Summary of Significant Accounting Policies
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Basis of Presentation
FPI has historically prepared its external financial
statements in conformity with accounting principles
generally accepted in the United States of America (US
GAAP), based on accounting standards issued by the
Financial Accounting Standards Board (FASB), the
private sector standards-setting body. The Federal
Accounting Standards Advisory Board (FASAB) has
been designated as the standards-setting body for
federal financial reporting entities with respect to the
establishment of US GAAP. FASAB has indicated,
however, that accounting standards published by FASB
may also be in accordance with US GAAP for those
federal entities, including FPI, that have issued such
financial statements in the past.
Use of Estimates
The preparation of financial statements in conformity
with US GAAP requires management to make
estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the
date of the financial statements and
reported amounts of revenues and
expenses during the reporting
period. Actual results may differ from
those estimates.
Cash and Cash Equivalents
FPI considers all highly liquid
investments purchased with an
original maturity of three months or
less to be cash equivalents. FPI limits
its investment activities and cash
equivalents to short-term overnight
repurchase agreements with the
United States Department of the
Treasury, and does not have any
foreign currency investments, nor
does it accept payment from
customers in foreign currency. The
market value of these overnight
repurchase agreements is equivalent
to cost. Certain portions of FPI’s
cash balance have been internally
restricted to provide for future debt
repayment (Note 8) and to fund
future purchases of raw materials for
its manufacturing operations.
Accounts Receivable/Concentration of Credit Risk
Financial instruments that potentially
subject FPI to concentrations of
credit risk consist primarily of
accounts receivable. FPI sells
products and services to various
federal government departments,
agencies and bureaus, as well as
certain private sector companies,
without requiring collateral.
Accounts receivable consists of
amounts due from those entities and
is stated net of an allowance for
doubtful accounts.
At September 30, 2001 and 2000, FPI billings to various entities within the United States Department of Defense (DOD) represented approximately 83% and 68% of outstanding accounts receivable, respectively. For the fiscal year ended September 30, 2001, sales to various entities within DOD and the United States Department of Justice represented approximately 63% and 11% of revenue, respectively. For the fiscal year ended September 30, 2000, sales to the various entities within DOD represented approximately 51% of revenue.
FPI routinely assesses the payment histories of its federal customers and the financial strength of its private sector customers and maintains allowances for anticipated losses as they become evident. In this regard, a significant amount of accounts receivable remained past due at September 30, 2001 and 2000. A majority of these past due items related to billings to various entities within DOD who rely on the Defense Finance and Accounting Service (DFAS) to process vendor payments. Historically, customer payments processed through DFAS have generally taken longer to receive than payments from other federal and private sector customers. Additionally, the September 11, 2001 terrorist attack on the United States of America, including the Pentagon building, resulted in the destruction of vendor payment records related to FPI; subsequently, FPI has been assisting Pentagon personnel in the reconstruction of their data files in order to process past-due FPI billings for payment. FPI believes that ultimately, a majority of its past-due accounts receivable are fully collectable.
However, although federal accounts receivable are deemed fully collectible in accordance with federal law, FPI has established a general provision for future losses against its federal accounts receivable to account for potential billing errors related to pricing and customer discounts, as well as, instances of expired or cancelled funding from its federally appropriated customers. At September 30, 2001 and 2000, FPI’s allowance for doubtful accounts is stated at approximately $5,778,000 and $6,674,000, respectively, of which approximately $4,781,000 and $6,074,000, respectively, represents the amounts allocated against federal accounts receivable.
Inventories
Inventories are valued at the lower of average cost or
market value (LCM) and include materials, labor and
manufacturing overhead. Market value is calculated on
the basis of the contractual or anticipated selling price,
less allowances, to maintain a target gross margin for
each product. FPI values its finished good and sub-assembly
items at a standard cost that is periodically
adjusted to approximate actual cost. Standard costs
approximate actual costs.
FPI has established inventory allowances to account for LCM adjustments and excess and/or obsolete items that may not be utilized in future periods.
Other Assets
Other assets include advances to suppliers, other
receivables and prepayments.
Revenue Recognition
FPI sells a wide range of products and services to a
diversified base of customers, primarily governmental
departments, agencies and bureaus. Revenue is
generally recognized upon shipment of goods to
customers and upon performance of services.
Revenue from long-term or fixed price contracts is
recognized using generally accepted contract
accounting methods. Revenue from contracts that
specify a customer acceptance criteria is not
recognized until either customer acceptance is
obtained or upon completion of the contract.
Provisions for anticipated contract losses are
recognized at the time that they become evident.
Cost of sales is comprised primarily of inventory cost, consisting of raw materials, labor and manufacturing overhead, and labor costs for services performed and provisions for anticipated contract losses.
Deferred revenue is comprised of customer cash advances, which have been paid to FPI prior to the manufacturing of goods, delivery of goods, or performance of services.
Other income is comprised primarily of imputed financing for retirement, health benefits and life insurance (Note 10) and miscellaneous sales net of the associated cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net
of an allowance for accumulated depreciation.
Donated property and equipment, which is recorded
at its appraised value at the date of donation,
principally relates to property and equipment
transferred from other federal government agencies
and bureaus. Depreciation is computed using the
straight-line method over the estimated useful lives of
the assets, which generally range between 5 and 40
years. Upon retirement or disposition of property and
equipment, the related gain or loss is reflected in the
statement of operations. Repairs and maintenance
costs are expensed as incurred.
FPI adopted the provisions of SFFAS No. 10, Accounting for Internal Use Software, for the fiscal year ended September 30, 2001.
Taxes
As a wholly-owned corporation of the federal
government, FPI is exempt from federal and state
income taxes, gross receipts tax, and property taxes.
Reclassifications
Certain fiscal year 2000 financial statement line items
have been reclassified to conform with the current
year presentation.
