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Note 2 - Significant Accounting Policies | 12 Months Ended
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Jan. 31, 2024
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 2023 and 2022 and in accordance with Accounting Standards Codification ("ASC") 606, Revenue from Contracts with Customers, the Company recognizes revenue for certain contracts when a customer obtains control of promised goods or services. Other contracts recognize revenues using periodic recognition of income. For these contracts, the Company uses the "over time" 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 amount of revenue recognized 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, the amount can be reliably estimated, and the amount is not subject to reversal. See Note 4 - Revenue recognition, in the Notes to Consolidated Financial Statements, for further information relating to input and output accounting methods. 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 varies 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 subsidiaries. This includes all wholly owned subsidiaries as well as certain joint ventures in which the Company has a controlling financial interest. 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 weighted average exchange rates prevailing during the year. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive loss. Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The aggregate foreign exchange transaction loss recognized in the income statement was $0.1 million and $0.3 million in 2023 and 2022, respectively. Additionally, translation adjustments attributable to intercompany transactions, such as loans and receivables, are included in stockholders' equity as part of accumulated other comprehensive 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 the amount 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 $5.8 million as of January 31, 2024 and 2023, respectively. On January 31, 2024, $0.1 million was held in the United States and $5.7 million was held by foreign subsidiaries. On January 31, 2023, less than $0.1 million was held in the United States and $5.7 million was held by foreign subsidiaries. Restricted cash. There was no restricted cash held in the United States on January 31, 2024 or 2023. Restricted cash held by foreign subsidiaries was $1.4 million and $1.0 million as of January 31, 2024 and 2023, respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.
|  | 2023 |  |  | 2022 |
Cash and cash equivalents |  | $ | 5,845 |  |  | $ | 5,773 |
Restricted cash |  |  | 1,395 |  |  |  | 1,020 |
Cash, cash equivalents and restricted cash as presented in the statement of cash flows |  | $ | 7,240 |  |  | $ | 6,793 |
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 United Arab Emirates ("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 as amounts due from customers net of an allowance for claims and doubtful accounts. Standard payment terms are generally net 30 to 60 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. For the years ended January 31, 2024 and 2023, respectively, no one customer accounted for greater than 10% of the Company's consolidated net sales. As of January 31, 2024 and 2023, respectively, no one customer accounted for greater than 10% of accounts receivable. 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's foreign cash is held in accounts at multiple institutions in the various countries in which the Company operates, limiting the concentration of risk internationally. 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 and minimum pension liability.
|  | 2023 |  |  | 2022 |
Equity adjustment foreign currency, gross |  | $ | (5,804 | ) |  | $ | (6,707 | )
Minimum pension liability, gross |  |  | - |  |  |  | - |
Subtotal excluding tax effect |  |  | (5,804 | ) |  |  | (6,707 | )
Tax effect of equity adjustment foreign currency |  |  | 253 |  |  |  | 258 |
Tax effect of minimum pension liability |  |  | - |  |  |  | - |
Total accumulated other comprehensive loss |  | $ | (5,551 | ) |  | $ | (6,449 | )
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.
|  | 2023 |  |  | 2022 |
Raw materials |  | $ | 13,787 |  |  | $ | 14,992 |
Work in process |  |  | 611 |  |  |  | 750 |
Finished goods |  |  | 2,022 |  |  |  | 203 |
Subtotal |  |  | 16,420 |  |  |  | 15,945 |
Less allowance |  |  | 879 |  |  |  | 1,207 |
Inventories |  | $ | 15,541 |  |  | $ | 14,738 |
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 estimated useful life of the asset. 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 assets, as presented in the following table. Leasehold improvements are depreciated over the remaining life of the lease or its useful life, whichever is shorter. Amortization of finance lease assets is included in depreciation. Depreciation expense was approximately $3.8 million and $3.7 million in the years ended January 31, 2024 and 2023, respectively.
|  | Useful Life (Years) |  |  | 2023 |  |  | 2022 |
Land, buildings and improvements |  |  | 3 - 30 |  |  | $ | 25,620 |  |  | $ | 22,276 |
Machinery and equipment |  |  | 3 - 10 |  |  |  | 56,411 |  |  |  | 54,200 |
Furniture, office equipment and computer systems |  |  | 3 - 7 |  |  |  | 3,169 |  |  |  | 3,727 |
Transportation equipment |  |  | 3 |  |  |  | 2,293 |  |  |  | 2,727 |
Subtotal |  |  |  |  |  |  | 87,493 |  |  |  | 82,930 |
Less accumulated depreciation |  |  |  |  |  |  | 49,873 |  |  |  | 56,412 |
Property, plant and equipment, net of accumulated depreciation |  |  |  |  |  | $ | 37,620 |  |  | $ | 26,518 |
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, 2024, the Company performed an assessment to determine whether there were any triggering events that may have occurred which could indicate that the carrying value of the Company's long-lived assets are not recoverable, and an impairment may exist. Based on this assessment, the Company did not identify any triggering events that would indicate that the carrying amounts may not be recoverable with respect to long-lived assets for the year ended January 31, 2024. 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, 2024 and 2023, is attributable to the purchase of the remaining 50% interest in Perma-Pipe Canada, Ltd., which occurred in 2016. The following table provides a reconciliation of changes in the carrying amount of goodwill:
|  | 2023 |  |  | 2022 |
Balance at beginning of year |  | $ | 2,227 |  |  | $ | 2,342 |
Foreign exchange adjustment |  |  | (5 | ) |  |  | (115 | )
Balance at end of year |  | $ | 2,222 |  |  | $ | 2,227 |
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, 2024, the Company performed a qualitative assessment to determine whether there were any triggering events that may have occurred which could indicate that more likely than not that the fair value of the reporting unit did not exceed its carrying value, resulting in an impairment. Based on this assessment, the Company did not identify any triggering events that would indicate that the fair value is less than the carrying value of the reporting unit for the year ended January 31, 2024. The Company will continue testing for impairment at least annually as of January 31, or as otherwise required by applicable accounting standards. 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 $2.7 million as of January 31, 2024 and 2023. Accumulated amortization was approximately $2.6 million as of January 31, 2024 and 2023. Amortization over the next five fiscal years will be less than $0.1 million and less than $0.1 million thereafter. Amortization expense is expected to be recognized over the weighted-average period of 8.0 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 $0.5 million and $0.6 million in the years ended January 31, 2024 and 2023, respectively. 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. One of the base broadening provisions of the U.S. Tax Cuts and Jobs Act of 2017 ("Tax Act") is the Global Intangible Low-Taxed Income provisions ("GILTI"). In accordance with guidance issued by the Financial Accounting Standards Board ("FASB") staff, the Company has adopted an accounting policy to treat any GILTI inclusions as a period cost if and when incurred. Thus, for the years ended January 31, 2024 and 2023, deferred taxes were computed without consideration of the possible future impact of the GILTI provisions, and any current year impact was recorded as a part of the current portion of income tax expense. 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. Net income per common share. Earnings per share ("EPS") is computed by dividing net income by the weighted average number of common shares outstanding (basic). The Company reported net income in 2023 and 2022. Therefore, the Company adjusted for dilutive shares in 2023 and 2022, 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 |  | 2023 |  |  | 2022 |
Basic weighted average number of common shares outstanding |  |  | 7,977 |  |  |  | 7,976 |
Dilutive effect of stock options and restricted stock units |  |  | 96 |  |  |  | 140 |
Weighted average number of common shares outstanding assuming full dilution |  |  | 8,073 |  |  |  | 8,116 |
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 |  |  | 87 |  |  |  | 105 |
Canceled options during the year |  |  | (17 | ) |  |  | (11 | )
Restricted stock and stock options with an exercise price below the average stock price |  |  | 96 |  |  |  | 140 |
Equity-based compensation. The Company issues or has issued 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 grant date, and amortized using the straight line method over a vesting period range of one to four years. Compensation expense associated with deferred stock which has been 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. Treasury Stock. In accordance with ASC 505, Equity, the Company accounts for share repurchases pursuant to the repurchase program under the cost method. This results in recognizing the shares as treasury stock, a reduction of stockholders' equity on the Company's consolidated balance sheets and on the Company's consolidated statements of stockholders' equity. These amounts include costs associated with the acquisition of the shares. See Note 11 - Treasury stock for further detail. 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 June 2016, the Financial Accounting Standards Board ("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. The amended guidance requires the application of a current expected credit loss ("CECL") model, which measures credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and as subsequently amended and extended to December 15, 2022. The Company adopted this guidance effective February 1, 2023, which did not have a material impact on the consolidated financial statements. In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The standard update requires additional disclosures, including further details about segment expenses regarding a public entity's reportable segments on an annual and interim basis. The additional segment disclosures are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is still evaluating the impact of these updated disclosure requirements on its consolidated financial statements. In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. Pursuant to this standard update, companies are required to provide additional information which is primarily attributable to the rate reconciliation and income taxes paid. The new income tax disclosures are effective for fiscal years beginning after December 15, 2024. The Company is still evaluating this standard update but does not expect it to have a material impact on its consolidated financial statements.

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