We enter into contracts with customers often having multiple commitments of goods and services including any combination of designing, developing, manufacturing, modifying, installing and commissioning of flow management equipment and providing services and parts related to the performance of such products. We evaluate the commitments in our contracts with customers to determine if the commitments are both capable of being distinct and distinct in the context of the contract in order to identify performance obligations.

We recognize revenue when (or as) we satisfy a performance obligation by transferring control of the performance obligation to a customer. Control of a performance obligation may transfer to the customer either over time or at a point in time depending on an evaluation of the specific facts and circumstances for each contract, including the terms and conditions of the contract as agreed with the customer, as well as the nature of the products or services to be provided. Our larger contracts are typically completed within a one to three-year period, while many other contracts, such as “short cycle” contracts, have a shorter timeframe for revenue recognition.

Control transfers over time when the customer is able to direct the use of and obtain substantially all of the benefits of our work as we perform. This typically occurs when products have no alternative use and we have a right to payment for performance completed to date, including a reasonable profit margin. Our contracts often include cancellation provisions that require the customer to reimburse us for costs incurred up to the date of cancellation, and some contracts also provide for reimbursement of profit upon cancellation in addition to costs incurred to date.

Our primary method for recognizing revenue over time is the POC method. We measure progress towards completion by applying an input measure based on costs incurred to date relative to total estimated costs at completion (i.e., the cost-to-cost method). This method provides a reasonable depiction of the transfer of control of products and services to customers as it ensures our efforts towards satisfying a performance obligation, as reflected by costs incurred, are included in the measure of progress used for recognition of revenue. Costs generally include direct labor, direct material and manufacturing overhead. Costs that do not contribute towards control transfer are generally immaterial, but are excluded from the measure of progress in the event they are significant.

Prior to the adoption of the New Revenue Standard effective January 1, 2018, revenue recognized under the POC method had been 4% to 10% of our consolidated sales. Under the New Revenue Standard, we have experienced an increase in the amount of revenue recognized over time. This increase is primarily due to the application of the new “transfer of control” model for revenue recognition. Under this model, revenue for performance obligations subject to contractual transfer of control during the manufacturing process are recognized over time. This includes contracts with cancellation provisions that require reimbursement for costs incurred plus a reasonable margin and for which the performance obligation has no alternative use. Revenue from products and services transferred to customers over time accounted for approximately 19%, 22% and 4% of total revenue for the years ended December 31, 2019, 2018 and 2017, respectively.

If control does not transfer over time, then control transfers at a point in time. We recognize revenue at a point in time at the level of each performance obligation based on the evaluation of certain indicators of control transfer, such as title transfer, risk of loss transfer, customer acceptance and physical possession. Revenue from products and services transferred to customers at a point in time accounted for approximately 81%, 78% and 96% of total revenue for the years ended December 31, 2019, 2018 and 2017, respectively.

A contract modification, or “change order,” occurs when the existing enforceable rights and obligations of a contract change, such as a change in the scope, price or terms and conditions. We account for a change order as a new accounting contract when the change order is limited to adding new, distinct products and services that are priced in an amount consistent with standalone selling price. Other change orders are accounted for as a modification of the existing accounting contract. When a change order occurs for a contract having in-process over time performance obligations, the effect of the change order on the transaction price and the measure of progress for the performance obligations to which it relates is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) on a cumulative catch-up basis.

Freight charges billed to customers are included in sales and the related shipping costs are included in cost of sales ("COS") in our consolidated statements of income. If shipping activities are performed after a customer obtains control of a product, we apply a policy election to account for shipping as an activity to fulfill the promise to transfer the product to the customer.

In certain instances, we provide guaranteed completion dates under the terms of our contracts. Failure to meet contractual delivery dates can result in late delivery penalties or liquidated damages. In the event that the transaction price of such a contract is probable of experiencing a significant reversal due to a penalty, we constrain a portion of the transaction price.

This reduction to the transaction price could potentially cause estimated total contract costs to exceed the transaction price, in which case we record a provision for the estimated loss in the period the loss is first projected. In circumstances where the transaction price still exceeds total projected costs, the estimated penalty generally reduces profitability of the contract at the time of subsequent revenue recognition.

Our incremental costs to obtain a contract are limited to sales commissions. We apply the practical expedient to expense commissions as incurred for contracts having a duration of one year or less. Sales commissions related to contracts with a duration of greater than one year are immaterial to our financial statements and are also expensed as incurred.

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 for recognition of revenue. Many of our contracts have multiple performance obligations as the promise to transfer the individual goods or services, or certain groups of goods and services, is separately identifiable from other promises in the contract.

We allocate the transaction price of each contract to the performance obligations on the basis of standalone selling price and recognize revenue when, or as, control of each performance obligation transfers to the customer. For standard products, we identify the standalone selling price based on directly observable information. For customized or unique products and services, we apply the cost plus margin approach to estimate the standalone selling price. Under this method, we forecast our expected costs of satisfying a performance obligation and then add an appropriate standalone market margin for that distinct good or service.

We have elected to use the practical expedient to not adjust the transaction price of a contract for the effects of a significant financing component if, at the inception of the contract, we expect that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

On December 31, 2019, the aggregate transaction price allocated to unsatisfied (or partially unsatisfied) performance obligations related to contracts having an original expected duration in excess of one year was approximately $709 million. We estimate recognition of approximately $593 million of this amount as revenue in 2020 and an additional $116 million in 2021 and thereafter.

Our revenue sources are derived from our original equipment manufacturing and our aftermarket sales and services. Our original equipment revenues are generally related to originally designed, manufactured, distributed and installed equipment that can range from pre-configured, short-cycle products to more customized, highly-engineered equipment ("Original Equipment"). Our aftermarket sales and services are derived from sales of replacement equipment, as well as maintenance, advanced diagnostic, repair and retrofitting services ("Aftermarket"). Each of our two business segments generate Original Equipment and Aftermarket revenues.

The following table presents our customer revenues disaggregated by revenue source:



	December 31, 2019
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	994,719	$	972,424	$	1,967,143
Aftermarket	1,709,726		267,981		1,977,707
	$	2,704,445	$	1,240,405	$	3,944,850

	December 31, 2018
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	992,162	$	943,893	$	1,936,055
Aftermarket	1,628,326		268,285		1,896,611
	$	2,620,488	$	1,212,178	$	3,832,666

	December 31, 2017 (1)
(Amounts in thousands)	FPD		FCD		Total
Original Equipment	$	968,856	$	906,890	$	1,875,746
Aftermarket	1,508,882		276,203		1,785,085
	$	2,477,738	$	1,183,093	$	3,660,831

Our customer sales are diversified geographically. The following table presents our revenues disaggregated by geography, based on the shipping addresses of our customers:



	December 31, 2019
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	1,085,627	$	543,986	$	1,629,613
Latin America(1)	202,247		28,899		231,146
Middle East and Africa	355,937		98,959		454,896
Asia Pacific	499,932		319,235		819,167
Europe	560,702		249,326		810,028
	$	2,704,445	$	1,240,405	$	3,944,850

	December 31, 2018
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	1,037,637	$	540,316	$	1,577,953
Latin America(1)	219,376		22,405		241,781
Middle East and Africa	329,484		138,240		467,724
Asia Pacific	502,559		279,109		781,668
Europe	531,432		232,108		763,540
	$	2,620,488	$	1,212,178	$	3,832,666

	December 31, 2017 (2)
(Amounts in thousands)	FPD		FCD		Total
North America(1)	$	969,417	$	477,275	$	1,446,692
Latin America(1)	168,971		33,207		202,178
Middle East and Africa	327,366		155,447		482,813
Asia Pacific	445,001		239,197		684,198
Europe	566,983		277,967		844,950
	$	2,477,738	$	1,183,093	$	3,660,831

We receive payment from customers based on a contractual billing schedule and specific performance requirements as established in our contracts. We record billings as accounts receivable when an unconditional right to consideration exists. A contract asset represents revenue recognized in advance of our right to bill the customer under the terms of a contract. A contract liability represents our contractual billings in advance of revenue recognized for a contract.



( Amounts in thousands)	Contract Assets, net (Current)			Long-term Contract Assets, net(1)			Contract Liabilities (Current)			Long-term Contract Liabilities(2)
Balance — January 1, 2018	$	219,361		$	3,990		$	178,515		$	3,925
Revenue recognized that was included in contract liabilities at the beginning of the period	—			—			(123,458		)	(1,360		)
Increase due to revenue recognized in the period in excess of billings	846,922			6,668			—			—
Increase due to billings arising during the period in excess of revenue recognized	—			—			152,664			(481		)
Amounts transferred from contract assets to receivables	(815,213		)	(2,503		)	—			—
Currency effects and other, net	(22,491		)	2,812			(5,263		)	(714		)
Balance — December 31, 2018	$	228,579		$	10,967		$	202,458		$	1,370
Revenue recognized that was included in contract liabilities at the beginning of the period	—			—			(125,274		)	—
Increase due to revenue recognized in the period in excess of billings	835,147			—			—			—
Increase due to billings arising during the period in excess of revenue recognized	—			—			135,695			290
Amounts transferred from contract assets to receivables	(785,279		)	(1,747		)	—			—
Currency effects and other, net	(5,533		)	60			3,662			(8		)
Balance — December 31, 2019	$	272,914		$	9,280		$	216,541		$	1,652