NOTE 2 – REVENUES FROM CONTRACT WITH CUSTOMERS

The Company's recognition of revenues under contracts with customers is based on a single comprehensive five-step model that requires reporting entities to:

Identify the contract,

Identify the performance obligations of the contract,

Determine the transaction price of the contract,

Allocate the transaction price to the performance obligations, and

Recognize revenue.

Major provisions of the standard cover the determination of which goods and services are distinct and represent separate performance obligations, the evaluation of whether revenues should be recognized at a point in time or over time , and the appropriate treatment for variable consideration.

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 recognized 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.

Almost all of the Company’s fixed-price contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist, they are not typically distinct within the context of such contracts because contract promises included therein are interrelated or the contracts require the Company to perform critical integration so that the customer receives a completed project. The Company’s accounting for its assurance-type warranties provided under contracts with customers is conducted in accordance with the specific professional guidance established to cover such arrangements.

The transaction price for a contract represents the accounting 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 generally 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 generally include the amounts that reflect obligations to provide goods or services for which payment has been received. The balances of accounts receivable exclude billed amounts which, pursuant to the terms of the applicable contract, are not paid by project owners until a defined phase of a contract or project has been completed and accepted. These retained amounts are 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. Retention 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 April 30 and January 31, 2020 were $21.0 million and $20.0 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 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 April 30, 2020 and January 31, 2020 were $21.9 million and $20.6 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. 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.

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 (“Fiscal 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. For the three-month period ended April 30, 2019, the Company reversed profit in the amount of $0.7 million that had been recorded in prior periods and recorded a loss related to this project in the amount of $27.6 million. Based on analyses that have been continually updated over the last twelve months, management currently expects that the forecasted costs for the TeesREP project at completion will exceed projected revenues by approximately $36.2 million.

The total amount of the expected loss on this project has been reflected in the condensed consolidated financial statements as of April 30, 2020, including $2.7 million in loss that was recorded during the three-month period ended April 30, 2020. The amount of the remaining contract loss reserve as of April 30, 2020 was approximately $4.1 million; the comparable balance at January 31, 2020 was $5.8 million. These balances were included in accrued expenses in the accompanying condensed consolidated balance sheets. The total amounts of accounts receivable and contract assets related to the TeesREP project and included in the condensed consolidated balance sheets were $15.5 million as of April 30, 2020 and $19.2 million as of January 31, 2020.

During the fourth quarter of Fiscal 2020, APC and its customer, the EPC services contractor on the TeesREP project, agreed to operational and commercial terms for the completion of the project. This framework generally addressed project schedule, payment terms, scope, performance guarantees and other terms and conditions for reaching substantial completion of APC’s portion of the total project. The framework did not resolve significant past commercial differences which may have to be addressed through applicable dispute resolution mechanisms. Currently, it is not possible to predict precisely how, when and on what terms (if any) the past commercial differences will be resolved.

Construction on the TeesREP project was suspended on March 24, 2020 due to the COVID-19 pandemic, pending preparations being made by the contractors and subcontractors to comply with new and evolving government guidance concerning public health protocols. Currently, only a small number of critical maintenance staff remains on site, following all social distancing protocols in compliance with UK central government guidance. At the time of the suspension of work on the TeesREP project, APC had completed approximately 90% of its subcontracted work. The continuing adverse effects of the pandemic on APC’s efforts to complete the TeesREP project may result in additional loss that will be reflected in operating results when identified and quantified.

Remaining Unsatisfied Performance Obligations (“RUPO”)

The amount of RUPO represents the unrecognized revenue value of active contracts with customers as determined under the revenue recognition rules of US GAAP. 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 April 30, 2020, the Company had RUPO of $761.8 million. The largest portion of RUPO at any date usually relates to EPC 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 36% of the RUPO amount at April 30, 2020 will be included in the amount of consolidated revenues that will be recognized during the final three quarters of the fiscal year ending January 31, 2021 (“Fiscal 2021”). Most of the remaining amount of the RUPO at April 30, 2020 is expected to be recognized in revenues over the following two fiscal years.

Revenues for future periods will also include amounts related to customer contracts started or awarded subsequent to April 30, 2020. It is 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 April 30, 2020. Accordingly, RUPO may be adjusted to reflect project delays and cancellations, revisions to project scope and cost and foreign currency exchange fluctuations, or to revise estimates, as effects become known. Such adjustments may materially reduce future revenues below Company estimates.

Disaggregation of Revenues

The following table presents consolidated revenues for the three months ended April 30, 2020 and 2019, disaggregated by the geographic area where the work was performed:


	Three Months Ended April 30,
	2020		2019

United States	$	48,865	$	39,766
United Kingdom		10,296		5,644
Republic of Ireland		987		4,003
Other		—		111
Totals	$	60,148	$	49,544

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 14 to the condensed consolidated financial statements.