MESSAGE TO STOCKHOLDERS
POSITIONED TO BENEFIT FROM A RECOVERING MARKET
OUR 2017-18 FINANCIAL RESULTS REFLECT THE CONTINUED CHALLENGING CONDITIONS OF A
MARKET ADVERSELY IMPACTED BY A SUSTAINED CONTRACTION IN INDUSTRY ACTIVITY.
DESPITE THESE CHALLENGES, WE ACHIEVED SOLID PROGRESS IN TALENT DEVELOPMENT AND
COST CONTROL, AND ARE IN A GOOD POSITION TO DELIVER IMPROVED RESULTS AS MARKETS
RECOVER.
2017 has been another year of sustaining through a depressed market. At the same time, we have been
focused on reducing our fixed costs and in developing our organization, processes and strategies with a
new outlook. We have made considerable progress in improving our culture to be harmonious across all
geographic boundaries and have made positive organizational changes that align with our future strategy.
In March 2017, we announced the appointment of John Carusiello to the position of Senior Vice President
– Americas, and in November the appointment of Grant Dewbre as Senior Vice President – Middle East
and North Africa. Both of these moves have been positive steps in our progress, and I am confident that
John and Grant will continue to help drive our Company toward growth and profitability. I am very pleased
to have them as key members of my team.
We have also begun an initiative to transform our HSE performance and culture to meet and exceed the
best-in-class industry standards. One where safety is a personal value of all our employees in every aspect
of our lives. It is an initiative that we expect will take a number of years to fully complete, but we are
committed to its success and have achieved meaningful improvements in just the first few months.
The drivers of our market conditions continued to present very difficult challenges throughout the year.
Although there was a decline in oil prices of over 20% during the first half of our year, this was followed
by an encouraging recovery to end 20% higher than at
the start. We did see some improving activity in our US
district heating markets in the first half which flattened
out after Q2, but this is our segment that is least
influenced by oil prices. Consistent with the trend in oil
prices however, our markets
in the Middle East
remained depressed until the second half of the year
when during Q3 and Q4 there was a welcome increase
in the order enquiry activity and indications that some
stalled,
in Saudi Arabia would be
recommenced. Our markets are still currently suffering
from a surplus in capacity, but if the other drivers of client expenditures continue to remain positive, then
the competitive pressures should become less intense.
large projects
The acquisition of the remaining equity in our Canadian operation continues to be a success and a major
contributor to our earnings. A notable achievement during 2017 was our increased effectiveness in
obtaining orders from pipe distributors in our Canadian markets.
MESSAGE TO STOCKHOLDERS
Our revenues during 2017 do reflect an increase over the prior year levels, but not by as much as we had
originally anticipated. Firstly, the impact of the GCC embargo of Qatar affected us directly since it
prevented us from supplying to Qatar under contracts awarded to our facilities in the GCC. Also, in Q3/Q4
we experienced client-driven delays to other projects in our backlog that had been scheduled for
production during Q4. Although the latter will have a positive impact on our 2018 results, it has reduced
our reported earnings for the 2017 year.
Despite the above, and partly as a result of the reductions in our overhead costs, we have been able to
improve our pre-tax result by $3.6 million versus last year. We are still some way from achieving the
results we would like to see, but these positive signs demonstrate that things are headed in the right
direction. We will continue to sustain our close focus on efficiencies and cost control, particularly
throughout the period that we are challenged by lower levels of activity created by the general market
conditions.
While the recent positive changes to our market conditions have been progressing at a modest pace, we
see signs that the market drivers will continue in a positive direction and that our markets will sustain the
recovery we have recently begun to see. In particular, we see a greater number of larger projects than
usual in our outlook for the US market and some of the previously stalled large projects in the Middle East
appear to be resuming after the government of Saudi Arabia has commenced plans to release funds to
contractors in the Kingdom. These are all encouraging signs.
We are also targeting to execute on new growth plans during the year and will continue to seek new
market opportunities. During the forthcoming year, we anticipate a move into a market that currently
shows considerable promise and we believe can become an important future growth opportunity for
Perma-Pipe.
Finally, we continue to pursue a very significant project in East Africa. This has experienced some minor
delays, which is typical for such complex undertakings, but the project is still very much alive and we hope
to know of an outcome in the coming months.
During the forthcoming year, we will continue to build on our organizational strength and to align our
organizational structure in the most effective manner. We will also continue to progress with our
programs to enhance our corporate cultural, including the important HSE initiative that we began in 2017.
There is no doubt that we still have a lot of hard work ahead of us to bring the Company’s results to a
place where we provide superior financial returns to stockholders. However, we are fortunate to have so
many talented, experienced and dedicated employees
in our organization that have already
demonstrated their capabilities and resilience. For this, I am extremely grateful and I remain confident
that we will be able to meet and exceed this challenge.
Sincerely,
DAVID J. MANSFIELD
Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2018
Commission File No. 0-18370
Perma-Pipe International Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
6410 W. Howard Street, Niles, Illinois
(Address of principal executive offices)
36-3922969
(I.R.S. Employer Identification No.)
60714
(Zip Code)
(847) 966-1000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $.01 par value per share
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes
No
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes
No
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
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein
and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-
accelerated filer
(Do not check if a smaller reporting company) Smaller reporting company
Emerging growth company
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
No
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 $55,628,183 based on the closing sale price of $7.93 per share as reported on the NASDAQ Global Market
on July 31, 2017.
The number of shares of the registrant's common stock outstanding at April 12, 2018 was 7,716,542.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 2018 annual meeting of stockholders, which will be filed with the
Securities and Exchange Commission within 120 days after January 31, 2018, are incorporated by reference in Part III of this Form
10-K.
Perma-Pipe International Holdings, Inc.
FORM 10-K
For the fiscal period ended January 31, 2018
TABLE OF CONTENTS
Item
Part I
1.
1A.
1B.
2.
3.
4.
Part II
5.
6.
7.
7A.
8.
9.
9A.
9B.
Part III
10.
11.
12.
13.
14.
Part IV
15.
Business
Products and Services
Employees
International
Executive Officers of the Registrant
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Report of Independent Registered Public Accounting Firm
Signatures
Page
1
2
3
4
4
5
10
10
10
10
11
12
12
18
18
18
19
20
20
20
20
20
20
21
22
56
[This page intentionally left blank.]
Cautionary Statements Regarding Forward Looking Information
PART I
Certain statements contained in this Annual Report on Form 10-K, which can be identified by the use of forward-
looking terminology such as "may," "will," "expect," "continue," "remains," "intend," "aim," "should," "prospects,"
"could," "future," "potential," "believes," "plans," "likely" and "probable" or the negative thereof or other variations
thereon or comparable terminology, constitute "forward-looking statements," within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934 as amended ("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, the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the Company’s ability to effectively execute its strategic plan and achieve profitability and positive cash flows;
the impacts of global economic weakness and volatility;
fluctuations in steel prices and the Company’s ability to offset increases in steel prices through price increases
in its products;
the timing of orders for the Company’s products;
decreases in United States government spending on projects using the Company’s products, and challenges
to the Company’s non-government customers’ liquidity and access to capital funds;
the Company’s ability to successfully negotiate progress-billing arrangements for its large contracts;
fluctuations in crude oil and natural gas prices;
risks and uncertainties related to the Company’s international business operations;
the Company’s ability to repay its debt, refinance its current expiring United States credit agreement, and
renew expiring international credit facilities;
aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the
Company operates;
the Company’s ability to purchase raw materials at favorable prices and to maintain beneficial relationships
with its suppliers;
the Company’s ability to manufacture products free of latent defects and to recover from suppliers who may
provide defective materials to the Company;
reductions or cancellations of orders included in the Company’s backlog;
the Company’s ability to attract and retain senior management and key personnel;
the Company’s ability to achieve the expected benefits of its growth initiatives;
reversals of previously recorded revenue and profits resulting from inaccurate estimates made in connection
with the Company’s percentage-of-completion revenue recognition;
the Company’s failure to establish and maintain effective internal control over financial reporting; and
the impact of cybersecurity threats on the Company’s information technology systems.
Item 1. BUSINESS
Perma-Pipe International Holdings, Inc., collectively with its subsidiaries ("PPIH", "Company" or "Registrant"), is
engaged in the manufacture and sale of products in one reportable segment: Piping Systems. In February 2017, the
Company began 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. The Company believes this decision will better
serve its mission and strategy, positions it well in the industry and global market, and positions it to leverage the strong
reputation Perma-Pipe has established since beginning operations. The Company's name change to Perma-Pipe
International Holdings, Inc. was effective March 20, 2017. The Company's common stock is reported under its new
ticker symbol "PPIH" since March 21, 2017. The Company's fiscal year ends on January 31. Years and balances
described as 2017 and 2016 are for the fiscal years ended January 31, 2018 and 2017, respectively.
1
Products and services. The Company engineers, designs, manufactures and sells specialty piping systems, and leak
detection and location systems. Specialty piping systems include: (i) industrial and secondary containment piping
systems for transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating
and cooling ("DHC") piping systems for efficient energy distribution to multiple locations from central energy plants,
and (iii) the coating and/or insulation of oil and gas gathering flow and long lines for oil or mineral transportation. The
Company's leak detection and location systems are sold with its piping systems or 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.
The Company frequently engineers and custom fabricates to job site dimensions and incorporates provisions for thermal
expansion due to varying temperatures. This custom fabrication helps to minimize the amount of field labor required
by the installation contractor. Most of the Company's piping systems are produced for underground installations and,
therefore, require trenching, which is the responsibility of the general contractor, and done by unaffiliated installation
contractors.
The Company’s piping systems are typically sold as a part of large discrete projects, and both the domestic and Canadian
customer demand varies by season. See "Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A")."
Operating Facilities: The Company operates its business from the following locations:
Perma-Pipe, Inc.
Niles, IL
New Iberia, LA
Lebanon, TN
Perma-Pipe Canada, Ltd.
Camrose, Alberta, Canada
Perma-Pipe Middle East FZC
Fujairah, United Arab Emirates
Perma-Pipe Saudi Arabia, LLC
Dammam, Kingdom of Saudi Arabia
Perma-Pipe India Pvt. Ltd
Gandhidham, India
Customers and sales channels. The Company's customer base is industrially and geographically diverse. In the United
States, the Company employs national and regional sales managers who use and assist a network of independent
manufacturers' representatives, none of whom sells products that are competitive with the Company's piping systems.
The Company employs a direct sales force as well as an agent network in the U.S., Canada, and in several countries
in the Middle and Far East to market and sell products and services.
On January 31, 2018 and January 31, 2017, no one customer accounted for more than 10% of the Company's net sales.
Three customers accounted for 34.9% of accounts receivable on January 31, 2018, and two customers accounted for
33.2% of accounts receivable at January 31, 2017.
Backlog. The Company’s backlog on January 31, 2018 was $46.7 million compared to $44.6 million on
January 31, 2017, all of which is expected to be completed within the next 12 months. The Company defines backlog
as the revenue value resulting from confirmed customer purchase orders that have not yet been recognized as revenue.
However, by industry practice, orders may be canceled or modified at any time. If a customer cancels an order, the
customer is normally responsible for all finished goods produced or shipped, all direct and indirect costs incurred and
also for a reasonable allowance for anticipated profits. No assurance can be given that these amounts will be recovered
after cancellation. Any cancellation or delay in orders may result in lower than expected revenue.
Intellectual property. The Company owns several patents covering its piping and electronic leak detection systems.
The patents are not material to the Company either individually or in the aggregate because the Company believes its
sales would not be materially reduced if patent protection were not available. The Company owns numerous trademarks
connected with its piping and leak detection systems including the following U.S. trademarks: Perma-Pipe®, Chil-
Gard®, Double Quik®, Escon-A®, FluidWatch®, Galva-Gard®, Polytherm®, Pal-AT®, Stereo-Heat®,
2
LiquidWatch®, PalCom®, Xtru-therm®, Auto-Therm®, Pex-Gard®, Multi-Therm®, Ultra-Therm®, Cryo-Gard®,
Sleeve-Gard®, Electro-Gard® and Sulphur-Therm®. The Company also owns a number of trademarks throughout
the world. Some of the Company's more significant trademarks include: Auto-Therm®, Cryo-Gard®, Electro-Gard®,
Sleeve-Gard®, Permalert®, Pal-AT®, Perma-Pipe®, Polytherm®, Ric-Wil®, and Xtru-therm®.
Suppliers. The basic raw materials used in production are pipes and tubes made of carbon steel, alloy, copper, ductile
iron, plastics and various chemicals such as polyols, isocyanate, urethane resin, polyethylene and fiberglass, mostly
purchased in bulk quantities. The Company believes there are currently adequate supplies and sources of availability
of these needed raw materials. Steel prices began to rise in early 2018 and are expected to continue to rise with seasonal
demand and an improving economy in the first and second quarters of 2018. The Company expects normal seasonal
price movement during 2018 with steel prices higher than average when compared to 2017. The Company has been
updating its quoting system for the movements in steel prices and expects to recover these price differentials through
price increases in its products.
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 its leak detection and location
systems from components purchased from many sources.
Competition. The piping systems market is highly competitive. The Company believes its principal competition consists
of between 10 to 20 major competitors and more small competitors. The Company believes that quality, service,
engineering design capabilities and support, a comprehensive product line, timely execution, plant location and price
are key competitive factors. The Company also believes it has a more comprehensive line for DHC than any competitor.
Some competitors have greater financial resources and cost advantages as a result of manufacturing a limited range
of products or have a manufacturing plant closer to the point of final product deployment.
Research and Development. The Company primarily conducts its research and development function on a contract-
by-contract basis to accommodate the product specifications mandated by its customers. The Company does not
maintain a standalone research and development function.
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 its piping systems products.
In Canada, due to provincial and federal government regulations, the National Energy Board (NEB) requires that all
buried pipelines that cross provincial boundaries or the United States-Canada border, have an anti-corrosion coating
system applied. The Company believes that this regulation has a positive effect on demand for its products due to the
Company's unique expertise with respect to anti-corrosion coating.
Employees
As of January 31, 2018, the Company had approximately 196 employees working in the United States, of which
approximately 79 were under two collective bargaining agreements, one expiring on March 31, 2019, and the other
on April 30, 2020. There were approximately 469 employees working at the Company's international locations. The
Company considers its relationship with its employees to be good.
3
International
The Company's international operations as of January 31, 2018 included subsidiaries in four foreign countries on two
continents. The Company's international operations contributed approximately 57.3% of revenue in 2017 and 55.1%
of revenue in 2016. The Company's sales to international customers increased from 57.0% in 2016 to 59.5% in 2017.
The following table sets forth a breakdown of the Company’s net sales to customers by geographic region:
(In thousands)
Net sales
United States
Canada
Middle East
India
Other
Total net sales
2017
2016
$42,648
31,206
26,322
1,317
3,755
$105,248
$42,048
25,915
28,009
2,360
513
$98,845
The Company's international operations are subject to risks inherent in conducting business in foreign countries,
including price controls, exchange controls, limitations on participation in local enterprises, nationalization,
expropriation and other governmental action, and changes in currency exchange rates.
Available Information
The Company files with and furnishes to the Securities and Exchange Commission ("SEC"), reports including annual
meeting materials, Annual Reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K,
as well as amendments thereto. The Company maintains a website, www.permapipe.com, where these reports and
related materials are available free of charge as soon as reasonably practicable after the Company electronically delivers
such material to the SEC. The information on the Company's website is not part of this Annual Report on Form 10-K
and is not incorporated into this or any other filings by the Company with the SEC.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information regarding the executive officers of the Company as of April 1, 2018:
Name
David J. Mansfield Director, President and Chief Executive Officer; Age 57
Offices and Positions; Age
Karl J. Schmidt
Vice President and Chief Financial Officer; Age 64
Wayne Bosch
Vice President, Chief Human Resources Officer; Age 61
Executive officer of
the Company since
2016
2013
2013
David J. Mansfield: President and Chief Executive Officer, ("CEO"), since November 2016. From 2015 to 2016, Mr.
Mansfield served as Chief Financial Officer ("CFO") of Compressor Engineering Corp. & CECO Pipeline Services
Co., which provides products and services to the gas transmission, midstream, gas processing, and petrochemical
industries. In this position, he had overall responsibility for the group’s financial affairs, including the development
and execution of turnaround plans and the successful negotiation of a corporate refinancing. From 2009 to 2014, Mr.
Mansfield served as CFO and as Acting CEO of Pipestream, Inc., a venture capital-owned technology development
company providing a suite of products to the oil and gas pipeline industry. From 1992 to 2009, Mr. Mansfield was
employed with Bredero Shaw, the world’s largest provider of protective coatings for the oil and gas pipeline industry,
most recently as Vice President Strategic Planning. During his tenure with Bredero Shaw, Mr. Mansfield served in
4
numerous roles including Vice President Controller and Commercial General Manager, Europe, Africa & FSU, and
played a key role in strategy development and merger and acquisition activities as the company grew from annual
revenues of $100 million to over $900 million.
Karl J. Schmidt: Appointed Vice President and CFO in January 2013. From 2010 to 2012, Mr. Schmidt served as the
CFO of Atkore International (previously Tyco Electrical and Metal Products), a manufacturer of steel pipe and tube
products, electrical conduits, cable, and cable management systems. From 2002 to 2009, Mr. Schmidt served as the
Executive Vice President and CFO of Sauer-Danfoss, Inc., 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: Appointed Vice President and Chief Human Resources Officer in December 2013. From 2010 to 2012,
Mr. Bosch was Vice President of Human Resources at Pactiv, a $4.0 billion global manufacturer and distributor of
food packaging products. Prior to Pactiv, he led the human resource activities at the North American segment of Barilla
America, a $6.3 billion global pasta, sauces and bakery manufacturer and was the Chief Human Resources Officer for
water filtration leader Culligan International. Mr. Bosch's background spans the entire spectrum of human resources
competencies, including mergers and acquisition and business integration, in start-up, turnaround and high-growth
businesses. His scope also includes communications, legal, occupational health services, health safety environment,
risk management, payroll, facilities and general administrative services.
Item 1A. RISK FACTORS
The Company's business, financial condition, results of operations and cash flows are subject to various risks, including,
but not limited to, those set forth below, which could cause actual results to vary materially from recent results or from
anticipated future results. These risk factors should be considered together with information included elsewhere in this
Annual Report on Form 10-K.
The Company has incurred net losses for its past two fiscal years and it may be unable to achieve profitability or
positive cash flows in the future. The Company has experienced net losses for the past two fiscal years. Generating
net income and positive cash flows in the future will depend on its ability to successfully complete and execute its
strategic plan. There is no guarantee that the Company will be able to achieve profitability or positive cash flows in
the future.The Company’s inability to successfully achieve profitability and positive cash flows may result in it
experiencing a serious liquidity deficiency resulting in material adverse consequences that could threaten its viability.
Global economic weakness and volatility may adversely affect operating margins for the Company’s services and
products. If the global economy experiences a severe and prolonged downturn, it could adversely impact the Company's
business, directly or indirectly. Downturns in such general economic conditions can significantly affect the business
of the Company's customers, which in turn affects demand, volume, pricing, and operating margins for the Company's
services and products. A downturn in one or more of the Company's significant markets could have a material adverse
effect on the Company's business, results of operations or financial condition. Because economic and market conditions
vary within the Company's 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.
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 a number of factors beyond the
Company's control, including general economic conditions, import duties, other trade restrictions and currency
exchange rates. This volatility can significantly affect the Company's gross profit.
In March, 2018, President Trump signed a proclamation imposing a 25% tariff on all imported steel products for an
indefinite period of time under Section 232 of the Trade Expansion Act of 1962. The tariff will be imposed on all steel
imports with the exception of steel imported from Canada, Mexico and Australia, and the administration is considering
exemption requests from other countries. The Company expects these actions to increase steel costs and decrease
supply availability.
5
The Company has been updating its quoting system for the movements in steel prices, and intends to recover these
price differentials through price increases in the Company's products, however, the Company may not always be
successful. Any increase in steel prices that is not offset by an increase in the Company's prices could have an adverse
effect on the Company's business, financial position, results of operations or cash flows. In addition, if the Company
is unable to acquire timely steel supplies, it may need to decline bid and order opportunities, which could also have
an adverse effect on the Company's business, financial position, results of operations or cash flows.
Delays in the timing of orders for the Company’s products may negatively impact the Company’s operating results.
Since the Company's revenues are based on large discrete projects, the Company's operating results in any reporting
period could be negatively impacted as a result of large variations in the level of overall market demand or delays in
the timing of project execution phases.
Decreases in United States government spending on projects using the Company’s products, and challenges to the
Company’s non-government customers’ liquidity and availability of capital funds may adversely impact demand
for the Company’s products. Uncertainty about economic market conditions poses risks that the Company's customers
may postpone spending for capital improvement and maintenance projects in response to tighter credit markets or
negative financial news, which could have a material negative effect on the demand for the Company's products.
Decreases in U.S. federal and state spending on projects using the Company's products can have negative impact on
sales volume from the Company's domestic facilities. Governmental spending on large infrastructure projects in the
Gulf Cooperation Council ("GCC") countries vary and spending has in the past been curtailed or delayed as a result
of reduced public spending budgets in countries which are dependent on oil and gas revenues and their respective price
levels.
The Company may not be able to successfully negotiate progress-billing arrangements for its large contracts, which
could adversely impact the Company’s working capital needs and credit risk. The Company sells systems and products
under contracts that allow the Company to either bill upon the completion of certain agreed upon milestones, or upon
actual shipment of the system or product. The Company attempts to negotiate progress-billing milestones on large
contracts to help manage its working capital and to reduce the credit risk associated with these large
contracts. Consequently, shifts in the billing terms of the contracts in the backlog from period to period can increase
the Company's requirements for working capital and can increase its exposure to credit risk.
Crude oil and natural gas prices are volatile, and the substantial and extended decline in commodity prices has
had, and may continue to have, a material and adverse effect on demand and pricing in the Company's business.
Prices for crude oil and natural gas fluctuate widely. Among the factors that can or could cause these price fluctuations
are:
the level of consumer demand;
•
domestic and worldwide supplies of crude oil and natural gas;
•
domestic and international drilling activity;
•
•
the actions of other crude oil exporting nations and the Organization of Petroleum Exporting Countries;
• worldwide economic and political conditions, including political instability or armed conflict in oil and gas
producing regions; and
the price and availability of, and demand for, competing energy sources, including alternative energy sources.
•
Generally, when the prices for crude oil and natural gas 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.
The Company may be unable to repay its debt, refinance its current expiring lending agreement, or renew its expiring
credit facilities. If there were an event of default under the Company's current revolving credit facilities, the lenders
6
could cause all amounts outstanding with respect to that debt to be due and payable immediately. The Company cannot
assure that its cash flow will be sufficient to fully repay amounts due under any of the financing arrangements, if
accelerated upon an event of default, or, that the Company would be able to repay, refinance or restructure the payments
under any such arrangements. Complying with the covenants under the Company's domestic and/or foreign revolving
credit facilities may limit management's discretion by restricting options such as:
incurring additional debt;
entering into transactions with affiliates;
•
•
• making investments or other restricted payments;
•
•
repurchase of Company's shares;
payment of dividends, capital returns, repayment of intercompany obligations and other forms of repatriation;
and
creating liens.
•
The Company’s United States credit agreement will expire in September 2018. While the Company is actively pursuing
refinancing its credit agreement and replacement financing sources, there is no assurance that the Company will be
successful in refinancing its credit agreement or obtaining such replacement financing, or if obtained, that such financing
will be in a similar amount or be on similar terms and conditions as the Company's current credit agreement.
The Company’ credit arrangements used by its Middle Eastern subsidiaries is renewed on an annual basis. In addition
to these credit arrangements, the Company also obtains project financing in the Middle East on a project-by-project
basis. While the Company believes that it will be able to renew its Middle East credit arrangements and will have
continued access to individual project financing, there is no assurance that such arrangements will be renewed or made
available in similar amounts or be on similar terms and conditions as the current arrangements, or that such individual
project financing will be available for projects that the Company is interested in pursuing.
Any replacement credit arrangements outside of the United States may further limit the Company’s ability to repatriate
funds from abroad. Repatriation of funds from certain countries may become limited based upon regulatory restrictions
or economically unfeasible because of the taxation of funds when moved to another subsidiary or to the parent company.
In addition, any refinancing, replacement or additional financing the Company may obtain could contain similar or
more restrictive covenants than the Company is currently subject to. The Company’s ability to comply with any
covenants may be adversely affected by general economic conditions, political decisions, industry conditions and other
events beyond management’s control.
Aggressive pricing by existing competitors and the entrance of new competitors in the markets in which the Company
operates could drive down the Company's profits and prohibit or slow the Company's growth. The Company's
business is highly competitive. Some of the Company's competitors are larger and have more resources than the
Company. Additionally, many of the Company's products are also subject to competition from alternative technologies
and alternative products. In periods of declining demand, the Company's fixed cost structure may limit its ability to
cut costs, which may be a competitive disadvantage compared to firms with more flexible cost structures, or may result
in reduced operating margins and operating losses.
The Company may be unable to purchase raw materials at favorable prices, or maintain beneficial relationships
with its suppliers, which could result in a shortage of supply, or increased pricing. To the extent the Company relies
upon a single source for key components of several of its products, the Company believes there are alternate sources
available for such components. However, there can be no assurance that the interruption of supplies of such components
would not have an adverse effect on the financial condition of the Company and that the Company, if required to do
so, would be able to negotiate agreements with alternative sources on acceptable terms.
The Company may be subject to claims for damages for defective products. The Company warrants its products to
be free of certain defects. The Company has, from time to time, had claims alleging defects in its products. The Company
cannot be certain it will not experience material product liability losses in the future or that it will not incur significant
costs to defend such claims. While the Company currently has product liability insurance, the Company cannot be
7
certain that its product liability insurance coverage will be adequate for liabilities that may be incurred in the future
or that such coverage will continue to be available to the Company on commercially reasonable terms. Any claims
relating to defective products that result in liabilities exceeding the Company's insurance coverage could have an
adverse effect on the Company's business, financial position, results of operations or cash flows.
Product and service orders included in the Company’s backlog may be reduced or cancelled. The Company defines
backlog as the revenue value resulting from confirmed customer purchase orders that have not yet been recognized as
revenue. However, by industry practice, orders may be canceled or modified at any time. If a customer cancels an
order, the customer is normally responsible for all finished goods produced or shipped, all direct and indirect costs
incurred and also for a reasonable allowance for anticipated profits. No assurance can be given that these amounts will
be recovered after cancellation. Any cancellation or delay in orders may result in lower than expected revenue.
The Company may be unable to attract and retain its senior management and key personnel. The Company's ability
to meet its strategic and financial goals will depend to a significant extent on the continued contributions of its senior
management and key personnel. Future success will also depend in large part on the Company's ability to identify,
attract, motivate, effectively utilize and retain highly qualified managerial, sales, marketing and technical personnel.
The loss of senior management or other key personnel or the inability to identify, attract and retain qualified personnel
in the future could make it more difficult to manage the Company's business and could adversely affect operations and
financial results.
The Company may not be able to achieve the expected benefits from its growth initiatives. The Company's cyclical
or general expansion may result in unanticipated adverse consequences, including significant strain on management,
operations and financial systems as well as on the Company's ability to attract and retain competent employees. In the
future, the Company may seek to grow its business by investing in new or existing facilities, making acquisitions,
entering into partnerships and joint ventures, or constructing new facilities, which could entail a number of additional
risks, including:
•
•
•
•
•
•
•
strain on working capital;
diversion of management's attention away from other activities, which could impair the operation of existing
businesses;
failure to successfully integrate the acquired businesses or facilities into existing operations;
inability to maintain key pre-acquisition business relationships;
loss of key personnel of the acquired business or facility;
exposure to unanticipated liabilities; and
failure to realize efficiencies, synergies and cost savings.
As a result of these and other factors, including general economic risks, the Company may not be able to realize the
expected benefits from future acquisitions, new facility developments, partnerships, joint ventures or other investments.
The Company's financial results could be adversely affected by changes in international regulations and other
activities of U.S. and non-U.S. governmental agencies related to the Company’s international operations.
International sales represent a significant portion of the Company's total sales. The Company's sales to international
customers increased from 57.0% in 2016 to 59.5% in 2017. The Company's anticipated growth and profitability may
require increasing current international sales volume and may necessitate further international expansion. The
Company's financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations,
other activities of U.S. and non-U.S. governments, agencies and similar organizations, and other factors. These factors
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
8
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 international scope of the Company’s operations, it is subject to a complex system of commercial and trade
regulations around the world. Recent years have seen an increase in the development and enforcement of laws regarding
trade compliance anti-corruption, such as the U.S. Foreign Corrupt Practices Act and similar laws from other countries
as well as new regulatory requirements regarding data privacy. The Company’s foreign subsidiaries are governed by
laws, rules and business practices that differ from those of the U.S. If the activities of these entities do not comply with
U.S. laws or business practices or the Company’s Code of Business Conduct, then violations of these laws may result
in severe criminal or civil sanctions, could disrupt the Company’s business, and result in an adverse effect on the
Company’s reputation, business and results of operations or financial condition. The Company cannot predict the
nature, scope or effect of future regulatory requirements to which its operations might be subject or the manner in
which existing laws might be administered or interpreted.
Following the departures of the Company’s Middle East region President and Vice President in June 2017 and the
related regional management transition, the Company’s management became concerned that its corporate policies,
procedures and internal controls within the region may not have been adhered to fully by the prior management team.
As a result of these concerns, the Company engaged outside third-party firms to complete an extensive review of
regional management activities from early 2014. The total non-recurring cost for this review and the resulting policy
improvement implementations for 2017 was approximately $1.2 million. While the Company believes the majority
of the costs associated with this review and policy improvements has already been incurred, there can be no assurance
the Company will not be subject to further material expenses related to this matter.
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,
financial position, results of operations or cash flows.
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. The Company recognizes
revenues under its stated revenue recognition policy except for sizable domestic complex contracts that require periodic
recognition of income. For these contracts, the Company uses the "percentage of completion" accounting method. This
methodology allows revenue and profits to be recognized proportionally over the life of a contract by comparing the
amount of the cost incurred to date against the total amount of cost expected to be incurred. The effect of revisions to
revenue and total estimated cost is recorded when the amounts are known or can be reasonably estimated. These
revisions can occur at any time and could be material. On a historical basis, management believes that reasonably
reliable estimates of the progress towards completion on long-term contracts have been made. However, given the
uncertainties associated with these types of contracts, it is possible for actual cost to vary from estimates previously
made, which may result in reductions or reversals of previously recorded revenue and profits.
The Company’s failure to establish and maintain effective internal control over financial reporting could harm its
business and financial results. The Company’s management is responsible for establishing and maintaining effective
internal control over financial reporting. Internal control over financial reporting is a process to provide reasonable
assurance regarding the reliability of financial reporting for external purposes in accordance with accounting principles
generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is
not intended to provide absolute assurance that the Company would prevent or detect a misstatement of its financial
statements or fraud.
As of January 31, 2018, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s internal control over financial reporting was not effective due to an identified material weakness. The
material weakness resulted from an accounting error identified by the Company during its preparation and review of
the Company’s financial statements for the fiscal quarter ended July 31, 2017 related to the Company's stock based
9
compensation cost. Specifically, the Company had improperly reversed stock-based compensation costs for vested
equity awards that expired, terminated or were cancelled unexercised. This accounting error was attributable to the
Company’s lack of technical accounting knowledge. A material weakness is defined as a deficiency, or a combination
of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. While
the Company believes that it has implemented proper controls to address the material weakness described above, the
material weakness cannot be considered fully remediated until the remediation processes have been in operation for
a period of time and successfully tested. 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 discovered or
occur in the future, the Company’s consolidated financial statements may contain material misstatements and the
Company could be required 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 also cause a loss of investor confidence and decline in the market
price of the Company’s common stock.
The Company's information technology systems may be negatively affected by cybersecurity threats. The Company
faces risks relating to cybersecurity attacks that could cause the loss of confidential information and other business
disruptions. The Company relies extensively on computer systems to process transactions and manage its business,
and its business is at risk from and may be impacted by cybersecurity attacks. These could include attempts to gain
unauthorized access to data and computer systems. Attacks can be both individual and/ or highly organized attempts
organized by very sophisticated hacking organizations. The Company employs a number of measures to prevent, detect
and mitigate these threats, which include password encryption, frequent password change events, firewall detection
systems, anti-virus software in-place and frequent backups; however, there is no guarantee such efforts will be successful
in preventing a cyber-attack. A successful attack could disrupt and otherwise adversely affect the Company's reputation
and results of operations, including through lawsuits by third-parties.
Item 1B. UNRESOLVED STAFF COMMENTS - None.
Item 2. PROPERTIES
Location
Illinois
Louisiana
Tennessee
Canada
India
Kingdom of
Saudi Arabia
United Arab
Emirates
Leased or Owned
Leased production facilities and office space
Owned production facilities and leased land
Owned production facilities and office space
Owned production facilities with office space on
owned land, leased land and leased office space
Leased production facilities, office space and
land
Owned production facilities on leased land
Size
31,650 square feet
30,000 square feet on approximately 7 acres
131,800 square feet on approximately 23.5 acres
102,980 square feet on approximately 138 acres
33,700 square feet on approximately 1.2 acres
89,000 square feet on approximately 11 acres
Leased office space and production facilities on
leased land
180,000 square feet on approximately 16 acres
For further information, see Note 9 - Lease information, in the Notes to Consolidated Financial Statements.
Item 3. LEGAL PROCEEDINGS - As of January 31, 2018, the Company had no material pending litigation.
Item 4. MINE SAFETY DISCLOSURES - Not applicable.
10
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
The Company's Common Stock is traded on the Nasdaq Global Market under the symbol "PPIH". Prior to March 21,
2017 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 2017 and 2016.
Fiscal 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal 2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$9.31
8.95
8.05
9.00
9.23
8.15
7.90
7.74
$8.25
7.60
7.50
7.25
7.65
7.42
6.70
6.98
As of April 1, 2018, there were 69 stockholders of record and other additional stockholders for whom securities firms
acted as nominees.
The Company has never declared or paid a cash dividend and does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Management presently intends to retain all available funds for the development
of the Company's business and for use as working capital. Future dividend policy will depend upon the Company's
earnings, capital requirements, financial condition and other relevant factors. For further information, see "Financing"
in Item 7 and Note 8 - Debt, in the Notes to Consolidated Financial Statements.
The Company has not made any sale of unregistered securities during the preceding three years.
The Transfer Agent and Registrar for the Common Shares is Broadridge Corporate Issuer Solutions, Inc., P.O. Box
1342 Brentwood, NY 11717, (877) 830-4936 or (720) 378-5591.
11
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, 2018.
Number of shares to be
issued upon exercise of
outstanding options,
warrants and rights
(a)(1)
Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)(1)
Number of shares
remaining available for
future issuance under
equity compensation
plans (excluding shares
reflected in column (a))
(c)
358,375
$9.44
428,202
Plan Category
Equity compensation plans approved
by stockholders
(1) The amounts shown in columns (a) and (b) of the above table do not include 359,604 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 Omnibus Plan").
Item 6. SELECTED FINANCIAL DATA - Not applicable.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain statements contained in this 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," and "probable," or the negative thereof or other variations thereon or comparable terminology,
constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Exchange Act and are subject to the safe harbors created thereby. These statements should be
considered as subject to the many risks and uncertainties that exist in the Company's operations and business
environment. Such risks and uncertainties could cause actual results to differ materially from those projected as a result
of many factors, including, but not limited to, those under the headings Cautionary Statements Regarding Forward
Looking Information and Item 1A. Risk Factors.
The Company is engaged in the manufacture and sale of products in one reportable segment: Piping Systems. The
Company's website is www.permapipe.com. Since the Company's revenues are based on large discrete projects, the
Company's operating results in any reporting period could be negatively impacted as a result of large variations in the
level of overall market demand or delays in the timing of the specific project phases in both geographies and reporting
periods.
The analysis presented below and discussed in more detail throughout the MD&A was organized to provide instructive
information for understanding the Company's business. However, this MD&A should be read in conjunction with the
Consolidated Financial Statements in Item 8 of this report, including the notes thereto and the risk factors contained
herein.
12
Consolidated Results of Operation:
($ in thousands)
Net sales
Gross profit
Percentage of net sales
General and administrative expenses
Percentage of net sales
Selling expense
Percentage of net sales
2017
$105,248
2016
$98,845
% Favorable
(Unfavorable)
6.5 %
11,742
11.2%
16,214
15.4%
5,040
4.8%
11,716
11.9%
17,579
17.8%
5,721
5.8%
0.2 %
7.8 %
11.9 %
Loss on consolidation of joint venture
—
(1,620)
100.0 %
Interest expense, net
Loss from continuing operations before income taxes
697
(10,209)
569
(13,773)
(22.5)%
25.9 %
2017 Compared to 2016
Net sales:
Net sales were $105.2 million in 2017, an increase of 6.5% from $98.8 million in 2016. Higher revenues resulted
primarily from increased sales to distributors in Canada.
Cost of sales and gross profit:
Gross profit remained unchanged at $11.7 million in 2017 and 2016. Gross margin decreased to 11% from 12% of net
sales in the prior year due to changes in the North American product mix and continued competitive pricing pressures
in the United States and Middle East.
Selling expenses:
Selling expenses decreased to $5.0 million from $5.7 million, an improvement of 11.9%. As a percentage of net sales,
selling expenses decreased to 4.8% in 2017 from 5.8% in the prior year. This improvement was due to management
changes in the Middle East and realignment of the North American sales organization.
General and administrative expenses:
General and administrative expenses were $16.2 million in 2017 compared to $17.6 million 2016, an improvement of
7.8%.
Following the departures of the President and Vice President of the Company’s Middle East region in June 2017 and
the related regional management transition, the Company's management became concerned that its corporate policies,
procedures and internal controls within the region may not have been adhered to fully by the prior management team.
As a result of these concerns, the Company engaged outside third-party firms to complete an extensive review of
regional management activities from early 2014. The total non-recurring costs for this review and the resulting policy
13
improvement implementations for the year 2017 were approximately $1.2 million. The 2016 year-to-date expenses
included one-time legal settlement expenses of $0.8 million, and changes in the senior executive positions of the
Company with related hiring and separation costs of $0.7 million.
On a comparative basis, not including these one-time charges, general and administrative expenses were $15.0 million
and $16.1 million, in 2017 and 2016, respectively. This decrease of $1.1 million was primarily due to the relocation
of the U.S. headquarters and realignment of administrative functions, all of which contributed to the overall
improvement year over year.
Interest expense:
Interest expense increased to $0.8 million in 2017 from $0.7 million in 2016 due to higher borrowings and increased
interest rates, both domestic and foreign, in 2017.
Operating results from continuing operations before income taxes:
Operating results from continuing operations before income taxes improved to a loss of $10.2 million in 2017 compared
to a loss of $13.8 million in 2016. The positive contributing factors were:
•
•
increased coating volume from distributors in Canada;
decreased selling, general and administrative expenses due to operational realignment.
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 completed all of its deliverables in 2015, and has collected approximately
$36.5 million, with a remaining balance due in the amount of $5.4 million. Included in this balance is an amount of
$3.7 million, which pertains to retention clauses within the agreements of our customer (contractor), and which become
payable by the customer when this project is fully tested and commissioned. In the absence of a firm date for the final
commissioning of the project, and due to the long-term nature of this receivable, $3.2 million of this retention amount
was reclassed to a long-term receivable account.
The Company has been engaged in ongoing active efforts to collect the outstanding amount, and has recently received
an updated acknowledgment of the outstanding balances and assurances of payment from the customer. As a result,
the Company did not reserve any allowance against this amount as of January 31, 2018. However, if the Company’s
efforts to collect on this account are not successful in fiscal 2018, then the Company may be required to recognize an
allowance for all, or substantially all, of any such then uncollected amounts in the future.
Income taxes:
The Company's worldwide effective tax rates ("ETR") were 2.3% and 4.4% in 2017 and 2016, respectively. The ETR
in 2017 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. The Company remains
in a net operating loss ("NOL") carryforward position.
On December 22, 2017, the U.S. government enacted comprehensive federal tax legislation commonly referred to as
the Tax Cuts and Jobs Act of 2017 ("Tax Act"). The Tax Act contains significant changes to corporate taxation, including
reduction of the corporate tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, substantial
changes to the taxation of foreign earnings, immediate deductions for certain new investments instead of deductions
for depreciation expense over time, and modification or repeal of many business deductions and credits. The Company
has made reasonable estimates of the financial impact of the Tax Act on the Company. However, the estimates are
provisional and may change.
14
The Tax Act requires multinational companies to pay U.S. income taxes on accumulated earnings of its foreign
subsidiaries not previously subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other
net current assets and 8% on the remaining earnings. After going through the steps of the deemed repatriation calculation,
the aggregate deferred foreign income inclusion is estimated at $23.2 million. This income is fully offset by the use
of NOL carryforwards and the current year domestic loss, resulting in no regular tax on the income.
For further information, see Note 10 - Income taxes, in the Notes to Consolidated Financial Statements.
Other
The Company has made a bid to provide insulation of pipes to the East Africa Crude Oil Pipeline ("EACOP") project.
The EACOP project is a 1450 Km (900 mile) long heavy crude oil pipeline from the Lake Albert Basin in Uganda to
the Tanga port in Tanzania being developed by French oil company Total E&P, China National Offshore Oil Corporation
(CNOOC) and London-based Tullow Oil. The pipeline is 24 inches in diameter, and is electrically heat traced. Once
completed, it will be the longest insulated and heat traced pipeline in the world. There can be no assurance that the
Company will be successful in its bid for this project, and what the final terms of any such potential engagement will
be until the bid is awarded.
Liquidity and capital resources
Cash and cash equivalents as of January 31, 2018 were $7.1 million, compared to $7.6 million on January 31, 2017.
On January 31, 2018, $0.7 million was held in the U.S. and $6.4 million was held in the foreign subsidiaries. The
Company's working capital was $23.1 million on January 31, 2018 compared to $29.8 million on January 31, 2017.
Of the working capital components, accounts receivable increased $1.7 million as a result of higher sales. Accounts
payable increased $3.2 million due to the corresponding increase in inventory, and customer deposits increased
$2.6 million in the Middle East related to new project business. Cash used in operations in 2017 was $1.8 million
compared to $5.5 million in 2016, an improvement of $3.7 million.
Net cash used in investing activities during 2017 was $2.4 million, compared to net cash provided by investing activities
during 2016 of $10.2 million. The Company estimates that capital expenditures for 2018 may be between $3.0 million
to $4.0 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 business worldwide.
Debt totaled $15.8 million on January 31, 2018. Net cash provided by financing activities in 2017 was $3.5 million,
compared to net cash used in 2016 was $14.9 million. For additional information, see Note 8 - Debt, in the Notes to
Consolidated Financial Statements. Other long-term liabilities of $0.5 million were composed primarily of deferred
rent.
15
The following table summarizes the Company's estimated contractual obligations on January 31, 2018.
($ in thousands)
Contractual obligations
Revolving line North America (1)
Mortgages (2)
Revolving line foreign (3)
Subtotal
Capitalized lease obligations
Operating lease obligations (4)
Employment agreements (5)
Contractual obligations of
discontinued operations (6)
Uncertain tax position obligations (7)
Total
$7,273
12,111
130
19,514
946
16,259
1,300
137
118
2019
$7,273
743
130
8,146
323
1,884
168
137
—
Year Ending January 31,
2020
$—
730
—
730
257
2021
$—
717
—
717
255
2022
$—
703
—
703
89
1,628
1,536
1,494
1,468
—
—
—
—
—
—
—
—
—
—
—
—
2023 Thereafter
$—
$—
690
—
690
22
8,528
—
8,528
—
8,249
1,132
—
118
Total
$38,274
$10,658
$2,615
$2,508
$2,286
$2,180
$18,027
Notes to contractual obligations table:
(1) Interest obligations exclude floating rate interest on debt payable under the North American revolving line of
credit. Based on the amount of such debt on January 31, 2018, and the weighted average interest rate of 4.65% on
that debt, such interest was being incurred at an annual rate of approximately $0.2 million.
(2) Scheduled maturities, including interest.
(3) Scheduled maturities of foreign revolver line, including interest.
(4) Minimum contractual amounts, assuming no changes in variable expenses.
(5) Refer to the index for a description of compensation and separation plans.
(6) Included payments for other liabilities included in discontinued operations.
(7) Refer to Note 10 - Income taxes, in the Notes to Consolidated Financial Statements for a description of the uncertain
tax position obligations.
Financing
Revolving line North America. On September 24, 2014, the Company entered into a Credit and Security agreement
with a financial institution (as amended, "Credit Agreement"). Under the terms of the Credit Agreement the Company
can borrow up to a combined $15.0 million in the U.S. and Canada, subject to borrowing base availability from secured
domestic 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, share repurchases and investments, and
require achieving a minimum fixed charge coverage ratio with respective performance metrics as defined by the Credit
Agreement if a minimum availability is not met. On January 31, 2018, the Company was in compliance with all
covenants under the Credit Agreement. The domestic revolving line balances as of January 31, 2018 and 2017 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. On January 31, 2018, the Company had borrowed $7.3 million at 7.0%, 5.06% and 3.95% and had
$0.9 million available to it under the revolving line of credit. In addition, $0.2 million of availability was used under
the Credit Agreement primarily to support letters of credit to guarantee amounts committed for inventory purchases.
Cash required for operations is provided by draw-downs on the line of credit.
The Credit Agreement will expire in September 2018. The Company has engaged a financial advisor and is actively
pursuing refinancing the Credit Agreement and replacement financing sources.
16
In the event the Company's refinancing of the Credit Agreement is delayed or unavailable, the Company believes that
its cash positions outside of North America could be repatriated and that such cash, together with projected cash flow
from operations, would be sufficient to satisfy the Company's repayment obligations under the Credit Agreement and
to support the near-term operating cash needs of the Company going forward.
Revolving lines foreign. The Company also has annual credit arrangements used by its Middle Eastern subsidiaries.
These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the
countries in which the Company operates. Some credit arrangement covenants require a minimum tangible net worth
to be maintained, as well as a minimum balance of intercompany subordinated debt. In addition, some of the revolving
credit facilities restrict payment of dividends. On January 31, 2018, the Company was in compliance with the covenants
under the credit arrangements. Interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimum
3.5% per annum, and Emirates Inter Bank Offered Rate (EIBOR) plus 3.5% per annum. The Company's interest rates
range from 3.5% to 6.0%. On January 31, 2018, the Company can borrow $13.5 million under these credit
arrangements. The Company borrowed $0.1 million and had $4.1 million available under these credit arrangements
as of January 31, 2018. In addition, $9.3 million of availability was used to support letters of credit to guarantee amounts
committed for inventory purchases. For further information, see Note 8 - Debt, in the Notes to Consolidated Financial
Statements.
The Company’s credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis. Subsequent to
January 31, 2018, the Company reduced one of the foreign credit lines by $2.5 million, thus reducing the amount
available to borrow by $2.4 million.
In 2017, the Company obtained three capital leases for $1.1 million CAD (approximately $0.8 million USD at the
prevailing exchange rates on the transaction dates) to finance vehicle equipment. The interest rates for these capital
leases were from 4.0% to 7.8% per annum with monthly principal and interest payments of less than $0.1 million.
These leases mature from April 30, 2021 to September 29, 2022.
Critical accounting estimates and policies
The Company's significant accounting policies are discussed in the Notes to Consolidated Financial Statements included
in Item 8 of this Annual Report on Form 10-K. The application of certain of these policies requires significant judgments
or a historical based estimation process that can affect the results of operations and financial position of the Company
as well as the related footnote disclosures. The Company bases its estimates on historical experience and other
assumptions that it believes are reasonable. If actual amounts ultimately differ from previous estimates, the revisions
are included in the Company's results of operations for the period in which the actual amounts become known.
Revenue recognition. The Company recognizes revenues, including shipping and handling charges billed to customers,
when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is
reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues upon shipment or
delivery of goods or services when title and risk of loss pass to customers.
Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue
recognition policy except for 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
17
due to the Company are recognized in contract revenues when realization is probable and the amount can be reliably
estimated.
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method
for all inventories.
Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in the
basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences
have been recorded at the current tax rate. The Company assesses its deferred tax assets for realizability at each reporting
period.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely
than not threshold, the amount recognized in the financial statements is a significant benefit that has a greater than
50% 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.
Fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts
payable are based upon reasonable estimates of their fair value due to their short-term nature. The carrying 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.
New accounting pronouncements. See Recent accounting pronouncements in Note 2 - Significant accounting policies,
in the Notes to Consolidated Financial Statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - Not applicable.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company for each of the two years in the periods ended as of
January 31, 2018 and 2017 and the notes thereto are set forth as an exhibit hereto.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.
18
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Chief Executive Officer and Chief Financial Officer have
evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e)) under the Exchange Act as of January 31, 2018. This evaluation included consideration of the controls,
processes, and procedures that are designed to ensure that information required to be disclosed in the reports that are
filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods
specified in the rules and forms of the SEC and that such information is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure. Management has previously reported on a material weakness in the Company's internal control
over financial reporting that resulted from an accounting error identified by the Company during its preparation and
review of the Company's financial statements for the fiscal quarter ended July 31, 2017 related to the Company's
accounting for stock-based compensation cost. Specifically, the Company had improperly reversed stock-based
compensation costs for vested equity awards that expired, terminated or were cancelled unexercised. This accounting
error was attributable to the Company’s lack of technical accounting knowledge.
As described below, the Company has adopted and implemented policies and procedures to ensure that its accounting
staff has the necessary technical accounting knowledge. These controls have been operating since July 31, 2017 and
for the quarter ending January 31, 2018.
Notwithstanding the material weakness described above, the Company's management, including our 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 Report on Internal Control Over Financial Reporting. The Company's management is responsible
for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule
13a-15(f) under the Exchange Act. As required by Rule 13a-15(c) under the Exchange Act, the Company's management
carried out an evaluation, with the participation of the Chief Executive Officer and Chief Financial Officer, of the
effectiveness of its internal control over financial reporting as of the end of the last fiscal year. The framework on
which such evaluation was based is contained in the report entitled Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
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 over financial reporting, such that there is a reasonable possibility that a material
misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely
basis.
As reported in the Company’s assessment of the effectiveness of its internal control over financial reporting, the
Company identified an accounting error during its preparation and review of the Company’s financial statements for
the fiscal quarter ended July 31, 2017 related to the Company’s accounting for stock-based compensation cost.
Specifically, the Company had improperly reversed stock-based compensation cost for vested equity awards that
expired, terminated or were cancelled unexercised. This accounting error was attributable to the Company’s lack of
technical accounting knowledge and led management to conclude that a material weakness existed with respect to the
Company’s internal control over financial reporting.
19
Remediation Plan for the Material Weakness in Internal Control over Financial Reporting: To address the material
weakness regarding the adjustment for awards that expired unexercised, the Company has done the following:
• Expanded the training of employees in financial technical accounting, reporting and disclosure-related
positions;
• Reinforced the importance of a strong control environment, to emphasize the technical requirements for controls
that are designed, implemented and operating effectively and to set the appropriate expectations on internal
controls through establishing the related policies and procedures;
• Reviewed the categories that are underlying the calculations related to stock-based compensation, and revise
•
procedures for the calculation and review of effects from vested, forfeited and expired options;
Implemented a catalog of key accounting rules that have been applied during the quarter. In the reviews of
any major journal entries for non-standard operational accounting matters, this catalog will be used as a checklist
to validate that the required accounting treatment is applied and disclosures are made accordingly. Management
will evaluate whether the accounting treatment follows the current rules in the catalog and will decide whether
outside firm expertise is warranted in such a review; and
• Management validated and update the catalog quarterly for any changes resulting from changed or newly
pronounced accounting rules.
The Company anticipates the actions described above and resulting improvements in controls will strengthen the
Company's processes, procedures and controls related to recording stock-based compensation cost 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.
Item 9B. OTHER INFORMATION - None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for the 2018 annual meeting of stockholders.
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".
Item 11 EXECUTIVE COMPENSATION
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for the 2018 annual meeting of stockholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for the 2018 annual meeting of stockholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for the 2018 annual meeting of stockholders.
20
Item 14. PRINCIPAL ACCOUNTANTING FEES AND SERVICES
Information with respect to this item is incorporated herein by reference to the Company's definitive proxy statement
for the 2018 annual meeting of stockholders.
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
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.
21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
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, 2018 and 2017, the related consolidated statements
of operations, comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended
January 31, 2018, and the related notes and schedule (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of
January 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period
ended January 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements 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.
We conducted our audits in accordance with the standards of the 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, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform,
an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding
of internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements,
whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2004.
Chicago, Illinois
April 19, 2018
22
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Net sales
Cost of sales
Gross profit
Operating expenses:
General and administrative expense
Selling expense
Total operating expenses
Loss from operations
Loss on consolidation of joint venture
Interest expense, net
Loss from continuing operations before income taxes
Income tax benefit
Loss from continuing operations
Income from discontinued operations, net of tax
Net loss
Weighted average common shares outstanding
Basic and diluted
Loss per share from continuing operations
Basic and diluted
Earnings per share from discontinued operations
Basic and diluted
Loss per share
Basic and diluted
Twelve months ended
January 31,
2018
2017
$105,248
93,506
11,742
$98,845
87,129
11,716
16,214
5,040
21,254
17,579
5,721
23,300
(9,512)
(11,584)
—
(1,620)
697
(10,209)
569
(13,773)
(233)
(611)
(9,976)
(13,162)
—
688
($9,976)
($12,474)
7,680
7,488
($1.30)
($1.76)
$0.00
$0.09
($1.30)
($1.67)
See accompanying Notes to Consolidated Financial Statements.
Note: Earnings per share calculations could be impacted by rounding.
23
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands)
Net loss
Other comprehensive income (loss)
Currency translation adjustments, net of tax
Minimum pension liability adjustment, net of tax
Realized/unrealized gain/(loss) on marketable security, net of tax
Other comprehensive income
Comprehensive loss
See accompanying Notes to Consolidated Financial Statements.
Twelve months ended
January 31,
2018
2017
($9,976)
($12,474)
1,185
165
(92)
1,258
818
423
15
1,256
($8,718)
($11,218)
24
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
ASSETS
Current assets
Cash and cash equivalents
Restricted cash
Trade accounts receivable, less allowance for doubtful accounts of $469 on January 31, 2018
and $305 on January 31, 2017
Inventories
Assets of discontinued operations
Prepaid expenses and other current assets
Costs and estimated earnings in excess of billings on uncompleted contracts
Total current assets
Property, plant and equipment, net of accumulated depreciation
Other assets
Deferred tax assets
Goodwill
Other assets
Total other assets
Total assets
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Trade accounts payable
Commissions and management incentives payable
Accrued compensation and payroll taxes
Revolving line North America
Current maturities of long-term debt
Customers' deposits
Liabilities of discontinued operations
Outside commission liability
Other accrued liabilities
Billings in excess of costs and estimated earnings on uncompleted contracts
Income tax payable
Total current liabilities
Long-term liabilities
Long-term debt, less current maturities
Deferred compensation liabilities
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities
Stockholders' equity
January 31,
2018
2017
$7,084
1,237
32,936
16,856
—
2,703
1,502
62,318
34,509
$7,603
1,098
31,271
13,565
25
2,171
2,091
57,824
36,275
391
2,423
4,943
7,757
$104,584
147
2,279
5,086
7,512
$101,611
$14,186
787
1,580
7,273
753
5,236
137
1,800
4,122
1,967
1,339
39,180
7,728
4,098
1,242
524
13,592
$10,901
1,845
2,188
3,813
658
2,640
199
1,612
2,360
1,100
684
28,000
7,258
4,571
1,829
540
14,198
Common stock, $.01 par value, authorized 50,000 shares; 7,717 issued and outstanding January
31, 2018 and 7,595 issued and outstanding January 31, 2017
Additional paid-in capital
Treasury Stock; 0 shares on January 31, 2018 and 27 shares on January 31, 2017
(Accumulated deficit) retained earnings
Accumulated other comprehensive loss
Total stockholders' equity
Total liabilities and stockholders' equity
See accompanying Notes to Consolidated Financial Statements.
77
56,304
—
(3,103)
(1,466)
51,812
$104,584
76
55,358
(170)
6,873
(2,724)
59,413
$101,611
25
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
Common
Stock
Additional
Paid-in
Capital
Treasury
Stock
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other Comp.
Income (Loss)
Total
Stockholders'
Equity
Total stockholders' equity on January 31, 2016
$74
$53,877
($290)
$19,347
($3,980)
$69,028
Net loss
Common stock issued under stock plans, net of
shares used for tax withholding
Stock-based compensation expense
Pension liability adjustment
Marketable security
Foreign currency translation adjustment
Tax expense on above items
Total stockholders' equity on January 31, 2017
Net loss
Common stock issued under stock plans, net of
shares used for tax withholding
Stock-based compensation expense
Pension liability adjustment
Marketable security
Foreign currency translation adjustment
Tax benefit on above items
(12,474)
(12,474)
2
296
1,185
120
$76
$55,358
($170)
$6,873
(9,976)
1
(215)
1,161
170
418
1,185
831
24
831
24
799
(398)
($2,724)
799
(398)
$59,413
(9,976)
(44)
1,161
165
(142)
1,141
94
165
(142)
1,141
94
Total stockholders' equity on January 31, 2018
$77
$56,304
$0
($3,103)
($1,466)
$51,812
Common stock shares
Balance beginning of year
Treasury stock released
Shares issued
Balance end of year
2017
7,595,509
26,753
94,280
7,716,542
2016
7,305,925
17,813
271,771
7,595,509
See accompanying Notes to Consolidated Financial Statements.
26
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Operating activities
Net loss
Adjustments to reconcile net loss to net cash flows used in operating activities
Depreciation and amortization
Loss on consolidation of joint venture
Gain on disposal of subsidiary
Deferred tax benefit
Stock-based compensation expense
Cash surrender value on life insurance policies
Provision on uncollectible accounts
Loss (gain) on disposal of fixed assets
Gain on sale of marketable securities
Changes in operating assets and liabilities
Accounts payable
Accrued compensation and payroll taxes
Inventories
Customers' deposits
Income taxes receivable and payable
Prepaid expenses and other current assets
Accounts receivable
Costs and estimated earnings in excess of billings on uncompleted contracts
Other assets and liabilities
Net cash used in operating activities
Investing activities
Net proceeds from sale of discontinued operations
Capital expenditures
Proceeds from sale of marketable securities
Acquisition of interest in subsidiary, net of cash acquired
Proceeds from surrender of corporate-owned life insurance policies
Proceeds from sales of property and equipment
Net cash (used in) provided by investing activities
Financing activities
Proceeds from revolving lines
Proceeds from debt
Payments of debt on revolving lines
Payments of other debt
Increase (decrease) in drafts payable
Proceeds (payments) on capitalized lease obligations
Release of treasury stock
Stock options exercised and restricted shares issued
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash, cash equivalents and restricted cash
Net decrease in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash - beginning of period
Cash, cash equivalents and restricted cash - end of period
Supplemental cash flow information
Interest paid
Income taxes paid
Fixed assets acquired under capital leases
Funds held in escrow related to the sale of Filtration assets
See accompanying Notes to Consolidated Financial Statements.
27
Twelve months ended
January 31,
2018
2017
($9,976)
($12,474)
5,031
—
(166)
(958)
1,447
—
15
219
(142)
4,551
(1,780)
(3,274)
2,596
(75)
(471)
(1,076)
1,455
762
(1,842)
—
(2,532)
142
—
—
1
(2,389)
40,485
—
(37,354)
(211)
34
546
170
(214)
3,456
395
(380)
8,701
$8,321
$804
1,080
841
—
5,521
1,620
(127)
(33)
1,446
(135)
657
(292)
—
(1,917)
(9,227)
5,452
(2,303)
(128)
(997)
13,698
296
(6,514)
(5,457)
9,606
(2,257)
—
(4,672)
3,185
4,356
10,218
40,033
6,059
(49,303)
(10,151)
(323)
(1,677)
120
297
(14,945)
(70)
(10,254)
18,955
$8,701
$773
1,381
8
502
PERMA-PIPE INTERNATIONAL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED January 31, 2018 and 2017
(Tabular dollars in thousands, except per share data)
Note 1 - Business information
Perma-Pipe International Holdings, Inc. ("PPIH", the "Company", or the "Registrant") was incorporated in Delaware
on October 12, 1993. As of January 31, 2016, PPIH 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.
Fiscal year. The Company's fiscal year ends on January 31. Years and balances described as 2017 and 2016 are the
fiscal years ended January 31, 2018 and 2017, respectively.
Nature of business. The Company engineers, designs, manufactures and sells specialty piping and leak detection and
location systems. Specialty piping systems include (i) industrial 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, and (iii) the coating
and/or insulation of oil and gas gathering flow and long lines for oil and mineral transportation. The Company's leak
detection and location systems are sold with its piping systems and 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 5 - Discontinued operations,
in the Notes to Consolidated Financial Statements.
Geographic information. Net sales attributed to a geographic area are based on the destination of the product shipment.
Sales to foreign customers was 59.5% in 2017 compared to 57.0% in 2016. 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.
(In thousands)
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
28
2017
2016
$42,648
31,206
26,322
1,317
3,755
$105,248
$11,307
13,868
9,119
215
$34,509
$42,048
25,915
28,009
2,360
513
$98,845
$11,747
13,276
10,987
265
$36,275
Note 2 - Significant accounting policies
Use of estimates. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Revenue recognition. The Company recognizes revenues including shipping and handling charges billed to customers,
when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or
services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is
reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues upon shipment or
delivery of goods or services when title and risk of loss pass to customers.
Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue
recognition policy except for 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.
Shipping and handling. Shipping and handling costs are included in cost of sales, and the amounts invoiced to customers
relating to shipping and handling are included in net sales.
Sales tax. Sales tax is reported on a net basis in the consolidated financial statements.
Operating cycle. The length of 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.
Consolidation. The consolidated financial statements include the accounts of the Company and its domestic and foreign
subsidiaries, all of which are wholly owned. All intercompany balances and transactions have been eliminated.
Translation of foreign currency. Assets and liabilities of consolidated foreign subsidiaries are translated into U.S.
dollars at exchange rates in effect at year-end. Revenues and expenses are translated at average weighted exchange
rates prevailing during the year. Gains or losses on foreign currency transactions and the related tax effects are reflected
in net income. The resulting translation adjustments are included in stockholders' equity as part of accumulated other
comprehensive income (loss).
Contingencies. The Company is subject to various legal proceedings and claims that arise in the ordinary course of
business, including those involving environmental, tax, product liability and general liability claims. The Company
accrues for such liabilities when it is probable that future costs will be incurred and such costs can be reasonably
estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters,
and its experience in contesting, litigating and settling other similar matters. The Company does not currently anticipate
the amount of any ultimate liability with respect to these matters will materially affect the Company's financial position,
liquidity or future operations.
Cash and cash equivalents. All highly liquid investments with a maturity of three months or less when purchased are
considered to be cash equivalents. Cash and cash equivalents were $7.1 million and $7.6 million as of January 31, 2018
29
and 2017, respectively. On January 31, 2018, $0.7 million was held in the U.S. and $6.4 million was held in the foreign
subsidiaries. On January 31, 2017, $0.2 million was held in the U.S. and $7.4 million was held in the foreign subsidiaries.
Accounts payable included drafts payable of less than $0.1 million for both January 31, 2018 and 2017.
Restricted cash. Restricted cash, held by foreign subsidiaries, was $1.2 million and $1.1 million as of January 31, 2018
and 2017, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security
deposits and guarantees.
(In thousands)
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash shown in the statement of cash flows
2017
$7,084
1,237
$8,321
2016
$7,603
1,098
$8,701
Accounts receivable. The majority of the Company's accounts receivable are due from geographically dispersed
contractors and manufacturing companies. Credit is extended based on an evaluation of a customer's financial condition,
including the availability of credit insurance. In the U.S., collateral is not generally required. In the U.A.E. and Saudi
Arabia, letters of credit are usually obtained for significant 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. The allowance for doubtful accounts is based 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 and the amount is deemed uncollectible. The write off is recorded against
the allowance for doubtful accounts.
One of the Company’s accounts receivable in the total amount of $5.4 million (inclusive of a retention receivable
amount of $3.7 million, of which $3.2 million was included in the balance of other long-term assets as of
January 31, 2018 and 2017 due to the long-term nature of the receivables – see Note 6 – Retention) has been outstanding
for several years as of January 31, 2018. The Company completed all of its deliverables in 2015, and has been engaged
in ongoing active efforts to collect this amount, and has recently received an updated acknowledgment of the outstanding
balances and assurances of payment from the customer. As a result, the Company did not reserve any allowance against
this amount as of January 31, 2018. However, if the Company’s efforts to collect on this account are not successful in
fiscal 2018, then the Company may be required to recognize an allowance for all, or substantially all, of any such then
uncollected amounts in the future.
On January 31, 2018 and 2017, no customer accounted for more than 10% of the Company's net sales.
Three customers accounted for 34.9% of accounts receivable on January 31, 2018, and two customers accounted for
33.2% of accounts receivable on January 31, 2017.
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.
30
Accumulated other comprehensive loss. Accumulated other comprehensive loss represents the change in equity from
non-owner transactions and consisted of foreign currency translation, minimum pension liability and marketable
securities.
(In thousands)
Equity adjustment foreign currency, gross
Minimum pension liability, gross
Marketable security, gross
Subtotal excluding tax effect
Tax effect of foreign exchange currency
Tax effect of minimum pension liability
Tax effect of marketable security
Total accumulated other comprehensive loss
2017
($268)
(1,307)
—
(1,575)
(6)
115
—
($1,466)
2016
($1,409)
(1,472)
142
(2,739)
(50)
115
(50)
($2,724)
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method
for all inventories.
(In thousands)
Raw materials
Work in process
Finished goods
Subtotal
Less allowance
Inventories
2017
$17,166
291
1,024
18,481
1,625
$16,856
2016
$13,648
1,105
836
15,589
2,024
$13,565
Long-lived assets. Property, plant and equipment are stated at cost. Interest is capitalized in connection with the
construction of facilities and amortized over the asset's estimated useful life. Long-lived assets are reviewed for possible
impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review
indicates impairment, the carrying amount of such assets is reduced to an estimated fair value.
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 depreciation. Depreciation expense was
approximately $4.9 million in 2017 and $5.3 million in 2016.
(In thousands)
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
2017
$22,796
47,009
4,504
3,490
77,799
43,290
$34,509
2016
$22,330
44,538
4,704
3,690
75,262
38,987
$36,275
Impairment of long-lived assets. The Company evaluates long-lived assets (including intangible assets) for impairment
whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be
recoverable. A factor considered important that could trigger an impairment review includes a year-to-date loss from
operations. The Company reported a loss in 2017 and2016. An asset is considered impaired if its carrying amount
exceeds the undiscounted future net cash flow the asset is expected to generate. Based on the Company's review of
31
the projected cash flows over the remaining useful lives of the assets, management has determined that there was no
impairment of long-lived assets as of January 31, 2018 and 2017.
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, 2018 and 2017, is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC"). The Company does
not amortize goodwill.
(In thousands)
Goodwill
January 31, 2017
$2,279
Foreign exchange
change effect
$144
January 31, 2018
$2,423
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.
The Company performs an impairment assessment of goodwill annually as of January 31, or more frequently if
triggering events occur, based on the estimated fair value of the related reporting unit. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.
There was no impairment to goodwill in 2017 or 2016.
Other intangible assets with definite lives. The Company owns several patents including those covering features of
its piping and electronic leak detection systems. Patents are capitalized and amortized on a straight-line basis over a
period not to exceed the legal lives of the patents. The Company expenses costs incurred to renew or extend the term
of intangible assets. Gross patents were $2.6 million as of January 31, 2018 and 2017. Accumulated amortization was
approximately $2.4 million as of January 31, 2018 and 2017. Future amortization over the next five years ending
January 31 will be less than $0.1 million in the years 2018 to 2022 and less than $0.1 million thereafter.
Research and development. Research and development expenses consist of materials, salaries and related expenses
of engineering personnel and outside services for product development projects. Research and development costs are
expensed as incurred. Research and development expense was approximately $0.3 million in 2017 and $0.2 million
in 2016.
Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in the
basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences
have been recorded at the current tax rate. The Company assesses its deferred tax assets and liabilities for realizability
at each reporting period.
The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax
authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely
than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note
10 - Income taxes in the Notes to Consolidated Financial Statements.
Net loss per common share. Earnings per share ("EPS") is computed by dividing net loss by the weighted average
number of common shares outstanding (basic). The Company reported net losses in 2017 and 2016; therefore, the
diluted loss per share was identical to the basic loss per share rather than assuming conversion, exercise, or contingent
issuance of securities that would have an anti-dilutive effect on earnings per share. The dilutive shares are in the
following table:
32
Basic weighted average number of common shares outstanding (in thousands)
Basic weighted average number of common shares outstanding
Dilutive effect of stock options, deferred stock and restricted stock units
Weighted average number of common shares outstanding assuming full dilution
Stock options not included in the computation of diluted EPS of common stock because the
option exercise prices exceeded the average market prices
Canceled options during the year
Stock options with an exercise price below the average stock price
2017
7,680
—
7,680
139
(131)
219
2016
7,488
—
7,488
306
(159)
218
Equity-based compensation. The Company issues various types of stock-based awards to employees and directors:
restricted stock, deferred stock and stock options. Non-cash compensation expense associated with restricted 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. A mark-to-market adjustment is recognized on a quarterly basis on these shares,
which is booked to stock compensation expense, with the offset booked to the deferred compensation liability account.
Stock compensation 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.
Segments. Operating segments are identified as components of an enterprise about which separate discrete financial
information is available for evaluation by the chief 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 several management reports, including the Company's financial information in determining how to
allocate resources and assess performance. The Company has determined that it operates in one segment.
Fair value of financial instruments. The carrying values of cash and cash equivalents, accounts receivable and accounts
payable are reasonable estimates of their fair value due to their short-term nature. 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 market rates.
Reclassifications. Reclassifications were made to the prior-year consolidated statement of cash flows to conform to
the current-year presentations to the consolidated financial statements. A reclassification of $2.0 million was made to
deferred compensation liabilities from current compensation liabilities on the balance sheet. Reclassifications were
immaterial to the financial statements. In Note 7, Costs and estimated earnings on uncompleted contracts were reported
on an aggregated basis instead of a net basis for the current open contracts. Prior-year presentation has been updated
to reflect the amounts on a net basis, and there was no change to the consolidated financial statements. In Note 11,
Retirement plans investments that are measured at fair value are now shown separately on the asset allocation level
table, and there was no change to the consolidated financial statements.
Recent accounting pronouncements. 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 adopted this
new guidance in the first quarter of 2017, and it did not have a material impact on the Company's operating results,
financial position or cash flows.
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
33
years beginning after December 15, 2017. The Company adopted this new guidance in the first quarter of 2017, and
it did not have a material impact on the Company's operating results, financial position or cash flows.
In March 2017, the FASB issued authoritative guidance that changes the income statement presentation of the
components of net periodic benefit cost related to defined benefit pension and other postretirement plans. The primary
change under the new guidance is that only the service cost component of net periodic benefit cost should be included
in operating income and is eligible for capitalization as an asset. The other components of net periodic benefit cost,
such as interest cost, the expected return on assets, amortization of actuarial gains and losses and prior service cost,
should be presented below operating income. The guidance is effective for the Company starting February 1, 2018
and will be applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization
of service cost. The Company does not expect the adoption of this guidance to have a material impact on the results
of operations or financial position.
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 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets
and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures
to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash
flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect
that this standard will have on the consolidated financial statements and related disclosures.
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, with early adoption permitted. The new revenue standards
may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized
as of the date of adoption.
The Company has completed staff education and has completed the discovery and analysis phases of reviewing contracts
and identifying potential differences that would result from applying the new standard to current contracts. There will
be no change to the financial position, results of operations, or cash flows when the standard is adopted. The Company
will have updated disclosures and has selected the modified retrospective basis with a cumulative adjustment to opening
retained earnings in the year of initial adoption. The Company has identified and implemented changes to the Company’s
business processes, systems and controls to support adoption of the new standard in 2018. The Company does not
expect Topic 606 to have a material impact on the financial statements, though internal processes, record keeping and
disclosures will be impacted. The new standard is not believed to be material, because Topic 606 generally supports
34
the recognition of revenue over time under the cost-to-cost method for the majority of the contracts, which is consistent
with the current percentage of completion revenue recognition model.
The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact
on the consolidated financial statements.
Note 3 - Correction of immaterial errors
An error was identified during the preparation and review of the second quarter, July 31, 2017, financial statements,
as stock-based compensation cost and additional paid in capital had been reversed for vested equity awards that expired,
terminated or were unexercised. The cumulative adjustment for the stock-based compensation cost covering the period
from May 1, 2015 to January 31, 2016 was approximately $0.8 million. The adjustments applicable to the fiscal year
ending January 31, 2017 were approximately $0.8 million.
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. 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.
A reconciliation of the effects of the adjustments to the previously reported balance sheet and stockholders' equity at
January 31, 2017 follows:
(In thousands)
Additional paid in capital
Retained earnings
As Reported
Adjustment
Revised
$53,716
8,515
$1,642
(1,642)
$55,358
6,873
A reconciliation of the effects of the adjustments to the previously reported statement of operations for the year ended
January 31, 2017 follows:
(In thousands)
General and administrative expense
Total operating expenses
Loss from operations
Loss from continuing operations before income taxes
Loss from continuing operations
Net loss
Loss per share from continuing operations
Loss per share
As Reported
Adjustment
Revised
$16,783
22,504
(10,788)
(12,977)
(12,366)
(11,678)
(1.65)
(1.56)
$796
796
(796)
(796)
(796)
(796)
(0.11)
(0.11)
$17,579
23,300
(11,584)
(13,773)
(13,162)
(12,474)
(1.76)
(1.67)
A reconciliation of the effects of the adjustments to the previously reported statement of cash flows for the year
ending January 31, 2017 follows:
(In thousands)
Net loss
Stock-based compensation expense
Note 4 - Acquisition
As Reported
Adjustment
Revised
($11,678)
650
($796)
796
($12,474)
1,446
PPIH entered into a purchase agreement with its joint venture partner Aegion Corporation to acquire the remaining
51% ownership of PPC, a pipe coating 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.
35
The purchase price was $13.1 million CAD ($9.6 million) 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 (in thousands):
Cash
Loan payable
Purchase consideration to third party
Fair value of 49% previously held equity interest
Total purchase consideration
Fair value of net assets acquired:
Cash and cash equivalents
Property and equipment
Goodwill
Net working capital
Other assets (liabilities) net
Net assets acquired
$7,587
2,000
9,587
7,492
$17,079
$2,915
13,124
2,279
406
(1,645)
$17,079
The 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 5 - Discontinued operations
The domestic fabric filter business, which was included in discontinued operations, sold product until operations ceased
in the second quarter of 2016. 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. For the year ended January 31, 2017, tax expense was $1.0 million, and income from discontinued
operations net of tax was $0.7 million.
Results of the discontinued operations were as follows:
(In thousands)
Net sales
Gain on disposal of discontinued operations
Income from discontinued operations
Income from discontinued operations before income taxes
Income tax expense
Income from discontinued operations, net of tax
36
2016
2017
$— $10,467
—
—
—
—
$—
209
1,522
1,731
1,043
$688
Components of assets and liabilities from discontinued operations consist of the following:
(In thousands)
Current assets
Trade accounts receivable, net
Total assets from discontinued operations
Current liabilities
Trade accounts payable, accrued expenses and other
Total liabilities from discontinued operations
Cash flows from discontinued operations:
(In thousands)
Net cash (used in) provided by discontinued operating activities
Net cash provided by discontinued investing activities
Net cash used in discontinued financing activities
Note 6 - Retention
January 31,
2018
2017
$—
$—
$25
$25
$137
$137
$199
$199
January 31,
2018
($37)
2017
$1,133
— 9,606
— (10,739)
A retention receivable is a portion of an outstanding receivable balance amount withheld by a customer until a contract
is fully completed as specified in the contractual agreement. Retention receivables of $2.4 million and $2.7 million
were included in the balance of trade accounts receivable as of January 31, 2018 and 2017, respectively. A retention
receivable of $3.2 million was included in the balance of other long-term assets as of January 31, 2018 and 2017 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.
Note 7 - Costs and estimated earnings on uncompleted contracts
(In thousands)
Costs incurred on uncompleted contracts
Estimated earnings
Earned revenue
Less billings to date
Costs in excess of billings, net
Balance sheet classification
Costs and estimated earnings in excess of billings on uncompleted contracts
Billings in excess of costs and estimated earnings on uncompleted contracts
Costs in excess of billings, net
2017
$11,955
6,336
18,291
18,756
($465)
$1,502
(1,967)
($465)
2016
$17,015
16,137
33,152
32,161
$991
$2,091
(1,100)
$991
37
Note 8 - Debt
(In thousands)
Revolving line North America
Mortgage notes
Revolving lines foreign
Term loans
Capitalized lease obligations
Total debt
Unamortized debt issuance costs
Less current maturities
Total long-term debt
Current portion of long-term debt
Unamortized debt issuance costs
Total short-term debt
2017
$7,273
7,723
123
—
846
15,965
(200)
8,037
$7,728
$8,037
(11)
$8,026
2016
$3,813
7,463
301
80
283
11,940
(165)
4,517
$7,258
$4,517
(46)
$4,471
The following table summarizes the Company's scheduled maturities on January 31:
(In thousands)
Revolving line North America
Mortgages
Revolving line foreign
Capitalized lease obligations
Total
Total
$7,273
7,723
123
846
$15,965
2019
$7,273
367
123
274
$8,037
2020
$—
372
—
224
$596
2021
$—
377
—
240
$617
2022
$—
383
—
86
$469
2023 Thereafter
$—
$—
5,835
389
—
—
22
—
$5,835
$411
Revolving line North America. On September 24, 2014, the Company entered into a Credit and Security Agreement
with a financial institution (as amended, the "Credit Agreement"). Under the terms of the Credit Agreement, the
Company can borrow up to a combined $15.0 million in the U.S. and Canada, subject to borrowing base availability
from secured domestic 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, share repurchases and investments,
and require achieving a minimum fixed charge coverage ratio with respective performance metrics as defined by the
Credit Agreement if a minimum availability is not met. In a seventh amendment to the Credit Agreement executed on
December 14, 2017, the lenders under the Credit Agreement increased the borrowing limit for the Company’s Canadian
subsidiary and adjusted minimum availability requirements for borrowers in the U.S. and Canada.
Interest rates under the Credit Agreement 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. On January 31, 2018, the Company had borrowed $7.3 million at 7%, 5.06%
and 3.95% and had $0.9 million available to it under the revolving line of credit. In addition, $0.2 million of availability
was used under the Credit Agreement primarily to support letters of credit to guarantee amounts committed for inventory
purchases. Cash required for operations is provided by draw-downs on the line of credit.
On January 31, 2018, the Company was in compliance with all covenants under the Credit Agreement. The North
American revolving line balances as of January 31, 2018 and 2017 were included as current liabilities in the consolidated
balance sheets, because the Credit Agreement has a subjective acceleration clause.
The Credit Agreement will expire on September 25, 2018. The Company has engaged a financial advisor and is actively
pursuing refinancing the Credit Agreement and replacement financing sources.
38
Revolving lines foreign. The Company also has credit arrangements used by its Middle Eastern subsidiaries. These
credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in
which the Company operates. 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 require a minimum tangible net
worth to be maintained including intercompany subordinated debt. In addition, some of the revolving credit facilities
restrict payment of dividends. On January 31, 2018, the Company was in compliance with the covenants under the
credit arrangement. Interest rates are 4.0% per annum below National Bank of Fujairah Base Rate, minimum 3.5%
per annum, and Emirates Inter Bank Offered Rate (EIBOR) plus 3.5% per annum. The Company's interest rates range
from 3.5% to 6.0% on January 31, 2018. On January 31, 2018, the Company can borrow $13.5 million under these
credit arrangements. The Company borrowed $0.1 million and had $4.1 million available under these credit
arrangements as of January 31, 2018. In addition, $9.3 million of availability was used to support letters of credit to
guarantee amounts committed for inventory purchases.
The Company has a revolving line for 14.6 million Saudi Riyal (approximately $3.9 million U.S. dollars at the prevailing
exchange rate on the transaction date) from a Saudi Arabian bank. The loan has an interest rate of approximately 6%
and matures April 2018. Subsequent to January 31, 2018, the Company reduced this revolving line to 5.4 million Saudi
Riyal (approximately $1.4 million) which matures October 2018.
The Company has a revolving line for 10 million Dirhams (approximately $2.7 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 June 2018.
The Company has a revolving line for 25.5 million Dirhams (approximately $6.4 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 July 2018.
The Company’ credit arrangements used by its Middle Eastern subsidiaries renew on an annual basis.
The Company guarantees the subsidiaries' debt including all foreign debt.
Mortgages. On July 28, 2016, the Company borrowed $8.0 million CAD (approximately $6.1 million 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) for interest; and monthly payments of
$27 thousand CAD (approximately $20 thousand) for principal. Principal payments began January 2018.
On June 19, 2012, the Company borrowed $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 thousand for both principal and interest and matures July 1, 2027. On June 19, 2022,
and on the same day of each year thereafter, the interest rate shall adjust to the prime rate, provided that the applicable
interest rate shall not adjust more than 2.0% per annum and shall be subject to a ceiling of 18.0% and a floor of 4.5%.
Capital leases. On October 20, 2017, the Company obtained a capital lease for $0.18 million CAD (approximately
$0.1 million at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for
these capital leases is 4.0% per annum with monthly principal and interest payments of $3 thousand, and these leases
mature on September 29, 2022.
On May 5, 2017, the Company obtained two capital leases for a total of $0.94 million CAD (approximately $0.7 million
USD at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for these
capital leases is 7.8% per annum with monthly principal and interest payments of $9 thousand, and these leases mature
on April 30, 2021.
39
On August 5, 2016, the Company obtained a capital lease for 0.6 million Indian Rupees (approximately $8 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 15.6% per annum with monthly principal and interest payments of less than a thousand dollars,
and the lease matures on July 5, 2019.
On June 26, 2014, the Company obtained two capital leases for $0.9 million CAD (approximately $0.9 million 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, the Company obtained a capital lease for $49,000 CAD (approximately $52 thousand 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 9 - Lease information
Property under capitalized leases (in thousands)
Machinery and equipment
Transportation equipment
Subtotal
Less accumulated amortization
Total
2017
$1,729
9
1,738
699
$1,039
2016
$1,308
22
1,330
646
$684
The Company has several significant operating lease agreements as follows:
• Office Space of approximately 31,650 square feet in Niles, IL is leased until October, 2023.
• Seven acres of land in Louisiana is leased through March, 2022.
• Eleven acres of land in Canada is leased through December, 2030.
• 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.
The Company had leased one of its administrative offices in the U.A.E. from a partnership in which a former employee
of the Company is a partner. Total rent paid to the partnership was $0.2 million and $0.3 million in 2017 and 2016,
respectively. The Company has since ended this lease arrangement. Lease payments were based on prevailing market
rates.
40
On January 31, 2018, future minimum annual rental commitments under non-cancelable lease obligations were as
follows:
(In thousands)
2018
2019
2020
2021
2022
Thereafter
Subtotal
Less Amount representing interest
Future minimum lease payments
Operating
Leases
Capital
Leases
$1,884
1,628
1,536
1,494
1,468
8,249
16,259
—
$16,259
$323
257
255
89
22
—
946
100
$846
Rental expense for operating leases was $2.9 million and $2.1 million in 2017 and 2016, respectively.
Note 10 - Income taxes
Loss from continuing operations before income taxes (in thousands)
Domestic
Foreign
Total
Components of income tax benefit (in thousands)
Current
Federal
Foreign
State and other
Total current income tax expense (benefit)
Deferred
Federal
Foreign
State and other
Total deferred income tax benefit
Total income tax benefit
2017
($7,924)
(2,285)
($10,209)
2016
($9,261)
(4,512)
($13,773)
2017
2016
$—
697
28
725
(33)
(925)
—
(958)
($233)
($106)
837
(1,309)
(578)
—
(33)
—
(33)
$(611)
The U.S. Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017 and introduces significant changes to
U.S. income tax law. Effective in 2018, the Tax Act reduces the U.S. statutory tax rate from 35% to 21%, effective
January 1, and creates new taxes on certain foreign-sourced earnings and certain related-party payments, which are
referred to as the global intangible low-taxed income tax and the base erosion anti-abuse tax, respectively. Since the
Company is a fiscal taxpayer, the Company is subject to a blended rate of 33.83% as of January 31, 2018. In addition,
in 2017 the Company was subject to the onetime transition tax on accumulated foreign subsidiary earnings not previously
subject to U.S. income tax.
Due to the timing of the enactment and the complexity involved in applying the provisions of the Tax Act, the Company
has made reasonable estimates of the effects and recorded provisional amounts in its financial statements as of
January 31, 2018. As the Company collects and prepares necessary data, and interprets the Tax Act and any additional
guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, the Company may make
41
future adjustments to the provisional amounts. The accounting for the tax effects of the Tax Act will be completed in
2018.
Provisional amounts for the following income tax effects of the Tax Act have been recorded as of January 31, 2018
and are subject to change during 2018.
One-time transition tax
The Tax Act requires us to pay U.S. income taxes on accumulated earnings of its foreign subsidiaries not previously
subject to U.S. income tax at a rate of 15.5% to the extent of foreign cash and certain other net current assets and 8%
on the remaining earnings. After going through the steps of the deemed repatriation calculation, the aggregate deferred
foreign income inclusion is estimated at $23.2 million. This income is fully offset by the use of NOL carryforwards
and the current year domestic loss, resulting in no regular tax on the income.
As a result of the onetime transition tax, the Company estimates it will no longer have its foreign earnings subject to
U.S. tax. Earnings in the Company's subsidiaries in Canada, and Denmark, are not permanently reinvested, and earnings
in the India subsidiary are partially permanently reinvested. With the enactment of the mandatory repatriation, U.S.
income taxes will no longer be calculated on the deferred impact of the non-permanently reinvested portion. Going
forward these earnings will be subject to tax in their local jurisdiction, and only the impact of the India dividend
distribution tax and Canadian withholding taxes will be recorded.
U.S. income and 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 intends to permanently reinvest the undistributed earnings of the Middle Eastern subsidiaries.
Deferred tax effects
As a result of the Tax Act, the Company revalued deferred balances to a tax rate of 21% as of the date of enactment,
which resulted in a tax expense of $2.2 million and tax benefit of $0.4 million related to a reduction in the federal
benefit of state taxes. This tax expense is fully offset by a valuation allowance, therefore, there was no impact to the
income statement.
Global intangible low taxed income ("GILTI")
The Tax Act creates a new requirement that certain income (i.e., GILTI) earned by foreign subsidiaries must be included
currently in the gross income of the U.S. shareholder. Due to the complexity of the new GILTI tax rules, the Company
is continuing to evaluate this provision of this Tax Act. Under U.S. GAAP, the Company is permitted to make an
accounting policy election to either treat taxes due on future inclusions in U.S. taxable income related to GILTI as a
current-period expense when incurred or to factor such amounts into the Company's measurement of its deferred taxes.
The Company has not yet completed its analysis of the GILTI tax rules and is not yet able to reasonably estimate the
effect of this provision of the Tax Act or make an accounting policy election for the treatment of the GILTI tax. Therefore,
the Company has not recorded any amounts related to potential GILTI tax in its financial statements and has not yet
made a policy decision regarding whether to record deferred taxes on GILTI. Because the Company remains in a
domestic NOL carryforward position and has a valuation allowance on its deferred tax assets, the Company does not
expect an impact to the income statement.
The effective tax rate ("ETR") in 2017 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.
42
The difference between the provision for income taxes and the amount computed by applying the U.S. Federal
statutory rate of 33.83% was as follows:
(In thousands)
Tax benefit at federal statutory rate
Federal rate change
State benefit, net of federal income tax effect
Excess income tax on share-based compensation
Domestic valuation allowance
Permanent differences other
Valuation allowance for state NOLs
Differences in foreign tax rate
Foreign tax credit
Domestic deferred tax true ups
Repatriation
Valuation allowance for foreign NOLs
Nontaxable income from the Canadian joint venture
Nondeductible interest
All other, net expense
Total income tax benefit
2017
($3,459)
2,243
(440)
(183)
(1,206)
162
297
732
—
(364)
1,880
—
—
—
105
($233)
2016
($4,683)
—
(103)
—
838
205
122
2,131
(1,249)
—
1,338
(36)
551
242
33
($611)
The Company has a U.S. Federal operating loss carryforward of $12.7 million that will begin to expire in the year
ending January 31, 2031.
The deferred tax asset ("DTA") for state NOL carryforwards of $2.2 million relates to amounts that expire at various
times from 2022 to 2031.
The Company has a DTA foreign NOL carryforward of $0.3 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.
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.
For the year ending January 31, 2018, the Company has determined that there is not a greater than 50% likelihood that
all of the domestic DTAs will be realized based on the available evidence. The Company recorded a full valuation
allowance against the remaining domestic net DTAs on January 31, 2013 net of uncertain tax positions ("UTP"). The
Company continues to have a valuation allowance on its domestic DTAs since domestic losses continue to be generated.
The Company has a deferred tax asset of $9.7 million for U.S. foreign tax credits after considering the impact of the
repatriated foreign earnings. The excess foreign tax credits are subject to a ten-year carryforward and will begin to
expire in January 31, 2022.
43
Components of deferred income tax assets (in thousands)
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
2017
$1,795
341
2,703
332
9,749
506
270
2,157
423
96
81
18,453
(17,198)
$1,255
2016
$7,765
346
2,703
185
4,695
804
514
1,574
765
110
5
19,466
(16,551)
$2,915
($1,941)
(101)
(64)
($2,106)
($2,778)
(1,750)
(69)
($4,597)
($851)
($1,682)
$391
(1,242)
($851)
$147
(1,829)
($1,682)
The following table summarizes UTP activity, excluding the related accrual for interest and penalties:
(In thousands)
Balance at beginning of the year
Increases in positions taken in a prior period
Increases in positions taken in a current period
Decreases due to lapse of statute of limitations
Decreases due to settlements
Balance at end of the year
2017
$1,331
6
5
(34)
(7)
$1,301
2016
$1,313
3
19
(4)
—
$1,331
Included in the total UTP liability were estimated accrued interest and penalty of less than $0.1 million in both
January 31, 2018 and January 31, 2017. These non-current income tax liabilities are recorded in other long-term
liabilities in the consolidated balance sheets. The Company's policy is to include interest and penalties in income tax
expense. On January 31, 2018, 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, 2018 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, $1.3 million of the amount accrued on January 31, 2018 would impact the ETR, if reversed.
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 Internal Revenue Service, ("IRS"), began an audit of the fiscal year ended
44
January 31, 2015 in August 2016. In 2017, the tax audit concluded with no change made to the reported tax. Tax years
related to January 31, 2014, 2015 and 2016 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.
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 11 - Retirement plans
Pension plan
The defined benefit plan that covered Winchester filtration hourly rated employees 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.
Asset allocation
The plans hold no securities of Perma-Pipe International Holdings, Inc.; 100% of the assets are held for benefits under
the plan. The fair value of the major categories of the pension plans' 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:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical
or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the
asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market
data by correlation or other means.
Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
45
(In thousands)
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
2017
2016
$3,819
1,843
199
5,861
$171
171
$668
$6,700
$3,000
2,188
214
5,402
$306
306
$520
$6,228
* Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical
expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are
intended to permit reconciliation of the fair value hierarchy to the amounts presented in the reconciliation of benefit
obligations, plan assets and funded status of plan.
On January 31, 2018, plan assets were held 70% in equity, 27% in debt and 3% 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
approximately 60% equities, 30% fixed income and 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.
Investment market conditions in 2017 resulted in $0.8 million actual gain on plan assets as presented below, which
increased the fair value of plan assets at year end. The Company did not change its 8% expected return on plan assets
used in determining cost and benefit obligations, which is the return that the Company has assumed during every
profitable and unprofitable investment year since 1991. The plan's investments are intended to earn long-term returns
to fund long-term obligations, and investment portfolios with asset allocations similar to those of the plan's investment
policy have attained such returns over several decades. Future contributions that may be necessary to maintain funding
requirements are not expected to materially affect the Company's liquidity.
46
Reconciliation of benefit obligations, plan assets and funded status of plan (in
thousands)
Accumulated benefit obligations
Vested benefits
Accumulated benefits
Change in benefit obligation
Benefit obligation - beginning of year
Interest cost
Actuarial loss (gain)
Benefits paid
Benefit obligation - end of year
Change in plan assets
Fair value of plan assets - beginning of year
Actual gain on plan assets
Benefits paid
Fair value of plan assets - end of year
Unfunded status
Balance sheet classification
Prepaid expenses and other current assets
Other assets
Deferred compensation liabilities
Net amount recognized
Amounts recognized in accumulated other comprehensive loss
Unrecognized actuarial loss
Net amount recognized
2017
2016
$6,658
$6,658
$6,500
$6,500
$6,500
253
249
(344)
$6,658
$6,228
816
(344)
$6,700
$7,020
278
(493)
(305)
$6,500
$5,883
650
(305)
$6,228
$42
$(272)
$349
1,350
(1,657)
$42
$348
1,201
(1,821)
$(272)
$1,307
$1,307
$1,472
$1,472
Weighted-average assumptions used to determine net cost and benefit obligations
End of year benefit obligation discount rate
Service cost discount rate
Expected return on plan assets
2017
3.70%
4.00%
8.00%
2016
4.00%
4.05%
8.00%
The discount rate was based on a Citigroup pension discount curve of high quality fixed income investments with cash
flows matching the plans' expected benefit payments. The Company determines the expected long-term rate of return
on plan assets by performing a detailed analysis of historical and expected returns based on the strategic asset allocation
approved by the Board of Directors and the underlying return fundamentals of each asset class. The Company's historical
experience with the pension fund asset performance is also considered.
47
Components of net periodic benefit cost (in thousands)
Interest cost
Expected return on plan assets
Recognized actuarial loss
Net periodic benefit income
Amounts recognized in other comprehensive income (in thousands)
Actuarial (loss) gain on obligation
Actual gain on plan assets
Total in other comprehensive income
2017
$253
(484)
82
($149)
($249)
414
$165
2016
$278
(458)
146
($34)
$493
338
$831
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, 2019
Expected employee contributions for the fiscal year ending January 31, 2019
Estimated future plan benefit payments reflecting expected future service for the fiscal
year(s) ending January 31,:
2019
2020
2021
2022
2023
2024 - 2028
401(k) plan
$—
—
349
348
342
347
347
$1,737
The domestic employees of the Company participate in the PPIH 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 from 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 payroll deferral
contributions on the next 5% of compensation.
Contributions to the 401(k) plan were $0.3 million and $0.4 million for the years ended January 31, 2018 and 2017,
respectively.
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.
48
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 plans (in thousands):
Plan Name
EIN
Funded
Zone
Status
Plan
#
FIP/RP
Status
Pending/
Implemented
2017
Contribution
2016
Contribution
Surcharge
Imposed
Collective
Bargaining
Expiration
Date
Plumbers & Pipefitters Local
572 Pension Fund
626102837
001
Green
No
$209
$257
No
3/31/2019
Note 12 - Stock-based compensation
At January 31, 2018, the Company had the following incentive stock plans:
•
•
•
•
•
2017 Omnibus Stock Incentive Plan as Amended June 13, 2017, which stockholders approved in June 2017;
2013 Omnibus Stock Incentive Plan as Amended June 14, 2013, which stockholders approved in June 2013;
2009 Non-Employee Directors Stock Option Plan, which stockholders approved in June 2009;
2004 Stock Incentive Plan, which stockholders approved in June 2004;
2001 Independent Directors Stock Option Plan, which stockholders approved in June 2001.
At January 31, 2018, the Company had reserved a total of 718,730 shares for issuance under these incentive stock
plans.
The 2017 Plan and 2013 Plan provide for the grant of deferred shares, non-qualified stock options, incentive stock
options, restricted shares, restricted stock units, and performance-based restricted stock units intended to qualify under
section 422 of the Internal Revenue Code; and the 2009 Plan, 2004 Plan and 2001 Plan provide for the grant of non-
qualified stock options. All of the Plans authorize awards to officers, employees, consultants, and directors.
Stock compensation expense
The Company has stock-based compensation awards that can be granted to eligible employees, officers or directors.
The Company recognized the following stock based compensation expense:
(In thousands)
Stock-based compensation expense
Restricted stock based compensation expense
Stock options
2017
$94
$1,353
2016
$256
$1,190
Options vest ratably over 4 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;
49
2. Expected volatility - an estimate based on the historical volatility of PPIH common stock's weekly closing
stock price for the expected life; and
3. Expected life of the option - an estimate based on historical experience including the effect of employee
terminations.
1. Risk-free interest rate
2. Expected volatility
3. Expected life in years
4. Dividend yield
2017
—%
—%
0
—%
2016
1.2%
43.2%
5.0
—%
The following summarizes the activity related to options outstanding under all plans for the years ended
January 31, 2017 and 2018. The Company did not grant any stock options in 2017.
(Shares in thousands)
Outstanding on January 31, 2016
Granted
Exercised
Expired or forfeited
Outstanding on January 31, 2017
Weighted
average
exercise
price
Weighted
average
remaining
contractual
term
Aggregate
intrinsic
value
Options
720
$11.38
5.1
$34
22
(59)
(159)
524
7.33
6.70
11.98
11.55
68
534
465
45
482
$433
4.5
3.9
4.0
3.7
Options exercisable on January 31, 2017
450
$11.92
Exercised
Expired or forfeited
Outstanding on January 31, 2018
Options exercisable on January 31, 2018
(35)
(131)
358
327
6.80
18.54
9.44
$9.56
The weighted average fair value of options granted, net of options surrendered, during 2016 was estimated at $2.85
per share on the date of grant.
Unvested options outstanding (shares in thousands)
Outstanding on January 31, 2017
Granted
Vested
Expired or forfeited
Outstanding on January 31, 2018
Weighted-
average
grant date
fair value
$9.31
—
Aggregate
intrinsic
value
$69
10.43
$8.24
$50
Options
74
—
(36)
(7)
31
Based on historical experience the Company expects 90% of these options to vest.
As of January 31, 2018, there was $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 1 year.
50
Deferred stock
In June 2017 under the Omnibus Plan described above, the Company granted deferred stock units to each non-employee
director at the time of the annual meeting of stockholders equal to the result of dividing $40,000 by the fair market
value of the common stock on the date of grant. The stock vests on the date of grant, however it will only be distributed
to the directors upon their separation from service. Since this stock is granted to non-employees, the Company records
a mark-to-market adjustment on a quarterly basis, offsetting this to the deferred liability account.
As of January 31, 2018, there were approximately 90,070 deferred stock units outstanding included in restricted
stock activity below:
(In thousands)
Deferred compensation liabilities
Restricted stock
2017
$815
2016
$529
The Company has granted restricted stock to executive officers and employees. The restricted stock vest ratably over
three to 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, 2018 and 2017, respectively:
(Shares in thousands)
Outstanding on January 31, 2016
Granted
Issued
Forfeited
Outstanding on January 31, 2017
Granted
Issued
Forfeited
Outstanding on January 31, 2018
Restricted
shares
163
254
(123)
(4)
290
178
(101)
(7)
360
Weighted
average price
$6.40
7.29
Aggregate
intrinsic value
$1,040
6.72
$8.75
8.06
7.15
$9.05
$2,533
$3,254
As of January 31, 2018, there was $1.4 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 1.1 years.
Note 13 - Stock rights
On September 15, 2009, the Company entered into the Amendment ("Amendment") to Rights Agreement dated as of
September 15, 1999. Among other things, the Amendment extends the term of the Rights Agreement until
September 15, 2019 and amends definitions to include positions in derivative instruments related to the Company's
common stock as constituting beneficial ownership of such stock.
On September 15, 1999, the Company's Board of Directors declared a dividend of one common stock purchase right
(a "Right") for each share of 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 is also entitled to one
Right for each such additional share. Each Right entitles the registered holders, under certain circumstances, to purchase
from the Company one share of PPIH's common stock at $25, subject to adjustment. At no time will the Rights have
any voting power.
51
The Rights may not be exercised until 10 days after a person or group acquires 15% or more of the Company's common
stock, or announces a tender offer that, if consummated, would result in 15% or more ownership of the Company's
common stock. Separate Rights certificates will not be issued, and the Rights will not be traded separately from the
stock until then. Should an acquirer become the beneficial owner of 15% or more of the Company's common stock,
Rights holders other than the acquirer would have the right to buy common stock in 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 expire 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.
Note 14 - Interest expense, net
(In thousands)
Interest expense
Interest income
Interest expense, net
2017
$808
(111)
$697
2016
$746
(177)
$569
52
Schedule II
Perma-Pipe International Holdings, Inc. and Subsidiaries
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended January 31, 2018 and 2017
(In thousands)
Year Ended January 31, 2018
Allowance for possible losses in
collection of trade receivables
Year Ended January 31, 2017
Allowance for possible losses in
collection of trade receivables
Balance at
beginning of
period
Charged to
costs and
expenses
Deductions
from reserves
(1)
Charged to
other accounts
(2)
Balance at
end of period
$305
$247
$135
$52
$469
$33
$246
$1
$27
$305
(1) Uncollectible accounts charged off
(2) Primarily related to recoveries from accounts previously charged off and currency translation
53
EXHIBIT INDEX
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 "Description and Location" below. The Commission file number for the Company's Exchange Act filings referenced
below is 0-18370.
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) Certificate of Amendment to Certificate of Incorporation 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]
3(iii) Fourth Amended and Restated By-Laws of Perma-Pipe International Holdings, Inc. [Incorporated by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K filed on February 22, 2018]
4(a) Specimen Common Stock Certificate [Incorporated by reference to Exhibit 4 to Registration Statement No.
33-70794]
4(b) Rights Agreement [Incorporated by reference to Exhibit 4.1 of the Company's [Current Report on Form 8-K filed
on September 24, 1999]
4(c) Amendment to Rights Agreement [Incorporated by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K filed on September 17, 2009]
10(a)
2001 Independent Directors Stock Option Plan, [Incorporated by reference to Exhibit (d)(5) to the Company's
Schedule TO filed on May 25, 2001] *
10(b) Form of Directors and Officers Indemnification Agreement [Incorporated by reference to Exhibit 10.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2006 filed on May 15, 2006] *
10(c) MFRI 2004 Stock Incentive Plan [Incorporated by reference to Exhibit 10(e) to the Company's Annual Report on
Form 10-K/A for the fiscal year ended January 31, 2004 filed on June 1, 2004] *
10(d)
10(e)
2009 Non-Employee Directors Stock Option Plan [Incorporated by reference to Exhibit 10(k) to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 2010 filed on April 19, 2010]*
2013 Omnibus Stock Incentive Plan as Amended June 14, 2013 [Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on June 17, 2013] *
10(f) Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated September 24, 2014
[Incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December
9, 2014]
10(g) First Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated
February 5, 2015 [Incorporated by reference to Exhibit 10(m) to the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2015 filed on April 16, 2015]
10(h) Limited Waiver and Second Amendment to Credit and Security Agreement between the Company and BMO Harris
Bank, N.A. dated April 30, 2015 [Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on
Form 10-Q filed on June 12, 2015]
10(i) Consent and Third Amendment to Credit and Security Agreement between the Company and BMO Harris Bank,
N.A. dated January 29, 2016 [Incorporated by reference to Exhibit 10(n) to the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2016 filed on April 28, 2016]
10(j) Fourth Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated
February 29, 2016 [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on March 2, 2016]
10(k) Fifth Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated
October 25, 2016 [Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed
on October 27, 2016]
10(l) Sixth Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A. dated
December 29, 2016 [Incorporated by reference to Exhibit 10(m) to the Company’s Annual Report on Form 10-K
for the fiscal year ended January 31, 2017 filed on April 14, 2017]
10(m) Seventh Amendment to Credit and Security Agreement between the Company and BMO Harris Bank, N.A.dated
December 14, 2017
10(n) Asset Purchase Agreement dated as of January 29, 2016 by and among MFRI, Inc., TDC Filter Manufacturing Inc.
and BHA Altair, LLC [Incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
filed on February 4, 2016]
10(o) Share Purchase Agreement dated as of January 29, 2016 by and among MFRI, Inc., MFRI Holdings (B.V.I.) Ltd,
Midwesco Filter Resources Denmark A/S and Hengst Holding GmbH [Incorporated by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K filed on February 4, 2016]
54
EXHIBIT INDEX
10(p) Executive Employment Agreement with David J. Mansfield dated October 19, 2016 [Incorporated by reference to
Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on December 13, 2016]*
10(q) Agreement with Bradley Mautner dated January 31, 2017 [Incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed on February 3, 2017]*
10(r) Employment agreement with Karl J. Schmidt dated March 17, 2017 [Incorporated by reference to Exhibit 10.1 to
the Company's Current Report on Form 8-K filed on March 20, 2017]*
10(s)
2017 Omnibus Stock Incentive Plan as Amended June 13, 2017 [Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q filed on September 19, 2017] *
14 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]
21 Subsidiaries of Perma-Pipe International Holdings, Inc.
23 Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP
24 Power of Attorney executed by directors and officers of the Company
31 Rule 13a - 14(a)/15d - 14(a) Certifications
(1) Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(2) Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Section 1350 Certifications(1) Chief Executive Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002(2) Chief Financial Officer certification pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
101.INS XBRL Instance
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation
101.DEF XBRL Taxonomy Extension Definition
101.LAB XBRL Taxonomy Extension Labels
101.PRE XBRL Taxonomy Extension Presentation
*Management contracts and compensatory plans or agreements
55
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.
SIGNATURES
Perma-Pipe International Holdings, Inc.
Date:
April 19, 2018 /s/ David J. Mansfield
David J. Mansfield
Director, 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. MANSFIELD
Director, President and Chief Executive Officer
(Principal Executive Officer)
KARL J. SCHMIDT*
Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
DAVID S. BARRIE*
Director and Chairman of the Board of Directors
DAVID B. BROWN*
Director
BRADLEY E. MAUTNER*
Director
JEROME T. WALKER*
Director
MARK A. ZORKO*
Director
*By:
/s/ David J. Mansfield
David J. Mansfield
Individually and as Attorney in Fact
April 19, 2018
)
)
)
)
)
)
)
)
)
)
56
Officers and Directors
Directors
David S. Barrie
Independent Director and
Chairman of the Board of Directors
Principal, Barrie International, LLC
Bradley E. Mautner
Director
Officers
David J. Mansfield
President and
Chief Executive Officer
David B. Brown
Independent Director
Chief Financial Officer Tellabs Access LLC -
Owned by Marlin Equity Partners
David J. Mansfield
Director
President and Chief Executive Officer
Perma-Pipe International Holdings, Inc.
Jerome T. Walker
Independent Director
CEO of Caribbean Distributed Energy, LLC
Mark A. Zorko
Independent Director
Principal, Brentwood Advisory, LLC
Wayne M. Bosch
Vice President and
Chief Human Resources Officer
Karl J. Schmidt
Vice President and
Chief Financial Officer
Operations Management
John Carusiello
Senior Vice President - Americas
.
Grant Dewbre
Senior Vice President - Middle East North Africa
.
Annual Meeting
Thursday, June 5, 2018
10:00 a.m. Central Time
Online at: www.virtualshareholdermeeting.com/PPIH2018
Independent Registered Public Accountants
Grant Thornton LLP
175 West Jackson Blvd.
Chicago, IL 60604-2615
Transfer Agent
Broadridge
P.O. Box 1342
Brentwood, NY 11717
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Locations
Corporate Headquarters
Perma-Pipe International Holdings, Inc.
6410 W. Howard Street
Niles, Illinois 60714
Phone: (847) 966-1000
www.permapipe.com
Offices and Manufacturing Facilities
Perma-Pipe, Inc.
Sales Office
6410 W. Howard Street
Niles, Illinois 60714
Phone: (847) 966-2235
Perma-Pipe Oil and Gas Sales Office
24900 Pitkin, Suite 290
Spring, Texas 77386
Phone: (281) 292-8615
Manufacturing Plants
1310 Quarles Drive
Lebanon, Tennessee 37087
Phone:
(615) 444-4910
5008-11 Curtis Lane
New Iberia, Louisiana 70560
Phone:
(337) 560-9116
Perma-Pipe Middle East FZC, Ltd.
Sales Office and Manufacturing Plant
Fujairah Free Zone 2
Fujairah, United Arab Emirates
Phone: 971-4-607-2000
Perma-Pipe Canada, Ltd.
Sales Office
#610, 138 4th Avenue SE
Calgary, Alberta T2G 4Z6 Canada
Phone: (403) 264-4880
Manufacturing Plant
5233 39th Street
Camrose, Alberta T4V 4R5 Canada
Phone: (780) 672-2345
Perma-Pipe Saudi Arabia, LLC
Manufacturing Plant
Plot #F-21/1 Dammam Industrial City 2
Al Khobar, Saudi Arabia 31198
Phone: 966-3-812-3039
Perma-Pipe India Pvt. Ltd.
Sales Office
804 8th Floor Palm Spring Centre
Malad Link Road
Malad (W), Mumbai 400 064
Phone: 91-22-4003-6007
Manufacturing Plant
Survey #197, Godown 11, Village Mithi
Rohar, Gandhidham Kutch
Gujarat, India 370240
Phone: 91-22-4003-6008
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