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.

 

During  and  and in accordance with Accounting Standards Update - “Revenue from Contracts with Customers” (“ASC ), the Company recognizes revenue when a customer obtains control of promised goods or services. See Note - Revenue Recognition for more detail.

 

 

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 is reported on a net basis in the consolidated financial statements.

 

The length of contracts vary, but are typically less than 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 year.

 

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.

 

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. million in as compared to a loss of million recognized in . 

 

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 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.

 

All highly liquid investments with a maturity of months or less when purchased are considered to be cash equivalents. Cash and cash equivalents were million and  million as of , respectively. On , . On ,  million was held in the U.S. and  million was held by foreign subsidiaries.

 

Accounts payable included drafts payable of  million and less than  million on , respectively.

 

Restricted cash held by foreign subsidiaries was million as of , respectively. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.

 

 

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 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. Standard payment terms are net days. The allowance for doubtful accounts is based on specifically identified amounts in customers' accounts, where future collectability is deemed uncertain. Management 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 million as of (inclusive of a retention receivable amount of million, of which  million and million were included in the balance of other long-term assets in our consolidated balance sheets as of  and , due to the long-term nature of the receivables) has been outstanding for several years. The Company completed all of its deliverables in and has been engaged in ongoing active efforts to collect this outstanding amount. During , the Company received payments of approximately $ million, which reduced the balance of this receivable to $ million as of . Subsequent to , the Company has certified invoices of million in the process of collection. As a result, the Company did reserve any allowance against this receivable as of . The Company continues to engage with the customer to ensure full payment of open balances, and has also received an updated acknowledgment of the outstanding balances and assurances of payment from the customer. However, if the Company’s efforts to collect on this account are successful in , then the Company recognize an allowance for all, or substantially all, of any such then uncollected amounts. 

 

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 experienced any losses in such accounts.

 

The Company has a broad customer base doing business in all regions of the U.S. as well as other areas in the world.

Accumulated other comprehensive loss represents the change in equity from non-owner transactions and consisted of foreign currency translation, minimum pension liability and marketable securities.

 

Inventories are stated at the lower of cost or net realizable value. Cost is determined using the -in, -out method for all inventories.

 

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 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 to 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 in and  million in .

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 be recoverable. A factor considered important that could trigger an impairment review includes a year-to-date loss from operations. The Company reported income from operations in  and . 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 the projected cash flows over the remaining useful lives of the assets, management determined that there was impairment of long-lived assets as of . Since there was triggering event in management determined that there was impairment of long-lived assets as of .

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 , is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC"). 

 

The Company performs an impairment assessment of goodwill annually as of 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 impairment to goodwill during  or .

 

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 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 million and million as of , respectively. Accumulated amortization was approximately  million as of . Future amortization over the next years ending will be less than million in the years  to  and less than million thereafter. Amortization expense is expected to be recognized over the weighted-average period of

 

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 , respectively.

 

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 sustain the position following an audit. For tax positions meeting the more likely than threshold, the amount recognized in the financial statements is the largest benefit that has a greater than likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note  - Income taxes in the Notes to Consolidated Financial Statements.

 

Earnings per share ("EPS") is computed by dividing net income/(loss) by the weighted average number of common shares outstanding (basic). The Company reported net income and a net loss in  Therefore, the Company adjusted for dilutive shares in while in  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:

 

 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 segment.

 

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.

 

. In the FASB issued Accounting Standard Update ("ASU") -  (Topic ). 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 - is effective for fiscal years, and interim periods within those fiscal years, beginning after with early adoption permitted.  The adoption of this ASU using the alternative transition approach resulted in the recognition of operating lease right-of-use ("ROU") assets, net of deferred rent of million and lease liability for operating leases of million as of The Company accounts for existing finance lease assets and liabilities in the same way under the new standard.  Adoption of this ASU did have an effect on retained earnings. The Company availed itself of the practical expedients provided under this ASU and its subsequent amendments regarding identification of leases, lease classification, indirect costs and the combination of lease and non-lease components. The Company continues to account for leases in the prior period financials statements under ASC Topic

 

In the FASB issued ASU - (Topic ): 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 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 with early adoption permitted. A recently adopted amendment has delayed the effective date until fiscal years beginning after The Company is currently evaluating this standard and the impact to the financial statements of the Company. 

 

In the FASB issued ASU - , which permits entities to reclassify the disproportionate income tax effects of the Tax Act on items within accumulated other comprehensive income/(loss) to reinvested earnings. These disproportionate income tax effect items are referred to as "stranded tax effects." The amendments in this update only relate to the reclassification of the income tax effects of the Tax Reform Act. Other accounting guidance that requires the effect of changes in tax laws or rates to be included in net income from continuing operations is affected by this update. The Company adopted ASU - effective and has elected to reclassify any amounts to retained earnings. Under the Company's existing policy, any existing stranded tax effects will be eliminated when the underlying circumstances upon which it was premised cease to exist.   

 

The Company evaluated other recent accounting pronouncements and does expect them to have a material impact on its consolidated financial statements.