Quarterly report pursuant to Section 13 or 15(d)

ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures

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ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures
9 Months Ended
Sep. 30, 2018
Revenue from Contract with Customer [Abstract]  
ASC 606 Revenue Recognition and Significant Accounting Policies Disclosures
Contract Assets and Contract Liabilities
On January 1, 2018 the Company adopted the new accounting standard ASC 606 and all the related amendments (“new revenue standard”) to all applicable contracts using the modified retrospective method. Applicable contracts did not include contracts considered substantially complete. Contracts that were modified before the beginning of the earliest period presented were not retrospectively restated. Instead, the Company reflected the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price as of the date of adoption. Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows.
The following table presents the net contract assets and liabilities for the electrical construction operations as of the dates indicated:
 
 
September 30, 2018
 
December 31, 2017
 
$ Change
Contract assets (1)
 
$
15,003,984

 
$
6,074,346

 
$
8,929,638

Contract liabilities (2)
 
(500,668
)
 
(367,552
)
 
(133,116
)
Net contract assets
 
$
14,503,316

 
$
5,706,794

 
$
8,796,522

___________________________
 
 
 
 
 
 
(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 nine months ended September 30, 2018 as indicated:
 
 
$ Change
 
 
Nine Months Ended September 30, 2018
Cumulative adjustment due to changes in contract values (1)
 
$
1,772,580

Cumulative adjustment due to changes in estimated costs at completion
 
(1,497,414
)
Revenue recognized in the period
 
73,092,227

Amounts reclassified to receivables
 
(64,600,899
)
Impairment of contract assets (2)
 
30,028

Total
 
$
8,796,522

___________________________
 
 
(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 nine months ended September 30, 2018, $166,000 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, 2017.
Revenue Recognition and Significant Accounting Policies Disclosures
On January 1, 2018, the Company adopted the new revenue standard ASC 606 and all the related amendments (“new revenue standard”). Adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, results of operations and cash flows. The Company concluded that the cumulative effect of initially applying the new revenue standard was immaterial and consequently did not record an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company does not expect the adoption of the new revenue standard to have a material impact to its financial position, results of operations and cash flows on an ongoing basis.
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, 2017. Changes to the Company’s accounting policies as a result of adopting the new revenue standard are discussed below.
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 three and nine month periods ended September 30 as indicated:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Electrical construction operations (1)
 
 
 
 
 
 
 
 
Southeast
 
$
13,893,392

 
$
11,061,326

 
$
41,718,479

 
$
45,061,284

mid-Atlantic
 
10,412,435

 
6,295,504

 
30,273,368

 
17,808,885

Texas-Southwest (4)
 
3,124,521

 
82,272

 
23,614,488

 
11,275,976

Other electrical construction (2), (4)
 
2,084,617

 
6,177,271

 
4,236,316

 
7,723,342

Total
 
29,514,965

 
23,616,373

 
99,842,651

 
81,869,487

All Other (3)
 
1,777

 
890,842

 
1,620,031

 
2,471,473

Total revenue
 
$
29,516,742

 
$
24,507,215

 
$
101,462,682

 
$
84,340,960

___________________________
 
 
 
 
 
 
 
 
(1) Principal electrical construction operations includes 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.
(3) Mainly real estate construction revenue.
(4) Amounts have been reclassified from the “Texas-Southwest” regions to “Other electrical construction,” since these amounts are associated with storm work. This reclassification had no impact on the total revenue reported for electrical construction operations. The quarter to date amounts reclassified for Q1 2018 and Q2 2018, were $921,722 and $50,093, respectively.

The Company would have recognized $216,000 less revenue under legacy accounting practices for the nine months ended September 30, 2018, than it did under the new revenue standard. This was attributable to the assessment of variable consideration and performance obligations within our contractual arrangements.
The aggregate amount of the transaction price allocated to performance obligations that are unsatisfied as of September 30, 2018 was $35.4 million, all of which is expected to be satisfied within the next twelve months.