FLOW » Topics » Revenue Recognition

These excerpts taken from the FLOW 10-K filed Jun 26, 2009.
Revenue Recognition
 
The Company sells ultrahigh-pressure waterjet systems. Sales of waterjet systems within in the Standard segment are primarily related to the Company’s cutting and cleaning systems using ultrahigh-pressure water pumps and do not require significant custom configuration or modifications. Installation of these waterjet systems by the Company is not essential to the functionality of the waterjet systems but the Company does provide installation as a separate service. Sales of waterjet systems within the Advanced segment are generally complex aerospace and automation systems, which require specific custom configuration and advanced features to match unique customer applications as well as parts and services to sustain these installed systems. Installation by the Company is essential to the functionality of waterjet systems sold within the Advanced segment.
 
The Company recognizes revenue for sales of ultrahigh-pressure waterjet pumps, consumables, and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104


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Table of Contents

(“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because FlowMastertm software, our PC-based waterjet control, is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, for our waterjet systems that do not require significant modification or customization, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems.
 
Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.
 
We recognize revenue for delivered elements only when the delivered elements have standalone value, fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved, and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.
 
In general, sales of our waterjet systems within our Standard segment are FOB shipping point or FOB destination, depending on geographical location, and the title passes to the customer based on the specific terms in each contract.
 
For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenue using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from two to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.
 
Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.
 
Revenue Recognition
 
The Company sells ultrahigh-pressure waterjet systems. Sales of waterjet systems within in the Standard segment are primarily related to the Company’s cutting and cleaning systems using ultrahigh-pressure water pumps and do not require significant custom configuration or modifications. Installation of these waterjet systems by the Company is not essential to the functionality of the waterjet systems but the Company does provide installation as a separate service. Sales of waterjet systems within the Advanced segment are generally complex aerospace and automation systems, which require specific custom configuration and advanced features to match unique customer applications as well as parts and services to sustain these installed systems. Installation by the Company is essential to the functionality of waterjet systems sold within the Advanced segment.
 
The Company recognizes revenue for sales of ultrahigh-pressure waterjet pumps, consumables, and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104


34


Table of Contents

(“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because FlowMastertm software, our PC-based waterjet control, is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, for our waterjet systems that do not require significant modification or customization, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems.
 
Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.
 
We recognize revenue for delivered elements only when the delivered elements have standalone value, fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved, and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.
 
In general, sales of our waterjet systems within our Standard segment are FOB shipping point or FOB destination, depending on geographical location, and the title passes to the customer based on the specific terms in each contract.
 
For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenue using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from two to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.
 
Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.
 
Revenue
Recognition



 



The Company sells ultrahigh-pressure waterjet systems. Sales of
waterjet systems within in the Standard segment are primarily
related to the Company’s cutting and cleaning systems using
ultrahigh-pressure water pumps and do not require significant
custom configuration or modifications. Installation of these
waterjet systems by the Company is not essential to the
functionality of the waterjet systems but the Company does
provide installation as a separate service. Sales of waterjet
systems within the Advanced segment are generally complex
aerospace and automation systems, which require specific custom
configuration and advanced features to match unique customer
applications as well as parts and services to sustain these
installed systems. Installation by the Company is essential to
the functionality of waterjet systems sold within the Advanced
segment.


 



The Company recognizes revenue for sales of ultrahigh-pressure
waterjet pumps, consumables, and services, and billing for
freight charges, in accordance with SEC Staff Accounting
Bulletin No. 104





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Table of Contents






(“SAB 104”), “Revenue Recognition in
Financial Statements” and EITF Issue
No. 00-21
(“EITF 00-21”),
“Revenue Arrangements with Multiple Deliverables.”.
Additionally, because
FlowMastertm

software, our PC-based waterjet control, is essential to the
functionality of the Company’s waterjet systems, the
Company recognizes revenue on sales of waterjet systems in
accordance with Statement of Position
97-2
(“SOP 97-2”),
“Software Revenue Recognition.” Specifically, for our
waterjet systems that do not require significant modification or
customization, the Company recognizes revenue when persuasive
evidence of an arrangement exists, title and risk of loss have
passed to the customer, the price is fixed or determinable, and
collectibility is reasonably assured, or probable in the case of
sale of waterjet systems.


 



Unearned revenue is recorded for products or services that have
not been provided but have been invoiced under contractual
agreements or paid for by a customer, or when products or
services have been provided but all the criteria for revenue
recognition have not been met.


 



We recognize revenue for delivered elements only when the
delivered elements have standalone value, fair values of
undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated
refund or return rights affecting the revenue recognized for
delivered elements. For contract arrangements that combine
deliverables such as systems with embedded software, and
installation, each deliverable is generally considered a
separate unit of accounting or element. The consideration
received is allocated among the separate units of accounting
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units. In cases where there is objective and reliable evidence
of the fair value of the undelivered item in an arrangement but
no such evidence for the delivered item, the residual method is
used to allocate the arrangement consideration.


 



In general, sales of our waterjet systems within our Standard
segment are FOB shipping point or FOB destination, depending on
geographical location, and the title passes to the customer
based on the specific terms in each contract.


 



For complex aerospace and automation systems designed and
manufactured to buyers’ specification, the Company
recognizes revenue using the percentage of completion method in
accordance with Statement of Position
81-1
(“SOP 81-1”),
“Accounting for Performance of Construction-Type and
Certain Production-Type Contracts.” Typical lead times can
range from two to 18 months. Sales and profits on such
contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each
contract (the
“cost-to-cost”
method). Losses on contracts are recognized in the period in
which they are determined. The impact of revisions of contract
estimates is recognized as a cumulative change in estimate in
the period in which the revisions are made.


 



Shipping revenues and expenses are recorded in revenue and cost
of goods sold, respectively.


 




Revenue
Recognition



 



The Company sells ultrahigh-pressure waterjet systems. Sales of
waterjet systems within in the Standard segment are primarily
related to the Company’s cutting and cleaning systems using
ultrahigh-pressure water pumps and do not require significant
custom configuration or modifications. Installation of these
waterjet systems by the Company is not essential to the
functionality of the waterjet systems but the Company does
provide installation as a separate service. Sales of waterjet
systems within the Advanced segment are generally complex
aerospace and automation systems, which require specific custom
configuration and advanced features to match unique customer
applications as well as parts and services to sustain these
installed systems. Installation by the Company is essential to
the functionality of waterjet systems sold within the Advanced
segment.


 



The Company recognizes revenue for sales of ultrahigh-pressure
waterjet pumps, consumables, and services, and billing for
freight charges, in accordance with SEC Staff Accounting
Bulletin No. 104





34





Table of Contents






(“SAB 104”), “Revenue Recognition in
Financial Statements” and EITF Issue
No. 00-21
(“EITF 00-21”),
“Revenue Arrangements with Multiple Deliverables.”.
Additionally, because
FlowMastertm

software, our PC-based waterjet control, is essential to the
functionality of the Company’s waterjet systems, the
Company recognizes revenue on sales of waterjet systems in
accordance with Statement of Position
97-2
(“SOP 97-2”),
“Software Revenue Recognition.” Specifically, for our
waterjet systems that do not require significant modification or
customization, the Company recognizes revenue when persuasive
evidence of an arrangement exists, title and risk of loss have
passed to the customer, the price is fixed or determinable, and
collectibility is reasonably assured, or probable in the case of
sale of waterjet systems.


 



Unearned revenue is recorded for products or services that have
not been provided but have been invoiced under contractual
agreements or paid for by a customer, or when products or
services have been provided but all the criteria for revenue
recognition have not been met.


 



We recognize revenue for delivered elements only when the
delivered elements have standalone value, fair values of
undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated
refund or return rights affecting the revenue recognized for
delivered elements. For contract arrangements that combine
deliverables such as systems with embedded software, and
installation, each deliverable is generally considered a
separate unit of accounting or element. The consideration
received is allocated among the separate units of accounting
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units. In cases where there is objective and reliable evidence
of the fair value of the undelivered item in an arrangement but
no such evidence for the delivered item, the residual method is
used to allocate the arrangement consideration.


 



In general, sales of our waterjet systems within our Standard
segment are FOB shipping point or FOB destination, depending on
geographical location, and the title passes to the customer
based on the specific terms in each contract.


 



For complex aerospace and automation systems designed and
manufactured to buyers’ specification, the Company
recognizes revenue using the percentage of completion method in
accordance with Statement of Position
81-1
(“SOP 81-1”),
“Accounting for Performance of Construction-Type and
Certain Production-Type Contracts.” Typical lead times can
range from two to 18 months. Sales and profits on such
contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each
contract (the
“cost-to-cost”
method). Losses on contracts are recognized in the period in
which they are determined. The impact of revisions of contract
estimates is recognized as a cumulative change in estimate in
the period in which the revisions are made.


 



Shipping revenues and expenses are recorded in revenue and cost
of goods sold, respectively.


 




Revenue Recognition
 
The Company sells ultrahigh-pressure waterjet systems. Sales of waterjet systems within the Standard segment are primarily related to the Company’s cutting and cleaning systems using ultrahigh-pressure water pumps and do not require significant custom configuration or modifications. Installation of these waterjet systems by the Company is not essential to the functionality of the waterjet systems but the Company does provide installation as a separate service. Sales of waterjet systems within the Advanced segment are generally complex aerospace and automation systems, which require specific custom configuration and advanced features to match unique customer applications as well as parts and services to sustain these installed systems. Installation by the Company is essential to the functionality of waterjet systems sold within the Advanced segment.
 
The Company recognizes revenue for sales of ultrahigh-pressure waterjet pumps, consumables, and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because FlowMastertm software, our PC-based waterjet control, is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, for our waterjet systems that do not require significant modification or customization, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured.
 
Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.
 
We recognize revenue for delivered elements only when the delivered elements have standalone value, fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved, and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.
 
In general, sales of our waterjet systems within our Standard segment are FOB shipping point or FOB destination, depending on geographical location, and the title passes to the customer based on the specific terms in each contract.
 
For complex aerospace and application systems designed and manufactured to buyers’ specification, the Company recognizes revenue using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from two to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.
 
Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.


48


Table of Contents

 
FLOW INTERNATIONAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Revenue Recognition
 
The Company sells ultrahigh-pressure waterjet systems. Sales of waterjet systems within the Standard segment are primarily related to the Company’s cutting and cleaning systems using ultrahigh-pressure water pumps and do not require significant custom configuration or modifications. Installation of these waterjet systems by the Company is not essential to the functionality of the waterjet systems but the Company does provide installation as a separate service. Sales of waterjet systems within the Advanced segment are generally complex aerospace and automation systems, which require specific custom configuration and advanced features to match unique customer applications as well as parts and services to sustain these installed systems. Installation by the Company is essential to the functionality of waterjet systems sold within the Advanced segment.
 
The Company recognizes revenue for sales of ultrahigh-pressure waterjet pumps, consumables, and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because FlowMastertm software, our PC-based waterjet control, is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, for our waterjet systems that do not require significant modification or customization, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured.
 
Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.
 
We recognize revenue for delivered elements only when the delivered elements have standalone value, fair values of undelivered elements are known, uncertainties regarding customer acceptance are resolved, and there are no customer-negotiated refund or return rights affecting the revenue recognized for delivered elements. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.
 
In general, sales of our waterjet systems within our Standard segment are FOB shipping point or FOB destination, depending on geographical location, and the title passes to the customer based on the specific terms in each contract.
 
For complex aerospace and application systems designed and manufactured to buyers’ specification, the Company recognizes revenue using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from two to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.
 
Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.


48


Table of Contents

 
FLOW INTERNATIONAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Revenue
Recognition



 



The Company sells ultrahigh-pressure waterjet systems. Sales of
waterjet systems within the Standard segment are primarily
related to the Company’s cutting and cleaning systems using
ultrahigh-pressure water pumps and do not require significant
custom configuration or modifications. Installation of these
waterjet systems by the Company is not essential to the
functionality of the waterjet systems but the Company does
provide installation as a separate service. Sales of waterjet
systems within the Advanced segment are generally complex
aerospace and automation systems, which require specific custom
configuration and advanced features to match unique customer
applications as well as parts and services to sustain these
installed systems. Installation by the Company is essential to
the functionality of waterjet systems sold within the Advanced
segment.


 



The Company recognizes revenue for sales of ultrahigh-pressure
waterjet pumps, consumables, and services, and billing for
freight charges, in accordance with SEC Staff Accounting
Bulletin No. 104 (“SAB 104”),
“Revenue Recognition in Financial Statements” and EITF
Issue
No. 00-21
(“EITF 00-21”),
“Revenue Arrangements with Multiple Deliverables.”.
Additionally, because
FlowMastertm
software, our PC-based waterjet control, is essential to the
functionality of the Company’s waterjet systems, the
Company recognizes revenue on sales of waterjet systems in
accordance with Statement of Position
97-2
(“SOP 97-2”),
“Software Revenue Recognition.” Specifically, for our
waterjet systems that do not require significant modification or
customization, the Company recognizes revenue when persuasive
evidence of an arrangement exists, title and risk of loss have
passed to the customer, the price is fixed or determinable, and
collectibility is reasonably assured.


 



Unearned revenue is recorded for products or services that have
not been provided but have been invoiced under contractual
agreements or paid for by a customer, or when products or
services have been provided but all the criteria for revenue
recognition have not been met.


 



We recognize revenue for delivered elements only when the
delivered elements have standalone value, fair values of
undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated
refund or return rights affecting the revenue recognized for
delivered elements. For contract arrangements that combine
deliverables such as systems with embedded software, and
installation, each deliverable is generally considered a
separate unit of accounting or element. The consideration
received is allocated among the separate units of accounting
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units. In cases where there is objective and reliable evidence
of the fair value of the undelivered item in an arrangement but
no such evidence for the delivered item, the residual method is
used to allocate the arrangement consideration.


 



In general, sales of our waterjet systems within our Standard
segment are FOB shipping point or FOB destination, depending on
geographical location, and the title passes to the customer
based on the specific terms in each contract.


 



For complex aerospace and application systems designed and
manufactured to buyers’ specification, the Company
recognizes revenue using the percentage of completion method in
accordance with Statement of Position
81-1
(“SOP 81-1”),
“Accounting for Performance of Construction-Type and
Certain Production-Type Contracts.” Typical lead times can
range from two to 18 months. Sales and profits on such
contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each
contract (the “cost-to-cost” method). Losses on
contracts are recognized in the period in which they are
determined. The impact of revisions of contract estimates is
recognized as a cumulative change in estimate in the period in
which the revisions are made.


 



Shipping revenues and expenses are recorded in revenue and cost
of goods sold, respectively.





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Table of Contents





 




FLOW
INTERNATIONAL CORPORATION




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 




Revenue
Recognition



 



The Company sells ultrahigh-pressure waterjet systems. Sales of
waterjet systems within the Standard segment are primarily
related to the Company’s cutting and cleaning systems using
ultrahigh-pressure water pumps and do not require significant
custom configuration or modifications. Installation of these
waterjet systems by the Company is not essential to the
functionality of the waterjet systems but the Company does
provide installation as a separate service. Sales of waterjet
systems within the Advanced segment are generally complex
aerospace and automation systems, which require specific custom
configuration and advanced features to match unique customer
applications as well as parts and services to sustain these
installed systems. Installation by the Company is essential to
the functionality of waterjet systems sold within the Advanced
segment.


 



The Company recognizes revenue for sales of ultrahigh-pressure
waterjet pumps, consumables, and services, and billing for
freight charges, in accordance with SEC Staff Accounting
Bulletin No. 104 (“SAB 104”),
“Revenue Recognition in Financial Statements” and EITF
Issue
No. 00-21
(“EITF 00-21”),
“Revenue Arrangements with Multiple Deliverables.”.
Additionally, because
FlowMastertm
software, our PC-based waterjet control, is essential to the
functionality of the Company’s waterjet systems, the
Company recognizes revenue on sales of waterjet systems in
accordance with Statement of Position
97-2
(“SOP 97-2”),
“Software Revenue Recognition.” Specifically, for our
waterjet systems that do not require significant modification or
customization, the Company recognizes revenue when persuasive
evidence of an arrangement exists, title and risk of loss have
passed to the customer, the price is fixed or determinable, and
collectibility is reasonably assured.


 



Unearned revenue is recorded for products or services that have
not been provided but have been invoiced under contractual
agreements or paid for by a customer, or when products or
services have been provided but all the criteria for revenue
recognition have not been met.


 



We recognize revenue for delivered elements only when the
delivered elements have standalone value, fair values of
undelivered elements are known, uncertainties regarding customer
acceptance are resolved, and there are no customer-negotiated
refund or return rights affecting the revenue recognized for
delivered elements. For contract arrangements that combine
deliverables such as systems with embedded software, and
installation, each deliverable is generally considered a
separate unit of accounting or element. The consideration
received is allocated among the separate units of accounting
based on their respective fair values, and the applicable
revenue recognition criteria are applied to each of the separate
units. In cases where there is objective and reliable evidence
of the fair value of the undelivered item in an arrangement but
no such evidence for the delivered item, the residual method is
used to allocate the arrangement consideration.


 



In general, sales of our waterjet systems within our Standard
segment are FOB shipping point or FOB destination, depending on
geographical location, and the title passes to the customer
based on the specific terms in each contract.


 



For complex aerospace and application systems designed and
manufactured to buyers’ specification, the Company
recognizes revenue using the percentage of completion method in
accordance with Statement of Position
81-1
(“SOP 81-1”),
“Accounting for Performance of Construction-Type and
Certain Production-Type Contracts.” Typical lead times can
range from two to 18 months. Sales and profits on such
contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each
contract (the “cost-to-cost” method). Losses on
contracts are recognized in the period in which they are
determined. The impact of revisions of contract estimates is
recognized as a cumulative change in estimate in the period in
which the revisions are made.


 



Shipping revenues and expenses are recorded in revenue and cost
of goods sold, respectively.





48





Table of Contents





 




FLOW
INTERNATIONAL CORPORATION




 




NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 




These excerpts taken from the FLOW 10-K filed Jul 14, 2008.
Revenue Recognition
 
The Company recognizes revenue for sales of ultrahigh-pressure waterjet pumps, consumables and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because FlowMastertm software is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems. Generally, sales revenue is recognized at the time of shipment, receipt by customer, or, if applicable, upon completion of customer acceptance provisions.
 
Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.
 
For those arrangements with multiple elements, the arrangement is divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is vendor specific objective and reliable evidence of the fair value of the undelivered items. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element.


46


Table of Contents

 
FLOW INTERNATIONAL CORPORATION
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The amount allocable to a delivered item is limited to the amount that the Company is entitled to bill and collect and is not contingent upon the delivery/performance of additional items. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.
 
For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from two to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.
 
Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.
 
Revenue
Recognition



 



The Company recognizes revenue for sales of ultrahigh-pressure
waterjet pumps, consumables and services, and billing for
freight charges, in accordance with SEC Staff Accounting
Bulletin No. 104 (“SAB 104”),
“Revenue Recognition in Financial Statements” and EITF
Issue
No. 00-21
(“EITF 00-21”),
“Revenue Arrangements with Multiple Deliverables.”.
Additionally, because
FlowMastertm
software is essential to the functionality of the Company’s
waterjet systems, the Company recognizes revenue on sales of
waterjet systems in accordance with Statement of Position
97-2
(“SOP 97-2”),
“Software Revenue Recognition.” Specifically, the
Company recognizes revenue when persuasive evidence of an
arrangement exists, title and risk of loss have passed to the
customer, the price is fixed or determinable, and collectibility
is reasonably assured, or probable in the case of sale of
waterjet systems. Generally, sales revenue is recognized at the
time of shipment, receipt by customer, or, if applicable, upon
completion of customer acceptance provisions.


 



Unearned revenue is recorded for products or services that have
not been provided but have been invoiced under contractual
agreements or paid for by a customer, or when products or
services have been provided but all the criteria for revenue
recognition have not been met.


 



For those arrangements with multiple elements, the arrangement
is divided into separate units of accounting if certain criteria
are met, including whether the delivered item has stand-alone
value to the customer and whether there is vendor specific
objective and reliable evidence of the fair value of the
undelivered items. For contract arrangements that combine
deliverables such as systems with embedded software, and
installation, each deliverable is generally considered a
separate unit of accounting or element.





46





Table of Contents





 




FLOW
INTERNATIONAL CORPORATION



 



NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)


 



The consideration received is allocated among the separate units
of accounting based on their respective fair values, and the
applicable revenue recognition criteria are applied to each of
the separate units. The amount allocable to a delivered item is
limited to the amount that the Company is entitled to bill and
collect and is not contingent upon the delivery/performance of
additional items. In cases where there is objective and reliable
evidence of the fair value of the undelivered item in an
arrangement but no such evidence for the delivered item, the
residual method is used to allocate the arrangement
consideration.


 



For complex aerospace and automation systems designed and
manufactured to buyers’ specification, the Company
recognizes revenues using the percentage of completion method in
accordance with Statement of Position
81-1
(“SOP 81-1”),
“Accounting for Performance of Construction-Type and
Certain Production-Type Contracts.” Typical lead times can
range from two to 18 months. Sales and profits on such
contracts are recorded based on the ratio of total actual
incurred costs to date to the total estimated costs for each
contract (the “cost-to-cost” method). Losses on
contracts are recognized in the period in which they are
determined. The impact of revisions of contract estimates is
recognized as a cumulative change in estimate in the period in
which the revisions are made.


 



Shipping revenues and expenses are recorded in revenue and cost
of goods sold, respectively.


 




This excerpt taken from the FLOW 10-K filed Jul 16, 2007.

Revenue Recognition

 

The Company recognizes revenue for sales of UHP waterjet pumps, consumables and services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.”. Additionally, because the FlowMaster software is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems. Generally, sales revenue is recognized at the time of shipment, receipt by customer, or, if applicable, upon completion of customer acceptance provisions.

 

Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.

 

For those arrangements with multiple elements, the arrangement is divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is vendor specific objective and reliable evidence of the fair value of the undelivered items. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a separate unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The amount allocable to a delivered item is limited

 

44


Table of Contents

FLOW INTERNATIONAL CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2007

(All tabular dollar amounts in thousands, except per share and option amounts)

 

to the amount that the Company is entitled to bill and collect and is not contingent upon the delivery/performance of additional items. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.

 

For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from six to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.

 

Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.

 

This excerpt taken from the FLOW 10-K filed Mar 30, 2007.

Revenue Recognition

The Company recognizes revenue for sales of UHP waterjet pumps, consumables, services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.” The Company adopted EITF 00-21 during the second quarter of fiscal 2004. Additionally, because the FlowMaster software is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems. Generally, sales revenue is recognized at the time of shipment, receipt by customer, or, if applicable, upon completion of customer acceptance provisions.

 

42


Table of Contents

FLOW INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.

For those arrangements with multiple elements, the arrangement is divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is vendor specific objective and reliable evidence of the fair value of the undelivered items. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a single unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The amount allocable to a delivered item is limited to the amount that the Company is entitled to bill and collect and is not contingent upon the delivery/performance of additional items. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.

For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from six to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.

Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.

This excerpt taken from the FLOW 10-K filed Jan 30, 2007.

Revenue Recognition

The Company recognizes revenue for sales of UHP waterjet pumps, consumables, services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements” and EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables.” The Company adopted EITF 00-21 during the second quarter of fiscal 2004. Additionally, because the FlowMaster software is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue on sales of waterjet systems in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition.” Specifically, the Company recognizes revenue when persuasive evidence of an arrangement exists, title and risk of loss have passed to the customer, the price is fixed or determinable, and collectibility is reasonably assured, or probable in the case of sale of waterjet systems. Generally, sales revenue is recognized at the time of shipment, receipt by customer, or, if applicable, upon completion of customer acceptance provisions.

 

45


Table of Contents

FLOW INTERNATIONAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.

For those arrangements with multiple elements, the arrangement is divided into separate units of accounting if certain criteria are met, including whether the delivered item has stand-alone value to the customer and whether there is vendor specific objective and reliable evidence of the fair value of the undelivered items. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a single unit of accounting or element. The consideration received is allocated among the separate units of accounting based on their respective fair values, and the applicable revenue recognition criteria are applied to each of the separate units. The amount allocable to a delivered item is limited to the amount that the Company is entitled to bill and collect and is not contingent upon the delivery/performance of additional items. In cases where there is objective and reliable evidence of the fair value of the undelivered item in an arrangement but no such evidence for the delivered item, the residual method is used to allocate the arrangement consideration.

For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from six to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made.

Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.

This excerpt taken from the FLOW 10-K filed Jul 25, 2006.

Revenue Recognition

 

The Company recognizes revenue for sales of UHP waterjet pumps, consumables, services, and billing for freight charges, in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB 104”), “Revenue Recognition in Financial Statements.” SAB 104 requires that revenue can only be recognized when it is realized or realizable and earned. Revenue generally is realized or realizable and earned when all four of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collectibility is reasonably assured. Product sales revenue are generally recognized at the time of shipment, receipt by customer, or, if applicable, upon completion of customer acceptance provisions.

 

During the second quarter of fiscal 2004, the Company adopted EITF Issue No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables” on a prospective basis. EITF 00-21, which was subsequently included in SAB 104, provides guidance on how to account for arrangements that involve the delivery or performance of single or multiple products, services and/or rights to use assets.

 

Unearned revenue is recorded for products or services that have not been provided but have been invoiced under contractual agreements or paid for by a customer, or when products or services have been provided but all the criteria for revenue recognition have not been met.

 

39


Table of Contents

FLOW INTERNATIONAL CORPORATION

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the three years ended April 30, 2006

(All tabular dollar amounts in thousands, except per share and option amounts)

 

Because the FlowMaster software is essential to the functionality of the Company’s waterjet systems, the Company recognizes revenue in accordance with Statement of Position 97-2 (“SOP 97-2”), “Software Revenue Recognition”. The revenue recognition criteria of SOP 97-2 are similar to those of SAB 104 and software revenue is recognized when (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the price is fixed or determinable; and (4) collectibility is probable. For sales of systems, revenue is generally recognized when shipped. Revenue for installation services is recognized as services are provided.

 

Revenue arrangements with multiple deliverables are divided into separate units of accounting when the delivered item(s) have value to the customer on a standalone basis, there is objective and reliable evidence of fair value or Vendor-Specific Objective Evidence (“VSOE”) of fair value of the undelivered item(s) and delivery/performance of the undelivered item(s) is probable. The total arrangement consideration is allocated among the separate units of accounting based on their relative fair values, or VSOE of fair value, and the applicable revenue recognition criteria considered for each unit of accounting or element. For contract arrangements that combine deliverables such as systems with embedded software, and installation, each deliverable is generally considered a single unit of accounting or element. The amount allocable to a delivered item is limited to the amount that the Company is entitled to bill and collect and is generally not contingent upon the delivery/performance of additional items.

 

For complex aerospace and automation systems designed and manufactured to buyers’ specification, the Company recognizes revenues using the percentage of completion method in accordance with Statement of Position 81-1 (“SOP 81-1”), “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Typical lead times can range from six to 18 months. Sales and profits on such contracts are recorded based on the ratio of total actual incurred costs to date to the total estimated costs for each contract (the “cost-to-cost” method). Losses on contracts are recognized in the period in which they are determined. The impact of revisions of contract estimates is recognized as a cumulative change in estimate in the period in which the revisions are made. Shipping revenues and expenses are recorded in revenue and cost of goods sold, respectively.

 

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