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Note 2 - Revenue Recognition
 9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Revenue from Contract with Customer [Text Block]
(
2
)
Revenue Recognition
 
On
January 1, 2018,
the Company adopted ASC
606,
Revenue from Contracts with Customers
, using the modified retrospective transition method. Under this method, the Company applied ASC
606
to contracts under which all performance obligations were
not
completed as of
January 1, 2018
and recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. Results for reporting periods beginning after
January 1, 2018
are presented in accordance with ASC
606.
Prior period amounts are
not
adjusted and are reported in accordance with requirements in ASC
605,
Revenue Recognition
, which is also referred to herein as “legacy GAAP”.
 
The cumulative effect of the adoption on our condensed consolidated balance sheet, by applying the modified retrospective method as of
January 
1,
2018,
is as follows (in thousands):
 
    As Reported       As Adjusted
    December 31,
2017		   Cumulative
Adjustments		   January 1,
2018
Assets:                        
Property, plant and equipment   $
106,716
     $
1,027
     $
107,743
  
Accumulated depreciation and amortization    
(53,064
 )    
(548
 )    
(53,612
 )
Net property, plant and equipment    
53,652
      
479
      
54,131
  
Liabilities:                        
Deferred revenue    
297
      
574
      
871
  
Deferred income taxes    
2,440
      
(25
 )    
2,415
  
Stockholders' equity:                        
Retained earnings    
97,562
      
(70
 )    
97,492
  
 
The following reflects the Company’s condensed consolidated balance sheet and condensed consolidated statement of income on an as-reported basis and as if we had continued to recognize revenue under legacy GAAP (in thousands):
 
    September 30, 2018
    As Reported   Balances
without
adoption of
ASC 606		   Difference
Assets:            
Property, plant and equipment   $
112,503
     $
111,230
     $
1,273
  
Accumulated depreciation and amortization    
(54,044
 )    
(53,145
 )    
(899
 )
Net property, plant and equipment    
58,459
      
58,085
      
374
  
Liabilities:                        
Deferred revenue    
3,918
      
3,502
      
416
  
Deferred income taxes    
3,256
      
3,281
      
(25
 )
Stockholders' equity:                        
Retained earnings    
107,392
      
107,409
      
(17
 )
 
    For the Nine Months Ended September 30, 2018
    As Reported   Balances
without
adoption of
ASC 606		   Difference
Net sales   $
139,758
     $
139,600
     $
158
  
Cost of sales    
104,156
      
104,051
      
105
  
Gross profit    
35,602
      
35,549
      
53
  
 
The following summarizes the significant changes under ASC
606
as compared to legacy GAAP:
 
·
 Under legacy GAAP, the Company recognized revenue for certain customer tooling at the time the tooling was complete and accepted by the customer. Under ASC
606,
as “control” of this tooling does
not
transfer to the customer, the related purchase orders do
not
qualify as an “accounting contract” and as a result the consideration received is recorded as deferred revenue and recognized over the estimated time for which parts are produced on each respective tool (approximately
two
years). The related costs to produce the tooling are capitalized and depreciated over the estimated useful life of the tool (approximately
two
years).
 
·
 Under legacy GAAP, the Company recognized revenue on long-term agreements with variable pricing at the selling price that was in effect for the current period at the time of shipment. Under ASC
606,
the Company will recognize revenue at the weighted average selling price for each part over the term of the agreement for any agreements where the Company estimates that we will
not
be able to achieve the corresponding cost changes necessary to maintain a consistent margin over the term of the agreement. The Company has a small number of long-term agreements with variable pricing.
 
The Company recognizes revenue when a customer obtains control of a promised good or service. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for promised goods or services. The Company recognizes revenue in accordance with the core principles of ASC
606
which include (
1
) identifying the contract with a customer, (
2
) identifying separate performance obligations within the contract, (
3
) determining the transaction price, (
4
) allocating the transaction price to the performance obligations, and (
5
) recognizing revenue. The Company recognizes all but an immaterial portion of its product sales upon shipment. The Company recognizes revenue from the sale of tooling and machinery primarily upon customer acceptance, with the exception of certain tooling where control does
not
transfer to the customer, which results in revenue being recognized over the estimated time for which parts are produced on each respective tool. Although only applicable to an insignificant number of transactions, the Company has elected to exclude sales taxes from the transaction price. The Company has elected to account for shipping and handling activities for which the Company is responsible under the terms and conditions of the sale
not
as performance obligations but rather as fulfillment costs. These activities are required to fulfill the Company’s promise to transfer the good and are expensed when revenue is recognized.
 
Disaggregated Revenue
 
The following table presents the Company’s revenue disaggregated by the major types of goods and services sold to our customers (in thousands) (See Note
9
for further information regarding net sales by market):
 
    Three Months Ended
September 30,		   Nine Months Ended
September 30,
    2018   2017   2018   2017
Net sales of:        
Products   $
46,423
     $
35,301
     $
135,670
     $
109,196
  
Tooling and Machinery    
537
      
277
      
2,135
      
1,150
  
Engineering services    
848
      
106
      
1,953
      
277
  
Total net sales   $
47,808
     $
35,684
     $
139,758
     $
110,623
  
 
Contract balances
 
The timing of revenue recognition
may
differ from the timing of invoicing to customers. When invoicing occurs prior to revenue recognition, the Company has deferred revenue (contract liabilities), included within “deferred revenue” on the condensed consolidated balance sheets.
 
The following table presents opening and closing balances of contract liabilities for the
nine
-month period ended
September 30, 2018 (
in thousands):
 
    Contract
Liabilities
     
Deferred revenue - January 1, 2018   $
871
  
Acquired in Dielectrics business combination    
2,175
  
Increases due to consideration received from customers    
3,088
  
Revenue recognized    
(2,216
 )
Deferred revenue - September 30, 2018   $
3,918
  
 
Revenue recognized during the
nine
-month period ended
September 30, 2018
from amounts included in deferred revenue at the beginning of the period was approximately
$527,000.
 
When invoicing occurs after revenue recognition, the Company has unbilled receivables (contract assets) included within “receivables” on the condensed consolidated balance sheet. Unbilled receivables were approximately
$48,000
at
September 30, 2018.