NOTE 4 – REVENUES FROM CONTRACTS WITH CUSTOMERS

Impact of the Adoption of the New Accounting Standard

The effect of the adoption of ASC Topic 606 on retained earnings as of February 1, 2018 was an income tax-effected increase of less than $0.1 million. The differences between the Company’s reported operating results for Fiscal 2019, which reflect the application of the new standard on the Company’s contracts, and the results that would have been reported if the accounting was performed pursuant to the accounting standards previously in effect, were not material.

In accordance with the new standard, the Company has reported balances for contract assets and contract liabilities in its consolidated balance sheet as of January 31, 2019. Balances as of January 31, 2018 for the accounts identified below were recast in order to conform to the presentation as of January 31, 2019:


	Balances		Impact of the		Classification
	Reported		Adoption of		Under ASC
	Previously		ASC Topic 606		Topic 606
Accounts receivable, net	$	95,971	$	(69,684)	$	26,287
Costs and estimated earnings in excess of billings		4,887		(4,887)		—
Contract assets		—		13,847		13,847
Billings in excess of costs and estimated earnings		108,388		(108,388)		—
Contract liabilities		—		47,664		47,664

The total of amounts retained by project owners under construction contracts at January 31, 2019 and 2018 were $15.3 million and $69.7 million, respectively. Such retainage amounts represent funds withheld by project owners until a defined phase of a contract or project has been completed and accepted by the project owner and do not reflect financing components. Retention amounts and the length of retention periods may vary. Retainage amounts related to active contracts are considered to be current assets regardless of the term of the applicable contract and amounts are generally collected by the completion of the applicable contract.

The increase in contracts-in-progress, net, during Fiscal 2019 in the amount of $83.8 million was caused primarily by a decline of $99.7 million in billings in excess of costs and estimated earnings and an increase in costs and estimated earnings in excess of billings in the amount of $33.8 million, offset partially by a decrease in customer retainages in the amount of $54.4 million. Revenues recognized during Fiscal 2019 that were considered contract liabilities as of January 31, 2018 totaled $46.2 million. During Fiscal 2018, a decrease of $100.9 million in the amounts of billings in excess of costs and estimated earnings, an increase in customer retainages in the amount of $33.9 million, and an increase of $1.7 million in the amounts of costs incurred and estimated earnings recorded on certain contracts in excess of the amounts of billings on those contracts were the primary factors in the use of cash in the amount of $136.4 million related to contracts-in-progress.

Variable Consideration

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 and are reflected in revenues 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 January 31, 2019 was $18.8 million. The effects of any revision to a transaction price can be determined at any time and they could be material. 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 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.

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 in 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. During Fiscal 2019, the net impact on revenues of changes that the Company made to transaction prices and to estimates of the costs-to-complete active contracts was an increase of approximately $32.6 million.

Remaining Unsatisfied Performance Obligations (“RUPO”)

The amount of the Company’s 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 January 31, 2019, the Company had RUPO of $99.4 million, all of which is expected to be recognized as revenues during the year ending January 31, 2020.

Although the amount of reported RUPO includes 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 following table presents consolidated revenues for Fiscal 2019, Fiscal 2018 and Fiscal 2017, disaggregated by the geographic area where the work was performed:


	2019		2018		2017
United States	$	371,609	$	870,029	$	663,181
United Kingdom		81,319		12,244		201
Republic of Ireland		28,352		10,542		11,411
Other		873		—		254
Consolidated Revenues	$	482,153	$	892,815	$	675,047

The consolidated revenues are disaggregated by reportable segment in Note 17 to the consolidated financial statements. Prior period financial operating results have not been adjusted for the adoption of ASC Topic 606 under the Company’s application of the modified retrospective method.