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Revenue Recognition | 9 Months Ended
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Sep. 30, 2023
Sales And Revenue Recognition [Abstract] |
Revenue Recognition | 3. Revenue Recognition In certain circumstances, the Company utilizes the cost-to-cost method of percentage-of-completion to recognize revenue on its performance obligations that are satisfied over time because it best depicts the transfer of control to the customer. Under the cost-to-cost method of percentage-of-completion, the Company measures progress based on the ratio of costs incurred to date to total estimated costs for the performance obligation. The Company recognizes changes in estimated sales or costs and the resulting profit or loss on a cumulative basis. Contract adjustments represent the cumulative effect of the changes on prior periods. If a loss is expected on a performance obligation, the complete estimated loss is recorded in the period in which the loss is identified. There is significant judgment involved in estimating sales and costs, most notably within the Defense segment. Each contract is evaluated at contract inception to identify risks and estimate revenue and costs. In performing this evaluation, the Company considers risks of contract performance such as technical requirements, schedule, duration and key contract dependencies. These considerations are then factored into the Company’s estimated revenue and costs. Preliminary contract estimates are subject to change throughout the duration of the contract as additional information becomes available that impacts risks and estimated revenue and costs. In addition, as contract modifications (e.g., new orders) are received, the additional units are factored into the overall contract estimate of costs and transaction price. Net contract adjustments impacted the Company’s results as follows (in millions, except per share amounts):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Net sales |  | $ | 2.2 |  |  | $ | (13.2 | ) |  | $ | (8.5 | ) |  | $ | (29.7 | )
Operating income |  |  | 2.5 |  |  |  | (14.2 | ) |  |  | (23.6 | ) |  |  | (38.2 | )
Net income |  |  | 1.9 |  |  |  | (10.9 | ) |  |  | (18.1 | ) |  |  | (29.2 | )
Diluted earnings per share |  | $ | 0.03 |  |  | $ | (0.17 | ) |  | $ | (0.28 | ) |  | $ | (0.44 | )
The Defense segment incurs pre-production engineering, factory setup and other contract fulfillment costs related to products produced for its customers under long-term contracts. An asset is recognized for costs incurred to fulfill an existing contract or highly-probable anticipated contract if such costs generate or enhance resources that will be used in satisfying performance obligations in the future and the costs are expected to be recovered. Costs related to customer-owned tooling that will be used in production and for which the customer has provided a non-cancelable right to use the tooling to perform during the contract term are also recognized as an asset. Under the Next Generation Delivery Vehicles (NGDV) contract with the United States Postal Service (USPS), the Company has determined that it does not transfer control of any goods or services to the USPS until the construction of the production vehicles. Deferred contract costs will be amortized over the anticipated production volume of the NGDV contract. The Company periodically assesses its contract fulfillment and customer-owned tooling for impairment. The Company did no t recognize any impairment losses on contract fulfillment or customer-owned tooling costs in the nine months ended September 30, 2023 or 2022. Deferred contract costs, the majority of which are related to the NGDV contract, consisted of the following (in millions):
|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Costs for anticipated contracts |  | $ | 6.4 |  |  | $ | 6.8 |
Engineering costs |  |  | 386.6 |  |  |  | 256.1 |
Factory setup costs |  |  | 29.4 |  |  |  | 16.4 |
Customer-owned tooling |  |  | 200.7 |  |  |  | 136.5 |
Deferred contract costs |  | $ | 623.1 |  |  | $ | 415.8 |
Disaggregation of Revenue Consolidated net sales disaggregated by segment and timing of revenue recognition are as follows (in millions):
|  | Three Months Ended September 30, 2023 |
|  | Access |  |  | Defense |  |  | Vocational |  |  | Corporate and Intersegment Eliminations |  |  | Total |
Point in time |  | $ | 1,303.8 |  |  | $ | 4.2 |  |  | $ | 533.1 |  |  | $ | (1.0 | ) |  | $ | 1,840.1 |
Over time |  |  | 14.4 |  |  |  | 495.9 |  |  |  | 159.5 |  |  |  | — |  |  |  | 669.8 |
|  | $ | 1,318.2 |  |  | $ | 500.1 |  |  | $ | 692.6 |  |  | $ | (1.0 | ) |  | $ | 2,509.9 |
|  | Three Months Ended September 30, 2022 |
|  | Access |  |  | Defense |  |  | Vocational |  |  | Corporate and Intersegment Eliminations |  |  | Total |
Point in time |  | $ | 1,026.4 |  |  | $ | 4.3 |  |  | $ | 411.8 |  |  | $ | (1.6 | ) |  | $ | 1,440.9 |
Over time |  |  | 11.5 |  |  |  | 514.4 |  |  |  | 99.9 |  |  |  | — |  |  |  | 625.8 |
|  | $ | 1,037.9 |  |  | $ | 518.7 |  |  | $ | 511.7 |  |  | $ | (1.6 | ) |  | $ | 2,066.7 |
|  | Nine Months Ended September 30, 2023 |
|  | Access |  |  | Defense |  |  | Vocational |  |  | Corporate and Intersegment Eliminations |  |  | Total |
Point in time |  | $ | 3,799.6 |  |  | $ | 10.4 |  |  | $ | 1,462.0 |  |  | $ | (2.7 | ) |  | $ | 5,269.3 |
Over time |  |  | 40.1 |  |  |  | 1,500.9 |  |  |  | 380.8 |  |  |  | — |  |  |  | 1,921.8 |
|  | $ | 3,839.7 |  |  | $ | 1,511.3 |  |  | $ | 1,842.8 |  |  | $ | (2.7 | ) |  | $ | 7,191.1 |
|  | Nine Months Ended September 30, 2022 |
|  | Access |  |  | Defense |  |  | Vocational |  |  | Corporate and Intersegment Eliminations |  |  | Total |
Point in time |  | $ | 2,861.7 |  |  | $ | 8.6 |  |  | $ | 1,287.8 |  |  | $ | (6.1 | ) |  | $ | 4,152.0 |
Over time |  |  | 36.4 |  |  |  | 1,585.0 |  |  |  | 305.0 |  |  |  | — |  |  |  | 1,926.4 |
|  | $ | 2,898.1 |  |  | $ | 1,593.6 |  |  | $ | 1,592.8 |  |  | $ | (6.1 | ) |  | $ | 6,078.4 |
See Note 19 of the Notes to Condensed Consolidated Financial Statements for further disaggregated sales information. Contract Assets and Contract Liabilities In instances where the Company recognizes revenue prior to having an unconditional right to payment, the Company records a contract asset. The Company reduces contract assets when the Company has an unconditional right to payment. The Company periodically assesses its contract assets for impairment. Contract assets and liabilities are determined on a net basis for each contract. The Company did no t record any impairment losses on contract assets during the nine months ended September 30, 2023 or 2022. The Company is generally entitled to bill its customers upon satisfaction of its performance obligations, except for its long-term contracts in the Defense segment which typically allow for billing upon acceptance of the finished goods, payments received from customers in advance of performance and extended warranties that are billed in advance of the warranty coverage period. Customer payment terms generally do not exceed one year. See Note 8 of the Notes to Condensed Consolidated Financial Statements for additional information on the Company’s receivables balances. With the exception of Pierce Manufacturing Inc. (Pierce) in the Vocational segment, the Company’s contracts typically do not contain a significant financing component. Pierce customers earn interest on customer advances at a rate determined in a separate financing transaction between Pierce and the customer at contract inception. Interest charges for amounts due on customer advances are recorded in “Interest expense” in the Condensed Consolidated Statements of Income and were $5.9 million and $6.2 million for the three months ended September 30, 2023 and 2022, respectively, and were $18.2 million and $17.2 million for the nine months ended September 30, 2023 and 2022, respectively. The timing of billing do es not always match the timing of revenue recognition. In instances where a customer pays consideration in advance or when the Company is entitled to bill a customer in advance of recognizing the related revenue, the Company records a contract liability. The Company reduces contract liabilities when the Company transfers control of the promised goods and services. Contract liabilities consisted of the following (in millions):
|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Customer advances |  | $ | 664.0 |  |  | $ | 696.7 |
Other current liabilities |  |  | 90.4 |  |  |  | 77.4 |
Long-term customer advances |  |  | 1,088.7 |  |  |  | 1,020.5 |
Other long-term liabilities |  |  | 69.0 |  |  |  | 66.8 |
Total contract liabilities |  | $ | 1,912.1 |  |  | $ | 1,861.4 |
Revenue recognized during the period from beginning contract liabilities was as follows (in millions):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |  |  | 2022 |
Beginning liabilities recognized in revenue |  | $ | 130.9 |  |  | $ | 125.5 |  |  | $ | 478.5 |  |  | $ | 320.7 |
The Company offers a variety of service-type warranties, including optionally priced extended warranty programs. Outstanding balances related to service-type warranties are included within contract liabilities. Revenue related to service-type warranties is deferred until after the expiration of the standard warranty period. The revenue is then recognized over the term of the service-type warranty period in proportion to the costs that are expected to be incurred. Changes in the Company’s service-type warranties were as follows (in millions):
|  | Nine Months Ended September 30, |
|  | 2023 |  |  | 2022 |
Balance at beginning of period |  | $ | 76.1 |  |  | $ | 66.9 |
Deferred revenue for new service warranties |  |  | 27.7 |  |  |  | 21.6 |
Amortization of service warranty deferred revenue |  |  | (19.8 | ) |  |  | (16.1 | )
Foreign currency translation |  |  | — |  |  |  | (0.9 | )
Balance at end of period |  | $ | 84.0 |  |  | $ | 71.5 |
Classification of service-type warranties in the Condensed Consolidated Balance Sheets consisted of the following (in millions):
|  | September 30, |  |  | December 31, |
|  | 2023 |  |  | 2022 |
Other current liabilities |  | $ | 29.0 |  |  | $ | 26.8 |
Other long-term liabilities |  |  | 55.0 |  |  |  | 49.3 |
|  | $ | 84.0 |  |  | $ | 76.1 |
Remaining Performance Obligations As of September 30, 2023, the Company had unsatisfied performance obligations for contracts with an original duration greater than one year totaling $10.69 billion, of which $846.3 million is expected to be satisfied and recognized in revenue in the remaining three months of fiscal 2023, $2.89 billion is expected to be satisfied and recognized in revenue in fiscal 2024 and $6.95 billion is expected to be satisfied and recognized in revenue after fiscal 2024.

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- Definition The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 9 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-9 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 10 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-10 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 15 -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-15 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (c) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 12 -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-12 Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 606 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 13 -Subparagraph (b)(2) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479806/606-10-50-13 Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Name Accounting Standards Codification -Topic 606 -Publisher FASB -URI https://asc.fasb.org//606/tableOfContent + Details
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