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REVENUES FROM CONTRACTS WITH CUSTOMERS | 9 Months Ended
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Oct. 31, 2019
REVENUES FROM CONTRACTS WITH CUSTOMERS |
REVENUES FROM CONTRACTS WITH CUSTOMERS | NOTE 2 – REVENUES FROM CONTRACT WITH CUSTOMERS The new standard outlines a single comprehensive five-step model for entities to use in accounting for revenues arising from contracts with customers that requires reporting entities to:
| 1. |  | Identify the contract,
| 2. |  | Identify the performance obligations of the contract,
| 3. |  | Determine the transaction price of the contract,
| 4. |  | Allocate the transaction price to the performance obligations, and
| 5. |  | Recognize revenue.
The Company focuses on the transfer of the contractor’s control of the goods and/or services to the customer, as opposed to the transfer of risk and rewards. Major provisions of the new standard cover the determination of which goods and services are distinct and represent separate performance obligations, the appropriate treatments for variable consideration, and the evaluation of whether revenues should be recognized at a point in time or over time. When a performance obligation is satisfied over time, the related revenues are recognized over time. Most of the Company’s revenues are recognized primarily under various types of long-term construction contracts, including those for which revenues are based on either a fixed-price or a time-and-materials basis, and primarily over time as performance obligations are satisfied due to the continuous transfer of control to the project owner or other customer. Revenues from fixed-price contracts, including a portion of estimated gross profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the percentage-of-completion method. If, at any time, the estimate of contract profitability indicates an anticipated loss on a contract, the Company will recognize the total loss in the reporting period that it is identified and an amount is estimable. Revenues from time-and-materials contracts are recognized when the related services are provided to the customer. Most of the Company’s long-term contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist in a single contract, they are not typically distinct within the context of the applicable contract because the contract promises are interrelated or they require the Company to perform critical integration so that the customer receives a completed project. The transaction price for a contract represents the value of the contract awarded to the Company that is used to determine the amount of revenues recognized as of the balance sheet date. It may reflect amounts of variable consideration, which could be either increases or decreases to the transaction price. These adjustments can be made from time-to-time during the period of contract performance as circumstances evolve related to such items as changes in the scope and price of contracts, claims, incentives and liquidated damages. Contract assets are defined in the new standard to include amounts that represent the rights to receive payment for goods or services that have been transferred to the project owner, with the rights conditional upon something other than the passage of time. Contract liabilities are defined in the new standard to include the amounts that reflect obligations to provide goods or services for which payment has been received. In addition, the definition of accounts receivable has been restated to effectively exclude billed amounts retained by project owners until a defined phase of a contract or project has been completed and accepted. Retentions were historically included in accounts receivable, but are now reflected in contract assets or contract liabilities depending on the net contract position of the particular contract. Retention amounts and the length of retention periods may vary. Retainage amounts related to active contracts are considered current regardless of the term of the applicable contract; such amounts are generally collected by the completion of the applicable contract. The total of amounts retained by project owners under construction contracts at October 31 and January 31, 2019 were $20.3 million and $15.3 million, respectively. Variable Consideration Amounts for contract variations for which the Company has project-owner directive for additional work or other scope change, but not for the price associated with the corresponding additional effort, are included in the transaction price when it is considered probable that the applicable costs will be recovered through a modification to the contract price. The aggregate amount of such contract variations included in the transaction prices that were used to determine project-to-date revenues at October 31 and January 31, 2019, were $20.6 million and $18.8 million, respectively. The effects of any revision to a transaction price can be determined at any time and they could be material. The Company may include in the corresponding transaction price a portion of the amount claimed in a dispute that it expects to receive from a project owner. Once a settlement of the dispute has been reached with the project owner, the transaction price may be revised again to reflect the final resolution. Variations related to the Company’s contracts typically represent modifications to the existing contracts and performance obligations, and do not represent new performance obligations. Actual costs related to any changes in the scope of the corresponding contract are expensed as they are incurred. Changes to total estimated contract costs and losses, if any, are reflected in operating results for the period in which they are determined. The Company’s long-term contracts typically have schedule dates and other performance objectives that if not achieved could subject the Company to liquidated damages. These contract requirements generally relate to specified activities that must be completed by an established date or by the achievement of a specified level of output or efficiency. Each applicable contract defines the conditions under which a project owner may be entitled to liquidated damages. At the outset of each of the Company’s contracts, the potential amounts of liquidated damages typically are not constrained, or subtracted, from the transaction price as the Company believes that it has included activities in its contract plan, and the associated costs, that will be effective in preventing such damages. Of course, circumstances may change as the Company executes the corresponding contract. The transaction price is reduced by an applicable amount when the Company no longer considers it probable that a future reversal of revenues will not occur when the matter is resolved. The Company considers potential liquidated damages, the costs of other related items and potential mitigating factors in determining the adequacy of its regularly updated estimates of the amounts of gross profit expected to be earned on active projects. In other cases, the Company may have the grounds to assert liquidated damages against subcontractors, suppliers, project owners or other parties related to a project. Such circumstances may arise when the Company’s activities and progress are adversely affected by delayed or damaged materials, challenges with equipment performance or other events out of the Company’s control where the Company has rights to recourse, typically in the form of liquidated damages. In general, the Company does not adjust the corresponding contract accounting until it is probable that the favorable cost relief will be realized. Such adjustments have been and could be material. The Company records adjustments to revenues and profits on contracts, including those associated with contract variations and estimated cost changes, using a cumulative catch-up method. Under this method, the impact of an adjustment to the amount of revenues recognized to date is recorded in the period that the adjustment is identified. Estimated variable consideration amounts are determined by the Company based primarily on the single most likely amount in the range of possible consideration amounts. Revenues and profits in future periods of contract performance are recognized using the adjusted amounts of transaction price and estimated contract costs. In its Form 10-K Annual Report for the year ended January 31, 2019, the Company disclosed that APC is completing a power-plant construction project in the United Kingdom that has encountered significant operational and contractual challenges, and that the consolidated operating results for the year ended January 31, 2019 reflected unfavorable gross profit adjustments related to this project. The disclosure explained that the project progress was behind the schedule originally established for the job and warned that the project may continue to impact consolidated operating results negatively until it reaches completion. Subsequent to the release of the Company's consolidated financial statements for the fiscal year ended January 31, 2019, APC’s estimates of the unfavorable financial impacts of the difficulties on this particular project located in Teesside, England (the "TeesREP" project), including increased scope and design changes from original plans and various work interruptions, escalated substantially. APC has conducted comprehensive reviews of the remaining contract work, prepared new timelines for the completion of the project and assessed other factors. Based on the completed analyses, management expects that the forecasted costs for APC at contract completion will exceed projected revenues by approximately $31.2 million. The total amount of the expected loss on this project has been reflected in the condensed consolidated financial statements for the nine months ended October 31, 2019, with most of the loss recorded in the first quarter ended April 30, 2019. The amount of the contract loss reserve, approximately $8.6 million as of October 31, 2019, has been included in accrued expenses in the accompanying condensed consolidated balance sheet. An effect of changes that the Company made during the three-month period ended April 30, 2019 to transaction prices and to estimates of the costs-to-complete active contracts, including changes primarily related to the loss contract, was a net reversal of $1.4 million in revenues that were recognized last year. Subsequent to October 31, 2019, APC and its customer, the engineering, procurement and construction services contractor on the TeesREP Project, agreed to operational and commercial terms for the completion of the project. This framework generally addresses project schedule, payment terms, scope, performance guarantees and other terms and conditions for reaching substantial completion of APC’s portion of the total project by mid-2020. The framework does not resolve significant past commercial differences which may have to be addressed through applicable dispute resolution mechanisms. While management is disappointed that a global settlement of past commercial differences could not be achieved at this time, management believes that it is in the Company’s best interests to complete the TeesREP project while the parties concurrently use good faith efforts to settle them. It is not possible currently to predict precisely how, when and on what terms (if any) the past commercial differences will be resolved. The Company continues to reserve its rights under the contract. Remaining Unsatisfied Performance Obligations (“RUPO”) The amount of RUPO represents the unrecognized revenue value of active contracts with customers as determined under ASC Topic 606. Increases to RUPO during a reporting period represent the transaction prices associated with new contracts, as well as additions to the transaction prices of existing contracts. The amounts of such changes may vary significantly each reporting period based on the timing of major new contract awards and the occurrence and assessment of contract variations. At October 31, 2019, the Company had RUPO of $817.8 million. The largest portion of RUPO relates to engineering, construction and procurement service contracts with typical performance durations of 2 to 3 years. The Company estimates that the percentages of RUPO at October 31, 2019 expected to be recognized as revenues during the three months ending January 31, 2020 and the year ending January 31, 2021 are 9% and 31%, respectively, with the remaining amount of RUPO expected to be recognizrd during the following two years. Although the amount of reported RUPO represents business that is considered to be firm, it is important to note that cancellations, deferrals or scope adjustments may occur. RUPO may be adjusted to reflect any known project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations and project deferrals, as applicable. Disaggregation of Revenues The consolidated revenues are disaggregated by reportable segment in Note 14 to the condensed consolidated financial statements. The amounts of revenues earned under fixed-price contracts during the nine-month periods ended October 31, 2019 and 2018, were approximately 76% and 91%, respectively, of the corresponding consolidated revenues for the periods. The following table presents consolidated revenues for the three and nine months ended October 31, 2019 and 2018, disaggregated by the geographic area where the work was performed:
|  | Three Months Ended October 31, |  | Nine Months Ended October 31,
|  | 2019 |  | 2018 |  | 2019 |  | 2018
United States |  | $ | 39,629 |  | $ | 87,892 |  | $ | 117,045 |  | $ | 320,985
United Kingdom |  |  | 10,349 |  |  | 19,708 |  |  | 35,631 |  |  | 53,866
Republic of Ireland |  |  | 8,256 |  |  | 8,698 |  |  | 18,007 |  |  | 18,857
Other |  |  | 172 |  |  | 161 |  |  | 326 |  |  | 787
Totals |  | $ | 58,406 |  | $ | 116,459 |  | $ | 171,009 |  | $ | 394,495

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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