REVENUE FROM CONTRACTS WITH CUSTOMERS

Power and Electromechanical segment

The Power and Electromechanical segment generates its revenue from

two

categories of products:

power solutions

- including external and embedded ac-dc power supplies, dc-dc converters and basic digital point of load modules, and offering a technology architecture that addresses power and related accessories; and

components

- including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense. The production and delivery of these products are considered single performance obligations. Revenue is recognized when the Company satisfies a performance obligation and this occurs upon shipment and ownership transfer of the Company's products to the Company's customers at a point in time.

Energy segment

The Energy segment subsidiaries, collectively referred to as Orbital, generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries.

Orbital accounts for a majority of its contract revenue proportionately over time. For the Company's performance obligations satisfied over time, the Company recognizes revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For the Company's construction contracts, revenue is generally recognized over time as the Company's performance creates or enhances an asset that the customer controls. The Company's fixed price construction projects generally use a cost-to-cost input method to measure the Company's progress towards complete satisfaction of the performance obligation as the Company believes it best depicts the transfer of control to the customer. 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.

The timing of revenue recognition for Energy products also depends on the payment terms of the contract, as the Company's performance does

not

create an asset with an alternative use to us. For those contracts which the Company has a right to payment for performance completed to date at all times throughout the Company's performance, inclusive of a cancellation, the Company recognizes revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure the Company's progress towards complete satisfaction of the performance obligation as the Company believes it best depicts the transfer of control to the customer. However, for those contracts for which the Company does

not

have a right, at all times, to payment for performance completed to date, the Company recognizes revenue at the point in time when control is transferred to the customer.

For the Company's service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of the Company's performance as the Company performs the service. For the Company's fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when the Company's inputs are expended evenly, and the customer receives and consumes the benefits of the Company's performance throughout the contract term.

For certain of the Company's revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, the Company's progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of the Company's performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPt units) for which revenue does

not

qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when the Company's right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition

may

differ from the timing of invoicing to customers. Contract assets include unbilled amounts from the Company's construction projects when revenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to the Company's customers, as the amounts cannot be billed under the terms of the Company's contracts. Such amounts are recoverable from the Company's customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts the Company seeks or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). The Company's contract assets do

not

include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Condensed Consolidated Balance Sheets.

Contract liabilities from the Company's construction contracts occur when amounts invoiced to the Company's customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from the Company's customers on certain contracts. Contract liabilities decrease as the Company recognizes revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when the Company expects to recognize such revenue.

Activity in the current contract liabilities for the

three

months ended

March

31,

2019

and

2018

was as follows:

(in thousands)	Three Months Ended March 31, 2019			Three Months Ended March 31, 2018
Current contract liabilities - January 1	$	2,226		$	4,661
Long-term contract liabilities - January 1 (1)		129			84
Total contract liabilities - January 1	$	2,355		$	4,745

Total contract liabilities - January 1	$	2,355		$	4,745
Contract additions, net		1,033			1,279
Revenue recognized		(813	)		(908	)
Translation		35			146
Total contract liabilities - March 31	$	2,610		$	5,262

Current contract liabilities - March 31	$	2,453		$	5,168
Long-term contract liabilities - March 31 (1)		157			94
Total contract liabilities - March 31	$	2,610		$	5,262

(

)

Long-term contract liabilities are included in Other long-term liabilities on the Condensed Consolidated Balance Sheets.

Refund Liabilities and Corresponding Inventory Adjustment

Refund liabilities primarily represent estimated future new product introduction returns and estimated future scrap returns. Future new product returns are based on a percent of current inventory of newly introduced products held by the Company's distributor customers. The liability for estimated returns of newly introduced product is reversed to revenue as the inventory is sold. Future scrap returns are based on a percentage of total revenues. In addition to the refund liabilities recorded for future returns, the Company also records an adjustment to inventory and corresponding adjustment to cost of revenue for the Company's right to recover products from customers upon settling the refund liability.

Performance Obligations

Remaining Performance Obligations

Remaining performance obligations represents the transaction price of firm orders for which work has

not

been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of

March

31,

2019,

the Company's remaining performance obligations are generally expected to be filled within the next

months.

Any quarterly adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments

may

result from positive program performance, and

may

result in an increase in operating income during the performance of individual performance obligations, if the Company determines the Company will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments

may

result in a decrease in operating income if the Company determines the Company will

not

be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized quarterly on a cumulative catch-up basis, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in

one

or more of these estimates could affect the profitability of

one

or more of the Company's performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts for the Company's Energy segment, the Company evaluates whether a single contract should be accounted for as more than

one

performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

For most of the Company's contracts, the customer contracts with the Company to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as

one

performance obligation. Less commonly, however, the Company

may

promise to provide distinct goods or services within a contract in which case the Company separates the contract into more than

one

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 infrequently sells standard products with observable standalone sales. In cases where the Company does, the observable standalone sales are used to determine the standalone selling price. More frequently, the Company sells a customized customer specific solution, and in these cases the Company typically uses the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time

Revenue from goods and services transferred to customers at a single point in time accounted for

81%

and

82%

of revenues for the

three

-month period ended

March

31,

2019

and

2018,

respectively. The majority of the Company's revenue recognized at a point in time is in the Company's Power and Electromechanical segment. Revenue on these contracts is recognized when the product is shipped and the customer takes ownership of the product. Determination of ownership and control transfer is determined by shipping terms delineated on the customer purchase orders.

Variable Consideration

The nature of the Company's contracts gives rise to several types of variable consideration, including new product returns and scrap returns allowances primarily in the Company's Power and Electromechanical segment. In rare instances in the Company's Energy segment, the Company includes in the Company's contract estimates additional revenue for submitted contract modifications or claims against the customer when the Company believes the Company has an enforceable right to the modification or claim, and the amount can be estimated reliably and its realization is probable. In evaluating these criteria, the Company considers the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. The Company includes new product introduction and scrap return estimates in the Company's calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and the Company's best judgment at the time. These amounts are included in the Company's calculation of net revenue recorded for the Company's contracts and the associated remaining performance obligations.

The following table presents the Company's revenues disaggregated by revenue source for the

three

months ended

March

31,

2019:

(in thousands)	Power and Electromechanical		Energy		Total

Distributor sales	$	9,430	$	—	$	9,430
Direct sales		8,121		5,458		13,579
Total revenues	$	17,551	$	5,458	$	23,009

The following table presents the Company's revenues disaggregated by revenue source for the

three

months ended

March

31,

2018:

(in thousands)	Power and Electromechanical		Energy		Total

Distributor sales	$	9,617	$	—	$	9,617
Direct sales		7,403		4,946		12,349
Total revenues	$	17,020	$	4,946	$	21,966

The following table presents the Company's revenues disaggregated by timing of revenue recognition for the

three

months ended

March

31,

2019:

(in thousands)	Power and Electromechanical		Energy		Total

Revenues recognized at point in time	$	17,551	$	1,152	$	18,703
Revenues recognized over time		—		4,306		4,306
Total revenues	$	17,551	$	5,458	$	23,009

The following table presents the Company's revenues disaggregated by timing of revenue recognition for the

three

months ended

March

31,

2018:

(in thousands)	Power and Electromechanical		Energy		Total

Revenues recognized at point in time	$	17,020	$	1,047	$	18,067
Revenues recognized over time		—		3,899		3,899
Total revenues	$	17,020	$	4,946	$	21,966

The following table presents the Company's revenues disaggregated by region for the

three

months ended

March

31,

2019:

(in thousands)	Power and Electromechanical		Energy		Total

North America	$	13,641	$	1,824	$	15,465
Europe		889		3,563		4,452
Asia		3,020		19		3,039
Other		1		52		53
Total revenues	$	17,551	$	5,458	$	23,009

The following table presents the Company's revenues disaggregated by region for the

three

months ended

March

31,

2018:

(in thousands)	Power and Electromechanical		Energy		Total

North America	$	13,032	$	1,365	$	14,397
Europe		1,094		3,524		4,618
Asia		2,819		29		2,848
Other		75		28		103
Total revenues	$	17,020	$	4,946	$	21,966