Annual report pursuant to Section 13 and 15(d)

Revenue

v3.10.0.1
Revenue
 12 Months Ended
Dec. 31, 2018
Revenue from Contract with Customer [Abstract]  
Revenue REVENUE
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 services. Sales shown on the Company's Consolidated Statements of Operations are from contracts with customers.
Payment terms and conditions vary by contract, although terms generally include a requirement of payment within a range from 30 to 60 days after the performance obligation has been satisfied; 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 December 31, 2018, the Company does not have material incremental 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. 
The Company recognizes an asset for certain, material costs to fulfill a contract if it is determined that the costs relate directly to a contract or anticipated contracts that can be specifically identified, generate or enhance resources that will be used in satisfying performance obligations in the future, and are expected to be recovered. Such costs are amortized on a systematic basis that is consistent with the transfer to the customer of the goods to which the asset relates. Start-up costs are expensed as incurred. Capitalized fulfillment costs are included in Inventories in the accompanying Consolidated Balance Sheets. Should
future orders not materialize or it is determined the costs are no longer probable of recovery, the capitalized costs are written off. Capitalized fulfillment costs were $9.6 million as of December 31, 2018. These costs were associated with a contract that is included in the divestiture of the semiconductor business and as such, the balance is included in Assets Held for Sale in the accompanying consolidated balance sheet at December 31, 2018. Amortization of fulfillment costs recognized within Cost of Products Sold was approximately $1.0 million for the year ended December 31, 2018.
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 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, representing 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. Contract modifications are for goods or services that are distinct, and, therefore, are accounted for as new contracts. 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 that are subject to the requirement to accrue anticipated losses, the company recognizes the entire anticipated loss in the period that the loss becomes probable.
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 December 31, 2018, we had $415.5 million of remaining performance obligations, which we refer to as total backlog, inclusive of $12.2 million in backlog associated with the divested semiconductor business. We expect to recognize approximately $352.4 million of our remaining performance obligations as revenue in 2019.
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 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 at December 31 is as follows:
(In thousands)  2018 
Income Statement  As Reported  Effect of Change Higher/(Lower)  Balances Without Adoption of ASU 2014-09 
Sales 
Aerospace
 $ 675,625  $ (1,796) $ 677,421 
Test Systems
 $ 127,631  $ 1,633  $ 125,998 
Costs and Expenses
Cost of Products Sold
 $ 622,560  $ (610) $ 623,170 
Provision for (Benefit from) Income Taxes  $ 5,479  $ 119  $ 5,360 
Net Income
 $ 46,803  $ 328  $ 46,475 

(In thousands)  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
 $ 182,308  $ 11,277  $ 171,031 
Inventories
 $ 138,685  $ (7,345) $ 146,030 
Liabilities
Accrued (Prepaid) Income Taxes  $ 312  $ 1,947  $ (1,635)
Customer Advance Payments and Deferred Revenue
 $ 26,880  $ (740) $ 27,620 
Deferred Income Taxes  $ 3,199  $ (871) $ 4,070 
Equity
Retained Earnings  $ 376,567  $ 3,596  $ 372,971 
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 satisfies 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.
We recognized $8.1 million during the year ended December 31, 2018 in revenues that were included in the contract liability balance at January 1, 2018.
The Company's contract assets and contract liabilities consist of costs and profits in excess of billings and billings in excess of cost and profits, respectively. Non-current contract liabilities are reported in our Consolidated Balance Sheet within Other Liabilities. The following table presents the beginning and ending balances of contract assets and contract liabilities:
(In thousands)  Contract Assets  Contract Liabilities 
Beginning Balance, January 1, 2018 (1)
 $ 24,423  $ 11,431 
Ending Balance, December 31, 2018  $ 33,030  $ 27,347 
(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 as of December 31 as follows:
(In thousands)  2018  2017  2016 
Aerospace Segment 
Commercial Transport
 $ 536,269  $ 414,523  $ 435,552 
Military
 68,138  61,270  54,556 
Business Jet
 43,090  41,298  25,407 
Other
 28,128  17,512  18,526 
Aerospace Total  675,625  534,603  534,041 
Test Systems Segment 
Semiconductor
 84,254  31,999  37,939 
Aerospace & Defense
 43,377  57,862  61,143 
Test Systems Total  127,631  89,861  99,082 
Total  $ 803,256  $ 624,464  $ 633,123 
The following table presents our revenue disaggregated by Product Lines as of December 31 as follows:
(In thousands)  2018  2017  2016 
Aerospace Segment 
Electrical Power & Motion
 $ 303,180  $ 264,286  $ 288,465 
Lighting & Safety
 174,383  158,663  156,871 
Avionics
 131,849  53,960  32,761 
Systems Certification
 13,951  14,333  16,531 
Structures
 24,134  25,849  20,887 
Other
 28,128  17,512  18,526 
Aerospace Total  675,625  534,603  534,041 
Test Systems  127,631  89,861  99,082 
Total  $ 803,256  $ 624,464  $ 633,123