As a significant change in one or more of these estimates could affect the profitability of the
Company’s contracts, management reviews and updates the Company’s contract-related
estimates regularly through a Company-wide project review process in which management
reviews the progress and execution of the Company's performance obligations and the
estimate at completion. As part of this process, management reviews information including,
but not limited to, any outstanding key contract matters, progress towards completion and
the related program schedule, and the related changes in estimates of revenues and costs.
Management must make assumptions and estimates regarding labor productivity and
availability, the complexity of the work to be performed, the cost and availability of materials,
among other variables.
The Company recognizes adjustments in estimated profit on contracts under the cumulative
catch-up method. Under this method, the impact of the adjustment on profit recorded to
date is recognized in the period the adjustment is identified. Revenue and profit in future
periods of contract performance is recognized using the adjusted estimate. If at any time the
estimate of contract profitability indicates an anticipated loss on the contract, the Company
recognizes the total loss in the period it is identified.
Variable Consideration
Variable consideration is estimated at the most likely amount to which the Company is
expected to be entitled. Any variable consideration is included in the transaction price to the
extent it is probable that a significant reversal of cumulative revenue recognized will not
occur when the uncertainty associated with the variable consideration is resolved. Estimates
of variable consideration and the determination of whether to include estimated amounts in
the transaction price are based largely on assessments of legal enforceability, the Company’s
performance, and all information (historical, current, and forecasted) that is reasonably
available to management.
Variable consideration is allocated entirely to a performance obligation or to a distinct good
or service within a performance obligation if it retates specifically to efforts to satisfy the
performance obligation or transfer the distinct good or service, and the allocation depicts the
amount of consideration the Company expects to be entitled.
Significant Judgments
The Company recognizes contract revenue for financial reporting purposes over time.
Progress toward completion of the Company's contracts is measured using a time-based
criterion for each contract and requires significant judgment. This method is used because
management considers time-elapsed to be the best available measure of progress on
contracts.
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