Hubbell Policies

Hubbell Example #5 – Identifying the Performance Obligation – 5 Year LED Warranty

Background: Hubbell contracts with a customer to sell an LED lighting product. Hubbell’s terms and conditions include a standard 5 year warranty from the date of sale that only covers defects in the manufacturing process (i.e. no service components). The standard warranty in the industry that Hubbell operates in is a 5 year warranty on LED products. Conclusion: The warranty is an assurance type warranty, because it only covers defects in the manufacturing process and does not provide for any service (i.e. labor reimbursement). Although the 5 year period is longer than a typical 1 year warranty, the 5 year period is in line with the industry norm and the product is expected to last greater than 5 years. Accordingly, this warranty would not be a separate performance obligation.

Hubbell Example #6 – Identifying the Performance Obligation – Extended Warranty

Hubbell Practical Expedient – Immaterial Warranty/Service Arrangement Given the nature of our businesses and the low frequency of warranties/extended warranties, a $10,000 threshold has been established as a minimum for deferring extended warranties and service arrangements. To the extent a warranty is concluded to be a separate performance obligation, and if the transaction price allocated to the warranty/service obligation is less than $10,000, then the business can recognize the revenue when invoiced rather than deferring the revenue over the warranty period. Any business that utilizes the immaterial warranty/service practical expedient is required to perform an annual control assessment of the total amount of revenue that was recognized under this expedient. Results should be reviewed at least annually with the Corporate Controller’s Office . Background: Hubbell contracts with a customer to sell arrestors used by utilities. Hubbell’s terms and conditions include a standard 1 year warranty from the date of sale that only covers defects in the manufacturing process (i.e. no service components). A customer has requested a 10 year warranty be included in the order, and Hubbell has agreed to increase the order price by $20,000 to include the warranty extension. Conclusion: Although the warranty only includes defects in the manufacturing process, because the warranty was separately negotiated (adding $20,000 to the order price), the extended warranty represents a separate performance obligation. Once Hubbell allocates the purchase price (described in section 5.0), the relative fair value of the warranty ($20,000 in this example) should be deferred and recognized into revenue over the extended warranty period.

3.0 Determining the Transaction Price

The transaction price is the amount of consideration to which Hubbell expects to be entitled to exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties. The consideration promised in a contract with a customer may include fixed amounts, variable amounts or both. When determining the transaction price, Hubbell shall consider the effects of all of the following:

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Variable consideration

Constraining the variable consideration

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