Note 3.

Net Sales

Significant Accounting Policy

We recognize revenues when our performance obligation has been satisfied and the control of products has been transferred to a customer which typically occurs upon shipment. Revenue is measured as the amount of consideration we expect to receive in exchange for the transfer of goods or providing services. Shipping and handling costs, as well as freight to customers, are included in distribution expenses as part of selling, general and administrative expenses.

Revenue Recognition

We derive our revenue primarily from sales of replacement parts for motor vehicles from both our Engine Management and Temperature Control Segments. The amount of consideration we receive and revenue we recognize depends on the marketing incentives, product warranty and overstock returns we offer to our customers. For certain of our sales of remanufactured products, we also charge our customers a deposit for the return of a used core component which we can use in our future remanufacturing activities. Such deposit is not recognized as revenue at the time of the sale but rather carried as a core liability. At the same time, we estimate the core expected to be returned from the customer and record the estimated return as unreturned customer inventory. The liability is extinguished when a core is actually returned to us, or at period end when we estimate and recognize revenue for the core deposits not expected to be returned. We estimate and record provisions for cash discounts, quantity rebates, sales returns and warranties in the period the sale is recorded, based upon our prior experience and current trends. Significant management judgments and estimates must be made and used in estimating sales returns and allowances relating to revenue recognized in any accounting period.

Product Warranty and Overstock Returns

Many of our products carry a warranty ranging from a 90-day limited warranty to a lifetime limited warranty, which generally covers defects in materials or workmanship and failure to meet industry published specifications and/or the result of installation error. In addition to warranty returns, we also permit our customers to return new, undamaged products to us within customer-specific limits (which are generally limited to a specified percentage of their annual purchases from us) in the event that they have overstocked their inventories. At the time products are sold, we accrue a liability for product warranties and overstock returns as a percentage of sales based upon estimates established using historical information on the nature, frequency and average cost of the claim and the probability of the customer return. At the same time, we record an estimate of anticipated customer returns as unreturned customer inventory. Revision to these estimates is made when necessary, based upon changes in these factors. We regularly study trends of such claims.

Disaggregation of Net Sales

We disaggregate our net sales from contracts with customers by geographic area, major product group, and major sales channels for each of our segments, as we believe it best depicts how the nature, amount, timing and uncertainty of our net sales are affected by economic factors. The following tables provide disaggregation of net sales information for the three months and six months ended June 30, 2018 and 2017 (in thousands):

Three months ended June 30, 2018 (a)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	182,383	$	74,267	$	—	$	256,650
Canada		7,288		5,516		2,837		15,641
Mexico		4,447		173		—		4,620
Europe		2,406		147		—		2,553
Other foreign		6,905		267		—		7,172
Total	$	203,429	$	80,370	$	2,837	$	286,636
Major Product Group:
Ignition, emissions and fuel system parts	$	162,462	$	—	$	1,191	$	163,653
Wire and cable		40,967		—		158		41,125
Compressors		—		46,940		818		47,758
Other climate control parts		—		33,430		670		34,100
Total	$	203,429	$	80,370	$	2,837	$	286,636
Major Sales Channel:
Aftermarket	$	171,864	$	70,679	$	2,837	$	245,380
OE/OES		25,801		9,296		—		35,097
Export		5,764		395		—		6,159
Total	$	203,429	$	80,370	$	2,837	$	286,636

Three months ended June 30, 2017 (a)(b)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	201,142	$	80,874	$	—	$	282,016
Canada		8,056		5,554		1,989		15,599
Mexico		5,056		208		—		5,264
Europe		3,151		320		—		3,471
Other foreign		5,944		435		—		6,379
Total	$	223,349	$	87,391	$	1,989	$	312,729
Major Product Group:
Ignition, emissions and fuel system parts	$	178,105	$	—	$	840	$	178,945
Wire and cable		45,244		—		150		45,394
Compressors		—		49,644		601		50,245
Other climate control parts		—		37,747		398		38,145
Total	$	223,349	$	87,391	$	1,989	$	312,729
Major Sales Channel:
Aftermarket	$	191,846	$	76,799	$	1,989	$	270,634
OE/OES		26,168		9,810		—		35,978
Export		5,335		782		—		6,117
Total	$	223,349	$	87,391	$	1,989	$	312,729

Six months ended June 30, 2018 (a)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	356,967	$	129,838	$	—	$	486,805
Canada		15,092		9,448		4,944		29,484
Mexico		12,669		385		—		13,054
Europe		5,886		311		—		6,197
Other foreign		12,303		619		—		12,922
Total	$	402,917	$	140,601	$	4,944	$	548,462
Major Product Group:
Ignition, emissions and fuel system parts	$	323,539	$	—	$	2,853	$	326,392
Wire and cable		79,378		—		349		79,727
Compressors		—		76,838		762		77,600
Other climate control parts		—		63,763		980		64,743
Total	$	402,917	$	140,601	$	4,944	$	548,462
Major Sales Channel:
Aftermarket	$	341,174	$	122,309	$	4,944	$	468,427
OE/OES		50,857		17,397		—		68,254
Export		10,886		895		—		11,781
Total	$	402,917	$	140,601	$	4,944	$	548,462

Six months ended June 30, 2017 (a)(b)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	387,044	$	145,913	$	—	$	532,957
Canada		17,823		9,910		2,763		30,496
Mexico		12,087		432		—		12,519
Europe		6,965		524		—		7,489
Other foreign		10,744		902		—		11,646
Total	$	434,663	$	157,681	$	2,763	$	595,107
Major Product Group:
Ignition, emissions and fuel system parts	$	343,258	$	—	$	1,564	$	344,822
Wire and cable		91,405		—		376		91,781
Compressors		—		87,545		299		87,844
Other climate control parts		—		70,136		524		70,660
Total	$	434,663	$	157,681	$	2,763	$	595,107
Major Sales Channel:
Aftermarket	$	371,611	$	138,598	$	2,763	$	512,972
OE/OES		52,672		17,799		—		70,471
Export		10,380		1,284		—		11,664
Total	$	434,663	$	157,681	$	2,763	$	595,107

(a)

Segment net sales include intersegment sales in our Engine Management and Temperature Control segments.

(b)

Amounts have not been restated and are reported under accounting standards in effect in the period presented as we adopted ASU 2014-09, Revenue from Contracts with Customers, using the modified retrospective method.

(c)

Other consists of the elimination of intersegment sales from our Engine Management and Temperature Control segments as well as sales from our Canadian business unit that does not meet the criteria of a reportable operating segment.

Geographic Area

We sell our line of products primarily in the United States, with additional sales in Canada, Mexico, Europe, Asia and Latin America. Sales are attributed to countries based upon the location of the customer. Our sales are substantially denominated in U.S. dollars.

Major Product Group

The Engine Management segment of the Company principally generates revenue from the sale of automotive engine replacement parts including ignition, emission and fuel system parts, and wire and cable parts. The Temperature Control segment of the Company principally generates revenue from the sale of automotive temperature control systems replacement parts including air conditioning compressors and other climate control parts.

Major Sales Channel

In the aftermarket channel, we sell our products to warehouse distributors and retailers. Our customers buy directly from us and sell directly to jobber stores, professional technicians and to “do-it-yourselfers” who perform automotive repairs on their personal vehicles. In the Original Equipment (“OE”) and Original Equipment Service (“OES”) channel, we sell our products to original equipment manufacturers who redistribute our products within their distribution network, independent dealerships and service dealer technicians. Lastly, in the Export channel, our domestic entities sell to customers outside the United States.