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REVENUE | 9 Months Ended
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Sep. 30, 2018
REVENUE [Abstract] |
REVENUE |
2. | REVENUE
Significant Accounting Policy On January 1, 2018, the Company adopted ASC 606 using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under ASC 605. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the transfer of control of the Company's goods and services and provides financial statement readers with enhanced disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods and services. 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 revenue. Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. Nature of Goods and Services Our revenues are substantially derived from sales of our products. In our connectivity solutions product group, we provide connectors and cable assemblies to the aerospace, military/defense, commercial, rugged harsh environment and communication markets. This group also includes passive jacks, plugs and cable assemblies that provide connectivity in networking equipment, as well as modular plugs and cable assemblies used within the structured cabling system, known as premise wiring. In our power solutions and protection group, we provide AC-DC and DC-DC power conversion devices and circuit protection products. Applications range from board-mount power to system-level architectures for servers, storage, networking, industrial and transportation. In our magnetic solutions group, we provide an extensive line of integrated connector modules (ICM), where an Ethernet magnetic solution is integrated into a connector package. Products within the Company's magnetic solutions group are primarily used in networking and industrial applications. The Company also provides incremental services to our customers in the form of training, technical support, special tooling, and other support as deemed necessary from time to time. For purposes of ASC 606, all such incremental services were concluded to be immaterial in the context of the contracts. Types of Contracts Substantially all of the Company's revenue is derived from contracts with its customers under one of the following types of contracts:
· | Direct with customer: This includes contracts with original equipment manufacturers (OEMs), original design manufacturers (ODMs), and contract manufacturers (CMs). The nature of Bel's products are such that they represent components which are installed in various end applications (i.e. servers, aircraft, missiles and rail applications). The OEM, ODM or CM that purchases our product for further installation are our end customers. Contracts with these customers are broad-based and cover general terms and conditions. Details such as order volume and pricing are typically contained in individual purchase orders, and as a result, we view each product on each purchase order as an individual performance obligation. Incremental services included in the contracts, such as training, tooling and other customer support are determined to be immaterial in the context of the contract, both individually and in the aggregate. Revenue under these contracts is generally recognized at a point in time, generally upon shipping or delivery, which closely mirrors the shipping terms dictated by the applicable contract.
· | Distributor: Distribution customers buy product directly from Bel and sell it in the marketplace to end customers. Bel contracts directly with the distributor. These contracts are typically global in nature and cover a variety of our product groups. Similar to contracts with OEMs, ODMs and CMs, each product on each purchase order is considered an individual performance obligation. Revenue is recognized at a point in time, generally upon shipping or delivery, which closely mirrors the shipping terms dictated by the applicable contract.
· | Consignment: These customers operate under a type of concession agreement whereby the Company ships goods to a warehouse or hub, where they will be pulled by the customer at a later date. The terms specified in the consignment contracts specify that the Company will not invoice the customer for product until it is pulled from the warehouse or hub. Once product arrives at the hub, it is generally not returned to Bel unless there is a warranty issue (see "Warranties" section below). Similar to the contracts described above, each product on each purchase order is considered an individual performance obligation. Under ASC 606, it was determined that the majority of these hubs are customer-controlled, and therefore control transfers to the customer upon either delivery from Bel's warehouse, or arrival at the customer-controlled hub, depending upon the applicable shipping terms. Effective January 1, 2018, revenue is recognized as control of the product is transferred to the customer (for customer-controlled hubs, this is at the time product is shipped to the hub). This gives rise to an unbilled receivable balance, as we do not have the right to invoice the customer until product is pulled from the hub.
· | Licensing Agreements: License agreements are only applicable to our Power Solutions and Protection product group, and include provisions for Bel to receive sales-based royalty income related to the licensing of Bel's patents or other intellectual property (IP) utilized by a third-party entity. Income related to these agreements is tracked by the licensee throughout the year based on their sales of product that utilize Bel's IP, and that data is reported to Bel either on a quarterly or annual basis, with payment generally received within 30 days of the reporting date. Our performance obligation is satisfied upon delivery of the IP at the beginning of the license period, as the licenses are functional in nature. However, the recognition of revenue associated with these licenses is subject to the sales- or usage-based constraint on variable consideration. As such, the Company records a constrained estimate of this variable consideration as royalty income in the period of the underlying customers' product sales, with adjustments made as actual licensee sales data becomes available.
Warranties Warranties vary by product line and are competitive for the markets in which the Company operates. Warranties generally extend for one to three years from the date of sale, providing customers with assurance that the related product will function as intended. The Company reviews its warranty liability quarterly based on an analysis of actual expenses and failure rates accompanied with estimated future costs and projected failure rate trends. Factors taken into consideration when evaluating our warranty reserve are (i) historical claims for each product, (ii) volume increases, (iii) life of warranty, (iv) historical warranty repair costs and (v) other factors. To the extent that actual experience differs from our estimate, the provision for product warranties will be adjusted in future periods. Actual warranty repair costs are charged against the reserve balance as incurred. See Note 7, "Accrued Expenses." Product Returns We estimate product returns, including product exchanges under warranty, based on historical experience. In general, the Company is not contractually obligated to accept returns except for defective product or in instances where the product does not meet the Company's product specifications. However, the Company may permit its customers to return product for other reasons. In certain instances, the Company would generally require a significant cancellation penalty payment by the customer. The Company estimates such returns, where applicable, based upon management's evaluation of historical experience, market acceptance of products produced and known negotiations with customers. Such estimates are deducted from sales and provided for at the time revenue is recognized. Distribution customers often receive what is referred to as "ship and debit" arrangements, whereby Bel will invoice them at an agreed upon unit price upon shipment of product and a price reduction may be granted if the market price of the product declines after shipment. Distributors may also be entitled to special pricing discount credits, and certain customers are entitled to return allowances based on previous sales volumes. Bel deducts estimates for anticipated credits, refunds and returns from sales each quarter based on historical experience. Significant Payment Terms Contracts with customers indicate the general terms and conditions in which business will be conducted for a set period of time. Individual purchase orders state the description, quantity and price of each product purchased. Payment for products sold under direct contracts with customers or contracts with distributors is typically due in full within 30-90 days from the transfer of title to customer. Payment for products sold under consignment contracts is typically due within 60 days of the customer pulling the product from the hub. Payment due related to our licensing agreements is generally within 30 days of receiving the licensee sales data, which is either on a quarterly or annual basis. Since the customer agrees to a stated price for each product on each purchase order, the majority of contracts are not subject to variable consideration. However, the "ship and debit" arrangements with distributors, royalty income associated with our licensing agreements, and the product returns described above are each deemed to be variable consideration which requires the Company to make constrained estimates based on historical data. Disaggregation of Revenue The following table provides information about disaggregated revenue by product group and sales channel, and includes a reconciliation of the disaggregated revenue to our reportable segments:
|  | Three Months Ended September 30, 2018 |
|  | North |  |  |  |  |  |  |  |  |  |
|  | America |  |  | Asia |  |  | Europe |  |  | Consolidated |
By Product Group: |  |  |  |  |  |  |  |  |  |  |  |
Connectivity solutions |  | $ | 34,919 |  |  | $ | 5,293 |  |  | $ | 8,314 |  |  | $ | 48,526 |
Magnetic solutions |  |  | 10,586 |  |  |  | 40,100 |  |  |  | 2,286 |  |  |  | 52,972 |
Power solutions and protection |  |  | 25,149 |  |  |  | 8,135 |  |  |  | 11,707 |  |  |  | 44,991 |
|  | $ | 70,654 |  |  | $ | 53,528 |  |  | $ | 22,307 |  |  | $ | 146,489 |
By Sales Channel: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Direct to customer |  | $ | 46,802 |  |  | $ | 46,965 |  |  | $ | 15,184 |  |  | $ | 108,951 |
Through distribution |  |  | 23,852 |  |  |  | 6,563 |  |  |  | 7,123 |  |  |  | 37,538 |
|  | $ | 70,654 |  |  | $ | 53,528 |  |  | $ | 22,307 |  |  | $ | 146,489 |
|  | Nine Months Ended September 30, 2018 |
|  | North |  |  |  |  |  |  |  |  |  |
|  | America |  |  | Asia |  |  | Europe |  |  | Consolidated |
By Product Group: |  |  |  |  |  |  |  |  |  |  |  |
Connectivity solutions |  | $ | 100,797 |  |  | $ | 13,533 |  |  | $ | 26,043 |  |  | $ | 140,373 |
Magnetic solutions |  |  | 28,795 |  |  |  | 100,769 |  |  |  | 7,184 |  |  |  | 136,748 |
Power solutions and protection |  |  | 71,759 |  |  |  | 23,760 |  |  |  | 32,811 |  |  |  | 128,330 |
|  | $ | 201,351 |  |  | $ | 138,062 |  |  | $ | 66,038 |  |  | $ | 405,451 |
By Sales Channel: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Direct to customer |  | $ | 128,754 |  |  | $ | 119,294 |  |  | $ | 45,368 |  |  | $ | 293,416 |
Through distribution |  |  | 72,597 |  |  |  | 18,768 |  |  |  | 20,670 |  |  |  | 112,035 |
|  | $ | 201,351 |  |  | $ | 138,062 |  |  | $ | 66,038 |  |  | $ | 405,451 |
The cumulative effect of the changes made to our consolidated January 1, 2018 balance sheet for the adoption of ASC 606 were as follows:
|  | Balance at |  |  | Adjustments |  |  | Balance at |
|  | December 31, |  |  | Due to |  |  | January 1, |
|  | 2017 |  |  | ASC 606 |  |  | 2018 |
Balance Sheet |  |  |  |  |  |  |  |  |
Unbilled receivables |  | $ | - |  |  | $ | 14,536 |  |  | $ | 14,536 |
Inventory |  |  | 107,719 |  |  |  | (11,044 | ) |  |  | 96,675 |
Other current liabilities |  |  | 6,204 |  |  |  | 43 |  |  |  | 6,247 |
Retained earnings |  |  | 147,807 |  |  |  | 3,449 |  |  |  | 151,256 |
In accordance with the new revenue standard requirements, the disclosure of the impact of adoption on our balance sheet as of September 30, 2018 and consolidated statement of operations for the three and nine months ended September 30, 2018 was as follows:
|  | As of September 30, 2018 |
|  |  |  |  | Balances |  |  | Effect of |
|  | As |  |  | Without Adoption |  |  | Change |
|  | Reported |  |  | of ASC 606 |  |  | Higher/(Lower) |
Balance Sheet |  |  |  |  |  |  |  |  |
Assets |  |  |  |  |  |  |  |  |
Unbilled receivables |  | $ | 16,553 |  |  | $ | - |  |  | $ | 16,553 |
Inventories |  |  | 114,434 |  |  |  | 126,737 |  |  |  | (12,303 | )
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Other current liabilities |  |  | 3,836 |  |  |  | 3,715 |  |  |  | 121 |
Equity |  |  |  |  |  |  |  |  |  |  |  |
Retained earnings |  |  | 165,518 |  |  |  | 161,389 |  |  |  | 4,129 |
|  | Three Months Ended September 30, 2018 |  |  | Nine Months Ended September 30, 2018 |
|  |  |  |  | Balances |  |  | Effect of |  |  |  |  |  | Balances |  |  | Effect of |
|  | As |  |  | Without Adoption |  |  | Change |  |  | As |  |  | Without Adoption |  |  | Change |
|  | Reported |  |  | of ASC 606 |  |  | Higher/(Lower) |  |  | Reported |  |  | of ASC 606 |  |  | Higher/(Lower) |
Statement of Operations |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net sales |  | $ | 146,489 |  |  | $ | 145,523 |  |  | $ | 966 |  |  | $ | 405,451 |  |  | $ | 403,434 |  |  | $ | 2,017 |
Cost of sales |  |  | 117,282 |  |  |  | 116,312 |  |  |  | 970 |  |  |  | 326,096 |  |  |  | 324,837 |  |  |  | 1,259 |
Operating income |  |  | 10,499 |  |  |  | 10,503 |  |  |  | (4 | ) |  |  | 21,603 |  |  |  | 20,845 |  |  |  | 758 |
(Benefit from) provision for income taxes |  |  | (2,201 | ) |  |  | (2,163 | ) |  |  | (38 | ) |  |  | 523 |  |  |  | 445 |  |  |  | 78 |
Net earnings |  |  | 11,352 |  |  |  | 11,318 |  |  |  | 34 |  |  |  | 16,684 |  |  |  | 16,004 |  |  |  | 680 |
Contract Assets and Contract Liabilities: A contract asset results when goods or services have been transferred to the customer but payment is contingent upon a future event, other than passage of time. In the case of our consignment arrangements, we are unable to invoice the customer until product is pulled from the hub by the customer, which generates an unbilled receivable (a contract asset) when revenue is initially recognized. A contract liability results when cash payments are received or due in advance of our performance obligation being met. We have certain customers who provide payment in advance of product being shipped, which results in deferred revenue (a contract liability). The balances of the Company's contract assets and contract liabilities at September 30, 2018 are as follows:
|  | September 30, |  |  | January 1, |
|  | 2018 |  |  | 2018 |
Contract assets - current (unbilled receivable) |  | $ | 16,553 |  |  | $ | 14,536 |
Contract liabilities - current (deferred revenue) |  | $ | 776 |  |  | $ | 855 |
The change in balance of our unbilled receivables from January 1, 2018 to September 30, 2018 primarily relates to a timing difference between the Company's performance (i.e. when our product is shipped to a customer-controlled hub) and the point at which the Company can invoice the customer per the terms of the customer contract (i.e. when the customer pulls our product from the customer-controlled hub). A tabular presentation of the activity within the deferred revenue account for the nine months ended September 30, 2018 is presented below:
|  | Nine Months Ended |
|  | September 30, 2018 |
Balance, January 1 |  | $ | 855 |
New advance payments received |  |  | 6,180 |
Recognized as revenue during period |  |  | (6,251 | )
Currency translation |  |  | (8 | )
Balance, September 30 |  | $ | 776 |
Transaction Price Allocated to Future Obligations: The aggregate amount of transaction price allocated to remaining performance obligations that have not been satisfied as of September 30, 2018 related to contracts that exceed one year in duration amounted to $17.6 million, with expected contract expiration dates that range from 2019 - 2024. It is expected that 14% of this aggregate amount will be recognized in the fourth quarter of 2019, 52% will be recognized in 2020 and the remainder will be recognized in years beyond 2020. The majority of the Company's total backlog of orders at September 30, 2018 is related to contracts that have an original expected duration of one year or less, for which the Company is electing to utilize the practical expedient available within the guidance, and are excluded from the transaction price related to these future obligations. The Company will generally satisfy the remaining performance obligations as we transfer control of the products ordered to our customers. The transaction price related to these future obligations also excludes variable consideration consisting of sales or usage-based royalties earned on licensing agreements. The variability related to these sales or usage-based royalties will be resolved in the periods when the licensee generates sales related to the licensed intellectual property. Other Practical Expedients: In the application of the recognition and measurement principles of ASC 606, the Company elected to utilize the following additional practical expedients which are provided for within the guidance:
· | Financing Components: Bel has elected the practical expedient which enables management to disregard the effects of a financing component if the time difference between delivery of goods or services and payment for the goods or services is within one year.
· | Costs to Obtain a Contract: As part of negotiations, Bel may incur incremental costs to obtain a contract. Incremental costs are only those costs that would not have been incurred if the contract had not been obtained (e.g. sales commissions). Bel has elected the practical expedient that allows incremental costs to obtain a contract to be expensed as incurred when the expected amortization period is one year or less.

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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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