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 nine months ended September 30, 2018 and 2017 (in thousands):

Three months ended September 30, 2018 (a)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	175,875	$	91,687	$	—	$	267,562
Canada		9,297		3,591		2,970		15,858
Mexico		4,909		219		—		5,128
Europe		2,041		156		—		2,197
Other foreign		5,448		426		—		5,874
Total	$	197,570	$	96,079	$	2,970	$	296,619
Major Product Group:
Ignition, emissions and fuel system parts	$	159,101	$	—	$	1,171	$	160,272
Wire and cable		38,469		—		118		38,587
Compressors		—		54,842		1,070		55,912
Other climate control parts		—		41,237		611		41,848
Total	$	197,570	$	96,079	$	2,970	$	296,619
Major Sales Channel:
Aftermarket	$	168,836	$	88,681	$	2,970	$	260,487
OE/OES		23,345		6,718		—		30,063
Export		5,389		680		—		6,069
Total	$	197,570	$	96,079	$	2,970	$	296,619

Three months ended September 30, 2017 (a)(b)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	172,530	$	77,315	$	—	$	249,845
Canada		8,023		3,087		3,122		14,232
Mexico		6,190		291		—		6,481
Europe		3,157		131		—		3,288
Other foreign		6,876		336		—		7,212
Total	$	196,776	$	81,160	$	3,122	$	281,058
Major Product Group:
Ignition, emissions and fuel system parts	$	155,544	$	—	$	1,526	$	157,070
Wire and cable		41,232		—		167		41,399
Compressors		—		44,733		972		45,705
Other climate control parts		—		36,427		457		36,884
Total	$	196,776	$	81,160	$	3,122	$	281,058
Major Sales Channel:
Aftermarket	$	163,634	$	73,664	$	3,122	$	240,420
OE/OES		26,891		6,584		—		33,475
Export		6,251		912		—		7,163
Total	$	196,776	$	81,160	$	3,122	$	281,058

Nine months ended September 30, 2018 (a)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	532,842	$	223,861	$	—	$	756,703
Canada		24,389		10,685		7,914		42,988
Mexico		17,578		610		—		18,188
Europe		7,927		469		—		8,396
Other foreign		17,751		1,055		—		18,806
Total	$	600,487	$	236,680	$	7,914	$	845,081
Major Product Group:
Ignition, emissions and fuel system parts	$	482,640	$	—	$	4,024	$	486,664
Wire and cable		117,847		—		467		118,314
Compressors		—		131,680		1,832		133,512
Other climate control parts		—		105,000		1,591		106,591
Total	$	600,487	$	236,680	$	7,914	$	845,081
Major Sales Channel:
Aftermarket	$	510,010	$	210,990	$	7,914	$	728,914
OE/OES		74,202		24,115		—		98,317
Export		16,275		1,575		—		17,850
Total	$	600,487	$	236,680	$	7,914	$	845,081

Nine months ended September 30, 2017 (a)(b)	Engine Management		Temperature Control		Other (c)		Total
Geographic Area:
United States	$	559,574	$	226,041	$	—	$	785,615
Canada		25,846		10,155		5,885		41,886
Mexico		18,277		731		—		19,008
Europe		10,122		658		—		10,780
Other foreign		17,620		1,256		—		18,876
Total	$	631,439	$	238,841	$	5,885	$	876,165
Major Product Group:
Ignition, emissions and fuel system parts	$	498,802	$	—	$	3,083	$	501,885
Wire and cable		132,637		—		550		133,187
Compressors		—		132,278		1,271		133,549
Other climate control parts		—		106,563		981		107,544
Total	$	631,439	$	238,841	$	5,885	$	876,165
Major Sales Channel:
Aftermarket	$	535,245	$	212,262	$	5,885	$	753,392
OE/OES		79,563		24,383		—		103,946
Export		16,631		2,196		—		18,827
Total	$	631,439	$	238,841	$	5,885	$	876,165

(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.