CHANGES IN ESTIMATES

6 Months Ended

Jun. 30, 2023

Change in Accounting Estimate [Abstract]

NOTE M: CHANGES IN ESTIMATES

Many of our contracts utilize the POC cost-to-cost method of revenue recognition. A single estimated profit margin is used to recognize profit for each performance obligation over its period of performance. At the outset of each contract, we gauge its complexity and perceived risks and establish an estimated total cost at completion. Due to the long-term nature of many of these contracts, developing these estimates often requires judgment. After establishing the estimated total cost at completion, we follow a standard Estimate at Completion (“EAC”) process in which we review the progress and performance on our ongoing contracts at least quarterly and, in many cases, more frequently. As the contracts progress, we may successfully retire risks or complexities and may add additional risks, and we adjust our estimated total cost at completion. For additional discussion of our revenue recognition policies and our EAC process, see “Critical Accounting Estimates” in Part II: Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations in our Fiscal 2022 Form 10K.

Net EAC adjustments had the following impact to earnings for the periods presented:


	Quarter Ended				Two Quarters Ended
(In millions, except per share amounts)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022

Net EAC adjustments, before income taxes(1)	$	(31)	$	12	$	(87)	$	58
Net EAC adjustments, net of income taxes	(23)		9		(65)		44
Net EAC adjustments, net of income taxes, per diluted share	(0.12)		0.05		(0.34)		0.23

_______________

(1)For the quarter and two quarters ended June 30, 2023 excludes charges of $30 million and $48 million, respectively, related to impairments of customer contracts which are included in the “Revenue from product sales and services” and “Impairment of other assets” line items in our Condensed Consolidated Statement of Operations for the quarter and two quarters ended June 30, 2023, respectively.

Revenue recognized from performance obligations satisfied in prior periods was $33 million and $69 million for the quarter and two quarters ended June 30, 2023, respectively, and $32 million and $90 million for the quarter and two quarters ended July 1, 2022, respectively