Deferred Revenue

6 Months Ended

Jun. 30, 2020

Revenue Recognition And Deferred Revenue [Abstract]

Revenue

NOTE C. REVENUE

Revenue is recognized as each distinct performance obligation within a contract is satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer. The Company enters into long-term agreements (“LTAs”) and distributor agreements with certain customers. The LTAs and distributor agreements do not include committed volumes until underlying purchase orders are issued; therefore, the Company determined that purchase orders are the contract with a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when the performance obligation is satisfied, as there is no right of return.

Some of the Company's contracts include multiple performance obligations, most commonly the sale of both a transmission and Extended Transmission Coverage ("ETC"). The Company allocates the contract’s transaction price to each performance obligation based on the standalone selling price of each distinct good or service in the contract.

The Company may also use volume based discounts and rebates as marketing incentives in the sales of both transmissions and service parts, which are accounted for as variable consideration. The Company records the impact of the incentives as a reduction to revenue when it is determined that the adjustment is not likely to reverse, historically on a quarterly basis. The Company estimates the impact of all other incentives based on the related sales and market conditions in the end market vocation. The Company recorded no adjustments based on variable consideration during the three and six months ended June 30, 2020 and 2019.

Net sales are made on credit terms, generally 30 days, based on an assessment of the customer’s creditworthiness. For certain goods or services, the Company receives consideration prior to satisfying the related performance obligation. Such consideration is recorded as a contract liability in current and non-current Deferred revenue as of June 30, 2020 and December 31, 2019. See Note J, “Deferred Revenue” for more information including the amount of revenue earned during the three and six months ended June 30, 2020 and 2019 that had been previously deferred. The Company had no contract assets as of June 30, 2020 and December 31, 2019.

The following presents disaggregated revenue by categories that best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors (dollars in millions):

	Three Months Ended June 30,				Six Months Ended June 30,
	2020		2019		2020		2019
North America On-Highway	$	164	$	398	$	516	$	775
North America Off-Highway		3		9		11		23
Defense		42		37		82		69
Outside North America On-Highway		60		106		132		200
Outside North America Off-Highway		19		40		46		67
Service Parts, Support Equipment and Other		89		147		227		278
Total Net Sales	$	377	$	737	$	1,014	$	1,412

NOTE J. DEFERRED REVENUE

As of June 30, 2020, current and non-current deferred revenue was $34 million and $111 million, respectively. As of June 30, 2019, current and non-current deferred revenue was $34 million and $99 million, respectively.

Deferred revenue activity consists of the following (dollars in millions):

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Beginning balance	$	140		$	131		$	139		$	122
Increases		13			11			24			29
Revenue earned		(8	)		(9	)		(18	)		(18	)
Ending balance	$	145		$	133		$	145		$	133

Deferred revenue recorded in current and non-current liabilities related to ETC as of June 30, 2020 was $27 million and $93 million, respectively. Deferred revenue recorded in current and non-current liabilities related to ETC as of June 30, 2019 was $29 million and $77 million, respectively.