| REVENUE RECOGNITION AND CONTRACTS | REVENUE RECOGNITION AND CONTRACTS Adoption of Accounting Standards Codification ("ASC") Topic 606, Revenue from Contracts with Customers ("Topic 606") On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to all contracts that were not completed as of January 1, 2018. Results for reporting periods beginning on or after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the accounting standards in effect for the prior period. We recorded a $0.5 million net increase to opening retained earnings as of January 1, 2018 from the cumulative effect of adopting Topic 606 that primarily related to transitioning the timing of certain sales commissions expense. The effect on revenue from adopting Topic 606 was not material for the six months ended June 30, 2018. Revenue Recognition A performance obligation is a contractual promise to transfer a distinct good or service to the customer. A contract's transaction price is allocated to each distinct performance obligation and is recognized as revenue when (point in time) or as (over time) the performance obligation is satisfied. Revenue from goods and services transferred to customers at a point in time, which includes certain aftermarket parts and services primarily in the Babcock & Wilcox and SPIG segments, accounted for 18% and 23% of our revenue for the three months ended June 30, 2019 and 2018, respectively, and 18% and 23% of our revenue for the six months ended June 30, 2019 and 2018, respectively. Revenue on these contracts is recognized when the customer obtains control of the asset, which is generally upon shipment or delivery and acceptance by the customer. Standard commercial payment terms generally apply to these sales. Revenue from products and services transferred to customers over time accounted for 82% and 77% of our revenue for the three months ended June 30, 2019 and 2018, respectively, and 82% and 77% of our revenue for the six months ended June 30, 2019 and 2018, respectively. Revenue recognized over time primarily relates to customized, engineered solutions and construction services from all three of our segments. Typically, revenue is recognized over time using the percentage-of-completion method that uses costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, SG&A expenses. Variable consideration in these contracts includes estimates of liquidated damages, contractual bonuses and penalties, and contract modifications. Substantially all of our revenue recognized over time under the percentage-of-completion method contain a single performance obligation as the interdependent nature of the goods and services provided prevents them from being separately identifiable within the contract. Generally, we try to structure contract milestones to mirror our expected cash outflows over the course of the contract; however, the timing of milestone receipts can greatly affect our overall cash position and have done so, particularly in our Vølund and Other Renewable segment. Refer to Note 3 for our disaggregation of revenue by product line. Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in the contract specifications or requirements. In many instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract, with cumulative adjustment to revenue. We recognize accrued claims in contract revenues for extra work or changes in scope of work to the extent of costs incurred when we believe we have an enforceable right to the modification or claim and the amount can be estimated reliably, and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We generally recognize sales commissions in equal proportion as revenue is recognized. Our sales agreements are structured such that commissions are only payable upon receipt of payment, thus a capitalized asset at contract inception has not been recorded for sales commission as a liability has not been incurred at that point. Contract Balances The following represents the components of our contracts in progress and advance billings on contracts included in our Condensed Consolidated Balance Sheets: (in thousands) June 30, 2019 December 31, 2018 $ Change % Change Contract assets - included in contracts in progress: Costs incurred less costs of revenue recognized $ 33,155 $ 49,910 $ (16,755 ) (34 )% Revenues recognized less billings to customers 117,267 94,817 22,450 24 % Contracts in progress $ 150,422 $ 144,727 $ 5,695 4 % Contract liabilities - included in advance billings on contracts: Billings to customers less revenues recognized $ 99,317 $ 140,933 $ (41,616 ) (30 )% Costs of revenue recognized less cost incurred 2,967 8,434 (5,467 ) (65 )% Advance billings on contracts $ 102,284 $ 149,367 $ (47,083 ) (32 )% Net contract balance $ 48,138 $ (4,640 ) $ 52,778 (1,137 )% Accrued contract losses $ 11,014 $ 61,651 $ (50,637 ) (82 )% The impact of adopting Topic 606 on components of our contracts in progress and advance billings on contracts was not material at January 1, 2018. Backlog On June 30, 2019 we had $585.0 million of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 37.6% , 20.2% and 42.2% of our remaining performance obligations as revenue in the remainder of 2019, 2020 and thereafter, respectively. Changes in Contract Estimates In the three and six months ended June 30, 2019 and 2018 , we recognized changes in estimated gross profit related to long-term contracts accounted for on the percentage-of-completion basis, which are summarized as follows: Three months ended June 30, Six months ended June 30, (in thousands) 2019 2018 2019 2018 Increases in gross profits for changes in estimates for over time contracts $ 8,088 $ 6,019 $ 15,894 $ 13,946 Decreases in gross profits for changes in estimates for over time contracts (16,051 ) (50,327 ) (23,728 ) (110,498 ) Net changes in gross profits for changes in estimates for over time contracts $ (7,963 ) $ (44,308 ) $ (7,834 ) $ (96,552 ) Vølund EPC Loss Contracts We had six Vølund contracts for renewable energy facilities in Europe that were loss contracts at December 31, 2017. The scope of these EPC (Engineer, Procure and Construct) contracts extended beyond our core technology, products and services. In the three months ended June 30, 2019 and 2018, we recorded $3.2 million and $57.3 million in net losses, respectively, inclusive of warranty expense as described in Note 10 , resulting from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. In the three months ended June 30, 2019 , we reduced our estimate of liquidated damages on these contracts by $0.4 million . These changes in estimates in the three months ended June 30, 2018 included increases in our estimates of anticipated liquidated damages that reduced revenue associated with these six contracts by $3.1 million . In the six months ended June 30, 2019 and 2018, we recorded $7.4 million and $110.0 million in net losses, respectively, inclusive of warranty expense as described in Note 10 , resulting from changes in the estimated revenues and costs to complete the six European Vølund EPC loss contracts. In the six months ended June 30, 2019 , we reduced our estimate of liquidated damages on these contracts by $0.4 million . These changes in estimates in the six months ended June 30, 2018 included increases in our estimates of anticipated liquidated damages that reduced revenue associated with these six contracts by $16.3 million . Total anticipated liquidated damages associated with these six contracts were $88.2 million and $93.4 million at June 30, 2019 and June 30, 2018 , respectively. As of June 30, 2019, five of the six European Vølund EPC loss contracts had been turned over to the customer, with only punch list or agreed remediation items and performance testing remaining, some of which are expected to be performed during the customers' scheduled maintenance outages. Turnover is not applicable to the fifth loss contract under the terms of the March 29, 2019 settlement agreement with the customers of the second and fifth loss contracts, who are related parties to each other. Under that settlement agreement, we limited our remaining risk related to these contracts by paying a combined £70 million ( $91.5 million ) on April 5, 2019 in exchange for limiting and further defining our obligations under the second and fifth loss contracts, including waiver of the rejection and termination rights on the fifth loss contract that could have resulted in repayment of all monies paid to us and our former civil construction partner (up to approximately $144 million ), and requirement to restore the property to its original state if the customer exercised this contractual rejection right. On the fifth loss contract, we agreed to continue to support construction services to complete certain key systems of the plant by May 31, 2019, for which penalty for failure to complete these systems is limited to the unspent portion of our quoted cost of the activities through that date. The settlement eliminated all historical claims and remaining liquidated damages. Upon completion of these activities in accordance with the settlement, we will have no further obligation related to the fifth loss contract other than customary warranty of core products if the plant is used as a biomass plant as designed. We estimated the portion of this settlement related to waiver of the rejection right on the fifth project was $81.1 million , which was recorded in the fourth quarter of 2018 as a reduction in the selling price. We are still pursuing insurance recoveries and claims against subcontractors. For the second loss project, the settlement limited the remaining performance obligations and settled historic claims for nonconformance and delays, and we turned over the plant in May 2019, and subsequently began the operations and maintenance contract to operate this plant. As of June 30, 2019 , the status of these six Vølund EPC loss contracts was as follows: The first contract, a waste-to-energy plant in Denmark, became a loss contract in the second quarter of 2016. As of June 30, 2019 , this contract was approximately 97% complete and construction activities are complete as of the date of this report. The unit became operational during the second quarter of 2017. A settlement was reached with the customer to achieve takeover on January 31, 2019, after which only punch list items and other agreed to remediation items remain, most of which are expected to be performed during the customer's scheduled maintenance outages. As of January 31, 2019, the contract is in the warranty phase. During the three and six months ended June 30, 2019 , we recognized additional contract losses of $2.0 million on this contract as a result of identifying additional remediation costs in the second quarter of 2019. Our estimate at completion as of June 30, 2019 includes $9.1 million of total expected liquidated damages. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $3.2 million . In the three and six months ended June 30, 2018 , we recognized additional contract losses of $8.3 million and $15.3 million , respectively, as a result of differences in actual and estimated costs, schedule delays, issues encountered during trial operations and increases in expected warranty costs. As of June 30, 2018 , this contract had $3.1 million of accrued losses and was 97% complete. The second contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of June 30, 2019 , this contract was approximately 100% complete. Trial operations began in April 2019 and takeover by the customer occurred effective May 2019. This project is subject to the March 29, 2019 settlement agreement described above. During the three and six months ended June 30, 2019 , we recognized additional contract losses of $1.2 million and $1.9 million , respectively, on this contract as a result of repairs required during startup commissioning activities, additional punch list and other commissioning costs, and changes in construction cost estimates. Our estimate at completion as of June 30, 2019 includes $19.1 million of total expected liquidated damages due to schedule delays. Our estimates at completion as of June 30, 2019 and 2018 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.1 million . In the three and six months ended June 30, 2018 , we recognized contract losses of $9.3 million and $13.4 million , respectively, on this contract as a result of repairs required during startup commissioning activities in the second quarter of 2018, increases in expected warranty costs, changes in construction cost estimates, subcontractor productivity being lower than previous estimates, and additional expected punch list and other commissioning costs. As of June 30, 2018 , this contract had $10.6 million of accrued losses and was 86% complete. The third contract, a biomass plant in Denmark, became a loss contract in the fourth quarter of 2016. As of June 30, 2019 , this contract was approximately 100% complete. Warranty began in March 2018, when we agreed to a partial takeover with the customer, and we agreed to a full takeover by the customer at the end of October 2018, when we also agreed to a scheduled timeline for remaining punch list activities to be completed around the customer's future planned outages. During the three and six ended June 30, 2019 , we did no t recognize additional charges on the contract. Our estimate at completion as of June 30, 2019 includes $6.7 million of total expected liquidated damages due to schedule delays. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.1 million . In the three and six months ended June 30, 2018 , we recognized charges of $1.6 million and $3.5 million , respectively, from changes in our estimate at completion, and as of June 30, 2018 , this contract had $0.5 million of accrued losses and was 99% complete. The fourth contract, a biomass plant in the United Kingdom, became a loss contract in the fourth quarter of 2016. As of June 30, 2019 , this contract was approximately 99% complete. Trial operations began in November 2018 and takeover by the customer occurred in February 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customer's scheduled maintenance outages. During the three and six months ended June 30, 2019 , we recognized additional contract charges of $4.0 million and $4.3 million , respectively, on this contract due to changes in estimated bonus revenue and cost to complete remaining punch list, remediation of certain performance guarantees and other close out items. Our estimate at completion as of June 30, 2019 includes $20.7 million of total expected liquidated damages due to schedule delays. Our estimates at completion as of June 30, 2019 also include contractual bonus opportunities for guaranteed higher power output and other performance metrics. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.4 million . In the three and six months ended June 30, 2018 , we recognized contract losses of $12.8 million and $24.8 million , respectively, on this contract as a result of changes in the expected selling price, changes in construction cost estimates and schedule delays, and as of June 30, 2018 , this contract had $6.3 million of accrued losses and was 88% complete. The fifth contract, a biomass plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of June 30, 2019 , this contract was approximately 97% complete. This project is subject to the March 29, 2019 settlement agreement described above. We estimated the portion of this settlement related to waiver of the rejection right on the fifth project was $81.1 million , which was recorded in the fourth quarter of 2018 as a reduction in the selling price. Under the settlement, our remaining performance obligations were limited to construction support services to complete certain key systems of the plant by May 31, 2019. The settlement also eliminates all historical claims and remaining liquidated damages. Remaining items at June 30, 2019 are primarily related to punch list and other finalization items for the key systems under the terms of the settlement and subcontract close outs. During the three months ended June 30, 2019 , our estimated loss on the contract improved by $4.0 million inclusive of warranty. During the six months ended June 30, 2019 , our estimated loss on the contract improved by $1.8 million inclusive of warranty. Our estimate at completion as of June 30, 2019 , includes $13.6 million of total expected liquidated damages due to schedule delays. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $5.3 million . In the three and six months ended June 30, 2018 , we recognized charges of $21.4 million and $39.7 million , respectively, from changes in our estimate at completion, and as of June 30, 2018 , this contract had $29.0 million of accrued losses and was 62% complete. The sixth contract, a waste-to-energy plant in the United Kingdom, became a loss contract in the second quarter of 2017. As of June 30, 2019 , this contract was approximately 99% complete. Trial operations began in December 2018 and customer takeover occurred on January 25, 2019, after which only final performance testing, for which performance metrics have been previously demonstrated, and punch list and other agreed upon items remain, some of which are expected to be performed during the customer's scheduled maintenance outages. The contract is in the warranty phase. During the three and six months ended June 30, 2019 , we revised our estimated revenue and costs at completion for this loss contract, which resulted in additional contract charges of $0.1 million and $0.9 million , respectively related to matters encountered in completing punch list items. Our estimate at completion as of June 30, 2019 includes $19.0 million of total expected liquidated damages due to schedule delays. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.2 million . In the three and six months ended June 30, 2018 , we recognized additional contract losses of $3.9 million and $13.3 million , respectively, as a result of changes in our estimate at completion, and as of June 30, 2018 , this contract had $2.6 million of accrued losses and was 87% complete. During the three and six months ended June 30, 2019 , we recognized additional charges of $1.3 million and $1.5 million , respectively, on our other Vølund renewable energy projects that are not loss contracts. During the three and six months ended June 30, 2018 , we did no t recognize additional losses on our other Vølund renewable energy projects that are not loss contracts. In September 2017, we identified the failure of a structural steel beam on the fifth contract, which stopped work in the boiler building and other areas pending corrective actions to stabilize the structure. Provisional regulatory approval to begin structural repairs to the failed beam was obtained on March 29, 2018 (later than previously estimated), and full approval to proceed with repairs was obtained in April 2018. Full access to the site was obtained on June 6, 2018 after completion of the repairs to the structure. The engineering, design and manufacturing of the steel structure were the responsibility of our subcontractors. A similar design was also used on the second and fourth contracts, and although no structural failure occurred on these two other contracts, work was also stopped in certain restricted areas while we added reinforcement to the structures, which also resulted in delays that lasted until late January 2018. The total costs related to the structural steel issues on these three contracts, including contract delays, are estimated to be approximately $36 million , which is included in the June 30, 2019 estimated losses at completion for these three contracts. We are continuing to aggressively pursue recovery of this cost under various applicable insurance policies and from responsible subcontractors. In June 2019, we agreed in principle to a settlement agreement under one insurance policy related to recover GBP 2.8 million ( $3.5 million ) of certain losses on the fifth project; we also recorded this recovery in accounts receivable - other in our Condensed Consolidated Balance Sheet as of June 30, 2019. During the third quarter of 2016, we claimed a DKK 100.0 million ( $15.5 million ) insurance recovery for a portion of the losses on the first Vølund contract discussed above. In May 2018, our insurer disputed coverage on our insurance claim. We continued to aggressively pursue full recovery under the policy, and we filed for arbitration in July 2018. On June 28, 2019, we agreed to a full settlement, under which our insurer paid DKK 37 million ( $5.6 million ) to us in July 2019. As of December 31, 2018 and March 31, 2019, we had net receivable of DKK 20.0 million ( $3.2 million ), which was increased to DKK 37 million ( $5.6 million ) as of June 30, 2019 in accounts receivable - other in our Condensed Consolidated Balance Sheets. Other Vølund Contract Settlement In March 2019, we entered into a settlement in connection with an additional European waste-to-energy EPC contract, for which notice to proceed was not given and the contract was not started. The £ 5.0 million (approximately $6.6 million ) payment on April 5, 2019 for the settlement eliminates our obligations and our risk related to acting as the prime EPC should the project have moved forward. SPIG U.S. Loss Contract At June 30, 2019, SPIG had one significant loss contract, which is a contract to engineer, procure materials and then construct a dry cooling system for a gas-fired power plant in the U.S. At June 30, 2019 , the design and procurement are substantially complete, and construction is nearing completion. Overall, the contract is 97% complete and it is expected be fully complete in mid-2019. As of June 30, 2019 , the reserve for estimated contract losses recorded in other accrued liabilities in our Condensed Consolidated Balance Sheets was $0.5 million related to this contract. Construction is being performed by the Babcock & Wilcox segment, but the contract loss is included in the SPIG segment. |
