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Significant accounting policies | 12 Months Ended
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Jan. 31, 2017
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) delivery has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) 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 domestic 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. Consolidation. 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. The Company accounted for the former investment in joint venture using the equity method. 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 weighted 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 $7.6 million and $16.6 million as of January 31, 2017 and 2016, respectively. On January 31, 2017, $0.2 million was held in the U.S. and $7.4 million was held in the foreign subsidiaries. On January 31, 2016, $0.2 million was held in the U.S. and $16.4 million was held in the foreign subsidiaries. Accounts payable included drafts payable of $21 thousand and $290 thousand as of January 31, 2017 and 2016, respectively. Restricted cash. Restricted cash held by foreign subsidiaries were $1.1 million and $2.3 million as of January 31, 2017 and 2016, respectively. 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 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 maintains its U.S. cash in bank deposit accounts at financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). Cash balances are below FDIC limits. The Company has not experienced any losses in such accounts. The Company has a broad customer base doing business in all regions of the U.S. as well as other areas in the world. On January 31, 2017, no customer accounted for more than 10% of the Company's net sales. On January 31, 2016, one customer accounted for 10.3% of the Company's net sales. Two customers accounted for 33.2% of accounts receivable on January 31, 2017, and two customers accounted for 46.5% of accounts receivable on January 31, 2016. As of April 1, 2017, these customers have paid 35.4% of their receivables outstanding on January 31, 2017. 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.
| 2016 |  | 2015 |
Equity adjustment foreign currency, gross |  | ($1,409 | ) |  | ($2,208 | )
Minimum pension liability, gross | (1,472) | (2,303)
Marketable security, gross | 142 | 118
Subtotal excluding tax effect | (2,739) | (4,393)
Tax effect of foreign exchange currency | (50) | (69)
Tax effect of minimum pension liability | 115 | 523
Tax effect of marketable security | (50) | (41)
Total other comprehensive loss | ($2,724) | ($3,980)
Inventories. Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories.
| 2016 | 2015
Raw materials | $13,648 | $15,291
Work in process | 1,105 | 1,168
Finished goods | 836 | 722
Subtotal | 15,589 | 17,181
Less allowance | 2,024 | 1,556
Inventories | $13,565 | $15,625
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 $5.3 million in 2016 and $4.2 million in 2015.
| 2016 | 2015
Land, buildings and improvements | $22,330 | $14,758
Machinery and equipment | 44,538 | 41,534
Furniture, office equipment and computer systems | 4,704 | 5,632
Transportation equipment | 3,690 | 40
Subtotal | 75,262 | 61,964
Less accumulated depreciation and amortization | 38,987 | 36,564
Property, plant and equipment, net | $36,275 | $25,400
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. Based on the Company's review there was no impairment of long-lived assets as of January 31, 2017 and 2016. Goodwill. The purchase price of an acquired company is allocated between intangible assets and the net tangible assets of the acquired business with the residual of the purchase price recorded as goodwill. All identifiable goodwill as of January 31, 2017, is attributable to the purchase of PPC. The Company does not amortize goodwill.
| January 31, 2016 | Acquired | January 31, 2017
Goodwill |  | $— |  |  | $2,279 |  |  | $2,279 |
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 in 2016. 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 and $2.59 million as of January 31, 2017 and 2016, respectively. Accumulated amortization was approximately $2.4 million and $2.3 million as of January 31, 2017 and 2016, respectively. Future amortizations over the next five years ending January 31 will be $44,400 in 2017, $35,400 in 2018, $32,400 in 2019, $26,000 in 2020, $17,200 in 2021, and $91,161 thereafter. 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 $0.2 million in 2016 and $1.1 million in 2015. Income taxes. Deferred income taxes have been provided for temporary differences arising from differences in the basis of assets and liabilities for tax and financial reporting purposes. Deferred income taxes on temporary differences have been recorded at the current tax rate. The Company assesses its deferred tax assets and liabilities for realizability at each reporting period. The Company recognizes 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 9 - Income taxes in the Notes to Consolidated Financial Statements. Net loss per common share. Earnings per share ("EPS") are computed by dividing net loss by the weighted average number of common shares outstanding (basic). The years 2015 and 2016 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. The year 2016 had a loss from continuing operations. The year 2015 had earnings from continuing operations. The EPS from continuing operations in 2015 are computed by dividing income by the weighted average number of common shares outstanding (basic). The dilutive shares are in the following table:
Basic weighted average number of common shares outstanding | 2016 |  | 2015 |
Basic weighted average number of common shares outstanding | 7,488 |  | 7,280 |
Dilutive effect of stock options, deferred stock and restricted stock units | — |  | 91 |
Weighted average number of common shares outstanding assuming full dilution | 7,488 |  | 7,371 |
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 | 306 |  | 710 |
Canceled options during the year | (159 | ) | (77 | )
Stock options with an exercise price below the average stock price | 218 |  | 10 |
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 option 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. 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 market rates. The Company holds a marketable equity security of approximately $0.1 million on January 31, 2017, which it classifies as available-for-sale and recorded in other non-current assets on the Consolidated Balance Sheet. This security is carried at estimated fair value with unrealized gains and losses reflected in Accumulated Other Comprehensive Income and classified as Level 1 in the fair value hierarchy. The assessment for impairment of marketable equity securities as available-for sale is based on established financial methodologies, including quoted market prices for publicly traded securities. If the Company determines that a loss in the value of the investment is other than temporary, any such losses are recorded in other expense (income), net. Reclassifications. Reclassifications were made to prior-year balance sheet to conform to the current-year presentations. The Company reclassified debt issuance costs and the assets and liabilities related to the defined benefit plan that covered Filtration employees from discontinued to continuing operations.

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