XML 21 R11.htm IDEA: XBRL DOCUMENT v3.22.2.2
Revenue Recognition
 9 Months Ended
Sep. 30, 2022
Revenue from Contract with Customer [Abstract]  
Revenue Recognition Revenue Recognition
In the Company’s Aerospace and Defense segment, the majority of revenue is earned from long-term contracts to design, develop, and manufacture aerospace and defense products for, and provide related services to, the Company’s customers, including the U.S. government and major aerospace and defense prime contractors.
The Company evaluates the contract value and cost estimates for performance obligations at least quarterly and more frequently when circumstances significantly change. Factors considered in estimating the work to be completed include, but are not limited to: labor productivity, the nature and technical complexity of the work to be performed, availability and cost volatility of materials, subcontractor and vendor performance, warranty costs, volume assumptions, anticipated labor agreements, inflationary trends, schedule and performance delays, availability of funding from the customer, and the recoverability of costs incurred outside the original contract included in any estimates to complete. When the Company’s estimate of total costs to be
incurred to satisfy a performance obligation exceeds the expected revenue, the Company recognizes the loss immediately. When the Company determines that a change in estimates has an impact on the associated profit of a performance obligation, the Company records the cumulative positive or negative adjustment to the statement of operations. Changes in estimates and assumptions related to the status of certain long-term contracts may have a material effect on the Company’s operating results. The following table summarizes the impact of the changes in significant contract accounting estimates on the Company’s Aerospace and Defense segment operating results:
Three months ended September 30,Nine months ended September 30,
 2022202120222021
 (In millions, except per share amounts)
Net (unfavorable) favorable effect of the changes in contract estimates on net sales$(2.7)$11.4 $(18.9)$35.2 
Net favorable (unfavorable) effect of the changes in contract estimates on income before income taxes— 10.8 (32.2)32.4 
Net favorable (unfavorable) effect of the changes in contract estimates on net income — 8.0 (20.9)24.1 
Net favorable (unfavorable) effect of the changes in contract estimates on basic EPS— 0.10 (0.26)0.30 
Net favorable (unfavorable) effect of the changes in contract estimates on diluted EPS— 0.10 (0.26)0.29 
For the nine months ended September 30, 2022, net unfavorable changes in contract estimates were primarily driven by cost growth from supply chain disruptions and necessary technical and manufacturing changes identified in the three months ended June 30, 2022, on a portion of the Standard Missile program. For the nine months ended September 30, 2021, net favorable changes in contract estimates were primarily driven by improved performance and risk retirements on the RS-68, Patriot Advanced Capability-3 ("PAC-3"), and Terminal High Altitude Area Defense ("THAAD") programs partially offset by cost growth on a portion of the Standard Missile and Commercial Crew program.
In the Company’s Aerospace and Defense segment, the timing of revenue recognition, customer invoicing, and collections produces accounts receivable, contract assets, and contract liabilities in the unaudited condensed consolidated balance sheets. The following table summarizes contract assets and liabilities:
September 30, 2022December 31, 2021
 (In millions)
Contract assets$412.6 $359.6 
Reserve for overhead rate disallowance(9.3)(5.4)
Contract assets, net of reserve403.3 354.2 
Contract liabilities351.1 366.5 
Net contract assets (liabilities), net of reserve$52.2 $(12.3)
Net contract assets increased by $64.5 million from December 31, 2021, primarily due to an increase in unbilled receivables. During the nine months ended September 30, 2022, the Company recognized sales of $288.8 million that were included in the Company's contract liabilities as of December 31, 2021.
As of September 30, 2022, the Company’s total remaining performance obligations, also referred to as backlog, totaled $6.7 billion. The Company expects to recognize approximately 34%, or $2.3 billion, of the remaining performance obligations as sales over the next twelve months, an additional 25% the following twelve months, and 41% thereafter.
The Company's contracts are largely categorized as either "fixed-price" (largely used by the U.S. government for production-type contracts) or "cost-reimbursable" (largely used by the U.S. government for development-type contracts). Fixed-price contracts present the risk of unreimbursed cost overruns, potentially resulting in lower than expected contract profits and margins. This risk is generally lower for cost-reimbursable contracts which, as a result, generally have a lower margin. The following table summarizes the percentages of net sales by contract type:
Three months ended September 30,Nine months ended September 30,
 2022202120222021
Fixed-price56 %57 %56 %56 %
Cost-reimbursable44 43 44 44 
The principal end user customers are primarily agencies of the U.S. government as illustrated in the following table:
Three months ended September 30,Nine months ended September 30,
 2022202120222021
U.S. government95 %96 %95 %97 %
Non U.S. government5 4 5 3 
The Company's Real Estate segment represented less than 1% of the Company's net sales for the three and nine months ended September 30, 2022 and 2021.