Quarterly report pursuant to Section 13 or 15(d)

ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures

v3.20.2
ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures
6 Months Ended
Jun. 30, 2020
Revenue From Contract With Customer [Abstract]  
Contract Assets and Contract Liabilities

 

Note 2 – Contract Assets and Contract Liabilities

The following table presents the net contract assets and liabilities for the electrical construction operations as of the dates indicated:

 

 

 

June 30,

2020

 

 

December 31,

2019

 

 

$ Change

 

Contract assets (1)

 

$

20,270,178

 

 

$

9,321,368

 

 

$

10,948,810

 

Contract liabilities (2)

 

 

(784,741

)

 

 

(1,008,679

)

 

 

223,938

 

Net contract assets

 

$

19,485,437

 

 

$

8,312,689

 

 

$

11,172,748

 

______________________________________

 

 

 

 

 

 

 

 

 

 

 

 

(1) Contract assets consist of amounts under the caption “Costs and estimated earnings in excess of billings on uncompleted contracts.”

 

(2) Contract liabilities consist of the aggregate of amounts presented under the caption “Billings in excess of costs and estimated earnings on uncompleted contracts” and any contract loss accruals included in “Accounts payable and accrued liabilities.”

 

 

The following table presents the changes in the net contract assets and liabilities for the electrical construction operations for the six months ended June 30, 2020:

 

 

 

$ Change

 

Cumulative adjustment due to changes in contract values (1)

 

$

1,444,985

 

Cumulative adjustment due to changes in estimated costs at completion

 

 

(858,676

)

Revenue recognized in the period

 

 

72,882,569

 

Amounts reclassified to receivables

 

 

(62,477,969

)

Impairment of contract assets (2)

 

 

181,839

 

Total

 

$

11,172,748

 

______________________________________

 

 

 

 

(1) Amount attributable to contract modifications accounted for on a cumulative catch-up basis where the customer has approved a change in the scope or price of the contract, where the modification is treated as part of the existing contract and where the remaining goods and services are not distinct.

 

(2) Adjustment amount due to changes in contract losses.

 

 

For the six months ended June 30, 2020, $0.4 million of the total revenue recognized in the current period was attributable to the contract liability billings in excess of costs and estimated earnings on uncompleted contracts’ balance as of December 31, 2019.

Note 8 – ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures

The Company’s significant accounting policies are detailed in “Note 1: Organization and Summary of Significant Accounting Policies” within Item 8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

To determine the proper revenue recognition method for contracts for electrical construction services, the Company evaluates whether two or more contracts should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. For most of the contracts, the Company provides a significant service of integrating a complex set of tasks and components into a single project or capability. Hence, the entire contract is accounted for as one performance obligation. However, less likely, if a contract is separated into more than one performance obligation, the Company allocates the total transaction price for each performance obligation in an amount based on the estimated relative stand-alone selling prices of the promised goods or services underlying each performance obligation.

The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. The Company generally recognizes revenue over time as it performs because of continuous transfer of control to the customer. Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. The cost-to-cost measure of progress is generally used for its contracts because it best depicts the transfer of control to the customer which occurs as the Company incurs costs on the contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenue is recorded proportionally as costs are incurred.

Due to the nature of the work required to be performed on many of the performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment. The Company estimates variable consideration at the most likely amount which the Company expects to receive. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of all information (historical, current and forecasted) that is reasonably available to the Company.

Contracts are often modified to account for changes in contract specifications and requirements. The Company considers contract modifications to exist when the modification either creates new or changes the existing enforceable rights and obligations. Most of the contract modifications are for goods or services that are not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and our measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

The Company has a standard and disciplined quarterly estimated costs at completion process in which management reviews the progress and execution of our performance obligations. Management must make assumptions and estimates regarding labor productivity and availability, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), and execution by our subcontractors, among other variables. Based on this analysis, any quarterly adjustments to net revenue, cost of electrical construction revenue and the related impact to operating income are recognized as necessary in the period they become known.

The following table disaggregates the Company’s revenue for the dates indicated:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Electrical construction operations (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southeast

 

$

21,256,509

 

 

$

15,478,325

 

 

$

40,632,697

 

 

$

34,829,199

 

mid-Atlantic

 

 

13,728,865

 

 

 

17,415,258

 

 

 

24,143,910

 

 

 

29,468,961

 

Texas-Southwest

 

 

10,854,807

 

 

 

5,882,764

 

 

 

23,344,986

 

 

 

15,423,685

 

Other electrical construction (2)

 

 

832,437

 

 

 

428,021

 

 

 

1,616,417

 

 

 

869,842

 

Total electrical construction operations

 

 

46,672,618

 

 

 

39,204,368

 

 

 

89,738,010

 

 

 

80,591,687

 

Real estate development operations

 

 

1,111,547

 

 

 

5,175,851

 

 

 

2,885,663

 

 

 

11,268,788

 

Total revenue

 

$

47,784,165

 

 

$

44,380,219

 

 

$

92,623,673

 

 

$

91,860,475

 

______________________________________

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Principal electrical construction operations include revenue from transmission lines, distribution systems, substations and drilled pier foundations.

 

(2) Other electrical construction includes revenue from storm work, fiber optics and other miscellaneous electrical construction items.

 

The aggregate amount of the transaction price allocated to performance obligations that were unsatisfied as of June 30, 2020 is $78.0 million. Of this total, $72.0 million is expected to be satisfied within the next twelve months and the remaining balance of $6.0 million is expected to be satisfied thereafter.