Contract Assets and Contract Liabilities

3 Months Ended

Sep. 27, 2019

Revenue from Contract with Customer [Abstract]

Contract Assets and Contract Liabilities

Note H — Contract Assets and Contract Liabilities

Contract assets include unbilled amounts typically resulting from revenue recognized exceeding amounts billed to customers for contracts utilizing the percentage of completion (“POC”) cost-to-cost revenue recognition method. We bill customers as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals, upon achievement of contractual milestones or upon deliveries and, in certain arrangements, the customer may withhold payment of a small portion of the contract price until contract completion. Contract liabilities include advance payments and billings in excess of revenue recognized, including deferred revenue associated with extended product warranties. Contract assets and liabilities are reported on a contract-by-contract basis at the end of each reporting period. The increase in contract assets and contract liabilities in the quarter ended September 27, 2019 was primarily due to contract assets and liabilities acquired in connection with the L3Harris Merger. Changes in contract assets and contract liabilities balances during the quarter ended September 27, 2019 were not materially impacted by any factors other than those described above.

Contract assets and contract liabilities are summarized below:

	September 27, 2019			June 28, 2019
	(In millions)
Contract assets	$	2,625		$	807
Contract liabilities, current	(1,210		)	(496		)
Contract liabilities, non-current(1)	(80		)	(42		)
Net contract assets	$	1,335		$	269

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(1) The non-current portion of contract liabilities is included as a component of the “Other long-term liabilities” line item in our Condensed Consolidated Balance Sheet (Unaudited).

The components of contract assets are summarized below:

	September 27, 2019			June 28, 2019
	(In millions)
Unbilled contract receivables, gross	$	3,969		$	916
Progress payments and advances	(1,344		)	(109		)
	$	2,625		$	807

Impairment losses related to our contract assets were not material during the quarter ended September 27, 2019 and September 28, 2018. For the quarter ended September 27, 2019, we recognized revenue of $0.6 billion related to contract liabilities that were outstanding at June 28, 2019. For the quarter ended September 28, 2018, we recognized revenue of $0.2 billion related to contract liabilities that were outstanding at June 29, 2018.

Note W — Backlog

Backlog, which is the equivalent of our remaining performance obligations, represents the future revenue we expect to recognize as we perform on our current contracts. Backlog comprises both funded backlog (i.e., firm orders for which funding

is authorized and appropriated) and unfunded backlog. Backlog excludes unexercised contract options and potential orders under ordering-type contracts, such as indefinite delivery, indefinite quantity contracts.

At September 27, 2019, our backlog was $20.3 billion. We expect to recognize approximately half of the revenue associated with this backlog within the next twelve months and the substantial majority of the revenue associated with this backlog within the next 3 years.