Revenue Recognition (Notes)

3 Months Ended

Mar. 29, 2020

Revenue from Contract with Customer [Abstract]

Our revenue is derived from a variety of contracts. A significant portion of our revenues are from contracts associated with the design, development, manufacture or modification of highly engineered, complex and severe environment products with customers who are either in or service the aerospace, defense and industrial markets. Our contracts within the defense markets are primarily with U.S. military customers. These contracts typically are subject to the Federal Acquisition Regulations (FAR). We account 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 collectability of consideration is probable. Contracts may be modified to account for changes in contract specifications and requirements. Contract modifications exist when the modification either creates new, or changes the existing, enforceable rights and obligations. Contract modifications for goods or services that are not distinct from the existing contract are accounted for as if they were part of that existing contract.

Revenue is recognized from products and services transferred to customers over-time using an input measure (e.g., costs incurred to date relative to total estimated costs at completion, known as the “cost-to-cost” method) to measure progress. We generally use the cost-to-cost measure of progress for our contracts because it best depicts the transfer of control to the customer which occurs as we incur costs on our contracts. Under the cost-to-cost measure of progress, revenues are recorded proportionally as costs are incurred. Contract costs include labor, materials and subcontractors’ costs, other direct costs and an allocation of overhead, as appropriate.

As of March 29, 2020, we had $421.2 million of revenue related to remaining unfulfilled performance obligations. We expect to recognize approximately 74.0% of our remaining performance obligations as revenue during the remainder of 2020, 19.0% in 2021, and the remaining 7.0% thereafter.

In order to determine revenue recognized in the period from contract liabilities, we first allocate revenue to the individual contract liabilities balances outstanding at the beginning of the period until the revenue exceeds that balance. If additional advances are received on those contracts in subsequent periods, we assume all revenue recognized in the reporting period first applies to the beginning contract liabilities as opposed to a portion applying to the new advances for the period.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating expenses or revenue. There have been no significant changes in estimates in the three months ended March 29, 2020.

Disaggregation of Revenue. The following tables present our revenue disaggregated by major product line and geographical market (in thousands):



		Three Months Ended
		March 29, 2020		March 31, 2019
Aerospace & Defense Segment
	Commercial Aerospace & Other	$	26,320	$	28,706
	Defense	39,173		32,534
	Total	65,493		61,240
Industrial Segment
	Valves	54,190		92,303
	Pumps	72,530		85,312
	Total	126,720		177,615
Net Revenue		$	192,213	$	238,855



		Three Months Ended
		March 29, 2020		March 31, 2019
Aerospace & Defense Segment
	EMEA	$	14,806	$	17,732
	North America	45,988		37,393
	Other	4,699		6,115
	Total	65,493		61,240
Industrial Segment
	EMEA	57,006		75,743
	North America	43,922		73,847
	Other	25,792		28,025
	Total	126,720		177,615
Net Revenue		$	192,213	$	238,855

Contract Balances. The following table presents contract assets and contract liabilities balances as of March 29, 2020 and December 31, 2019 as follows (in thousands):



	March 29, 2020		December 31, 2019		Increase/(Decrease)
Trade accounts receivables, net	$	116,514	$	125,422	$	(8,908	)
Contract assets (1)	63,826		52,781		11,045
Contract liabilities (2)	39,850		35,007		4,843

(1) Recorded within prepaid expenses and other current assets.
(2) Recorded within accrued expenses and other current liabilities.

Trade accounts receivable, net decreased by $8.9 million as of March 29, 2020, primarily due to the timing of cash collections during the three months ended March 29, 2020.

Contract assets increased by $11.0 million, or 20.9%, to $63.8 million primarily driven by unbilled revenue recognized during the three months ended March 29, 2020 within our Defense business (+11%) and Refinery Valves business (+7%).

Contract liabilities increased by $4.8 million, or 13.8%, to $39.8 million as of March 29, 2020, primarily driven by timing of revenue recognized over time during the three months ended March 29, 2020. The increase was driven by our Defense business (+11%) and our EMEA Pumps business (+3%).