3)	Revenue from Contracts with Customers

The Company adopted ASC 606 on January 1, 2018 using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for the three months ended March 31, 2018 reflect the application of ASC 606 guidance while the reported results for 2017 were prepared under the guidance of ASC 605, Revenue Recognition (ASC 605).

The Company has recorded a net increase to opening retained earnings of $1,809 as of January 1, 2018 due to the cumulative impact of adopting ASC 606, with the impact primarily related to its service business and certain custom products. The impact to revenues for the quarter ended March 31, 2018 was immaterial as a result of applying ASC 606.

The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company’s goods or services and will provide financial statement readers with enhanced disclosures. To achieve this core principle, the Company applies the following five steps:

•

Identify the contract with a customer

•

Identify the performance obligations in the contract

•

Determine the transaction price

•

Allocate the transaction price to performance obligations in the contract

•

Recognize revenue when or as the Company satisfies a performance obligation

Revenue under ASC 606 is recognized when or as obligations under the terms of a contract with the Company’s customer have been satisfied and control has transferred to the customer. The majority of the Company’s performance obligations, and associated revenue, are transferred to customers at a point in time, generally upon shipment of a product to the customer or receipt of the product by the customer and without significant judgments. Installation services are not significant and are usually completed in a short period of time (normally less than two weeks) and therefore, recorded at a point in time when the installation services are completed, rather than over time as they are not material. Extended warranty, service contracts, and repair services, which are transferred to the customer over time, are recorded as revenue as the services are performed. For repair services, the Company makes an accrual at quarter end based upon historical repair times within its product groups to record revenue based upon the estimated number of days completed to date, which is consistent with ratable recognition. Customized products with no alternative future use to the Company, and that have an enforceable right to payment for performance completed to date, are also recorded over time. The Company considers this to be a faithful depiction of the transfer to the customer of revenue over time as the work or service is performed.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Performance obligations promised in a contract are identified based on the products or services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the product or service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the product or service is separately identifiable from other promises in the contract. Sales, value add, and other taxes the Company collects concurrent with revenue-producing activities are excluded from revenue. The Company’s normal payment terms are 30 to 60 days but vary by the type and location of its customers and the products or services offered. The time between invoicing and when payment is due is not significant. For certain products or services and customer types, the Company requires payment before the products or services are delivered to the customer. None of the Company’s contracts as of March 31, 2018 contain a significant financing component. Contract assets as of January 1 and March 31, 2018 were immaterial and included in other current assets.

Contracts with Multiple Performance Obligations

The Company periodically enters into contracts with its customers in which a customer may purchase a combination of goods and or services, such as products with installation services or extended warranty obligations. These contracts include multiple promises that the Company evaluates to determine if the promises are separate performance obligations. Once the Company determines the performance obligations, the Company then determines the transaction price, which includes estimating the amount of variable consideration to be included in the transaction price, if any. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method depending on the method the Company expects to better predict the amount of consideration to which it will be entitled. There are no constraints on the variable consideration recorded. The Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price charged separately to customers or using an expected cost-plus-margin method. The corresponding revenues are recognized when or as the related performance obligations are satisfied, which are noted above. The impact of variable consideration was immaterial during the three months ended March 31, 2018.

Deferred Revenues

The Company’s standard assurance warranty period is normally 12 to 24 months. The Company sells separately-priced service contracts and extended warranty contracts related to certain of its products, especially its laser products. The separately priced contracts generally range from 12 to 60 months. The Company normally receives payment at the inception of the contract and recognizes revenue over the term of the agreement in proportion to the costs expected to be incurred in satisfying the obligations under the contract. The Company has elected to use the practical expedient related to disclosing the remaining performance obligations as of March 31, 2018, as the majority have a duration of less than one year.

A rollforward of the Company’s deferred revenue is as follows:


	Three Months Ended March 31, 2018
Beginning balance, January 1⁽¹⁾	$	14,448
Amount of deferred revenue recognized in income		(4,757	)
Additions to deferred revenue		7,639

Ending balance, March 31⁽²⁾	$	17,330

⁽¹⁾

Beginning deferred revenue as of January 1, 2018 includes $11,322 of current deferred revenue and $3,126 of long-term deferred revenue.

⁽²⁾

Ending deferred revenue as of March 31, 2018 includes $14,003 of current deferred revenue and $3,327 of long-term deferred revenue.

Costs to Obtain and Fulfill a Contract

Under ASC 606, the Company expenses sales commissions when incurred because the amortization period would have been one year or less. These costs are recorded within selling, general and administration expenses. The Company has elected to recognize the costs for freight and shipping when control over products has transferred to the customer as an expense in cost of sales.

The Company monitors and tracks the amount of product returns and reduces revenue at the time of shipment for the estimated amount of future returns, based on historical experience. The Company makes estimates evaluating its allowance for doubtful accounts. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses based upon its historical experience and any specific customer collection issues that it has identified.

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers:


	Three Months Ended March 31, 2018
	Vacuum & Analysis		Light & Motion		Total
Net revenues:
Products	$	304,336	$	192,341	$	496,677
Services		44,008		13,590		57,598

Total net revenues	$	348,344	$	205,931	$	554,275


	Three Months Ended March 31, 2017
	Vacuum & Analysis		Light & Motion		Total
Net revenues:
Products	$	241,455	$	146,483	$	387,938
Services		36,529		12,686		49,215

Total net revenues	$	277,984	$	159,169	$	437,153

Product revenue, excluding revenue from certain custom products, is recorded at a point in time, while the majority of the service revenue and revenue from certain custom products are recorded over time.

The following table summarizes revenue from contracts with customers by major market:


	Three Months Ended March 31, 2018
	Vacuum & Analysis		Light & Motion		Total
Net revenues:
Semiconductor	$	275,701	$	37,813	$	313,514
Advanced markets		72,643		168,118		240,761

Total net revenues	$	348,344	$	205,931	$	554,275


	Three Months Ended March 31, 2017
	Vacuum & Analysis		Light & Motion		Total
Net revenues:
Semiconductor	$	218,804	$	29,700	$	248,504
Advanced markets		59,180		129,469		188,649

Total net revenues	$	277,984	$	159,169	$	437,153

Refer to Note 17 in the financial statements for revenue by reportable segment, geography and groupings of similar products.