Contract Assets and Liabilities

12 Months Ended

Dec. 31, 2022

Revenue from Contract with Customer [Abstract]

Revenue from Contract with Customer

NOTE 6: CONTRACT ASSETS AND LIABILITIES

Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments

from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of December 31, 2022 and 2021 are as follows:

(dollars in millions)	2022		2021
Contract assets	$	11,534	$	11,361
Contract liabilities	(14,598)		(13,720)
Net contract liabilities	$	(3,064)	$	(2,359)

Contract assets increased $173 million during 2022 primarily due to sales in excess of billings at Pratt & Whitney, partially offset by contractual billing terms on U.S. government and foreign military sales contracts at RMD. Contract liabilities increased $878 million during 2022 primarily due to billings in excess of sales at Pratt & Whitney and RMD.

In 2022, 2021 and 2020, we recognized revenue of $4.8 billion, $4.3 billion and $2.8 billion related to our Contract liabilities at January 1, 2022, January 1, 2021 and January 1, 2020, respectively.

As of December 31, 2022, our Contract liabilities include approximately $385 million of advance payments received from a Middle East customer on contracts for which we no longer believe we will be able to execute on or obtain required regulatory approvals. These advance payments may become refundable to the customer if the contracts are ultimately terminated. In addition, as of December 31, 2022, our Contract liabilities include advance payments, in immaterial amounts, received from Russian customers on contracts we are currently unable to perform on due to global sanctions on Russia and export controls. Depending on the contractual terms and as allowed by sanctions, certain of these advance payments may become refundable.

Contract assets consisted of the following at December 31:

(dollars in millions)	2022		2021
Unbilled	$	23,909	$	23,652
Progress payments	(12,375)		(12,291)
Total contract assets	$	11,534	$	11,361

The U.S. government has title to the assets related to unbilled amounts on U.S. government contracts that provide progress payments.

Contract assets are net of an allowance for expected credit losses of $318 million and $251 million as of December 31, 2022 and 2021, respectively. The allowance for expected credit losses activity was not material in 2022 or 2021.