| 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, summary of significant accounting policies, and the related notes included
in our Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated December 31,
2018 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 Fair
Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic 820).”
Among other modifications, the standard removes the requirements to disclose: (i) the amount of and reasons for transfers between
Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process
for Level 3 FV measurements. The standard will require public entities to disclose: (a) the changes in unrealized gains and losses
for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the reporting period;
and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For
certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity
determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable
inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the
most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively
to all periods presented. The amendments in this standard are effective for fiscal years ending after December 15, 2019. Early
adoption is permitted, and an entity may adopt the removed or modified disclosures and delay the adoption of new disclosures until
the effective date. We have not completed our assessment of the standard but we do not expect the adoption to have a material
impact on the Company's consolidated financial position, results of operations and cash flows. Recently
Adopted Accounting Pronouncements Leases.
In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model for leases. The most significant
changes include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use
asset and a lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are
designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.
Expenses are recognized in the consolidated statement of income in a manner similar to current accounting guidance. Lessor accounting
under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective January
1, 2019, using the transition approach, which applies the provisions of the new guidance at the effective date without adjusting
the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance
within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification
and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial
term of 12 months or less off the consolidated balance sheet. We have finalized our evaluation of the impacts that the adoption
of this accounting guidance on the consolidated financial statements and have approximately $400 of right-of-use assets, included
in property and equipment, and liabilities recognized in our consolidated balance sheet, amortized over the expected lives of
the leases upon adoption. Comprehensive
Income. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220).”
This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCI”)
to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard
was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make
this reclassification. Measurement
of Credit Losses on Financial Instruments. In June 2016 ,
the FASB issued guidance on the measurement of credit losses on certain financial instruments. The guidance introduces a new impairment
model known as the current expected credit loss model that will replace the incurred loss impairment methodology currently included
under GAAP. This guidance requires entities to present certain investments in debt securities, trade accounts receivable and other
financial assets at their net carrying value of the amount expected to be collected on the financial statements. The guidance
will be effective for the Company on January 1, 2020, and must be applied on a modified retrospective basis with early
adoption permitted. The Company does not expect the guidance to have a material impact on its results of operations, financial
position, cash flows and disclosures. 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. 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 control of the product. Accounts
Receivable and Contract Balances The
timing of when we bill our customers is generally dependent upon 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 June 30, 2019 and December 31, 2018, accounts receivable included contract retentions of approximately
$1,576 and $1,704, 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, 2019 and December 31, 2018,
our allowances for doubtful accounts were $270 and $214, respectively. 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, included in "Deferred buy-back lease obligation" in the liabilities
section of the consolidated balance sheet, is deferred until the buy-back is exercised or expired. The remaining sale proceeds
are deferred in the same account 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 shown in "Deferred buy-back lease asset, net", and depreciates the value, less
residual value, to cost of leasing revenue in "Cost of goods sold" 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 buyback 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 buyback 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 "Inventories" or "Property and equipment, net" depending on the intended use at the time. 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 Royalty
Income The
Company licenses certain products to other precast companies to manufacture 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:
Revenue
by Type Three
Months Ended June 30 Six
Months Ended June 30
2019 2018 Change %
of Change 2019 2018 Change %
of Change
Soundwall
Sales $ 1,939 $ 2,525 $ (586 ) (23 )% $ 4,053 $ 5,005 $ (952 ) (19 )%
Architectural
Panel Sales 424 245 179 73 % 424 457 (33 ) (7 )%
SlenderWall
Sales 772 1,422 (650 ) (46 )% 2,735 2,565 170 7 %
Miscellaneous
Wall Sales 406 267 139 52 % 769 759 10 1 %
Barrier
Sales 1,817 1,590 227 14 % 3,408 3,875 (467 ) (12 )%
Easi-Set
and Easi-Span Building Sales 1,335 560 775 138 % 2,369 1,062 1,307 123 %
Utility
Sales 449 246 203 83 % 757 460 297 65 %
Miscellaneous
Sales 185 88 97 110 % 316 213 103 47 %
Total
Product Sales 7,327 6,943 384 6 % 14,831 14,396 435 3 %
Barrier
Rentals 582 340 242 71 % 1,163 649 514 79 %
Royalty
Income 429 506 (77 ) (15 )% 735 727 8 1 %
Shipping
and Installation Revenue 2,514 2,044 470 23 % 4,312 3,186 1,126 35 %
Total
Service Revenue 3,525 2,890 635 22 % 6,210 4,562 1,648 36 %
Total
Revenue $ 10,852 $ 9,833 $ 1,019 10 % $ 21,041 $ 18,958 $ 2,083 11 % 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
minor reclassifications have been made to prior year amounts to conform to current year presentation, including separation of
current and non-current portion of deferred revenue and deferred buy-back lease obligation. |
