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Note 2 - Significant Accounting Policies | 12 Months Ended
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Jan. 31, 2021
Notes to Financial Statements |
Significant Accounting Policies [Text Block] | 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. During 2020 and 2019 and in accordance with Accounting Standards Update No. 2014 - 19, “Revenue from Contracts with Customers” (“ASC 606” ), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note 4 - Revenue Recognition for more detail.
• | Percentage of completion revenue recognition. Certain domestic divisions have contracts that recognize revenues using periodic recognition of income. For these contracts, the Company uses the "percentage of completion" accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project. The percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due to the Company are recognized in contract revenues when realization is probable and the amount can be reliably estimated.
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. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive income (loss). Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The aggregated foreign exchange transaction gain recognized in the income statement was less than $0.1 million in 2020 as compared to a gain of $0.4 million recognized in 2019 . 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 $7.2 million and $13.4 million as of January 31, 2021 and 2020 , respectively. On January 31, 2021 , $0.1 million was held in the United States and $7.1 million was held by foreign subsidiaries. On January 31, 2020 , $0.3 million was held in the United States and $13.1 million was held by foreign subsidiaries. Accounts payable included drafts payable of $0.1 million on both January 31, 2021 and 2020 . Restricted cash. There was no restricted cash held in the United States on January 31, 2021 or January 31, 2020 . Restricted cash held by foreign subsidiaries was $1.2 million and $1.3 million as of January 31, 2021 and 2020 , respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.
(In thousands) |  | 2020 |  | 2019
Cash and cash equivalents |  | $ | 7,174 |  |  | $ | 13,371 |
Restricted cash |  |  | 1,201 |  |  |  | 1,287 |
Cash, cash equivalents and restricted cash shown in the statement of cash flows |  | $ | 8,375 |  |  | $ | 14,658 |
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. In the United States, collateral is not generally required. In the U.A.E., Saudi Arabia, Egypt and India 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. Standard payment terms are net 30 days. 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 $3.8 million and $4.1 million as of January 31, 2021 and January 31, 2020 , respectively, has been outstanding for several years. Included in this balance is a retention receivable that is payable upon commissioning of the system in the amount of $3.4 million, of which, due to the long-term nature of the receivable, $2.4 million and $2.1 million were included in the balance of other long-term assets in our consolidated balance sheets as of January 31, 2021 and January 31, 2020 , respectively. The Company completed all of its deliverables in 2015 under the related contract, but the system has not yet been commissioned by the customer. Nevertheless, the Company has been engaged in ongoing active efforts to collect this outstanding amount. During 2020 , the Company received payments of approximately $ 0.2 million. The Company continues to engage with the customer to ensure full payment of open balances, and during fiscal 2021 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 receivable as of January 31, 2021 . However, if the Company's efforts to collect on this account are not successful, the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts. For the year ended January 31, 2021 , no one customer accounted for greater than 10% of the Company's consolidated net sales and for the year ended January 31, 2020 , one customer accounted for 11.5% of the Company's consolidated net sales. As of January 31, 2021 and 2020, no one customer accounted for greater than 10% and one customer accounted for 13.3% of accounts receivable, respectively. 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 United States as well as other areas in the world. 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) |  | 2020 |  |  | 2019 |
Equity adjustment foreign currency, gross |  | $ | (1,590 | ) |  | $ | (1,879 | )
Minimum pension liability, gross |  |  | (1,902 | ) |  |  | (2,087 | )
Subtotal excluding tax effect |  |  | (3,492 | ) |  |  | (3,966 | )
Tax effect of equity adjustment foreign currency |  |  | 91 |  |  |  | 91 |
Tax effect of minimum pension liability |  |  | 114 |  |  |  | 115 |
Total accumulated other comprehensive loss |  | $ | (3,287 | ) |  | $ | (3,760 | )
Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first -in, first -out method for all inventories.
(In thousands) |  | 2020 |  |  | 2019 |
Raw materials |  | $ | 12,499 |  |  | $ | 13,859 |
Work in process |  |  | 211 |  |  |  | 592 |
Finished goods |  |  | 375 |  |  |  | 798 |
Subtotal |  |  | 13,085 |  |  |  | 15,249 |
Less allowance |  |  | 928 |  |  |  | 751 |
Inventories, net |  | $ | 12,157 |  |  | $ | 14,498 |
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 $4.7 million in 2020 and $4.4 million in 2019 .
(In thousands) |  | 2020 |  |  | 2019 |
Land, buildings and improvements |  | $ | 22,713 |  |  | $ | 22,328 |
Machinery and equipment |  |  | 49,406 |  |  |  | 47,409 |
Furniture, office equipment and computer systems |  |  | 3,830 |  |  |  | 4,317 |
Transportation equipment |  |  | 2,725 |  |  |  | 3,762 |
Subtotal |  |  | 78,674 |  |  |  | 77,816 |
Less accumulated depreciation |  |  | 51,777 |  |  |  | 49,187 |
Property, plant and equipment, net of accumulated depreciation |  | $ | 26,897 |  |  | $ | 28,629 |
Impairment of long-lived assets. The Company's assessment of long-lived assets, and other identifiable intangibles is based upon factors that market participants would use in accordance with the accounting guidance for the fair value measurement of assets. At January 31, 2021, the Company performed a qualitative analysis assessment to determine if it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values. The Company assessed three asset groups as part of this analysis: United States, Canada and Middle East. The qualitative assessment indicated that it was more likely than not that the fair values of the Company's long-lived assets exceeded their carrying values for the United States and Middle East asset groups. However, triggering events were identified related to the Company's Canada asset group, indicating that further analysis was required in order to determine if it was more likely than not that the fair value of the asset group's long-lived assets exceeded their carrying values. Therefore, the Company performed a quantitative assessment to determine any potential impairment. After completion of this additional assessment, it was determined that there was no impairment of the Company's long-lived assets as of January 31, 2021 and 2020. The Company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards. 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, 2021 and 2020 , is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC").
|  |  |  |  |  | Foreign exchange |  |  |  |
(In thousands) |  | January 31, 2020 |  | change effect |  | January 31, 2021
Goodwill |  | $ | 2,254 |  |  | $ | 78 |  |  | $ | 2,332 |
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 or intangible asset. 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. At January 31, 2021, the Company elected to perform a Step 0 qualitative analysis assessment to determine if it was more likely than not that the fair value of the Company's Canadian reporting unit was less than its carrying amount, including goodwill. The qualitative assessment identified triggering events that indicated that further analysis was required in order to determine if it was more likely than not that the fair value of the Company's Canadian reporting unit exceeded its carrying value. Therefore, the Company proceeded to complete the Step 1 analysis to determine any potential impairment. The Step 1 analysis involved a quantitative fair valuation of the Company's Canadian reporting unit, including a market approach and discounted cash flow analysis. After completion of the Step 1 analysis, it was determined that the fair value of the reporting unit exceeded its carrying value, resulting in no impairment for the years ended January 31, 2021 and 2020; however, if the reporting unit is unable to achieve its forecasted results, there can be no assurance that a future impairment charge will not be required. 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 and $2.7 million as of January 31, 2021 and 2020 , respectively. Accumulated amortization was approximately $2.5 million as of January 31, 2021 and 2020 . The Company expensed less than $0.1 million during the year ended January 31, 2021 for patents that were considered impaired as they are no longer expected to provide future benefits for the Company. Future amortization over the next five years ending January 31 will be less than $0.1 million in the years 2021 to 2025 and less than $0.1 million thereafter. Amortization expense is expected to be recognized over the weighted-average period of 2.8 years. 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 both 2020 and 2019 . 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 a tax position in its consolidated financial statements 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 7 - Income taxes, in the Notes to Consolidated Financial Statements. 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. Reclassifications. Certain reclassifications have been made to prior period financial statements to conform to current period presentation. These reclassifications have no effect on net income. Other income, net was reclassified from general and administrative expense on the consolidated statements of operations. Composition of deferred tax assets and liabilities were broken out to conform to current period presentation. Net income/(loss) per common share. Earnings per share ("EPS") is computed by dividing net income/(loss) by the weighted average number of common shares outstanding (basic). The Company reported a net loss in 2020 and net income in 2019. Therefore, the Company adjusted for dilutive shares in 2019, while in 2020 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:
Basic weighted average number of common shares outstanding (in thousands) |  | 2020 |  |  | 2019 |
Basic weighted average number of common shares outstanding |  |  | 8,126 |  |  |  | 7,989 |
Dilutive effect of stock options and restricted stock units |  |  | - |  |  |  | 431 |
Weighted average number of common shares outstanding assuming full dilution |  |  | 8,126 |  |  |  | 8,420 |
Restricted Stock and Stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices |  |  | 214 |  |  |  | 143 |
Canceled options during the year |  |  | (25 | ) |  |  | (33 | )
Restricted Stock and Stock options with an exercise price below the average stock price |  |  | 168 |  |  |  | 431 |
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. 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. Recent accounting pronouncements . In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020 - 04, Reference Rate Reform (Topic 848 ), which provides guidance designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements necessitated by the scheduled discontinuation of LIBOR on December 31, 2021. It also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. The ASU provides the option to account for and present a modification that meets the scope of the standard as an event that does not require contract remeasurement at the modification date or reassessment of a previous accounting determination required under the relevant topic or subtopic. This ASU is effective for all entities; however, application of the guidance is optional, is only available in certain situations and is only available for companies to apply from March 12, 2020 until December 31, 2022. The Company's Senior Credit Facility which matures on September 20, 2021 bears interest using an alternate base rate or LIBOR plus an applicable margin. Based on the maturity of the Senior Credit Facility prior to the discontinuation of LIBOR, the Company does not expect a material impact from the adoption of this standard on the financial statements of the Company. In August 2018, the FASB issued ASU 2018 - 14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715 - 20 ), which removes disclosures that are no longer considered cost beneficial, clarifies specific requirements of existing disclosures and adds disclosure requirements identified as relevant. This ASU is effective for fiscal years ending after December 15, 2020, with early adoption permitted. The Company has adopted this standard during the year ended January 31, 2021 and noted that there was no material impact on the financial statements of the Company. In June 2016, the FASB issued ASU No. 2016 - 13, Financial Instruments-Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments. The new guidance affects loans, debt securities, trade receivables, net investments in leases, off-balance-sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. A recently adopted amendment has delayed the effective date until fiscal years beginning after December 15, 2022. The Company is currently evaluating this standard and the impact to the financial statements of the Company. In December 2019, the FASB issued ASU 2019 - 12, Simplifying the Accounting for Income Taxes (Topic 740 ), which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes, enacts changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company has early adopted ASU 2019 - 12 in 2020, using a prospective application approach, and there was no material impact on the financial statements of the Company. The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on its consolidated financial statements.

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