Meritor Acquisition and 2022 Financial Results
Table of Contents
integration, their customers' preferences, their desire for cost reductions, their desire for eliminating production risks and their desire to maintain company focus. However, there
can be no assurance that these customers will continue to outsource, or outsource as much of, their engine production in the future. In addition, increased levels of OEM vertical
integration could result from a number of factors, such as shifts in our customers' business strategies, acquisition by a customer of another engine manufacturer, the inability of
third-party suppliers to meet product specifications and the emergence of low-cost production opportunities in foreign countries. Any significant reduction in the level of engine
production outsourcing from our truck manufacturer or OEM customers, financial distress of one of our large truck OEM customers due to a change-in-control, could likely
lead to significant reductions in our sales volumes, commercial disputes, receivable collection issues, and other negative consequences that could have a material adverse
impact on our results of operations, financial condition and cash flows.
PRODUCTS AND TECHNOLOGY
Our products are subject to recall for performance or safety-related issues.
Our products are subject to recall for performance or safety-related issues. Product recalls subject us to reputational risk, loss of current and future customers, reduced revenue
and product recall costs. Product recall costs are incurred when we decide, either voluntarily or involuntarily, to recall a product through a formal campaign to solicit the return
of specific products due to known or suspected performance or safety issues. Any significant product recalls could have material adverse effects on our results of operations,
financial condition and cash flows. See NOTE 14, "PRODUCT WARRANTY LIABILITY" to the Consolidated Financial Statements for additional information.
Our products are exposed to variability in material and commodity costs.
Our businesses establish prices with our customers in accordance with contractual time frames; however, the timing of material and commodity market price increases may
prevent us from passing these additional costs on to our customers through timely pricing actions. Additionally, higher material and commodity costs around the world as well
as elevated levels of inflation may offset our efforts to reduce our cost structure. While we customarily enter into financial transactions and contractual pricing adjustment
provisions with our customers that attempt to address some of these risks, there can be no assurance that commodity price fluctuations will not adversely affect our results of
operations and cash flows. While the use of commodity price hedging instruments and contractual pricing adjustments may provide us with some protection from adverse
fluctuations in commodity prices, by utilizing these instruments, we potentially forego the benefits that might result from favorable fluctuations in price. As a result, higher
material and commodity costs, could result in declining margins.
The development of new technologies may materially reduce the demand for our current products and services.
We are investing in new products and technologies, including electrified powertrains, hydrogen production and fuel cells, for planned introduction into certain new and existing
markets. Given the early stages of development of some of these new products and technologies, there can be no guarantee of the future market acceptance and investment
returns with respect to our planned products, which will face competition from an array of other technologies and manufacturers. The ongoing energy transition away from
fossil fuels and the increased adoption of electrified powertrains in some market segments could result in lower demand for current diesel or natural gas engines and
components and, over time, reduce the demand for related parts and service revenues from diesel or natural gas powertrains. Furthermore, it is possible that we may not be
successful in developing segment-leading electrified or alternate fuel powertrains and some of our existing customers could choose to develop their own, or source from other
manufacturers, and any of these factors could have a material adverse impact on our results of operations, financial condition and cash flows.
Lower-than-anticipated market acceptance of our new or existing products or services could have a material adverse impact on our results of operations, financial
condition and cash flows.
Although we conduct market research before launching new or refreshed engines and introducing new services, many factors both within and outside our control affect the
success of new or existing products and services in the marketplace. Offering engines and services that customers desire and value can mitigate the risks of increasing
competition and declining demand, but products and services that are perceived to be less than desirable (whether in terms of price, quality, overall value, fuel efficiency or
other attributes) can exacerbate these risks. With increased consumer interconnectedness through the internet, social media and other media, mere allegations relating to poor
quality, safety, fuel efficiency, corporate responsibility or other key attributes can negatively impact our reputation or market acceptance of our products or services, even if
such allegations prove to be inaccurate or unfounded.
Our business is exposed to potential product liability claims.
We face an inherent business risk of exposure to product liability claims in the event that our products' failure to perform to specification results, or is alleged to result, in
property damage, bodily injury and/or death. At any given time, we are subject to various and multiple product liability claims, any one of which, if decided adversely to us,
may have a material adverse effect on our reported results of operation in the period in which our liability with respect to any such claim is recognized. While we maintain
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