NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JULY 31, 2017
(Tabular amounts presented in thousands, except per share amounts)
|
|
1.
|
Basis of presentation.
The interim consolidated financial statements of Perma-Pipe International Holdings, Inc. and subsidiaries ("PPIH," "Company," or "Registrant") 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, 2017
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
2017
and
2016
are for the
six months ended July 31,
2017
and
2016
, respectively.
|
In February 2017, the Company announced that the board of directors had authorized Company management to move forward with the re-naming and re-branding of MFRI, Inc. under the Perma-Pipe name now that the Company operates in a single business segment under the Perma-Pipe brand, and the Company believes this decision will better serve its strategy, position it well in the industry and global market, and better reflect the Company’s mission and strategy, and positions it to leverage the strong reputation Perma-Pipe has established since beginning operations. The name change to Perma-Pipe International Holdings, Inc. was effective March 20, 2017. The Company's common stock has been and will continue to be reported under its new ticker symbol “PPIH” since March 21, 2017.
|
|
2.
|
Business segment reporting.
As of January 31, 2016, PPIH is engaged in the manufacture and sale of products in
one
segment: Piping Systems. As described below, prior to January 29, 2016, the Company was also engaged in the manufacture and sale of products in the Filtration Products segment.
Piping Systems engineers, designs, manufactures and sells specialty piping, leak detection and location systems
. This segment's specialty piping systems include (i) industrial and secondary containment piping systems for transporting chemicals, hazardous fluids and petroleum products, (ii) insulated and jacketed district heating and cooling piping systems for efficient energy distribution to multiple locations from central energy plants, and (iii) oil and gas gathering flow and long lines for oil and mineral transportation. Piping Systems' leak detection and location systems are sold with many of its piping systems and on a stand-alone basis, to monitor areas where fluid intrusion may contaminate the environment, endanger personal safety, cause a fire hazard, impair essential services or damage equipment or property.
|
Prior to January 29, 2016, the Company had a Filtration Products segment. This business is reported as discontinued operations in the consolidated financial statements. For further information, see "Notes to Consolidated Financial Statements, Note 4 Discontinued operations".
For the three months ended
July 31, 2017
and 2016, no individual customer accounted for 10% or more of the Company's consolidated net sales. For the six months ended
July 31, 2017
, no individual customer accounted for
10%
or more of the Company's consolidated net sales, and for the six months ended
July 31, 2016
, one customer accounted for
11%
of the Company's consolidated net sales.
At
July 31, 2017
, one customer accounted for
20%
of accounts receivable. Two customers accounted for
33%
of accounts receivable at
January 31, 2017
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
|
2017
|
|
2016
|
|
Net sales
|
|
|
|
|
|
Piping Systems
|
|
$26,852
|
|
|
$22,859
|
|
|
|
$50,353
|
|
|
$45,928
|
|
Gross profit
|
|
|
|
|
|
Piping Systems
|
|
$3,058
|
|
|
$2,980
|
|
|
|
$4,843
|
|
|
$4,972
|
|
Loss from operations
|
|
|
|
|
|
Piping Systems
|
|
$62
|
|
|
($714
|
)
|
|
|
($1,397
|
)
|
|
($2,415
|
)
|
Corporate
|
|
($2,167
|
)
|
|
($1,476
|
)
|
|
(4,525
|
)
|
(4,375
|
)
|
Total loss from operations
|
|
($2,105
|
)
|
|
($2,190
|
)
|
|
|
($5,922
|
)
|
|
($6,790
|
)
|
|
|
3.
|
Correction of immaterial errors.
An error was identified during the preparation and review of the current quarter financial statements, as stock-based compensation cost and additional paid in capital had been reversed for vested equity awards that expired, terminated or were unexercised
. The cumulative adjustment for the stock-based compensation cost covering the period from May 1, 2015 to January 31, 2016 was approximately
$846 thousand
. The adjustments applicable to the fiscal year ending January 31, 2017 were approximately
$95 thousand
for the three months ending April 30, 2016,
$350 thousand
for the three months ending July 31, 2016,
$138 thousand
for the three months ending October 31, 2016, and
$213 thousand
for the three months ending January 31, 2017.
|
Pursuant to the guidance of Staff Accounting Bulletin ("SAB") No. 99,
Materiality,
the Company concluded that the errors were not material to any of its prior period financial statements. The prior period financial statements were revised, in accordance with SAB No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements
.
A reconciliation of the effects of the adjustments to the previously reported balance sheet and stockholders' equity at January 31, 2017 follows:
|
|
|
|
|
|
|
|
|
As Reported
|
Adjustment
|
Revised
|
Additional paid in capital
|
$53,716
|
$1,642
|
$55,358
|
Retained earnings
|
8,515
|
|
(1,642
|
)
|
6,873
|
|
A reconciliation of the effects of the adjustments to the previously reported statement of operations for the three months ending July 31, 2016 follows:
|
|
|
|
|
|
|
|
|
As Reported
|
Adjustment
|
Revised
|
General and administrative expense
|
$3,370
|
$350
|
$3,720
|
Total operating expenses
|
4,820
|
|
350
|
|
5,170
|
|
Loss from operations
|
(1,840
|
)
|
(350
|
)
|
(2,190
|
)
|
Loss from continuing operations before income taxes
|
(1,937
|
)
|
(350
|
)
|
(2,287
|
)
|
Loss from continuing operations
|
(860
|
)
|
(350
|
)
|
(1,210
|
)
|
Net income
|
449
|
|
(350
|
)
|
99
|
|
Loss per share from continuing operations
|
(0.11
|
)
|
(0.05
|
)
|
(0.16
|
)
|
Earnings per share
|
0.06
|
|
(0.05
|
)
|
0.01
|
|
A reconciliation of the effects of the adjustments to the previously reported statement of operations for the six months ending July 31, 2016 follows:
|
|
|
|
|
|
|
|
|
As Reported
|
Adjustment
|
Revised
|
General and administrative expense
|
$8,463
|
$445
|
$8,908
|
Total operating expenses
|
11,317
|
|
445
|
|
11,762
|
|
Loss from operations
|
(6,345
|
)
|
(445
|
)
|
(6,790
|
)
|
Loss from continuing operations before income taxes
|
(8,288
|
)
|
(445
|
)
|
(8,733
|
)
|
Loss from continuing operations
|
(6,954
|
)
|
(445
|
)
|
(7,399
|
)
|
Net loss
|
(5,845
|
)
|
(445
|
)
|
(6,290
|
)
|
Loss per share from continuing operations
|
(0.94
|
)
|
(0.06
|
)
|
(1.00
|
)
|
Loss per share
|
(0.79
|
)
|
(0.06
|
)
|
(0.85
|
)
|
A reconciliation of the effects of the adjustments to the previously reported statement of cash flows for the six months ending July 31, 2016 follows:
|
|
|
|
|
|
|
|
|
As Reported
|
Adjustment
|
Revised
|
Net loss
|
($5,845)
|
($445)
|
($6,290)
|
Stock-based compensation expense
|
137
|
|
445
|
|
582
|
|
|
|
4.
|
Discontinued operations.
The domestic fabric filter business, which was included in discontinued operations, sold product until operations ceased in the second quarter of 2016. The Filtration business segment is reported as discontinued operations in the consolidated financial statements, and the notes to consolidated financial statements have been revised to conform to the current year reporting. There was
$719 thousand
of tax benefit for the three months ended
July 31, 2016
and
$703 thousand
of tax benefit for the six months ended
July 31, 2016
. Income (loss) from discontinued operations net of tax for the three and six months ended
July 31, 2016
and 2017 was as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Net sales from discontinued operations
|
|
$—
|
|
|
$3,276
|
|
|
$—
|
|
|
$10,467
|
|
|
|
|
|
|
Gain on disposal of discontinued operations
|
—
|
|
1,605
|
|
—
|
|
2,472
|
|
Income (loss) from discontinued operations
|
—
|
|
423
|
|
—
|
|
(660
|
)
|
Income from discontinued operations before income taxes
|
—
|
|
2,028
|
|
—
|
|
1,812
|
|
Income tax expense
|
—
|
|
719
|
|
—
|
|
703
|
|
Income from discontinued operations, net of tax
|
|
$—
|
|
|
$1,309
|
|
|
$—
|
|
|
$1,109
|
|
Components of assets and liabilities from discontinued operations consist of the following:
|
|
|
|
|
|
|
|
|
July 31, 2017
|
|
January 31, 2017
|
|
Current assets
|
|
|
Trade accounts receivable, net
|
|
$—
|
|
|
$25
|
|
Total assets from discontinued operations
|
|
$—
|
|
|
$25
|
|
Current liabilities
|
|
|
Trade accounts payable, accrued expenses and other
|
|
$156
|
|
|
$199
|
|
Total liabilities from discontinued operations
|
|
$156
|
|
|
$199
|
|
Cash flows from discontinued operations:
|
|
|
|
|
|
|
|
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
Net cash used in discontinued operating activities
|
|
($18
|
)
|
|
($208
|
)
|
Net cash provided by discontinued investing activities
|
—
|
|
7,574
|
|
Net cash used in discontinued financing activities
|
—
|
|
(7,365
|
)
|
|
|
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 continuing operations for the second quarter and year-to-date was
24.9%
and
16.8%
, respectively, compared to
47.1%
and
15.3%
during the respective prior-year periods. The change in the ETR from the prior year-to-date to the current year-to-date was mainly due to changes in the foreign income and loss activities.
The amount of unrecognized tax benefits, including interest and penalties, at
July 31, 2017
, recorded in other long-term liabilities was
$0.2 million
, all of which would impact the Company’s ETR if recognized. The Company includes accrued interest and penalties related to uncertain tax positions in income tax expense, with
$1,200
included in expense for the current quarter. The amount of accrued interest and penalties at
July 31, 2017
associated with unrecognized tax benefits was
$47,900
.
The Company files income tax returns in U.S. federal and state jurisdictions.
The Internal Revenue Service ("IRS") began an audit of the fiscal year ended January 31, 2015 in August 2016. In August 2017, the Company received a notice from the IRS that it had concluded the tax audit for the year ended January 31, 2015. No changes were made to the reported tax.
|
|
6.
|
Impairment of long-lived assets.
The Company evaluates long-lived assets (including intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. A factor considered important that could trigger an impairment review includes a year-to-date loss from operations. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. Piping Systems has a year-to-date loss, but based on the Company's review,
there was no impairment of long-lived assets as of July 31, 2017 or January 31, 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, 2017
and January 31, 2017 is attributable to the purchase of Perma-Pipe Canada, Ltd. ("PPC")
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
Foreign exchange change effect
|
July 31, 2017
|
Goodwill
|
|
$2,279
|
|
|
$109
|
|
|
$2,388
|
|
In January 2017, the Financial Accounting Standards Board ("FASB") issued authoritative guidance that simplifies the assessment of goodwill for impairment when the estimated fair value of a reporting unit is less than its carrying
value by eliminating the requirement to determine the fair value of goodwill. Under the new guidance, the amount of goodwill impairment will be determined by the amount the carrying value of the reporting unit exceeds its fair value. The new guidance is effective for the Company beginning January 1, 2020, with early adoption permitted. The Company adopted this new guidance in the fourth quarter of 2016.
The Company performs an
impairment assessment of goodwill annually as of January 31
, or more frequently if triggering events occur, based on the estimated fair value of the related reporting unit 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 to goodwill as of July 31, 2017.
|
|
7.
|
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
$2.63 million
as of
July 31, 2017
and
January 31, 2017
. Accumulated amortization was approximately
$2.40 million
and
$2.38 million
as of
July 31, 2017
and
January 31, 2017
, respectively. Full year amortizations for the next five years ending January 31 will be
$44,700
in
2018
,
$36,600
in
2019
,
$33,700
in
2020
,
$27,100
in
2021
, and
$17,500
in
2022
, with the residual balance of
$93,900
to be amortized in future periods thereafter. Patents are included in other assets in the consolidated balance sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Patent amortization expense
|
|
$11
|
|
|
$11
|
|
|
$22
|
|
|
$22
|
|
|
|
8.
|
Stock-based
compensation.
The Company has stock-based compensation awards that can be granted to eligible employees, officers or directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Stock-based compensation expense
|
|
$65
|
|
|
$68
|
|
|
$59
|
|
|
$161
|
|
Restricted stock-based compensation expense
|
|
$452
|
|
|
$390
|
|
|
$647
|
|
|
$668
|
|
The decrease in the six months restricted stock-based compensation expense relates to grants that vested in January 2017, and the increase in the three months comparison is due to new grants that were made in June 2017.
Stock Options.
The fair value of the outstanding option awards was estimated on the grant dates using the Black-Scholes option pricing model.
|
|
|
|
|
Six Months Ended July 31,
|
Fair value assumptions
|
2017
|
2016
|
Expected volatility
|
43.2%
|
43.2%
|
Risk free interest rate
|
1.2%
|
1.2%
|
Dividend yield
|
0
|
0
|
Expected life
|
5.0
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
Option activity
|
Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic Value
|
Outstanding at January 31, 2017
|
524
|
|
|
$11.55
|
|
4.5
|
|
$534
|
|
Exercised
|
(24
|
)
|
6.74
|
|
|
29
|
|
Expired or forfeited
|
(82
|
)
|
23.49
|
|
|
|
Outstanding end of period
|
418
|
|
9.49
|
|
4.5
|
274
|
|
|
|
|
|
|
Exercisable end of period
|
383
|
|
|
$9.59
|
|
4.2
|
|
$249
|
|
|
|
|
|
|
|
|
|
|
|
Unvested option activity
|
Options
|
Weighted Average Grant Date Fair Value
|
Aggregate Intrinsic Value
|
Outstanding at January 31, 2017
|
74
|
|
|
$9.31
|
|
|
$69
|
|
Vested
|
(32
|
)
|
|
|
Expired or forfeited
|
(7
|
)
|
11.97
|
|
|
Outstanding end of period
|
35
|
|
|
$8.42
|
|
|
$25
|
|
As of
July 31, 2017
, there was
$0.1 million
of total unrecognized compensation expense related to unvested stock options. The expense is expected to be recognized over a period of
2.0
years.
Restricted stock.
The following table summarizes restricted stock activity for the year:
|
|
|
|
|
|
|
|
|
|
Restricted stock activity
|
Restricted Shares
|
Weighted Average Grant Price Per Share
|
Aggregate Intrinsic Value
|
Outstanding at January 31, 2017
|
290
|
|
|
$8.75
|
|
|
$2,540
|
|
Granted
|
175
|
|
8.02
|
|
|
Issued
|
(55
|
)
|
|
|
Forfeited
|
(38
|
)
|
7.85
|
|
|
Outstanding end of period
|
372
|
|
|
$7.93
|
|
|
$2,988
|
|
As of
July 31, 2017
, there was
$1.9 million
of unrecognized compensation expense related to unvested restricted stock granted under the plans. The cost is expected to be recognized over the weighted-average period of
2.4 years
.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Basic weighted average common shares outstanding
|
7,679
|
|
7,481
|
|
7,645
|
|
7,416
|
|
Dilutive effect of equity compensation plans
|
—
|
|
122
|
|
—
|
|
—
|
|
Weighted average common shares outstanding assuming full dilution
|
7,679
|
|
7,603
|
|
7,645
|
|
7,416
|
|
|
|
|
|
|
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
|
163
|
|
356
|
|
163
|
|
378
|
|
|
|
|
|
|
Stock options with an exercise price below the average market price
|
255
|
|
248
|
|
255
|
|
226
|
|
|
|
10.
|
Interest expense, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended July 31,
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
Interest expense
|
|
$193
|
|
|
$139
|
|
|
$358
|
|
|
$392
|
|
Interest income
|
(36
|
)
|
(42
|
)
|
(44
|
)
|
(69
|
)
|
Interest expense, net
|
|
$157
|
|
|
$97
|
|
|
$314
|
|
|
$323
|
|
11.
Debt.
Debt totaled
$16.3 million
at
July 31, 2017
, a net
increase
of
$4.6 million
since
January 31, 2017
.
Revolving lines North America
.
On September 24, 2014, the Company entered into the Credit and Security Agreement with a financial institution (as amended, "Credit Agreement"). Under the terms of the Credit Agreement, which matures on
September 24, 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
. On
July 31, 2017
, the Company was
in compliance
with all covenants under the Credit Agreement. The North American revolving line balances as of
July 31, 2017
and January 31, 2017 were included as current liabilities in the consolidated balance sheets, because the Credit Agreement has a subjective acceleration clause.
Interest rates vary based on the average availability in the preceding fiscal quarter and are:
(a) a margin in effect plus a base rate, if below certain availability limits; or (b) a margin in effect plus the Eurodollar rate for the corresponding interest period.
On
July 31, 2017
, the Company had borrowed
$7.9 million
at
5.5%
and
4.2%
and had
$4.8 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 had credit arrangements used by its Middle Eastern subsidiaries. These credit arrangements are in the form of overdraft facilities and project financing at rates competitive in the countries in which the Company operates. Some credit arrangement covenants require a minimum tangible net worth to be maintained, including intercompany subordinated debt. In addition, some of the revolving credit facilities restrict payment of dividends. On
July 31, 2017
, the Company was
in compliance with the covenants under the credit arrangements.
On
July 31, 2017
,
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, 2017, the Company's interest rates ranged from 5.0% to 6.5%
, and the Company could borrow
$23.0 million
under these credit arrangements. On
July 31, 2017
,
$7.5 million
of availability was used to support letters of credit to guarantee amounts committed for inventory purchases and for performance guarantees. As there were no borrowings under these credit arrangements, an additional
$15.5 million
remained unused. The foreign revolving lines balances as of January 31, 2017 were included as current maturities of long-term debt in the consolidated balance sheets.
On
May 5, 2017
, Piping Systems obtained two capital leases for a total of 0.94 million CAD (approximately
$0.7 million
USD at the prevailing exchange rate on the transaction date) to finance vehicle equipment. The interest rate for these capital leases is
7.8%
per annum with monthly principal and interest payments of
$9 thousand
, and these leases mature on
April 30, 2021
.
|
|
12.
|
Restricted cash.
Restricted cash held by foreign subsidiaries was
$0.9 million
as of
July 31, 2017
and
January 31, 2017
. Restricted cash held by foreign subsidiaries related to an escrow account from the sale of Nordic Air Filtration and fixed deposits that also serve as security deposits and guarantees.
|
|
|
|
|
|
|
|
|
|
Six Months Ended July 31,
|
|
2017
|
|
2016
|
|
Cash and cash equivalents
|
|
$8,546
|
|
|
$11,612
|
|
Restricted cash
|
893
|
|
942
|
|
Cash, cash equivalents and restricted cash shown in the statement of cashflows
|
|
$9,439
|
|
|
$12,554
|
|
|
|
13.
|
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 rates.
|
|
|
14.
|
Acquisition.
On
February 4, 2016
, PPIH acquired the remaining 51% ownership of
PPC
,
a coating and insulation company in Camrose, Alberta that serves the oil and gas industry in Western Canada
. The purchase price was $13.1
million CAD (
$9.6 million
USD) in cash and debt at closing. This transaction was accounted for under the acquisition method of accounting. The following table represents the allocation of the total consideration in the acquisition of PPC:
|
|
|
|
|
|
|
Total purchase consideration:
|
|
|
Cash
|
|
|
$7,587
|
|
Loan payable
|
|
2,000
|
|
Purchase consideration to third party
|
|
9,587
|
|
|
|
|
Fair value of 49% previously held equity interest
|
|
7,492
|
|
Total purchase consideration
|
|
|
$17,079
|
|
|
|
|
Fair value of net assets acquired:
|
|
|
Cash and cash equivalents
|
|
|
$2,915
|
|
Property and equipment
|
|
13,124
|
|
Goodwill
|
|
2,279
|
|
Net working capital
|
|
406
|
|
Other assets (liabilities) net
|
|
(1,645
|
)
|
Net assets acquired
|
|
|
$17,079
|
|
The acquisition resulted in
$2.3 million
of goodwill. Goodwill is not deductible for income tax purposes. The Company incurred legal, professional and other costs related to this acquisition. These one-time costs of
$0.2 million
were recognized as general and administrative expenses.
In the first quarter of 2016, the Company recognized a non-cash loss of
$1.6 million
, which represents the difference between the pre-existing book value interest in PPC immediately prior to the acquisition remeasured to its fair value upon the acquisition date.
|
|
15.
|
Recent accounting pronouncements
.
In October 2016, the FASB issued authoritative guidance requiring the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs rather than when transferred to a third party as required under the current guidance. The new guidance is effective for the Company beginning February 1, 2018, with early adoption permitted. The Company is currently assessing the potential impact the guidance will have upon adoption.
|
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires entities to recognize assets and liabilities for most leases on their balance sheets. It also requires additional qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect that this standard will have on the consolidated financial statements and related disclosures.
In May 2014, FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers ("Topic 606")", with several clarifying updates issued during 2016. This new standard will replace all current GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition guidance provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The mandatory adoption will require new qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, information about contract balances and performance obligations, and assets recognized from costs incurred to obtain or fulfill a contract. This guidance is effective for the Company beginning February 1, 2018, with early adoption permitted. The new revenue standards may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company has not yet selected the transition method. The Company currently expects to adopt the new revenue standards in the first quarter of 2018.
The Company is currently evaluating the impact of adopting the standard on the Company’s financial position, results of operations, cash flows and related disclosures and has not determined its adoption methodology. The Company has completed staff education and is currently in discovery and analysis phases of reviewing contracts and identifying potential differences that would result from applying the new standard to current contracts. This step is expected to be complete in October 2017. Then the Company will begin to identify and implement changes to the Company’s business processes, systems and controls to support adoption of the new standard in 2018. Although it is early in the evaluation process, the Company does not expect Topic 606 to have a material impact on the financial statements, though internal processes, record keeping and disclosures may be significantly impacted. The sales are not believed to be material, because Topic 606 generally supports the recognition of revenue over time under the cost-to-cost method for the majority of the contracts, which is consistent with the current percentage of completion revenue recognition model.
The Company evaluated other recent accounting pronouncements and does not expect them to have a material impact on the consolidated financial statements.
16.
Reclassifications.
Reclassifications were made to the prior-year consolidated statement of cash flows to conform to the current-year presentations and were not material to the financial statements.