expense associated with deferred stock which is awarded to the Board of Directors (non-employee) is based upon the fair value of the common stock at the date of grant, and since the grant vests immediately it is expensed on the date of the grant. Stockcompensation expense for stock options 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. Determiningfair valuechief operating decision maker ("CODM") in making decisions regarding resource allocation and assessing performance The Company’s Chief Executive Officer is the CODM, and he uses a combination of stock options using the Black-Scholes model requires judgment,several management reports, 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;financial information in determining how to allocate resources and (3) expected life of the option - an estimate based on historical experience including the effect of employee terminations.assess performance. The Company has determined that it operates in one segment.rates.The Company holds a marketable equity security of approximately $0.1 million at January 31, 2016, which it classifies as available-for-sale and recorded in other non-current assets on the Consolidated Balance Sheet. This security is carried at estimated fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income and classified as Level 1 in the fair value hierarchy. The assessment for impairment of marketable equity securities as available-for sale is based on established financial methodologies, including quoted market prices for publicly traded securities. If the Company determines that a loss in the value of the investment is other than temporary, any such losses are recorded in other expense (income), net.Reclassifications. Reclassifications were made to prior-year financial statements to conform to the current-year presentations.rates.2016,March 2017, the Financial Accounting Standards Board ("FASB"(“FASB”) issued authoritative guidance that changes the income statement presentation of the components of net periodic benefit cost related to defined benefit pension and other postretirement plans. The primary change under the new guidance related accountingis that only the service cost component of net periodic benefit cost should be included in operating income and is eligible for equity investments, financial liabilities undercapitalization as an asset. The other components of net periodic benefit cost, such as interest cost, the fair value option,expected return on assets, amortization of actuarial gains and the presentationlosses and disclosure requirements for financial instruments. In addition, the FASB clarifiedprior service cost, should be presented below operating income. The guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The new standard is effective for fiscal years,the Company starting February 1, 2018 and interim periods within those fiscal years, beginning after December 15, 2017.was applied retrospectively to the presentation of net periodic benefit cost, and recorded in miscellaneous income and expense in 2017 and 2018. Since the plans have not incurred any service costs, there has been no need to capitalize any costs. The Company is evaluating theadoption of this guidance did not have a material impact of adopting this new accounting guidance on the consolidatedCompany's results of operations or financial statements.position.33Accounting Standards Update (“ASU”)ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company will adopt the ASU effective February 1, 2019 using the alternative transition approach - a cumulative effect adjustment to retained earnings at that date, which is currently evaluatingexpected to be zero. The Company will avail itself of the effect that this standard will have onpractical expedients provided under the consolidated financial statementsASU and related disclosures.its subsequent amendments regarding identification of leases, lease classification, indirect costs, and the combination of lease and non-lease components. The Company expects to record a right-of-use asset and lease liability of approximately $10.0 million to $11.0 million at adoption. November 2015, theMay 2014, FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes. The ASU requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position.No. 2014-09, "Revenue from Contracts with Customers ("Topic 606")", with several clarifying updates issued during 2016. This ASU iswas effective for fiscal yearsthe Company beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period.February 1, 2018. The adoption of this guidance by the CompanyASU did not have a material impact on the Company's consolidatedresults of operations or financial statements.In 2015, the FASB issued new guidance relatedposition. Refer to business combinations. The new guidance requires that adjustments made to provisional amounts recognized in a business combination be recorded in the period such adjustments are determined, rather than retrospectively adjusting previously reported amounts. The new standard is effectiveNote 5 - Revenue recognition - for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact, if any, of adopting this new accounting guidance on the consolidated financial statements.In April 2015, the FASB issued authoritative guidance to simplify the balance sheet presentation of debt issuance costs. Under the new guidance, debt issuance costs will be presented as a reduction of the carrying amount of the debt liability. The guidance is effective for the Company beginning February 1, 2016 and will be applied retrospectively for all periods presented. As of January 31, 2016, the Company had $0.2 million of deferred debt issuance costs. The Company does not expect adoption of this guidance to have a material impact on the Company's financial statements.In August 2014, the Financial Accounting Standards Board, ("FASB"), issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) - Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and for annual periods and interim periods thereafter. Early adoption is permitted. The adoption of ASU 2014-15 is not expected to have an impact on the Company’s consolidated financial statements.In May 2014, the FASB, issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers. This new standard provides for a single comprehensive model and supersedes most current revenue recognition guidance, including industry specific guidance, and provides for enhanced disclosure requirements. The objective of the new guidance is to improve the consistency, comparability and usefulness to users of financial statements. On April 1, 2015, FASB decided to defer the effective date of the new revenue standard by one year. As a result, public entities would apply the new revenue standard for fiscal years, and interim periods within those years, beginning after December 15, 2017. ASU 2014-09 provides for two implementation methods (1) full retrospective application to each prior period or (2) modified retrospective application with the cumulative effect as of the date of adoption. Early application is not permitted. The Company is evaluating the financial statement impacts of the guidance in this ASU and determining which transition method will be utilized.more detail.Note 3 - Correction of immaterial errors. In the fourth quarter of 2015, management discovered prior period inventory errors relating to excess and obsolete inventory. The cumulative adjustment for the inventory errors covering the period from February 1, 2013 to January 31, 2015 was approximately $0.9 million. The adjustment applicable to the fourth quarter of 2013 was approximately $1.0 million, no adjustment to the first three quarters of 2013. The $0.1 million adjustment was applicable to the fourth quarter of 2014, and no adjustment was applicable to the first three quarters of 2015.Pursuant to the guidance of Staff Accounting Bulletin ("SAB") No. 99, Materiality, the Company concluded that the errors were not material to any of its prior period financial statements. Although the errors were immaterial to priorperiods, the prior period financial statements were revised, in accordance with SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, due to the significance of the out-of-period correction.A reconciliation of the effects of the adjustments to the previously reported balance sheet at January 31, 2015 follows: As Reported Adjustment As Adjusted Inventories, net $14,613 ($928) $13,685 Prepaid expenses and other current assets 2,345 205 2,550 Total current assets 110,427 (723 ) 109,704 Total assets 148,797 (723 ) 148,074 Retained earnings 25,325 (723 ) 24,602 Total stockholders' equity 73,523 (723 ) 72,800 Total liabilities and stockholders' equity 148,797 (723 ) 148,074 A reconciliation of the effects of the adjustments to the previously reported statement of operations for the yearending January 31, 2015 follows: As Reported Adjustment As Adjusted Cost of sales $96,247 ($98) $96,149 Gross profit 30,676 98 30,774 General and administrative expense 19,179 23 19,202 Total operating expenses 24,904 23 24,927 Income from operations 5,772 75 5,847 Income from continuing operations before income taxes 7,213 75 7,288 Income from continuing operations 4,162 75 4,237 Net loss (256 ) 75 (181 ) A reconciliation of the effects of the adjustments to the previously reported statement of cash flows for the year ending January 31, 2015 follows: As Reported Adjustment As Adjusted Net loss ($256) $75 ($181) Inventories, net 3,348 (98 ) 3,250 Prepaid expenses and other current assets 977 23 1,000 A reconciliation of the effects of the adjustments to the previously reported statement of stockholders' equity for the year ending January 31, 2015 follows: As Reported Adjustment As Adjusted Net loss ($256) $75 ($181) Retained earnings 25,325 (723 ) 24,602 Total comprehensive loss (3,626 ) 75 (3,551 ) A reconciliation of the effects of the adjustments to the previously reported statement of stockholders' equity for the year ending January 31, 2014 follows: As Reported Adjustment As Adjusted Retained earnings $25,580 ($797) $24,783 Stockholders' Equity 76,636 (797 ) 75,839 43 - Discontinued operationsOn January 29,the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois to the Industrial Air division of CLARCOR, a NYSE-listed company based in Franklin, Tennesse. On January 29, 2016, the Company also sold its Nordic Air Filtration, Denmark and Nordic Air Filtration, Middle East businesses to Hengst Holding GmbH. The purchase price of these Illinois and international filtration businesses was $22.0 million, including cash proceeds of $18.4 million, of which $1.9 million is held in escrow until July 2017. The remaining domestic fabric filter business, which is included in held for sale, is operational and selling product as of January 31, 2016. These businesses are reported as discontinued operations in the consolidated financial statements and the notes to consolidated financial statements have been revised to conform to the current year reporting. There wasfor those corresponding years. Included in accrued expenses reported for January 31, 2018 is an amount of $0.1 million of tax expense for the period ended January 31, 2016 . Loss fromwarranty liability. Net cash used in discontinued operating activities during 2017 was less than $0.1 million. There were no expenses related to discontinued operations net of tax was $6.0 million and $4.4 million for the years ended January 31, 2016 and 2015, respectively.in fiscal 2018. Impairment. The Company evaluates assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. In the fourth quarter, Filtration Product's recorded a $6.5 million impairment expense relating to the Virginia facilityResults of the discontinued operations were as follows: 2015 2014 Net sales $64,975 $68,110 Gain on disposal of discontinued operations $8,099 $188 Impairment expense from discontinued operations (6,480 ) — Loss from discontinued operations (7,569 ) (4,282 ) Loss from discontinued operations before income taxes (5,950 ) (4,094 ) Income tax expense 94 324 Loss from discontinued operations, net of tax ($6,044 ) ($4,418 ) Components of assets, and liabilities from discontinued operations consist of the following: January 31, 2016 2015 Current assets Cash and cash equivalents $5 $608 Trade accounts receivable, net 5,720 7,516 Inventories, net 2,000 15,157 Other assets 349 2,003 Property, plant and equipment, net of accumulated depreciation 6,456 14,477 Non-current assets 1,203 1,715 Total assets from discontinued operations $15,733 $41,476 Current liabilities Trade accounts payable, accrued expenses and other $7,514 $10,016 Current maturities of long-term debt 5,322 806 Long-term liabilities 2,629 10,557 Total liabilities from discontinued operations 15,465 21,379 Cashflows from discontinued operations: January 31, 2016 2015 Net cash used in discontinued operating activities ($7,113 ) ($2,629 ) Net cash provided by (used in) discontinued investing activities 17,026 (1,425 ) Net cash (used in) provided by discontinued financing activities (3,025 ) 4,219 54 - RetentionRetentionthea portion of an outstanding receivable balance amount withheld by a customer until a contract is completed.fully completed as specified in the contractual agreement. Retention receivables of $2.8$1.7 million and $5.7$2.4 million were included in the balance of trade accounts receivable as of 20162019 and 2015,2018, respectively. RetentionA retention receivable of $4.3 million and $3.2 million was included in the balance of other long-term assets as of January 31, 20162019 and 2018 due to the long-term nature of the receivables. See Note 2 - Accounts receivable for further information regarding the future realization of these long-term balances. $ 12,348 $ 11,955 7,430 6,336 19,778 18,291 19,694 18,756 $ 84 $ (465 ) $ 1,653 $ 1,502 (1,569 ) (1,967 ) $ 84 $ (465 )
Practical expedients:Costs and estimated earnings on uncompleted contractsDebt $ 8,890 $ 7,273 6,961 7,723 84 123 536 846 16,471 15,965 (181 ) (200 ) 9,539 8,037 $ 6,751 $ 7,728 $ 9,539 $ 8,037 (9 ) (11 ) $ 9,530 $ 8,026 2015 2014 Costs incurred on uncompleted contracts $78,843 $66,547 Estimated earnings 46,359 31,082 Earned revenue 125,202 97,629 Less billings to date 123,915 97,610 Costs in excess of billings, net $1,287 $19 Balance sheet classification Costs and estimated earnings in excess of billings on uncompleted contracts $2,463 $700 Billings in excess of costs and estimated earnings on uncompleted contracts (1,176) (681) Costs in excess of billings, net $1,287 $19 Note 7 - Debt 2015 2014 Revolving line domestic $5,237 $11,353 Mortgage notes 1,443 1,530 Revolving lines foreign 8,131 2,774 Term loans 246 1,808 Capitalized lease obligations 442 1,060 Total debt 15,499 18,525 Less current maturities 14,006 16,170 Total long-term debt $1,493 $2,355 aton January 31: $ 8,890 $ 8,890 $ — $ — $ — $ — $ — 6,961 355 361 366 372 378 5,129 84 84 — — — — — 536 210 225 81 20 — — $ 16,471 $ 9,539 $ 586 $ 447 $ 392 $ 378 $ 5,129 Total 2017 2018 2019 2020 2021 Thereafter Revolving line domestic $5,237 $5,237 $— $— $— $— $— Mortgages 1,443 97 102 107 112 117 908 Revolving line foreign 8,131 8,131 — — — — — Term loans 246 165 81 — — — — Capitalized lease obligations 442 376 66 — — — — Total $15,499 $14,006 $249 $107 $112 $117 $908 entered intoand Bank of Montreal, as successor by assignment to BMO Harris Bank N.A., as amended (the “Prior Credit Agreement”). security agreementexpects to continue using this facility to fund future capital expenditures, working capital needs and other corporate purposes. Borrowings under the Senior Credit Facility bear interest at a rate equal to an alternate base rate or LIBOR, plus, in each case, an applicable margin. The applicable margin is based on average quarterly undrawn availability with respect to the Senior Credit Facility. Interest on alternate base rate borrowings are generally payable monthly in arrears and interest on LIBOR borrowings are generally be payable in arrears on the last day of each interest period. Additionally, the Company is required to pay a financial institution (as amended, "Credit Agreement"). Under0.375% per annum facility fee on the termsunused portion of the Senior Credit Agreement, which maturesFacility. The facility fee is payable quarterly in arrears. 24,20, 2021. Subject to certain qualifications and exceptions, the Senior Credit Facility contains covenants that, among other things, restrict the North American Loan Parties’ ability to create liens, merge or consolidate, consummate acquisitions, make investments, dispose of assets, incur debt, and pay dividends and other distributions. In addition, the North American Loan Parties cannot allow capital expenditures to exceed $3 million annually (plus a limited carryover of unused amounts). can borrow upand its subsidiaries (including the Company’s foreign subsidiaries not party to $25.0 million, subjectthe Credit Agreement) to borrowing baseachieve a ratio of its EBITDA (with certain additional adjustments) to the sum of scheduled cash principal payments on indebtedness for borrowed money and other requirements,interest payments on the advances under a revolving linethe Senior Credit Facility 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. 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 ratenot less than 1.10 to 1.00 for the corresponding interest period. Atnine-month period ending October 31, 2018 and for the quarter ending January 31, 2016, the2019 and each quarter end thereafter on a trailing four-quarter basis. The Company was in compliance with all covenants under the Credit Agreement. The domestic revolving line balancethis requirement as of January 31, 2015 and2019. 2016 was included as a current liability on the consolidated balance sheets.At January 31, 2016,2019, the Company had borrowed $5.2an aggregate of $8.9 million at 3.25%8.0% and 1.5%6.0%, with a weighted average rate of 6.43%, and had $8.3$3.1 million available to it under the revolving lineSenior Credit Facility.38On February 29, 2016, the Company reduced the amount that can be borrowed under the Credit Agreement to $15.0 million.such(such as accounts receivable and inventory,inventory), and a guarantee by the Company. Some credit arrangement covenants requiresrequire a minimum tangible net worth to be maintained. At maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On January 31, 2016,2019, the Company was in compliance with the covenantcovenants under the credit arrangement. Interestarrangements. On January 31, 2019, interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimumwere based on the EIBOR plus 3.5% per annum, and Emirates Inter Bank Offered Rate (EIBOR) plus 3.5%with a minimum interest rate of 4.5% per annum. TheOn January 31, 2019, the Company's interest rates rangeranged from 3.5%6.15% to 6.0% at January 31, 2016. At January 31, 2016,6.51%, with a weighted average rate of 6.51%, and the Company cancould borrow $43.8$9.1 million under these credit arrangements. The Company borrowed $8.1 million and had $28.7 million available under these credit arrangements as of On January 31, 2016. In addition, $7.02019, $7.9 million of availability was used to support letters of credit to guarantee amounts committed for inventory purchases.purchases and for performance guarantees. On January 31, 2019, the Company had borrowed $0.1 million, and had an additional $1.1 million available. The foreign revolving lines balances as of January 31, 2019 and 2018, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 5025.0 million Saudi RiyalDirhams (approximately $13.3$6.8 million U.S. dollars at the prevailing exchange rate on the transaction date) from a Saudi Arabian bank. The loan has an interest rate of approximately 6% and matures September 2016.The Company has a revolving line for 40 million Dirhams (approximately $10.9 million U.S. dollars at the prevailing exchange rate on the transaction date)January 31, 2019) from a bank in the U.A.E. The loan has an interest rate of approximately 6%6.51% and matures June 2016.July 2019.has a revolving line for 71.6guarantees the subsidiaries' debt including all foreign debt.DirhamsCAD (approximately $19.5$6.1 million U.S. dollars at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the U.A.E.manufacturing facility located in Alberta, Canada that matures on December 23, 2042. The loan has an interest rate is variable, currently at 6.05%, with monthly payments of approximately 6%$38 thousand CAD (approximately $29 thousand) for interest; and matures November 2016.The Company guarantees the subsidiaries' debt including all foreign debt.Mortgages. monthly payments of $27 thousand CAD (approximately $21 thousand) for principal. Principal payments began January 2018.Perma-Pipe, Inc.the Company borrowed $1.8$1.8 million under a mortgage note secured by its manufacturing facility in Lebanon, Tennessee. The proceeds were used for payment of amounts borrowed. The loan bears interest at 4.5% with monthly payments of $13$13 thousand for both principal and interest and matures July 1, 2027.2027. On June 19, 2022,, and on the same day of each year thereafter, the interest rate shall adjust to the prime rate, provided that the applicable interest rate shall not adjust more than 2.0% per annum and shall be subject to a ceiling of 18.0% and a floor of 4.5%.March 4, 2008,October 20, 2017, the Company borrowed $5.4obtained a capital lease for $0.18 million under a mortgage note secured byCAD (approximately $0.1 million at the Filtration Products manufacturing facility located in Bolingbrook, Illinois that matures March 2033. The 25 year mortgage resets its interestprevailing exchange rate every five years based on a published index.the transaction date) to finance vehicle equipment. The interest rate for these capital leases is 4.04%4.0% per annum with monthly payments of $30 thousand for principal and interest combined. This mortgage is reported in liabilities of discontinued operations.On January 18, 2008, the Company borrowed $3.7 million under a mortgage note secured by its manufacturing and office facility in Niles, Illinois. The loan bears interest at 6.3% with monthly payments of $23$3 thousand, for both principal and interest basedthese leases mature on an amortization schedule of thirty years with a balloon payment at maturity in January 2018. This mortgage is reported in current liabilities held for sale.Term loans. Between March 2015 and September 2015,29, 2022. obtained loans in the amount of 1.3 million Dirhams (approximately $341 thousand U.S. dollars at the exchange rate prevailing on the transaction dates). The loans bear interest at 5.0% and 6.0% with monthly payments of $17 thousand for both principal and interest and mature between April 1, 2017 and October 31, 2017.Capital leases. On May 1, 2012, Piping Systems borrowed $0.4 million under an equipment loan secured by equipment. The loan bears interest at 6.5% with monthly payments of $8 thousand for both principal and interest and matures June 2017.On January 31, 2012, Perma-Pipe, Inc. borrowed $1.2 million under an equipment loan secured by equipment. The loan bears interest at 6.7% with monthly payments of $24 thousand for both principal and interest and matures January 2017.In 2013 and 2014, Piping Systems obtained two capital leases totaling 1.5for a total of $0.94 million CAD (approximately $0.7 million USD at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for these capital leases is 7.8% per annum with monthly principal and interest payments of $9 thousand, and these leases mature on April 30, 2021.$24$8 thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest ratesrate for thesethis capital leases range from 12.8% to 18.2%lease is 15.6% per annum with monthly principal and interest payments of $1less than a thousand dollars, and the leases mature in 2016 and 2017.lease matures on July 5, 2019.87 - Lease information $ 855 $ 1,729 8 9 863 1,738 355 699 $ 508 $ 1,039 Property under capitalized leases 2.015 2.014 Machinery and equipment $1,747 $1,803 Transportation equipment 22 24 Computer equipment — 92 Subtotal 1,769 1,919 Less accumulated amortization 726 691 Total $1,043 $1,228 Land for production30, 2030.21,500423,000 square feet in the U.A.E. is leased until July, 2032.leaseshad leased one of its administrative offices in the U.A.E. from a partnership in which a former employee of the Company employee iswas a partner. TotalThe Company ended this lease arrangement in 2017 and paid total rent paidof $0.2 million to the partnership was $0.3 million in 2015 and 2014, respectively.2017. No payments were made in 2018. Lease payments were based on prevailing market rates.40At2016,2019, future minimum annual rental commitments under non-cancelable lease obligations were as follows: $ 2,516 $ 241 2,193 240 2,149 82 2,110 21 1,979 — 8,997 — 19,944 584 — (48 ) $ 19,944 $ 536 Operating Leases Capital Leases 2016 $1,944 $1,386 2017 1,640 67 2018 1,378 — 2019 1,311 — 2020 1,327 — Thereafter 10,066 — Subtotal 17,666 1,453 Less Amount representing interest 22 Future minimum lease payments $17,666 $1,431 $0.7$2.6 million and $0.8$2.9 million in 20152018 and 2014,2017, respectively.98 - Income taxes $ (2,331 ) $ (7,924 ) 3,952 (2,285 ) $ 1,621 $ (10,209 ) $ 48 $ — 1,695 697 196 28 1,939 725 — (33 ) 211 (925 ) — — 211 (958 ) $ 2,150 $ (233 ) Income (loss) from continuing operations 2015 2014 Domestic ($2,066) $1,968 Foreign 5,076 5,320 Total $3,010 $7,288 Components of income tax expense (benefit) 2015 2014 Current Federal $12 $49 Foreign 1,541 1,851 State and other 71 (80 ) Subtotal 1,624 1,820 Deferred Federal — — Foreign (249 ) 1,231 State and other — — Subtotal (249 ) 1,231 Total $1,375 $3,051 determination ofU.S. Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017 and introduced significant changes to U.S. income tax law. Effective in 2018, the consolidated provision forTax Act reduces the U.S. statutory tax rate from 35% to 21%, effective January 1, and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are referred to as the global intangible low-taxed income taxes, deferred tax assets and liabilities, and the related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions,base erosion anti-abuse tax, respectively. Since the Company is requireda fiscal taxpayer, the Company was subject to calculatea blended federal rate of 33.83% as of January 31, 2018. In addition, in 2017 the Company was subject to the onetime transition tax on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. The Company is subject to a current and providedeferred federal tax rate of 21% as of January 31, 2019.estimated incomethe tax effects of the Tax Act have been completed as of January 31, 2019, and the Company recorded a tax expense for each of the tax jurisdictions. The process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Changes in the estimated level of annual pre-tax income, in tax laws, and resulting from tax audits can affect the overall effective tax rate ("ETR"), which impacts the level of income tax expense and net income. Judgments and estimatesless than $0.1 million related to the Company's projectionsone-time transition tax.assumptions are inherently uncertain; therefore, actual results could differ materially from projections.ETRa decrease in 2015the foreign tax credit DTA of $7.4 million. The changes in balances were offset by valuation allowances and did not impact tax expense. The transition tax of $7.5 million was highermostly offset by the use of foreign tax credit carryforwards, resulting in a net tax expense of less than $0.1 million. There was no tax impact on the statutory U.S. federal income tax rate, mainlyrelated adjustments to the deferred balances due to the Company applying a valuation allowance against the net deferred balances. full valuation allowance maintained against domestic deferredIndia dividend distribution tax assets and the recognition of foreign earningsresulting from the dispositions of certain foreign operations. The Company remains in an NOL carryforward position.During the fourth quarter of 2015, the Company sold its foreign filtration operations, the gain from which was taxable in the U.S.Canadian withholding taxes will be considered. As such, the Company no longer considershas accrued a liability of $0.4 million in 2018 related to these taxes.earningsexcess of the remaining Denmark subsidiary permanently reinvested. Therefore,amount for financial reporting over the Company has recorded a deferred tax liabilitybasis of $0.2 million related toinvestments in foreign subsidiaries that is indefinitely reinvested outside the U.S. federal and state income taxes on approximately $0.7 million of undistributed earnings.The Company has not provided Federal tax on remaining unremitted earnings of its Middle East subsidiaries. The Company does not believe that it will be necessary to repatriate earnings from these subsidiaries.United States. The Company intends and has the ability to permanently 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 concluded that not all of the undistributed earnings of Perma-Pipe India Ltd, will remain permanently reinvested outside the U.S. and are available for useMiddle Eastern subsidiaries. The Middle Eastern subsidiaries have unremitted earnings of $26.3 million as of January 31, 2019, all of which has been subject to the transition tax in the U.S. orUnremitted earnings of $18.7 million in entitiesthe United Arab Emirates would not be subject to withholding tax in other foreign countries. the event of a distribution, $7.5 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $1.5 million, and the $4.6 million of earnings permanently reinvested in India would be subject to dividend distribution tax of $0.9 million.such,a result of the Tax Act, in 2017, the Company recordedrevalued deferred balances to a deferred tax liabilityrate of $0.221% as of the date of enactment, which resulted in a tax expense of $2.2 million and $0.9tax benefit of $0.4 million related to a reduction in the federal benefit of state taxes. This tax expense was fully offset by a valuation allowance, therefore, there was no impact to the income statement. periods ending January 31, 2016 and 2015, respectively, related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $2.8 million and $4.2 million of undistributed earnings. The decrease in deferred tax liability primarily relates to a $2.0 million dividend paid during January 2016 along with a decrease in accumulated earnings and profits. Future earnings related to this subsidiary are not deemed permanently reinvested. No U.S. cash tax payments will be made upon distributioneffects of these foreign earnings as long asprovisions in the period that is subject to such tax and the impact is reflected in the Company’s full year provision. However, the inclusion of $2.1 million during the period does not result in additional tax expense since the Company has sufficientNOL carryforwards and a valuation allowance applied against the net domestic deferred tax attributes in the U.S. to reduce the cash tax consequencesassets.42ETRstatutory rate of 34%21% in 2018 and 33.83% in 2017 was as follows: $ 340 $ (3,459 ) — 2,243 145 (440 ) — (183 ) (2,612 ) (1,206 ) Domestic return to provision related to the 2017 transition tax 2,617 — 438 — 126 162 76 297 334 732 — (364 ) 413 1,880 Foreign withholding taxes 252 245 21 (140 ) $ 2,150 $ (233 ) $ 7,480 $ 1,795 382 341 2,703 2,703 390 332 2,305 9,749 459 506 349 270 2,552 2,157 643 423 112 96 159 81 17,534 18,453 (16,199 ) (17,198 ) $ 1,335 $ 1,255 $ (1,734 ) $ (1,941 ) (498 ) (101 ) (80 ) (64 ) $ (2,312 ) $ (2,106 ) $ (977 ) $ (851 ) $ 458 $ 391 (1,435 ) (1,242 ) $ (977 ) $ (851 ) 2015 2014 Tax benefit at federal statutory rate $1,023 $2,478 Permanent differences management fee allocation 619 1,946 Domestic valuation allowance 804 — Permanent differences other 214 (540 ) Valuation allowance for state NOLs 88 (318 ) Differences in foreign tax rate (780 ) (291 ) Foreign tax credit (761 ) (793 ) Domestic deferred tax true ups (346 ) — Research tax credit (54 ) (29 ) Repatriation 821 1,530 Valuation allowance for foreign NOLs 32 35 Nontaxable income from the Canadian joint venture (205 ) (666 ) State taxes, net of federal benefit (58 ) (131 ) All other, net expense (22 ) (170 ) Total $1,375 $3,051 $11.5$35.6 million that will begin to expire in the year ending 2030. In addition, there are suspended excess tax benefits of $0.3 million.2031.deferred tax asset ("DTA")DTA for state NOL carryforwards of $1.4$2.6 million relates to amounts that expire at various times from 20162022 to 2031. The amount that expired in 2015 is approximately $1 thousand.$0.1$0.4 million for its subsidiary in Saudi Arabia that can be carried forward indefinitely and does not have a valuation allowance recorded against it. The ultimate realization of this tax benefit is dependent upon the generation of sufficient operating income in the foreign tax jurisdictions.jurisdictionjurisdiction. 2016,2019, the Company has determined that there is not a greater than 50% likelihood that all of the domestic DTAs will be realized based on the available evidence. The Company recorded a full valuation allowance against the remaining domestic net DTAs as ofon January 31, 2013 net of uncertain tax positions ("UTP"). The Company continues to have a valuation allowance on its domestic DTAs since domestic losses continue to be generated.$2.9$2.3 million for U.S. foreign tax credits attributed toafter considering the impact of the repatriated foreign earnings.earnings and the one-time transition tax. The foreign tax credit deferred tax asset is fully offset with a valuation allowance. The excess foreign tax credits are subject to a ten-year carryforward and will begin to expire in January 31, 2022. As of January 31, 2016, the Company has not made a provision for U.S. or additional foreign withholding taxes on approximately $40.4 million of undistributed earnings of foreign subsidiaries indefinitely reinvested outside of the U.S., mainly in the Middle East.Components of deferred income tax assets 2015 2014 U.S. Federal NOL carryforward $3,044 $3,156 Non-qualified deferred compensation 2,382 2,363 Research tax credit 2,057 2,032 Foreign NOL carryforward 231 483 Foreign tax credit 2,861 2,088 Stock compensation 1,061 1,033 Other accruals not yet deducted 438 901 State NOL carryforward 1,419 1,291 Accrued commissions and incentives 723 584 Accrued pension — 735 Inventory valuation allowance 73 430 Other 106 561 Inventory uniform capitalization 10 94 Deferred tax assets, gross 14,405 15,751 Valuation allowance (13,333 ) (14,201 ) Total deferred tax assets, net of valuation allowances $1,072 $1,550 Components of the deferred income tax liability Depreciation $633 $851 Foreign subsidiaries unremitted earnings 412 863 Prepaid 88 310 Total deferred tax liabilities $1,133 $2,024 Deferred tax liability, net $(61) $(474) Balance sheet classification Long-term assets $99 $260 Long-term liability 160 734 Total deferred tax liabilities, net of valuation allowances $(61) $(474) 2026. $ 1,301 $ 1,331 9 6 147 5 (10 ) (34 ) — (7 ) $ 1,447 $ 1,301 2.015 2.014 Balance at beginning of the year $1,288 $1,358 Increases in positions taken in a prior period 11 17 Increases in positions taken in a current period 14 — Decreases due to lapse of statute of limitations — (42 ) Decreases due to settlements — (45 ) Balance at end of the year $1,313 $1,288 at January 31, 2016were estimated accrued interest and penalty of $28 thousand and penalties of $17 thousand and at less than $0.1 million in both January 31, 2015, accrued interest was $17 thousand2019 and penalties were $15 thousand.January 31, 2018. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheet.sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. At On January 31, 2016,2019, the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance at on January 31, 20162018 were amounts offset by deferred taxes (i.e., temporary differences) or amounts that could be offset by refunds in other taxing jurisdictions (i.e., corollary adjustments). Thus, $1.3Upon reversal, $.3 million of the amount accrued at on January 31, 20162019 would impact the ETR, if reversed.future ETR.In July 2014, the Company received a notice from theThe Internal Revenue Service, that it had concluded("IRS"), began an audit of the fiscal year ended January 31, 2015 in August 2016. In 2017, the tax audit for the years ended January 31, 2012 and 2013. No changes wereconcluded with no change made to the reported tax. Tax years backrelated to January 31, 20112015, 2016 and 2017 are open for federal and state tax purposes. In addition, federal and state tax years January 31, 2002 through January 31, 2009 are subject to adjustment on audit, up to the amount of research tax credit generated in those years. Any NOL carryover can still be adjusted by the IRS in future year audits.currentother long-term liabilities on the consolidated balance sheet.109 - Retirement plansfiltration hourly rated employeesVirginia, was frozen on June 30, 2013 per the third Amendment to the Plan dated May 15, 2013. Per the third amendment, theThe accrued benefit of each participant was frozen as of the freeze date, and no further benefits shall accrue with respect to any service or hours of service after the freeze date. The benefits are based on fixed amounts multiplied by years of service of participants. The Company engages outside actuaries to calculate its obligations and costs. The funding policy is to contribute such amounts as are necessary to provide for benefits attributed to service to date. The amounts contributed to the plan are sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974.MFRI,Perma-Pipe International Holdings, Inc.; value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below: $ 2,991 $ 3,819 2,065 1,843 368 199 5,424 5,861 $ 121 $ 171 121 171 $ 634 $ 668 $ 6,179 $ 6,700 Level 1 market value of plan assets 2015 2014 Equity securities $3,062 $3,795 U.S. bond market 2,168 2,033 Subtotal 5,230 5,828 Level 2 significant other observable inputs Money market fund $351 $340 Equity securities 302 0 Subtotal 653 340 Total 5,883 6,168 At 2016,2019, plan assets were held 61%63% in equity, 31%35% in debt and 8%2% in other. The investment policy is to invest all funds not needed to pay benefits and investment expenses for the year, with target asset allocations of 52%approximately 60% equities, (with a range of 40% - 65%), 30% fixed income (with a range of 20% - 35%) and 18% Alternative Investments (with a range of 15% - 25%),10% alternative investments, diversified across a variety of sub-asset classes and investment styles, following a flexible asset allocation approach that will allow the plan to participate in market opportunities as they become available. The expected long-term rate of return on assets is based on historical long-term rates of equity and fixed income investments and the asset mix objective of the funds.20152018 resulted in $25 thousand$0.2 million actual returnloss on plan assets as presented below, which increaseddecreased the fair value of plan assets at year end. The Company did not change its 8% expected return on plan assets used in determining cost and benefit obligations, which is the return that the Company has assumed during every profitable and unprofitable investment year since 1991. The plan's investments are intended to earn long-term returns to fund long-term obligations, and investment portfolios with asset allocations similar to those of the plan's investment policy have attained such returns over several decades. Future contributions that may be necessary to maintain funding requirements are not expected to materially affect the Company's liquidity. $ 6,258 $ 6,658 $ 6,258 $ 6,658 $ 6,658 $ 6,500 240 253 (303 ) 249 (337 ) (344 ) $ 6,258 $ 6,658 $ 6,700 $ 6,228 (184 ) 816 (337 ) (344 ) $ 6,179 $ 6,700 $ (80 ) $ 42 $ 343 $ 349 1,568 1,350 (1,991 ) (1,657 ) $ (80 ) $ 42 $ 1,648 $ 1,307 $ 1,648 $ 1,307 3.90 % 3.70 % 3.70 % 4.00 % 8.00 % 8.00 % Reconciliation of benefit obligations, plan assets and funded status of plan 2015 2014 Accumulated benefit obligations Vested benefits $6,587 $7,626 Accumulated benefits $7,020 $8,129 Change in benefit obligation Benefit obligation - beginning of year $8,129 $6,827 Service cost — — Interest cost 266 299 Actuarial (gain) loss (1,115 ) 1,249 Benefits paid (260 ) (246 ) Benefit obligation - end of year $7,020 $8,129 Change in plan assets Fair value of plan assets - beginning of year $6,168 $6,351 Actual (gain) loss on plan assets (25 ) 63 Benefits paid (260 ) (246 ) Fair value of plan assets - end of year $5,883 $6,168 Unfunded status $(1,137) $(1,961) Balance sheet classification Current assets $326 $352 Other assets 1,166 1,163 Other long-term liabilities (2,629 ) (3,476 ) Net amount recognized $(1,137) $(1,961) Amounts recognized in accumulated other comprehensive loss Unrecognized actuarial loss $2,303 $3,124 Net amount recognized $2,303 $3,124 Weighted-average assumptions used to determine net cost and benefit obligations 2015 2014 End of year benefit obligation 4.05 % 3.35 % Service cost discount rate 4.50 % 4.50 % Expected return on plan assets 8.00 % 8.00 % Rate of compensation increase N/A N/A Components of net periodic benefit cost 2015 2014 Service cost $0 Interest cost 266 299 $ 240 $ 253 Expected return on plan assets (479) (494) (522 ) (484 ) Recognized actuarial loss 210 69 64 82 Net periodic benefit (income) cost ($3) ($126) $ (218 ) $ (149 ) $ 303 $ (249 ) (644 ) 414 $ (341 ) $ 165 $ — — $ 344 338 344 344 338 2025 - 2029 1708 Amounts recognized in other comprehensive income Actuarial gain (loss) on obligation $1,115 $(1,249) Actual (loss) gain on plan assets (294 ) (362 ) Total in other comprehensive income (loss) $821 $(1,611) Other comprehensive income is also affected by the tax effect of the valuation allowance recorded on the domestic deferred tax assets. Cash flows Expected employer contributions for the fiscal year ending January 31, 2016 $— Expected employee contributions for the fiscal year ending January 31, 2016 — Estimated future benefit payments reflecting expected future service for the fiscal year(s) ending January 31,: 2017 326 2018 349 2019 348 2020 363 2021 363 2022 - 2026 $1,841 MFRI, Inc.PPIH 401(k) Employee Savings and Protection Plan, which is applicable to all employees except employees covered by collective bargaining agreement benefits. The plan allows employee pretax payroll contributions of upfrom 1% to 16% of total compensation. The Company matches 100% of each participant's payroll deferral contributions up to 1% of their compensation, plus 50% of each participant's contribution, up to a maximumpayroll deferral contributions on the next 5% of 3.5% of each participant's salary.compensation.$558 thousand and $439 thousand for the$0.3 million each in years ended January 31, 20162019 and 2015, respectively.Deferred compensation planThe Company had a Supplemental Retirement and Deferred Compensation Plan ("Supplemental Plan"), pursuant to which key employees deferred compensation. Participants receive distributions from the plan at the later of age 65 or six months after separation from service. Life insurance contracts have been purchased and may be used to fund the Company's obligation under these agreements.Deferred compensation liability 2015 2014 Current $6,167 $213 Long-term 495 6,560 Total $6,662 $6,773 Deferred compensation expense $36 $270 On April 10,2014, the Company's Board of Directors terminated the Supplemental Plan and its Deferred Stock Purchase Plan, adopted on December 5, 2012 (collectively, the "Plans"), effective April 10, 2014 ("Termination Date"). No additional contributions will be made by the Company or participants under the Plans after the Termination Date. All funds and Company stock remaining in participant accounts will be distributed not later than 24 months after the Termination Date. The Company is obligated to deliver 9,991 shares of Company common stock under the Deferred Stock Purchase Plan.2018.plans.plans (in thousands): Funded Zone Status FIP/RP Status Pending/Implemented Contribution Plan Name EIN Plan # 2015 2014 Surcharge Imposed Collective Bargaining Expiration Date Plumbers & Pipefitters Local 572 Pension Fund 626102837 001 Green No 233 236 No 3/31/2019 1110 - Stock-based compensationThe Company has stock-based compensation awards that can be granted to eligible employees, officers or directors. 2015 2014 Stock-based compensation expense (benefit) $116 ($114 ) Restricted stock based compensation expense $470 $82 Stock-based compensation was a benefit year-to-date due to cancellations. A majority of these cancellations related to former employees from the discontinued operations.Stock optionsOn June 20, 2013stockholders approved the 2013Company had one incentive stock plan under which new equity incentive awards may be granted: Omnibus2017 Plan"). Under the Omnibus Plan, 350,000 shares of common stock are reserved for issuance to employees, officers, and directors of, and other individuals providing bona fide services to or for,its affiliates. In addition, on January 31, 2014issuances under these incentive stock plans, which includes a reserve for issuances pursuant to unvested or unexercised prior awards, and each January 31 thereafter until January 31, 2023, the aggregate number of shares that may be issued with respect to Awardsfor new grants or issuances pursuant to the terms2017 Plan.this Plan will be increased by the number equal to 2% of the aggregate amount of commondeferred shares, non-qualified stock outstanding as of such date, provided, however, the maximum number of additional shares that may be issued pursuant to this sentence will not exceed 400,000. The Omnibus Plan permits the granting of stock options, (including incentive stock options, qualifying under Code section 422 and nonstatutory stock options), stock appreciation rights, restricted or unrestricted stock awards,shares, restricted stock units, performance awards, deferredand performance-based restricted stock awards, other stock-based awards, or any combinationunits intended to qualify under section 422 of the foregoing. Awards will be valued atInternal Revenue Code, to date the Company's closingCompany has issued only restricted shares and restricted stock price onunits under the date2017 Plan and currently intends to continue this practice. The 2017 Plan authorizes awards to officers, employees, consultants, and directors. $ 33 $ 94 1,132 1,353 Total stock-based compensation expense $ 1,165 $ 1,447 48four4 years and are exercisable for up to ten years from the date of grant. To cover the exercise of vested options, the Company issues new shares from its authorized but unissued share pool. The Company calculates all stock compensation expense based on the grant date fair value of the option and recognizes expense on a straight-line basis over the four-year vesting period of the option.The fair value of each option award was estimated on the date of grant using the Black-Scholes option-pricing model that used the assumptions noted in the following table. The principal variable assumptions utilized in valuing options and the methodology for estimating such model inputs include:1.risk-free interest rate - an estimate based on the "Market yield on U.S. Treasury securities at the rate for the period described in assumption 3 below, quoted on investment basis" for the end of week closest to the stock option grant date, from the Federal Reserve website;2.expected volatility - an estimate based on the historical volatility of MFRI common stock's weekly closing stock price for the expected life ; and3.expected life of the option - an estimate based on historical experience including the effect of employee terminations. 2.015 2.014 1. Risk-free interest rate .74%-1.77% .74%-1.77% 2. Expected volatility 40.88%-57.02% 40.88%-59.39% 3. Expected life in years 5.0 to 5.1 4.9 to 5.1 4. Dividend yield — — The following summarizes the activity related to options outstanding under all plans for the years ended January31,2015 2018 and 2016: Options Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Outstanding at January 31, 2014 776 $11.69 6.1 $3,859 Granted 97 12.41 Exercised (45 ) 7.27 194 Expired or forfeited (64 ) 18.92 Outstanding at January 31, 2015 764 11.45 5.7 — Options exercisable at January 31, 2015 532 $12.04 4.5 — Granted 51 6.38 Exercised (18 ) 6.48 3 Expired or forfeited (77 ) 9.93 Outstanding at January 31, 2016 720 11.38 5.1 34 Options exercisable at January 31, 2016 554 $11.94 4.2 $30 2019. The weighted averageCompany did not grant any stock options in 2017 or 2018. 524 $ 11.55 4.5 $ 534 (35 ) 6.80 45 (131 ) 18.54 358 9.44 4.0 482 327 $ 9.56 3.7 433 (77 ) 6.83 162 (63 ) 16.2 218 8.6 3.8 257 207 $ 8.69 3.6 $ 239
The Company received $0.5 million and $0.2 million in 2018 and 2017, respectively, for stock options exercised. 31 $ 8.24 $ 50 — — (14 ) Expired or forfeited (6 ) 8.12 11 $ 7.00 $ 19 granted, net of options surrendered, during 2015vested was $0.1 million in both 2018 and 2014 are estimated at $2.54 and $4.73, per share, respectively, on the date of grant.Unvested options outstanding Options Weighted-average grant date fair value Aggregate intrinsic value Outstanding at January 31, 2015 232 $10.11 $0 Granted 51 6.38 Vested (92 ) Expired or forfeited (25 ) 9.65 Outstanding at January 31, 2016 166 $9.51 $3 2017, respectively. Based on historical experience the Company expects 85%94% of these options to vest.2016,2019, there was $0.5less than $0.1 million of unrecognized compensation cost related to unvested stock options granted under the plans. That cost is expected to be recognized over the weighted-average period of 2.11.2 years.On April 10, 2014, the Company's BoardDirectors terminated the Deferred Stock Purchase Plan, adopted on December 5, 2012, effective April 10, 2014 ("Termination Date"). No additional contributions will be made bytheir compensation, each year the Company or participants under the Plan after the Termination Date. All Company stock remaining in participant accounts was required to be distributed not later than 24 months after the Termination Date, accordingly the Company delivered 9,991 shares of Company common stock under this Plan in April 2016. Refer to "Deferred compensation plan" in Note 9 - Retirement plans, in the Notes to Consolidated Financial StatementsIn June 2015 under the Omnibus Plan described above, the Company grantedwill grant deferred stock units to each non-employee director, at the time of the annual meeting of stockholders equal to the result of dividing $40,000the award amount by the fair market value of the common stock on the date of grant. The stock will bevests on the date of grant, however it is only distributed to the directors upon their separation from service.As In June 2018 the Company granted 21,450 deferred stock units from the 2017 Plan, and as of January 31, 20162019, there were approximately 77,293101,945 deferred stock units outstanding included in the restricted stock activity shown below. $ - $ 815 In June 2015 under the Omnibus Plan described above, theTier Iexecutive officers and Tier II executive officers.employees. The restricted stock vest ratably over years. Until restricted stock becomes vested and nonforfeitable, it may not be sold, assigned, transferred, pledged, hypothecated or disposed of in any way (whether by operation of law or otherwise), except by will or the laws of descent and distribution, and shall not be subject to execution, attachment or similar process. The Company issues new shares from its treasury stock or authorized but unissued share pool.four years. The Company calculates restricted stock compensation expense based on the grant date fair value and recognizes expense on a straight-line basis over the vesting period. The following table summarizes restricted stock activity for the years ended January 31, 20162018 and 2015,2019, respectively: 290 $ 8.75 $ 2,533 178 8.06 (101 ) (7 ) 7.15 360 $ 9.05 $ 3,254 148 9.76 (94 ) (131 ) 7.92 283 $ 8.74 $ 2,476 Restricted shares Weighted average grant price Aggregate intrinsic value Outstanding at January 31, 2014 50 $14.52 $719 Granted 54 12.41 Issued (15 ) Forfeited (3 ) 11.25 Outstanding at January 31, 2015 86 $14.52 $1,242 Granted 108 6.38 Issued (26 ) Forfeited (5 ) 6.38 Outstanding at January 31, 2016 163 $6.40 $1,040 20162019, there was $0.6$1.2 million of unrecognized compensation cost related to unvested restricted stock granted under the plans. That cost is expected to be recognized over the weighted-average period of 2.32.2 years.12 - Treasury stock / share repurchase program.On February 5, 2015, the Company's Board of Directors approved a share repurchase program, which authorizes the Company to use up to $2 million for the purchase of its outstanding shares of common stock. Share repurchases were permitted to be executed through open market or privately negotiated transactions on or prior to December 31, 2015.The following table sets forth information with respect to repurchases by the Company of its shares of common stock during 2015:Period Total number of shares purchased (in thousands) Average price paid per share February 28 $6.64 March 17 6.27 April to December — — Note 1311 - Stock rightsMFRI'sPPIH's common stock outstanding at the close of business on September 22, 1999. The stock issued after September 22, 1999 and before the redemption or expiration of the Rights is also entitled to one Right for each such additional share. Each Right entitles the registered holders, under certain circumstances, to purchase from the Company one share of MFRI'sPPIH's common stock at $25,$25, subject to adjustment. At no time will the Rights have any voting power.50MFRI,PPIH, or in the surviving enterprise if MFRIPPIH is acquired, having a value of two times the exercise price then in effect. Also, MFRI'sthe PPIH Board of Directors may exchange the Rights (other than those of the acquirer, which will have become void), in whole or in part, at an exchange ratio of one share of MFRIPPIH common stock (and/or other securities, cash or other assets having equal value) per Right subject to adjustment. The Rights described in this paragraph and the preceding paragraph shall not apply to an acquisition, merger or consolidation approved by the Company's Board of Directors., unless exchanged or redeemed prior to that date. The redemption price is $0.01$0.01 per Right. MFRI'sPPIH's Board of Directors may redeem the Rights by a majority vote at any time prior to the 20th day following public announcement that a person or group has acquired 15% of MFRI'sPPIH common stock. Under certain circumstances, the decision to redeem requires the concurrence of a majority of the independent directors.1412 - Interest expense, net $ 1,286 $ 808 (164 ) (111 ) $ 1,122 $ 697 2015 2.014 Interest expense $950 $1,045 Interest income (480 ) (526 ) Interest expense, net $470 $519 Note 15 - Subsequent eventsAs previously discussed, MFRI, through its wholly owned subsidiary Perma-Pipe Canada, Inc., acquired 100% ownership of BPPC, a coating and insulation company located in Alberta, Canada. The Company had owned a 49% interest in BPPC since 2009. On February 4, 2016, the remaining 51% interest in BPPC was acquired from a subsidiary of Aegion Corporation for consideration of approximately $9.6 million in cash and debt.Schedule IIMFRI, INC. AND SUBSIDIARIES20162019 and 20152018 Balance at beginning of period Charges to expenses Write-offs (1) Other charges/ (reversals) (2) Balance at end of period $ 469 $ 140 $ (272 ) $ 199 $ 536 $ 305 $ 247 $ (135 ) $ 52 $ 469 Balance at beginning of period Charged to costs and expenses Deductions from reserves (1) Charged to other accounts (2) Balance at end of period Year Ended January 31, 2016 Allowance for possible losses in collection of trade receivables $31 $6 $4 $0 $33 Year Ended January 31, 2015 Allowance for possible losses in collection of trade receivables $26 $10 $5 $0 $31 offoff.translationtranslation.SIGNATURESPursuant to the requirements of Section 13 or 15(d) 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:April 28, 2016/s/ Bradley E. Mautner Bradley E. MautnerDirector, President and Chief Executive Officer(Principal Executive Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated.BRADLEY E. MAUTNER*Director, President and Chief Executive Officer (Principal Executive Officer))))KARL J. SCHMIDT*Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)))April 28, 2016)DAVID UNGER*Director))DAVID S. BARRIE*Director and Chairman of the Board of DirectorsDENNIS KESSLER*Director))MICHAEL J. GADE*Director))MARK A. ZORKO*Director))DAVID B. BROWN*Director))JEROME T. WALKER*Director)*By:/s/ Bradley E. MautnerIndividually and as Attorney in FactBradley E. MautnerRestricted Stock Unit Agreement under the 2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10(b) to the Company’s Quarterly Report on Form 10-Q filed on September 11, 2018]*EXHIBIT INDEX“Description"Description and Location”Location" below. The Commission file number for ourthe Company's Exchange Act filings referenced below is 0-18370.MFRI,Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.3 to Registration Statement No. 33-70298]Second Amended and Restated By-Laws4(a) on Form 8-K filed on September 24, 1999]Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated September 24, 2014 [Incorporated by reference to Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q filed on December 9, 2014]10(e)First Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated February 5, 201510(f)Code of Conduct [Incorporated by reference to Exhibit 14 of the Company's Annual Report on Form 10-K/A for the fiscal year ended January 31, 2004 filed on June 1, 2004]10(g)Employment agreement with Fati Elgendy dated November 12, 2007 [Incorporated by reference to DEF14A filed on May 29, 2008] *10(h)First Amendment to Employment Agreement with Fati Elgendy dated March 19, 2014 [Incorporated by reference to Exhibit 10(o) to the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2014 filed on April 15, 2014] *10(i)Second Amendment to Employment Agreement with Fati Elgendy dated February 25, 2016 [Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 2, 2016] *10(j)10(k)Deferred Stock Purchase Plan [Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Forms S-8 File No. 333-186055, effective January 16, 2013] *10(l)10(m)10(n)10(o)10(p)Limited Waiver and Eighth Amendment to Credit and Security Agreement between the Company and Bank of Montreal, as successor by assignment to BMO Harris Bank N.A., dated June 5, 2018 [Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q filed on June 12, 2018] Ninth Amendment to Credit and Security Agreement between the Company and Bank of Montreal, as successor by assignment to BMO Harris Bank N.A., dated August 1, 2018 [Incorporated by reference to Exhibit 10(a) to the Company’s Quarterly Report on Form 10-Q filed on September 11, 2018] 2110(v) SubsidiariesForm of MFRI, Inc.Perma-Pipe International Holdings, Inc. Date: April 16, 2019 David J. Mansfield Director, President and Chief Executive Officer (Principal Executive Officer)