3. Revenue

In accordance with ASC 606, Revenue from Contracts with Customers, revenue is measured based on consideration specified in a contract with a customer, adjusted for any variable consideration (i.e. price concessions or annual price adjustments) and estimated at contract inception. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product to a customer.

In addition, from time to time, Veoneer may make payments to customers in connection with ongoing and future business. These payments to customers are generally recognized as a reduction to revenue at the time of the commitment to make these payments unless certain criteria are met warranting capitalization. If the payments are capitalized, the amounts are amortized as the related goods are transferred. As of June 30, 2018, and December 31, 2017, the Company capitalized $43 million and $23 million, respectively, in Other non-current assets related to capitalized payments. The Company assesses these amounts for impairment. There was no impairment.

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue.

Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales.

Nature of goods and services

The following is a description of principal activities from which the Company generates its revenue. The Company has two operating segments, Electronics and Brake Systems. Electronics includes all of electronics resources and expertise, restraint control systems and active safety products and Brake Systems provides brake control and actuation systems. The principal activities are essentially the same for each of the segments. Both of the segments generate revenue from the sale of production parts to original equipment manufacturers (“OEMs”).

The Company accounts for individual products separately if they are distinct (i.e., if a product is separately identifiable from other items and if a customer can benefit from it on its own or with other resources that are readily available to the customer). The consideration, including any price concession or annual price adjustments, is based on their stand-alone selling prices for each of the products. The stand-alone selling prices are determined based on the cost-plus margin approach.

The Company recognizes revenue for production parts primarily at a point in time.

For production parts with revenue recognized at a point in time, the Company recognizes revenue upon shipment to the customers and transfer of title and risk of loss under standard commercial terms (typically F.O.B. shipping point). There are certain contracts where the criteria to recognize revenue over time have been met (e.g., there is no alternative use to the Company and the Company has an enforceable right to payment). In such cases, at period end, the Company recognizes revenue and a related asset and associated cost of goods sold and inventory. However, the financial impact of these contracts is immaterial considering the very short production cycles and limited inventory days on hand, which is typical for the automotive industry.

The amount of revenue recognized is based on the purchase order price and adjusted for variable consideration (i.e. price concessions or annual price adjustments). Customers typically pay for the production parts based on customary business practices with payment terms averaging 30 days.

Disaggregation of revenue

In the following tables, revenue is disaggregated by primary region and products of revenue recognition.

Net Sales by Region

(Dollars in millions)	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
	Electronics		Brake Systems		Total		Electronics		Brake Systems			Total
Asia	$	104	$	96	$	200	$	117	$	89		$	206
Americas		173		15		188		180		34			214
Europe		184		-		184		160		-			160
Total region sales		461		111		572		457		123			580
Less: intercompany sales		-		-		-		-		(1	)		(1	)
Total	$	461	$	111	$	572	$	457	$	122		$	579

Net Sales by Region

(Dollars in millions)	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
	Electronics		Brake Systems		Total		Electronics		Brake Systems			Total
Asia	$	216	$	195	$	411	$	240	$	175		$	415
Americas		351		30		381		359		70			429
Europe		374		-		374		321		-			321
Total region sales		941		225		1,166		920		245			1,165
Less: intercompany sales		-		-		-		-		(3	)		(3	)
Total	$	941	$	225	$	1,166	$	920	$	242		$	1,162

Net Sales by Products

(Dollars in millions)	Three Months Ended June 30, 2018						Three Months Ended June 30, 2017
	Electronics		Brake Systems		Total		Electronics		Brake Systems			Total
Restraint Control Systems	$	246	$	-	$	246	$	266	$	-		$	266
Active Safety products		215		-		215		191		-			191
Brake Systems		-		111		111		-		123			123
Total product sales		461		111		572		457		123			580
Less: intercompany sales		-		-		-		-		(1	)		(1	)
Total net sales	$	461	$	111	$	572	$	457	$	122		$	579

Net Sales by Products

(Dollars in millions)	Six Months Ended June 30, 2018						Six Months Ended June 30, 2017
	Electronics		Brake Systems		Total		Electronics		Brake Systems			Total
Restraint Control Systems	$	514	$	-	$	514	$	537	$	-		$	537
Active Safety products		427		-		427		383		-			383
Brake Systems		-		225		225		-		245			245
Total product sales		941		225		1,166		920		245			1,165
Less: intercompany sales		-		-		-		-		(3	)		(3	)
Total net sales	$	941	$	225	$	1,166	$	920	$	242		$	1,162

Contract balances

The following tables provide information about receivables and contract assets from contracts with customers.

The contract assets related to the Company’s rights to consideration for work completed but not billed (generally in conjunction with contracts for which revenue is recognized over time) at the reporting date on production parts. The contract assets are reclassified into the receivables balance when the rights to receive payments become unconditional. There have been no impairment losses recognized related to contract assets arising from the Company’s contracts with customers.

Contract Balances with Customers

(Dollars in millions)	As of
	June 30, 2018		December 31, 2017
Receivables, net	$	439	$	460
Contract assets¹		7		-

¹ Included in prepaid expenses and contract assets

Receivables, net of allowance

(Dollars in millions)	As of
	June 30, 2018			December 31, 2017
Receivables	$	441		$	462
Allowance at beginning of period		(2	)		(4	)
Net decrease/(increase) of allowance		-			2
Allowance at end of period		(2	)		(2	)
Receivables, net of allowance	$	439		$	460

Changes in the contract asset balances during the period are as follows:

Change in Contract Balances with Customers¹
(Dollars in millions)	Three months ended			Six months ended
	June 30, 2018			June 30, 2018
	Contract assets			Contract assets
Beginning balance	$	8		$	-
Increases due to cumulative catch up adjustment		-			7
Increases due to revenue recognized		7			15
Decreases due to transfer to receivables		(8	)		(15	)
Ending balance	$	7		$	7

¹The contract asset is determined at each period end, this table reflects the rollforward of the period end balance.

Contract costs

As of June 30, 2018, the Company has capitalized $12 million of direct and incremental contract costs incurred in connection with obtaining a contract with a customer. These costs will be amortized as the related goods are transferred.

Shipping and handling costs associated with outbound freight after control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of sales. The amount of fulfillment costs was not material for any period presented.