Revenue

The Company is a global provider of highly engineered products and systems, differentiated industrial technologies, and innovative solutions, serving a wide range of end markets and customers. Its specialized products and services are used in far-reaching applications including aerospace, transportation, manufacturing, healthcare, and packaging. The Company accounts for revenue in accordance with ASC 606, which it adopted on January 1, 2018, using the modified retrospective approach. Note 2 of the Consolidated Financial Statements further discusses this adoption.

Revenue is recognized by the Company when control of product or solution is transferred to the customer. Control is generally transferred when products are shipped or delivered to customers, title is transferred, the significant risks and rewards of ownership have transferred, the Company has rights to payment and rewards of ownership pass to the customer. Customer acceptance may also be a factor in determining whether control of the product has transferred. Although revenue is generally transferred at a point in time, a certain portion of businesses with customized products or contracts in which the Company performs work on customer-owned assets requires the use of an over time recognition model as certain contracts meet one or more of the established criteria pursuant to ASC 606. Also, service revenue is recognized as control transfers, which is concurrent with the services being performed.

The following table presents the Company's revenue disaggregated by products and services, and geographic regions, by segment.



	Three months ended June 30, 2018
	Industrial		Aerospace		Total Company
Product and Services
Engineered Components Products	$	89,170	$	—	$	89,170
Molding Solutions Products	125,938		—		125,938
Nitrogen Gas Products	34,469		—		34,469
Aerospace Original Equipment Manufacturer Products	—		84,527		84,527
Aerospace Aftermarket Product and Services	—		41,211		41,211
	$	249,577	$	125,738	$	375,315

Geographic Regions ^(A)
Americas	$	93,326	$	92,449	$	185,775
Europe	92,414		22,740		115,154
Asia	63,043		9,850		72,893
Other	794		699		1,493
	$	249,577	$	125,738	$	375,315



	Six months ended June 30, 2018
	Industrial		Aerospace		Total Company
Product and Services
Engineered Components Products	$	181,183	$	—	$	181,183
Molding Solutions Products	245,036		—		245,036
Nitrogen Gas Products	69,319		—		69,319
Aerospace Original Equipment Manufacturer Products	—		165,223		165,223
Aerospace Aftermarket Product and Services	—		81,214		81,214
	$	495,538	$	246,437	$	741,975

Geographic Regions ^(A)
Americas	$	189,320	$	178,426	$	367,746
Europe	187,127		47,407		234,534
Asia	117,382		18,765		136,147
Other	1,709		1,839		3,548
	$	495,538	$	246,437	$	741,975

(A) Sales by geographic market are based on the location to which the product is shipped.

Revenue from goods and services transferred to customers at a point in time accounted for approximately 90 percent of revenue for both the three and six month periods ended June 30, 2018. A majority of revenue within the Industrial segment and Aerospace OEM business, along with a portion of revenue within the Aerospace Aftermarket business, are recognized at a point in time, primarily when the product or solution is shipped to the customer.

Revenue from products and services transferred to customers over time accounted for approximately 10 percent of revenue for both the three and six month periods ended June 30, 2018. The Company recognizes revenue over time in instances where a contract supports a continual transfer of control to the customer. Substantially all of our revenue in the Aerospace maintenance repair and overhaul business and a portion of the Engineered Components products, Molding Solutions products and Aerospace OEM products is recognized over time. Within the Molding Solution businesses and Aerospace Aftermarket business, this continual transfer of control to the customer results from repair and refurbishment work performed on customer controlled assets. With other contracts, this continual transfer of control to the customer is supported by clauses in the contract where we deliver products that do not have an alternative use and requires an enforceable right to payment of costs incurred (plus a reasonable profit) or the Company has a contractual right to complete any work in process and receive full contract price.

Performance Obligations. A performance obligation represents a promise within a contract to provide a distinct good or service to the customer and is the unit of accounting pursuant to ASC 606. The Company accounts for a contract when it has approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectibility of consideration is probable. Transaction price reflects the amount of consideration which the Company expects to be entitled in exchange for transferred goods or services. A contract’s transaction price is allocated to each distinct performance obligation and revenue is recognized as the performance obligation is satisfied. For many of our contracts, the Company may provide distinct products or services in which case we separate the contract into more than one performance obligation (i.e. a product or service is individually listed in a contract or sold individually to a customer). In certain contracts, a product or service may be part of a fully integrated solution, in which case it is bundled into a single performance obligation. If a contract is separated into more than one performance obligation, the Company allocates the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. The Company generally sells both standard and customized products with observable standalone selling prices.

The majority of our revenues are from contracts, as defined by ASC 606, that are less than one year, however certain Aerospace OEM business contracts extend beyond one year. In the Industrial segment, customers are typically OEMs or suppliers to OEMs and in some businesses, with distributors. In the Aerospace segment, customers include commercial airlines, OEMs and other aircraft and military parts providers.

To determine the proper revenue recognition method for contracts, the Company uses judgment to evaluate whether two or more contracts with the same customer should be combined and accounted for as one single contract and whether the combined or single contract should be accounted for as more than one performance obligation. Contracts within the Aerospace OEM and Engineered Components businesses typically have contracts that are combined as the customer may issue multiple purchase orders at or near the same point in time under the terms of a long term agreement. The decision to combine a group of contracts or separate the combined or single contract into multiple performance obligations involves judgment but does not typically impact the amount of revenue and profit recorded in a given period since our contract prices generally represent standalone selling prices. For many of our contracts, particularly within our Molding Solutions and Nitrogen Gas Products businesses, the Company may incorporate a set of tasks and components into a fully integrated system or solution.

Contracts may be modified to account for changes in specifications and requirements. The Company considers contractual modifications to exist when the modification either creates new rights or changes the existing enforceable rights and obligations. Contract modifications within certain businesses typically relate to goods or services that are distinct from the existing contract and are accounted for as a new contract. Pricing changes, if included within a contract modification, are generally prospective. Contract modifications within the Molding Solutions businesses and a portion of the Nitrogen Gas Products business may impact the existing contract. Contract revenue at these businesses is generally recorded on a point in time basis, however, and therefore no cumulative sales adjustment is typically required.

Revenue is recognized in an over time model based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company utilizes the cost-to-cost measure of progress for over time contracts as we believe this measure best depicts the transfer of control to the customer, which occurs as we incur costs on contracts. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including profits, are recorded proportionally as costs are incurred. Costs to fulfill include labor, materials, subcontractors’ costs, and other direct and indirect costs.

Contract Estimates. Due to the nature of the work performed in completing certain performance obligations, the estimation of both total revenue and cost at completion (the process described above) includes a number of variables and requires significant judgment.

Estimating total contract revenue may require judgment as certain contracts contain pricing discount structures, rebates, early payment discounts, or other provisions that can impact transaction price. The Company generally estimates variable consideration utilizing the expected value methodology as multiple inputs are considered and weighed, such as customer history, customer forecast communications, economic outlooks, and industry data. In certain circumstances where a particular outcome is probable, we utilize the most likely amount to which we expect to be entitled. The Company includes estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The Company has opted not to adjust the promised amount of consideration for the effects of a financing component as the period between when we transfer a promised product or service to a customer and when the customer pays for that product or service is generally one year or less.

Certain customers are eligible to earn rebates from product purchases. For certain of these rebates, the customer can earn prospectively higher rebates upon reaching predetermined sales volumes and in other cases, the customer can receive product by achieving predetermined sales volumes. These rebates are considered to be material rights as the customer, as part of their current contract, are purchasing an option that they would not have received without the contract to either purchase future product at a lower price or receive free product. When a contract contains a material right, a portion of the transaction price is allocated to the material right for which revenue recognition is deferred until the customer exercises its option. The standalone selling price for a material right used to allocate the transaction price is determined at contract inception by calculating the portion of the option purchased relative to the estimated total amount of incremental value the customer will likely earn, based on historical data, customer forecast communications, current economic information, and industry trends. The standalone selling price of a material right is not adjusted prior to customer exercise or option expiration.

Estimating the total expected costs related to contracts also requires significant judgment. The Aerospace OEM business has an Estimate at Completion (EAC) process in which management reviews the progress and execution of our performance obligations for significant contracts with revenue recognized under an over time model. As part of this process, management reviews information including, but not limited to, performance under the contract, progress towards completion, identified risks and opportunities, sourcing determinations and related changes in estimates of costs to be incurred. These considerations include management's judgment about the ability and cost to achieve technical requirements and other contract requirements. Management makes assumptions and estimates using the best information available regarding labor efficiency, the complexity of the work to be performed, the availability of materials, the length of time to complete the performance obligation (e.g., to estimate increases in wages and prices for materials and related support cost allocations), execution by our subcontractors and overhead cost rates, among other variables.

The Company generally utilizes the portfolio approach, a practical expedient, to estimate the amount of revenue to recognize for certain other contracts which require over time revenue recognition. Such contracts are grouped together either by revenue stream, customer or product. Each portfolio of contracts is grouped together based on having similar characteristics. The portfolio approach is utilized only when the result of the accounting is not expected to be materially different than if applied to individual contracts. For each portfolio of contracts, the respective work in process and/or finished goods inventory balances are identified and the portfolio-specific margin is applied to estimate the pro-rata portion of revenue earned in relation to the costs incurred.

Adjustments to net sales, cost of sales and the related impact to operating income are recognized as necessary in the period they become known. The resultant impacts from these changes in estimates are recognized on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on both current and prior periods. Revenue recognized from performance obligations satisfied in previous periods was not material in the three and six months ended June 30, 2018.

Contract Balances. The timing of revenue recognition, invoicing and cash collections affect accounts receivable, unbilled receivables (contract assets) and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheets.

Unbilled Receivables (Contract Assets) - Pursuant to the over time revenue recognition model, revenue may be recognized prior to the customer being invoiced. An unbilled receivable is recorded to reflect revenue that is recognized when 1) the cost-to-cost method is applied and 2) such revenue exceeds the amount invoiced to the customer. Unbilled receivables are included within prepaid expenses and other current assets on the Consolidated Balance Sheet as of June 30, 2018.

Customer Advances and Deposits (Contract Liabilities) - The Company may receive a customer advance or deposit, or have an unconditional right to receive a customer advance, prior to revenue being recognized. Certain contracts within the Molding Solutions businesses, for example, may require such advances. Since the performance obligations related to such advances may not have been satisfied, a contract liability is established. An offsetting asset of equal amount is recorded as an account receivable until the advance is collected. Advances and deposits are included within accrued liabilities on the Consolidated Balance Sheets until the respective revenue is recognized. Advance payments are not considered a significant financing component as they are received less than one year before the customer solution is completed.

These assets and liabilities are reported on the Consolidated Balance Sheet on an individual contract basis at the end of each reporting period.

Net contract assets (liabilities) consisted of the following:



	June 30, 2018			January 1, 2018			$ Change			% Change
Unbilled receivables (contract assets)	$	14,319		$	14,579		$	(260	)	(2	)%
Contract liabilities	(73,035		)	(54,007		)	(19,028		)	35	%
Net contract liabilities	$	(58,716	)	$	(39,428	)	$	(19,288	)	49	%

Contract liabilities balances at June 30, 2018 and January 1, 2018 include $21,608 and $13,536, respectively, of customer advances for which the Company has an unconditional right to collect payment. Accounts receivable, as presented on the Consolidated Balance Sheet and within Note 2, includes corresponding balances at June 30, 2018 and January 1, 2018, respectively.

Changes in the net contract asset (liability) balance during the six month period ended June 30, 2018 were impacted by a $19,028 increase in contract liabilities, driven primarily by new customer advances and deposits, partially offset by revenue recognized in the current period. Adding to this contract liability increase was a $260 decrease in contract assets, driven primarily by earlier contract progress being invoiced to the customer, partially offset by contract progress (i.e.unbilled receivable).

The Company recognized approximately 25% and 50% of the revenue related to the contract liability balance as of January 1, 2018 during the three and six months ended June 30, 2018, respectively, primarily representing revenue from the sale of molds and hot runners within the Molding Solutions business.

Contract Costs. The Company may incur costs to fulfill a contract. Costs are incurred to develop, design and manufacture tooling to produce a customer’s customized product in conjunction with certain of its contracts, primarily in the Aerospace OEM business. For certain contracts, control related to this tooling remains with the Company. The tooling may be deemed recoverable over the life of the related customer contract (oftentimes a long-term agreement). The Company therefore capitalizes these tooling costs and amortizes them over the shorter of the tooling life or the duration of the long-term agreement. The Company may also incur costs related to the development of product designs (molds or hot runner systems) within its Molding Solutions businesses. Control of the design may be retained by the Company and deemed recoverable over the contract to build the systems or mold, therefore this design work cost is capitalized and amortized to cost of sales when the related revenue is recognized. Amortization related to these capitalized costs to fulfill a contract were $3,956 and $7,942 in the three and six month periods ended June 30, 2018, respectively.

Capitalized costs, net of amortization, to fulfill contract balances were as follows:



	June 30, 2018
Tooling	$	2,933
Design costs	2,914
Other	66
	$	5,913

In certain contracts, the Company facilitates shipping and handling activities after control has transferred to the customer. The Company has elected to record all shipping and handling activities as costs to fulfill a contract. In situations where the shipping and handling costs have not been incurred at the time revenue is recognized, the respective estimated shipping and handling costs are accrued.

Remaining Performance Obligations. The Company has elected the practical expedient which allows disclosure of remaining performance obligations only for contracts with an original duration of greater than one year. Such remaining performance obligations represent the transaction price of firm orders for which work has not been performed and excludes projections of components and assemblies that Aerospace OEM customers anticipate purchasing in the future under existing programs, which represent orders that are beyond lead time and do not represent performance obligations pursuant to ASC 606. As of June 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $154,497. The Company expects to recognize revenue on approximately 80% of the remaining performance obligations over the next 12 months, with the remainder being recognized within 24 months.