
4.	Revenue from Contracts with Customers

Under the new revenue standard, revenue is recognized when control transfers under the terms of the contract with our customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales and other taxes we collect concurrent with revenue-producing activities are excluded from revenue. We do not account for shipping and handling as a distinct performance obligation as we generally perform shipping and handling activities after we transfer control of goods to the customer. We have elected to account for shipping and handling costs associated with outbound freight after control of goods has transferred to a customer as a fulfillment cost. Incidental items that are immaterial in the context of the contract are not recognized as a separate performance obligation. We do not have any significantly extended payment terms as payment is generally received within one year of the point of sale.

In general, we transfer control and recognize a sale at the point in time when products are shipped from our manufacturing facilities both direct to consumers and to distributors. Service revenue is recognized in the period the service is performed or ratably over the period of the related service contract. Consideration related to service contracts is deferred if the proceeds are received in advance of the satisfaction of the performance obligations and recognized over the contract period as the performance obligation is met. We use an output method to measure progress toward completion for certain prepaid service contracts, as this method appropriately depicts performance towards satisfaction of the performance obligations.

For contracts with multiple performance obligations (i.e., a product and service component), we allocate the transaction price to the performance obligations in proportion to their stand-alone selling prices. We use an observable price to determine the stand-alone selling price for separate performance obligations. When allocating on a relative stand-alone selling price basis, any discounts contained within the contract are allocated proportionately to all of the performance obligations in the contract.

Disaggregation of Revenue

The following tables illustrate the disaggregation of revenue by geographic area, groups of similar products and services and sales channels for the twelve months ended December 31, 2018, 2017 and 2016 (in thousands):

Net Sales by geographic area



	Twelve Months Ended
	December 31
	2018		2017		2016
Americas	$	690,996	$	640,274	$	607,026
Europe, Middle East and Africa	335,603		273,738		129,046
Asia Pacific	96,912		89,054		72,500
Total	$	1,123,511	$	1,003,066	$	808,572

Net Sales are attributed to each geographic area based on the end user country and are net of intercompany sales.

Net Sales by groups of similar products and services



	Twelve Months Ended
	December 31
	2018		2017		2016
Equipment	$	729,993	$	636,875	$	491,075
Parts and Consumables	222,345		202,452		173,632
Specialty Surface Coatings	29,827		31,407		29,146
Service and Other	141,346		132,332		114,719
Total	$	1,123,511	$	1,003,066	$	808,572

Net Sales by sales channel



	Twelve Months Ended
	December 31
	2018		2017		2016
Sales Direct to Consumer	$	735,244	$	674,495	$	609,538
Sales to Distributors	388,267		328,571		199,034
Total	$	1,123,511	$	1,003,066	$	808,572

Contract Liabilities

Sales Returns

The right of return may exist explicitly or implicitly with our customers. When the right of return exists, we adjust the transaction price for the estimated effect of returns. We estimate the expected returns using the expected value method by assessing historical sales levels and the timing and magnitude of historical sales return levels as a percent of sales and projecting this experience into the future.

Sales Incentives

Our sales contracts may contain various customer incentives, such as volume-based rebates or other promotions. We reduce the transaction price for certain customer programs and incentive offerings that represent variable consideration. Sales incentives given to our customers are recorded using the most likely amount approach for estimating the amount of consideration to which the company will be entitled. We forecast the most likely amount of the incentive to be paid at the time of sale, update this forecast quarterly, and adjust the transaction price accordingly to reflect the new amount of incentives expected to be earned by the customer. A majority of our customer incentives are settled within one year. We record our accruals for volume-based rebates and other promotions in Other Current Liabilities on our Condensed Consolidated Balance Sheets.

The change in our sales incentive accrual balance for the twelve months ended December 31, 2018 was as follows:



	Twelve Months Ended
	December 31
	2018
Beginning balance	$	13,466
Additions to sales incentive accrual	30,458
Contract payments	(26,992		)
Foreign currency fluctuations	(280		)
Ending balance	$	16,652

Deferred Revenue

We sell separately priced prepaid contracts to our customers where we receive payment at the inception of the contract and defer recognition of the consideration received because we have to satisfy future performance obligations. Our deferred revenue balance is primarily attributed to prepaid maintenance contracts on our machines ranging from 12 months to 60 months. In circumstances where prepaid contracts are sold simultaneously with machines, we use an observable price to determine stand-alone selling price for separate performance obligations.

The change in the deferred revenue balance for the twelve months ended December 31, 2018 was as follows:



	Twelve Months Ended
	December 31
	2018
Beginning balance	$	7,787
Increase in deferred revenue representing our obligation to satisfy future performance obligations	14,650
Decrease in deferred revenue for amounts recognized in Net Sales for satisfied performance obligations	(13,755		)
Foreign currency fluctuations	(157		)
Ending balance	$	8,525

At December 31, 2018, $5,021 and $3,504 of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Condensed Consolidated Balance Sheets. Of this, we expect to recognize the following approximate amounts in Net Sales in the following periods:



2019	$	5,021
2020	1,865
2021	1,044
2022	442
2023	153
Thereafter	—
Total	$	8,525

At December 31, 2017, $5,815 and $2,483 of deferred revenue was reported in Other Current Liabilities and Other Liabilities, respectively, on our Condensed Consolidated Balance Sheets.

Practical Expedients and Exemptions

We generally expense the incremental costs of obtaining a contract when incurred because the amortization period would be less than one year. These costs relate primarily to sales commissions and are recorded in Selling and Administrative Expense in the Condensed Consolidated Statements of Operations.

We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. In addition, we do not adjust the promised amount of consideration for the effects of a significant financing component if we expect, at contract inception, that the period between when we transfer a promised good or service to a customer and when the customer pays for that good or service will be one year or less.