ACCOUNTS AND NOTES RECEIVABLE, NET

9 Months Ended

Oct. 02, 2021


(Millions of Dollars)	October 2, 2021		January 2, 2021
Trade accounts receivable	$	1,816.0	$	1,345.7
Trade notes receivable	150.7		156.1
Other accounts receivable	161.4		151.5
Gross accounts and notes receivable	$	2,128.1	$	1,653.3
Allowance for credit losses	(139.1)		(141.1)
Accounts and notes receivable, net	$	1,989.0	$	1,512.2
Long-term receivables, net	$	138.0	$	139.9

Trade receivables are dispersed among a large number of retailers, distributors and industrial accounts in many countries. Adequate reserves have been established to cover expected credit losses. Long-term receivables, net, of $138.0 million and $139.9 million at October 2, 2021 and January 2, 2021, respectively, are reported within Other assets in the Condensed Consolidated Balance Sheets. The Company's financing receivables are predominantly related to certain security equipment sales-type leases with commercial businesses. As of October 2, 2021, the current portion of financing receivables within Trade notes receivable approximated $73.1 million. Generally, the Company retains legal title to any equipment under lease and holds the right to repossess such equipment in an event of default. All financing receivables are interest-bearing and the Company has not classified any financing receivables as held-for-sale. Interest income earned from financing receivables that are not delinquent is recorded on the effective interest method.

The changes in the allowance for credit losses for the three and nine months ended October 2, 2021 and September 26, 2020 are as follows:



(Millions of Dollars)	Balance July 3, 2021		Cumulative Effect Adjustment (a)		Charged To Costs and Expenses		Charged To Other Accounts (b)		Deductions (c)		Balance October 2, 2021
Accounts receivable	$	126.4	$	—	$	3.4	$	(2.6)	$	(3.1)	$	124.1
Notes receivable	14.8		—		0.2		—		—		15.0
Total	$	141.2	$	—	$	3.6	$	(2.6)	$	(3.1)	$	139.1


(Millions of Dollars)	Balance January 2, 2021		Cumulative Effect Adjustment (a)		Charged To Costs and Expenses		Charged To Other Accounts (b)		Deductions (c)		Balance October 2, 2021
Accounts receivable	$	126.7	$	—	$	7.6	$	(1.8)	$	(8.4)	$	124.1
Notes receivable	14.4		—		0.6		—		—		15.0
Total	$	141.1	$	—	$	8.2	$	(1.8)	$	(8.4)	$	139.1


(Millions of Dollars)	Balance June 27, 2020		Cumulative Effect Adjustment (a)		Charged To Costs and Expenses		Charged To Other Accounts (b)		Deductions (c)		Balance September 26, 2020
Accounts receivable	122.9		—		7.6		2.3		(9.4)		123.4
Notes receivable	13.6		—		—		0.3		—		13.9
Total	$	136.5	$	—	$	7.6	$	2.6	$	(9.4)	$	137.3


(Millions of Dollars)	Balance December 28 2019		Cumulative Effect Adjustment (a)		Charged To Costs and Expenses		Charged To Other Accounts (b)		Deductions (c)		Balance September 26, 2020
Accounts receivable	$	99.3	$	2.9	$	37.3	$	(0.5)	$	(15.6)	$	123.4
Notes receivable	$	13.1	$	0.9	$	—	$	0.2	$	(0.3)	$	13.9
Total	$	112.4	$	3.8	$	37.3	$	(0.3)	$	(15.9)	$	137.3

(a) Represents the cumulative-effect adjustment to opening retained earnings due to the adoption of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), in the first quarter of 2020.

(b) Amounts represent the impacts of foreign currency translation, acquisitions and net transfers to/from other accounts.

The following is a summary of the expected timing of receipt of payments from customers on an undiscounted basis as of October 2, 2021 relating to the Company’s lease receivables:


(Millions of Dollars)	Total		Within 1 Year		2 Years		3 Years		4 Years		5 Years		Thereafter
Financing receivables	$	199.2	$	73.1	$	54.3	$	37.7	$	21.6	$	10.8	$	1.7
Operating leases	$	28.3	$	26.5	$	0.9	$	0.5	$	0.3	$	0.1	$	—

The following is a summary of lease revenue and sales-type lease profit for the three and nine months ended October 2, 2021 and September 26, 2020:


	Third Quarter				Year-to-Date
(Millions of Dollars)	2021		2020		2021		2020
Sales-type lease revenue	$	27.8	$	28.2	$	93.8	$	82.0
Lease interest revenue	3.2		3.3		9.9		9.4
Operating lease revenue	21.5		30.4		61.6		101.9
Total lease revenue	$	52.5	$	61.9	$	165.3	$	193.3
Sales-type lease profit	$	11.0	$	11.2	$	37.3	$	32.6

The Company has an accounts receivable sale program. According to the terms, the Company sells certain of its trade accounts receivables at fair value to a wholly owned, consolidated, bankruptcy-remote special purpose subsidiary (“BRS"). The BRS, in turn, can sell such receivables to a third-party financial institution (“Purchaser”) for cash. The Purchaser’s maximum cash investment in the receivables at any time is $110.0 million. The purpose of the program is to provide liquidity to the Company. These transfers qualify as sales under ASC 860, Transfers and Servicing, and receivables are derecognized from the Company’s consolidated balance sheet when the BRS sells those receivables to the Purchaser. The Company has no retained interests in the transferred receivables, other than collection and administrative responsibilities. At October 2, 2021, the Company did not record a servicing asset or liability related to its retained responsibility based on its assessment of the servicing fee, market values for similar transactions and its cost of servicing the receivables sold.

At October 2, 2021 and January 2, 2021, approximately $100.0 million and $86.8 million of net receivables were derecognized, respectively. For the three and nine months ended October 2, 2021, proceeds from transfers of receivables to the Purchaser totaled $114.1 million and $296.8 million, respectively, and payments to the Purchaser totaled $114.1 million and $283.6 million, respectively. For the three and nine months ended September 26, 2020, proceeds from transfers of receivables to the Purchaser totaled $49.8 million and $127.8 million, respectively, and payments to the Purchaser totaled $31.7 million and

$184.1 million, respectively. The program resulted in a pre-tax loss of $0.5 million and $1.3 million for the three and nine months ended October 2, 2021, respectively, which included service fees of $0.2 million and $0.6 million, respectively. The program resulted in a pre-tax loss of $0.3 million and $1.3 million for the three and nine months ended September 26, 2020, respectively, which included service fees of $0.1 million and $0.4 million, respectively. All cash flows under the program are reported as a component of changes in working capital within operating activities in the Condensed Consolidated Statements of Cash Flows since all the cash from the Purchaser is received upon the initial sale of the receivable.

As of October 2, 2021 and January 2, 2021, the Company's deferred revenue totaled $195.5 million and $207.6 million, respectively, of which $95.8 million and $108.7 million, respectively, was classified as current within Accrued expenses in the Condensed Consolidated Balance Sheets. Revenue recognized for the nine months ended October 2, 2021 and September 26, 2020 that was previously deferred as of January 2, 2021 and December 28, 2019 totaled $91.2 million and $90.8 million, respectively.

As of October 2, 2021, approximately $1.133 billion of revenue from long-term contracts primarily in the Security segment was unearned related to customer contracts which were not completely fulfilled and will be recognized on a decelerating basis over the next five years. This amount excludes any of the Company's contracts with an original expected duration of one year or less.