Quarterly report pursuant to Section 13 or 15(d)

Revenue

v3.10.0.1
Revenue
 6 Months Ended
Jun. 30, 2018
Revenue from Contract with Customer [Abstract]  
Revenue
Revenue
As discussed in Note 1, ASU 2014-09 was adopted on January 1, 2018 using the modified retrospective method, which required the recognition of the cumulative effect of the transition as an adjustment to retained earnings.
Revenue is recognized when, or as, the Company transfers control of promised products or services to a customer in an amount that reflects the consideration the Company expects to be entitled in exchange for transferring those products or service.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days, or in certain cases, up-front deposits. In circumstances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that the Company's contracts generally do not include a significant financing component. Taxes collected from customers, which are subsequently remitted to governmental authorities, are excluded from sales.
The Company recognizes an asset for the incremental, material costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year and the costs are expected to be recovered. As of June 30, 2018, the Company does not have such incremental, material costs on any open contracts with an original expected duration of greater than one year, and therefore such costs are expensed as incurred. These incremental costs include, but are not limited to, sales commissions incurred to obtain a contract with a customer.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts which are, therefore, not distinct. Promised goods or services that are immaterial in the context of the contract are not separately assessed as performance obligations.
Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, the contract’s transaction price is allocated to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which expected costs are forecast to satisfy a performance obligation and then an appropriate margin is added for that distinct good or service. Shipping and handling activities that occur after the customer has obtained control of the good are considered fulfillment activities, not performance obligations.
Some of our contracts offer price discounts or free units after a specified volume has been purchased.  The Company evaluates these options to determine whether they provide a material right to the customer, or represent a separate performance obligation. If the option provides a material right to the customer, revenue is allocated to these rights and recognized when those future goods or services are transferred, or when the option expires.
Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The aggregate effect of all modifications as of the period beginning January 1, 2018 has been reflected when identifying the satisfied and unsatisfied performance obligations, determining the transaction price and allocating the transaction price. Contracts modified prior to January 1, 2018 have not been retrospectively restated.
The vast majority of the Company’s revenue from contracts with customers is recognized at a point in time, when the customer obtains control of the promised product, which is generally upon delivery and acceptance by the customer.  These contracts may provide credits or incentives, which may be accounted for as variable consideration.  Variable consideration is estimated at the most likely amount to predict the consideration to which the Company will be entitled, and only to the extent it is probable that a subsequent change in estimate will not result in a significant revenue reversal when estimating the amount of revenue to recognize.  Variable consideration is treated as a change to the sales transaction price and based on an assessment of all information (i.e., historical, current and forecasted) that is reasonably available to the Company, and estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Most of our contracts do not contain rights to return product; where this right does exist, it is evaluated as possible variable consideration.
For contracts with customers in which the Company satisfies a promise to the customer to provide a product that has no alternative use to the Company and the Company has enforceable rights to payment for progress completed to date inclusive of profit, the Company satisfies the performance obligation and recognizes revenue over time, using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations.  Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer.  Contract costs include labor, material and overhead. 
The Company also recognizes revenue from service contracts (including service-type warranties) over time.  The Company recognizes revenue over time during the term of the agreement as the customer is simultaneously receiving and consuming the benefits provided throughout the Company’s performance.  Therefore, due to control transferring over time, the Company typically recognizes revenue on a straight-line basis throughout the contract period.
On June 30, 2018, we had $376.9 million of remaining performance obligations, which we refer to as total backlog. We expect to recognize approximately $309.1 million of our remaining performance obligations as revenue in 2018.
We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of  ASU 2014-09, were as follows (in thousands):
Balance Sheet
 
Balance at December 31, 2017
 
Adjustments Due to ASU 2014-09
 
Balance at January 1, 2018
Assets
 
 
 
 
 
 
Accounts Receivable, Net of Allowance for Doubtful Accounts
 
$
132,633

 
$
4,005

 
$
136,638

Inventories
 
$
150,196

 
$
(7,957
)
 
$
142,239

Liabilities
 
 
 
 
 


Accrued Income Taxes
 
$
261

 
$
1,028

 
$
1,289

Customer Advance Payments and Deferred Revenue
 
$
19,607

 
$
(8,176
)
 
$
11,431

Deferred Income Taxes
 
$
5,121

 
$
(72
)
 
$
5,049

Equity
 
 
 
 
 


Retained Earnings
 
$
325,191

 
$
3,268

 
$
328,459


In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our consolidated income statement and balance sheet was as follows (in thousands):
 
For the Six Months Ended June 30, 2018
 
For the Three Months Ended June 30, 2018
Income Statement
As Reported
 
Effect of Change Higher/(Lower)
 
Balances Without Adoption of ASU 2014-09
 
As Reported
 
Effect of Change Higher/(Lower)
 
Balances Without Adoption of ASU 2014-09
Revenues
 
 
 
 
 
 
 
 
 
 
 
Aerospace
$
330,804

 
$
(771
)
 
$
331,575

 
$
166,204

 
$
(1,429
)
 
$
167,633

Test Systems
$
56,861

 
$
(575
)
 
$
57,436

 
$
42,402

 
$
(2,536
)
 
$
44,938

Costs and Expenses
 
 
 
 
 
 
 
 
 
 


Cost of Products Sold
$
300,961

 
$
(1,467
)
 
$
302,428

 
$
159,034

 
$
(2,814
)
 
$
161,848

Provision for Income Taxes
$
3,789

 
$
21

 
$
3,768

 
$
3,157

 
$
(272
)
 
$
3,429

Net Income
$
17,319

 
$
100

 
$
17,219

 
$
14,025

 
$
(879
)
 
$
14,904


 
 
June 30, 2018
Balance Sheet
 
As Reported
 
Effect of Change Higher/(Lower)
 
Balances Without Adoption of ASU 2014-09
Assets
 
 
 
 
 
 
Accounts Receivable, Net of Allowance for Doubtful Accounts
 
$
169,496

 
$
6,330

 
$
163,166

Inventories
 
$
159,479

 
$
(6,490
)
 
$
165,969

Liabilities
 
 
 
 
 
 
Accrued Expenses and Other Current Liabilities
 
$
38,590

 
$
1,295

 
$
37,295

Customer Advance Payments and Deferred Revenue
 
$
25,429

 
$
(4,505
)
 
$
29,934

Other Liabilities
 
$
34,189

 
$
(318
)
 
$
34,507

Equity
 
 
 
 
 


Other Shareholders' Equity
 
$
366,859

 
$
3,368

 
$
363,491



Costs in excess of billings includes unbilled amounts resulting from revenues under contracts with customers that are satisfied over time and when the cost-to-cost measurement method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not just subject to the passage of time. Amounts may not exceed their net realizable value. Costs in excess of billings are classified as current assets, within Accounts Receivable, Net of Allowance for Doubtful Accounts on our Consolidated Balance Sheet.
Billings in excess of cost includes billings in excess of revenue recognized as well as deferred revenue, which includes advanced payments, up-front payments, and progress billing payments. Billings in excess of cost are classified as current liabilities, reported in our Consolidated Balance Sheet within Customer Advance Payments and Deferred Revenue. To determine the revenue recognized in the period from the beginning balance of billings in excess of cost, the contract liability as of the beginning of the period is recognized as revenue on a contract-by-contract basis when the Company incurs costs to satisfy the performance obligation related to the individual contract. Once the beginning contract liability balance for an individual contract has been fully recognized as revenue, any additional payments received in the period are recognized as revenue once the related costs have been incurred.
During the three months ended and six months ended June 30, 2018, we recognized $8.4 million and $11.6 million, respectively, in revenues that were included in the contract liability balance at the adoption date.
The Company's contract assets and contract liabilities consist of costs in excess of billings and billings in excess of cost, respectively. The following table presents the beginning and ending balances of contract assets and contract liabilities during the six months ended June 30, 2018 (in thousands):
 
 
Contract Assets
Contract Liabilities
Beginning Balance, January 1, 2018 (1)
 
$
24,423

$
11,431

Ending Balance, June 30, 2018
 
$
20,672

$
25,429

(1) Due to the adoption of ASU 2014-09 effective January 1, 2018, the Company recorded a transition adjustment to the opening balance of Contract Assets and Contract Liabilities at January 1, 2018. Refer to the cumulative effect of the changes table above for further explanation of the changes made to our consolidated January 1, 2018 balance sheet.
The following table presents our revenue disaggregated by Market Segments (in thousands):
 
 
Six Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Aerospace Segment
 
 
 
 
 
 
 
 
Commercial Transport
 
$
265,847

 
$
208,079

 
$
132,797

 
$
98,355

Military
 
30,285

 
30,931

 
16,270

 
15,785

Business Jet
 
21,002

 
18,251

 
10,338

 
10,716

Other
 
13,670

 
9,113

 
6,799

 
4,691

Aerospace Total
 
330,804

 
266,374

 
166,204

 
129,547

 
 
 
 
 
 
 
 
 
Test Systems Segment
 
 
 
 
 
 
 
 
Semiconductor
 
38,465

 
11,711

 
31,405

 
7,080

Aerospace & Defense
 
18,396

 
25,425

 
10,997

 
14,487

Test Systems Total
 
56,861

 
37,136

 
42,402

 
21,567

 
 
 
 
 
 
 
 
 
Total
 
$
387,665

 
$
303,510

 
$
208,606

 
$
151,114

The following table presents our revenue disaggregated by Product Lines (in thousands):
 
 
Six Months Ended
 
Three Months Ended
 
 
June 30, 2018
 
July 1, 2017
 
June 30, 2018
 
July 1, 2017
Aerospace Segment
 
 
 
 
 
 
 
 
Electrical Power & Motion
 
$
140,321

 
$
135,040

 
$
67,643

 
$
62,597

Lighting & Safety
 
85,763

 
85,316

 
44,121

 
42,646

Avionics
 
69,295

 
20,076

 
36,272

 
10,940

Systems Certification
 
9,655

 
4,952

 
4,872

 
2,793

Structures
 
12,100

 
11,877

 
6,497

 
5,880

Other
 
13,670

 
9,113

 
6,799

 
4,691

Aerospace Total
 
330,804

 
266,374

 
166,204

 
129,547

 
 
 
 
 
 
 
 
 
Test Systems
 
56,861

 
37,136

 
42,402

 
21,567

 
 
 
 
 
 
 
 
 
Total
 
$
387,665

 
$
303,510

 
$
208,606

 
$
151,114