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Interim Financial Reporting | 9 Months Ended
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Sep. 30, 2018
INTERIM FINANCIAL REPORTING [Abstract] |
Interim Financial Reporting | INTERIM FINANCIAL REPORTING Basis of Presentation The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, and with the instructions to Form 10-Q and Article 10 and Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2017. The condensed consolidated December 31, 2017 balance sheet was derived from the audited financial statements included in the Form 10-K. Dollar amounts in the footnotes are stated in thousands, except for per share data. In the opinion of management, these condensed consolidated financial statements reflect all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operations are not necessarily indicative of the results to be expected in any future periods. Recent Accounting Pronouncements On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). Adoption of this ASU requires lessees to recognize assets and liabilities for most leases. For public business entities the guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, and interim periods within those annual periods and early adoption is permitted. The Company is currently evaluating the impact of adoption on the Company’s financial position, results of operations and cash flows. Recently Adopted Accounting Pronouncements On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Adoption of this ASU requires that an entity recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The standard allowed for application retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective method). The Company adopted the new revenue guidance effective January 1, 2018 using the modified retrospective method to all contracts that were not substantially complete at the date of adoption. The adoption of Topic 606 did not have, and is not expected to have, a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition policies. Accordingly, there was no adjustment recorded to beginning retained earnings for the cumulative impact of adoption on January 1, 2018. Revenue Recognition Product Sales - Over Time Under Topic 606, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers is recognized over time as the Company's performance creates or enhances customer controlled assets or creates or enhances an asset with no alternative use, which the Company has an enforceable right to receive compensation as defined under the contract for performance completed. To determine the amount of revenue to recognize over time, the Company recognizes revenue over the contract terms based on the output method. The Company applied the "as-invoiced" practical expedient as the amount of consideration the Company has the right to invoice corresponds directly with the value of the Company's performance to date. As the output method is driven by units produced, the Company recognizes revenues based on the value transferred to the customer relative to the remaining value to be transferred. The Company also matches the costs associated with the units produced. If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined and the amount of the loss updated in subsequent reporting periods. Revenue recognition also includes an amount related to a contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract asset is recorded in accounts receivable - unbilled. Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in customer deposits on uncompleted contracts. Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and therefore, profit and revenue recognition. A portion of the work the Company performs requires financial assurances in the form of performance and payment bonds or letters of credit at the time of execution of the contract. Some contracts include retention provisions of up to 10% which are generally withheld from each progress payment as retainage until the contract work has been completed and approved. Product Sales - Point in Time For certain product sales that do not meet the over time criteria, under Topic 606 the Company recognizes revenue when the product has been shipped to the destination in accordance with the terms outlined in the contract where a present obligation to pay exists as they have gained physical possession of the product. Accounts Receivable and Contract Balances The timing of when we bill our customers is generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings, are reported on our Condensed Consolidated Balance Sheets as "Accounts receivable - unbilled". Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimate earnings recognized to date, are reported on our Condensed Consolidated Balance Sheets as customer deposits (i.e. contract liabilities). Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At September 30, 2018 and December 31, 2017, accounts receivable included contract retentions (in thousands) of approximately $1,596 and $1,065, respectively. Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for specifically-identified potential uncollectible receivables. At June 30, 2018 and December 31, 2017, our allowances for doubtful accounts (in thousands) were $246 and $208, respectively. Effect of Adopting ASC Topic 606 As discussed in Recently Adopted Accounting Pronouncements, no adjustment to beginning 2018 retained earnings was recorded as a result of our adoption of Topic 606 due to no changes in the methods and/or timing of our revenue recognition for our uncompleted contracts. Further, the difference in our results of the first three quarters of 2018 between application of the new standard on our contracts and what results would have been if such contracts had been reported using the accounting standards previously in effect, for such contracts, did not change. Sale to Customer with a Buy-Back Guarantee The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back product at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company receives payment in full as the product is produced, we are required to account for these transactions as operating leases. The amount of sale proceeds equal to the buy-back obligation is deferred until the buy-back is exercised or expired. The remaining sale proceeds are deferred and recognized on a straight-line basis over the usage period, such usage period commencing on delivery to the job-site and ending at the time the buy-back is exercised or expired. The Company capitalizes the cost of the product on the consolidated balance sheet as a deferred buy-back lease asset, net, and depreciates the value, less residual value, to cost of leasing revenue over the estimated useful life of the asset. In the case the customer does not exercise the buy-back option and retains ownership of the product at the end of the usage period, the guarantee buy-back liability and any deferred revenue balances related to the product are settled to revenue, and the net book value of the asset is expensed to cost of leasing revenue. If the customer exercises the buy-back guarantee option, the Company purchases the product back in the amount equal to the buy-back guarantee, we settle any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and we reclassify the net book value of the product on the consolidated balance sheet to inventory. The revenue is being recognized in accordance with Topic 840, Leases. Barrier Rentals - Leasing Fees Leasing fees are paid by customers at the beginning of the lease agreement and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 840, Leases. Topic 840 is applied, as Topic 606-10-15-2 provides a scope exception for lease contracts. Royalty Income The Company licenses certain products to other precast companies to produce the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid on a monthly basis. The revenues from licensing agreements are recognized in the month earned, in accordance with Topic 606-10-55-65. Shipping and Installation Shipping and installation revenues are recognized as a distinct performance obligation in the period the shipping and installation services are provided to the customer, in accordance with Topic 606. Disaggregation of Revenue In the following table, revenue is disaggregated by primary sources of revenue (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2018 | 2017 | Change | % of Change |  | 2018 | 2017 | Change | % of Change
Product Sales: |  |  |  |  |  |  |  |  |
Soundwall Sales | $ | 2,334 |  | $ | 2,368 |  | $ | (34 | ) | (1)% |  | $ | 7,339 |  | $ | 5,024 |  | $ | 2,315 |  | 46%
Architectural Panel Sales | 41 |  | 551 |  | (510 | ) | (93)% |  | 498 |  | 569 |  | (71 | ) | (12)%
SlenderWall Sales | 1,637 |  | 913 |  | 724 |  | 79% |  | 4,203 |  | 912 |  | 3,291 |  | 361%
Miscellaneous Wall Sales | 87 |  | 639 |  | (552 | ) | (86)% |  | 846 |  | 2,012 |  | (1,166 | ) | (58)%
Barrier Sales | 1,749 |  | 3,615 |  | (1,866 | ) | (52)% |  | 5,624 |  | 9,684 |  | (4,060 | ) | (42)%
Easi-Set and Easi-Span Building Sales | 496 |  | 730 |  | (234 | ) | (32)% |  | 1,557 |  | 2,127 |  | (570 | ) | (27)%
Utility and Farm Product Sales | 429 |  | 322 |  | 107 |  | 33% |  | 890 |  | 1,129 |  | (239 | ) | (21)%
Miscellaneous Product Sales | 55 |  | 157 |  | (102 | ) | (65)% |  | 267 |  | 396 |  | (129 | ) | (33)%
Total Product Sales | 6,828 |  | 9,295 |  | (2,467 | ) | (27)% |  | 21,224 |  | 21,853 |  | (629 | ) | (3)%
Barrier Rentals | 540 |  | 319 |  | 221 |  | 69% |  | 1,188 |  | 3,145 |  | (1,957 | ) | (62)%
Royalty Income | 465 |  | 483 |  | (18 | ) | (4)% |  | 1,193 |  | 1,387 |  | (194 | ) | (14)%
Shipping and Installation Revenue | 1,711 |  | 1,384 |  | 327 |  | 24% |  | 4,897 |  | 5,321 |  | (424 | ) | (8)%
Total Service Revenue | 2,716 |  | 2,186 |  | 530 |  | 24% |  | 7,278 |  | 9,853 |  | (2,575 | ) | (26)%
Total Revenue | $ | 9,544 |  | $ | 11,481 |  | $ | (1,937 | ) | (17)% |  | $ | 28,502 |  | $ | 31,706 |  | $ | (3,204 | ) | (10)%
Warranties Smith-Midland products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for these types of expense, historically the amount of expense is minimal. Use of Estimates The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Segment Reporting Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. The Company currently operates in one operating and reportable business segment for financial reporting purposes. Reclassifications of Certain Items Included within Comparable Prior Year Periods and Previous Current Year Interim Periods Certain reclassifications of amounts within the Company’s first and second quarter 2018 Form 10-Q filings have been made in this filing to conform to current period presentation. Specifically, during the quarter ended September 30, 2018, the Company determined that the amount related to the Deferred buy-back lease asset as reflected within one line in the operating activities section of the condensed consolidated statement of cash flows for the three and six months ended March 31, 2018 and June 30, 2018, respectively, should have been classified as cash flows used in investing activities. There is no impact to the condensed consolidated statements of operations or condensed consolidated balance sheets. The Company evaluated the effect of this misclassification and concluded it was not material to any of its previously issued condensed consolidated financial statements. Upon revision, cash flows from operating activities for the three and six month periods ended March 31, 2018 and June 30, 2018 will increase by $1,076 and $2,986, respectively to cash and cash equivalents (used in) provided by operating activities of $(427) and $1,647, respectively and cash flows used in investing activities will increase by $1,076 and $2,986, respectively to cash and cash equivalents used in investing activities of $1,906 and $3,992, respectively. Certain minor reclassifications have been made to prior year amounts to conform to current year presentation. Use tax was reclassified to Cost of goods sold from General and administrative expenses on the Condensed Consolidated Statements of Operations for the three and nine months ending September 30, 2018 of $78 and $243, respectively, and $60 and $86 for the three and nine months ended September 30, 2017, respectively. There was no impact to net income for the periods.

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