FY2021 10-K Document - FINAL 11 15 21 - Flipbook - Page 51
Table of Contents
Revenue recognized at the point in time control is transferred to the customer is used most frequently in Industrial
Systems. We use this method for commercial contracts in which the asset being created has an alternative use. We
determine the point in time control transfers to the customer by weighing the five indicators provided by ASC 606 - the
entity has a present right to payment; the customer has legal title; the customer has physical possession; the
customer has the significant risks and rewards of ownership; and the customer has accepted the asset. When control
has transferred to the customer, profit is generated as cost of sales is recorded and as revenue is recognized.
Inventory costs include all product manufacturing costs such as direct material, direct labor, other direct costs and
indirect overhead cost allocations. Shipping and handling costs are considered costs to fulfill a contract and not
considered performance obligations. They are included in cost of sales as incurred.
Revenue is recognized on contracts using the cost-to-cost method of accounting as work progresses toward
completion as determined by the ratio of cumulative costs incurred to date to estimated total contract costs at
completion, multiplied by the total estimated contract revenue, less cumulative revenue recognized in prior periods.
We believe that cumulative costs incurred to date as a percentage of estimated total contract costs at completion is an
appropriate measure of progress toward satisfaction of performance obligations as this measure most accurately
depicts the progress of our work and transfer of control to our customers. Changes in estimates affecting sales, costs
and profits are recognized in the period in which the change becomes known using the cumulative catch-up method of
accounting, resulting in the cumulative effect of changes reflected in the period. Estimates are reviewed and updated
quarterly for substantially all contracts. In 2021, we recognized revenues of $11,167 for adjustments made to
performance obligations satisfied (or partially satisfied) in previous periods. In 2020, we recognized revenues of
$15,785 for adjustments made to performance obligations satisfied (or partially satisfied) in previous periods. In 2019,
we recognized revenues of $20,055 for adjustments made to performance obligations satisfied (or partially satisfied)
in previous periods.
Contract costs include only allocable, allowable and reasonable costs which are included in cost of sales when
incurred. For applicable U.S. Government contracts, contract costs are determined in accordance with the Federal
Acquisition Regulations and the related Cost Accounting Standards. The nature of these costs includes development
engineering costs and product manufacturing costs such as direct material, direct labor, other direct costs and indirect
overhead costs. Contract profit is recorded as a result of the revenue recognized less costs incurred in any reporting
period. Variable consideration and contract modifications, such as performance incentives, penalties, contract claims
or change orders are considered in estimating revenues, costs and profits when they can be reliably estimated and
realization is considered probable. As of October 2, 2021, revenue recognized on contracts for unresolved claims or
unapproved contract change orders was not material.
As of October 2, 2021, we had contract reserves of $58,857. For contracts with anticipated losses at completion, a
provision for the entire amount of the estimated remaining loss is charged against income in the period in which the
loss becomes known. Contract losses are determined considering all direct and indirect contract costs, exclusive of
any selling, general or administrative cost allocations that are treated as period expenses. Loss reserves are more
common on firm fixed-price contracts that involve, to varying degrees, the design and development of new and unique
controls or control systems to meet the customers’ specifications. In accordance with ASC 606, we calculate contract
losses at the contract level, versus the performance obligation level. Recall reserves are recorded when additional
work is needed on completed products for them to meet contract specifications. Contract-related loss reserves are
recorded for the additional work needed on completed and delivered products in order for them to meet contract
specifications.
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