NOTE 4 – REVENUES FROM CONTRACTS WITH CUSTOMERS

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 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. The aggregate amount of such contract variations included in the transaction prices that were used to determine project-to-date revenues at January 31, 2020 and 2019, were $20.6 million and $18.8 million, respectively. 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.

Accounting for a Loss Contract

In its Form 10-K Annual Report for the year ended January 31, 2019, the Company disclosed that APC was completing a power-plant construction project in the UK that had 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 Fiscal 2019, APC’s estimates of the unfavorable financial impacts of the difficulties on this particular project located in Teesside, England (the “TeesREP” project) escalated substantially. APC then conducted new 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 that have been updated multiple times through Fiscal 2020, management expects that the forecasted costs for APC at contract completion will exceed projected revenues by approximately $33.6 million.

The total amount of the expected loss on this project has been reflected in the consolidated financial statements for Fiscal 2020. In addition, an effect of changes that the Company made during Fiscal 2020 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 during Fiscal 2019. The amount of the remaining contract loss reserve as of January 31, 2020, approximately $5.8 million, was included in accrued expenses in the accompanying consolidated balance sheet. The total amounts of accounts receivable and contract assets related to the TeesREP project and included in the consolidated balance sheets were $19.2 million as of January 31, 2020 and $32.9 million as of January 31, 2019.

During the fourth quarter of Fiscal 2020, 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 was disappointed that a global settlement of past commercial differences could not be achieved at the same time, management believes that it is in the Company’s best interests to complete the TeesREP project while the the Company continues efforts to settle them. Currently, it is not possible 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 January 31, 2020, the Company had RUPO of $781.4 million. The largest portion of RUPO at any date usually relates to service contracts with typical performance durations of 2 to 3 years. However, the length of certain significant construction projects may exceed three years.

The Company estimates that approximately 39% of the RUPO amount at January 31, 2020 will be included in the amount of consolidated revenues that will be recognized during the fiscal year ending January 31, 2021. Most of the remaining amount of the RUPO at January 31, 2020 is expected to be recognized in revenues over the following two fiscal years. It is important to understand that the amounts of consolidated revenues that the Company expects to report for each of the next three fiscal years exceeds the portions of RUPO at January 31, 2020 that it anticipates recognizing during each of the years. Revenues for future periods will also include amounts related to customer contracts started or awarded subsequent to January 31, 2020. It is also important to note that estimates may be changed in the future and that cancellations, deferrals, scope adjustments may occur related to work included in RUPO at January 31, 2020. Accordingly, RUPO may be adjusted to reflect project cancellations, revisions to project scope and cost, foreign currency exchange fluctuations, and project deferrals, or to revise estimates, as their effects become known. Such adjustments may materially reduce future revenues below Company estimates.

Disaggregation of Revenues

The following table presents consolidated revenues for Fiscal 2020, Fiscal 2019 and Fiscal 2018, disaggregated by the geographic area where the work was performed:


	2020		2019		2018
United States	$	169,299	$	371,609	$	870,029
United Kingdom		49,028		81,319		12,244
Republic of Ireland		20,342		28,352		10,542
Other		328		873		—
Consolidated Revenues	$	238,997	$	482,153	$	892,815

Each year, the majority of consolidated revenues are recognized pursuant to fixed-price contracts with most of the remaining portions earned pursuant to time and material contracts. Consolidated revenues are disaggregated by reportable segment in Note 16 to the consolidated financial statements.