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Revenue Recognition Revenue Recognition | 6 Months Ended
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Dec. 31, 2018
Revenue from Contract with Customer [Abstract] |
Revenue from Contract with Customer [Text Block] | 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 Applied facility or directly from a supplier. For products that ship directly from suppliers to customers, Applied 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. Contract Assets The Company’s contract assets consist of un-billed amounts resulting from contracts for which revenue is recognized over time using the cost-to-cost method, and for which revenue recognized exceeds the amount billed to the customer. On July 1, 2018, $13,823 of contract assets were recognized as part of the cumulative effect adjustment resulting from the adoption of ASC 606. Activity related to contract assets, which are included in other current assets on the condensed consolidated balance sheet, is as follows:
| December 31, 2018 | July 1, 2018 | $ Change | % Change
Contract assets | $ | 9,324 |  | $ | 13,823 |  | $ | (4,499 | ) | (32.5 | )%
The following tables summarize the impacts of ASC 606 on the Company's condensed consolidated financial statements:
|  | For the three months ended December 31, 2018
|  | As Reported |  | Adjustments |  | Balances without adoption of ASC 606
Net sales |  | $ | 840,038 |  |  | $ | 1,005 |  |  | $ | 841,043 |
Cost of sales |  | 597,178 |  |  | 699 |  |  | 597,877 |
Gross profit |  | 242,860 |  |  | 306 |  |  | 243,166 |
Selling, distribution and administrative expense, including depreciation |  | 181,895 |  |  | 55 |  |  | 181,950 |
Operating income |  | 60,965 |  |  | 251 |  |  | 61,216 |
Interest expense, net |  | 9,578 |  |  | — |  |  | 9,578 |
Other expense, net |  | 946 |  |  | — |  |  | 946 |
Income before income taxes |  | 50,441 |  |  | 251 |  |  | 50,692 |
Income tax expense |  | 11,724 |  |  | 64 |  |  | 11,788 |
Net income |  | $ | 38,717 |  |  | $ | 187 |  |  | $ | 38,904 |
|  | For the six months ended December 31, 2018
|  | As Reported |  | Adjustments |  | Balances without adoption of ASC 606
Net sales |  | $ | 1,704,553 |  |  | $ | 4,317 |  |  | $ | 1,708,870 |
Cost of sales |  | 1,209,840 |  |  | 3,103 |  |  | 1,212,943 |
Gross profit |  | 494,713 |  |  | 1,214 |  |  | 495,927 |
Selling, distribution and administrative expense, including depreciation |  | 367,409 |  |  | 274 |  |  | 367,683 |
Operating income |  | 127,304 |  |  | 940 |  |  | 128,244 |
Interest expense, net |  | 20,054 |  |  | — |  |  | 20,054 |
Other expense, net |  | 707 |  |  | — |  |  | 707 |
Income before income taxes |  | 106,543 |  |  | 940 |  |  | 107,483 |
Income tax expense |  | 18,888 |  |  | 236 |  |  | 19,124 |
Net income |  | $ | 87,655 |  |  | $ | 704 |  |  | $ | 88,359 |
|  | As of December 31, 2018
|  | As Reported |  | Adjustments |  | Balances without adoption of ASC 606
Assets |  |  |  |  |  |
Other current assets |  | $ | 44,041 |  |  | $ | (9,324 | ) |  | $ | 34,717 |
Inventories |  | 445,881 |  |  | 11,830 |  |  | 457,711 |
Other assets |  | 21,901 |  |  | 192 |  |  | 22,093 |
Liabilities |  |  |  |  |  |  |
Other current liabilities |  | 60,164 |  |  | 6,626 |  |  | 66,790 |
Compensation and related benefits |  | 56,882 |  |  | (456 | ) |  | 56,426 |
Other liabilities |  | 73,675 |  |  | (747 | ) |  | 72,928 |
Equity |  |  |  |  |  |
Retained Earnings |  | $ | 889,915 |  |  | $ | (2,725 | ) |  | $ | 887,190 |
Disaggregation of Revenues The following tables present the Company's net sales by reportable segment and by geographic areas based on the location of the facility shipping the product for the three and six months ended December 31, 2018. Other countries consist of Mexico, Australia, New Zealand, and Singapore.
| Three Months Ended December 31,
| 2018 |  | 2017
| Service Center Based Distribution | Fluid Power & Flow Control | Total |  | Service Center Based Distribution | Fluid Power & Flow Control | Total
Geographic Areas: |  |  |  |  |  |  |
United States | $ | 479,335 |  | $ | 247,862 |  | 727,197 |  |  | $ | 448,819 |  | $ | 108,212 |  | $ | 557,031 |
Canada | 68,569 |  | — |  | 68,569 |  |  | 67,479 |  | — |  | $ | 67,479 |
Other countries | 41,394 |  | 2,878 |  | 44,272 |  |  | 39,309 |  | 3,368 |  | $ | 42,677 |
Total | $ | 589,298 |  | $ | 250,740 |  | $ | 840,038 |  |  | $ | 555,607 |  | $ | 111,580 |  | $ | 667,187 |
| Six Months Ended December 31,
| 2018 |  | 2017
| Service Center Based Distribution | Fluid Power & Flow Control | Total |  | Service Center Based Distribution | Fluid Power & Flow Control | Total
Geographic Areas: |  |  |  |  |  |  |
United States | $ | 970,109 |  | $ | 504,511 |  | 1,474,620 |  |  | $ | 907,815 |  | $ | 216,761 |  | $ | 1,124,576 |
Canada | 137,676 |  | — |  | 137,676 |  |  | 134,296 |  | — |  | $ | 134,296 |
Other countries | 85,562 |  | 6,695 |  | 92,257 |  |  | 82,409 |  | 6,607 |  | $ | 89,016 |
Total | $ | 1,193,347 |  | $ | 511,206 |  | $ | 1,704,553 |  |  | $ | 1,124,520 |  | $ | 223,368 |  | $ | 1,347,888 |
The following tables present the Company’s percentage of revenue by reportable segment and major customer industry for the three and six months ended December 31, 2018:
| For the three months ended December 31, 2018
| Service Center Based Distribution |  | Fluid Power & Flow Control |  | Total
General Industry | 35.9 | % |  | 46.1 | % |  | 38.9 | %
Industrial Machinery | 9.7 | % |  | 20.3 | % |  | 12.9 | %
Metals | 13.6 | % |  | 8.5 | % |  | 12.1 | %
Food | 10.1 | % |  | 2.7 | % |  | 7.8 | %
Oil & Gas | 10.2 | % |  | 2.1 | % |  | 7.8 | %
Chem/Petrochem | 2.9 | % |  | 14.0 | % |  | 6.2 | %
Forest Products | 7.1 | % |  | 2.9 | % |  | 5.9 | %
Cement & Aggregate | 6.0 | % |  | 0.9 | % |  | 4.5 | %
Transportation | 4.5 | % |  | 2.5 | % |  | 3.9 | %
Total | 100.0 | % |  | 100.0 | % |  | 100.0 | %
| For the six months ended December 31, 2018
| Service Center Based Distribution |  | Fluid Power & Flow Control |  | Total
General Industry | 35.8 | % |  | 44.9 | % |  | 38.4 | %
Industrial Machinery | 9.5 | % |  | 20.8 | % |  | 12.9 | %
Metals | 12.3 | % |  | 8.2 | % |  | 11.1 | %
Food | 10.4 | % |  | 2.6 | % |  | 8.1 | %
Oil & Gas | 9.9 | % |  | 2.1 | % |  | 7.6 | %
Chem/Petrochem | 3.2 | % |  | 14.8 | % |  | 6.7 | %
Forest Products | 8.0 | % |  | 2.8 | % |  | 6.4 | %
Cement & Aggregate | 6.4 | % |  | 1.0 | % |  | 4.8 | %
Transportation | 4.5 | % |  | 2.8 | % |  | 4.0 | %
Total | 100.0 | % |  | 100.0 | % |  | 100.0 | %
The following tables present the Company’s percentage of revenue by reportable segment and product line for the three and six months ended December 31, 2018:
| For the three months ended December 31, 2018
| Service Center Based Distribution |  | Fluid Power & Flow Control |  | Total
Power Transmission | 34.3 | % |  | 1.3 | % |  | 24.4 | %
Fluid Power | 13.7 | % |  | 38.1 | % |  | 21.0 | %
General Maintenance; Hose Products | 25.4 | % |  | 5.8 | % |  | 19.6 | %
Bearings, Linear & Seals | 26.6 | % |  | 0.4 | % |  | 18.8 | %
Specialty Flow Control | — | % |  | 54.4 | % |  | 16.2 | %
Total | 100.0 | % |  | 100.0 | % |  | 100.0 | %
| For the six months ended December 31, 2018
| Service Center Based Distribution |  | Fluid Power & Flow Control |  | Total
Power Transmission | 33.5 | % |  | 1.4 | % |  | 23.9 | %
Fluid Power | 13.8 | % |  | 37.9 | % |  | 21.0 | %
General Maintenance; Hose Products | 26.6 | % |  | 5.2 | % |  | 20.2 | %
Bearings, Linear & Seals | 26.1 | % |  | 0.2 | % |  | 18.3 | %
Specialty Flow Control | — | % |  | 55.3 | % |  | 16.6 | %
Total | 100.0 | % |  | 100.0 | % |  | 100.0 | %

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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