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Revenue Recognition | 3 Months Ended
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Jun. 30, 2018
Revenue Recognition [Abstract] |
Revenue Recognition |
Note 2: | Revenue Recognition
Effective April 1, 2018, the Company adopted new revenue recognition accounting guidance using the modified-retrospective transition method and, as a result, recorded a cumulative-effect adjustment to increase retained earnings by $0.7 million. The Company’s condensed consolidated financial statements for the three months ended June 30, 2018 reflect the adoption of this new guidance; however the comparable prior-year period has not been restated. See Note 1 for additional information regarding the adjustments to the Company’s consolidated balance sheet as of April 1, 2018. Significant Accounting Policy The Company generates revenue from selling innovative thermal management products and solutions to diversified global markets and customers. The Company recognizes revenue based upon consideration specified in a contract and as it satisfies performance obligations by transferring control over its products to its customers, which may be at a point in time or over time. The majority of the Company’s revenue is recognized at a point in time, based upon shipment terms. The Company records an allowance for doubtful accounts for estimated uncollectible receivables and accrues for estimated warranty costs at the time of sale. These estimates are based upon historical experience, current business trends, and current economic conditions. The Company accounts for shipping and handling activities as fulfilment costs rather than separate performance obligations, and records shipping and handling costs in cost of sales and related amounts billed to customers in net sales. The Company establishes payment terms with its customers based upon industry and regional practices, which typically do not exceed 90 days. As the Company expects to receive payment from its customers within one year from the time of sale, it disregards the effects of the time value of money in its determination of the transaction price. The Company has not disclosed the value of unsatisfied performance obligations because the original expected performance period is one year or less for the large majority of its customer contracts. Nature of Goods and Services and Significant Judgments The following is a description of the Company’s principal revenue-generating activities: Vehicular Thermal Solutions (“VTS”) The VTS segment principally generates revenue from providing engineered heat transfer systems and components for use in on- and off-highway original equipment. This segment provides powertrain and engine cooling products, including, but not limited to, radiators, charge air coolers, condensers, oil coolers, EGR coolers, and fuel coolers, to original equipment manufacturers (“OEMs”) in the automotive, commercial vehicle, and off-highway markets in the Americas, Europe, and Asia regions. In addition, the VTS segment designs customer-owned tooling for OEMs and also serves Brazil’s automotive and commercial vehicle aftermarkets. While the VTS segment provides customized production and service parts to customers under multi-year programs, these programs typically do not contain contractually-guaranteed volumes to be purchased by the customer. As a result, individual purchase orders typically represent the quantities ordered by the customer. With the exception of a small number of VTS customers, the terms within the customer agreement, purchase order, or customer-owned tooling contract do not provide the Company with an enforceable right to payment for performance completed to date. As a result, the VTS segment recognizes revenue primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment. In regard to VTS customers with contractual cancellation terms that provide an enforceable right to payment for performance completed to date, the Company recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations. The VTS segment measures progress by evaluating the production status of ordered products not yet shipped to the customer. For certain customer programs, the Company agrees to provide annual price reductions based upon contract terms. For these scheduled price reductions, the Company evaluates whether the provisions represent a material right to the customer, and if so, defers associated revenue as a result. At times, the Company makes up-front incentive payments to certain customers related to future sales under multi-year programs. The Company capitalizes these incentive payments, which it expects to recover through future sales, and amortizes the assets as a reduction to revenue when the related products are sold to customers. Commercial and Industrial Solutions (“CIS”) The CIS segment principally generates revenue from providing thermal management products, including customized coils and coolers, to the heating, ventilating, air conditioning, and refrigeration (“HVAC&R”) markets in North America, Europe, and Asia. In addition, the segment applies corrosion protection solutions, which are referred to as coatings, to heat-transfer equipment. For the sale of coils and coolers, individual customer purchase orders generally represent the Company’s contract with its customers. With the exception of a small number of customers, the applicable customer contracts do not provide the Company with an enforceable right to payment for performance completed to date. As a result, the CIS segment recognizes revenue for its sale of coils and coolers primarily at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment. For both sales to customers whose contract cancellation terms provide an enforceable right to payment and sales from the coatings businesses, in which the customers control the heat-transfer equipment being enhanced by the coating application, the CIS segment recognizes revenue over time based upon its estimated progress towards satisfaction of the performance obligations. The segment measures progress by evaluating the production status towards completion of ordered products or services not yet shipped to its customers. Building HVAC Systems (“BHVAC”) The BHVAC segment principally generates revenue from providing a variety of heating, ventilating, and air conditioning products, primarily for commercial buildings and related applications in North America and the U.K., as well as mainland Europe and the Middle East. Heating products are manufactured in the U.S. and are generally sold to independent distributors, who in turn market the heating products to end customers. Because these products are sold to many different customers without contractual or practical limitations, the BHVAC segment recognizes revenue at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment. Ventilation and air conditioning products are highly-specified to a customer’s needs; however, the underlying sales contracts do not provide the Company with an enforceable right to payment for performance completed to date. As a result, the BHVAC segment recognizes revenue for these products at the time control is transferred to the customer based upon shipping terms, which is generally upon shipment. Disaggregation of Revenue The table below presents revenue to external customers for each of the Company’s business segments by primary end market, by geographic location and based upon the timing of revenue recognition.
|  | Three months ended June 30, 2018 |
|  | VTS |  |  | CIS |  |  | BHVAC |  |  | Segment Total |
Primary end market: |  |  |  |  |  |  |  |  |  |  |  |
Automotive |  | $ | 145.1 |  |  | $ | - |  |  | $ | - |  |  | $ | 145.1 |
Commercial vehicle |  |  | 99.7 |  |  |  | - |  |  |  | - |  |  |  | 99.7 |
Off-highway |  |  | 83.8 |  |  |  | - |  |  |  | - |  |  |  | 83.8 |
Commercial HVAC |  |  | - |  |  |  | 84.5 |  |  |  | 32.0 |  |  |  | 116.5 |
Commercial refrigeration |  |  | - |  |  |  | 50.8 |  |  |  | - |  |  |  | 50.8 |
Data center cooling |  |  | - |  |  |  | 34.1 |  |  |  | 12.2 |  |  |  | 46.3 |
Industrial cooling |  |  | - |  |  |  | 11.5 |  |  |  | - |  |  |  | 11.5 |
Other |  |  | 24.2 |  |  |  | 3.0 |  |  |  | 0.8 |  |  |  | 28.0 |
Net sales |  | $ | 352.8 |  |  | $ | 183.9 |  |  | $ | 45.0 |  |  | $ | 581.7 |
Geographic location: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Americas |  | $ | 150.9 |  |  | $ | 104.8 |  |  | $ | 25.3 |  |  | $ | 281.0 |
Europe |  |  | 148.4 |  |  |  | 65.2 |  |  |  | 19.7 |  |  |  | 233.3 |
Asia |  |  | 53.5 |  |  |  | 13.9 |  |  |  | - |  |  |  | 67.4 |
Net sales |  | $ | 352.8 |  |  | $ | 183.9 |  |  | $ | 45.0 |  |  | $ | 581.7 |
Timing of revenue recognition: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Products transferred at a point in time |  | $ | 342.8 |  |  | $ | 153.6 |  |  | $ | 45.0 |  |  | $ | 541.4 |
Products transferred over time |  |  | 10.0 |  |  |  | 30.3 |  |  |  | - |  |  |  | 40.3 |
Net sales |  | $ | 352.8 |  |  | $ | 183.9 |  |  | $ | 45.0 |  |  | $ | 581.7 |
Contract Balances Contract assets and contract liabilities from contracts with customers were as follows:
|  | June 30, 2018 |  |  | March 31, 2018 |
Contract assets |  |  | 18.8 |  |  |  | 13.5 |
Contract liabilities |  |  | 11.7 |  |  |  | 12.4 |
Contract assets, included within other current assets in the consolidated balance sheet, primarily consist of capitalized costs related to customer-owned tooling contracts, wherein the customer has guaranteed reimbursement, and assets recorded for revenue recognized over time, which represent the Company’s rights to consideration for work completed but not yet billed. Contract liabilities, included within other current liabilities in the consolidated balance sheet, consist of payments received in advance of satisfying performance obligations under customer contracts, including contracts for customer-owned tooling. Impacts of Adopting New Accounting Guidance The impacts from the adoption of the new revenue recognition guidance to the Company’s consolidated statement of operations for the three months ended June 30, 2018 and its consolidated balance sheet as of June 30, 2018 were as follows:
|  | Three months ended June 30, 2018 |
|  | As Reported |  |  | Impact of New Accounting Guidance |  |  | Results Without Impact of New Accounting Guidance |
Net sales |  | $ | 566.1 |  |  | $ | (1.2 | ) |  | $ | 564.9 |
Net earnings attributable to Modine |  |  | 22.0 |  |  |  | (0.3 | ) |  |  | 21.7 |
Net earnings per share attributable to Modine shareholders: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.43 |  |  | $ | (0.01 | ) |  | $ | 0.43 |
Diluted |  |  | 0.43 |  |  |  | (0.01 | ) |  |  | 0.42 |
|  | June 30, 2018 |
|  | As Reported |  |  | Impact of New Accounting Guidance |  |  | Balances Without Impact of New Accounting Guidance |
ASSETS |  |  |  |  |  |  |  |  |
Inventories |  | $ | 203.7 |  |  | $ | 2.8 |  |  | $ | 206.5 |
Other current assets |  |  | 68.6 |  |  |  | (4.2 | ) |  |  | 64.4 |
Deferred income taxes |  |  | 94.9 |  |  |  | 0.1 |  |  |  | 95.0 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Deferred income taxes |  | $ | 9.1 |  |  | $ | (0.2 | ) |  | $ | 8.9 |
Retained earnings |  |  | 409.3 |  |  |  | (1.1 | ) |  |  | 408.2 |

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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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