| 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 allocate 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 period ended August 31, 2021, we recognized an unfavorable cumulative catch-up adjustment of $1.0 million. For the three-month period ended August 31, 2020, we recognized favorable cumulative catch-up adjustments of $0.3 million. 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 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: August 31, May 31, 2021 2021 Change Contract assets – current $ 74.6 $ 71.9 $ 2.7 Contract assets – non-current 25.9 21.6 4.3 Contract liabilities: Deferred revenue – current (25.3) (25.9) 0.6 Deferred revenue on long-term contracts (7.7) (5.4) (2.3) Net contract assets $ 67.5 $ 62.2 $ 5.3 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 Sheets. Changes in contract assets and contract liabilities primarily result from the timing difference between our performance of services and payments from customers. During the three-month period ended August 31, 2020, we terminated a commercial power-by-the-hour (“PBH”) customer contract which resulted in a charge of $2.2 million. One of our PBH customers notified us in June 2021 that the customer would terminate its contract with us earlier than we originally anticipated. In conjunction with the early termination, we recognized a charge of $5.2 million in the three-month period ended August 31, 2021, which included a reduction in contract assets and revenue of $1.0 million and the establishment of loss reserves of $4.2 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 August 31, 2021, our Condensed Consolidated Balance Sheet included remaining forward loss reserves of $2.3 million classified in Accrued 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 fiscal 2021, 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. During the three-month period ended August 31, 2021, we recognized a $1.7 million charge to increase the obligation reflecting the revised estimated shortfall on the minimum volume guarantee. As of August 31, 2021, our Consolidated Balance Sheet included remaining loss reserves of $4.6 million with $1.5 million classified as current in Accrued liabilities and $3.1 million classified as long-term in Other liabilities. Changes in our deferred revenue were as follows for the three-month periods ended August 31, 2021 and 2020: Three Months Ended August 31, 2021 2020 Deferred revenue at beginning of period $ (31.3) $ (99.2) Revenue deferred (50.1) (72.2) Revenue recognized 46.4 88.5 Other 2.0 (2.5) Deferred revenue at end of period $ (33.0) $ (85.4) Remaining Performance Obligations As of August 31, 2021, we had approximately $760 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 Disaggregation of Revenue Sales across the major customer markets for each of our reportable segments for the three-month periods ended August 31, 2021 and 2020 were as follows: Three Months Ended August 31, 2021 2020 Aviation Services Commercial $ 267.2 $ 169.6 Government and defense 168.4 194.0 $ 435.6 $ 363.6 Expeditionary Services Commercial $ 0.1 $ 5.7 Government and defense 19.4 31.5 $ 19.5 $ 37.2 Sales by geographic region for the three-month periods ended August 31, 2021 and 2020 were as follows: Three Months Ended August 31, 2021 2020 Aviation Services North America $ 347.6 $ 294.8 Europe/Africa 62.0 51.0 Other 26.0 17.8 $ 435.6 $ 363.6 Expeditionary Services North America $ 19.3 $ 34.9 Europe/Africa 0.2 2.2 Other — 0.1 $ 19.5 $ 37.2 |
