REVENUE RECOGNITION

The Company adopted ASC 606 - Revenue from Contracts with Customers using the modified retrospective method effective July 1, 2018. The Company completed an analysis of revenue streams at each of its business units and evaluated the impact of adopting ASC 606 on revenue recognition. The Company primarily sells purchased products and the majority of its revenue is recognized at a point in time. The cumulative effect of initially applying ASC 606 resulted in a net increase to the opening retained earnings balance of $3,429, net of tax, at July 1, 2018. The transition adjustment is comprised of two components. The first component is recognition of revenue from bill and hold arrangements. The second component is recognition of revenue from contracts that meet the criteria to recognize revenue over time as the underlying products have no alternative use and the Company has a right to payment for performance completed to date. Revenue for periods prior to July 1, 2018 has not been adjusted and continues to be reported under ASC Topic 605 - Revenue Recognition.

Revenue Recognition

The Company primarily sells purchased products distributed through its network of service centers and recognizes revenue at a point in time when control of the product transfers to the customer, typically upon shipment from an AIT facility or directly from a supplier. For products that ship directly from suppliers to customers, AIT acts as the principal in the transaction and recognizes revenue on a gross basis. Revenue recognized over time is not significant. Revenue is measured as the amount of consideration expected to be received in exchange for the products and services provided, net of allowances for product returns, variable consideration, and any taxes collected from customers that will be remitted to governmental authorities. Shipping and handling costs are recognized in net sales when they are billed to the customer. The Company has elected to account for shipping and handling activities as fulfillment costs. There are no significant costs associated with obtaining customer contracts.

Payment terms with customers vary by the type and location of the customer and the products or services offered. The Company does not adjust the promised amount of consideration for the effects of significant financing components based on the expectation that the period between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less. Arrangements with customers that include payment terms extending beyond one year are not significant.

Accounts Receivable

Accounts receivable are stated at their estimated net realizable value and consist of amounts billed or billable and currently due from customers. The Company maintains an allowance for doubtful accounts, which reflects management’s best estimate of probable losses based on an analysis of customer accounts, known troubled accounts, historical experience with write-offs, and other currently available evidence.

Variable Consideration

The Company’s products are generally sold with a right of return and may include variable consideration in the form of incentives, discounts, credits or rebates. Product returns are estimated based on historical return rates. The Company estimates and recognizes variable consideration based on historical experience to determine the expected amount to which the Company will be entitled in exchange for transferring the promised goods or services to a customer. The Company records variable consideration as an adjustment to the transaction price in the period it is incurred. The realization of variable consideration occurs within a short period of time from product delivery; therefore, the time value of money effect is not significant.

The following tables summarize the impacts of ASC 606 on the Company's condensed consolidated financial statements:



	For the three months ended September 30, 2018
	As Reported			Adjustments		Balances without adoption of ASC 606
Net Sales	$	864,515		$	3,312	$	867,827
Cost of Sales	612,662			2,404		615,066
Gross Profit	251,853			908		252,761
Selling, Distribution and Administrative, including depreciation	185,514			219		185,733
Operating Income	66,339			689		67,028
Interest Expense, net	10,476			—		10,476
Other Income, net	(239		)	—		(239		)
Income Before Income Taxes	56,102			689		56,791
Income Tax Expense	7,164			172		7,336
Net Income	$	48,938		$	517	$	49,455



	As of September 30, 2018
	As Reported		Adjustments			Balances without adoption of ASC 606
Assets
Accounts Receivable, net	$	565,462	$	(10,393	)	$	555,069
Inventories	431,658		12,529			444,187
Other Assets	23,494		173			23,667

Liabilities
Other Current Liabilities	70,109		6,559			76,668
Compensation and Related Benefits	62,995		(511		)	62,484
Other Liabilities	78,281		(827		)	77,454

Equity
Retained Earnings	$	1,181,683	$	(2,912	)	$	1,178,771

Disaggregation of Revenues

The following table presents the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product. Other countries consist of Mexico, Australia, New Zealand, and Singapore.



	Three Months Ended September 30,
	2018						2017
	Service Center Based Distribution		Fluid Power & Flow Control		Total		Service Center Based Distribution		Fluid Power & Flow Control		Total
Geographic Areas:
United States	$	490,774	$	256,649	747,423		$	458,996	$	108,549	$	567,545
Canada	69,107		—		69,107		66,817		—		$	66,817
Other countries	44,168		3,817		47,985		43,100		3,239		$	46,339
Total	$	604,049	$	260,466	$	864,515	$	568,913	$	111,788	$	680,701

The following table presents the Company’s percentage of revenue by reportable segment and major customer industry for the three months ended September 30, 2018:



	For the three months ended September 30, 2018
	Service Center Based Distribution		Fluid Power & Flow Control		Total
General Industry	35.8	%	44.0	%	38.3	%
Industrial Machinery	9.2	%	21.4	%	12.9	%
Metals	11.1	%	7.8	%	10.1	%
Food	10.8	%	2.5	%	8.3	%
Oil & Gas	9.6	%	2.1	%	7.3	%
Chem/Petrochem	3.5	%	15.6	%	7.1	%
Forest Products	8.7	%	2.6	%	6.9	%
Cement & Aggregate	6.8	%	1.0	%	5.0	%
Transportation	4.5	%	3.0	%	4.1	%
Total	100.0	%	100.0	%	100.0	%

The following table presents the Company’s percentage of revenue by reportable segment and product line for the three months ended September 30, 2018:



	For the three months ended September 30, 2018
	Service Center Based Distribution		Fluid Power & Flow Control		Total
Power Transmission	32.8	%	1.5	%	23.3	%
Fluid Power	14.0	%	37.6	%	21.1	%
General Maintenance; Hose Products	27.6	%	4.7	%	20.8	%
Bearings, Linear & Seals	25.6	%	—	%	17.9	%
Specialty Flow Control	—	%	56.2	%	16.9	%
Total	100.0	%	100.0	%	100.0	%