Customer Contracts

3 Months Ended

Apr. 04, 2021

Revenue from Contract with Customer [Abstract]

Customer Contracts

Customer Contracts

Estimate at Completion Process

For over time contracts using the cost-to-cost method, we have an Estimate at Completion (“EAC”) process in which management reviews the progress and execution of our performance obligations. This EAC process requires management judgment relative to assessing risks, estimating contract revenue and cost, and making assumptions for schedule and technical issues. Since certain contracts extend over multiple reporting periods, the impact of revisions in cost and revenue estimates during the progress of work may adjust the current period earnings through a cumulative catch-up basis. This method recognizes, in the current period, the cumulative effect of the changes on current and prior quarters. Additionally, if the current contract estimate indicates a loss, a provision is made for the total anticipated loss in the period that it becomes evident. Contract cost and revenue estimates for significant contracts are reviewed and reassessed quarterly. The majority of revenue recognized over time uses an EAC process. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first three months of 2021 was approximately $7.7 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue within the Digital Imaging segment. The net aggregate effects of changes in estimates on contracts accounted for under the cost-to-cost method in the first three months of 2020 was approximately $4.4 million of favorable operating income, primarily related to favorable changes in estimates that impacted revenue, and, to a lesser degree, cost of sales. None of the effects of changes in estimates on any individual contract were material to the condensed consolidated statements of income for any period presented.

Contract Liabilities

We recognize a liability for interim and advance payments in excess of revenue recognized and present it as a contract liability which is included within accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheet, which represented $144.6 million and $14.0 million as of April 4, 2021, and $160.1 million and $14.0 million as of January 3, 2021, respectively.

The Company recognized revenue of $52.6 million during the three months ended April 4, 2021 from contract liabilities that existed at the beginning of year. The Company recognizes the incremental costs of obtaining or fulfilling a contract as expense when incurred if the amortization period of the asset is one year or less. Incremental costs to obtain or fulfill contracts with an amortization period greater than one year were not material.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which work has not been performed as of the period end date and excludes unexercised contract options and potential orders under ordering-type contracts (e.g., indefinite-delivery, indefinite-quantity). As of April 4, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $1,987.4 million. The Company expects approximately 78% of remaining performance obligations to be recognized into revenue within the next twelve months, with the remaining 22% recognized thereafter.

Product Warranty Costs

Some of the Company’s products are subject to specified warranties, and the Company provides for the estimated cost of product warranties. The adequacy of the warranty reserve is assessed regularly, and the reserve is adjusted as necessary based on a review of historic warranty experience with respect to the applicable business or products, as well as the length and actual terms of the warranties. The warranty reserve is included in current and long-term accrued liabilities on the Condensed Consolidated Balance Sheet.

	Three Months
Warranty Reserve (in millions):	2021		2020
Balance at beginning of year	$	22.4	$	24.8
Accruals for product warranties charged to expense and other	3.5		(0.1)
Cost of product warranty claims	(3.3)		(3.6)
Acquisition	—		0.1
Balance at end of period	$	22.6	$	21.2

Accounts Receivable, NetAccounts receivable is presented net of an allowance for doubtful accounts of $11.6 million at April 4, 2021 and $12.3 million at January 3, 2021.