OTHER FINANCIAL INFORMATION

Inventories

The following table presents approximate percentage distribution between major classes of inventories:



	June 30, 2018	December 30, 2017
Raw Material and Work in Process	49%	47%
Finished Goods and Purchased Parts	51%	53%

Inventories are stated at cost, which is not in excess of market. Cost for approximately 52% of the Company's inventory at June 30, 2018, and 52% at December 30, 2017 was determined using the last-in, first-out ("LIFO") method.

Property, Plant and Equipment

The following table presents property, plant, and equipment by major classification (dollars in millions):



	Useful Life in Years	June 30, 2018			December 30, 2017
Land and Improvements		$	85.1		$	78.2
Buildings and Improvements	3 - 50	316.7			294.5
Machinery and Equipment	3 - 15	1,010.6			986.8
Property, Plant and Equipment		1,412.4			1,359.5
Less: Accumulated Depreciation		(762.2		)	(736.5		)
Net Property, Plant and Equipment		$	650.2		$	623.0

Revenue Recognition

The Company recognizes revenue from the sale of electric motors, electrical motion controls, power generation and power transmission products. The Company recognizes revenue when control of the product passes to the customer or the service is provided and is recognized at an amount that reflects the consideration expected to be received in exchange for such goods or services.

Nature of Goods and Services

The Company derives revenue from the sale of electric motors, electrical motion controls, power generation and power transmission products. The Company sells products with multiple applications as well as customized products that have a single application such as those manufactured for its OEM’s customers. The Company reports in three operating segments: Commercial and Industrial Systems, Climate Solutions and Power Transmission Solutions.

Commercial and Industrial Systems - This segment primarily serves commercial HVAC, pool and spa, standby and critical power and oil and gas markets. Products in this segment include medium and large electric motors, commercial and industrial equipment, power generation products, high-performance drives and controls and capacitors.

Climate Solutions - This segment primarily serves the residential, light commercial HVAC, water heaters and commercial refrigeration markets. Products in this segment include small motors, controls and air moving solutions.

Power Transmission Solutions - This segment primarily serves the beverage, bulk handling, metals, special machinery, energy and aerospace markets. Products in this segment include belt and chain drives, helical and worm gearing, mounted and unmounted bearings, couplings, modular plastic belts, conveying chains and components, hydraulic pump drives, large open gearing and specialty mechanical products.

Nature of Performance Obligations

The Company’s contracts with customers typically consist of purchase orders, invoices and master supply agreements. At contract inception, across all three segments, the Company assesses the goods and services promised in its sales arrangements with customers and identifies a performance obligation for each promise to transfer to the customer a good or service that is distinct. The Company’s primary performance obligations consist of product sales and customized system/solutions.

Product:

The nature of products varies from segment to segment but across all segments, individual products are not integrated and represent separate performance obligations. Revenue from product sales is typically recognized at the time of product shipment.

Customized systems/solutions:

The Company provides customized system/solutions which consist of multiple products engineered and designed to specific customer specification, combined or integrated into one combined solution for a specific customer application. The performance obligation is typically satisfied as goods are transferred to the customer and revenue is recognized over-time.

When Performance Obligations are Satisfied

For performance obligations related to product sales, the Company determines that the customer obtains control upon shipment and recognizes revenue accordingly. Once a product has shipped, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from the asset. The Company considers control to have transferred upon shipment because the Company has a present right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risks and rewards of ownership of the asset.

For a limited number of contracts, the Company transfers control and recognizes revenue over time. The Company satisfies its performance obligations as goods are transferred to the customer and uses a cost-based input method to measure progress. In applying the cost-based method of revenue recognition, the Company uses actual costs incurred to date relative to the total estimated costs for the contract in conjunction with the customer's commitment to perform in determining the amount of revenue and cost to recognize. The Company has determined that the cost-based input method provides a faithful depiction of the transfer of goods to the customer.

Payment Terms

The arrangement with the customer states the final terms of the sale, including the description, quantity, and price of each product or service purchased. Payment terms vary by customer but typically range from due upon delivery to 120 days after delivery. For contracts recognized at a point in time, revenue and billing typically occur simultaneously. The Company generally has payment terms with its customers of one year or less and has elected the practical expedient applicable to such contracts not to consider the time value of money. For contracts recognized using the cost-based input method, revenue recognized in excess of customer billings and billings in excess of revenue recognized are reviewed to determine the net asset or net liability position and classified as such on the Condensed Consolidated Balance Sheet.

Returns, Refunds, and Warranties

The Company’s contracts do not explicitly offer a “general” right of return to its customers (e.g. customers ordered excess products and return unused items). Warranties are classified as either assurance type or service type warranties. A warranty is considered an assurance type warranty if it provides the customer with assurance that the product will function as intended. A warranty that goes above and beyond ensuring basic functionality is considered a service type warranty. The Company generally only offers limited warranties which are considered to be assurance type warranties and are not accounted for as separate performance obligations under the revenue model. Customers generally receive repair or replacement on products that do not function to specification and are treated under warranty accrual. Estimated product warranties are provided for specific product groups and the Company accrues for estimated future warranty cost in the period in which the sale is recognized. The Company estimates the accrual requirements based on historical warranty loss experience and the cost is included in Cost of Sales.

Volume Rebates

In some cases, the nature of the Company’s contract may give rise to variable consideration including volume based sales incentives. If the customer achieves specific sales targets, they are entitled to rebates. The Company estimates the projected amount of the rebates that will be achieved and recognizes the estimated costs as a reduction to Net Sales as revenue is recognized.

Disaggregation of Revenue

The following tables presents the Company’s revenues disaggregated by geographical region for the three and six month period ended June 30, 2018 (in millions):



Three Months Ended June 30, 2018	Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions		Total
North America	$	303.4	$	240.9	$	188.7	$	733.0
Asia	93.0		11.2		5.0		109.2
Europe	52.6		13.7		14.5		80.8
Rest-of-World	20.0		11.5		5.2		36.7
Total	$	469.0	$	277.3	$	213.4	$	959.7



Six Months Ended June 30, 2018	Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions		Total
North America	$	591.9	$	460.3	$	356.1	$	1,408.3
Asia	160.0		23.8		9.7		193.5
Europe	71.6		24.6		39.4		135.6
Rest-of-World	59.5		28.5		13.1		101.1
Total	$	883.0	$	537.2	$	418.3	$	1,838.5

Practical Expedients and Exemptions

The Company typically expenses incremental direct costs of obtaining a contract, primarily sales commissions, as incurred because the amortization period is expected to be 12 months or less. Contract costs are included in Operating Expenses on the accompanying Condensed Consolidated Statements of Earnings.

Due to the short nature of the Company’s contracts, the Company has adopted a practical expedient to not disclose revenue allocated to remaining performance obligations as substantially all of its contracts have original terms of 12 months or less.

The Company typically does not include in its transaction price any amounts collected from customers for sales taxes.

The Company has elected to account for shipping and handling costs as fulfillment activities and expense the costs as incurred.

Other

As part of the purchase agreement of the 2008 acquisition of the Wuxi Hwada Motor Co., the Company agreed that if certain relocation compensation was received for the relocation of the business, the Company would pay a portion of that compensation to the seller as part of a deferred contingent purchase price. During the six months ended July 1, 2017, a final deferred contingent purchase price payment of $5.3 million was made under this agreement.