OSHKOSH CORPORATION NOTES OF CONSOLIDATED FINANCIAL STATEMENTS
4. Revenue Recognition The Company utilizes the cost-to-cost method of percentage-of-completion to recognize revenue on the majority of its performance obligations that are satisfied over time because it best depicts the transfer of control to the customer. Under the cost-to-cost method of percentage-of-completion, the Company measures progress based on the ratio of costs incurred to date to total estimated costs for the performance obligation. The Company recognizes changes in estimated sales or costs and the resulting profit or loss on a cumulative basis. Contract adjustments represent the cumulative effect of the changes on prior periods. If a loss is expected on a performance obligation, the complete estimated loss is recorded in the period in which the loss is identified. There is significant judgment involved in estimating costs, particularly in the Transport segment. The Transport segment considers risks of contract performance such as technical requirements, schedule, duration and key contract dependencies. Contract estimates are subject to change throughout the duration of the contract as additional information becomes available that impacts risks and estimated revenue and costs. In addition, as contract modifications such as new orders are received, the additional units are factored into the overall contract estimate of costs and transaction price. Net contract adjustments impacted the Company’s results as follows (in millions, except per share amounts): Year Ended December 31, 2025 2024 2023 Net sales $ (12.3) $ (27.3) $ 18.8 Operating income (33.1) (44.8) 2.9 Net income (25.4) (34.3) 2.2 Diluted earnings per share $ (0.39) $ (0.52) $ 0.03 The Transport segment incurs pre-production engineering, factory setup and other contract fulfillment costs related to products produced for its customers under long-term contracts. A deferred contract cost asset is recognized for costs incurred to fulfill an existing contract or highly-probable anticipated contract if such costs generate or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. Costs related to customer-owned tooling that will be used in production and for which the customer has provided a non-cancelable right to use the tooling to perform during the contract term are also recognized as a deferred contract cost asset. Deferred contract costs related to the NGDV contract with the USPS are amortized over the anticipated production volume of the NGDV contract. The Company periodically assesses its deferred contract costs for impairment. Deferred contract costs, the majority of which are related to the NGDV contract, consisted of the following (in millions): December 31, 2025 2024 Engineering costs $ 497.8 $ 506.1 Customer-owned tooling 274.3 277.3 Factory setup costs 52.2 52.5 Costs for anticipated contracts 1.2 6.7 Deferred contract costs $ 825.5 $ 842.6 The Company estimates that deferred contract costs exceed future profits on existing orders by approximately $135 million at December 31, 2025.
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