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Revenue From Contracts With Customers | 3 Months Ended
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Mar. 31, 2018
Revenue from Contract with Customer [Abstract] |
Revenue From Contracts With Customers |
3. | Revenue from Contracts with Customers
On January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers (“new revenue standard”) to all contracts using the modified retrospective method. The adoption of the new revenue standard had no material impact on our condensed consolidated financial statements as it did not require a change in revenue recognition for either of our segments. As such, comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. We applied the new revenue standard's practical expedients as follows: ASC 606-10-65-1 permits the omission of prior-period information about our remaining performance obligations. ASC 606-10-32-18 allows the application of the new revenue recognition standard to a portfolio of contracts (or performance obligations) with similar characteristics rather than on a contract by contract basis. As the majority of our significant contracts are with government entities and major homebuilders that utilize contracts of a similar structure and nature, this approach would not yield a material difference from applying the guidance on a contract by contract basis. ASC 606-10-32-18 allows entities to waive the requirement to adjust the consideration amount for the effects of a significant financing component if the entity expects, at contract inception, that the period between its fulfillment of the performance obligation and receipt of the customer's payment is less than one year. ASC 606-10-32-2A allows entities to make an accounting policy election to exclude taxes assessed by and collected on behalf of government authorities from the transaction price allocated to the performance obligation. We have historically excluded such amounts from our revenues and will continue to do so under the new revenue standard. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in the new revenue standard. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product life cycle (design and construction). For contracts with multiple performance obligations, we allocate the contract transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service. Performance Obligations Satisfied Over Time Revenue for our contracts that satisfy the criteria for over time recognition is recognized as the work progresses. The majority of our revenue is derived from long-term, heavy civil construction contracts and projects that typically span between 12 to 36 months. Our heavy civil construction contracts will continue to be recognized over time because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay us for costs incurred plus a reasonable profit and take control of any work in process. Under the new revenue standard, the cost-to-cost measure of progress continues to best depict the transfer of control of assets to the customer, which occurs as we incur costs. Contract costs include labor, material, and indirect costs. Revenue from products and services transferred to customers over time accounted for 84% and 100% of our revenue for the three months ended March 31, 2018 and 2017, respectively. Performance Obligations Satisfied at a Point in Time Revenue for our contracts that do not satisfy the criteria for over time recognition is recognized at a point in time. Substantially all of our revenue recognized at a point in time is for work performed by our residential construction segment. Unlike our heavy civil construction segment that uses a cost-to-cost input measure for performance, the residential construction segment utilizes an output measure for performance based on the completion of a unit of work (e.g., PO/job/slab). The typical time frame for completion of a residential slab is less than one month. Upon fulfillment of the performance obligation, the customer is provided an invoice (or equivalent) demonstrating transfer of control to the customer. We believe that point in time recognition remains appropriate for this segment and will continue to recognize revenues upon completion of the performance obligation and issuance of an invoice. Revenue from goods and services transferred to customers at a point in time accounted for 16% and 0% of our revenue for the three months ended March 31, 2018 and 2017, respectively. Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. Assurance-type warranties are the only warranties provided by the company and, as such, we do not recognize revenue on warranty-related work. Pre-contract costs are generally charged to expense as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. We had no significant deferred pre-contract costs at March 31, 2018. Backlog On March 31, 2018, we had $885 million of remaining performance obligations in our heavy civil construction segment, which we also refer to as backlog. We expect to recognize approximately 61% of our backlog as revenue during the remainder of 2018, and the balance thereafter. Contract Estimates Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract. Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability, the complexity of the work to be performed, the cost and availability of materials, and the performance of subcontractors. Variable Consideration Transaction price for our contracts may include variable consideration, which includes increases to transaction price for approved and unapproved change orders, claims and incentives, and reductions to transaction price for liquidated damages. Change orders, claims and incentives are generally not distinct from the existing contract due to the significant integration service provided in the context of the contract and are accounted for as a modification of the existing contract and performance obligation. We estimate variable consideration for a performance obligation at the most likely amount to which we expect to be entitled (or the most likely amount we expect to incur in the case of liquidated damages), utilizing estimation methods that best predict the amount of consideration to which we will be entitled (or will be incurred in the case of liquidated damages). We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us. The effect of variable consideration on the transaction price of a performance obligation is recognized as an adjustment to revenue on a cumulative catch-up basis. To the extent unapproved change orders and claims reflected in transaction price (or excluded from transaction price in the case of liquidated damages) are not resolved in our favor, or to the extent incentives reflected in transaction price are not earned, there could be reductions in, or reversals of, previously recognized revenue. No adjustment on any one contract was material to our condensed consolidated financial statements for the three months ended March 31, 2018, and March 31, 2017. Revenue by Segment The following table presents total revenue from operations by reportable segment for the three months ended March 31, 2018 and 2017 (amounts in thousands):
|  | Three Months Ended March 31,
|  | 2018 |  | 2017
Revenue |  |  |  |  |  |
Heavy Civil Construction |  | $ | 187,241 |  |  | $ | 153,416 |
Residential Construction |  | 35,251 |  |  | — |
Total Revenue |  | $ | 222,492 |  |  | $ | 153,416 |
Our residential construction segment recognizes revenue at a point in time, unchanged from prior revenue recognition guidance. As we complete a unit of work (e.g., PO, job, slab), which typically is less than one month, our leading homebuilder customers are provided an invoice (or equivalent) demonstrating the transfer of control. The residential construction segment's revenue population is homogeneous in terms of customer type, end market, duration and risk profile and, as such, is excluded from the tables below. Revenue by Category Our heavy civil construction segment's portfolio of products and services consists of over 150 active contracts. The following series of tables presents our heavy civil construction revenue disaggregated by several categories. Revenue by major end market (amounts in thousands):
|  | Three Months Ended March 31,
|  | 2018 |  | 2017
Heavy Highway |  | $ | 107,408 |  |  | $ | 109,385 |
Water Containment and Treatment |  | 14,995 |  |  | 9,596 |
Aviation |  | 23,252 |  |  | 10,590 |
Commercial and Other |  | 41,586 |  |  | 23,845 |
Heavy Civil Construction Revenue |  | $ | 187,241 |  |  | $ | 153,416 |
Revenue by contract type (amounts in thousands):
|  | Three Months Ended March 31,
|  | 2018 |  | 2017
Fixed Unit Price |  | $ | 160,236 |  |  | $ | 144,361 |
Lump Sum and Other |  | 27,005 |  |  | 9,055 |
Heavy Civil Construction Revenue |  | $ | 187,241 |  |  | $ | 153,416 |
Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with lump-sum contracts. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Under fixed-unit price contracts, our profit may vary if actual labor-hour costs vary significantly from the negotiated rates. Also, because these contracts can provide little or no fee for managing material costs, the content mix can impact profitability. Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable and costs and estimated earnings in excess of billings on uncompleted contracts (contract assets) on the condensed consolidated balance sheet. In our heavy civil construction segment, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, before revenue is recognized, resulting in billings in excess of costs and estimated earnings on uncompleted contracts (contract liabilities). These assets and liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each reporting period. Changes in the contract asset and liability balances during the three month period ended March 31, 2018, were not materially impacted by any other factors. The table below reconciles the net excess billings to the amounts included in the condensed consolidated balance sheets at those dates (amounts in thousands).
| As of March 31,
| 2018 |  | 2017
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 40,013 |  |  | $ | 34,475 |
Billings in excess of costs and estimated earnings on uncompleted contracts | (54,689 | ) |  | (62,656 | )
Net amount of costs and estimated earnings on uncompleted contracts below billings | $ | (14,676 | ) |  | $ | (28,181 | )
Revenues recognized and billings on uncompleted contracts include cumulative amounts recognized as revenues and billings in prior periods. This revenue primarily represents progress on our construction jobs.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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