Contract Balances

9 Months Ended

Jul. 26, 2020

Revenue from Contract with Customer [Abstract]

Contract Balances

Contract Balances

Contract assets primarily result from receivables for goods transferred to customers where payment is conditional upon technical sign off and not just the passage of time. Contract liabilities consist of unsatisfied performance obligations related to advance payments received and billings in excess of revenue recognized. Applied’s contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period.

Contract assets are generally classified as current and are included in Other Current Assets in the Consolidated Condensed Balance Sheets. Contract liabilities are classified as current or non-current based on the timing of when performance obligations will be satisfied and associated revenue is expected to be recognized.

Contract balances at the end of each reporting period were as follows:

	July 26, 2020		October 27, 2019
	(In millions)
Contract assets	$	137	$	108
Contract liabilities	$	1,390	$	1,336

The increase in contract assets during the nine months ended July 26, 2020, was primarily due to goods transferred to customers where payment was conditional upon technical sign off, offset by the reclassification of contract assets to net accounts receivable upon meeting conditions to the right to payment.

During the nine months ended July 26, 2020, Applied recognized revenue of approximately $990 million related to contract liabilities at October 27, 2019. This reduction in contract liabilities was offset by new billings for products and services for which there were unsatisfied performance obligations to customers and revenue had not yet been recognized as of July 26, 2020.

There were no impairment losses recognized on Applied’s accounts receivables and contract assets during both the three and nine months ended July 26, 2020 and July 28, 2019.

As of July 26, 2020, the amount of remaining unsatisfied performance obligations on contracts with an original estimated duration of one year or more was approximately $949 million, of which approximately 70% is expected to be recognized within 12 months and the remainder is expected to recognized within the following 24 months thereafter.

Applied has elected the available practical expedient to exclude the value of unsatisfied performance obligations for contracts with an original expected duration of one year or less.