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Revenue From Contracts with Customers | 3 Months Ended
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Dec. 29, 2018
Revenue from Contract with Customer [Abstract] |
Revenue from Contracts with Customers | Revenue from Contracts with Customers Impact of Adopting Topic 606 The Company adopted Topic 606 using the modified retrospective method. The new standard resulted in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue is recognized "over time," as products are produced, as opposed to at a "point in time" based upon shipping terms. As a result of adoption of Topic 606, the following adjustments were made to the opening balances of the Company's Condensed Consolidated Balance Sheets (in thousands):
| Balance at September 29, 2018 |  | Impacts due to adoption of Topic 606 |  | Balance at September 30, 2018
ASSETS |  |  |  |  |
Contract assets | $ | — |  |  | $ | 76,417 |  |  | $ | 76,417 |
Inventories | 794,346 |  |  | (68,959 | ) |  | 725,387 |
LIABILITIES AND SHAREHOLDERS' EQUITY
Other accrued liabilities | $ | 68,163 |  |  | $ | (357 | ) |  | $ | 67,806 |
Retained earnings | 1,062,246 |  |  | 7,815 |  |  | 1,070,061 |
The cumulative effect of applying the new guidance in Topic 606 resulted in the Company increasing its opening Retained Earnings balance by $7.8 million due to certain customer contracts requiring revenue recognition over time. Contract assets in the amount of $76.4 million were recognized due to the recognition of revenue on an over time basis for some customers rather than at a specific point in time. Inventory declined $69.0 million primarily due to earlier recognition of costs related to the contracts for which revenue was recognized on an over time basis. The decline in other accrued liabilities is primarily due to the reclassification of deferred revenue to contract assets for prepayments associated with revenue recognized over time, partially offset by an increase in taxes payable associated with the increase in revenue recognized over time. The effects of the adoption on the Company's Condensed Consolidated Financial Statements for the three months ended December 29, 2018 were as follows (in thousands):
| Three Months Ended
| December 29, 2018 As Reported |  | Adjustments due to Topic 606 |  | December 29, 2018 As Adjusted - Without Adoption of ASC Topic 606
Net sales | $ | 765,544 |  |  | $ | 6,185 |  |  | $ | 759,359 |
Cost of sales | 693,161 |  |  | 5,194 |  |  | 687,967 |
Gross profit | 72,383 |  |  | 991 |  |  | 71,392 |
Operating income | 36,951 |  |  | 991 |  |  | 35,960 |
Income before income taxes | 34,115 |  |  | 991 |  |  | 33,124 |
Income tax expense | 11,889 |  |  | 194 |  |  | 11,695 |
Net income | $ | 22,226 |  |  | $ | 797 |  |  | $ | 21,429 |
| December 29, 2018 As Reported |  | Effect of the Adoption of ASC Topic 606 |  | December 29, 2018 As Adjusted - Without Adoption of ASC Topic 606
ASSETS |  |  |  |  |
Contract assets | $ | 82,775 |  |  | $ | 82,775 |  |  | $ | — |
Inventories | 798,271 |  |  | (74,152 | ) |  | 872,423 |
LIABILITIES AND SHAREHOLDERS' EQUITY
Other accrued liabilities | $ | 83,004 |  |  | $ | 11 |  |  | $ | 82,993 |
Retained earnings | 1,092,287 |  |  | 8,612 |  |  | 1,083,675 |
Significant Judgments Topic 606 results in a change to the timing of revenue recognition for a significant portion of the Company's revenue, whereby revenue is now recognized "over time" as products are produced, as opposed to at a "point in time" based upon shipping terms. Upon adopting the standard, revenue is now recognized over time for arrangements with customers for which: (i) the Company's performance does not create an asset with an alternative use to the Company, and (ii) the Company has an enforceable right to payment for performance completed to date. Revenue recognized over time will be estimated based on costs incurred to date plus a reasonable profit margin. If either of the two conditions noted above are not met to recognize revenue over time, revenue will be recognized following the transfer of control of such products to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying arrangement. The Company recognizes revenue when a contract exists and when, or as, it satisfies a performance obligation by transferring control of a product or service to a customer. Contracts are accounted for when they have approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company generally enters into a master services arrangement that establishes the framework under which business will be conducted. These arrangements represent the master terms and conditions of the Company's services that apply to individual orders, but they do not commit the customer to work with, or to continue to work with, the Company nor do they obligate the customer to any specific volume or pricing of purchases. Moreover, these terms can be amended in appropriate situations. Customer purchase orders are received for specific quantities with predominantly fixed pricing and delivery requirements. Thus, for the majority of our contracts, there is no guarantee of any revenue to the Company until a customer submits a purchase order. As a result, the Company generally considers its arrangement with a customer to be the combination of the master services arrangement and the purchase order. Most of the Company's arrangements with customers create a single performance obligation as the promise to transfer the individual manufactured product or service is capable of being distinct. The Company’s performance obligations are satisfied over time as work progresses or at a point in time. A performance obligation is satisfied over time if the Company has an enforceable right to payment, including a reasonable profit margin. Determining if an enforceable right to payment includes a reasonable profit margin requires judgment and is assessed on a contract by contract basis. Generally, there are no subjective customer acceptance requirements or further obligations related to goods or services provided; if such requirements or obligations exist, then a sale is recognized at the time when such requirements are completed and such obligations are fulfilled. The Company does not allow for a general right of return. Net sales include amounts billed to customers for shipping and handling and out-of-pocket expenses. The corresponding shipping and handling costs and out-of-pocket expenses are included in cost of sales. 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 net sales. Practical Expedients The Company applied the following practical expedients during the adoption of Topic 606:
• | The Company elected not to disclose information about remaining performance obligations as its performance obligations generally have expected durations of one year or less.
• | The Company will account for certain shipping and handling as activities to fulfill the promise to transfer the good, instead of a promised service to its customer.
• | The Company elected not to adjust the promised amount of consideration for the effects of a significant financing component as the Company expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer and when the customer pays for that good or service will generally be one year or less.
Contract Costs For contracts requiring over time revenue recognition, the selection of the method to measure progress towards completion requires judgment and is based on the nature of the products or services to be provided. The Company uses a cost-based input measurement of progress because it best depicts the transfer of assets to the customer, which occurs as costs are incurred during the manufacturing process or as services are rendered. Under the cost-based measure of progress, the extent of progress towards completion is measured based on the costs incurred to date. There were no other costs to obtain or fulfill customer contracts. Disaggregated Revenue The tables below include the Company’s net sales for the three months ended December 29, 2018, disaggregated by geographic reportable segment and market sector (in thousands):
|  | Three Months Ended December 29, 2018
|  | Reportable Segment:
|  | AMER |  | APAC |  | EMEA |  | Total
Market Sector: |  |  |  |  |  |  |  |
Healthcare/Life Sciences |  | $ | 115,765 |  |  | $ | 152,106 |  |  | $ | 32,707 |  |  | $ | 300,578 |
Industrial/Commercial |  | 83,718 |  |  | 116,271 |  |  | 19,153 |  |  | 219,142 |
Communications |  | 90,464 |  |  | 30,975 |  |  | 1,920 |  |  | 123,359 |
Aerospace/Defense |  | 62,373 |  |  | 42,094 |  |  | 17,998 |  |  | 122,465 |
External revenue |  | $ | 352,320 |  |  | $ | 341,446 |  |  | $ | 71,778 |  |  | $ | 765,544 |
Inter-segment sales |  | 1,547 |  |  | 36,666 |  |  | 520 |  |  | 38,733 |
Total sales revenue |  | $ | 353,867 |  |  | $ | 378,112 |  |  | $ | 72,298 |  |  | $ | 804,277 |
For the three months ended December 29, 2018, 89.0% of the Company's revenue was recognized as products and services were transferred over time. Contract Balances The timing of revenue recognition, billings and cash collections results in billed accounts receivable, contract assets, and deferred revenue on the Company’s accompanying Condensed Consolidated Balance Sheets. Contract Assets: For performance obligations satisfied at a point in time, billing occurs subsequent to revenue recognition, at which point the customer has been billed and the resulting asset is recorded within accounts receivable. For performance obligations satisfied over time as work progresses, the Company has an unconditional right to payment which results in the recognition of contract assets. The following table summarizes the activity in the Company's contract assets during the three months ended December 29, 2018 (in thousands):
|  | Contract Assets
Beginning balance, September 29, 2018 |  | $ | — |
Cumulative effect adjustment at September 29, 2018 |  | 76,417 |
Revenue recognized |  | 681,712 |
Amounts collected or invoiced |  | (675,354 | )
Ending balance, December 29, 2018 |  | $ | 82,775 |
Deferred Revenue: Deferred revenue is recorded when consideration is received from a customer prior to transferring goods or services to the customer under the terms of the contract, which is included in other accrued liabilities. The advance payment is not considered a significant financing component because it is used to meet working capital demands that can be higher in the early stages of a contract, offset obsolete and excess inventory risks and to protect the company from the other party failing to adequately complete some or all of its obligations under the contract. Deferred revenue is recognized into revenue when all revenue recognition criteria are met. For performance obligations satisfied over time, recognition will occur as work progress, otherwise deferred revenue will be recognized based upon shipping terms.

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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 606 -URI http://asc.fasb.org/topic&trid=49130388 + Details
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