|3 Months Ended|
Sep. 30, 2018
|Revenue from Contract with Customer [Abstract]|
NOTE 2 – REVENUE
New Revenue Accounting Standard
Method and Impact of Adoption
The Company adopted ASC 606 on July 1, 2018 using the modified retrospective transition approach for all contracts completed and not completed as of the date of adoption. Under the modified retrospective transition approach, periods prior to the adoption date were not adjusted and continue to be reported in accordance with ASC 605. A cumulative effect of applying ASC 606 was recorded to beginning retained earnings to reflect the impact of all existing arrangements under ASC 606.
The net decrease to retained earnings of $21.0 million as of July 1, 2018 due to the adoption of ASC 606 was primarily related to the following items:
The following table summarizes the effects of adopting ASC 606 on the Company’s condensed consolidated balance sheet as of September 30, 2018:
The following table summarizes the effects of adopting ASC 606 on the Company’s condensed consolidated statements of operations for the three months ended September 30, 2018:
Revenue recognized under ASC 606 is higher than it would have been under legacy guidance. This is primarily driven by the changes related to the accounting of standard warranty and our assessment of transfer of control.
Under ASC 606, revenue is recognized earlier than it would have been recognized under legacy guidance primarily due to the Company's assessment of timing of transfer of control. Additionally, the Company renders standard warranty coverage on its products for 12 months, providing labor and parts necessary to repair and maintain the products during the warranty period. Prior to adoption of ASC 606, the Company accounted for the estimated warranty cost as a charge to costs of sales when revenue was recognized. Upon adoption of ASC 606, the standard warranty for the majority of products is recognized as a separate performance obligation.
The Company’s payment terms and conditions vary by contract type, although terms generally include a requirement of payment of 70% to 90% of total contract consideration within 30 to 60 days of shipment, with the remainder payable within 30 days of acceptance. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined that its contracts generally do not include a significant financing component.
The change in contract assets during the three months ended September 30, 2018 is mainly due to $13.7 million of revenue recognized in excess of the amounts billed to the customers, partially offset by $13.0 million of contract assets reclassified to accounts receivable as the Company’s right to consideration for these contract assets became unconditional. Contract assets are included in Other current assets on the Company's condensed consolidated balance sheet.
During the three months ended September 30, 2018, the Company recognized revenue of $279.0 million that was included in contract liabilities as of July 1, 2018. This was partially offset by the value of products and services billed to customers for which control of the products and service has not transferred to the customers. Contract liabilities are included in current and non-current liabilities on the Company's condensed consolidated balance sheets.
Remaining Performance Obligations
As of September 30, 2018, the Company had $1.41 billion of remaining performance obligations, which represents the Company’s obligation to deliver products and services, and consists primarily of sales orders where written customer requests have been received. The Company expects to recognize approximately 5% to 15% of these performance obligations as revenue beyond the next twelve months, subject to risk of delays, pushouts, and cancellation by the customer, usually with limited or no penalties.
Refer to Note 17 “Segment Reporting and Geographic Information” for further information, including revenue by geographic region as well as significant product and service offering.
The Company applies the following practical expedients:
The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef