OTHER FINANCIAL INFORMATION

Inventories

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



	March 30, 2019	December 29, 2018
Raw Material and Work in Process	45%	45%
Finished Goods and Purchased Parts	55%	55%

Inventories are stated at cost, which is not in excess of market. Cost for approximately 56% of the Company's inventory at March 30, 2019, and 54% at December 29, 2018 was determined using the last-in, first-out ("LIFO") method.

Assets Held for Sale

In December 2018, the Company signed an agreement to sell its engineered drives and controls systems business included in the Company's Commercial and Industrial Systems segment. This transaction closed in January 2019.

Also in January 2019, the Company signed an agreement to sell its capacitors business which had been included in the Company's Climate Solutions segment. This transaction closed in April 2019.

In April 2019, the Company signed an agreement to sell its custom marine and industrial transmissions business included in the Company's Power Transmissions Solutions segment. This transaction closed in April 2019.

As of March 30, 2019 and December 29, 2018, the Company has presented assets and liabilities of certain businesses held for sale as the Company has both the intent and ability to sell these businesses.

These businesses are being divested as they are considered non-core to the Company's operations. The table below presents the balances that were classified as Assets of Businesses Held for Sale and Liabilities of Businesses Held for Sale as of March 30, 2019 and December 29, 2018 (in millions):



	March 30, 2019		December 29, 2018
Trade Receivables	$	15.1	$	19.2
Inventories	21.9		34.7
Prepaid Expenses and Other Current Assets	1.6		5.0
Property, Plant and Equipment	7.8		19.9
Intangible Assets	—		12.0
Goodwill	1.3		1.3
Other Noncurrent Assets	2.8		—
Assets of Businesses Held for Sale	$	50.5	$	92.1

Accounts Payable	$	6.3	$	8.1
Accrued Compensation and Employee Benefits	0.4		0.5
Other Accrued Expenses	6.0		7.3
Other Noncurrent Liabilities	1.0		1.1
Liabilities of Businesses Held for Sale	$	13.7	$	17.0

The businesses classified as held for sale at March 30, 2019 had First Quarter 2019, Net Sales and Income from Operations of $20.7 million and $2.1 million, respectively. Net Sales and Loss from Operations of $17.1 million and $(0.5) million, respectively for the three months ended March 31, 2018. The businesses classified as held for sale at December 29, 2018 had Fiscal 2018, Net Sales and Income from Operations of $138.9 million and $15.7 million, respectively.

Property, Plant and Equipment

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



	Useful Life in Years	March 30, 2019			December 29, 2018
Land and Improvements		$	82.8		$	82.1
Buildings and Improvements	3 - 50	303.4			302.8
Machinery and Equipment	3 - 15	960.6			971.9
Property, Plant and Equipment		1,346.8			1,356.8
Less: Accumulated Depreciation		(738.3		)	(741.3		)
Net Property, Plant and Equipment		$	608.5		$	615.5

For the three months ended March 30, 2019, the Company recognized $5.1 million of fixed asset impairments related to the transfer of assets to held for sale.

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 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. See Note 6 for a description of the different segments.

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.

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 goods are transferred to the customer and revenue is typically recognized over time as the performance obligations are satisfied.

When Performance Obligations are Satisfied

For performance obligations related to substantially all of the Company's 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 over time and the Company 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. Customers generally receive repair or replacement on products that do not function to specification. 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 (in millions):



Three Months Ended March 30, 2019		Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions		Total
North America		$	247.7	$	231.4	$	172.7	$	651.8
Asia		67.7		10.4		7.4		85.5
Europe		47.5		11.5		24.7		83.7
Rest-of-World		17.4		10.0		5.4		32.8
Total		$	380.3	$	263.3	$	210.2	$	853.8

Three Months Ended March 31, 2018		Commercial and Industrial Systems		Climate Solutions		Power Transmission Solutions		Total
North America		$	288.5	$	219.4	$	167.4	$	675.3
Asia		67.0		12.6		4.7		84.3
Europe		19.0		10.9		24.9		54.8
Rest-of-World		39.5		17.0		7.9		64.4
Total	—	$	414.0	$	259.9	$	204.9	$	878.8

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 Income.

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 as part of Cost of Sales.

Exit of Business

On July 31, 2018, the Company received notification from a customer of its Hermetic Climate business that it would wind down operations. The Hermetic Climate business accounted for sales of $52.6 million for the fiscal year ended 2018. $12.7 million of sales were recorded for the three months ended March 30, 2019 compared to $15.6 million for the three months ended March 31, 2018. As a result of this notification, the Company accelerated its plans to exit this business. The Company continues to wind down its operations and this is expected to be completed by the end of the third quarter in the current fiscal year. The Company recognized exit and exit related charges of $34.9 million during the third quarter of fiscal 2018. The charges included goodwill impairment of $9.5 million, customer relationship intangible asset impairment of $5.5 million, technology intangible asset impairment of $2.1 million and fixed asset impairment of $1.1 million. In addition to the impairments, the Company took charges on accounts receivable and inventory along with recognizing other expenses related to exiting the business.