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 | 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 | Trading Symbol | Name of each exchange on which registered |
Common Stock, $.01 par value per share | PPIH | 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 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 $49,044,548$68,950,155.30 based on the closing sale price of $7.65$8.85 per share as reported on the NASDAQ Global Market on July 31, 2016.
The number of shares of the registrant's common stock outstanding at April 7, 20171, 2020 was 7,615,954.8,048,006.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2020 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 | 55 |
| 56 | |
| Item | Page | |
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| Filtration Products | 4 | |
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| 1A. | 5 | |
| 1B. | 9 | |
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| 6. | 11 | |
| 7. | 11 | |
| 7A. | 18 | |
| 8. | 18 | |
| 9. | 18 | |
| 9A. | 18 | |
| 9B. | 19 | |
| 10. | Directors, Executive Officers and Corporate Governance | 19 |
| 11. | Executive Compensation | 19 |
| 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 19 |
| 13. | Certain Relationships and Related Transactions, and Director Independence | 19 |
| 14. | Principal Accounting Fees and Services | 19 |
| 15. | 20 | |
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Cautionary Statements Regarding Forward Looking Statements
Certain statements contained in this Annual Report on Form 10-K, that are not historical facts, so-calledwhich can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely," and "probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements," within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended ("Exchange Act") and are made pursuantsubject to the safe harbor provisions ofharbors created thereby. These statements should be considered as subject to the Private Securities Litigation Reform Act of 1995. Investors are cautioned that all forward-looking statements involvemany 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, those detailed in Perma-Pipe International Holdings, Inc.'s filings with the Securities and Exchange Commission ("SEC"). See "Risk Factors" in Item 1A.
| • | the impact of the coronavirus (COVID-19) on the Company's results of operations, financial condition and cash flows; | |
| • | fluctuations in the price of oil and natural gas and its impact on customer order volume for the Company's products; | |
| • | the Company's ability to comply with all covenants in its credit facilities; | |
| • | the Company’s ability to repay its debt and renew expiring international credit facilities; | |
• | 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 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;
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 Annual Reports on Form 10-K, quarterly reports on Form 10-Qat favorable prices and current reports on Form 8-K, as well as amendments thereto. The Company maintains a website, www.permapipe.com, where these reports and related materials are availableto maintain beneficial relationships with its suppliers;
the Company’s ability to manufacture products free of charge as soon as reasonably practicable after the Company electronically delivers such materiallatent defects and to recover from suppliers who may provide defective materials to the SEC. The informationCompany;
reductions or cancellations of orders included in the Company’s backlog;
| • | risks and uncertainties related to the Company's international business operations; | |
• | 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 website is not partCompany’s information technology systems.
Perma-Pipe International Holdings, Inc., collectively with its subsidiaries ("PPIH", the "Company" or the "Registrant"), is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. In February 2017, theThe Company announced that the board of directors had authorized Company management to move forward with the re-naming and re-branding of MFRI, Inc. under the Perma-Pipe name now that the Company operateswas incorporated in a single business segment under the Perma-Pipe brand, and the Company believes this decision will better serve its strategy, position it well in the industry and global market,and better reflect the Company’s mission and strategy, and positions it to leverage the strong reputation Perma-Pipe has established since beginning operations. The name change to Perma-Pipe International Holdings, Inc. was effective March 20, 2017.Delaware on October 12, 1993. The Company's common stock has been and will continue to beis reported under its new ticker symbol “PPIH” since March 21, 2017. Outstanding stock certificates are not affected by the symbol change and will not need to be exchanged."PPIH". The Company's fiscal year ends on January 31. Years, results and balances described as 20162020, 2019 and 20152018 are for the fiscal years ended January 31, 20172021, 2020 and 2016,2019, respectively.
Products and services.
The Company engineers, designs, manufactures and sells specialty piping systems and leak detection systems. Specialty piping systems include: (i) insulated andThe 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 domestic Piping Systems is seasonal.customer demand can vary by season. See "Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") - Piping Systems.."
Operating Facilities: The Company announced that a Perma-Pipe subsidiary has formed a consortium with Danish company LOGSTOR, A/S to bid the East Africa Crude Oil Pipeline ("EACOP") project. This consortium joins the leading pre-insulated piping manufacturers in North America and Europe to take advantage of their combined fabrication, engineering and material science expertise.
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 |
| Perma-Pipe Egypt for Metal Fabrication and Insulation Industries (Perma-Pipe Egypt) S.A.E. | |
| Beni Suef, Egypt |
Customers and London-based Tullow Oil.sales channels. The pipeline is 24 inches in diameter, and is electrically heat traced. 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, or the terms of any such potential engagement.
For the year ended January 31, 2020, one customer accounted for 11.5% of the Company's consolidated net sales and for the year ended January 31, 2019, no one customer accounted for more than 10% of the Company's consolidated net sales.
As of January 31, 2020 and 2019, one customer accounted for 13.3% and three customers accounted for 42.0% of accounts receivable, respectively.
Backlog. The Company’s backlog on January 31, 2020 was $46.8 million compared to $61.0 million on January 31, 2019, most of which is expected to be completed within 2020. This reduction is primarily the result of major projects completed during 2019 in Saudi Arabia and the Gulf of Mexico. The Company defines backlog as the expected total 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 from the Company's reported backlog.
Intellectual property.
The Company ownsSuppliers. 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's international operations contributed approximately 55.1% of revenue in 2016Company files with and 48.4% of revenue in 2015.
The following table sets forth information regarding the executive officers of the Company as of April 1, 2017:
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, Chief Executive Officer ("CEO") and member of the Board of Directors.
D. Bryan Norwood: Appointed Vice President and Chief Financial Officer in November 2018. From 2014 to 2018 Mr. Norwood served as CFO in January 2013.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 Environmental Services Division of PSC, LLC a hazardous waste disposal company. From 1992 to 2010, Mr. Norwood held several senior leadership positions including CFO of Atkore International (previously Tyco ElectricalSmith 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 CFOTreasurer 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. In this role he had global responsibility for the accounting and finance, treasury, IT and legal functions of the company, which was listed at the New York Stock Exchange.
Wayne Bosch
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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’s business could be negatively impacted by the recent Coronavirus (“COVID-19”) outbreak. An outbreak of a novel strain of coronavirus, COVID-19, was identified in Wuhan, China in December 2019 and was subsequently recognized as a pandemic by the World Health Organization on March 11, 2020. This outbreak has severely restricted the level of economic activity around the world. In response to this COVID-19 outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or protective actions, such as imposing restrictions on travel and business operations. Temporary closures of businesses have been ordered and numerous other businesses have temporarily closed voluntarily. These actions have expanded significantly in the past several weeks and may continue to expand in scope, type and impact. These measures, while intended to protect human life, are expected to have significant adverse impacts on domestic and foreign economies of uncertain severity and duration. It is likely that the current outbreak or continued spread of COVID-19 will cause an economic slowdown, and it is possible that it could cause a global recession. Currently, the effectiveness of economic stabilization efforts being taken to mitigate the effects of these actions and the spread of COVID-19 is uncertain.
A public health pandemic, including COVID-19, poses the risk that the Company or its affiliates, employees, suppliers, customers and others may be prevented from conducting business activities for an indefinite period of time, including as a result of shutdowns, travel restrictions and other actions that may be requested or mandated by governmental authorities. Such actions may prevent the Company from accessing the facilities of its customers to deliver products and provide services. In addition, the Company’s customers may choose to delay or abandon projects on which it provides products and/or services as a result of such actions. Further, the Company has experienced, and may continue to experience, disruptions or delays in its supply chain as a result of such actions. While a substantial portion of the Company’s businesses have been classified as an essential business in jurisdictions in which facility closures have been mandated, the Company can give no assurance that this will not change in the future or that the Company’s businesses will be classified as essential in each of the jurisdictions in which it operates.
This COVID-19 outbreak has impacted, and may continue to impact, the Company's office locations and manufacturing facilities, as well as those of its third party vendors, including through the effects of facility closures, reductions in operating hours and other social distancing efforts. In addition, the Company has modified its business practices (including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences), and the Company may take further actions as may be required by government authorities or that the Company determines are in the best interests of its employees, customers, partners, and suppliers.
The Company may also experience impacts from market downturns and changes in demand for the Company's products and services related to pandemic fears and impacts on its workforce as a result of COVID-19. If the COVID-19 pandemic becomes more pronounced in the Company’s markets, or if another significant natural disaster or pandemic were to occur in the future, the Company’s operations in areas impacted by such events could experience further adverse financial impacts due to market changes and other resulting events and circumstances. The extent to which the COVID-19 outbreak impacts the Company’s results of operations, financial condition and cash flows will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19, the longevity of COVID-19 and the actions to contain its impact. However, it is likely that the impact of COVID-19 will adversely affect the Company's results of operations, financial conditions and cash flows in fiscal 2020.
Crude oil and natural gas prices are volatile, and the substantial and extended decline in oil and natural gas prices has had, and may continue to have, a material 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.
In early fiscal 2020, pricing for oil and natural gas dropped substantially and may continue to be at depreciated levels through fiscal 2020, which could substantially reduce the demand for the Company’s oil and gas related products. In February 2020, the Kingdom of Saudi Arabia and the Russian Federation failed to reach an agreement on oil production limitations. The news of a failed agreement resulted in a steep decline in global oil prices. On April 12, 2020, the Kingdom of Saudi Arabia and the Russian Federation agreed on oil production cuts, which will begin on May 1, 2020. Additionally, the reduction in worldwide consumption as a result of the coronavirus pandemic has added further downward pressure to oil prices. In response to the decrease in oil prices, international oil companies have announced capital spending budget cuts that are reported to be approximately 30%. At this time the impact of the anticipated reduction in capital spending on the Company's results of operations is uncertain. Generally, when the prices for crude oil and natural gas are higher, demand for the Company’s products increases and 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. At current commodity prices it is expected that oil and gas customers may drastically cut capital spending and/or delay spending until projects are economically viable.
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The Company's results in fiscal 2020 may not comply with all covenants in its Senior Credit Facility. In response to the extraordinary steps taken to combat the spread of COVID-19 and the impact of decreased demand for oil and the associated collapse of oil prices, the Company undertook a reforecast to determine the potential financial impact of these events on the Company’s results of operations. The results of the reforecast indicated a risk that the Company could be out of compliance with a debt covenant related to the Senior Credit Facility (as defined below) in the second quarter of 2020. To address the possible covenant compliance issue the Company has made plans to reduce planned capital expenditures and non-essential operating expenses, and if necessary, to repatriate foreign cash to bring the covenant into compliance.
The Company may be unable to repay its debt or renew its expiring credit facilities. There is a substantial risk that the Company may not be able to remain in compliance with its credit agreement covenants due to, among other matters, the expected impact on the Company's results of operations and financial condition resulting from the COVID-19 pandemic and the current depressed market for oil and gas. If there were an event of default under the Company's current revolving credit facilities, including as set forth above, 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;
repurchasing of the Company's shares;
paying dividends, capital returns, intercompany obligations and other forms of repatriation; and
creating liens.
The Company’s 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 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 restrictive covenants than those currently applicable to the Company. The Company’s ability to comply with any covenants may be adversely affected by general
economic conditions, political decisions, industry conditions and other events beyond management’s control.
The Company incurred net losses for its three fiscal years prior to 2019 and it may be unable to maintain its 2019 levels of profitability or positive cash flows in the future. The Company experienced net losses for its three fiscal years prior to 2019. Generating net income and positive cash flows in the future will depend
on the Company's ability to successfully complete and execute its strategic plan. There is no guarantee that the Company will be able to maintain its 2019 levels of profitability or positive cash flows in the future. The Company’s inability to successfully maintain 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 would likely adversely affect operating margins for the Company’s services and products.If the global economy experiencedexperiences a severe and prolonged downturn, it couldwould likely adversely impact all of the Company's businesses, directly or indirectly.business. 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 couldwould likely have a material adverse effect on the Company's business, results of operations, or financial condition.condition and cash flows. 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, including rising steel prices and surcharges and lower oil and natural gas prices. Failure
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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 and the Company's results of operations.
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% tariff (exceptions are Australia, Argentina, Brazil and South Korea imports), with retaliatory tariffs imposed by importing countries. These tariffs could lead to increased steel costs and decreased supply availability.
The Company regularly updates its quoting system for the movements in steel prices, and attempts to recover these risksprice differentials through price increases in the Company's products; however, the Company is not always successful. Any increase in steel prices that is not offset by an increase in the Company's prices that is accepted by customers could have an adverse impacteffect on the Company's financial position,business, results of operations, financial position and 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 theAggressive pricing by existing competitors and the substantial and extended decline in commodity prices has had, and may continue to have, a material and adverse effect on demand and pricingentrance of new competitors in the Company's business.
The Company may be unable to purchase raw materials at favorable prices, will continue, andor 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 prices for crude oil and natural gas willinterruption of supplies of such components would not decline further. Additionally, the
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 a material adverse effect on the Company's business, results of operations financial position and cash flows.
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 incorporated into the Company's products during the manufacturing process. The cost to repair, remake or replace defective products could be greater than the amount that can be recovered from the vendor. Such excess costs could have an adverse effect on the Company's business, results of operations, financial position and 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's results of operations 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 2016, theThe Company's international sales increasedto foreign customers decreased to 55.6% in 2019 from 48.4% to 55.1%.61.0% in 2018. The Company's anticipated growth and profitability may require maintaining current internationalincreasing foreign sales volume and may necessitate further international expansion. The Company's financial results of operations could be adversely affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities of U.S. and non U.S.non-U.S. governments, agencies and similar organizations.organizations, and other factors. These conditionsfactors include, but are not limited to, changes in a country's or region's economic or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political hostilities and war, could lead to reduced international sales and reduced profitability associated with such sales. In addition, these risks can include extraordinarily delayed collections of accounts receivable. Because the Company conducts a significant portion of its business activities in the Middle East, the political and economic events of the countries that comprise the GCC can have a material effect on the Company’s business.
Due to the Company's current revolving credit facilities, the holdersinternational scope of the defaulted debt could cause all amounts outstanding with respectCompany’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 debt to be due and payable immediately. The Company cannot assure that cash flow would be sufficient to fully repay amounts due under anydiffer from those of the financing arrangements, if accelerated upon an eventU.S. If the activities 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:
The Company may be canceled or modified at any time. If a customer cancels an order, the customer is normally responsible for all finished goods, all directunable to attract 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 not be able to achieve the expected benefits from its growth of business.
strain on working capital;
diversion of managementmanagement'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 the general economic risk,risks, the Company may not be able to realize the expected benefits from any recent or future acquisitions, new facility developments, partnerships, joint ventures or other investments.
The Company may be impacted by interpretations and changes in tax regulations and legislation which could adversely affect the Company's results of operations. Tax interpretations, regulations and legislation in the various jurisdictions in which the Company operates are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by the Company that may be challenged by the applicable taxation authorities upon audit. Although the Company believes its assumptions, judgements and estimates are reasonable, changes in tax laws or the Company's interpretation of tax laws and the resolution of any tax audits could significantly impact the amounts provided for income taxes in the Company's consolidated financial statements.
The Company may be required to reverse previously recorded revenue and profits as a result of inaccurate estimates made in connection with the Company’s percentage-of-completion revenue recognition. AllCertain domestic divisions have contracts that recognize revenues under the stated revenue recognition policy except for sizable domestic complex contracts that requireusing periodic recognition of income. For these contracts, the Company uses the "percentage of completion" accounting method. This methodology allows revenue and profits to be recognized proportionally over the life of a contract by comparing the amount of the cost incurred to date against the total amount of cost expected to be incurred. The effect of revisions to revenue and total estimated cost is recorded when the amounts are known or can be reasonably estimated. These revisions can occur at any time and could be material. On a historical basis, management believes that reasonably reliable estimates of the progress towards completion on long-term contracts have been made. However, given the uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously made, which may result in reductions or reversals of previously recorded revenue and profits.
The Company’s failure to establish and regulations may adversely affect ourmaintain effective tax rates. The Company is a U.S.-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.
As of January 31, 2020, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s internal controlscontrol over financial reporting was not effective due to an identified material weakness. The material weakness resulted from an accounting error identified by the Company’s auditors during the audit of the Company’s financial statements for the fiscal year ended January 31, 2020 related to the Company's revenue recognition under percentage of completion accounting. Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount. The accounting error related to this one project was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly reviews. A material weakness is defined as a deficiency, or a combination of deficiencies, in accordance with Section 404.internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. If the current material weakness is not remediated, or if additional material weaknesses or significant deficiencies in the Company’s internal control over financial reporting are identifieddiscovered or occur in the future, the reportedCompany’s consolidated financial results ofstatements may contain material misstatements and the Company could be materially misstatedrequired to restate its financial results. The failure to maintain an effective system of internal control over financial reporting could limit the Company’s ability to report its financial results accurately and in a timely manner or to detect and prevent fraud and could subsequently require restatement, which would require additional financialalso cause a loss of investor confidence and management resources, anddecline in the market price of our stockthe Company’s common stock. See further discussion of the material weakness, including the Company's planned remediation procedures, in Item 9A., Controls and Procedures.
The Company's information technology systems may be negatively affected by cybersecurity threats. The Company faces risks relating to cybersecurity attacks that could decline.
Location Leased or Owned Illinois Leased production facilities and office space Louisiana Owned production facilities and leased land Tennessee Owned production facilities and office space Texas Leased office space Canada Owned production facilities with office space India Leased production facilities, office space and land Kingdom of Saudi Arabia Owned production facilities on leased land United Arab Emirates Leased office space and production facilities on leased land Egypt Leased production facilities and office space For further information, see Note LEGAL PROCEEDINGS - As of January 31, 2020, 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 1, 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 fiscal years. The Company did not make any purchases of its common stock during fiscal 2019. The Transfer Agent and Registrar for the Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Certain statements contained The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. COVID-19 In January 2020, an outbreak of novel coronavirus (also known as COVID-19) started in Wuhan, China. The virus was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the rapid spread of the virus, national and local governments have instituted varying levels of actions to contain the virus's spread. As of this date, all of the Company’s plants are operating with the exception of the plant located in India. On March 24, 2020 the India plant operations were suspended in compliance with a national 21-day shutdown which has now been extended through April 21, 2020. We do not expect a shut down over this period to significantly impact our planned production schedules. To date our global supply chains have not been materially affected by the global pandemic. Due to the unprecedented actions taken to stem the spread of the virus and the uncertainty of the duration and impact of additional actions that may be required, the resulting future disruptions to the Company’s operations is uncertain. In response to the extraordinary steps taken to combat the spread of COVID-19 and the impact of decreased demand for oil and the associated collapse of oil prices, the Company undertook a reforecast to determine the potential financial impact of these events on the Company’s results of operations. The results of the reforecast indicated a risk that the Company could be out of compliance with a debt covenant related to the Senior Credit Facility in the second quarter of 2020. To address the possible covenant compliance issue the Company has made plans to reduce planned capital expenditures and non-essential operating expenses, and if necessary, to repatriate foreign cash to bring the covenant into compliance. In addition, the Company has applied for funding under two Small Business Administration programs. The Paycheck Protection Program provides forgivable funding for payroll and related costs as well as some non-payroll costs. The Company has applied for funding in the amount of $3.2 million. The Company has also applied for a Small Business Administration Economic Disaster Loan which could be up to $2 million based on need and repayment capacity. There is no guarantee that the Company will be granted funds under either program. The Company’s expected results of operations and financial condition in 2020 will likely be adversely affected by the COVID-19 pandemic and the current depressed market Results of Operations The analysis presented below and discussed in more detail throughout Table of Consolidated ($ in thousands) 2019 2018 (Unfavorable) Net sales Gross profit Percentage of net sales General and administrative expenses Percentage of net sales Selling expense Percentage of net sales 2019 Net sales: Net sales were Gross profit: Gross profit General and General and administrative expenses were $17.9 million in 2019 compared to $15.4 million in 2018, an increase of $2.5 million, or 16.4%. This increase was primarily the Selling expenses: Selling expenses remained flat at $5.2 million in 2019 and 2018. Interest expense: Interest expense decreased to $0.9 million in 2019 from $1.1 million in 2018 due to lower Income from operations before income taxes: Income from operations before income taxes improved to $5.0 million in 2019 compared to a Income The Company's worldwide effective tax rates ("ETR") were As a result of the provisions from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company expects that future distributions from foreign subsidiaries will no longer be subject to incremental U.S. federal tax For further information, see Note Net The resulting net income of $3.6 million in Liquidity and capital resources Cash and cash equivalents as of January 31, Net cash used in investing activities during 2019 and 2018 was $1.9 million and $1.4 million, respectively. This increase was due to an increase in investments in fixed assets needed for the operation of the business, primarily related to the Net cash used in financing activities in 2019 was There was no restricted cash held in the U.S. on January 31, 2020. Restricted cash held in the U.S. on January 31, 2019 was $1.5 million, all of The following table summarizes the Company's estimated contractual obligations on ($ in thousands) Year Ending January 31, Contractual obligations Total 2021 2022 2023 2024 2025 Thereafter Revolving line - North America (1) Mortgages (2) Revolving line - foreign (3) Subtotal Finance lease obligations Operating lease obligations (4) Employment agreements (5) Uncertain tax position obligations (6) Total (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 (6) Refer to Note 8 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the uncertain tax position obligations. Financing Revolving line - 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 EBITDA of at least $2,462,000 for the period from August 1, 2018 through January 31, 2019; (ii) 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 (iii) the Company As of January 31, Revolving lines - foreign Accounts receivable: In 2013, the Company started a project in the Middle East as a sub-contractor, with billings in the aggregate amount of approximately $41.9 million. The Company The Company has been engaged in ongoing active efforts to collect the outstanding amount, and has collected $0.5 million during fiscal year 2019, and has certified invoices of $0.5 million in the process of collection subsequent to January 31, 2020. The Company has also received an updated acknowledgment of the outstanding balances and assurances of payment from 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 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. As described below, the Company will adopt and implement policies and procedures to ensure that personnel will not deviate from the Company's standard accounting policies and monthly reviews will result in appropriate revenue recognition. Notwithstanding the material weakness described above, the Company's management, including its Chief Executive Officer and Chief Financial Officer, have concluded that the financial statements included in this Annual Report on 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. Management's Annual 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. Changes in Internal Control over Financial Reporting. A material weakness is a deficiency, or a combination of deficiencies, in internal control The Company's auditors identified an accounting error during the audit of the Company's financial statements for the fiscal year ended January 31, Remediation Plan for the Material Weakness in Internal Control over Financial Reporting. To address the The Company anticipates the actions described above and resulting improvements in controls will strengthen the Company's processes, procedures and controls related to revenue recognition under percentage of completion accounting and will address the related material weakness described above. However, the material weakness cannot be considered fully remediated until the remediation processes have been in operation for a period of time and successfully tested. 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 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 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, 2020. 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 358,146 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 until June 12, 2020. The other information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for 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 PRINCIPAL ACCOUNTING FEES AND SERVICES Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement for 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 Perma-Pipe International Holdings, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Perma-Pipe International Holdings, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of January 31, Change in accounting principle As discussed in Note 1 to the consolidated financial statements, 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 /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) 2020 2019 Net sales Cost of sales Gross profit Operating expenses: General and administrative expense Selling expense Total operating expenses Income from operations Income from operations before income taxes Income tax expense Net income/(loss) Weighted average common shares outstanding Diluted Income/(loss) per share Basic See accompanying Notes to Consolidated Financial Statements. Note: Earnings per share calculations could be impacted by rounding. CONSOLIDATED STATEMENTS OF COMPREHENSIVE (In thousands) 2020 2019 Net income/(loss) Other comprehensive loss Currency translation adjustments, net of tax Minimum pension liability adjustment, net of tax Other comprehensive loss Comprehensive income/(loss) See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED BALANCE January 31, (In thousands, except per share data) 2020 2019 ASSETS Current assets Cash and cash equivalents Restricted cash Trade accounts receivable, less allowance for doubtful accounts of $407 on January 31, 2020 and $536 on January 31, 2019 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 Customers' deposits 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 Operating lease liabilities long-term Other long-term liabilities Total long-term liabilities Stockholders' equity Common stock, $.01 par value, authorized 50,000 shares; 8,048 issued and outstanding January 31, 2020 and 7,854 issued and outstanding January 31, 2019 Additional paid-in capital Accumulated deficit Accumulated other comprehensive loss Total stockholders' equity Total liabilities and stockholders' equity See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Accumulated Total Common Additional Treasury Accumulated Other Comp. Stockholders' (In thousands, except share data) Stock Paid-in Capital Stock Deficit Loss Equity Total stockholders' equity on January 31, 2018 ) Net loss Stock-based compensation expense Pension liability adjustment Foreign currency translation adjustment Tax expense on above items Total stockholders' equity on January 31, 2019 Net income 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, 2020 Common stock shares 2019 2018 Balance beginning of year Shares issued Balance end of year See accompanying Notes to Consolidated Financial Statements. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2020 2019 Operating activities Net income/(loss) Adjustments to reconcile net income/(loss) to net cash flows provided by operating activities Depreciation and amortization Deferred tax (benefit)/expense Stock-based compensation expense Provision on uncollectible accounts Loss on disposal of fixed assets 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 operating activities Investing activities Capital expenditures 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 (decrease) in drafts payable Payments on finance lease obligations Stock options exercised and taxes paid related to restricted shares vested Net cash (used in)/provided by financing activities Effect of exchange rate changes on cash, cash equivalents and restricted cash Net increase 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 finance leases - non-cash 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) 2019 2018 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) 2019 2018 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 $4.7 million as of January 31, 2019 (inclusive of a retention receivable amount of $3.6 million, of which $2.1 million and $3.5 million were included in the balance of other long-term assets in our consolidated balance sheets as of January 31, 2020 and January 31, 2019, 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 2019, the Company received payments of approximately $0.5 million, which reduced the balance of this receivable to $4.1 million as of January 31, 2020. Subsequent to January 31, 2020, the Company has certified invoices of $0.5 million in the process of collection. As a result, the Company did not reserve any allowance against this receivable as of January 31, 2020. 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 2020, then the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts. For the year ended January 31, 2020, one customer accounted for 11.5% of the Company's consolidated net sales and for the year ended January 31, 2019, no one customer accounted for more than 10% of the Company's consolidated net sales. Concentration of credit risk. The Company maintains its U.S. cash in bank deposit accounts at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Cash balances are below FDIC limits. The Company has not experienced any losses in such accounts. 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) 2019 2018 Equity adjustment foreign currency, gross Minimum pension liability, gross Subtotal excluding tax effect Tax effect of equity adjustment foreign currency Tax effect of minimum pension liability Total accumulated other comprehensive loss Inventories. (In thousands) 2019 2018 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) 2019 2018 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 purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of January 31, Foreign exchange (In thousands) January 31, 2019 change effect January 31, 2020 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 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 Basic weighted average number of common shares outstanding (in thousands) 2019 2018 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 Restricted Stock and 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 Restricted Stock and 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 In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which permits entities to reclassify the disproportionate income tax effects of the Tax Act on items within accumulated other comprehensive income/(loss) to reinvested earnings. These disproportionate income tax effect items are The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on Note 3 - In the fourth quarter of 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 prior periods, 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 A reconciliation of the (In thousands) As Reported Adjustment Revised Other long-term liabilities Total long-term liabilities Accumulated deficit Total stockholders' equity A reconciliation of the effects of the adjustments to the previously reported statement of operations for the year ended January 31, 2019 follows: (In thousands) As Reported Adjustment Revised Cost of Sales Gross profit Income from operations Income from operations before income taxes Net loss A reconciliation of the effects of the adjustments to the previously reported statement of comprehensive loss for the year ended January 31, 2019 follows: (In thousands) As Reported Adjustment Revised Net loss Comprehensive loss A reconciliation of the effects of the adjustments to the previously reported statement of cash flows for the year ended January 31, 2019 follows: (In thousands) As Reported Adjustment Revised Net loss Other assets and liabilities A reconciliation of the effects of the adjustments to the previously reported statement of stockholders' equity for the year ended January 31, 2019 follows: (In thousands) As Reported Adjustment Revised Net loss Accumulated deficit Stockholders' equity A reconciliation of the effects of the adjustments to the previously reported statement of stockholders' equity for the year ended January 31, 2018 follows: (In thousands) As Reported Adjustment Revised Accumulated deficit Stockholders' equity 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. Table of Contents 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. 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). A breakdown of the Company's revenues by revenue class for 2019 and 2018 are as follows: 2019 2018 Sales % to Total Sales % to Total Products Specialty Piping Systems and Coating Revenue recognized under input method Revenue recognized under output method Total 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. The Company anticipates that substantially all costs incurred for uncompleted contracts as of January 31, 2020 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, 2020 within one year. Contract Assets Costs and gross profit recognized during the period for uncompleted contracts from the prior period Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period Balance January 31, 2019 Closing Balance at January 31, 2020 Contract Liabilities Revenue recognized during the period for uncompleted contracts from the prior period New contracts entered into that are uncompleted at the end of the current period Balance January 31, 2019 Closing Balance at January 31, 2020 The following table shows the reconciliation of the cost in excess of billings: (In thousands) 2019 2018 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) 2019 2018 Revolving line - North America Mortgage notes Revolving lines - foreign 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 on January 31: (In thousands) Total 2021 2022 2023 2024 2025 Thereafter Revolving line - North America Mortgages Revolving lines - foreign Finance lease obligations Total Revolving line - North America 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 EBITDA of at least $2,462,000 for the period from August 1, 2018 through January 31, 2019; (ii) 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 (iii) the Company As of January 31, Revolving lines - foreign. The Company had a revolving line for 8.0 million Dirhams (approximately USD $2.2 million at January 31, 2020) from a bank in the U.A.E. The loan had an interest rate of approximately 5.4% and expired on March 31, 2019. The loan was renewed until November 2020 under the same terms. The Company has a revolving line for The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. The Company has a revolving line for 200.0 million Egyptian Pounds (approximately USD $12.6 million at January 31, 2020) from a bank in Egypt. The loan has an interest rate of approximately The Company guarantees the subsidiaries' debt including all foreign debt. Mortgages. On June 19, 2012, Note 7 - Leases Effective February 1, 2019, the Company accounts for its leases under ASC 842, Leases. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the ROU asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the ROU asset result in straight-line rent expense over the lease term. For finance leases, interest on the lease liability and the amortization of the ROU asset results in front-loaded expense over the lease term. Variable lease expenses are recorded when incurred. ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term and amount equal to the lease payments in a similar economic environment. In calculating the ROU asset and lease liability, the Company elects to combine lease and non-lease components. The Company excludes short-term leases having initial terms of 12 months or less from the new guidance as an accounting policy election, and recognizes rent expense on a straight-line basis over the lease term. The Company continues to account for leases in the prior period financial statements under ASC Topic 840. Finance Leases. In 2017, the Company obtained In 2019, the Company obtained two finance leases for CAD 1.1 million In August 2016, The Company has several significant operating lease agreements, with lease terms of one to 14 years, which consist of real estate, vehicles and office equipment leases. These leases do not require any contingent rental payments, impose any financial restrictions or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease At January 31, 2020, the Company had operating lease liabilities of $12.3 million and operating ROU assets of $11.5 million, which are reflected in Supplemental balance sheet information related to leases follows: Operating and Finance leases: January 31, 2020 Finance leases assets: Property and Equipment - gross Accumulated depreciation and amortization Property and Equipment - net Finance lease liabilities: Finance lease liability short-term Finance lease liability long-term Total finance lease liabilities Operating lease assets: Operating lease ROU assets Operating lease liabilities: Operating lease liability short-term Operating lease liability long-term Total operating lease liabilities Table of Contents Total lease costs consist of the Lease costs Finance Lease Costs Amortization of ROU assets Cost of sales Interest on lease liabilities Interest expense Operating lease costs Cost of sales, SG&A expenses Short-term lease costs (1) Cost of sales, SG&A expenses Sub-lease income SG&A expenses Total Lease costs (1) Includes variable lease costs, which are immaterial Supplemental cash flow information related to Year Ended January 31, 2020 Cash paid for amounts included in the measurement of lease liabilities: Financing cash flows from finance leases Operating cash flows from finance leases Operating cash flows from operating leases Three Months Ended January 31, 2020 ROU Assets obtained in exchange for new lease obligations: Finance leases liabilities Operating leases liabilities Weighted-average lease terms discount rates are as follows: January 31, 2020 Weighted-average remaining lease terms (in years): Finance leases Operating leases Weighted-average discount rates: Finance leases Operating leases Table of Contents On January 31, 2020, future minimum annual rental commitments under non-cancelable lease obligations were as follows: Year: Operating Leases Finance Leases For the year ended January 31, 2021 For the year ended January 31, 2022 For the year ended January 31, 2023 For the year ended January 31, 2024 For the year ended January 31, 2025 Thereafter Total lease payments Less: amount representing interest Total lease liabilities at January 31, 2020 On January 31, 2019, under previous lease accounting guidance, future minimum annual rental commitments under non-cancelable lease obligations were as follows: Year: Operating Leases Capital Leases For the year ended January 31, 2020 For the year ended January 31, 2021 For the year ended January 31, 2022 For the year ended January 31, 2023 For the year ended January 31, 2024 Thereafter Subtotal Less Amount representing interest Future minimum lease payments Rental expense for operating leases was $2.8 million and The Company has several significant operating lease agreements as follows: Office Five acres of land in Louisiana is leased through March 2022. Twenty acres of land in Canada 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 2030. Office space of approximately 21,500 square feet and open land for production facilities of approximately 423,000 square feet in the U.A.E. is leased until July 2032. Production facilities in the U.A.E. of approximately 78,100 square feet is leased until December 2032. Note 8 - Income taxes Income from continuing operations before income taxes (in thousands) 2019 2018 Domestic Foreign Total Components of income tax expense (in thousands) 2019 2018 Current Federal Foreign State and other Total current income tax expense Deferred Federal Foreign State and other Total deferred income tax expense/(benefit) Total income tax expense Repatriation of foreign earnings As a result of the provisions from the U.S. Tax Cuts and Jobs Act of 2017 (“Tax Act”), the Company U.S. income and The difference between the provision for income taxes and the amount computed by applying the U.S. Federal statutory rate of (In thousands) 2019 2018 Tax expense at federal statutory rate State expense, net of federal income tax effect Domestic valuation allowance Global Intangible Low Tax Income Inclusion Permanent differences other Valuation allowance for state NOLs Differences in foreign tax rate Deferred tax on unremitted earnings All other, net expense Total income tax expense The Company's worldwide effective tax rates ("ETR") were 29.0% and 134.4% in 2019 and 2018, respectively. The change in the ETR from the prior year to the current year was largely due to the overall increase in worldwide pre-tax book income in low tax and non-taxable jurisdictions. Additional factors included the Company's valuation allowance against its domestic deferred tax asset and the Company's change in the amounts of income in various jurisdictions between the years. The unusually large ETR incurred in 2018 was primarily due to the overall low pre-tax book income. Due to this, even relatively small changes to ordinary income have a large impact to the ETR. The $2.6 million benefit related to the 2018 domestic return to provision was a result of finalizing the accounting for the tax effect of the Tax Act related to the one-time repatriation of foreign earnings, which was offset by a valuation allowance. Components of deferred income tax assets (in thousands) 2019 2018 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 deferred tax asset ("DTA") for state 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 jurisdiction. Management assesses the On the basis of this evaluation, as of December 31, 2013, a full valuation allowance was recorded against the domestic deferred tax assets as the Company has determined that The Company has a deferred tax asset of The following table summarizes (In thousands) 2019 2018 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 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 other long-term liabilities on the consolidated balance sheet. 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 Level 1 Level 2 Level 3 (In thousands) 2019 2018 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 Investment market conditions in Reconciliation of benefit obligations, plan assets and funded status of plan (in thousands) 2019 2018 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 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 2019 2018 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 Components of net periodic benefit cost (in thousands) 2019 2018 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, 2021 Expected employee contributions for the fiscal year ending January 31, 2021 Estimated future plan benefit payments reflecting expected future service for the fiscal year(s) ending January 31,: 2021 2022 2023 2024 2025 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 2019 2018 Surcharge Bargaining Plan Name EIN Plan # Status Pending/Implemented Contribution Contribution Imposed Expiration Date Plumbers & Pipefitters Local 572 Pension Fund 626102837 001 Green No $239 $188 No 3/31/2022 Note At January 31, 2020, 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, 2020, the Company had reserved a total of 613,904 shares for grants and While the 2017 Plan provides for the grant of Stock compensation expense The Company recognized the (In thousands) 2019 2018 Stock-based compensation expense Restricted stock based compensation expense Stock options Options vest ratably over (Shares in thousands) Options Outstanding on January 31, 2018 Exercised Expired or forfeited Outstanding on January 31, 2019 Options exercisable on January 31, 2019 Exercised Expired or forfeited Outstanding on January 31, 2020 Options exercisable on January 31, 2020 Unvested options outstanding (shares in thousands) Options Outstanding on January 31, 2019 Granted Vested Outstanding on January 31, 2020 The fair value of stock options As of As part of their compensation, each year the Company As a result of certain events that occurred during second quarter of 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. Restricted stock The Company has granted restricted stock to (Shares in thousands) Restricted shares Weighted average price Aggregate intrinsic value Outstanding on January 31, 2018 Granted Issued Forfeited Outstanding on January 31, 2019 Granted Issued Forfeited Outstanding on January 31, 2020 The fair value of restricted stock vested was $0.8 million and $1.1 million in 2019 and 2018, respectively. As of Note 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 PPIH'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 On September 15, 2009, the Company entered into the Amendment ("Amendment") to Rights Note (In thousands) 2019 2018 Interest expense Interest income Interest expense, net Note 13 - Subsequent Events In January 2020, an outbreak of novel coronavirus (also known as COVID-19) started in Wuhan, China. The virus was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the rapid spread of the virus, national and local governments have instituted varying levels of actions to contain the virus’s spread. The Company has instituted a work from home policy for employees that can continue to perform their jobs remotely. In addition, steps have been taken at the Company's plants and administrative offices to test temperatures of personnel entering the facilities as well as the implementation enhanced cleaning protocols. As of the date of this filing, all of the Company’s plants are operating with the exception of the plant located in India. On March 24, 2020 the India plant operations were suspended in compliance with a national 21-day shutdown which has now been extended through April 21, 2020. We do not expect a shut down over this period to significantly impact our planned production schedules. To date the Company's global supply chains have not been materially affected by the global pandemic. Due to the unprecedented actions taken to stem the spread of the virus and the uncertainty of the duration and impact of additional actions that may be required, the resulting future disruptions to the Company’s operations is uncertain. On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (H.R. 748) (the “CARES Act”). Among the changes to the U.S. federal income tax rules, the CARES Act restored net operating loss carryback rules that were eliminated by Tax Act, modified the limit on the deduction for net interest expense and accelerated the timeframe for refunds of AMT credits. While the Company's analysis of the CARES Act impact on the Company's cash tax liability and financial condition has not identified any overall material effect, the Company is still evaluating the effects of the CARES Act on its results of operations, financial condition and cash flows. In February 2020 the Kingdom of Saudi Arabia and the Russian Federation failed to reach an agreement on oil production limitations. The news of a failed agreement resulted in a steep decline in global oil prices. On April 12, 2020 the Kingdom of Saudi Arabia and the Russian Federation agreed on oil production cuts which will begin on May 1, 2020. Additionally, the reduction in worldwide consumption as a result of the coronavirus pandemic has added further downward pressure to oil prices. In response to the decrease in oil prices, international oil companies have announced capital spending budget cuts that are reported to be approximately 30%. At this time the impact of the anticipated reduction in capital spending on the Company’s results of operations is uncertain. In response to the extraordinary steps taken to combat the spread of COVID-19 and the impact of decreased demand for oil and the associated collapse of oil prices, the Company undertook a reforecast to determine the potential financial impact of these events on the Company’s results of operations. The results of the reforecast indicated a risk that the Company could be out of compliance with a debt covenant related to the Senior Credit Facility in the second quarter of 2020. To address the possible covenant compliance issue the Company has made plans to reduce planned capital expenditures and non-essential operating expenses, and if necessary, to repatriate foreign cash to bring the covenant into compliance. In addition, the Company has applied for funding under two Small Business Administration programs. The Paycheck Protection Program provides forgivable funding for payroll and related costs as well as some non-payroll costs. The Company has applied for funding in the amount of $3.2 million. The Company has also applied for a Small Business Administration Economic Disaster Loan which could be up to $2 million based on need and repayment capacity. There is no guarantee that the Company will be granted funds under either program. Table of Contents Perma-Pipe International Holdings, Inc. and Subsidiaries VALUATION AND QUALIFYING ACCOUNTS For the Years Ended (In thousands) Year Ended January 31, 2020 Allowance for possible losses in collection of trade receivables Year Ended January 31, 2019 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 Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.3 to Registration Statement No. 33-70298] 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) *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 21, 2020 ) 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. MansfieldItem 2. PROPERTIES Principal properties at January 31, 2017:Illinois31,650 square feet30,000 square feet on approximately 7 acres131,800 square feet on approximately 23.5 acresCanadaandon owned land, leased land and leased office space102,980 square feet on approximately 138 acres33,700 square feet on approximately 1.2 acres89,000 square feet on approximately 11 acres186,400 square feet on approximately 16 acresThe 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.Nine acres of land in the Kingdom of Saudi Arabia is leased through 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, 2030.Office space of approximately 21,500 square feet and open land for production facilities of approximately 423,000 square feet in the U.A.E. is leased until July, 2032.Production facilities in the U.A.E. of approximately 78,100 square feet is leased until December, 2032.87 - Lease information, in the Notes to Consolidated Financial 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 2016 and 2015 are the fiscal years ended January 31, 2017 and 2016, respectively.As of March 21, 2017, the Company's Common Stockcommon stock is traded on the Nasdaq Global Market under the symbol "PPIH". Previously the Company's Common Stock was traded on the Nasdaq Global Market under the symbol "MFRI".The following table sets forth, for the periods indicated, the high and low Common Stock sale prices as reported by the Nasdaq Global Market for 2016 and 2015. High Low Fiscal 2016 Fourth Quarter $9.23 $7.65 Third Quarter 8.15 7.42 Second Quarter 7.90 6.70 First Quarter 7.74 6.98 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 2017,2020, there were 69approximately 59 stockholders of record and other additional stockholders for whom securities firms acted as nominees.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. The Company's credit facilities also restrict dividend payments. Future dividend policy will depend upon the Company's earnings, capital requirements, financial condition, credit agreement restrictions and other relevant factors. For further information, see "Financing" in Item 7 and Note 76 - Debt, Statements.Statements.Common SharesCompany's common stock is 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, 2017. 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 524,200 $11.55 96,857 (1) The amounts shown in columns (a) and (b) of the above table do not include 290,305 outstanding restricted stock granted under the Company's 2013 Omnibus Stock Incentive Plan as amended June 14, 2013 ("Omnibus Plan").Item 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSTheunder the caption MD&A and other information contained elsewhere in this Annual Report on Form 10-K,Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A"), which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects," "could," "future," "potential," "believes," "plans," "likely""likely," and "probable""probable," or the negative thereof or other variations thereon or comparable terminology, constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These statements should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result of many factors, including, but not limited to, those under the headingheadings Cautionary Statements Regarding Forward Looking Information and Item 1A. Risk Factors.CONSOLIDATED RESULTS OF OPERATIONS January 31, ($ in thousands)2017 2016 Backlog $44,615 $47,937 Perma-Pipe International Holdings, Inc.TheSince the Company's website is www.permapipe.com. Since Piping Systems is based onrevenues are significantly dependent upon 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 the Company's large discrete project orders or delays in the timing of the specific project phases. demand in both geographiesprices for oil and reporting periods.gas. See Item 1A. Risk Factors for additional information.thethis MD&A was organized to provide instructive information for better understanding the business going forward.Company's results of operations, financial condition and cash flows. 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 overview12the segment results is provided in Note 1 - Business and segment information, in the Notes to ContentsFinancial Statements.Results of Operations: % Favorable $ 127,663 $ 128,965 (1.0 %) 29,046 23,318 24.6 % 22.8 % 18.1 % 17,875 15,357 (16.4 %) 14.0 % 11.9 % 5,231 5,239 0.2 % 4.1 % 4.1 % Interest expense, net 905 1,122 19.3 % Income from operations before income taxes 5,035 1,600 214.7 % Income tax expense 1,459 2,150 32.1 % Net income/(loss) 3,576 (550 ) 750.2 % Piping Systems($ in thousands) 2016 2015 % Increase (Decrease) Net sales $98,845 $122,696 (19.4 )% Gross profit 11,716 26,741 (56.2 )% Percentage of net sales 12 % 22 % General and administrative expenses 8,430 11,211 (24.8 )% Percentage of net sales 8.5 % 9.1 % Selling expense 5,721 4,994 14.6 % Percentage of net sales 5.8 % 4.1 % (Loss) income from operations (2,435) 10,537 (123.1 )% Percentage of net sales (2.5 )% 8.6 % Income from joint venture — 602 (100.0 )% Loss on consolidation of joint venture (1,620) — (100.0 )% 2016 Compared to 2015On December 31, 2015, PPIH entered into a purchase agreement with its joint venture partner Aegion Corporation to acquire the remaining 51% ownership of PPC, a coating and insulation company in Camrose, Alberta, which acquisition closed on February 4, 2016.The purchase price was $13.1 million CAD ($9.6 million USD) in cash and debt at closing and is subject to certain post-closing adjustments. The accounting for this acquisition has been completed.The acquisition has resulted in $2.3 million of goodwill. In the first quarter of 2016, the Company recorded a one-time non-cash loss of $1.6 million from the consolidation of the joint venture. The Company incurred legal, professional and other costs related to this acquisition. These one-time costs of $0.2 million were recognized as general and administrative expenses.2018$98.8$127.7 million in 20162019, a decrease of 19%$1.3 million, or 1.0%, from $122.7$129.0 million in 20152018. Various economic factors substantially reduced demandIncreased revenue in the marketsU.S., Middle East and the Company serves during this fiscal year. Since the Company serves oil and gas customers, the low price of oil has had a significant dampening effect on new exploration projectsexpansion into Egypt along with higher demand for leak detection products were offset by lower project revenue in the Gulf of Mexico and Canada. Restrained domestic federal and state infrastructure spending, combined with the oil-price induced recession in the Gulf Cooperation Council region, combined to weaken demand for district heating and cooling projects. Saudi Arabia has slowed down spending and the start-up of new infrastructure projects outlined in its Vision 2030 plan, although the Saudi government appears to be taking steps to raise capital for such projects.Canadian operation.decreased 56%increased to $11.7$29.0 million, in 2016 from $26.7 million in 2015 due to lower volume. Gross margin decreased to 12% of net sales from 22%or 22.8% of net sales, in the prior year. Despite having reduced manufacturing plant expenses2019, an increase of $5.7 million, or 24.6%, from $23.3 million, or 18.1% of net sales, in 2018. This increase was primarily driven by higher project margins in the U.S.Middle East.Middle East facilities,administrative expenses:resultingresult of the establishment of the Company's offices in Egypt, relocation of certain corporate personnel to the Company's offices in Spring, Texas and additional incentive compensation related to improved earningsproduction levels lednet borrowings and decreased interest rates during 2019. reduced absorption of manufacturing plant costs. Underutilization$1.6 million in the industry2018. The increase was primarily driven by project margin improvements in the Middle East, continued with resulting pressure on project pricing, all contributing to a reduction in gross margins versus the prior year.Generalincreased demand for leak detection products, expansion into Egypt and administrative expenses decreased to $8.4 million in 2016 from $11.2 million in 2015. General and administrative expenses decreased by $3.8 million partially offset by a one-time legal settlement of $0.8 million and the addition of $0.2 million related to the Canadian general and administrative expenseshigher sales volume in the period. The decrease was due to staffing reductions in the U.S. and the Middle East as well as lower management incentive compensation expense. General and administrative expenses as a percentage of net sales decreased to 8.5% in 2016 from 9.1% in the prior year.Selling expenses increased to $5.7 million from $5.0 million in the prior year due to the additional Canadian activity. As a percentage of net sales, selling expenses increased to 5.8% in 2016 from 4.1% in the prior year.CorporateCorporate expenses include interest expense and general and administrative expenses that are not allocated to the segment. General and administrative expenses increased 9% to $8.4 million in 2016 from $7.7 million in 2015. As a percentage of sales, expenses increased to 8.5% from 6.2%. Changes in the senior executive positions of the Company went into effect in the fourth quarter with related hiring and separation costs of $1.1 million. The increase was partially offset by lower management incentive compensation expense and lower deferred compensation expense.Interest expense decreased to $0.7 million in 2016 from $1.0 million in 2015 due to lower borrowings, both domestic and foreign.taxestaxes:4.7%29.0% and 45.7%134.4% in 20162019 and 2015,2018, respectively. The ETR in 2016 has been significantly impacted by the Company reporting a pre-tax loss for the year, a portion of which was generated by the subsidiary in the U.A.E., which receives no tax benefit due to a zero tax rate in that country and due to the impact of the full valuation allowance maintained against domestic deferred tax assets. Other changeschange in the ETR from the prior year-to-dateyear to the current year-to-date areyear was largely due to the Canadian acquisitionoverall increase in worldwide pretax book income in low tax or non-taxable jurisdictions. Additional factors included the Company's valuation allowance against the domestic deferred tax asset and the allocationchange in the amounts of income in various jurisdictions between the years. The unusually large ETR incurred in 2018 was largely due to the overall low pretax income. Due to this, even relatively small changes to ordinary income have a large impact to the ETR.expense between continuing operations, other comprehensive incomeas they will either be remittances of previously taxed earnings and discontinued operations when applying intraperiod allocation rules.profits or eligible for a full dividends received deduction. Current and future earnings in the Company's subsidiaries in Canada and Egypt are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The Company remains in an net operating loss ("NOL") carryforward position.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 couldsubsidiaries will be subject to additional U.S. income taxes. Determinationtax in their local jurisdiction, and the impact of the amount of unrecognized deferred incomeIndia dividend distribution tax, liabilities on these earnings is not practicable, because such liability, if any, is dependent on circumstances existing ifCanadian withholding taxes, 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,Egyptian withholding taxes will remain permanently reinvested outside the U.S. and are available for use in the U.S. or in entities in other foreign countries.be considered. As such, the Company recordedhas accrued a deferred tax liability of $0.1 million and $0.2 million for the periods ending January 31, 2017 and 2016, respectively,in 2019 related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $0.5 million and $2.8 million of undistributed earnings. The decrease in deferred tax liability relates to a net decrease in the earnings and profits of Perma-Pipe India. Future earnings related to this subsidiary and the Canadian and Denmark subsidiaries 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: 2016 2015 Statutory tax rate 34.0 % 34.0 % Repatriation (10.3 )% 30.2 % Valuation allowance for domestic deferred tax assets (4.4 )% 29.6 % Permanent difference management fee allocation — % 22.8 % Permanent differences other (1.6 )% 7.9 % Foreign tax credit 9.6 % (28.0 )% Differences in foreign tax rate (16.4 )% (29.9 )% Domestic deferred tax true ups — % (12.7 )% Nontaxable income related to the Canadian joint venture (4.2 )% (7.5 )% Research tax credit — % (2.0 )% Valuation allowance for state NOLs (0.9 )% 3.2 % Valuation allowance for foreign NOLs 0.3 % 1.2 % Nondeductible Interest (1.9 )% — % State taxes, net of federal benefit 0.8 % (2.1 )% All other, net expense (0.3 )% (1.0 )% Effective income tax rate 4.7 % 45.7 % taxes.98 - Income taxes, Statements.Statements.14loss from continuing operations was $12.4income/(loss):2016 compared to2019 was a $4.2 million improvement over the net income from continuing operationsloss of $1.6$0.6 million in 2015.OtherOn January 31, 2017, no customer accounted for more than 10%2018. This increase was primarily the result of the Company's net sales. On January 31, 2016, one customer accounted for 10.3% of the Company's net sales.Two customers accounted for 33.2% of accounts receivable on January 31, 2017, and two customers accounted for 46.5% of accounts receivable on January 31, 2016. As of April 1, 2017, these customers have paid 35.4% of their receivables outstanding on January 31, 2017.Discontinued operationsPrior to January 29, 2016, the Company was also engagedproject margin improvements in the manufactureMiddle East, increased demand for leak detection, expansion into Egypt and sale of productshigher sales volume in the Filtration Products segment. On January 29, 2016, the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois and its Nordic Air Filtration subsidiaries in Denmark and the U.A.E. The Company also liquidated the remaining assets of the Filtration bag business in Winchester, Virginia during the year ended January 31, 2017. The Filtration business segment is 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 was $1.0 million of tax expense attributed to Discontinued Operations for the year ended January 31, 2017. For further information, see "Notes to Consolidated Financial Statements, Note 4 Discontinued operations"U.S.20172020 and 2019 were $7.6$13.4 million compared to $16.6and $10.2 million, on respectively. On January 31, 2016. On January 31, 2017, $0.22020, $0.4 million was held in the U.S. and $7.4$13.0 million was held inby the Company's foreign subsidiaries. The Company's working capital was $27.8$31.4 million on January 31, 20172020 compared to $31.8$25.9 million on January 31, 2016. Cash used in operations in 2016 was $4.2 million compared to $2.9 million in 2015.The Company has paid out $6.4 million in 2016 under its terminated deferred compensation plans.2019. Of the working capital components, cash increased $3.2 million of these payments were funded by the liquidation of life insurance contracts previously purchased by the Company.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.Net cash provided by investing activities in 2016 was $10.2 million, compared to $13.9 million in 2015,million primarily as a result of increased accounts receivable collections. Cash provided by operations was $4.1 million in 2019 compared to $5.0 million in 2018. This decrease of $0.9 million was due primarily to the Filtration divestitures partiallyCompany purchasing inventory for projects, offset by $4.7collections of accounts receivable and an increase in net income during the period.acquisitionopening of PPC. The Company estimates that capital expenditures for 2017 could be $3.5 million, and the Company may finance capital expenditures through real estate mortgages, term loans, equipment financing loans, internally generated funds and its revolving line of credit. The majority of such expenditures relates to diversification and expansion of businessCompany's facility in the U.S. and Canada.In May 2016, the Company completed the sale of its former corporate headquarters, land and building, to a third party at a purchase price of $4.4 million. The sale generated approximately $0.4 million in cash after expenses and mortgage payoff.In May 2016, the Company also completed the sale of its Bolingbrook Filtration facility to a third party at a purchase price of $7.1 million. The sale generated approximately $1.9 million in cash after expenses and mortgage payoff.In September 2016, the Company completed the sale of its Cicero Filtration facility to a third party at a price of $0.5 million. The sale generated approximately $0.4 million in cash after expenses.In October 2016, the Company completed the sale of its Virginia Filtration facility to a third party at a price of $1.5 million. The sale generated approximately $1.4 million in cash after expenses.Debt totaled $11.7 million on January 31, 2017. Egypt.$14.9$0.3 million in 2016as compared to $3.0cash provided by financing activities in 2018 of $1.1 million. The primary reason for this change was that during 2018 the Company's borrowings exceeded its repayments under its revolving credit facility by approximately $2.0 million, in 2015. The domestic revolver decreased $1.4whereas during 2019, borrowings exceeded repayments by approximately $0.3 million. Debt totaled $16.9 million mainly dueas of January 31, 2020. Since the Company generated cash from operations, the Company required less cash to proceeds from the domestic sale of the remaining Filtration business.be provided by financing activities. For additional information, see Note 76 - Debt, Statements. Other long-term liabilitiesStatements.$0.5which was a cash collateral held by PNC Bank in relation to the Company's credit agreement. Restricted cash held by foreign subsidiaries was $1.3 million were composed primarilyand $1.1 million as of deferred rent.1520172020.($ in thousands) Year Ending January 31, Contractual obligations Total 2018 2019 2020 2021 2022 Thereafter Revolving line North America (1)$3,813 $3,813 $— $— $— $— $— Mortgages (2) 9,739 471 687 676 664 653 6,588 Revolving line foreign (3) 319 319 — — — — — Term loans (2) 85 66 19 — — — — Subtotal 13,956 4,669 706 676 664 653 6,588 Capitalized lease obligations 295 231 63 1 — — — Operating lease obligations (4) 18,099 2,199 1,705 1,536 1,475 1,477 9,707 Projected pension contributions (5) 3,462 348 345 347 342 347 1,733 Employment agreements (6) 1,085 605 154 — — — 326 Contractual obligations of discontinued operations (7) 199 199 — — — — — Uncertain tax position obligations (8) 159 — — — — — 159 Total $37,255 $8,251 $2,973 $2,560 $2,481 $2,477 $18,513 Notes to contractual obligations table $ 8,577 $ 8,577 $ - $ - $ - $ - $ - 10,620 733 718 703 688 674 7,104 732 732 - - - - - 19,929 10,042 718 703 688 674 7,104 1,232 487 331 269 145 - - 17,496 2,312 2,315 2,180 2,012 1,319 7,358 2,296 - - - - - 2,296 452 - - - - - 452 $ 41,405 $ 12,841 $ 3,364 $ 3,152 $ 2,845 $ 1,993 $ 17,210 (1)$0.5 million.domesticNorth American revolving line of credit. Based on the amount of such debt on 20172020, and the weighted average interest rate of 3.83%6.04% 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)indexExhibit Index for a description of compensation and separation plans.(7) Included payments for other liabilities included in discontinued operations.(8) Refer to Note 9Income taxes, inNorth America. On September 20, 2018, the Notes to Consolidated Financial StatementsCompany 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 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.FinancingRevolving line North America. OnCompany’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 the Credit Agreement) to achieve a combined $15.0 million inratio of its EBITDA (with certain additional adjustments) to the U.S.sum of scheduled cash principal payments on indebtedness for borrowed money and Canada, subjectinterest payments on the advances under the Senior Credit Facility of not less than 1.10 to borrowing base availability from secured domestic1.00 for the nine-month period ending October 31, 2018 and certain Canadian assets, such as accounts receivable and inventory, and other requirements, under a revolving line of credit. The Credit Agreement covenants restrict debt, liens, and investments, and require attainment of specific levels of profitability and cash flows. Onfor the quarter ending January 31, 2017, the2019 and each quarter end thereafter on a trailing four-quarter basis. The Company was in compliance with allthese covenants under the Credit Agreement. The domestic revolving line balances as of January 31, 2017 and 2016 were included as current liabilities in the consolidated balance sheets, because the Credit Agreement has a subjective acceleration clause.16Interest rates vary based on the average availability in the preceding fiscal quarter and are: (a) a margin in effect plus a base rate, if below certain availability limits; or (b) a margin in effect plus the Eurodollar rate for the corresponding interest period. On2017,2020, the Company had borrowed $3.8an aggregate of $8.6 million at 5%a weighted average interest rate of 6.04%, 3.77% and 3.95% and had $5.8$3.4 million available to it under the revolving line of credit. In addition, $0.2 million of availability was used under theSenior 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.Facility.subsidiaries.subsidiaries in the U.A.E. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countriesin which the Company operates. The lines are secured by certain equipment, certain assets (such as accounts receivable and inventory), and a guarantee by the Company. Some credit arrangement covenants requiresrequire a minimum tangible net worth to be maintained, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On dividends or undertaking of additional debt. In November 2019, the Company's Egyptian subsidiary entered into credit arrangement with a bank in Egypt for a revolving line of 200.0 million Egyptian Pounds (approximately USD $12.6 million at January 31, 20172020). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets (such as accounts receivable,). Among other covenants, the credit arrangement establishes a maximum leverage ratio allowable and restricts the ability to undertake any additional debt. On January 31, 2020, the Company was in compliance with the covenants under thethese credit arrangements. InterestOn January 31, 2020, interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimumwere based on the EIBOR plus 3.5% per annum, with a minimum interest rate of 4.5% per annum for the U.A.E. credit arrangements and Emirates Inter Bank Offered Rate (EIBOR)based on the CBE corridor rate plus 3.50%1.5% per annum. Theannum for the Egypt credit arrangement. On January 31, 2020, the Company's interest rates rangeranged from 3.5%5.4% to 6.0%. On January 31, 201716.3%, with a weighted average rate of 5.9%, and the Company cancould borrow $26.0$21.6 million under these credit arrangements. The Company borrowed $0.3 million and had $20.8 million available under these credit arrangements as ofOn January 31, 2017. In addition, $4.92020, $4.2 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, 2020, the Company had borrowed $0.7 million, and had an additional $16.8 million available. The foreign revolving lines balances as of January 31, 2020 and 2019, were included as current maturities of long-term debt in the Notes to Consolidated Financial Statements.Company's consolidated balance sheets. The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. believescompleted all of its current cashdeliverables in 2015, and cash flowhas since then collected approximately $37.8 million, with a remaining balance due in the amount of $4.1 million. Included in this balance is an amount of $3.6 million, which pertains to retention clauses within the agreements of the Company's 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 the long-term nature of this receivable, $2.1 million of this retention amount was reclassified to a long-term receivable account.operations, together with borrowing capacity under the revolving credit facilities, will be sufficient to fund anticipated operations, working capital and capital spending needs for at least the next 12 months.On February 1, 2016,customer. As a result, the Company executed a promissory notedid not reserve any allowance against this amount as of January 31, 2020. However, if the Company’s efforts to collect on this account are not successful in favor of United Pipeline Systems Limited, an affiliate of Aegion, Inc. for $2.0 million. The promissory note was paid on July 28, 2016. In addition,fiscal 2020, then the Company on July 28, 2016 paid off the balancemay be required to recognize an allowance for all, or substantially all, of $2.2 million in previously affiliated debt to Aegion in its Canadian subsidiary which was acquiredany such then uncollected amounts in the purchase of PPC.On July 28, 2016, the Company borrowed $8.0 million CAD (approximately $6.1 million USD at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the manufacturing facility located in Alberta, Canada that matures on December 23, 2042. The interest rate is variable, currently at 4.7%, with monthly payments of $31 thousand CAD (approximately $24 thousand USD) for interest; and monthly payments of $27 thousand CAD (approximately $20 thousand USD) for principal. Principal payments begin January 2018.future.TheDuring 2019 and 2018, and in accordance with Accounting Standards Update No. 2014-19, “Revenue from Contracts with Customers” (“ASC 606”), the Company recognizes revenues, including shipping and handling charges billed to customers,revenue when all the following criteria are met: (i) persuasive evidencea customer obtains control of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues upon shipment or delivery ofpromised goods or services when title and riskservices. See Note 5 - Revenue Recognition for more detail. • Percentage of completion revenue recognition. Certain domestic divisions have contracts that recognize revenues using 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.market.net realizable value. Cost is determined using the first-in, first-out method for all inventories.the largesta significant benefit that has a greater than 50 percent50% likelihood of being realized upon ultimate settlement with the relevant tax authority.Equity-based compensation. Stock compensation expense for employee equity awards is recognized ratably over the requisite service period of the award. The Black-Scholes option-pricing model is utilized to estimate the fair value of option awards. Determining the fair value of stock options using the Black-Scholes model requires judgment, including estimates for (1) risk-free interest rate - an estimate based on the yield of zero-coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility - an estimate based on the historical volatility of the Company's Common Stock; and (3) expected life of the option - an estimate based on historical experience including the effect of employee terminations. 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 DATA20172020 and 20162019 and the notes thereto are set forth as an exhibit hereto.18Table of ContentsItem 9A.CONTROLS AND PROCEDURES2017. Based on that2020. This evaluation included consideration of the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls, processes and procedures were effective as of January 31, 2017that are designed to ensure 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. Management has identified a material weakness in the Company's internal control over financial reporting that resulted from an accounting error identified by the Company’s auditors during the audit of the Company’s financial statements for the fiscal year ended January 31, 2020 related to the Company’s revenue recognition under percentage of completion accounting. Specifically, the Company had improperly recognized revenue for an open project based on imputed sales amounts greater than the total contracted amount. This accounting error was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly revenue reviews.PPIH'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.January 31, 2020. 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 "2013 COSO Report").Commission.Based on its assessment, management has concluded that the Company has maintained effectiveover financial reporting, assuch 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.2017,2020 related to the Company's revenue recognition under percentage of completion accounting. Specifically, the Company had improperly recognized revenue for an open project based on criteriaimputed sales amounts greater than the total contracted amount. The accounting error was attributable to the Company’s deviation from its standard contract accounting policies and failure to recognize the error during monthly revenue reviews and led management to conclude that a material weakness existed with respect to the Company's internal control over financial reporting.2013 COSO Report.material weakness regarding the improper recognition of revenue for open projects, the Company will do the following:• Reinforce the importance of adherence to Company policies regarding entering into and subsequently modifying contracts with customers, and confirm in monthly meetings with managers that no contracts have been entered into that deviate from Company’s accounting policies; • Create additional reports to identify potential system errors and exceptions related to project revenues and costs where higher risk may exist for inappropriate revenue recognition; • Review listing of material request invoices each month to identify if any significant items are included and review with additional scrutiny for appropriate revenue recognition; • Ensure adherence to guidelines for preparation of the Company's monthly revenue and contribution margin presentation to include all components of a project in one line to provide full visibility of total job performance; and • Implement a monthly meeting prior to the gross profit meeting between accounting personnel to discuss and analyze the asset and liability work-in-process accounts to identify any specific projects that require further investigation. 19Item 9B.OTHER INFORMATION - None.PART IIIthe 2017its 2020 annual meeting of stockholders.the 2017its 2020 annual meeting of stockholders.AND RELATED STOCKHOLDER MATTERS 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)) 131,750 $ 8.98 191,904 the 2017its 2020 annual meeting of stockholders.the 2017its 2020 annual meeting of stockholders.Item 14.PRINCIPAL ACCOUNTANTING FEES AND SERVICESthe 2017its 2020 annual meeting of stockholders.PART IVa.List of documents filed as part of this report:(1)c.21REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMShareholdersStockholders20172020 and 2016, and2019, the related consolidated statements of operations, comprehensive loss, changes inincome/(loss), stockholders’ equity, and cash flows for each of the two years in the period ended January 31, 2017. Our audits2020, and the related notes and financial statement 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 basicCompany as of January 31, 2020 and 2019, and the results of its operations and its cash flows for each of the two years in the period ended January 31, 2020, in conformity with accounting principles generally accepted in the United States of America.included the financial statement schedule listed inCompany has changed its method of accounting for leases as of February 1, 2019 due to the index appearing under Item 15 (a)(2). adoption of the Accounting Standards Codification Topic 842, Leases. 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 includesconsolidated financial statements, 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 Perma-Pipe International Holdings, Inc. and subsidiaries as of January 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended January 31, 2017 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.14, 201721, 2020PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES $ 127,663 $ 128,965 98,617 105,647 29,046 23,318 17,875 15,357 5,231 5,239 23,106 20,596 5,940 2,722 Interest expense, net 905 1,122 5,035 1,600 1,459 2,150 $ 3,576 $ (550 ) Basic 7,989 7,812 8,284 7,812 $ 0.45 $ (0.07 ) Diluted $ 0.43 $ (0.07 ) Twelve months ended January 31, (In thousands, except per share data) 2017 2016 Net sales $98,845 $122,696 Cost of sales 87,129 95,955 Gross profit 11,716 26,741 Operating expenses: General and administrative expense 16,783 18,869 Selling expense 5,721 4,994 Total operating expenses 22,504 23,863 (Loss) income from operations (10,788 ) 2,878 Income from joint venture — 602 Loss on consolidation of joint venture (1,620 ) — Interest expense, net 569 470 (Loss) income from continuing operations before income taxes (12,977 ) 3,010 Income tax (benefit) expense (611 ) 1,375 (Loss) income from continuing operations (12,366 ) 1,635 Income (loss) from discontinued operations, net of tax 688 (6,044 ) Net loss ($11,678) ($4,409) Weighted average common shares outstanding Basic 7,488 7,280 Diluted 7,488 7,371 (Loss) earnings per share from continuing operations Basic and diluted ($1.65) $0.22 Earnings (loss) per share from discontinued operations Basic and diluted $0.09 ($0.83) Loss per share Basic and diluted ($1.56) ($0.61) PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIESLOSSINCOME/(LOSS) Year ended January 31, $ 3,576 $ (550 ) (441 ) (1,073 ) (439 ) (341 ) (880 ) (1,414 ) $ 2,696 $ (1,964 ) (In thousands) Twelve months ended January 31, 2017 2016 Net loss ($11,678) ($4,409) Other comprehensive income (loss) Currency translation adjustments, net of tax 818 (481 ) Minimum pension liability adjustment, net of tax 423 863 Unrealized gain on marketable security, net of tax 15 77 Interest rate swap, net of tax — 91 Other comprehensive income 1,256 550 Comprehensive loss ($10,422) ($3,859) PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIESSHEETSSHEET $ 13,371 $ 10,156 1,287 2,581 29,402 32,508 14,498 12,289 3,531 3,773 2,166 1,653 64,255 62,960 28,629 30,398 Operating lease right-of-use asset 11,475 — 293 458 2,254 2,269 5,319 6,120 19,341 8,847 $ 112,225 $ 102,205 $ 9,577 $ 12,006 1,759 1,866 1,190 1,544 8,577 8,890 Current maturities of long-term debt 1,458 640 2,202 3,708 1,755 1,743 Operating lease liabilities short-term 1,040 — 3,444 3,856 1,173 1,569 664 1,266 32,839 37,088 6,717 6,751 4,199 3,883 1,052 1,435 11,214 — 575 1,347 23,757 13,416 80 79 60,024 58,793 (715 ) (4,291 ) (3,760 ) (2,880 ) 55,629 51,701 $ 112,225 $ 102,205 January 31, (In thousands, except per share data) 2017 2016 ASSETS Current assets Cash and cash equivalents $7,603 $16,631 Restricted cash 1,097 2,324 Trade accounts receivable, less allowance for doubtful accounts of $305 on January 31, 2017 and $33 on January 31, 2016 31,271 36,090 Inventories 13,565 15,625 Assets of discontinued operations 25 14,241 Assets held for sale — 3,062 Cash surrender value on life insurance policies — 3,049 Prepaid expenses and other current assets 2,172 2,397 Costs and estimated earnings in excess of billings on uncompleted contracts 2,091 2,463 Total current assets 57,824 95,882 Property, plant and equipment, net of accumulated depreciation 36,275 25,400 Other assets Goodwill 2,279 — Note receivable from joint venture — 1,905 Investment in joint venture — 9,112 Other assets 5,233 5,799 Total other assets 7,512 16,816 Total assets $101,611 $138,098 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Trade accounts payable $10,901 $11,026 Commissions and management incentives payable 1,845 2,874 Deferred compensation liability, current — 6,167 Accrued compensation and payroll taxes 4,236 4,274 Revolving line North America 3,813 5,237 Current maturities of long-term debt 658 8,767 Customers' deposits 2,640 3,690 Liabilities of discontinued operations 199 12,836 Liabilities held for sale — 3,439 Outside commission liability 1,612 1,295 Other accrued liabilities 2,360 965 Billings in excess of costs and estimated earnings on uncompleted contracts 1,100 1,176 Income tax payable 684 2,339 Total current liabilities 30,048 64,085 Long-term liabilities Long-term debt, less current maturities 7,258 1,470 Deferred compensation liabilities 2,523 3,124 Deferred tax liabilities - long-term 1,829 160 Other long-term liabilities 540 231 Total long-term liabilities 12,150 4,985 Stockholders' equity Common stock, $.01 par value, authorized 50,000 shares; 7,596 issued and outstanding January 31, 2017 and 7,306 issued and outstanding January 31, 2016 76 74 Additional paid-in capital 53,716 53,031 Treasury Stock 27 shares on January 31, 2017 and 45 shares on January 31, 2016 (170 ) (290 ) Retained earnings 8,515 20,193 Accumulated other comprehensive loss (2,724 ) (3,980 ) Total stockholders' equity 59,413 69,028 Total liabilities and stockholders' equity $101,611 $138,098 PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES $ 77 $ 56,304 $ - $ (3,103 ) $ (1,466 ) $ 51,812 Beginning retained earnings revision (638 ) (638 ) Revised stockholders' equity on January 31, 2018 $ 77 $ 56,304 $ - $ (3,741 $ (1,466 ) $ 51,174 (550 ) (550 ) Common stock issued under stock plans, net of shares used for tax withholding 2 1,324 1,326 1,165 1,165 (341 ) (341 ) (1,170 ) (1,170 ) 97 97 $ 79 $ 58,793 $ - $ (4,291 ) $ (2,880 ) $ 51,701 3,576 3,576 1 220 221 1,011 1,011 Pension liability adjustment (439 ) (439 ) (441 ) (441 ) Tax expense on above items - - $ 80 $ 60,024 $ - $ (715 ) $ (3,760 ) $ 55,629 7,854,322 7,716,542 193,684 137,780 8,048,006 7,854,322 ($ 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 on January 31, 2015 $73 $52,655 $24,602 $0 ($4,530) $72,800 Net loss (4,409 ) (4,409 ) Common stock issued under stock plans, net of shares used for tax withholding 1 98 99 Repurchase of common stock (290 ) (290 ) Stock-based compensation expense 278 278 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 on January 31, 2016 $74 $53,031 $20,193 ($290) ($3,980) $69,028 Net loss (11,678 ) (11,678 ) Common stock issued under stock plans, net of shares used for tax withholding 2 296 120 418 Stock-based compensation expense 389 389 Pension liability adjustment 831 831 Marketable security 24 24 Foreign currency translation adjustment 799 799 Tax expense on above items (398) (398) Total stockholders' equity on January 31, 2017 $76 $53,716 $8,515 ($170) ($2,724) $59,413 Common stock shares 2016 2015 Balance beginning of year 7,305,925 7,290,576 Treasury stock released (purchased) 17,813 (44,566 ) Shares issued 271,771 59,915 Balance end of year 7,595,509 7,305,925 PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES Year ended January 31, $ 3,576 $ (550 ) 4,437 4,575 (213 ) 215 1,011 1,165 101 71 318 46 (2,609 ) (3,576 ) (576 ) 1,226 (2,225 ) 4,360 (1,507 ) (1,517 ) (668 ) 35 1,749 (700 ) 1,749 (354 ) (910 ) (547 ) (143 ) 529 4,090 4,978 (1,902 ) (1,361 ) (1,902 ) (1,361 ) 73,225 64,736 (72,973 ) (62,759 ) - (946 ) (358 ) (350 ) (129 ) 192 (287 ) (250 ) 221 511 (301 ) 1,134 34 (335 ) 1,921 4,416 12,737 8,321 $ 14,658 $ 12,737 $ 902 $ 1,298 2,107 1,731 848 - Twelve months ended January 31, ($ in thousands) 2017 2016 Operating activities Net loss ($11,678) ($4,409) Adjustments to reconcile net loss to net cash flows used in operating activities Depreciation and amortization 5,521 5,929 Loss on consolidation of joint venture 1,620 — Gain on disposal of discontinued operations (127 ) (8,099 ) Impairment expense on discontinued operation — 6,480 Deferred tax benefit (33 ) (249 ) Income from joint venture — (602 ) Stock-based compensation expense 389 278 Cash surrender value on life insurance policies (135 ) 206 Provision on uncollectible accounts 657 (59 ) (Gain) loss on disposal of fixed assets (292 ) 101 Changes in operating assets and liabilities Accounts payable (1,917 ) 5,819 Accrued compensation and payroll taxes (9,227 ) 299 Inventories 5,452 4,027 Customers' deposits (2,303 ) (2,400 ) Income taxes receivable and payable (128 ) 620 Prepaid expenses and other current assets (997 ) 1,914 Accounts receivable 13,698 (2,809 ) Costs and estimated earnings in excess of billings on uncompleted contracts 296 (1,268 ) Other assets and liabilities (5,027 ) (8,675 ) Net cash used in operating activities (4,231 ) (2,897 ) Investing activities Net proceeds from sale of discontinued operations 9,606 16,373 Capital expenditures (2,257 ) (6,457 ) Proceeds from surrender of corporate-owned life insurance policies 3,185 — Acquisition of interest in subsidiary, net of cash acquired (4,672 ) — Receipts on loan from joint venture — 1,890 Proceeds from sales of property and equipment 4,356 2,059 Net cash provided by investing activities 10,218 13,865 Financing activities Proceeds from revolving lines 40,033 105,636 Proceeds from debt 6,059 918 Proceeds from borrowing against life insurance policies — 1,916 Payments of debt on revolving lines (49,303 ) (105,378 ) Payments of other debt (10,151 ) (2,544 ) Payments of borrowing against life insurance policies — (1,916 ) Decrease in drafts payable (323 ) (467 ) Payments on capitalized lease obligations (1,677 ) (998 ) Release (repurchase) of common stock 120 (290 ) Stock options exercised and restricted shares issued 297 98 Net cash used in financing activities (14,945 ) (3,025 ) Effect of exchange rate changes on cash and cash equivalents (70 ) (1,212 ) Net (decrease) increase in cash and cash equivalents (9,028 ) 6,731 Cash and cash equivalents - beginning of period 16,631 9,900 Cash and cash equivalents - end of period $7,603 $16,631 Supplemental cash flow information Interest paid $773 $749 Income taxes paid 1,381 970 Fixed assets acquired under capital leases 8 — Funds held in escrow related to the sale of Filtration assets 502 1,905 PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES20172020 and 20162019and segment information1993. As of January 31, 2016, PPIH1993. 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. In February 2017, the Company announced that the board of directors had authorized Company management to move forward with the re-naming and re-branding of MFRI, Inc. under the Perma-Pipe name now that the Company operates in a single business segment under the Perma-Pipe brand, and the Company believes this decision will better serve its strategy, position it well in the industry and global market, and better reflect the Company’s mission and strategy, and positions it to leverage the strong reputation Perma-Pipe has established since beginning operations. The name change to Perma-Pipe International Holdings, Inc. was effective March 20, 2017. The Company's common stock has been and will continue to be reported under its new ticker symbol “PPIH” since March 21, 2017.20162019 and 20152018 are the fiscal years ended January 31, 20172020 and 20162019, 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 piping systems for district heating and cooling, Municipal Freeze Protection, Oil & Gas, Mining and Industrial applications, (iii) the coating and/or insulation for subseaof oil and gas gathering flowlines and equipment, (iv) above and below ground long lines for oil and mineral transportation and (v) anti-corrosion coatings for oil and gas distribution and gatheringtransmission pipelines. The Company's leak detection and location systems are sold with some of its piping systems and alsoor 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: 2016 2015 Net sales Piping Systems $98,845 $122,696 Gross profit Piping Systems $11,716 $26,741 Income (loss) from operations Piping Systems $(2,435) $10,537 Corporate (8,353) (7,659) Total (loss) income from operations $(10,788) $2,878 Segment assets Piping Systems $98,855 $112,161 Corporate 2,731 10,229 Total segment assets $101,586 $122,390 Capital expenditures Piping Systems $1,925 $4,762 Corporate 332 289 Total capital expenditures $2,257 $5,051 Depreciation and amortization Piping Systems $5,009 $3,735 Corporate 327 469 Total depreciation and amortization $5,336 $4,204 are attributed to a geographic area are based on the destination of the product shipment. Sales to foreign customers was 57%were 55.4% in 20162019 compared to 50%61.0% in 2015.2018. 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. $ 56,702 $ 50,319 22,203 34,789 26,505 35,117 Europe 17,462 1,029 4,180 3,755 611 3,956 $ 127,663 $ 128,965 $ 9,063 $ 10,279 11,554 11,862 7,815 8,103 197 154 $ 28,629 $ 30,398 2016 2015 Net sales United States $42,048 $58,707 Middle East 28,009 60,749 Canada 25,915 2,581 India 2,360 372 Other 513 287 Total net sales $98,845 $122,696 Property, plant and equipment, net of accumulated depreciation United States $11,747 $13,822 Canada 13,276 — Middle East 10,987 11,211 India 265 367 Total $36,275 $25,400 TheDuring 2019 and 2018 and in accordance with Accounting Standards Update No. 2014-19, “Revenue from Contracts with Customers” (“ASC 606”), the Company recognizes revenues including shipping and handling charges billed to customers,revenue when all the following criteria are met: (i) persuasive evidencea customer obtains control of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues upon shipment or delivery ofpromised 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 exceptservices. See Note 5 - Revenue Recognition 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.more detail.• Percentage of completion revenue recognition. Certain domestic divisions have contracts that recognize revenues using 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. The Company accounted for the former investment in joint venture using the equity method. The aggregated foreign exchange transaction gain recognized in the income statement was $0.4 million in 2019 as compared to a loss of $0.1 million recognized in 2018. $7.6$13.4 million and $16.6$10.2 million as of January 31, 20172020 and 20162019, respectively. On January 31, 20172020, $0.2$0.3 million was held in the U.S. and $7.4$13.1 million was held in theby foreign subsidiaries. On January 31, 2016, $0.22019, $0.1 million was held in the U.S. and $16.4$10.1 million was held in theby foreign subsidiaries.29$21 thousand$0.1 million and $290 thousand as of less than $0.2 million on January 31, 20172020 and 20162019, respectively.were $1.1was $1.3 million and $2.3$1.1 million as of January 31, 20172020 and 20162019, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees. $ 13,371 $ 10,156 1,287 2,581 $ 14,658 $ 12,737 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.
As of January 31, 2020 and 2019, one customer accounted for 13.3% and three customers accounted for 42.0% of accounts receivable, respectively. On January 31, 2017, no customer accounted for more than 10%30Two customers accounted for 33.2% of accounts receivable on January 31, 2017,and two customers accounted for 46.5% of accounts receivable on January 31, 2016. As of April 1, 2017, these customers have paid 35.4% of their receivables outstanding on January 31, 2017.RepresentsAccumulated other comprehensive loss represents the change in equity from non-owner transactions and consisted of foreign currency translation, minimum pension liability and marketable securities. $ (1,879 ) $ (1,438 ) (2,087 ) (1,648 ) (3,966 ) (3,086 ) 91 91 115 115 $ (3,760 ) $ (2,880 ) 2016 2015 Equity adjustment foreign currency, gross ($1,409 ) ($2,208 ) Minimum pension liability, gross (1,472) (2,303) Marketable security, gross 142 118 Subtotal excluding tax effect (2,739) (4,393) Tax effect of foreign exchange currency (50) (69) Tax effect of minimum pension liability 115 523 Tax effect of marketable security (50) (41) Total other comprehensive loss ($2,724) ($3,980) market.net realizable value. Cost is determined using the first-in, first-out method for all inventories. $ 13,859 $ 11,962 592 488 798 731 15,249 13,181 751 892 $ 14,498 $ 12,289 2016 2015 Raw materials $13,648 $15,291 Work in process 1,105 1,168 Finished goods 836 722 Subtotal 15,589 17,181 Less allowance 2,024 1,556 Inventories $13,565 $15,625 depreciation and amortization.depreciation. Depreciation expense was approximately $5.3$4.4 million in 20162019 and $4.2$4.5 million in 2015.2018. $ 22,328 $ 22,327 47,409 47,168 4,317 4,335 3,762 3,311 77,816 77,141 49,187 46,743 $ 28,629 $ 30,398 2016 2015 Land, buildings and improvements $22,330 $14,758 Machinery and equipment 44,538 41,534 Furniture, office equipment and computer systems 4,704 5,632 Transportation equipment 3,690 40 Subtotal 75,262 61,964 Less accumulated depreciation and amortization 38,987 36,564 Property, plant and equipment, net $36,275 $25,400 Piping Systems has a year-to-date loss. Based on the Company's review of the projected cash flows over the remaining useful lives of the assets, management determined that there was no impairment of long-lived assets as of January 31, 2017 and 2016.2019. Since there was no triggering event in 2019, management determined that there was no impairment of long-lived assets as of January 31, 2020.312017,2020 and 2019, is attributable to the purchase of PPC. The Company does not amortize goodwill.Perma-Pipe Canada, Ltd. ("PPC"). $ 2,269 $ (15 ) $ 2,254 January 31, 2016 Acquired January 31, 2017 Goodwill $— $2,279 $2,279 In January 2017, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company adopted this new guidance in the fourth quarter of 2016.unit or intangible asset.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 was no impairment to goodwill in 2016.during 2019 or 2018.$2.63$2.7 million and $2.59$2.6 million as of January 31, 20172020 and 20162019, respectively. Accumulated amortization was approximately $2.4$2.5 million and $2.3 million as of January 31, 20172020 and 2016, respectively.2019. Future amortizationsamortization over the next five years ending January 31 will be $44,400less than $0.1 million in 2017, $35,400 in 2018, $32,400 in 2019, $26,000 in the years 2020, $17,200 in 2021, to 2024 and $91,161less than $0.1 million thereafter. Amortization expense is expected to be recognized over the weighted-average period of 4.3 years.20162019 and $1.1 million2018 in 2015., 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.32lossincome/(loss) per common share. Earnings per share ("EPS") areis computed by dividing net lossincome/(loss) by the weighted average number of common shares outstanding (basic). The years 2015Company reported net income 2019 and 2016 hada net losses; therefore,loss in 2018. Therefore, the Company adjusted for dilutive shares in 2019, while in 2018 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 year 2016 had a loss from continuing operations. The year 2015 had earnings from continuing operations. The EPS from continuing operations in 2015 are computed by dividing income by the weighted average number of common shares outstanding (basic). The dilutive shares are in the following table: 7,989 7,812 295 — 8,284 7,812 61 82 (33 ) (63 ) 295 136 Basic weighted average number of common shares outstanding 2016 2015 Basic weighted average number of common shares outstanding 7,488 7,280 Dilutive effect of stock options, deferred stock and restricted stock units — 91 Weighted average number of common shares outstanding assuming full dilution 7,488 7,371 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 306 710 Canceled options during the year (159 ) (77 ) Stock options with an exercise price below the average stock price 218 10 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 theBlack-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.The Company holds a marketable equity security of approximately $0.1 million on January 31, 2017, 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 balance sheet to conform to the current-year presentations. The Company reclassified debt issuance costs and the assets and liabilities related to the defined benefit plan that covered Filtration employees from discontinued to continuing operations.In January 2017, the FASB issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company performs its annual goodwill impairment assessment process annually as of January 31, or more frequently if triggering events occur. The Company adopted this new guidance in the fourth quarter of 2016, and it did not have a material impact on the Company's operating results, financial position or cash flows.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 Company is currently assessing the potential impact the guidance will have upon adoption.In August 2016, the FASB issued Accounting Standards Update ("ASU") 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments. The new standard provides guidance on eight targeted areas and how they are presented and classified in the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2017. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements and related disclosures.In March 2016, the FASB issued guidance relating to the accounting for share-based payment transactions. This guidance involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classifications of awards as either equity or liabilities and classification on the statement of cash flows. The standard is effective for the Company beginning in its fiscal year 2017, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements and related disclosures.In February 2016, the FASB issued ASUAccounting Standard Update ("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 periodswithin those fiscal years, beginning after December 15, 2018, with early adoption permitted. The adoption of this ASU using the alternative transition approach resulted in the recognition of operating lease right-of-use ("ROU") assets, net of deferred rent of $10.7 million and lease liability for operating leases of $11.0 million as of February 1, 2019. The Company is currently evaluatingaccounts for existing finance lease assets and liabilities in the same way under the new standard. Adoption of this ASU did not have an effect thaton retained earnings. The Company availed itself of the practical expedients provided under this standard will have onASU and its subsequent amendments regarding identification of leases, lease classification, indirect costs and the consolidated financialcombination of lease and non-lease components. The Company continues to account for leases in the prior period financials statements and related disclosures.under ASC Topic 840.August 2014,June 2016, the FASB issued ASU No. 2014-15, Disclosure2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Uncertainties about an Entity’s AbilityCredit Losses on Financial Instruments. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to Continue as a Going Concern ("receive cash. This 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 annualfiscal years, and interim periods endingwithin those fiscal years, beginning after December 15, 2016. The adoption of ASU 2014-15 did not have a material impact on the Company’s consolidated financial statements.In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers ("Topic 606")", with several clarifying updates issued during 2016. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The mandatory adoption will require new qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, information about contract balances and performance obligations, and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for the Company beginning February 1, 2018,2019, with early adoption permitted. The new revenue standards may be applied retrospectively to each prior period presented or retrospectively withA recently adopted amendment has delayed the cumulative effect recognized as of theeffective date of adoption. The Company has not yet selected the transition method The Company currently expects to adopt the new revenue standards in its first quarter of 2018.until fiscal years beginning after December 15, 2022. The Company is currently evaluating this standard and the impact of adopting the standard on the Company’s financial position, results of operations, cash flows and related disclosures and has not concluded on its adoption methodology. Although it is early in the evaluation process, the Company does not expect Topic 606 to have a material impact on the financial statements though internal processes, record keeping and disclosures may be significantly impacted. As a portion of the Company’s salesCompany. generatedreferred to as "stranded tax effects." The amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from the sale of finished products to customers, these sales predominantly contain a single delivery element and revenue is recognized at a single point in time when ownership, risks, and rewards transfer. These are largely un-affected by the new standard. The remaining salescontinuing operations is not believedaffected by this update. The Company adopted ASU 2018-02 effective February 1, 2019 and has elected to not reclassify any amounts to retained earnings. Under the Company's existing policy, any existing stranded tax effects will be material because Topic 606 generally supportseliminated when the recognition of revenue over time under the cost-to-cost method for the majority of the contracts,underlying circumstances upon which is consistent with the current percentage of completion revenue recognition model.it was premised cease to exist. theits consolidated financial statements.AcquisitionPPIH entered into a purchase agreement with its joint venture partner Aegion Corporation to acquire the remaining 51% ownershipCorrection of Perma-Pipe Canada, Ltd. ("PPC"), a coating and insulation company in Camrose, Alberta, which acquisition closed on February 4, 2016. PPIH had owned a 49% interest in PPC since 2009, when the joint venture was formed with Aegion to serve the oil and gas industry in Western Canada.The purchase price was $13.1 million CAD ($9.6 million USD) in cash and debt at closing and is subject to certain post-closing adjustments. The accounting for this acquisition has been completed. The following table represents the allocation of the total consideration in the acquisition of PPC:Total purchase consideration:Cash$7,587Loan payable2,000Purchase consideration to third party9,587Fair value of 49% previously held equity interest7,492Total purchase consideration$17,079Fair value of net assets acquired:Cash and cash equivalents$2,915Property and equipment13,124Goodwill2,279Net working capital406Other assets (liabilities) net(1,645)Net assets acquired$17,079The acquisition resulted in $2.3 million of goodwill. Goodwill is not deductible for income tax purposes. The Company incurred legal, professional and other costs related to this acquisition. These one-time costs of $0.2 million were recognized as general and administrative expenses.In the first quarter of 2016, the Company recognized a non-cash loss of $1.6 million, which represents the difference between the pre-existing book value interest in PPC immediately prior to the acquisition remeasured to its fair value upon the acquisition date.Note 4 - Discontinued operationsIn January, 2016, the Company sold certain assets and liabilities of its TDC Filter business based in Bolingbrook, Illinois to the Industrial Air division of CLARCOR, Inc.. 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 aggregated sales price of these filtration businesses was $22.0 million, including cash proceeds of $18.4 million, of which $0.5 million is held in escrow until July, 2017.In May, 2016, the Company completed the sale of its Bolingbrook Filtration manufacturing facility to a third party at a price of $7.1 million. The sale generated approximately $1.9 million in cash after expenses and mortgage payoffs.In September, 2016, the Company completed the sale of its Cicero Filtration facility to a third party at a price of $0.5 million. The sale generated approximately $0.4 million in cash after expenses.In October, 2016, the Company completed the sale of its Virginia Filtration facility to a third party at a price of $1.5 million. The sale generated approximately $1.4 million in cash after expenses.The Filtration business segment is 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 was tax expense of $1.0 million and $0.1 million for the years ended January 31, 2017 and 2016, respectively. Income from discontinued operations net of tax was $0.7 million in 2016 and a loss of $6.0 million in 2015.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. immaterial errors2015, Filtration Products recorded a $6.5 million impairment expense2019, management discovered prior period errors that accumulated over several years relating to accounting for leases with escalation clauses. The cumulative adjustment for the Virginia facility.Resultserrors covering the period from February 1, 2018 to January 31, 2020 was approximately $0.6 million. The adjustment applicable to the beginning retained earnings as February 1, 2018 was approximately $0.6 million and the adjustment to the consolidated statement of operations for the year ended January 31, 2019 was less than $0.1 million. discontinued operations were as follows: 2016 2015 Net sales $10,467 $64,975 Gain on disposal of discontinued operations $209 $8,099 Impairment expense on discontinued operations — (6,480 ) Income (loss) from discontinued operations 1,522 (7,569 ) Income (loss) from discontinued operations before income taxes 1,731 (5,950 ) Income tax expense 1,043 94 Income (loss) from discontinued operations, net of tax $688 ($6,044 ) Components of assets and liabilities from discontinued operations consistout-of-period correction.following:effects of the adjustments to the previously reported balance sheet at January 31, 2019 follows: $ 688 $ 659 $ 1,347 12,757 659 13,416 (3,632 ) (659 ) (4,291 ) 52,360 (659 ) 51,701 $ 105,626 $ 21 $ 105,647 23,339 (21 ) 23,318 2,743 (21 ) 2,722 1,621 (21 ) 1,600 (529 ) (21 ) (550 ) $ (529 ) $ (21 ) $ (550 ) (1,943 ) (21 ) (1,964 ) $ (529 ) $ (21 ) $ (550 ) 508 21 529 $ (529 ) $ (21 ) $ (550 ) (3,632 ) (659 ) (4,291 ) 52,360 (659 ) 51,701 $ (3,103 ) $ (638 ) $ (3,741 ) 51,812 (638 ) $ 51,174 January 31, 2017 2016 Current assets Cash and cash equivalents $— $5 Trade accounts receivable, net 25 5,720 Inventories, net — 2,000 Other assets — 60 Property, plant and equipment, net of accumulated depreciation — 6,456 Total assets from discontinued operations $25 $14,241 Current liabilities Trade accounts payable, accrued expenses and other $199 $7,514 Current maturities of long-term debt — 5,322 Total liabilities from discontinued operations 199 12,836 Cashflows from discontinued operations: January 31, 2017 2016 Net cash provided by (used in) discontinued operating activities $1,133 ($7,113 ) Net cash provided by discontinued investing activities 9,606 17,026 Net cash used in discontinued financing activities (10,739 ) (3,025 ) 54 - Retentionthea 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 $2.7$4.0 million and $2.8$1.7 million were included in the balance of trade accounts receivable as of 20172020 and 20162019, respectively. A retention receivable of $3.2$2.3 million and $4.3 million was included in the balance of other long-term assets as of January31,2017 2020 and 20162019 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.34 $ 15,991 12 % $ 13,576 11 % 48,415 38 % 40,525 31 % 63,257 50 % 74,864 58 % $ 127,663 100 % $ 128,965 100 % Balance January 31, 2018 $ 1,502 (6,458 ) 6,609 $ 1,653 Costs and gross profit recognized during the period for uncompleted contracts from the prior period (6,697 ) Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period 7,210 $ 2,166 Balance January 31, 2018 $ 1,967 (3,222 ) 2,824 $ 1,569 Revenue recognized during the period for uncompleted contracts from the prior period (3,276 ) New contracts entered into that are uncompleted at the end of the current period 2,880 $ 1,173 $ 15,553 $ 12,348 8,641 7,430 24,194 19,778 23,201 19,694 $ 993 $ 84 $ 2,166 $ 1,653 (1,173 ) (1,569 ) $ 993 $ 84
Practical expedients:Costs and estimated earnings on uncompleted contractsDebt $ 8,577 $ 8,890 6,568 6,961 691 84 Finance lease obligations 1,094 536 16,930 16,471 (169 ) (181 ) 10,044 9,539 $ 6,717 $ 6,751 $ 10,044 $ 9,539 (9 ) (9 ) $ 10,035 $ 9,530 2016 2015 Costs incurred on uncompleted contracts $82,280 $78,843 Estimated earnings 51,546 46,359 Earned revenue 133,826 125,202 Less billings to date 132,835 123,915 Costs in excess of billings, net $991 $1,287 Balance sheet classification Costs and estimated earnings in excess of billings on uncompleted contracts $2,091 $2,463 Billings in excess of costs and estimated earnings on uncompleted contracts (1,100) (1,176) Costs in excess of billings, net $991 $1,287 Note 7 - Debt 2016 2015 Revolving line North America $3,813 $5,237 Mortgage notes 7,463 1,443 Revolving lines foreign 301 8,131 Term loans 80 246 Capitalized lease obligations 283 442 Total debt 11,940 15,499 Unamortized debt issuance costs (165 ) (23 ) Less current maturities 4,517 14,006 Total long-term debt $7,258 $1,470 Current portion of long-term debt $4,517 $14,006 Unamortized debt issuance costs (46 ) (2 ) Total short-term debt $4,471 $14,004 $ 8,577 $ 8,577 $ — $ — $ — $ — $ — 6,568 360 364 370 376 383 4,715 691 691 — — — — — 1,094 416 290 247 141 — — $ 16,930 $ 10,044 $ 654 $ 617 $ 517 $ 383 $ 4,715 Total 2018 2019 2020 2021 2022 Thereafter Revolving line North America $3,813 $3,813 $— $— $— $— $— Mortgages 7,463 121 355 357 362 367 5,901 Revolving line foreign 301 301 — — — — — Term loans 80 62 18 — — — — Capitalized lease obligations 283 220 62 1 — — — Total $11,940 $4,517 $435 $358 $362 $367 $5,901 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, whichmaturesFacility. 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 the Credit Agreement) to achieve a combined $15.0 million inratio of its EBITDA (with certain additional adjustments) to the U.S.sum of scheduled cash principal payments on indebtedness for borrowed money and Canada, subjectinterest payments on the advances under the Senior Credit Facility of not less than 1.10 to borrowing base availability from secured domestic1.00 for the nine-month period ending October 31, 2018 and certain Canadian assets, such as accounts receivable and inventory, and other requirements, under a revolving line of credit. The Credit Agreement covenants restrict debt, liens, and investments, and require attainment of specific levels of profitability and cash flows. Onfor the quarter ending January 31, 2017, the2019 and each quarter end thereafter on a trailing four-quarter basis. The Company was in compliance with allthese covenants under the Credit Agreement. The domestic revolving line balances as of January 31, 2017 and 2016 were included as current liabilities in the consolidated balance sheets, because the Credit Agreement has a subjective acceleration clause.Interest rates vary based on the average availability in the preceding fiscal quarter and are: (a) a margin in effect plus a base rate, if below certain availability limits; or (b) a margin in effect plus the Eurodollar rate for the corresponding interest period. On2020. 2017,2020, the Company had borrowed $3.8an aggregate of $8.6 million at 5%a weighted average interest rate of 6.04%, 3.77% and 3.95% and had $5.8$3.4 million available to it under the revolving lineSenior Credit Facility.37subsidiaries.subsidiaries in the U.A.E. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. The lines are secured by certain equipment, certain assets 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, including maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends.dividends or undertaking of additional debt. In November 2019, the Company's Egyptian subsidiary entered into credit arrangement with a bank in Egypt for a revolving line of 200.0 million Egyptian Pounds (approximately USD $12.6 million at January 31, 2020). This credit arrangement is in the form of project financing at rates competitive in Egypt. The line is secured by certain assets (such as accounts receivable). Among other covenants, the credit arrangement establishes a maximum leverage ratio allowable and restricts the ability to undertake any additional debt. On January 31, 2017,2020, the Company was in compliance with the covenantcovenants under these credit arrangements. On January 31, 2020, interest rates were based on the credit arrangement. Interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimumEIBOR plus 3.5% per annum, with a minimum interest rate of 4.5% per annum for the U.A.E. credit arrangements and Emirates Inter Bank Offered Rate (EIBOR)based on the CBE corridor rate plus 3.5%1.5% per annum. Theannum for the Egypt credit arrangement. On January 31, 2020, the Company's interest rates rangeranged from 3.5%5.4% to 6.0% on January 31, 2017. On January 31, 2017,16.3%, with a weighted average rate of 5.9%, and the Company cancould borrow $26.0$21.6 million under these credit arrangements. The Company borrowed $0.3 million and had $20.8 million available under these credit arrangements as ofOn January 31, 2017. In addition, $4.92020, $4.2 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, 2020, the Company had borrowed $0.7 million, and had an additional $16.8 million available. The foreign revolving lines balances as of January 31, 2020 and 2019, were included as current maturities of long-term debt in the Company's consolidated balance sheets. 5025.0 million Saudi RiyalDirhams (approximately $13.3USD $6.8 million U.S. dollars at the prevailing exchange rate on the transaction date)January 31, 2020) from a Saudi Arabian bank.bank in the U.A.E. The loan had an interest rate of approximately 5.9% and expired in July 2019. The loan was renewed until July 2020 under the same terms.6%16.3% and matures September 2017.The Company has a revolving line for 15 million Dirhams (approximately $4.2 million U.S. dollars at the prevailing exchange rate on the transaction date) from a bankexpires in the U.A.E. The loan has an interest rate of approximately 6% and matures June 2017.The Company has a revolving line for 31 million Dirhams (approximately $8.5 million U.S. dollars at the prevailing exchange rate on the transaction date) from a bank in the U.A.E. The loan has an interest rate of approximately 6% and matures November 2017.2020.$8.0CAD 8.0 million CAD (approximately USD $6.1 million USD at the prevailing exchange rate on the transaction date) from a bank in Canada under a mortgage note secured by the manufacturing facility located in Alberta, Canada that matures on December 23, 2042. The interest rate is variable, currently at 4.7%6.05%, with monthly payments of $31CAD 37 thousand CAD (approximately $24 thousand USD)USD $28 thousand) for interest; and monthly payments of $27CAD 27 thousand CAD (approximately $20 thousand USD)USD $21 thousand) for principal. Principal payments beginbegan 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, providedthat 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%.Term loans. Between March 2015September 2015,are recorded on the consolidated balance sheet. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities short-term, and operating lease liabilities long-term in the Company's consolidated balance sheets. Finance leases are included in property, plant and equipment, current maturities of long-term debt, and long-term debt less current maturities in the Company's consolidated balance sheets. loans in the aggregate amount of 1.3three finance leases for CAD 1.1 million Dirhams (approximately $341 thousand U.S. dollarsUSD $0.8 million at the prevailing exchange rate prevailingrates on the transaction dates). to finance vehicle equipment. The loans bear interest at 5.0% and 6.0%rates for these finance leases range from 4.0% to 7.8% per annum with monthly payments of $17 thousand for both principal and interest andpayments of less than $0.1 million. These leases mature between April 1, 2017 and October 31, 2017.Capital leases. On May 1, 2012, Piping Systems borrowed $0.42021 to September 2022.under an equipment loan secured by(approximately USD $0.8 million at the prevailing exchange rates on the transaction dates) to finance vehicle equipment. The loan bears interest at 6.5%rates for these finance leases were 8.0% per annum with monthly payments of $8 thousand for both principal and interest and matures June 2017.Onpayments of less than $0.1 million. These leases mature in August 5,2023. Piping Systemsthe Company obtained a capitalfinance lease for 0.6 million Indian Rupees (approximately USD $8 thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for this capitalfinance lease iswas 15.6% per annum with monthly principal and interest payments of $270,less than USD $1 thousand. This lease expired in July 2019. maturesliabilities and ROU assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not have any arrangements where it acts as a lessor, other than one sub-lease arrangement. July 5, 2019.On February 1, 2013, Piping Systems obtained a capitalthe consolidated balance sheet. At January 31, 2020, the Company also had finance lease for 41,000 CAD (approximately $41 thousand U.S. dollars atliabilities of $1.1 million included in current maturities of long-term debt and long-term debt less current maturities, and finance ROU assets of $1.2 million which were included in property plant and equipment, net of accumulated depreciation in the prevailing exchange rate onconsolidated balance sheet. $ 1,696 (551 ) $ 1,145 $ 417 677 $ 1,094 $ 11,475 $ 1,040 11,214 $ 12,254 39transaction date)following:Consolidated Statements of Operations Classification Year Ended January 31, 2020 $ 208 58 2,326 425 (81 ) $ 2,936 finance vehicle equipment. The interest rate for this capital lease is 4% per annum with monthly principal and interest payments of $1 thousand, and the lease matures in November 30, 2017.On March 12, 2013, Piping Systems obtained two capital leases for 710,000 CAD (approximately $728 thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for these capital leases is 4% per annum with monthly principalas follows: $ 287 58 2,287 $ - 94 3.0 8.5 7.0 % 8.2 % 40 $ 2,312 $ 487 2,315 331 2,180 269 2,012 145 1,319 - 7,358 - 17,496 1,232 (5,242 ) (138 ) $ 12,254 $ 1,094 $ 2,516 $ 241 2,193 240 2,149 82 2,110 21 1,979 - 8,997 - 19,944 584 - (48 ) $ 19,944 $ 536 interest payments of $12 thousand,$2.6 million in 2019 and these leases mature on March 11, 2017.On June 26, 2014, Piping Systems obtained two capital leases for 880,000 CAD (approximately $942 thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for these capital leases is 3.25% per annum with monthly principal and interest payments of $14 thousand, and these leases mature on June 25, 2018.On July 1, 2014, Piping Systems obtained a capital lease for 49,000 CAD (approximately $52 thousand U.S. dollars at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for this capital lease is 3.25% per annum with monthly principal and interest payments of $1 thousand, and the lease matures in June 30, 2018.Note 8 - Lease informationProperty under capitalized leases 2016 2015 Machinery and equipment $1,308 $1,747 Transportation equipment 22 22 Subtotal 1,330 1,769 Less accumulated amortization 646 726 Total $684 $1,043 2018, respectively.Spacespace of approximately 31,650 square feet in Niles, IL is leased until October 2023.The $ 400 $ (2,331 ) 4,635 3,931 $ 5,035 $ 1,600 $ 34 $ 48 1,455 1,695 181 196 1,670 1,939 — — (211 ) 211 — — (211 ) 211 $ 1,459 $ 2,150 leases its administrative officesexpects that future distributions from foreign subsidiaries will no longer be subject to incremental U.S. federal tax as they will either be remittances of previously taxed earnings and profits or eligible for a full dividends received deduction. Current and future earnings in the U.A.E. from a partnership in which a Company employee is a partner. Total rent paid to the partnership was $0.3 million in 2016 and 2015, respectively. Lease payments are based on prevailing market rates.On January 31, 2017, future minimum annual rental commitments under non-cancelable lease obligations were as follows: Operating Leases Capital Leases 2017 $2,199 $231 2018 1,705 63 2019 1,536 1 2020 1,475 — 2021 1,477 — Thereafter 9,707 — Subtotal 18,099 295 Less Amount representing interest 12 Future minimum lease payments $18,099 $283 Rental expense for operating leases was $2.1 million and $0.7 million in 2016 and 2015, respectively.Note 9 - Income taxes(Loss) income from continuing operations 2016 2015 Domestic ($8,465) ($2,066) Foreign (4,512) 5,076 Total ($12,977) $3,010 Components of income tax (benefit) expense 2016 2015 Current Federal ($106) $12 Foreign 837 1,541 State and other (1,309) 71 Subtotal (578) 1,624 Deferred Federal — — Foreign (33) (249) State and other — — Subtotal (33) (249) Total ($611) $1,375 The determination of the consolidated provision for income taxes, deferred tax assets and liabilities, and the related valuation allowances requires management to make judgments and estimates. As a company withCompany's subsidiaries in foreign jurisdictions, the Company is requiredCanada and Egypt, are not permanently reinvested, and earnings in its Indian subsidiary are partially permanently reinvested. The earnings from these subsidiaries will be subject to calculatetax in their local jurisdiction, and provide for estimated income 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 affectthe overall effective tax rate ("ETR"), which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.ETR in 2016 has been significantly impacted by the Company reporting a pre-tax loss for the year, a portion of which was generated by the subsidiary in the U.A.E., which receives no tax benefit due to a zero tax rate in that country and due to the impact of the full valuation allowance maintained against domestic deferredIndia dividend distribution tax, assets. Other changesCanadian withholding taxes and Egyptian withholding taxes will be considered. As such, the Company has accrued a liability of $0.2 million in the ETR from the prior year-to-date2019 related to the current year-to-date are due to the Canadian acquisition and the allocation of tax expense between continuing operations, other comprehensivethese taxes.discontinued operations when applying intraperiod allocation rules.foreign withholding taxes have not been recognized on the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that is indefinitely reinvested outside the United States. The Company remains in a domestic NOL carryforward position.The Company has not provided U.S. Federal tax on remaining unremittedintends to permanently reinvest the undistributed earnings of its Middle EastEastern subsidiaries. The Company does not believe that it will be necessaryMiddle Eastern subsidiaries have unremitted earnings of $26.8 million as of January 31, 2020, $25 million of which has been subject to repatriate earnings from these subsidiaries. The Company intends and has the ability to reinvest these earnings for the foreseeable future outsidetransition tax in the U.S. If these amounts were distributed to the U.S.,Unremitted earnings of $16.1 million in the form of dividends or otherwise, the Company couldUnited Arab Emirates would not be subject to additional U.S. income taxes. Determinationwithholding tax in the event of a distribution, $10.7 million of unremitted earnings in Saudi Arabia would be subject to withholding tax of $2.1 million, and the amount$4.6 million 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, theIndia would be subject to dividend distribution tax of $0.9 million. The Company has not recorded a deferred tax liability of $0.1 million and $0.2 million for the periods ending January 31, 2017 and 2016, respectively,related to any financial reporting basis over tax basis related to the U.S. federal and state income taxes and foreign withholding taxes on approximately $0.5 million and $2.8 million of undistributed earnings, respectively. Future earnings related to this subsidiary, and the Canadian and Denmark subsidiaries are not deemed permanently reinvested. No U.S. cash tax payments will be made upon distribution ofinvestment in these foreign earningssubsidiaries as long as the Company has sufficient tax attributes in the U.S.it is not practical to reduce the cash tax consequencesestimate. 4234%21% was as follows: $ 1,057 $ 340 147 145 Deferred balance adjustment (212 ) — (337 ) (2,612 ) Domestic return to provision (172 ) 2,617 703 438 (5 ) 126 (2 ) 76 (79 ) 334 Foreign rate change (63 ) — 183 413 Foreign withholding taxes 274 252 (35 ) 21 $ 1,459 $ 2,150 $ 7,209 $ 7,480 401 382 2,686 2,703 223 390 2,580 2,305 429 459 328 349 2,567 2,552 354 643 75 112 132 159 16,984 17,534 (15,937 ) (16,199 ) $ 1,047 $ 1,335 $ (1,275 ) $ (1,734 ) (470 ) (498 ) (61 ) (80 ) $ (1,806 ) $ (2,312 ) $ (759 ) $ (977 ) $ 293 $ 458 (1,052 ) (1,435 ) $ (759 ) $ (977 ) 2016 2015 Tax (benefit) expense at federal statutory rate ($4,412) $1,023 Permanent differences management fee allocation — 619 Domestic valuation allowance 567 804 Permanent differences other 205 214 Valuation allowance for state NOLs 122 88 Differences in foreign tax rate 2,131 (780) Foreign tax credit (1,249) (761) Domestic deferred tax true ups — (346) Research tax credit — (54) Repatriation 1,338 821 Valuation allowance for foreign NOLs (36) 32 Nontaxable loss (income) from the Canadian joint venture 551 (205) Nondeductible interest 242 — State taxes, net of federal benefit (103) (58) All other, net expense 33 (22) Total ($611) $1,375 $28.4$33.8 million that will begin to expire in the year ending 2031. In addition, there are suspended excess tax benefits of $0.3 million.2031.NOLnet operating loss ("NOL") carryforwards of $1.9$2.6 million relates to amounts that expire at various times from 20172022 to 2031.$0.1$0.2 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.Foryear ending 2017,2013. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.there isthey are not a greatermore likely than 50% likelihood that allnot to be realized based upon the available evidence. As of January 31, 2020, the Company has not released the valuation allowance as the objective negative evidence in the form of cumulative losses continues to exist. The amount of the domestic DTAs willdeferred tax assets considered realizable, however, could be realized based onincreased if objective negative evidence in the available evidence. The Company recorded a full valuation allowance against the remaining domestic net DTAs on January 31, 2013 netform of uncertain tax positions ("UTP"). The Company continues to have a valuation allowance on its domestic DTAs since domesticcumulative losses continue to be generated.is no longer present.$4.7$2.6 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, 2017, the Company has not made a provision for U.S. or additional foreign withholding taxes on approximately $36.6 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 2016 2015 U.S. Federal NOL carryforward $9,348 $3,044 Deferred compensation 346 2,382 Research tax credit 2,703 2,057 Foreign NOL carryforward 186 231 Foreign tax credit 4,695 2,861 Stock compensation 804 1,061 Other accruals not yet deducted 514 438 State NOL carryforward 1,877 1,419 Accrued commissions and incentives 765 723 Inventory valuation allowance 110 73 Other 4 116 Deferred tax assets, gross 21,352 14,405 Valuation allowance (18,437 ) (13,333 ) Total deferred tax assets, net of valuation allowances $2,915 $1,072 Components of the deferred income tax liability Depreciation ($2,778) ($633) Foreign subsidiaries unremitted earnings (1,750 ) (412 ) Prepaid (69 ) (88 ) Total deferred tax liabilities ($4,597) ($1,133) Deferred tax liability, net ($1,682) ($61) Balance sheet classification Long-term assets $147 $99 Long-term liability (1,829 ) (160 ) Total deferred tax liabilities, net of valuation allowances ($1,682) ($61) 2026.UTPuncertain tax position ("UTP") activity, excluding the related accrual for interest and penalties: $ 1,447 $ 1,301 (26 ) 9 132 147 (8 ) (10 ) $ 1,545 $ 1,447 2016 2015 Balance at beginning of the year $1,313 $1,288 Increases in positions taken in a prior period 3 11 Increases in positions taken in a current period 19 14 Decreases due to lapse of statute of limitations (4 ) — Balance at end of the year $1,331 $1,313 on January 31, 2017were estimated accrued interest and penalty of $30 thousand and penalties of $16 thousand and on less than $0.1 million in both January 31, 2016, accrued interest was $28 thousand2020 and penalties were $17 thousand.January 31, 2019. These non-current income tax liabilities are recorded in other long-term liabilities in the consolidated balance sheets.sheet and recognized as an expense during the period. The Company's policy is to include interest and penalties in income tax expense. On January 31, 20172020, the Company did not anticipate any significant adjustments to its unrecognized tax benefits within the next twelve months. Included in the balance on January 31, 20172020 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, $0.4 million of the amount accrued on January 31, 20172020 would impact the ETR, if reversed.future ETR.The Internal Revenue Service, ("IRS"), began an audit of the fiscal yearended January 31, 2015 in August 2016. Subsequent to year-end, in March 2017, the Company received an informal notice from the IRS that it had concluded the tax audit for the year ended January 31, 2015. No changes were made to the reported tax. Tax years related to January 31, 2014, 20152017, 2018 and 20162019 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 Internal Revenue Service in future year audits.109 - Retirement plansfiltration hourly rated employeesVirginia, was frozen on June 30, 2013 per the third Amendment to the Plan dated May 15, 2013. The 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.plans holdpension plan holds no securities of Perma-Pipe International Holdings, Inc.; plans'plan's investments are presented below. The FASB has established a fair 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: $ 3,139 $ 2,991 2,134 2,065 369 368 5,642 5,424 $ 169 $ 121 169 121 $ 739 $ 634 $ 6,550 $ 6,179 Level 1 market value of plan assets 2016 2015 Equity securities $3,000 $3,062 U.S. bond market 2,188 2,168 Real estate securities 214 — Subtotal 5,402 5,230 Level 2 significant other observable inputs Money market fund $306 $351 Equity securities 520 302 Subtotal 826 653 Total $6,228 $5,883 20172020, plan assets were held 64% in equity, 33%34% in debt and 3%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 55%approximately 60% equities, (with a range of 40% - 65%), 25%30% fixed income (with a range of 20% - 35%) and 20% 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.20162019 resulted in $0.7$0.7 million actual gain on plan assets as presented below, which increaseddecreased the fair value of plan assets at year end. The Company did not changereduced its8% 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.from 8.0% to 7.5%, based on updated long-term market expectations. 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. $ 6,959 $ 6,258 $ 6,959 $ 6,258 $ 6,258 $ 6,658 237 240 788 (303 ) (324 ) (337 ) $ 6,959 $ 6,258 $ 6,179 $ 6,700 Actual (loss)/gain on plan assets 695 (184 ) (324 ) (337 ) $ 6,550 $ 6,179 $ (409 ) $ (80 ) $ 325 $ 343 1,679 1,568 (2,413 ) (1,991 ) $ (409 ) $ (80 ) $ 2,087 $ 1,648 $ 2,087 $ 1,648 2.80 % 3.90 % 3.90 % 3.70 % 7.50 % 8.00 % Reconciliation of benefit obligations, plan assets and funded status of plan 2016 2015 Accumulated benefit obligations Vested benefits $6,500 $6,587 Accumulated benefits $6,500 $7,020 Change in benefit obligation Benefit obligation - beginning of year $7,020 $8,129 Interest cost 278 266 Actuarial gain (493 ) (1,115 ) Benefits paid (305 ) (260 ) Benefit obligation - end of year $6,500 $7,020 Change in plan assets Fair value of plan assets - beginning of year $5,883 $6,168 Actual gain (loss) on plan assets 650 (25 ) Benefits paid (305 ) (260 ) Fair value of plan assets - end of year $6,228 $5,883 Unfunded status $(272) $(1,137) Balance sheet classification Prepaid expenses and other current assets $348 $326 Other assets 1,201 1,166 Deferred compensation liabilities (1,821 ) (2,629 ) Net amount recognized $(272) $(1,137) Amounts recognized in accumulated other comprehensive loss Unrecognized actuarial loss $1,472 $2,303 Net amount recognized $1,472 $2,303 Weighted-average assumptions used to determine net cost and benefit obligations 2016 2015 End of year benefit obligation discount rate 4.00 % 4.05 % Service cost discount rate 4.05 % 3.35 % Expected return on plan assets 8.00 % 8.00 % plans'plan's 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 2016 2015 Interest cost $278 $266 $ 237 $ 240 Expected return on plan assets (458) (479) (450 ) (522 ) Recognized actuarial loss 146 210 102 64 Net periodic benefit income ($34) ($3) $ (111 ) $ (218 ) $ (787 ) $ 303 348 (644 ) $ (439 ) $ (341 ) $ — — $ 325 332 332 327 328 2026 - 2030 1,643 Amounts recognized in other comprehensive income Actuarial loss on obligation $493 $1,115 Actual loss (gain) on plan assets 338 (294 ) Total in other comprehensive income $831 $821 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, 2018 $— Expected employee contributions for the fiscal year ending January 31, 2018 — Estimated future benefit payments reflecting expected future service for the fiscal year(s) ending January 31,: 2018 348 2019 345 2020 347 2021 342 2022 347 2023 - 2027 $1,733 MFRIPPIH 401(k) Employee Savings 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.$0.4$0.3 million and $0.6 million for the each in years ended January 31, 20172020 and 2016, respectively.2019.plans.plans (in thousands): Funded Zone Status FIP/RP Status Pending/Implemented Contribution Plan Name EIN Plan # 2016 2015 Surcharge Imposed Collective Bargaining Expiration Date Plumbers & Pipefitters Local 572 Pension Fund 626102837 001 Green No 257 233 No 3/31/2019 1110 - Stock-based compensationThe Company has stock-based compensation awards that can be granted to eligible employees, officers or directors. 2016 2015 Stock-based compensation (benefit) expense ($540 ) $116 Restricted stock based compensation expense $1,243 $470 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 priceunits under the 2017 Plan and currently intends to continue this practice. The 2017 Plan authorizes awards to officers, employees, consultants, and directors. The 2017 Plan expires on June 12, 2020.datefollowing stock based compensation expense: $ 12 $ 33 999 1,132 Total stock-based compensation expense $ 1,011 $ 1,165 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 PPIH 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. 2016 2015 1. Risk-free interest rate 1.2 % 1.7 % 2. Expected volatility 43.2 % 43.4 % 3. Expected life in years 5.0 5.0 4. Dividend yield — % — % The following summarizes the activity related to options outstanding under all plans for the years ended January31,2016 2020 and 2017:2019. The Company did not grant any stock options in 2019 or 2018. Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value 358 $ 9.44 4 $ 482 (77 ) 6.83 162 (63 ) 16.2 218 8.6 3.8 257 207 $ 8.69 3.6 239 (53 ) 6.91 162 (33 ) 7.1 132 8.98 3.2 160 129 $ 9.01 3.14 $ 155 Options Weighted average exercise price Weighted average remaining contractual term Aggregate intrinsic value Outstanding on January 31, 2015 764 $11.45 5.7 $0 Granted 51 6.38 Exercised (18 ) 6.48 3 Expired or forfeited (77 ) 9.93 Outstanding on January 31, 2016 720 11.38 5.1 34 Options exercisable on January 31, 2016 554 $11.94 4.2 30 Granted 22 7.33 Exercised (59 ) 6.70 68 Expired or forfeited (159 ) 11.98 Outstanding on January 31, 2017 524 11.55 4.5 534 Options exercisable on January 31, 2017 450 $11.92 3.9 $465 The weighted averageCompany received $0.4 million and $0.5 million in 2019 and 2018, respectively, for stock options exercised. Weighted-average grant date fair value Aggregate intrinsic value 11 $ 7.00 $ 19 — — (6 ) Expired or forfeited (2 ) 7.1 3 $ 7.33 $ 4 granted, net of options surrendered, during 2016vested was less than $0.1 million in 2019 and 2015 are estimated at $2.85 and $2.54, per share, respectively, on the date of grant.Unvested options outstanding Options Weighted-average grant date fair value Aggregate intrinsic value Outstanding on January 31, 2016 166 $9.51 $3 Granted 22 7.33 Vested (72 ) Expired or forfeited (42 ) 8.98 Outstanding on January 31, 2017 74 $9.31 $69 $0.1 in 2018, respectively. Based on historical experience the Company expects 85%94% of these options to vest.20172020, there was $0.2less 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 2.00.4 years.In June 2016 under the Omnibus Plan described above,grantedgrants 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 2019, the Company granted 23,104 deferred stock units from the 2017 Plan, and as of January 31, 20172020, there were approximately 60,495125,049 deferred stock units outstanding included in the restricted stock activity shown below. 2016 2015 Deferred compensation liabilities $529 $495 In June 2016 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, 20172019 and 20162020, respectively: 360 $ 9.05 $ 3,254 148 9.76 (94 ) (131 ) 7.92 283 $ 8.74 $ 2,476 152 9.09 (51 ) (26 ) 8.79 358 $ 9.03 $ 3,234 Restricted shares Weighted average grant price Aggregate intrinsic value Outstanding on January 31, 2015 86 $14.52 $1,242 Granted 108 6.38 Issued (26 ) Forfeited (5 ) 6.38 Outstanding on January 31, 2016 163 $6.40 $1,040 Granted 254 7.29 Issued (91 ) Forfeited or used to cover payroll taxes (36 ) 7.75 Outstanding on January 31, 2017 290 $8.75 $2,540 20172020, there was $1.2$1.5 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 2.22.1 years.12 - Treasury stock / share repurchase programOn 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 rightsOn 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.iswas also entitled to one Right for each such additional share. Each Right entitlesentitled the registered holders, under certain circumstances, to purchase from the Company one share of PPIH's common stock at $25,$25, subject to adjustment. At no time willdid the Rights have any voting power.50Themay not be exercisedAgreement dated as of September 15, 1999. Among other things, the Amendment extended the term of the Rights Agreement until 10 days after a person or group acquires 15% or more ofSeptember 15, 2019 and amended definitions to include positions in derivative instruments related to the Company's common stock or announces a tender offer that, if consummated, would result in 15% or moreas constituting beneficial ownership of the Company's commonsuch 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 PPIH, or in the surviving enterprise if PPIH is acquired, having a value of two times the exercise price then in effect. Also, the 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 PPIH 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.The Rights will expireexpired on September 15, 2019, unless exchanged or redeemed prior to that date. The redemption price is $0.01 per Right. PPIH'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 PPIH common stock. Under certain circumstances, the decision to redeem requires the concurrence of a majority of the independent directors.2019.1412 - Interest expense, net $ 1,106 $ 1,286 (201 ) (164 ) $ 905 $ 1,122 51 2016 2015 Interest expense $746 $950 Interest income (177 ) (480 ) Interest expense, net $569 $470 Schedule II20172020 and 20162019 Balance at beginning of period Charges to expenses Write-offs (1) Other charges (2) Balance at end of period $ 536 $ 123 $ (254 ) $ 2 $ 407 $ 469 $ 140 $ (272 ) $ 199 $ 536 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, 2017 Allowance for possible losses in collection of trade receivables $33 $246 $1 $27 $305 Year Ended January 31, 2016 Allowance for possible losses in collection of trade receivables $31 $6 $4 $0 $33 offoff.translationtranslation.52SIGNATURESPursuant to the requirementsTable 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.Perma-Pipe International Holdings, Inc.ContentsDate:April 14, 2017/s/ David J. Mansfield David J. MansfieldDirector, 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.DAVID J. MANSFIELDDirector, President and Chief Executive Officer (Principal Executive Officer))))KARL J. SCHMIDT*Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)))April 14, 2017)DAVID S. BARRIE*Director and Chairman of the Board of DirectorsDAVID B. BROWN*Director)BRADLEY E. MAUTNER*Director)JEROME T. WALKER*Director)MARK A. ZORKO*Director)*By:/s/ David J. MansfieldIndividually and as Attorney in FactDavid J. MansfieldEXHIBIT INDEX“Description"Description and Location”Location" below. The Commission file number for ourthe Company's Exchange Act filings referenced below is 0-18370.3(iii)Second Amended and Restated By-Laws of Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on February 4, 2013]3(iv)Third Amended and Restated By-Laws of Perma-Pipe International Holdings, Inc. [Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on March 20, 2017]4(a) on Form 8-K filed on September 24, 1999]10(a)
4(d) Description of the Registrant's Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 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)10(h)10(i)10(j)10(k)10(l)10(m)10(n)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] EXHIBIT INDEX10(o)Perma-Pipe International Holdings, Inc. Date: April 21, 2020 David J. Mansfield Director, President and Chief Executive Officer (Principal Executive Officer) 50