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Summary of Business and Significant Accounting Policies | 12 Months Ended
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Jan. 31, 2018
Accounting Policies [Abstract] |
Summary of Business and Significant Accounting Policies | Summary of Business and Significant Accounting Policies Business Virco Mfg. Corporation (the “Company”), which operates in one business segment, is engaged in the design, production and distribution of quality furniture for the commercial and education markets. Over 68 years of manufacturing operations have resulted in a wide product assortment. Major products include mobile tables, mobile storage equipment, desks, computer furniture, chairs, activity tables, folding chairs and folding tables. The Company manufactures its products in Torrance, California, and Conway, Arkansas, for sale primarily in the United States. The Company operates in a seasonal business, and requires significant amounts of working capital under its credit facility to fund acquisitions of inventory and finance receivables during the summer delivery season. Restrictions imposed by the terms of the Company’s credit facility may limit the Company’s operating and financial flexibility. However, management believes that its existing cash and available borrowings under its credit facility, and any cash generated from operations will be sufficient to fund its working capital requirements, capital expenditures and other obligations through the next 12 months. Principles of Consolidation The consolidated financial statements include the accounts of Virco Mfg. Corporation and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Management Use of Estimates Preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities - and disclosure of contingent assets and liabilities - at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, but are not limited to, valuation of inventory; deferred tax assets and liabilities; useful lives of property, plant, and equipment; liabilities under pension, warranty, self-insurance, and environmental claims; and the accounts receivable allowance for doubtful accounts. Actual results could differ from these estimates. Fiscal Year End Fiscal years 2018, 2017, and 2016 refer to the fiscal years ended January 31, 2018, 2017 and 2016 respectively. Concentration of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. The Company performs ongoing credit evaluations of its customers and maintains allowances for potential credit losses. Sales to the Company’s recurring customers are generally made on open account with terms consistent with the industry. Credit is extended based on an evaluation of the customer’s financial condition and payment history. Past due accounts are determined based on how recently payments have been made in relation to the terms granted. Amounts are written off against the allowance in the period that the Company determines that the receivable is not collectable. The Company purchases insurance on receivables from certain commercial customers to minimize the Company’s credit risk. The Company does not typically obtain collateral to secure credit risk. Customers with inadequate credit are required to provide cash in advance or letters of credit. The Company does not assess interest on receivable balances. A substantial percentage of the Company’s receivables come from low-risk government entities. No customer exceeded 10% of the Company’s sales for fiscal years ended January 31, 2018, 2017 and 2016. Foreign sales were approximately 6.3%, 6.3% and 6.7% of the Company’s sales for fiscal years 2018, 2017 and 2016, respectively. No single customer accounted for more than 10% of the Company’s accounts receivable at January 31, 2018 or 2017. Because of the short time between shipment and collection, the net carrying value of receivables approximates the fair value for these assets. Fair Values of Financial Instruments The fair values of the Company’s cash, accounts receivable, and accounts payable approximate their carrying amounts due to their short-term nature. Financial assets and liabilities measured at fair value on a recurring basis are classified in one of the three following categories, which are described below: Level 1 — Valuations based on unadjusted quoted prices for identical assets in an active market. Level 2 — Valuations based on quoted prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 3 — Valuations based on inputs that are unobservable and involve management judgment and our own assumptions about market participants and pricing. Financial assets measured at fair value on a recurring basis include assets associated with the Virco Employees Retirement Plan. Inventories Inventory is valued at the lower of cost or net realizable value (determined on a first-in, first-out basis) and includes material, labor, and factory overhead. The Company maintains allowances for estimated slow moving and obsolete inventory to reflect the difference between the lower of cost of inventory and the estimated market value. Allowances for slow moving and obsolete inventory are determined through a physical inspection of the product in connection with a physical inventory, a review of slow-moving product, and consideration of active marketing programs. The market for education furniture is traditionally driven by value, not style, and the Company has not typically incurred significant obsolescence expenses. If market conditions are less favorable than those anticipated by management, additional allowances may be required. Due to reductions in sales volume in the past years, the Company’s manufacturing facilities are operating at reduced levels of capacity. The Company records the cost of excess capacity as a period expense, not as a component of capitalized inventory valuation. The following table presents an updated breakdown of the Company’s net inventory (in thousands) as of January 31, 2018 and 2017:
|  | January 31,
|  | 2018 |  | 2017
Finished goods |  | 13,054 |  |  | 11,174 |
WIP |  | 16,627 |  |  | 13,486 |
Raw materials |  | 12,376 |  |  | 11,029 |
Inventories, net |  | 42,057 |  |  | 35,689 |
Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation and amortization are computed on the straight-line method for financial reporting purposes based upon the following estimated useful lives:
Land improvements | 5 to 25 years
Buildings and building improvements | 5 to 40 years
Machinery and equipment | 3 to 10 years
Leasehold improvements | shorter of lease or useful life
The Company capitalizes the cost of betterments that extend the life of an asset. Repairs and maintenance that do not extend the life of an asset are expensed as incurred. Repair and maintenance expense was $1,518,000, $1,460,000 and $1,759,000 for fiscal years ended January 31, 2018, 2017 and 2016, respectively. The Company subleased space at one of its facilities on a month-to-month basis during 2018, 2017, and 2016. Rental income was $40,000, $40,000, $51,000 for fiscal years ended January 31, 2018, 2017, and 2016 respectively. The Company has established asset retirement obligations related to leased manufacturing facilities in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 410, “Asset Retirement and Environmental Obligations.” Accrued asset retirement obligations are recorded at net present value and discounted over the life of the lease. Asset retirement obligations, included in other non-current liabilities were $170,000 and $590,000 at January 31, 2018 and 2017, respectively.
| January 31,
| 2018 |  | 2017
Balance at beginning of period | $ | 590,000 |  |  | $ | 581,000 |
Decrease in obligation | (425,000 | ) |  | — |
Accretion expense | 5,000 |  |  | 9,000 |
Balance at end of period | $ | 170,000 |  |  | $ | 590,000 |
Impairment of Long-Lived Assets An impairment loss is recognized in the event facts and circumstances indicate the carrying amount of a long-lived asset may not be recoverable, and an estimate of future undiscounted cash flows is less than the carrying amount of the asset. Impairment is recorded based on the excess of the carrying amount of the impaired asset over the fair value. Generally, fair value represents the Company’s expected future cash flows from the use of an asset or group of assets, discounted at a rate commensurate with the risks involved. There were no impairments in fiscal years 2018, 2017 and 2016. Net (Loss) Income per Share Basic net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding. Diluted net income per share is calculated by dividing net income by the weighted-average number of common shares outstanding plus the dilution effect of stock grants. The following table sets forth the computation of basic and diluted income per share:
In thousands, except per share data |  | 2018 |  | 2017 |  | 2016
Numerator |  |  |  |  |  |
Net (loss) income |  | $ | (3,209 | ) |  | $ | 22,760 |  |  | $ | 4,549 |
Denominator |  |  |  |  |  |
Weighted-average shares — basic |  | 15,244 |  |  | 15,067 |  |  | 14,914 |
Dilutive effect of equity incentive plans |  | — |  |  | 199 |  |  | 204 |
Weighted-average shares — diluted (a) |  | 15,244 |  |  | 15,266 |  |  | 15,118 |
Net (loss) income per common share |  |  |  |  |  |
Basic |  | $ | (0.21 | ) |  | $ | 1.51 |  |  | $ | 0.31 |
Diluted |  | (0.21 | ) |  | 1.49 |  |  | 0.30 |
(a) For fiscal year 2018, approximately 147,000 shares of common stock equivalents were excluded in the computation of diluted net income per share, as the effect would be anti-dilutive. Environmental Costs The Company is subject to numerous environmental laws and regulations in the various jurisdictions in which it operates that (a) govern operations that may have adverse environmental effects, such as the discharge of materials into the environment, as well as handling, storage, transportation and disposal practices for solid and hazardous wastes, and (b) impose liability for response costs and certain damages resulting from past and current spills, disposals or other releases of hazardous materials. Normal, recurring expenses related to operating the Company's factories in a manner that meets or exceeds environmental laws and regulations are matched to the cost of producing inventory. Despite our efforts to comply with existing laws and regulations, compliance with more stringent laws or regulations, or stricter interpretation of existing laws, may require additional expenditures by us, some of which may be material. We reserve amounts for such matters when expenditures are probable and reasonably estimable. Costs incurred to investigate and remediate environmental waste are expensed, unless the remediation extends the useful life of the assets employed at the site. At January 31, 2018 and 2017, the Company had not capitalized any remediation costs and had not recorded any amortization expense in fiscal years 2018, 2017, and 2016. Advertising Costs Advertising costs are expensed in the period during which the advertising space is run. Selling, general and administrative expenses include advertising costs of $974,000 in 2018, $945,000 in 2017, and $1,057,000 in 2016. Prepaid advertising costs reported as a prepaid asset on the balance sheet at January 31, 2018 and 2017, were $355,000 and $326,000, respectively. Product Warranty Expense The Company provides a product warranty on most products. The standard warranty offered on products sold through January 31, 2013 is ten years. Effective February 1, 2014 through December 31, 2016, the Company modified its warranty to a limited lifetime warranty. Effective January 1, 2017, the Company modified the warranty offered to provide specific warranty periods by product component, with no warranty period longer than ten years. The Company generally provides that customers can return a defective product during the specified warranty period following purchase in exchange for a replacement product or that the Company can repair the product at no charge to the customer. The Company determines whether replacement or repair is appropriate in each circumstance. The Company uses historic data to estimate appropriate levels of warranty reserves. Because product mix, production methods, and raw material sources change over time, historic data may not always provide precise estimates for future warranty expense. The Company recorded warranty reserves of $925,000 and $1,000,000 as of January 31, 2018 and 2017, respectively. The current portion of the warranty reserve was $400,000 and $500,000 for 2018 and 2017, respectively. Self-Insurance In 2018 and 2017, the Company was self-insured for product and general liability losses up to $250,000 per occurrence, for workers’ compensation losses up to $250,000 per occurrence, and for auto liability up to $50,000 per occurrence. Actuaries assist the Company in determining its liability for the self-insured component of claims, which have been discounted to their net present value utilizing a discount rate of 2.00% in 2018 and 2.00% in 2017. Stock-Based Compensation Plans The Company recognizes stock-based compensation cost for shares that are expected to vest, on a straight-line basis, over the requisite service period of the award. Virco issued a 10% stock dividend or 3/2 stock split every year beginning in 1983 through 2003. Although the stock dividend had no cash consequences to the Company, the accounting methodology required for 10% dividends has affected the equity section of the balance sheet. When the Company records a 10% stock dividend, 10% of the market capitalization of the Company on the date of the declaration is reclassified from retained earnings to additional paid-in capital. During the period from 1983 through 2003, the cumulative effect of the stock dividends has been to reclassify over $122 million from retained earnings to additional paid-in capital. The equity section of the balance sheet on January 31, 2018 reflects additional paid-in capital of approximately $117 million and accumulated deficit of approximately $49.6 million. Other than the losses incurred during 2004-2006 and 2011-2014, the accumulated deficit is a result of the accounting reclassification, and is not the result of accumulated losses. Accumulated Other Comprehensive Income (Loss), Net of Tax The following table summarizes the changes in accumulated balances of other comprehensive income (loss) for the year ended January 31, 2018 and 2017:
|  | January 31,
(in thousands) |  | 2018 |  | 2017
Balance as of beginning of year |  | $ | (11,394 | ) |  | $ | (14,330 | )
Other comprehensive income before reclassifications |  | 1,180 |  |  | 1,608 |
Amounts reclassified from AOCI |  | 955 |  |  | 1,328 |
Net current period other comprehensive income |  | 2,135 |  |  | 2,936 |
Balance as of end of year |  | $ | (9,259 | ) |  | $ | (11,394 | )
The reclassifications out of accumulated other comprehensive income (loss) of $955,000 and $1,328,000 for the years ended January 31, 2018 and 2017, respectively, related to amortization of actuarial losses. Revenue Recognition The Company recognizes revenue in accordance with FASB ASC Topic 605, “Revenue Recognition.” Revenue is recognized when title passes under its various shipping terms, when classroom delivery services are complete, and when collectability is reasonably assured. The Company reports sales net of sales returns and allowances, sales taxes imposed by various government authorities, cash discounts and rebate to customers. In most instances, the Company sells furniture on bids and contracts, which may include multiple elements. For sales that include freight to the customer, many sales are delivered on the same day shipped, with an average delivery being in route for 1 to 3 days. Classroom delivery, which involves carrying the furniture to the classroom and setting the desks and chairs in place, typically occurs the day the furniture is delivered. In accordance with ASC 605, 25, “Revenue Recognition - Multiple-Element Arrangements,” revenue arrangements with multiple deliverables are generally accounted for by the Company on a combined unit of accounting as the furniture delivery and classroom delivery are generally provided at the same time. We recognize the consideration for the combined unit of accounting once the final item has been delivered and installed. Revenue includes freight charged to customers; related costs are recorded in selling and administrative expense. Rebates, discounts, and other marketing program expenses directly related to the sale are recorded as a reduction to net sales. Delivery Costs For the fiscal years ended January 31, 2018, 2017 and 2016, shipping and classroom delivery costs of approximately $19,299,000, $16,116,000 and $15,799,000, respectively, were included in selling, general and administrative expenses. Accounting for Income Taxes The Company recognizes deferred income taxes under the asset and liability method of accounting for income taxes in accordance with the provisions of FASB ASC Topic 740, “Accounting for Income Taxes.” Deferred income taxes are recognized for differences between the financial statement and tax basis of assets and liabilities at enacted statutory tax rates in effect for the years in which the differences are expected to reverse. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded when it is determined to be more likely than not that the asset will not be realized.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=64851502&loc=d3e6003-108592 + Details
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