Quarterly report pursuant to Section 13 or 15(d)

REVENUES

v3.19.3
REVENUES
9 Months Ended
Sep. 30, 2019
Revenue from Contract with Customer [Abstract]  
REVENUES
REVENUES
Revenue recognition:
The Company recognized revenues from (i) the sale and customization of interactive training systems (Training and Simulation Division); (ii) maintenance services in connection with such systems (Training and Simulation Division); (iii) the sale of batteries, chargers and adapters, and custom power solutions (Power Systems Division); and (iv) the sale of lifejacket lights (Power Systems Division).
The Company determines its revenue recognition through the following steps:
Identification of the contract, or contracts, with a customer
Identification of the performance obligations within the contract
Determination of the transaction price
Allocation of the transaction price to the performance obligations within the contract
Recognition of revenue when, or as the performance obligation has been satisfied
Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in Accounting Standards Codification (“ASC”) Topic 606. A contracts transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. In assessing the recognition of revenue, the Company evaluates whether two or more contracts should be combined and accounted for as one contract and if the combined or single contract should be accounted for as multiple performance obligations which could change the amount of revenue and profit (loss) recorded in a period. The majority of the Company’s contracts with customers are accounted for as one performance obligation, as the majority of tasks and services is part of a single project or capability. As these contracts are typically a customized customer-specific solution, the Company uses the expected cost plus margin approach to estimate the standalone selling price of each performance obligation.  For contracts with multiple performance obligations, the Company allocates the contracts transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.
The Company also offers maintenance and support agreements (“warranties”) for many of its products.  The specific terms and conditions of those warranties vary depending upon the product sold and country in which the product was sold.  The warranty revenue is recognized on a straight-line basis over the term of the maintenance and support services.   The standalone selling price is determined based on the price charged when sold separately or upon renewal.
The Company’s performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for 91% and 92% of its revenue for the nine months ended September 30, 2019 and 2018, respectively. Revenue from products and services transferred to customers over time accounted for 91% and 92% of its revenue for the three months ended September 30, 2019 and 2018, respectively. Substantially all of the Company’s revenue in the Training and Simulation Division and the U.S. Power Systems Division is recognized over time. Typically, revenue is recognized over time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion) to measure progress. Contract costs include labor, material, and overhead.
As of September 30, 2019, the Company had $67.6 million of expected future revenue relating to performance obligations that are currently under contract, which it also refers to as total backlog. The Company expects to recognize approximately 39.6% of its backlog as revenue in 2019, and the remaining 60.4% thereafter.
Contract Estimates. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, the Company estimates the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognizes that profit over the life of the contract.
Contract estimates are based on various assumptions to project the outcome of future events that can exceed a year. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.
As a significant change in one or more of these estimates could affect the profitability of its contracts, the Company reviews and updates its contract-related estimates quarterly. The Company recognizes adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance is recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, the Company recognizes the total loss in the quarter in which it is identified.
The aggregate impact of adjustments in contract estimates to net income (loss) is presented below:
 
Nine months ended September 30,
 
2019
 
2018
 
Training and Simulation Division
 
Power Systems Division
 
Training and Simulation Division
 
Power Systems Division
Net income (loss)
$
974,067

 
$
723,271

 
$
449,580

 
$
77,403

 
Three months ended September 30,
 
2019
 
2018
 
Training and Simulation Division
 
Power Systems Division
 
Training and Simulation Division
 
Power Systems Division
Net income (loss)
$
283,691

 
$
489,321

 
$
(139,016
)
 
$
320,269



Revenue by Category. As of September 30, 2019 and 2018 the Company’s portfolio of products and services consisted of 490 and 525 active contracts, respectively.
Revenue by major product line was as follows:
 
Nine months ended September 30,
 
Three months ended September 30,
 
2019
 
2018
 
2019
 
2018
Product Revenue
 
 
 
 
 
 
 
Air Warfare Simulation
$
10,528,294

 
$
13,324,429

 
$
3,421,823

 
$
3,667,058

Vehicle Simulation
21,770,017

 
17,040,554

 
6,922,146

 
6,040,922

Use-of-Force
8,776,417

 
10,677,612

 
3,379,033

 
4,132,059

Service Revenue
 
 
 
 
 
 
 
Warranty
3,177,873

 
2,533,558

 
1,170,809

 
825,863

Total Training and Simulation Division
$
44,252,601

 
$
43,576,153

 
$
14,893,811

 
$
14,665,902

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract Manufacturing
$
11,026,100

 
$
10,130,597

 
$
4,181,902

 
$
3,100,586

Power Distribution and Generation
691,063

 
5,695,039

 
360,278

 
1,413,117

Batteries
6,677,842

 
9,767,890

 
2,144,104

 
3,118,375

Engineering Services and Other
4,971,328

 
3,797,917

 
1,993,636

 
1,546,497

Total Power Division
$
23,366,333

 
$
29,391,443

 
$
8,679,920

 
$
9,178,575

The table below details the percentage of total recognized revenue by type of arrangement for the nine and three months ended September 30, 2019 and 2018:
 
Nine months ended September 30,
 
Three months ended September 30,
Type of Revenue
2019
 
2018
 
2019
 
2018
Sale of products
92.3
%
 
95.0
%
 
92.3
%
 
94.5
%
Maintenance and support agreements
4.7
%
 
3.5
%
 
5.0
%
 
3.5
%
Long term research and development contracts
3.0
%
 
1.5
%
 
2.7
%
 
2.0
%
Total
100
%
 
100
%
 
100
%
 
100
%
Revenue by contract type was as follows:
 
Training and
Simulation
Division
 
Power Systems
Division
Nine months ended September 30, 2019
 
 
 
Fixed Price
$
35,442,918

 
$
22,346,111

Cost Reimbursement (Cost Plus)
4,773,406

 
478,957

Time and Materials
4,036,277

 
541,265

Total
$
44,252,601

 
$
23,366,333

Nine months ended September 30, 2018
 
 
 
Fixed Price
$
35,975,495

 
$
26,807,005

Cost Reimbursement (Cost Plus)
4,120,987

 
1,822,659

Time and Materials
3,479,671

 
761,779

Total
$
43,576,153

 
$
29,391,443

Three months ended September 30, 2019
 
 
 
Fixed Price
$
11,888,617

 
$
8,455,355

Cost Reimbursement (Cost Plus)
1,996,293

 
45,376

Time and Materials
1,008,901

 
179,189

Total
$
14,893,811

 
$
8,679,920

Three months ended September 30, 2018
 
 
 
Fixed Price
$
11,948,500

 
$
8,372,521

Cost Reimbursement (Cost Plus)
1,511,711

 
567,767

Time and Materials
1,205,691

 
238,287

Total
$
14,665,902

 
$
9,178,575


Each of these contract types presents advantages and disadvantages. Typically, the Company assumes more risk with fixed-price contracts. However, these types of contracts offer additional profits when the Company completes the work for less than originally estimated. Cost-reimbursement contracts generally subject the Company to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under time and materials contracts, the Company’s profit may fluctuate if actual labor-hour costs vary significantly from the negotiated rates.
Revenue by customer was as follows:
 
Training and
Simulation
Division
 
Power Systems
Division
Nine months ended September 30, 2019
 
 
 
U.S. Government
 
 
 
Department of Defense (DoD)
$
13,364,239

 
$
818,070

Non-DoD
10,146,377

 

Foreign Military Sales (FMS)
2,531,338

 

Total U.S. Government
$
26,041,954

 
$
818,070

 
 
 
 
U.S. Commercial
$
15,574,732

 
$
11,443,706

Non-U.S. Government
613,356

 
728,931

Non-U.S. Commercial
2,022,559

 
10,375,626

Total Revenue
$
44,252,601

 
$
23,366,333

Nine months ended September 30, 2018
 
 
 
U.S. Government
 
 
 
Department of Defense (DoD)
$
12,399,861

 
$
2,115,108

Non-DoD
7,655,130

 

Foreign Military Sales (FMS)
2,055,333

 

Total U.S. Government
22,110,324

 
2,115,108

 
 
 
 
U.S. Commercial
$
16,546,210

 
$
16,159,067

Non-U.S. Government
1,786,538

 
2,003,417

Non-U.S. Commercial
3,133,081

 
9,113,851

Total Revenue
$
43,576,153

 
$
29,391,443

Three months ended September 30, 2019
 
 
 
U.S. Government
 
 
 
Department of Defense (DoD)
$
3,749,868

 
$
338,076

Non-DoD
3,758,068

 

Foreign Military Sales (FMS)
950,843

 

Total U.S. Government
$
8,458,779

 
$
338,076

 
 
 
 
U.S. Commercial
$
5,565,858

 
$
4,461,350

Non-U.S. Government
145,368

 
270,957

Non-U.S. Commercial
723,806

 
3,609,537

Total Revenue
$
14,893,811

 
$
8,679,920

Three months ended September 30, 2018
 
 
 
U.S. Government
 
 
 
Department of Defense (DoD)
$
4,753,006

 
$
772,751

Non-DoD
3,272,251

 

Foreign Military Sales (FMS)
341,933

 

Total U.S. Government
$
8,367,190

 
$
772,751

 
 
 
 
U.S. Commercial
$
4,744,148

 
$
4,669,493

Non-U.S. Government
394,091

 
180,253

Non-U.S. Commercial
1,160,473

 
3,556,078

Total Revenue
$
14,665,902

 
$
9,178,575


Contract Balances. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. The majority of the Company’s contract amounts is billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Billing sometimes occurs subsequent to revenue recognition, resulting in contract assets. However, the Company sometimes receives advances or deposits from its customers, particularly on its international contracts, before revenue is recognized, resulting in contract liabilities. These contract liabilities also include deferred warranty revenues from our Training and Simulation Division. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.
 
September 30, 2019
 
December 31, 2018
 
Training and Simulation Division
 
Power Systems Division
 
Total
 
Training and Simulation Division
 
Power Systems Division
 
Total
Contract Assets - Current
$
16,259,646

 
$
8,711,293

 
$
24,970,939

 
$
10,358,679

 
$
7,509,217

 
$
17,867,896

Contract Liabilities - Current
(7,222,968
)
 
(281,997
)
 
(7,504,965
)
 
(6,697,522
)
 
(357,257
)
 
(7,054,779
)
Net Contract Assets and Liabilities:
$
9,036,678

 
$
8,429,296

 
$
17,465,974

 
$
3,661,157

 
$
7,151,960

 
$
10,813,117


The $6.7 million increase in the Company’s net contract assets (liabilities) from December 31, 2018 to September 30, 2019 was due to the timing of milestone payments on certain U.S. Government and commercial contracts.
During the nine months ended September 30, 2019 and 2018, the Company recognized $5.1 million and $5.2 million, respectively, in revenue related to the Company’s contract liabilities.
The Company did not record any provisions for impairment of its contract assets during the nine months ended September 30, 2019 and 2018.
Trade Receivables
Trade receivables include amounts billed and currently due from customers. The amounts are recorded at net estimated realizable value.  The value of the Company’s trade receivables when appropriate includes an allowance for estimated uncollectible amounts.  The Company calculates an allowance based on its history of write-offs, the assessment of customer creditworthiness, and the age of the outstanding receivables.
As of September 30, 2019 and December 31, 2018, the Company’s trade receivables recorded in the consolidated balance sheets were $17.2 million and $16.3 million, respectively.  The Company had an immaterial provision for doubtful accounts at September 30, 2019 and December 31, 2018.  The Company believes its exposure to concentrations of credit risk is limited due to the nature of its operations, where a significant number of its contracts are typically a customized customer specific solution.