Note 4 - Revisions in Estimates

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Accounting Changes and Error Corrections [Text Block]

4.  Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of transaction price and costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. When we experience significant changes in our estimates, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as revisions in estimates for the current period. For revisions in estimates, generally we use the cumulative catch-up method for changes to the transaction price that are part of a single performance obligation. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience further changes in circumstances or otherwise be required to revise our estimates in the future. In our review of these changes for the three and nine months ended September 30, 2019 and 2018, we did not identify any material amounts that should have been recorded in a prior period.  

For the three and nine months ended September 30, 2019, revisions in estimates, including estimated cost recovery of customer affirmative claims and back charges, that individually had an impact of $5.0 million or more on gross profit resulted in decreases to gross profit and income (loss) before provision for (benefit from) income taxes of $80.7 million and $264.1 million, respectively, and decreases in net income (loss) of $62.9 million and $200.6 million ($1.33 and $4.29 per diluted share), respectively.

For the three and nine months ended September 30, 2018, revisions in estimates, including estimated cost recovery of customer affirmative claims and back charges, that individually had an impact of $5.0 million or more on gross profit resulted in decreases to gross profit and income (loss) before provision for (benefit from) income taxes of $19.3 million and $57.8 million, respectively, and decreases in net income of $14.6 million and $43.7 million ($0.31 and $1.02 per diluted share), respectively.

Decreases for all periods presented were in our Transportation segment except for one project in Water segment during the nine months ended September 30, 2019 and one project in Specialty segment during both three and nine months ended September 30, 2019. There were no increases from revisions in estimates, which individually would have had an impact of $5.0 million or more on gross profit, for the periods presented.

The impact to gross profit is summarized as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in millions)	2019		2018		2019		2018
Number of projects with downward estimate changes		6		2		9		4
Range of reduction in gross profit from each project, net	$	5.4 - 30.9	$	7.3 - 12.0	$	6.0 - 92.6	$	5.2 - 25.6
Decrease to project profitability	$	80.7	$	19.3	$	264.1	$	57.8

The decreases during the three and nine months ended September 30, 2019 were due to increased project completion costs, schedule delays, lower productivity than originally anticipated and performance of a significant amount of disputed work partially offset by an increase in estimated recovery from customer affirmative claims.The decreases during the nine months ended September 30, 2019 were also due to an unfavorable court ruling on a designer back charge claim and were impacted by a business added in the Layne acquisition last year that we exited during the quarter. The decreases during the three and nine months ended September 30, 2018 were due to additional costs and lower productivity than originally anticipated as well as additional weather related costs and a decrease in estimated recovery from customer affirmative claims.