REVENUE RECOGNITION

We adopted Topic 606 Revenue from Contracts with Customers on January 1, 2018. As a result, we have changed our accounting policy for revenue recognition as detailed below.

Revenue is measured based on consideration specified in a contract with a customer, and excludes any sales incentives and amounts collected on behalf of third parties when JBT is acting in an agent capacity. We recognize revenue when we satisfy a performance obligation by transferring control of a product or service to a customer.

Performance Obligations & Contract Estimates

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. A contract’s transaction price is allocated to each distinct performance obligation based on its respective stand-alone selling price and recognized as revenue when, or as, the performance obligation is satisfied. A large portion of our revenue across JBT is derived from manufactured equipment, which may be customized to meet customer specifications, or is standard or turnkey.

JBT FoodTech designs, manufactures and services technologically sophisticated food processing systems and customized solutions for the preparation of meat, seafood and poultry products, ready-to-eat meals, shelf stable packaged foods, bakery products, juice and dairy products, and fruit and vegetable products.

JBT AeroTech supplies customized solutions and services used for applications in the air transportation industry, including airport authorities, airlines, airfreight, ground handling companies, the military and defense contractors. We customize our equipment and services utilizing differentiated technology to meet the specific needs of our customers.

Our contracts with customers in both segments often include multiple performance obligations. For instance, a contract may include equipment, installation, optional warranties, periodic service calls, etc. We frequently have contracts for which the equipment and installation are considered a single performance obligation as in these instances the installation services are not separately identifiable. However, due to the varying nature of contracts across JBT, we also have contracts where the installation services are deemed to be separately identifiable and are therefore deemed to be a separate performance obligation.

When an obligation is distinct, as defined in Topic 606, we allocate a portion of the contract price to the obligation and recognize it separately from the other performance obligations. Contract price allocation among multiple obligations is based on standalone selling price of each distinct good or service in the contract. When not sold separately, an estimate of the standalone selling price is determined using cost plus a reasonable margin.

We have elected the practical expedient to not adjust the transaction price for significant financing component for contracts with duration of less than one year.

The timing of revenue for each performance obligation is either over time as control transfers or at a point in time. We recognize revenue over time for contracts that provide: service over a period of time, for refurbishments of customer-owned equipment, and for highly customized equipment for which we have a contractual, enforceable right to collect payment upon customer cancellation. Revenue generated from standard equipment, highly customized equipment contracts without an enforceable right to payment for performance completed to-date, as well as aftermarket parts sales, are recognized at a point in time.

We utilize the input method of “cost-to-cost” to recognize revenue over time. We measure progress based on costs incurred to date relative to total estimated cost at completion. 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 certain allocated overhead expenses. Cost estimates are based on various assumptions to project the outcome of future events; including labor productivity and availability, the complexity of the work to be performed, the cost of materials, and the performance of subcontractors.

Revenue attributable to equipment measured at a point in time is recognized when our customers take control of the asset. We define this as the point in time in which we are able to objectively verify that the customer has the capability of full beneficial use of the asset as intended per the contract. Service revenue is recognized over time either proportionately over the period of the underlying contract or as invoiced, depending on the terms of the arrangement.

Within our AeroTech segment we also provide maintenance and repair expertise for baggage handling systems, facilities, gate systems, and ground support equipment. The timing of these contract billings is concurrent with the completion of the services, and therefore we have availed ourselves of the practical expedient that allows us to recognize revenue commensurate with the amount to which we have a right to invoice, which corresponds directly to the value to the customer of our performance completed to date.

Transaction price allocated to the remaining performance obligations

The majority of our contracts are completed within twelve months. We have elected the practical expedient to not disclose information about remaining performance obligations that have original expected durations of one year or less. For performance obligations that extend beyond one year, we had $206 million of remaining performance obligations as of March 31, 2018, 60% of which we expect to recognize as revenue in 2018 and the remainder in 2019.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.

Disaggregation of revenue

In the following table, revenue is disaggregated by type of good or service and primary geographical market. The table also includes a reconciliation of the disaggregated revenue with the reportable segments.



	March 31, 2018
Type of Good or Service	FoodTech		AeroTech
Non-recurring ⁽¹⁾	180.6		62.5
Recurring ⁽¹⁾	$	123.0	$	43.1
Total	$	303.6	$	105.6

Geographical Region ⁽²⁾
North America	$	164.0	$	83.8
Europe, Middle East and Africa	76.3		14.1
Asia Pacific	40.2		7.0
Latin America	23.1		0.7
Total	$	303.6	$	105.6

(1) Aftermarket parts and services and revenue from leasing contracts are considered recurring revenue. Non-recurring revenue is new equipment and installation.

(2) Geographical region represents the region in which the end customer resides.

Contract balances

The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and advance payments (contract liabilities). Progress billings generally are issued upon the completion of certain phases of the work as stipulated in the contract. Contract assets exist when revenue recognition occurs prior to billings. The contract assets are transferred to trade receivables when the right to payment becomes unconditional (i.e., when the amounts are billed to the customer and payment is due). These amounts are included in the trade receivables, net line item on the consolidated balance sheets. Conversely, we often receive payments from our customers before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.

We have elected the practical expedient to expense acquisition costs for contracts with duration of less than one year and therefore have not included any acquisition costs (primarily sales commissions) in contract assets.

Significant changes in the contract assets and the contract liabilities balances during the period are as follows:



	March 31, 2018
	Contract assets		Contract liabilities
Balance at beginning of period	$	39.1	$	(109.6	)
Change due to Topic 606 restatement	20.9		(113.1		)
Net revenue recognized prior to billings/cash receipts in the period	10.1		(6.7		)
Balance at end of period	$	70.1	$	(229.4	)

Impacts on financial statements

The following tables summarize the impacts of adopting Topic 606 on the Company's consolidated financial statements for the quarter ended March 31, 2018.

Consolidated Statement of Income:



			Adjustments
	As reported		Due to			Balances without
	March 31, 2018		Topic 606			Adoption
Revenue	$	409.2	$	(50.5	)	$	334.5
Cost of sales	305.6		(37.5		)	248.3
Gross profit	103.6		(13.0		)	86.2
Income tax provision (benefit)	0.4		(3.3		)	(4.0		)
Net income	$	1.2	$	(9.7	)	$	(11.9	)

Consolidated Balance Sheets:



			Adjustments
	As reported		Due to			Balances without
	March 31, 2018		Topic 606			Adoption
Trade receivables, net of allowance	287.6		33.6			321.2
Inventories	305.4		(75.9		)	229.5
Other current assets	55.0		(7.8		)	47.2
Deferred income taxes	14.4		(1.8		)	12.6
Total Assets	$	1,498.0	$	(51.9	)	$	1,446.1

Accounts payable, trade and other	156.8		(2.2		)	154.6
Advance and progress payments	245.3		(68.0		)	177.3
Other current liabilities	132.7		(1.8		)	130.9
Other liabilities	45.2		1.8			47.0
Retained earnings	303.4		18.3			321.7
Total Liabilities and stockholders' equity	$	1,498.0	$	(51.9	)	$	1,446.1