2.Accounts Receivable – Net and Revenue Recognition

Net accounts receivable and billings in excess of costs on uncompleted contracts consisted of the following:

	June 29, 2014		September 29, 2013
	(in thousands)

Billed	$	307,905	$	375,149
Unbilled	381,429		306,969
Contract retentions	25,885		23,353
Total accounts receivable – gross	715,219		705,471

Allowance for doubtful accounts	(40,772)		(44,624)
Total accounts receivable – net	$	674,447	$	660,847

Billings in excess of costs on uncompleted contracts	$	79,160	$	79,507

Billed accounts receivable represent amounts billed to clients that have not been collected. Unbilled accounts receivable represent revenue recognized but not yet billed pursuant to contract terms or billed after the period end date. Most of our unbilled receivables at June 29, 2014 are expected to be billed and collected within 12 months. Contract retentions represent amounts withheld by clients until certain conditions are met or the project is completed, which may be several months or years. The allowance for doubtful accounts represents amounts that may become uncollectible or unrealizable in the future. We determine an estimated allowance for uncollectible accounts based on management’s consideration of trends in the actual and forecasted credit quality of our clients, including delinquency and payment history; type of client, such as a government agency or a commercial sector client; and general economic and particular industry conditions that may affect a client’s ability to pay. Billings in excess of costs on uncompleted contracts represent the amount of cash collected from clients and billings to clients on contracts in advance of revenue recognized. The majority of billings in excess of costs on uncompleted contracts, excluding those related to claims, will be earned within 12 months.

Once contract performance is underway, we may experience changes in conditions, client requirements, specifications, designs, materials and expectations regarding the period of performance. Such changes result in “change orders” and may be initiated by us or by our clients. In many cases, agreement with the client as to the terms of change orders is reached prior to work commencing; however, sometimes circumstances require that work progresses without obtaining a definitive client agreement. Unapproved change orders constitute claims in excess of agreed contract prices that we seek to collect from our clients (or other third parties) for delays, errors in specifications and designs, contract terminations, or other causes of unanticipated additional costs. Revenue on claims is recognized when contract costs related to claims have been incurred and when their addition to contract value can be reliably estimated. This can lead to a situation in which costs are recognized in one period and revenue is recognized in a subsequent period such as when client agreement is obtained or a claims resolution occurs.

Total accounts receivable at June 29, 2014 and September 29, 2013 include approximately $86 million and $41 million, respectively, related to claims, including requests for equitable adjustment, on contracts that provide for price redetermination. The increase from the end of fiscal 2013 includes the impact of changes in scope on an oil and gas project in Western Canada in fiscal 2014 that is currently in negotiation with the client. The remainder of the increase in claims primarily related to revenue recognized as progress continued on projects with claims that were in process at the end of fiscal 2013. We regularly evaluate all claim amounts and record appropriate adjustments to operating earnings when it is probable that the claim will result in a different contract value than the amount previously estimated. As a result of this assessment, we recognized revenue and an increase to operating income of $3.4 million for the second quarter and first nine months of fiscal 2014. We recognized net losses of approximately $17 million and $17 million related to the evaluation of collectability of claims during the third quarter and first nine months of fiscal 2013, respectively.

Billed accounts receivable related to U.S. federal government contracts were $59.5 million and $50.5 million at June 29, 2014 and September 29, 2013, respectively. U.S. federal government unbilled receivables, net of progress payments, were $81.0 million and $79.3 million at June 29, 2014 and September 29, 2013, respectively. Other than the U.S. federal government, no single client accounted for more than 10% of our accounts receivable at June 29, 2014 and September 29, 2013.

We recognize revenue for most of our contracts using the percentage-of-completion method, primarily utilizing the cost-to-cost approach to estimate the progress towards completion in order to determine the amount of revenue and profit to recognize. Revenue and cost estimates for each significant contract are reviewed and reassessed quarterly. Changes in those estimates could result in recognition of cumulative catch-up adjustments to the contract’s inception-to-date revenue, costs and profit in the period in which such changes are made. As a result, we recognized the net unfavorable operating income adjustments of $5.0 million and $10.3 million during the third quarter and the first nine months of fiscal 2014, respectively. No material operating income adjustments were recognized during the three and nine months ended June 30, 2013 due to updated cost to complete estimates. Changes in revenue and cost estimates could also result in a projected loss that would be recorded immediately in earnings. As of June 29, 2014 and September 29, 2013, we recorded a liability for anticipated losses of $10.4 million and $13.3 million, respectively. The estimated cost to complete the related contracts as of June 29, 2014 was $37.2 million.