NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JULY 31, 2018
(Tabular amounts presented in thousands, except per share amounts)
Note 1 - Basis of presentation
The interim consolidated financial statements of Perma-Pipe International Holdings, Inc., and subsidiaries ("PPIH", "Company", or "Registrant", "we", or "us") are unaudited, but include all adjustments that the Company's management considers necessary to present fairly the financial position and results of operations for the periods presented. These adjustments consist of normal recurring adjustments. Information and footnote disclosures have been omitted pursuant to Securities and Exchange Commission ("SEC") rules and regulations. The consolidated balance sheet as of
January 31, 2018
is derived from the audited consolidated balance sheet as of that date. The results of operations for any interim period are not necessarily indicative of future or annual results. Interim financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's latest Annual Report on Form 10-K. The Company's fiscal year ends on January 31. Years and balances described as
2018
and
2017
are for the three and
six months ended July 31,
2018
and
2017
, respectively.
Note 2 - Business segment reporting
PPIH is engaged in the manufacture and sale of products in
one
segment: Piping Systems.
Piping Systems engineers, designs, manufactures and sells specialty piping, 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.
Note 3 - 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
as of January 31, 2018 (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 July 31, 2018 and January 31, 2018, due to the long-term nature of the receivables) has been
outstanding for several years as of July 31, 2018. The Company completed all of its deliverables in 2015, and has been engaged in ongoing active efforts to collect this amount. In the second quarter of 2018, the Company received a payment of approximately $0.5 million, which reduced the balance of this receivable. As a result, the Company did not reserve any allowance against this receivable as of July 31, 2018. The Company continues to engage with the customer to ensure full payment of open balances. However, if the Company’s efforts to collect on this account are not successful in fiscal 2018, then the Company may recognize an allowance for all, or substantially all, of any such then uncollected amounts.
As of July 31, 2018, this receivable balance, inclusive of a retention receivable amount, was
$4.9 million
.
For the three months ended
July 31, 2018
and
2017
, one customer accounted for
13%
, and no individual customer accounted for more than
10%
of the Company's consolidated net sales. For the six months ended
July 31, 2018
and
2017
, two customers accounted for
23%
, and no individual customer accounted for more than
10%
of the Company's consolidated net sales.
At
July 31, 2018
, one customer accounted for
15%
of all accounts receivable. Three customers accounted for
35%
of all accounts receivable at
January 31, 2018
.
Note 4 - Revenue recognition
On February 1, 2018, the Company adopted Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers," ("Topic 606") using the modified retrospective method applied to contracts that were not completed as of that date. Under this methodology the effect, if any, of initially applying the new revenue standard is recorded as an adjustment to the opening balance of retained earnings while periods prior to the adoption date are not adjusted and continue to be reported in accordance with the accounting policies in effect for those periods.
The Company conducted a complete and thorough analysis of each single element of the five-step model of Topic 606 and concluded that there is no material impact to the Company upon the adoption of the new standard. As a result, there was no cumulative adjustment required to the opening balances of retained earnings, contract assets, or contract liabilities as of February 1, 2018.
Revenue from contracts with customers:
The Company defines a contract as an agreement that has approval and commitment from both parties, defined rights and identifiable payment terms, which ensures the contract has commercial substance and that collectability is reasonably assured.
The Company’s standard revenue transactions are classified in to two main categories:
|
|
1)
|
Systems - which include
all bundled products in which Perma-Pipe designs, engineers, and manufactures pre-insulated piping systems, insulates subsea flowline pipe or subsea oil production equipment. Additionally, this systems classification also includes coating applied to pipes and structures which are provided by the customer.
|
|
|
2)
|
Products - which include
cables, leak detection products, heat trace products sold under the PermAlert brand name, material/goods not bundled with piping or flowline systems, and field services not bundled into a project contract.
|
The Systems revenue class has generally accounted for more than
90%
of the Company’s total revenue and is recognized over time. The remaining revenue (Product class) is recognized when goods are shipped or services are performed. A breakdown of the Company's revenues by revenue class for the three and six months ended 2018 and 2017 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2018
|
2017
|
2018
|
2017
|
|
Sales
|
% to Total
|
Sales
|
% to Total
|
Sales
|
% to Total
|
Sales
|
% to Total
|
Products
|
2,578
|
|
8
|
%
|
1,995
|
|
7
|
%
|
5,007
|
|
8
|
%
|
3,326
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
Specialty Piping Systems and Coating
|
|
|
|
|
|
|
|
|
Revenue recognized under input method
|
9,807
|
|
30
|
%
|
14,138
|
|
53
|
%
|
20,909
|
|
34
|
%
|
23,254
|
|
46
|
%
|
Revenue recognized under output method
|
19,940
|
|
62
|
%
|
10,719
|
|
40
|
%
|
35,298
|
|
58
|
%
|
23,773
|
|
47
|
%
|
Total
|
32,325
|
|
100
|
%
|
26,852
|
|
100
|
%
|
61,214
|
|
100
|
%
|
50,353
|
|
100
|
%
|
Most of the Company’s revenue is recognized over time as the manufacturing process progresses because one of the following conditions exist:
|
|
1)
|
the customer owns the material that is being insulated or coated, so the customer controls the asset and thus the work-in-process; or
|
|
|
2)
|
the customer controls the work-in-process due to the custom nature of the pre-insulated, fabricated system being manufactured as evidenced by the Company’s right to payment for work performed to date plus seller’s profit margin for products that have no alternative use for the Company.
|
The U.S. operating entities measure revenue by the costs incurred to date relative to the estimated costs to satisfy the contract using the percentage-of-completion method (an input method). Generally, these contracts are considered a single performance obligation satisfied over time and due to the custom nature of the goods and services, the percentage-of-completion method is the most faithful depiction of the Company’s performance as it measures the value of the goods and services transferred to the customer. Costs include all material, labor, and direct costs incurred to satisfy the performance obligations of the contract. Revenue recognition begins when projects costs are incurred.
All other operating entities measure revenue by the direct measurement of the outputs produced relative to the remaining goods promised under the contract (output method). Due to the types of end customers, generally these contracts require formal inspection protocols or specific export documentation for units produced or produced and shipped, therefore, the output method is the most faithful depiction of the Company’s performance. Depending on the conditions of the contract, revenue may be recognized based on units produced, inspected and held by the Company prior to shipment or on units produced, inspected and shipped.
Contract modifications that occur prior to the start of the manufacturing process will supersede the original contract and revenue is recognized using the modified contract value. Contract modifications that occur during the manufacturing process (changes in scope of work, job performance, material costs, and/or final contract settlements) are recognized in the period in which the revisions are known. Provisions for losses on uncompleted contracts are made in contract liabilities account in the period such losses are identified.
Contract assets and liabilities:
Contract assets represent revenue recognized in excess of amounts billed (unbilled receivables) for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Contract liabilities represent billings in excess of costs (unearned revenue) for contract work in progress for which the Company has a valid contract and an enforceable right to payment for work completed. Both customer billings and the satisfaction (or partial satisfaction) of the performance obligation(s) occur throughout the manufacturing process and impacts the period end balances in these accounts.
The Company anticipates that substantially all costs incurred for uncompleted contracts as of July 31, 2018 will be billed and collected within one year.
The following tables set forth the activity in contract assets and liabilities. The Company expects to recognize the remaining balance within one year.
|
|
|
|
|
|
Contract Assets
|
Balance January 31, 2018
|
|
$1,502
|
|
Costs and gross profit recognized during the period for uncompleted contracts from the prior period
|
(1,085
|
)
|
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period
|
1,417
|
|
Closing Balance at April 30, 2018
|
1,834
|
|
Costs and gross profit recognized during the period for uncompleted contracts from the prior period
|
(1,395
|
)
|
Costs and deferred gross profit incurred on uncompleted contracts not billed at the end of the current period
|
1,575
|
|
Closing Balance at July 31, 2018
|
|
$2,014
|
|
|
|
|
|
|
|
Contract Liabilities
|
Balance January 31, 2018
|
|
$1,967
|
|
Revenue recognized during the period for uncompleted contracts from the prior period
|
(1,810
|
)
|
New contracts entered into that are uncompleted at the end of the current period
|
413
|
|
Closing Balance at April 30, 2018
|
570
|
|
Revenue recognized during the period for uncompleted contracts from the prior period
|
(422
|
)
|
New contracts entered into that are uncompleted at the end of the current period
|
398
|
|
Closing Balance at July 31, 2018
|
|
$546
|
|
Practical expedients:
Costs to obtain a contract are not considered project costs as they are not usually incremental, nor does job duration span more than one year. The Company applies practical expedient for these types of costs and as such expensed in the period incurred.
As the Company's contracts are less than one year, the Company has applied the practical expedient regarding disclosure of the aggregate amount and future timing of performance obligations that are unsatisfied or partially satisfied as of the end of the reporting period.
Note 5 - Income taxes
The determination of the consolidated provision for income taxes, deferred tax assets and liabilities and related valuation allowances requires management to make judgments and estimates. As a company with subsidiaries in foreign jurisdictions, the process of calculating income taxes involves estimating current tax obligations and exposures in each jurisdiction as well as making judgments regarding the future recoverability of deferred tax assets. Income earned in the United Arab Emirates ("U.A.E.") is not subject to local country income tax. Additionally, the relative proportion of taxable income earned domestically versus internationally can fluctuate significantly from period to period. Changes in the estimated level of annual pre-tax income, tax laws and the results of tax audits can affect the overall effective income tax rate, which impacts the level of income tax expense and net income. Judgments and estimates related to the Company's projections and assumptions are inherently uncertain; therefore, actual results could differ materially from projections.
The Company's effective tax rate ("ETR") from operations for the
second
quarter and year-to-date was
176%
and
(74)%
, compared to
25%
and
17%
during the respective prior year periods. The change in the ETR from the prior year-to-date to the current year-to-date was in large part due to the changes in net income by jurisdiction. Additional factors include the tax impact of Canadian business combination which occurred in the prior year, and the prior year inclusion of the U.A.E., India, and Saudi Arabia in the annual effective tax rate (“AETR”).
The amount of unrecognized tax benefits, including interest and penalties, at
July 31, 2018
, recorded in other long-term liabilities was
$0.1 million
, all of which would impact the Company’s ETR if recognized.
The U.S. Tax Cuts and Jobs Act ("Tax Act") was enacted on December 22, 2017 and introduced 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, 2018 and created 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. In addition, in 2017 the Company was subject to the one-time 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 and
July 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 future adjustments to its provisional amounts. Furthermore, the Company has considered the impact of the global intangible low-taxed income (GILTI) provision during the quarter and has determined that there was an inclusion of
$0.4 million
based on year-to-date figures. The Company has elected to account for the impact of GILTI as a current period expense when incurred, however due to the net operating losses ("NOLs") available, along with the valuation allowance in the U.S. this had no impact to the current quarter tax expense, and no additional expense was recorded for this. The accounting for the tax effects of the Tax Act will be completed in 2018.
Provisional amounts for the foregoing income tax effects of the Tax Act have been recorded as of
July 31, 2018
and are subject to change during 2018.
Note 6 - 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. The company will continue testing for potential impairment at least annually or as otherwise required by applicable accounting standards.
There was no impairment of long-lived assets for the three and six months ended July 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
July 31, 2018
and
January 31, 2018
was attributable to the purchase of Perma-Pipe Canada, Ltd.
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2018
|
Foreign exchange change effect
|
July 31, 2018
|
Goodwill
|
|
$2,423
|
|
|
($136
|
)
|
|
$2,287
|
|
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.
There was no impairment of goodwill for the three and six months ended July 31, 2018 and 2017.
Note 7 - Stock-based compensation
At
July 31, 2018
, the Company had one incentive stock plan under which new equity incentive awards may be granted:
|
|
•
|
2017 Omnibus Stock Incentive Plan dated June 13, 2017, as amended, which stockholders approved in June 2017.
|
The Company has prior incentive plans under which previously granted awards remain outstanding, but under which no new awards may be granted. At
July 31, 2018
, the Company had reserved a total of
938,565
shares for grants and issuances under these incentive stock plans, which includes a reserve for issuance pursuant to unvested or unexercised prior awards, and shares for new grants or issuance pursuant to the 2017 Plan.
While the 2017 Plan provides 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, to date the Company has issued only restricted shares and restricted stock units under the 2017 Plan and currently intends to continue this practice. The 2017 Plan authorizes awards to officers, employees, consultants, and directors.
The Company has equity-based compensation awards that can be granted to eligible employees, officers or directors. The following is the equity-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
Stock-based compensation expense
|
|
$9
|
|
|
$65
|
|
|
$23
|
|
|
$59
|
|
Restricted stock-based compensation expense
|
|
$432
|
|
|
$452
|
|
|
$688
|
|
|
$647
|
|
Stock Options
The following tables summarize the Company's stock option activity:
|
|
|
|
|
|
|
|
|
|
|
Option activity
|
No. of Shares UnderlyingOptions
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic Value
|
Outstanding at January 31, 2018
|
358
|
|
|
$9.44
|
|
4.0
|
|
$482
|
|
Exercised
|
(37
|
)
|
6.88
|
|
|
37
|
|
Expired or forfeited
|
(53
|
)
|
17.14
|
|
|
|
Outstanding end of period
|
268
|
|
8.42
|
|
4.1
|
392
|
|
|
|
|
|
|
Exercisable end of period
|
257
|
|
|
$8.48
|
|
3.9
|
|
$370
|
|
|
|
|
|
|
|
|
|
|
|
Unvested option activity
|
No. of Shares UnderlyingOptions
|
Weighted Average Grant Date Fair Value
|
Aggregate Intrinsic Value
|
Outstanding at January 31, 2018
|
31
|
|
|
$8.24
|
|
|
$50
|
|
Vested
|
(14
|
)
|
|
|
Expired or forfeited
|
(6
|
)
|
|
|
|
Outstanding end of period
|
11
|
|
|
$7.00
|
|
|
$23
|
|
As of
July 31, 2018
, there was less than
$0.1 million
of total unrecognized compensation expense related to unvested stock options. The expense is expected to be recognized over a weighted average period of
1.6
years.
Restricted stock
The following table summarizes the Company's restricted stock activity for the year:
|
|
|
|
|
|
|
|
|
|
Restricted stock activity
|
Restricted Shares
|
Weighted Average Grant Price Per Share
|
Aggregate Intrinsic Value
|
Outstanding (unvested) at January 31, 2018
|
360
|
|
|
$9.05
|
|
|
$3,254
|
|
Granted
|
124
|
|
9.75
|
|
|
Vested and issued
|
(88
|
)
|
|
|
Forfeited
|
(63
|
)
|
7.19
|
|
|
Outstanding (unvested) end of period
|
333
|
|
|
$9.05
|
|
|
$3,022
|
|
As of
July 31, 2018
, there was
$1.9 million
of unrecognized compensation expense related to unvested restricted stock granted under the plans. The expense is expected to be recognized over a period of
4.0 years
.
Based upon certain second quarter 2018 matters, including the share settlement to a retiring board director, the Company changed the accounting for the deferred stock compensation arrangements granted to directors from liability accounting treatment to equity accounting treatment and, as such, classified
$0.7 million
from a liability to additional paid in capital.
Note 8 - Earnings per share
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2018
|
2017
|
2018
|
2017
|
Basic weighted average common shares outstanding
|
7,820
|
|
7,679
|
|
7,769
|
|
7,645
|
|
Dilutive effect of equity compensation plans
|
—
|
|
—
|
|
—
|
|
—
|
|
Weighted average common shares outstanding assuming full dilution
|
7,820
|
|
7,679
|
|
7,769
|
|
7,645
|
|
|
|
|
|
|
Stock options not included in the computation of diluted earnings per share of common stock because the option exercise prices exceeded the average market prices of the common shares
|
178
|
|
163
|
|
178
|
|
163
|
|
Stock options with an exercise price below the average market price
|
90
|
|
255
|
|
90
|
|
255
|
|
Note 9 - Debt
Debt totaled
$17.2 million
at
July 31, 2018
, a net
increase
of
$1.4 million
since
January 31, 2018
.
Revolving lines 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, which matures on
September 25, 2018
, 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 increased the borrowing limit for the Company’s Canadian subsidiary and adjusted minimum availability requirements for borrowers in the U.S. and Canada with a limited waiver of related covenant non-compliance retroactive to October 31, 2017
.
On June 5, 2018, the Company completed an eighth amendment to the Credit Agreement. The lenders extended the minimum availability requirements for the Company’s Canadian subsidiary through August 1, 2018. Furthermore, the lenders waived the technical reporting event of default which resulted from the Company applying a non-conforming method in calculating the Canadian availability as of April 30, 2018. Based on the waiver received on June 5, 2018, the Company was
in compliance
with all covenants under the Credit Agreement as of April 30, 2018, and the lenders extended the minimum availability requirements for the Company’s Canadian subsidiary, through August 1, 2018. On August 1, 2018 the Company received a ninth amendment to the Credit Agreement, in which the lenders adjusted the minimum availability requirements for borrowers in the U.S. and Canada through September 15, 2018. As of July 31, 2018, the Company was in compliance with all covenants under the Credit Agreement. The Credit Agreement balances as of
July 31, 2018
and
January 31, 2018
were included as current liabilities in the Company's consolidated balance sheets, because the Credit Agreement has a subjective acceleration clause, and expires in less than 12 months.
The Credit Agreement will expire on
September 25, 2018
. See “Note 13 – Subsequent events” for information on the
Company’s potential new replacement credit facility.
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
July 31, 2018
, the Company had borrowed
$8.4 million
at
10.0%
and
8.7%
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, as needed, is provided by draw downs on the line of credit.
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 maintaining certain levels of intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On
July 31, 2018
, the Company was
in compliance with the covenants under the credit arrangements.
On
July 31, 2018
,
interest rates were based on the Emirates Inter Bank Offered Rate (EIBOR) plus 3.5% per annum, with a minimum interest rate of 4.5% per annum. On July 31, 2018, the Company's interest rates ranged from 5.0% to 6.5%
, and the Company could borrow
$10.4 million
under these credit arrangements. On
July 31, 2018
,
$4.9 million
of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. On
July 31, 2018
, the Company had borrowed
$1.2 million
, and had an additional
$4.3 million
available. The foreign revolving lines balances as of July 31, and January 31, 2018, were included as current maturities of long-term debt in the Company's consolidated balance sheets.
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 Company's manufacturing facility located in Alberta, Canada, that matures on
December 23, 2042
. The interest rate is variable, currently at
5.8%
, with monthly payments of
36 thousand
CAD (approximately
$28 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.
In 2017, the Company obtained three capital leases for
1.1 million
CAD (approximately
$0.8 million
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
.
In 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
CAD. These leases matured on
June 25, 2018
Note 10 - Restricted cash
Restricted cash held by foreign subsidiaries was
$1.1 million
as of
July 31, 2018
and
$1.2 million
as of
January 31, 2018
. Restricted cash held by foreign subsidiaries related to fixed deposits that also serve as security deposits and guarantees.
|
|
|
|
|
|
|
|
|
Six Months Ended July 31,
|
|
2018
|
|
2017
|
|
Cash and cash equivalents
|
|
$5,247
|
|
|
$8,546
|
|
Restricted cash
|
1,108
|
|
893
|
|
Cash, cash equivalents and restricted cash shown in the statement of cashflows
|
|
$6,355
|
|
|
$9,439
|
|
Note 11 - Fair value
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.
Note 12 - Recent accounting pronouncements
In June 2018, the FASB issued an update to Topic 718, which is intended to reduce costs and complexity, and improve financial reporting for share-based payments issued to non-employees. ASU No. 2018-07 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company has evaluated the effect that this standard will have on its consolidated financial statements and related disclosures, and has determined that this guidance does not have any impact on its results of operations or financial position.
In March 2017, the FASB issued authoritative guidance which 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, and amortization of actuarial gains and losses and prior service cost, should be presented below operating income. The guidance was effective for the Company starting February 1, 2018 and has been applied retrospectively to the presentation of net periodic benefit cost and prospectively to the capitalization of service cost. The adoption of this guidance did not have a material impact on the Company's 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 was effective for the Company beginning February
1, 2018. The adoption of this guidance did not have a material impact on the Company's results of operations or financial position.
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 its 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 guidance was effective for the Company beginning February 1, 2018. The adoption of this guidance did not have a material impact on the Company's results of operations or financial position.
Refer to Note 4 - Revenue recognition for more detail.
The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on its consolidated financial statements and related disclosures.
Note 13 - Subsequent event
On August 31, 2018, the Company entered into a commitment letter with PNC Bank for a new
$18 million
senior secured replacement credit facility. The Company is actively working to finalize the related credit agreement prior to the expiration of the existing Credit Agreement.