| Revenue Recognition | Note 4 – Revenue Recognition Revenue is measured based on the consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties. We recognize revenue when we satisfy a performance obligation by transferring control over a product or service to a customer. Our unit of accounting for revenue recognition is a performance obligation included in our customer contracts. A performance obligation reflects the distinct good or service that we must transfer to a customer. At contract inception, we evaluate if the contract should be accounted for as a single performance obligation or if the contract contains multiple performance obligations. In some cases, our contract with the customer is considered one performance obligation as it includes factors such as the good or service being provided is significantly integrated with other promises in the contract, the service provided significantly modifies or customizes another good or service or the good or service is highly interdependent or interrelated. If the contract has more than one performance obligation, we determine the standalone price of each distinct good or service underlying each performance obligation and allocates the transaction price based on their relative standalone selling prices. The transaction price of a contract, which can include both fixed and variable amounts, is allocated to each performance obligation identified. Some contracts contain variable consideration, which could include incremental fees or penalty provisions related to performance. Variable consideration that can be reasonably estimated based on current assumptions and historical information is included in the transaction price at the inception of the contract but limited to the amount that is probable that a significant reversal in the amount of cumulative revenue recognized will not occur. Variable consideration that cannot be reasonably estimated is recorded when known. Our performance obligations are satisfied over time as work progresses or at a point in time based on transfer of control of products and services to our customers. The majority of our sales from products are recognized at a point in time upon transfer of control to the customer, which generally occurs upon shipment. In connection with certain sales of products, we also provide logistics services, which include inventory management, replenishment, and other related services. The price of such services is generally included in the price of the products delivered to the customer, and revenues are recognized upon delivery of the product, at which point the customer has obtained control of the product. We do not account for these services separate from the related product sales as the services are inputs required to fulfill part orders received from customers. For our performance obligations that are satisfied over time, we measure progress in a manner that depicts the performance of transferring control to the customer. As such, we utilize the input method of cost-to-cost to recognize revenue over time as this depicts when control of the promised goods or services is transferred to the customer. Revenue is recognized based on the relationship of actual costs incurred to date to the estimated total cost at completion of the performance obligation. We are required to make certain judgments and estimates, including estimated revenues and costs, as well as inflation and the overall profitability of the arrangement. Key assumptions involved include future labor costs and efficiencies, overhead costs, and ultimate timing of product delivery. Differences may occur between the judgments and estimates made by management and actual program results. For contracts that are deemed to be loss contracts, we establish forward loss reserves for total estimated costs that are in excess of total estimated consideration in the period in which they become known. When contracts are modified, we consider whether the modification either creates new or changes the existing enforceable rights and obligations. Contract modifications that are for goods or services that are not distinct from the existing contract, due to the significant integration with the original goods or services provided, are accounted for as if they were part of that existing contract with the effect of the contract modification recognized as an adjustment to revenue on a cumulative catch-up basis. When the modifications include additional performance obligations that are distinct, they are accounted for as a new contract and performance obligation, which are recognized prospectively. Changes in estimates and assumptions related to our arrangements accounted for using the cost-to-cost method are recorded using the cumulative catch-up method of accounting. These changes are primarily adjustments to the estimated profitability for our long-term programs where we provide component inventory management and/or repair services. For the three-month periods ended November 30, 2020 and 2019, we recognized favorable cumulative catch-up adjustments of $2.5 million and $1.9 million, respectively. For the six-month periods ended November 30, 2020 and 2019, we recognized favorable cumulative catch-up adjustments of $2.8 million and $1.9 million, respectively. Under most of our U.S. government contracts, if the contract is terminated for convenience, we are entitled to payment for items delivered and fair compensation for work performed, the costs of settling and paying other claims, and a reasonable profit on the costs incurred or committed. We have elected to use certain practical expedients permitted under ASU No. 2014-09, Revenue from Contracts with Customers . Shipping and handling fees and costs incurred associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in Cost of sales on our Condensed Consolidated Statement of Operations, and are not considered a performance obligation to our customers. Our reported sales on our Condensed Consolidated Statement of Operations are net of any sales or related non-income taxes. We also utilize the “as invoiced” practical expedient in certain cases where performance obligations are satisfied over time and the invoiced amount corresponds directly with the value we are providing to the customer. Contract Assets and Liabilities The timing of revenue recognition, customer billings, and cash collections results in a contract asset or contract liability at the end of each reporting period. Contract assets consist of costs incurred where revenue recognized over time using the cost-to-cost model exceeds the amounts billed to customers. Contract liabilities include advance payments and billings in excess of revenue recognized. Certain customers make advance payments prior to the satisfaction of our performance obligations on the contract. These amounts are recorded as contract liabilities until such performance obligations are satisfied, either over time as costs are incurred or at a point in time when deliveries are made. Contract assets and contract liabilities are determined on a contract-by-contract basis. Net contract assets and liabilities are as follows: November 30, May 31, 2020 2020 Change Contract assets – current $ 52.8 $ 49.3 $ 3.5 Contract assets – non-current 24.1 22.4 1.7 Contract liabilities: Deferred revenue – current (18.1) (11.2) (6.9) Deferred revenue on long-term contracts (30.3) (88.0) 57.7 Net contract assets (liabilities) $ 28.5 $ (27.5) $ 56.0 Contract assets – non-current is reported within Other non-current assets, and Contract liabilities – current is reported within Accrued liabilities on our Condensed Consolidated Balance Sheet. Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers. During the first quarter of fiscal 2021, we terminated a commercial power-by-the-hour ("PBH") customer contract which resulted in a charge of $2.2 million. During fiscal 2020, we established forward loss reserves for a certain PBH contract where total estimated costs are in excess of the total estimated consideration over the remainder of the contract. As of November 30, 2020, our Condensed Consolidated Balance Sheet included remaining forward loss reserves of $4.2 million with $3.7 million classified as current in Accrued liabilities and $0.5 million classified as long-term in Other liabilities. To support our PBH customer contracts, we previously entered into an agreement with a component repair facility to outsource a portion of the component repair and overhaul services. The agreement included certain minimum repair volume guarantees which we have not met due to the impact of COVID-19 on commercial passenger aircraft flight hours. During the three-month period ended November 30, 2020, we recognized a $4.5 million charge to reflect our estimated obligation over the remainder of the agreement for not achieving the minimum volume guarantees. Changes in our deferred revenue were as follows for the three- and six-month periods ended November 30, 2020 and 2019: Three Months Ended Six Months Ended November 30, November 30, 2020 2019 2020 2019 Deferred revenue at beginning of period $ (85.4) $ (86.3) $ (99.2) $ (96.4) Revenue deferred (50.8) (153.7) (123.0) (240.3) Revenue recognized 87.6 103.3 176.1 204.3 Other 0.2 2.9 (2.3) (1.4) Deferred revenue at end of period $ (48.4) $ (133.8) $ (48.4) $ (133.8) Remaining Performance Obligations As of November 30, 2020, we had approximately $750 million of remaining performance obligations, also referred to as firm backlog, which excludes unexercised contract options and potential orders under our indefinite-delivery, indefinite-quantity (IDIQ) contracts. We expect that approximately 50% of this backlog will be recognized as revenue over the next 12 months with the majority of the remainder recognized over the next three years. The amount of remaining performance obligations that are expected to be recognized as revenue beyond 12 months, primarily relates to our . Disaggregation of Revenue Sales across the major customer markets for each of our reportable segments for the three- and six-month periods ended November 30, 2020 and 2019 were as follows: Three Months Ended Six Months Ended November 30, November 30, 2020 2019 2020 2019 Aviation Services: Commercial $ 192.2 $ 369.6 $ 361.8 $ 700.1 Government and defense 192.8 162.4 386.8 343.7 $ 385.0 $ 532.0 $ 748.6 $ 1,043.8 Expeditionary Services: Commercial $ 2.0 $ 6.4 $ 7.7 $ 12.1 Government and defense 16.6 22.5 48.1 46.5 $ 18.6 $ 28.9 $ 55.8 $ 58.6 Sales by geographic region for the three- and six-month periods ended November 30, 2020 and 2019 were as follows: Three Months Ended Six Months Ended November 30, November 30, 2020 2019 2020 2019 Aviation Services: North America $ 314.1 $ 395.6 $ 608.9 $ 786.0 Europe/Africa 45.7 99.8 96.7 188.0 Other 25.2 36.6 43.0 69.8 $ 385.0 $ 532.0 $ 748.6 $ 1,043.8 Expeditionary Services: North America $ 18.4 $ 26.4 $ 53.3 $ 54.6 Europe/Africa 0.2 2.2 2.4 3.6 Other — 0.3 0.1 0.4 $ 18.6 $ 28.9 $ 55.8 $ 58.6 |
