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Significant accounting policies | 12 Months Ended
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Jan. 31, 2014
Significant Accounting Policies [Abstract] |
Significant accounting policies | 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. The Company recognizes revenues including shipping and handling charges billed to customers, when all the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the seller's price to the buyer is fixed or determinable, and (iii) collectability is reasonably assured. All subsidiaries of the Company, except as noted below, recognize revenues upon shipment or delivery of goods or services when title and risk of loss pass to customers. Percentage of completion revenue recognition. All divisions recognize revenues under the above stated revenue recognition policy except for sizable complex contracts that require periodic recognition of income. For these contracts, the Company uses the "percentage of completion" accounting method. Under this approach, income is recognized in each reporting period based on the status of the uncompleted contracts and the current estimates of costs to complete. The choice of accounting method is made at the time the contract is received based on the expected length and complexity of the project. The percentage of completion is determined by the relationship of costs incurred to the total estimated costs of the contract. Provisions are made for estimated losses on uncompleted contracts in the period in which such losses are determined. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions and final contract settlements, may result in revisions to costs and income. Such revisions are recognized in the period in which they are determined. Claims for additional compensation due the Company are recognized in contract revenues when realization is probable and the amount can be reliably estimated. Shipping and handling. Shipping and handling costs are included in cost of sales, and the amounts invoiced to customers relating to shipping and handling are included in net sales. Sales tax. Sales tax is reported on a net basis in the consolidated financial statements. Operating cycle. The length of piping systems contracts vary, but are typically less than one year. The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion unless completion of such contracts extends significantly beyond one year. The Company's other businesses do not have an operating cycle beyond one year. Consolidation. The consolidated financial statements include the accounts of the Company and its domestic and foreign subsidiaries, all of which are wholly owned. All significant intercompany balances and transactions have been eliminated. Translation of foreign currency. Assets and liabilities of consolidated foreign subsidiaries are translated into U.S. dollars at exchange rates in effect at year-end. Revenues and expenses are translated at average exchange rates prevailing during the year. Gains or losses on foreign currency transactions and the related tax effects are reflected in net income. The resulting translation adjustments are included in stockholders' equity as part of accumulated other comprehensive income (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 such costs can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters, and its experience in contesting, litigating and settling other similar matters. The Company does not currently anticipate the amount of any ultimate liability with respect to these matters will materially affect the Company's financial position, liquidity or future operations. Cash and cash equivalents. All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. Cash and cash equivalents were $13.4 million and $7.0 million as of January 31, 2014 and 2013, respectively. The balance is primarily cash and cash equivalents at the foreign subsidiaries. The Company has not experienced any losses as a result of its cash concentration. Consequently, no significant concentration of credit risk is considered to exist. Accounts payable included drafts payable of $0.2 million and $3.3 million as of January 31, 2014 and 2013, respectively. Restricted cash. The Loan Agreement provides that all domestic receipts are deposited in a bank account from which all funds may only be used to pay the debt under the Loan Agreement. At January 31, 2014, the amount of such restricted cash was $0.05 million and $0.4 million of restricted cash was held by a foreign subsidiary. At January 31, 2013, the amount of such restricted cash was $0.1 million and $0.6 million of restricted cash was held by a foreign subsidiary. 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 obtained for substantially all material 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 calculated using a percentage of sales method based upon collection history and an estimate of uncollectible accounts. 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. Accounts receivable adjustments are recorded against the allowance for doubtful accounts. Concentration of credit risk. The Company has a broad customer base doing business in all regions of the U.S. as well as other areas in the world. In the fiscal year ended January 31, 2014, one customer in Piping Systems accounted for 10.6% of the Company's net sales. In the fiscal year ended January 31, 2013, no customer accounted for 10.0% or more of the Company's net sales. At January 31, 2014, one customer in Piping Systems accounted for 24.5% of accounts receivable. Accumulated other comprehensive loss. Represents the change in equity from non-owner transactions and consisted of foreign currency translation, minimum pension liability and interest rate swaps.
| 2013 |  | 2012 |
Equity adjustment foreign currency |  | ($90 | ) |  | $1,179 |
Minimum pension liability, gross | (1,513) | (2,479)
Interest rate swap, gross | (68) | (219)
Subtotal excluding tax effect | (1,671) | (1,519)
Tax effect of foreign exchange | 12 | 12
Tax effect of minimum pension liability | 482 | 765
Tax effect of interest rate swap | 17 | 17
Total other comprehensive loss | ($1,160) | ($725)
Pension plan. The defined benefit plan that covered Winchester filtration hourly rated employees was frozen on June 30, 2013. The benefits are based on fixed amounts multiplied by years of service of retired participants. The Company engages outside actuaries to calculate its obligations and costs. The funding policy is to contribute such amounts as are necessary to provide for benefits attributed to service to date. The amounts contributed to the plan are sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974. Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories. In the fourth quarter, Filtration Products recorded an additional $0.6 million inventory reserve for slow moving and obsolete materials.
| 2013 | 2012
Raw materials | $27,330 | $31,820
Work in process | 2,855 | 2,333
Finished goods | 4,311 | 4,051
Subtotal | 34,496 | 38,204
Less allowances | 949 | 675
Inventories, net | $33,547 | $37,529
Long-lived assets. Property, plant and equipment are stated at cost. Interest is capitalized in connection with the construction of facilities and amortized over the asset's estimated useful life. Long-lived assets are reviewed for possible impairment whenever events indicate that the carrying amount of such assets may not be recoverable. If such a review indicates impairment, the carrying amount of such assets is reduced to an estimated fair value. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which range from three to 30 years. Leasehold improvements are depreciated over the remaining life of the lease or its useful life whichever is shorter. Amortization of assets under capital leases is included in depreciation and amortization. Depreciation expense was approximately $5.8 million in 2013 and in 2012.
| 2013 | 2012
Land, buildings and improvements | $36,535 | $36,572
Machinery and equipment | 50,793 | 49,919
Furniture, office equipment and computer systems | 9,723 | 11,065
Transportation equipment | 206 | 189
Subtotal | 97,257 | 97,745
Less accumulated depreciation and amortization | 54,716 | 52,163
Property, plant and equipment, net | $42,541 | $45,582
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. An asset is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset is expected to generate. The Company has an idle facility in Cicero, Illinois that has not yet been sold and does not meet the criteria to be presented as held for sale as of January 31, 2014. In 2013, management performed the required impairment analysis on the idle facility to determine if its carrying value was recoverable. Management determined that the carrying value of the idle facility was fully recoverable. For 2012, management identified recent sales data for similar facilities for sale in the area and analyzed the expected cash flows from different sales scenarios and determined that the carrying value of the idle facility was not fully recoverable. For 2012, management recorded an impairment loss of $1.5 million, to adjust the idle facility to its estimated recoverable amount. Other intangible assets with definite lives. The Company owns several patents including those covering features of its piping and electronic leak detection systems. The patents are not material either individually or in the aggregate overall because the Company believes sales would not be materially reduced if patent protection were not available. Patents are capitalized and amortized on a straight-line basis over a period not to exceed the legal lives of the patents. The Company expenses costs incurred to renew or extend the term of intangible assets. Gross patents were $2.6 million as of January 31, 2014 and 2013. Accumulated amortization was approximately $2.23 million and $2.18 million as of January 31, 2014 and 2013, respectively. Future amortizations over the next five years ending January 31 will be $48,900 in 2014, $45,700 in 2015, $41,900 in 2016, $38,800 in 2017, $28,800 in 2018, and $168,400 thereafter. Investment in joint venture. In October 2009, the Company invested $5.9 million, which consisted of $2.0 million for a 49% interest and $3.9 million for a note receivable, in a Canadian joint venture with The Bayou Companies, Inc., a subsidiary of Aegion Corporation. The joint venture completed an acquisition of Garneau, Inc.'s pipe coating and insulation facility and associated assets located in Camrose, Alberta, Canada, which provides the Company the opportunity to participate in the growing oil sands market. In February 2012, the Company loaned $1.0 million to its Canadian joint venture to be used for capital expenditures. The Company accounts for the investment in joint venture using the equity method. The financial results included in the Company's consolidated financial statements.
| 2013 | 2012
Share of income from joint venture | $528 | $1,386
The following information summarizes the joint venture financial data:
| 2013 | 2012
Current assets | $13,034 | $14,058
Noncurrent assets | 17,093 | 19,442
Current liabilities | 2,921 | 2,703
Noncurrent liabilities | 14,837 | 18,274
Equity | 12,369 | 12,523
Revenue | 29,110 | 30,448
Gross profit | 4,748 | 7,211
Income from continuing operations | 2,619 | 3,380
Net income | 1,078 | 2,680
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 $0.7 million in 2013 and $2.2 million in 2012. 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 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 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 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. For further information, see Note 8 - Income taxes in the Notes to Consolidated Financial Statements. Net income (loss) per common share. Earnings per share ("EPS") are computed by dividing net income (loss) by the weighted average number of common shares outstanding (basic). The year 2013 had net earnings. The year 2012 had net losses therefore, 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.
Basic weighted average number of common shares outstanding | 2013 |  | 2012 |
Basic weighted average number of common shares outstanding | 7,028 |  | 6,922 |
Dilutive effect of stock options | 68 |  | — |
Weighted average number of common shares outstanding assuming full dilution | 7,096 |  | 6,922 |
Weighted average number of stock options not included in the computation of diluted EPS of common stock because the option exercise prices exceeded the average market prices | 201 |  | 783 |
Canceled options during the year | (73 | ) | (36 | )
Stock options with an exercise price below the average stock price | 575 |  | 186 |
Equity-based compensation. The Company issues various types of stock-based awards to employees and directors: restricted stock, deferred stock and stock options. Compensation expense associated with restricted and deferred stock is based on the fair value of the common stock on the date of 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 awards. Determining the fair value of stock options using the Black-Scholes model requires judgment, including estimates for (1) risk-free interest rate - an estimate based on the yield of zero-coupon treasury securities with a maturity equal to the expected life of the option; (2) expected volatility - an estimate based on the historical volatility of the Company's Common Stock; and (3) expected life of the option - an estimate based on historical experience including the effect of employee terminations. If any of these assumptions differ significantly from actual, stock-based compensation expense could be impacted. Fair value of financial instruments. 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. The Company entered into an interest rate swap agreement to reduce its exposure to market risks from changing interest rates under the revolving credit agreement. Any differences paid or received on the interest rate swap agreements are recognized as adjustments to interest expense over the life of the swap, thereby adjusting the effective interest rate on the underlying obligation. Reclassifications. Reclassifications were made to prior-year financial statements to conform to the current-year presentations.

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