14. REVENUES

Revenue from product and sold equipment is recognized when obligations under the terms of a contract with the customer are satisfied, which generally occurs when the transfer of the product or equipment occurs, which is upon delivery. Revenue from service and leased equipment is recognized when the services are provided, or the customer receives the benefit from the leased equipment, which is over time. Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Concurrent with the adoption of the new revenue standard, the Company reclassified certain costs from selling, general and administrative expenses to cost of sales, to align the costs of providing the service with the recognition of service revenue.

Contracts with customers may include multiple performance obligations. For contracts with multiple performance obligations, the consideration is allocated between products and services based on their stand-alone selling prices. Stand-alone selling prices are generally based on the prices charged to customers or using an expected cost plus margin. Judgment was used in determining the amount of service that is embedded within the contracts, which is based on the amount of time spent on the performance obligation activities. The level of effort, including the estimated margin that would be charged, is used to determine the amount of service revenue. Depending on the terms of the contract, the Company may defer the recognition of revenue when a future performance obligation has not yet occurred.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. Shipping and handling costs associated with outbound freight are recognized in cost of sales when control over the product has transferred to the customer.

Other estimates used in recognizing revenue include allocating variable consideration to customer programs and incentive offerings, including pricing arrangements, promotions and other volume-based incentives at the time the sale is recorded. These estimates are based primarily on historical experience and anticipated performance over the contract period. Based on the certainty in estimating these amounts, they are included in the transaction price of the contracts and the associated remaining performance obligations. The Company also records estimated reserves for anticipated uncollectible accounts and for product returns and credits at the time of sale.

Practical Expedients and Exemptions

The Company elected to apply the portfolio approach primarily within each operating segment by geographical region. The new revenue standard can be applied to a portfolio of contracts with similar characteristics if it is reasonable that the effects of applying the standard at the portfolio would not be significantly different than applying the standard at the individual contract level. Application of the portfolio approach was focused on those characteristics that have the most significant accounting consequences in terms of their effect on the timing of revenue recognition or the amount of revenue recognized. The Company determined the key criteria to assess with respect to the portfolio approach, included related deliverables, the characteristics of the customers and the timing and transfer of goods and services, which most closely aligned within the operating segments. In addition, the accountability for the business operations, as well as the operational decisions on how to go to market and the product offerings are performed at the operating segment level.

Revenue Recognition

Product and Sold Equipment

Product revenue is generated from cleaning, sanitizing, water and energy products provided to customers in the Global Industrial, Global Institutional and Global Energy segments. In addition, the Company sells equipment which may be used in combination with its specialized products. Revenue recognized from product and sold equipment is recognized at the point in time when the obligations in the contract with the customer are satisfied, which generally occurs with the transfer of the product or delivery of the equipment occurs.

Service and Lease Equipment

Service and lease equipment revenue is generated from providing services or leasing equipment to customers. Service offerings include installing or repairing certain types of equipment, activities that supplement or replace headcount at the customer location, or fulfilling deliverables included in the contract. Services provided in the Other segment include Pest Elimination and, prior to the Equipment Care sale in 2017, kitchen equipment repair and maintenance. Global Energy services include process and water treatment offerings to the global petroleum and petrochemical industries, while services in the Global Industrial segment are associated with water treatment and paper process applications. Global Institutional services include water treatment programs and process applications, and wash process solutions. Revenue recognized from lease equipment primarily relates to warewashing equipment.

Service and leased equipment revenue is recognized over time and aligns with when the services are provided or when the customer receives the benefit of the leased equipment. Service revenue is recognized over time utilizing an input method and aligns with when the services are provided. Typically, revenue is recognized over time using costs incurred to date because the effort provided by the field selling and service organization represents services provided, which corresponds with the transfer of control.

Revenue for leased equipment is recognized over time utilizing an input method as this method aligns most appropriately with when the costs are incurred to provide access to the leased equipment to the customer.

The following table shows principal activities, separated by reportable segments, from which the Company generates its revenue. For more information about the Company’s reportable segments, refer to Note 15.

Net sales at public exchange rates by reportable segment for the first quarter ended March 31 are as follows:


	First Quarter Ended
	March 31
(millions)	2018		2017
Global Industrial
Product and sold equipment		$1,055.6		$963.7
Service and lease equipment		170.4		150.5
Global Institutional
Product and sold equipment		1,038.6		927.6
Service and lease equipment		167.6		146.9
Global Energy
Product and sold equipment		734.4		671.0
Service and lease equipment		108.5		86.9
Other
Product and sold equipment		18.6		42.1
Service and lease equipment		177.2		173.7
Total
Total product and sold equipment		$2,847.2		$2,604.4
Total service and lease equipment		623.7		558.0

Net sales at public exchange rates by geographic region for the first quarter ended March 31 are as follows:


	Global				Global				Global
	Industrial				Institutional				Energy				Other
(millions)	2018		2017		2018		2017		2018		2017		2018		2017

North America		$556.8		$521.2		$816.9		$768.4		$485.0		$430.1		$130.0		$160.3
Europe		297.2		249.9		244.6		176.1		101.8		86.2		30.3		24.0
Asia Pacific		160.9		149.5		60.3		55.0		67.4		57.9		8.9		8.0
Latin America		109.3		101.7		41.2		38.5		54.6		58.5		11.7		10.7
Middle East and Africa		30.7		28.5		13.9		11.5		115.8		109.3		2.9		2.7
Greater China		71.1		63.4		29.3		25.0		18.3		15.9		12.0		10.1
Total		$1,226.0		$1,114.2		$1,206.2		$1,074.5		$842.9		$757.9		$195.8		$215.8

Net sales by geographic region were determined based on origin of sale.

Contract Liability

Payments received from customers are based on invoices or billing schedules as established in contracts with customers. Accounts receivable are recorded when the right to consideration becomes unconditional. The contract liability relates to billings in advance of performance (primarily service obligations) under the contract. Contract liabilities are recognized as revenue when the performance obligation has been performed, which primarily occurs during the subsequent quarter.



	March 31		March 31
(millions)	2018		2017

Contract liability as of beginning of period		$79.0		$68.6

Revenue recognized in the period from:
Amounts included in the contract liability at the beginning of the period		(79.0)		(68.6)

Increases due to billings excluding amounts recognized as revenue during the period		88.0		71.6
Business combination		0.2		2.2

Contract liability as of end of period		$88.2		$73.8