Revenue from Contracts with Customers

12 Months Ended

Dec. 31, 2018

Revenue from Contract with Customer [Abstract]

Revenue from Contracts with Customers

Note 4. Revenue from Contracts with Customers

On January 1, 2018, the Company adopted the new accounting standard Revenue from Contracts with Customers using the modified retrospective transition method. The Company has elected to apply the new standard to contracts that were considered “open” as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under the new accounting standard, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting under previous guidance. Upon adoption, an initial cumulative effect adjustment of $1.8 million increase was recorded to opening accumulated deficit and a $2.7 million increase in shareholder’s equity attributable to noncontrolling interest.

Disaggregation of Revenue

The following table summarizes the revenues from contracts with customers by major product line (in thousands):

	December 31, 2018
CPE:
Broadband CPE	$	1,643,152
Video CPE		2,280,742
Sub-total		3,923,894
Network & Cloud:
Networks		1,850,416
Software and services		306,161
Sub-total		2,156,577
Enterprise Networks:
Enterprise Networks		675,352
Other:
Other		(13,183	)
Total net sales	$	6,742,640

Customer Premises Equipment — The CPE segment’s product solutions include Broadband products, such as DSL and DOCSIS gateways and modems, and Video products, such as video gateways, clients and set-tops, that enable service providers to offer voice, video and high-speed data services to residential and business subscribers.

Network & Cloud — The N&C segment’s product solutions include cable modem termination system, video infrastructure, distribution and transmission equipment and cloud solutions that enable facility-based service providers to construct a state-of-the-art residential and metro distribution network. The portfolio also includes a full suite of global services that offer technical support, professional services and system integration offerings to enable solution sales of ARRIS’s end-to-end product portfolio.

Enterprise Networks — The Enterprise Networks segment focuses on enabling constant, wireless and wired connectivity across complex and varied networking environments through its array of access points, controllers and switches along with technical support, analytical tools and professional services needed to support those networks. It offers dedicated engineering, sales and marketing resources to serve customers across a spectrum of enterprises—including hospitality, education, smart cities, government, venues, service providers and more.

Other — Other includes adjustments related to acquisition accounting impacts related to deferred revenue

The following table summarizes the revenues from contracts with customers by geographic areas (in thousands):

	December 31, 2018
	CPE		N&C		Enterprise		Other (1)			Total
Domestic – U.S.	$	2,201,912	$	1,369,695	$	408,971	$	(7,331	)	$	3,973,247
Americas, excluding U.S.		793,203		378,223		10,910		(47	)		1,182,289
Asia Pacific		133,480		186,982		110,622		(39	)		431,045
EMEA		795,299		221,677		144,849		(5,766	)		1,156,059
Total international		1,721,982		786,882		266,381		(5,852	)		2,769,393
Total net revenues	$	3,923,894	$	2,156,577	$	675,352	$	(13,183	)	$	6,742,640

(1) Adjustments include acquisition accounting impacts related to deferred revenue

Impact of New Revenue Guidance on Financial Statement Line Items

The following table compares the reported Consolidated Balance Sheets and Consolidated Statements of Income, as of and for the year ended December 31, 2018, to the pro-forma amounts had the previous guidance been in effect (in thousands):

	As Reported December 31, 2018		Pro forma – as if previous accounting guidance was in effect
Assets
Accounts receivable	$	1,225,975	$	1,210,288
Other current assets		144,251		144,187
Deferred incomes taxes		175,405		172,967
Liabilities
Deferred revenue (current and non-current)	$	169,998	$	169,426

	As Reported December 31, 2018			Pro forma – as if previous accounting guidance was in effect
Revenues
Net sales	$	6,742,640		$	6,727,525
Costs and expenses
Cost of sales		4,823,781			4,823,845
Income tax benefit		(24,344	)		(21,905	)
Consolidated net income		107,286			89,668
Net loss attributable to non-controlling interest		(6,454	)		(7,282	)
Net income attributable to ARRIS International plc		113,740			96,950
Net income per ordinary share:
Basic	$	0.63		$	0.54
Diluted	$	0.62		$	0.53

Pro-forma net sales were $15.1 million lower than reported net sales in the Consolidated Statements of Income for the year ended December 31, 2018 largely due to the timing of license revenue that is currently being recognized upon transfer of control of the license as opposed to recognizing ratably over the license term.

Other

Contract Assets and Liabilities – When payments from customers are received in advance of performance, the Company records a contract liability (deferred revenue). When the Company fulfills performance obligations prior to being able to invoice the customer, a contract asset (unbilled receivables) is recorded. Additionally, the balances for these are calculated at the contract level on a net basis.

The unbilled receivables are included in Accounts Receivable on the Consolidated Balance Sheets. As of December 31, 2018, the Company has unbilled receivables of $29.7 million.

The following table summarizes the changes in deferred revenue for the year ended of December 31, 2018 (in thousands):

Opening balance at January 1, 2018	$	168,757
Deferral of revenue		166,756
Recognition of unearned revenue		(164,545	)
Other		(970	)
Balance at December 31, 2018	$	169,998

As of the end of the current reporting period, the aggregate amount of the transaction price allocated to performance obligations that are unsatisfied that have a duration of one year or more was $64.1 million. The majority of ARRIS’s contracts that have performance obligations that are unsatisfied are part of contracts have a duration of one year or less.

Practical Expedients

Sales commissions are incremental contract acquisition costs which are expected to be recovered. The Company has elected to recognize these expenses as incurred due to the amortization period of these costs being one year or less.

Costs to obtain or fulfill a contract are incremental costs that are expected to be recovered. The Company has elected to recognize these expenses as incurred due to the amortization period of these costs being one year or less. Costs to obtain a contract that would have been incurred regardless of whether the contract was obtained are recognized in expense when incurred.

The Company has elected not to adjust the promised amount of consideration for the effects of a significant financing component when it expects, at contract inception, that the period between when ARRIS transfers a promised good or service to a customer, and when the customer pays will be one year or less.

The Company has elected the expedient that states an entity does not need to evaluate whether shipping and handling activities are promised services to its customers. If revenue is recognized for the related good before the shipping and handling activities occur, the related costs of those shipping and handling activities are accrued.

The Company has also elected to exclude from the transaction price certain types of taxes collected from a customer and remitted to a third-party (e.g., governmental agency), including sales, use and value-added taxes. As a result, revenue is presented net of these taxes.

Additionally, the Company has elected for contracts that were modified before the beginning of the earliest reporting period to reflect the aggregate effect of all modifications when identifying the satisfied and unsatisfied performance obligations, determining the transaction price, and allocating the transaction price.