Backlog

6 Months Ended

Jul. 03, 2020

Revenue from Contract with Customer [Abstract]

Backlog

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.

Contract assets and liabilities in the two quarters ended July 3, 2020 were impacted by reclassifications to assets and liabilities of disposal groups held for sale, a decrease in the receipt of advance payments, the timing of contractual billing milestones and the impairment loss described below. See Note C — Business Divestitures and Assets Sales in these Notes for additional information regarding assets and liabilities held for sale.

Contract assets and contract liabilities are summarized below:

	July 3, 2020		January 3, 2020
	(In millions)
Contract assets	$	2,281	$	2,459
Contract liabilities, current	(1,106)		(1,214)
Contract liabilities, non-current(1)	(76)		(87)
Net contract assets	$	1,099	$	1,158

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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:

	July 3, 2020		January 3, 2020
	(In millions)
Unbilled contract receivables, gross	$	3,890	$	3,690
Progress payments and advances	(1,609)		(1,231)
	$	2,281	$	2,459

Impairment losses related to our contract assets were not material for the quarter ended July 3, 2020 or the quarter or two quarters ended June 28, 2019. In the two quarters ended July 3, 2020, we recorded impairment losses of $13 million at our Aviation Systems segment to reflect an increase in expected credit losses associated with the COVID-19-related downturn in our Commercial Aviation Solutions sector and its impact on global air traffic and customer operations. For the quarter and two quarters ended July 3, 2020, we recognized as revenue $265 million and $749 million of contract liabilities, respectively, that were outstanding at January 3, 2020. For the quarter and two quarters ended June 28, 2019, we recognized as revenue $28 million and $80 million of contract liabilities, respectively, that were outstanding at June 29, 2018.

Note U — 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 July 3, 2020, our ending backlog was $19.8 billion. We expect to recognize approximately two-thirds of the revenue associated with this backlog within the next twelve months and approximately three-fourths of the revenue associated with this backlog within the next three years. At January 3, 2020, our ending backlog was $20.6 billion, including $380 million of backlog associated with the airport security and automation business, which was divested during the quarter ended July 3, 2020.