Note 2. Costs and Estimated Earnings Related to Billings on Uncompleted Contracts
Information relative to contracts in progress consisted of the following (in thousands):
| February 28, | February 29, | |||||||
| 2013 | 2012 | |||||||
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Costs incurred to date on uncompleted contracts |
$ | 3,900 | $ | 7,499 | ||||
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Estimated earnings recognized to date on these contracts |
2,032 | 4,373 | ||||||
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| 5,932 | 11,872 | |||||||
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Billings to date |
(3,748 | ) | (8,978 | ) | ||||
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Costs and estimated earnings in excess of billings, net |
$ | 2,184 | $ | 2,894 | ||||
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Costs and estimated earnings in excess of billings |
$ | 2,353 | $ | 3,236 | ||||
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Billings in excess of costs and estimated earnings |
(169 | ) | (342 | ) | ||||
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| $ | 2,184 | $ | 2,894 | |||||
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Costs and estimated earnings in excess of billings are the results of contracts in progress (jobs) in completing orders to customers’ specifications on contracts accounted for under FASB ASC Topic 605-35, “Revenue Recognition: Construction-Type and Production-Type Contracts.” Costs included are material, labor, and overhead. These jobs require design and engineering effort for a specific customer purchasing a unique product. The Company records revenue on these fixed-price and cost-plus contracts on the percentage of completion basis using the ratio of costs incurred to estimated total costs at completion as the measurement basis for progress toward completion and revenue recognition. Any losses identified on contracts are recognized immediately. Contract accounting requires significant judgment relative to assessing risks, estimating contract costs and making related assumptions for schedule and technical issues. With respect to contract change orders, claims, or similar items, judgment must be used in estimating related amounts and assessing the potential for realization. These amounts are only included in contract value when they can be reliably estimated and realization is probable. Billings are generated based on specific contract terms, which might be a progress payment schedule, specific shipments, etc. None of the above contracts in progress contains post-shipment obligations.
Changes in job performance, manufacturing efficiency, final contract settlements, and other factors affecting estimated profitability may result in revisions to costs and income and are recognized in the period in which the revisions are determined. The effect of changes in the estimated profitability of contracts for fiscal 2013 was to increase net earnings by approximately $0.5 million pre-tax and $0.3 million after tax above the amounts that would have been reported had the preceding year contract profitability estimates been used. The effect of changes in the estimated profitability of contracts for fiscal 2012 was to increase net earnings by approximately $0.6 million pre-tax and $0.4 million after tax below the amounts that would have been reported had the preceding year contract profitability estimates been used.
As of February 28, 2013 and February 29, 2012, there were no production costs that exceeded the aggregate estimated cost of all in process and delivered units relating to long-term contracts. Additionally, there were no claims outstanding that would affect the ultimate realization of full contract values. As of February 28, 2013 and February 29, 2012, there were no progress payments that had been netted against inventory.