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REVENUE RECOGNITION | 9 Months Ended
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Sep. 30, 2018
Revenue From Contract With Customer [Abstract] |
REVENUE RECOGNITION |
16. | REVENUE RECOGNITION:
Adoption of ASC Topic 606, “Revenue from Contracts with Customers” The Company adopted the standard beginning January 1, 2018 using the “modified retrospective” approach, meaning the standard was applied only to the most current period presented in the financial statements, with a cumulative adjustment to retained earnings. Under this transition method, the Company elected to apply ASC Topic 606 only to contracts that are not complete at the initial adoption date. The new standard impacts how the Company recognizes revenue on its commercial license and material supply agreements with customers. Previously, the Company recognized license fees on a straight-line basis or as received from the customer, and royalty revenue one quarter in arrears based on sales information received from its customers typically received after disclosing that quarter’s results. Under the new standard, total contract consideration is estimated and recognized over the contract term based on material units sold at its estimated per unit fee. Total contract consideration includes fixed amounts designated in contracts with customers as license fees as well as estimates of material fees and royalties to be earned. Adoption of the new standard resulted in an increase in deferred revenue of $21.3 million offset by a reduction of retained earnings of $17.9 million, net of tax of $3.1 million, and unbilled receivables of $0.3 million as of January 1, 2018. The impact of the new standard to revenue for the three and nine months ended September 30, 2018 was a decrease of $14.1 million and $56.2 million, respectively, from the amount that would have been reported under the prior accounting standard. The following tables summarize the impacts of adopting Topic 606 on the Company’s consolidated financial statements for the three and nine months ended September 30, 2018. i. Consolidated Balance Sheet (in thousands)
|  | Impact of changes in accounting policies |
September 30, 2018 |  | As reported |  |  | Adjustment |  |  | Balances without adoption of Topic 606 |
ASSETS |  |  |  |  |  |  |  |  |  |  |  |
Other assets (current and non-current) |  | $ | 51,094 |  |  | $ | (2,049 | ) |  | $ | 49,045 |
Deferred income taxes |  |  | 13,910 |  |  |  | (13,640 | ) |  |  | 270 |
TOTAL ASSETS |  |  | 883,744 |  |  |  | (15,689 | ) |  |  | 868,055 |
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |  |  |  |  |  |  |
Deferred revenue (current and non-current) |  |  | 109,827 |  |  |  | (79,226 | ) |  |  | 30,601 |
Retained earnings |  |  | 112,337 |  |  |  | 63,537 |  |  |  | 175,874 |
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY |  |  | 883,744 |  |  |  | (15,689 | ) |  |  | 868,055 |
ii. Consolidated Statements of Income (in thousands)
|  | Impact of changes in accounting policies |
Three Months Ended September 30, 2018 |  | As reported |  |  | Adjustment |  |  | Balances without adoption of Topic 606 |
REVENUE |  | $ | 77,550 |  |  | $ | 14,054 |  |  | $ | 91,604 |
Gross margin |  |  | 61,427 |  |  |  | 14,054 |  |  |  | 75,481 |
OPERATING INCOME |  |  | 26,032 |  |  |  | 14,054 |  |  |  | 40,086 |
INCOME BEFORE INCOME TAXES |  |  | 28,143 |  |  |  | 14,054 |  |  |  | 42,197 |
INCOME TAX EXPENSE |  |  | (5,325 | ) |  |  | (2,670 | ) |  |  | (7,995 | )
NET INCOME |  |  | 22,818 |  |  |  | 11,384 |  |  |  | 34,202 |
|  | Impact of changes in accounting policies |
Nine Months Ended September 30, 2018 |  | As reported |  |  | Adjustment |  |  | Balances without adoption of Topic 606 |
REVENUE |  | $ | 177,271 |  |  | $ | 56,177 |  |  | $ | 233,448 |
Gross margin |  |  | 142,055 |  |  |  | 56,177 |  |  |  | 198,232 |
OPERATING INCOME |  |  | 41,462 |  |  |  | 56,177 |  |  |  | 97,639 |
INCOME BEFORE INCOME TAXES |  |  | 46,551 |  |  |  | 56,177 |  |  |  | 102,728 |
INCOME TAX EXPENSE |  |  | (6,960 | ) |  |  | (10,534 | ) |  |  | (17,494 | )
NET INCOME |  |  | 39,591 |  |  |  | 45,643 |  |  |  | 85,234 |
iii. Consolidated Statement of Cash Flows (in thousands)
|  | Impact of changes in accounting policies |
Nine Months Ended September 30, 2018 |  | As reported |  |  | Adjustment |  |  | Balances without adoption of Topic 606 |
Net income |  | $ | 39,591 |  |  | $ | 45,643 |  |  | $ | 85,234 |
Amortization of deferred revenue and recognition of unbilled receivables |  |  | (52,325 | ) |  |  | (61,332 | ) |  |  | (113,657 | )
Deferred income tax expense |  |  | 15,820 |  |  |  | 13,640 |  |  |  | 29,460 |
Other assets (current and non-current) |  |  | (37,885 | ) |  |  | 2,049 |  |  |  | (35,836 | )
CASH FLOW FROM OPERATING ACTIVITIES |  |  | 94,956 |  |  |  | - |  |  |  | 94,956 |
For both three month periods ended September 30, 2018 and 2017, the Company recorded 96% of its revenue from sales of materials and 4% from the providing of services through Adesis, respectively. For the nine months ended September 30, 2018 and 2017, the Company recorded 95% and 97% of its revenue from sales of materials and 5% and 3% from the providing of services through Adesis, respectively. The rights and benefits to the Company’s OLED technology are conveyed to the customer through technology license agreements and material supply agreements. The Company believes that the licenses and materials sold under these combined agreements are not distinct from each other for financial reporting purposes and as such, are accounted for as a single performance obligation. Accordingly, total contract consideration, including material, license and royalty fees, is estimated and recognized over the contract term based on material units sold at the estimated per unit fee over the life of the contract. Various estimates are relied upon to recognize revenue. The Company estimates total material units to be purchased by its customers over the contract term based on historical trends, industry estimates and its forecast process. Additionally, management estimates the total sales-based royalties based on the estimated net sales revenue of its customers over the contract term. Management is using the expected value method to estimate the material per unit fee. Contract Balances The following table provides information about assets and liabilities associated with our contracts from customers (in thousands):
|  | As of September 30, 2018 |
Accounts receivable |  | $ | 43,207 |
Short-term unbilled receivables |  |  | 1,621 |
Long-term unbilled receivables |  |  | 778 |
Short-term deferred revenue |  |  | 69,143 |
Long-term deferred revenue |  |  | 40,684 |
Short-term and long-term unbilled receivables are classified as other current assets and other assets, respectively, on the Consolidated Balance Sheet. The deferred revenue balance at September 30, 2018 will be recognized as materials are shipped to customers over the remaining contract periods. The significant customer contracts (individually representing greater than 10% of revenue) expire in 2022. As of September 30, 2018, the Company had $5.9 million of backlog associated with committed purchase orders from its customers for phosphorescent emitter material. These orders are anticipated to be fulfilled within the next 90 days. Significant changes in the unbilled receivables and deferred liabilities balances during the period are as follows (in thousands):
|  | Nine Months Ended September 30, 2018 |
|  | Unbilled Receivables Increase (Decrease) |  |  | Deferred Revenue (Increase) Decrease |
Balance at December 31, 2017 |  | $ | 70 |  |  | $ | (38,883 | )
Adoption of revenue standard on January 1, 2018 |  |  | 307 |  |  |  | (21,307 | )
Adjusted balance on January 1, 2018 |  |  | 377 |  |  |  | (60,190 | )
Revenue recognized that was previously included in deferred revenue |  |  | - |  |  |  | 46,016 |
Increases due to cash received |  |  | - |  |  |  | (99,940 | )
Cumulative catch-up adjustment arising from changes in estimates of transaction price |  |  | - |  |  |  | 4,287 |
Unbilled receivables recognized |  |  | 2,022 |  |  |  | - |
Transferred to receivables from unbilled receivables |  |  | - |  |  |  | - |
Net change |  |  | 2,022 |  |  |  | (49,637 | )
Balance at September 30, 2018 |  | $ | 2,399 |  |  | $ | (109,827 | )

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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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