Meritor Acquisition and 2022 Financial Results
Table of Contents
Revenue From Contracts with Customers
Revenue Recognition Sales of Products
We sell to customers either through long-term arrangements or standalone purchase orders. Our long-term arrangements generally do not include committed volumes until
underlying purchase orders are issued. Our performance obligations vary by contract, but may include diesel and natural gas engines and engine-related component products,
including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air handling systems, automated transmissions, engine braking, cylinder deactivation and start
and stop thermal management technologies, drivetrain systems and components including axles, drivelines, braking and suspension systems, electric power generation systems
and construction related projects, batteries, electrified power systems, hydrogen production and fuel cell products, parts, maintenance services and extended warranty coverage.
Typically, we recognize revenue on the products we sell at a point in time, generally in accordance with shipping terms, which reflects the transfer of control to the customer.
Since control of construction projects transfer to the customer as the work is performed, revenue on these projects is recognized based on the percentage of inputs incurred to
date compared to the total expected cost of inputs, which is reflective of the value transferred to the customer. Revenue is recognized under long-term maintenance and other
service agreements over the term of the agreement as underlying services are performed based on the percentage of the cost of services provided to date compared to the total
expected cost of services to be provided under the contract. Sales of extended coverage are recognized based on the pattern of expected costs over the extended coverage period
or, if such a pattern is unknown, on a straight-line basis over the coverage period as the customer is considered to benefit from our stand ready obligation over the coverage
period. In all cases, we believe cost incurred is the most representative depiction of the extent of service performed to date on a particular contract.
Our arrangements may include the act of shipping products to our customers after the performance obligation related to that product has been satisfied. We have elected to
account for shipping and handling as activities to fulfill the promise to transfer goods and have not allocated revenue to the shipping activity. All related shipping and handling
costs are accrued at the time the related performance obligation is satisfied.
Our sales arrangements may include the collection of sales and other similar taxes that are then remitted to the related taxing authority. We have elected to present the amounts
collected for these taxes net of the related tax expense rather than presenting them as additional revenue.
We grant credit limits and terms to customers based upon traditional practices and competitive conditions. Typical terms vary by market, but payments are generally due in 90
days or less from invoicing for most of our product and service sales, while payments on construction and other similar arrangements may be due on an installment basis.
For contracts where the time between cash collection and performance is less than one year, we have elected to use the practical expedient that allows us to ignore the possible
existence of a significant financing component within the contract. For contracts where this time period exceeds one year, generally the timing difference is the result of business
concerns other than financing. We do have a limited amount of customer financing for which we charge or impute interest, but such amounts are immaterial to our Consolidated
Statements of Net Income.
Sales Incentives
We provide various sales incentives to both our distribution network and OEM customers. These programs are designed to promote the sale of our products in the channel or
encourage the usage of our products by OEM customers. When there is uncertainty surrounding these sales incentives, we may limit the amount of revenue we recognize under
a contract until the uncertainty has been resolved. Sales incentives primarily fall into three categories:
• Volume rebates;
•
Market share rebates; and
Aftermarket rebates.
For volume rebates, we provide certain customers with rebate opportunities for attaining specified volumes during a particular quarter or year. We consider the expected amount
of these rebates at the time of the original sale as we determine the overall transaction price. We update our assessment of the amount of rebates that will be earned quarterly
based on our best estimate of the volume levels the customer will reach during the measurement period. For market share rebates, we provide certain customers with rebate
opportunities based on the percentage of their production that utilizes our product. These rebates are typically measured either quarterly or annually and we assess them at least
quarterly to determine our current estimates of amounts expected to be earned. These estimates are considered in the determination of transaction price at the time of the original
sale based on the current market shares, with adjustments made as the level changes. For aftermarket rebates, we provide incentives to promote sales to certain dealers and end-
markets. These rebates are typically paid on a quarterly, or more frequent basis. At the time of the sales, we consider the expected
72View entire presentation