| Revenues | 3.
Revenues
As discussed in Note 2, the Company adopted ASC 606 as of
January 1, 2018 using the modified retrospective method. The
cumulative adjustment made to the January 1, 2018 consolidated
balance sheet for the adoption of ASC 606 was to increase
Retained earnings by $4.2 million, increase Total assets by
$7.9 million and increase Total liabilities by
$3.7 million. For the three and six months ended June 30,
2018, the effect of the changes in all financial statement line
items impacted by ASC 606 was immaterial from the amount that
would have been reported under the previous guidance. Updated
disclosure of the Company’s significant accounting policy
regarding revenue recognition is included in Part I,
Item 2 Management’s Discussion and Analysis of Financial
Condition and Results of Operations of this Quarterly Report
on Form 10-Q.
Revenue is derived from products and services. The Company’s
products and services are marketed and sold worldwide through two
operating groups: EIG and EMG.
EIG manufactures advanced instruments for the process, power and
industrial, and aerospace markets. It provides process and
analytical instruments for the oil and gas, petrochemical,
pharmaceutical, semiconductor, automation, and food and beverage
industries. EIG also provides instruments to the laboratory
equipment, ultraprecision manufacturing, medical, and test and
measurement markets. It makes power quality monitoring and metering
devices, uninterruptible power supplies, programmable power
equipment, electromagnetic compatibility test equipment and gas
turbines sensors. EIG also provides dashboard instruments for heavy
trucks and other vehicles, as well as instrumentation and controls
for the food and beverage industries. It supplies the aerospace
industry with aircraft and engine sensors, monitoring systems,
power supplies, fuel and fluid measurement systems, and data
acquisition systems.
EMG is a differentiated supplier of automation solutions, thermal
management systems, specialty metals and electrical interconnects.
It manufactures highly engineered electrical connectors and
electronic packaging used to protect sensitive electronic devices.
EMG also makes precision motion control products for data storage,
medical devices, business equipment, automation and other
applications. It supplies high-purity powdered metals, strip and
foil, specialty clad metals and metal matrix composites. EMG also
manufactures motors used in commercial appliances, fitness
equipment, food and beverage machines, hydraulic pumps and
industrial blowers. It produces motor-blower systems and heat
exchangers used in thermal management and other applications on a
variety of military and commercial aircraft and military ground
vehicles. EMG also operates a global network of aviation
maintenance, repair and overhaul facilities.
The majority of the Company’s revenues on product sales are
recognized at a point in time when the customer obtains control of
the product. The transfer in control of the product to the customer
is typically evidenced by one or more of the following: the
customer having legal title to the product, the Company’s
present right to payment, the customer’s physical possession
of the product, the customer accepting the product, or the customer
has benefit of ownership or risk of loss. Legal title transfers to
the customer in accordance with the delivery terms of the order,
usually upon shipment. For a small percentage of sales where title
and risk of loss transfers at the point of delivery, the Company
recognizes revenue upon delivery to the customer, assuming all
other criteria for revenue recognition are met.
Under ASC 606, the Company determined that revenues from
certain of its customer contracts met the criteria of satisfying
its performance obligations over time, primarily in the areas of
the manufacture of custom-made equipment and for service repairs of
customer-owned equipment. Prior to the adoption of the new
standard, these revenues were recorded upon shipment or, in the
case of those sales where title and risk of loss passes at the
point of delivery, the Company recognized revenue upon delivery to
the customer. Recognizing revenue over time for custom-manufactured
equipment is based on the Company’s judgment that, in certain
contracts, the product does not have an alternative use and the
Company has an enforceable right to payment for performance
completed to date. This change in revenue recognition accelerated
the revenue recognition and costs on the impacted contracts.
Applying the practical expedient available under ASC 606, the
Company recognizes incremental cost of obtaining contracts as an
expense when incurred if the amortization period of the assets that
the Company would have otherwise recognized is one year or less.
These costs are included in Selling, general and administrative
expenses in the consolidated statement of income.
Revenues associated with repairs of customer-owned assets were
previously recorded upon completion and shipment of the repaired
equipment to the customer. Under ASC 606, if the
Company’s performance enhances an asset that the customer
controls as the asset is enhanced, revenue must be recognized over
time. The revenue associated with the repair of a customer-owned
asset meets this criterion.
The determination of the revenue to be recognized in a given period
for performance obligations satisfied over time is based on the
input method. The Company recognizes revenue over time as it
performs on these contracts because the transfer of control to the
customer occurs over time. Revenue is recognized based on the
extent of progress towards completion of the performance
obligation. The Company generally uses the
total cost-to-cost cost-to-cost
Performance obligations also include service contracts,
installation and training. Service contracts are recognized over
the contract life. Installation and training revenues are
recognized over the period the service is provided. Warranty terms
in customer contracts can also be considered separate performance
obligations if the warranty provides services beyond assurance that
a product complies with agreed-upon specification or if a warranty
can be purchased separately. The Company does not incur significant
obligations for customer returns and refunds.
Payment terms generally begin upon shipment of the product. The
Company does have contracts with multiple billing terms that are
all due within one year from when the product is delivered. As
such, no significant financing component exists. Payment terms are
generally 30-60 days
The outstanding contract asset and (liability) accounts were as
follows:
June 30, 2018
Unbilled Revenues Customer
(In
thousands)
Balance at June 30, 2018 $ 52,516 $ (144,613 )
Revenues recognized during the period from:
Amounts in Customer advanced payments 150,125
Performance obligations satisfied 85,358
Transferred to Receivables from contract assets at the beginning of
the period (73,325 )
Increase related to acquired businesses 8,380 ( 840 )
Increase due to cash received (181,061 )
Unbilled revenues are reported as a component of Other current
assets in the consolidated balance sheet. At June 30, 2018,
$7.7 million of customer advanced payments were recorded in
Other long-term liabilities in the consolidated balance sheet.
In conjunction with the January 1, 2018 adoption of
ASC 606, in the consolidated balance sheet, approximately
$14 million was reclassified to unbilled revenues that was
previously reported in Other current assets at December 31,
2017. Also, at January 1, 2018, in the consolidated balance
sheet, approximately $114 million was reclassified to Customer
advanced payments that was previously reported in Accounts payable
of approximately $76 million, Accrued liabilities of
approximately $26 million and other of approximately
$12 million at December 31, 2017.
The Company applied the practical expedient to exclude the value of
remaining performance obligations for contracts with an original
expected term of one year or less. Remaining performance
obligations exceeding one year as of June 30, 2018 were
$179.2 million. Remaining performance obligations represent
the transaction price of firm, noncancelable orders, with expected
delivery dates to customers greater than one year from
June 30, 2018, for which work has not been performed.
The Company has certain contracts with variable consideration in
the form of volume discounts, rebates and early payment options,
which may affect the transaction price used as the basis for
revenue recognition. In these contracts, the amount of the variable
consideration is not considered constrained and is allocated among
the various performance obligations in the customer contract based
on the relative standalone selling price of each performance
obligation to the total standalone value of all the performance
obligations.
Geographic Areas
Information about the Company’s operations in different
geographic areas is shown below. Net sales were attributed to
geographic areas based on the location of the customer.
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
EIG EMG Total EIG EMG Total
(In thousands)
United States $ 357,560 $ 241,935 $ 599,495 $ 686,636 $ 472,799 $ 1,159,435
International:
United Kingdom 15,588 33,166 48,754 29,328 68,549 97,877
European Union countries 95,778 98,585 194,363 188,080 206,399 394,479
Asia 191,169 55,435 246,604 382,654 106,498 489,152
Other foreign countries 84,363 35,356 119,719 174,186 66,453 240,639
Total international 386,898 222,542 609,440 774,248 447,899 1,222,147
Consolidated net sales $ 744,458 $ 464,477 $ 1,208,935 $ 1,460,884 $ 920,698 $ 2,381,582
Major Products and Services
The Company’s major products and services in the reportable
segments were as follows:
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
EIG EMG Total EIG EMG Total
(In thousands)
Process and analytical instrumentation $ 515,854 $ — $ 515,854 $ 1,015,491 $ — $ 1,015,491
Aerospace and Power 228,604 113,403 342,007 445,393 222,060 667,453
Electromechanical devices — 351,074 351,074 — 698,638 698,638
Consolidated net sales $ 744,458 $ 464,477 $ 1,208,935 $ 1,460,884 $ 920,698 $ 2,381,582
Timing of Revenue Recognition
The Company’s timing of revenue recognition was as
follows:
Three Months Ended June 30, 2018 Six Months Ended June 30, 2018
EIG EMG Total EIG EMG Total
(In thousands)
Products transferred at a point in time $ 603,185 $ 437,630 $ 1,040,815 $ 1,228,607 $ 866,712 $ 2,095,319
Products and services transferred over time 141,273 26,847 168,120 232,277 53,986 286,263
Consolidated net sales $ 744,458 $ 464,477 $ 1,208,935 $ 1,460,884 $ 920,698 $ 2,381,582
Reportable Segments
The Company’s EIG and EMG operating segments are identified
based on the existence of segment managers. Certain of the
Company’s operating segments have been aggregated for segment
reporting purposes primarily on the basis of product type,
production processes, distribution methods and similarity of
economic characteristics.
At June 30, 2018, there were no significant changes in
identifiable assets of reportable segments from the amounts
disclosed at December 31, 2017, other than those described in
the acquisitions footnote (Note 9), nor were there any
significant changes in the basis of segmentation or in the
measurement of segment operating results. Operating information
relating to the Company’s reportable segments for the three
and six months ended June 30, 2018 and 2017 can be found in
the table included in Part I, Item 2 Management’s
Discussion and Analysis of Financial Condition and Results of
Operations of this Quarterly Report
on Form 10-Q.
Product Warranties
The Company provides limited warranties in connection with the sale
of its products. The warranty periods for products sold vary among
the Company’s operations, but generally do not exceed one
year. The Company calculates its warranty expense provision based
on its historical warranty experience and adjustments are made
periodically to reflect actual warranty expenses. Product warranty
obligations are reported as a component of Accrued liabilities in
the consolidated balance sheet.
Changes in the accrued product warranty obligation were as
follows:
Six Months
Ended
June 30,
2018 2017
(In
thousands)
Balance at the beginning of the period $ 22,872 $ 22,007
Accruals for warranties issued during the period 5,904 7,983
Settlements made during the period (7,068 ) (8,380 )
Warranty accruals related to acquired businesses and other during
the period 796 2,133
Balance at the end of the period $ 22,504 $ 23,743 |
