XML 18 R8.htm IDEA: XBRL DOCUMENT v3.10.0.1
REVENUE
9 Months Ended
Sep. 30, 2018
REVENUE  
REVENUE

 

NOTE 3. REVENUE

 

Revenue recognition

 

Our revenue is comprised of product, engineering services and repair services.  All revenue is recognized when the Company satisfies its performance obligation(s) under the contract by transferring the promised product or service to our customer either when (or as) our customer obtains control of the product or service, with the majority of our revenue being recognized over time including goods produced under contract manufacturing agreements and services revenue. A performance obligation is a promise in a contract to transfer a distinct product or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation. The majority of our contracts have a single performance obligation, as the promise to transfer products or services is not separately identifiable from other promises in the contract and, therefore, not distinct.

 

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring products or providing services. As such, revenue is recorded net of returns, allowances and customer discounts. Sales, value add, and other taxes collected from customers and remitted to governmental authorities are accounted for on a net (excluded from revenues) basis. Shipping and handling costs are included in cost of goods sold.

 

The majority of our revenue is derived from the transfer of goods produced under contract manufacturing agreements which have no alternative use and we have an enforceable right to payment for our performance completed to date. Our performance obligations within our contract manufacturing agreements are generally satisfied over time as the goods are produced based on customer specifications and we have an enforceable right to payment for the goods produced.  If these requirements are not met, the revenue is recognized at a point in time, generally upon shipment. Revenue under contract manufacturing agreements that was recognized over time accounted for approximately 91% of our revenue for both the three and nine months ended September 30, 2018. Revenues under these agreements are generally recognized over time using an input measure based upon the proportion of actual costs incurred.

 

Accounting for contract manufacturing agreements involves the use of various techniques to estimate total revenue and costs. We estimate profit on these agreements as the difference between total estimated revenue and expected costs to complete the performance obligation within the terms of the agreement and recognize the respective profit as the goods are produced. The estimates to determine the profit earned on the performance obligation are based on anticipated selling prices and historical cost of goods sold and represent our best judgement at the time. Changes in judgements on these above estimates could impact the timing and amount of revenue recognized with a resulting impact on the timing and amount of associated profit.

 

On occasion our customers provide materials to be used in the manufacturing process and the fair value of the materials is included in revenue as noncash consideration at the point in time when the manufacturing process commences along with the same corresponding amount recorded as cost of goods sold. The inclusion of noncash consideration has no impact on overall profitability.

 

Contract Assets

 

Contract assets, recorded as such in the Condensed Consolidated Balance Sheets, consist of unbilled amounts related to revenue recognized over time. Significant changes in the contract assets balance during the nine months ended September 30, 2018 was as follows (in thousands):

 

Nine Months Ended September 30, 2018

 

 

 

Outstanding at January 1, 2018

 

$

6,459

 

Increase (decrease) attributed to:

 

 

 

Transferred to receivables from contract assets recognized

 

(5,727

)

Product transferred over time

 

6,344

 

 

 

 

 

Outstanding at September 30, 2018

 

$

7,076

 

 

 

 

 

 

 

We expect substantially all of the remaining performance obligations for the contract assets recorded as of September 30, 2018, to be transferred to receivables within 90 days, with any remaining amounts to be transferred within 180 days. We bill our customers upon shipment with payment terms of up to 120 days.

 

The following tables summarize our net sales by market for the three and nine months ended September 30, 2018 (in thousands):

 

 

 

Three Months Ended September 30, 2018

 

 

 

Product/ Service
Transferred Over
Time

 

Product
Transferred at
Point in Time

 

Noncash
Consideration

 

Total Net Sales
by Market

 

Aerospace and Defense

 

$

3,931

 

$

50

 

$

203

 

$

4,184

 

Medical

 

13,461

 

151

 

668

 

14,280

 

Industrial

 

9,486

 

1,116

 

492

 

11,094

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

26,878

 

$

1,317

 

$

1,363

 

$

29,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended September 30, 2018

 

 

 

Product/ Service
Transferred Over
Time

 

Product
Transferred at
Point in Time

 

Noncash
Consideration

 

Total Net Sales
by Market

 

Aerospace and Defense

 

$

12,675

 

$

170

 

$

599

 

$

13,444

 

Medical

 

34,513

 

720

 

1,605

 

36,838

 

Industrial

 

29,698

 

3,165

 

1,398

 

34,261

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

76,886

 

$

4,055

 

$

3,602

 

$

84,543

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Impact of New Revenue Guidance on Financial Statement Line Items

 

The following table compares the reported condensed consolidated statement of operations and comprehensive income, balance sheets and cash flows, as of and for the three and nine months ended September 30, 2018, to the pro-forma amounts had the previous guidance been in effect (in thousands):

 

 

 

Three Months Ended
September 30, 2018

 

Nine Months Ended
September 30, 2018

 

 

 

As Reported

 

Pro forma as if the
previous accounting
guidance was in
effect

 

As Reported

 

Pro forma as if the
previous accounting
guidance was in
effect

 

Condensed Consolidated Statement of Operations

 

 

 

 

 

 

 

 

 

Net Sales

 

$

29,558

 

$

27,665

 

$

84,543

 

$

80,323

 

Cost of Goods Sold

 

26,171

 

24,454

 

74,311

 

70,291

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

3,387

 

3,211

 

10,232

 

10,032

 

 

 

 

 

 

 

 

 

 

 

Income from Operations

 

649

 

472

 

1,263

 

1,063

 

 

 

 

 

 

 

 

 

 

 

Income Before Income Taxes

 

479

 

303

 

712

 

512

 

 

 

 

 

 

 

 

 

 

 

Income Tax Expense

 

115

 

115

 

350

 

350

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

$

364

 

$

188

 

$

362

 

$

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income Per Common Share - Diluted

 

$

0.14

 

$

0.07

 

$

0.13

 

$

0.06

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2018

 

 

 

 

 

As Reported

 

Pro forma as if the
previous accounting
guidance was in
effect

 

 

 

 

 

Condensed Consolidated Balance Sheet

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Inventories

 

$

15,236

 

$

20,732

 

 

 

 

 

Contract Assets

 

$

7,076

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity

 

 

 

 

 

 

 

 

 

Retained Earnings

 

$

5,632

 

$

4,051

 

 

 

 

 

 

 

 

Nine Months Ended
September 30, 2018

 

 

 

 

 

As Reported

 

Pro forma as if the
previous accounting
guidance was in
effect

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows

 

 

 

 

 

 

 

 

 

Net Income

 

$

362

 

$

162

 

 

 

 

 

Adjustments to Reconcile Net Income to Net Cash

 

 

 

 

 

 

 

 

 

Provided by Operating Activities

 

 

 

 

 

 

 

 

 

Change in Current Operating Items

 

 

 

 

 

 

 

 

 

Inventories

 

(1,959

)

(2,376

)

 

 

 

 

Contract Asset

 

(617

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Cash Provided by Operating Activities

 

$

2,564

 

$

2,564