Note 2 Revenue Recognition - Percentage-of-Completion - ITATS ("Intermediate Level TACAN Test Set") (AN/ARM-206)

9 Months Ended

Dec. 31, 2011

Revenue Recognition, Percentage-of-Completion Method [Policy Text Block]

Note 2 – Revenue Recognition – Percentage-of-Completion – ITATS (“Intermediate Level TACAN Test Set”) (AN/ARM-206)

Due to the unique nature of the ITATS program, wherein a significant portion of this contract will not be delivered for over a year, revenues under this contract are recognized on a percentage-of-completion basis, which recognizes sales and profit as they are earned, rather than at the time of shipment.  Revenues and profits are estimated using the cost-to-cost method of accounting where revenues are recognized and profits recorded based upon the ratio of costs incurred to estimate of total costs at completion.  The ratio of costs incurred to date to the estimate of total costs at completion is applied to the contract value to determine the revenues and profits.  When adjustments in estimated contract revenues or estimated costs at completion are required, any changes from prior estimates are recognized by recording adjustments in the current period for the inception-to-date effect of the changes on current and prior periods.  The Company also receives progress billings on this program, which is a funding mechanism by the government to assist contractors on long-term contracts prior to delivery.  These progress payments are applied to Unbilled Government Receivables resulting from revenues recognized under percentage-of-completion accounting.  There have been no progress billings or revenues recognized during the nine months ended December 31, 2011.

In July 2011, the Company secured a $599,000 contract modification from the U.S. Navy to incorporate product enhancements to the ITATS AN/ARM-206 TACAN test set resulting from Navy technical evaluation testing.  These changes, and the required product verification testing, are expected to be completed by mid-year 2012.  This additional funding will not have a material bottom line impact as most of the engineering work for this contract will be sub-contracted to DRS Sustainment Systems located in St. Louis, MO.  Production deliveries of the 102 ITATS units are now expected to begin in the second half of the 2012 calendar year (See Critical Accounting Policies – Revenue Recognition).