Contract Balances

9 Months Ended

Jul. 31, 2022

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 31, 2022		October 31, 2021
	(In millions)
Contract assets	$	161	$	201
Contract liabilities	$	2,828	$	2,076

The decrease in contract assets during the nine months ended July 31, 2022 was primarily due to a reduction in goods transferred to customers where payment was conditional upon technical sign off.

During the nine months ended July 31, 2022, Applied recognized revenue of approximately $1.8 billion related to contract liabilities at October 31, 2021. Contract liabilities increased during the nine month ended July 31, 2022 due to 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 31, 2022, partially offset by revenue recognized related to contract liabilities at October 31, 2021.

There were no credit losses recognized on Applied’s accounts receivables and contract assets during both the three and nine months ended July 31, 2022 and August 1, 2021.

As of July 31, 2022, the amount of remaining unsatisfied performance obligations on contracts with an original estimated duration of one year or more was approximately $2.0 billion, of which approximately 42% is expected to be recognized within 12 months and the remainder is expected to be 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.