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5. | Revenue from Contracts with Customers |
See Note 1, "Overview, Basis of Presentation, Significant Accounting Policies and Recently Issued Accounting Guidance - Summary of Significant Accounting Policies - Revenue Recognition," for information regarding long-term engine and service contracts.
Additional information regarding long-term engine contracts where revenue is recognized over time using an input method is as follows:
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| | | | | | | |
| As of December 31, |
| 2018 | | 2017 |
| (in millions) |
Cumulative revenues recognized on uncompleted contracts | $ | 452.5 |
| | $ | 350.3 |
|
Cumulative billings on uncompleted contracts | 393.9 |
| | 304.2 |
|
| $ | 58.6 |
| | $ | 46.1 |
|
These amounts were included in the accompanying Consolidated Balance Sheets under the following captions:
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| | | | | | | |
| As of December 31, |
| 2018 | | 2017 |
| (in millions) |
Accounts receivable, net (contract revenue recognized in excess of billings) | $ | 63.9 |
| | $ | 51.8 |
|
Accrued expenses (billings in excess of revenue recognized) | (5.3 | ) | | (5.7 | ) |
| $ | 58.6 |
| | $ | 46.1 |
|
The changes in our contract deferred revenue (billings in excess of revenue recognized) for the year ended December 31, 2018 are as follows:
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| | | |
(in millions) | |
Balance at beginning of period | $ | 5.7 |
|
Additional billings in excess of revenue recognized | 27.8 |
|
Revenue recognized | (28.0 | ) |
Balance at end of period | $ | 5.5 |
|
We make deposits and progress payments to certain vendors for long lead time manufactured components associated with engine projects. At December 31, 2018 and 2017, deposits and progress payments for long lead time components totaled $1.0 million and $2.9 million. These deposits and progress payments are classified in prepaid expenses and other current assets in the accompanying Consolidated Balance Sheets. Assets and liabilities for long-term service contracts recognized over time were immaterial as of December 31, 2018 and 2017.
As of December 31, 2018, our aggregate amount of transaction price of remaining performance obligations, or backlog, was $380.9 million. Approximately 76% of these obligations are expected to be satisfied within one year. The amount expected to be satisfied beyond December 31, 2019 is mainly attributable to our Power Systems segment and pertains to the contracts discussed above. Remaining performance obligations include those related to the contracts discussed above as well as orders across all of our businesses that we believe to be firm. However, there is no certainty these orders will result in actual sales at the times or in the amounts ordered. In addition, for most of our business, this total is not particularly predictive of future performance because of our short lead times and some seasonality.
About Revenue Disclosures
Revenue disclosures under ASC 606 explain how a company identifies performance obligations, allocates transaction prices, and determines when revenue is recognized. This section is essential for understanding whether reported revenue reflects genuine economic activity or aggressive accounting choices. Analysts examine the mix of point-in-time versus over-time recognition, which directly affects revenue timing and comparability.
Key signals: rising contract liabilities (deferred revenue) suggest strong future revenue visibility, while declining contract assets may indicate slowing project milestones. Watch for variable consideration estimates — rebates, returns, and performance bonuses that require management judgment. Significant changes in disaggregated revenue by geography or product line can reveal shifting business mix before it appears in headline numbers. Compare revenue growth against contract liability growth to assess sustainability, and scrutinize any changes in the timing of recognition that coincide with earnings pressure.