NOTE 3—USE OF ESTIMATES

The following is a discussion of our most significant changes in estimates that impacted segment operating income for the three and six months ended June 30, 2017 and 2016.

Three months ended June 30, 2017

Segment operating income for the three months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $32 million, primarily in our MEA and ASA segments.

Americas, Europe and Africa Segment (“AEA”)—This segment was impacted by net unfavorable changes in estimates aggregating approximately $4 million on multiple projects, none of which individually were material.

Middle East Segment (“MEA”)—This segment was positively impacted by net favorable changes in estimates aggregating approximately $20 million, primarily due to:

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productivity improvements and associated cost savings during a marine hookup campaign and benefits from a change in estimate to complete a project in the Middle East;

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cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material; and

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changes in estimate to complete a large pipeline repair project in the Middle East.

Those favorable net changes were partially offset by:

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higher fabrication costs on a lump-sum EPCI project under the second Saudi Aramco Long-Term Agreement (“LTA II”); and

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increases in costs to complete the 9 Jackets Saudi Aramco project due to weather downtime, including increased vessel demobilization and mobilization costs.

Asia Segment (“ASA”)—This segment was positively impacted by net favorable changes in estimates aggregating approximately $16 million, primarily due to the change in estimates associated with efficient project execution and productivity improvements on multiple projects which were individually not material.

In addition, during the second quarter of 2017, on the Ichthys project in Australia, we commenced replacing the supplier-provided subsea-pipe connector components, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate of $34 million, which has been reflected in the project’s total estimated costs at completion. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Six months ended June 30, 2017

Segment operating income for the six months ended June 30, 2017 was positively impacted by net favorable changes in estimates totaling approximately $79 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $1 million on multiple projects, none of which individually were material.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $36 million, primarily due to:

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productivity improvements and associated cost savings during a marine hookup campaign and reduction in estimated costs to complete two projects in the Middle East, including a Saudi Aramco project;

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marine campaign cost savings associated with productivity improvements, which were partially offset by higher fabrication costs on a lump-sum EPCI project under the LTA II;

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close-out improvements associated with the first phase of a large pipeline repair project in the Middle East, which was completed in 2016, and a change in estimate to complete the next phase of this project; and

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cost savings associated with productivity improvements on multiple Saudi Aramco projects, none of which were individually material.

Those favorable net changes in estimates were partially offset by increases in costs to complete the 9 Jackets Saudi Aramco project, due to weather downtime, including increased vessel demobilization and mobilization costs.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $42 million, primarily due to changes in estimates driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.

In addition, as of December 31, 2016, on the Ichthys project in Australia, we reported a $34 million increase in our estimated costs at completion due to a failure identified in a supplier-provided subsea-pipe connector component that we had previously installed, and we identified possible additional increases of up to $10 million, due to potential need for alternative installation methods. We investigated the cause of the failure and developed a remediation plan in conjunction with the customer, and we commenced offshore replacement in June 2017. As of June 30, 2017, the work under the remediation plan has progressed well, and the diving intervention was completed on July 7, 2017. Residual work is planned for the second half of 2017. The current estimated costs to replace the supplier-provided subsea-pipe connector components, at the completion of the project, is less than our December 31, 2016 estimate. Furthermore, we took action to mitigate the risk of possible additional increases in these costs. We expect the project to remain in an overall profitable position.

Three months ended June 30, 2016

Operating income for the three months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $28 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $7 million, primarily attributable to productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico in the second quarter of 2016.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $10 million, primarily due to:

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productivity improvements and associated cost savings related to the Intermac 406 and DB 27 vessels, both associated with Saudi Aramco projects; and

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other miscellaneous projects, which individually were not material.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $11 million which were primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on our active projects.

Six months ended June 30, 2016

Operating income for the six months ended June 30, 2016 was positively impacted by net favorable changes in estimates totaling approximately $68 million across all segments.

AEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $23 million, primarily due to:

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successful execution and close-out improvements on two significant projects, PB Litoral and Exxon Julia Subsea Tieback;

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productivity improvement and associated cost savings related to our DB 50 and NO 102 vessels’ marine campaigns undertaken in the Gulf of Mexico; and

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a reversal of a $7 million provision for liquidated damages due to an agreed extension of the PB Litoral project completion date.

Those changes were partially offset by net unfavorable changes, none of which were material individually.

MEA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $17 million, primarily due to:

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productivity improvements and associated cost savings related to the DB 27 and the Intermac 406 vessels, both associated with Saudi Aramco projects; and

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other miscellaneous projects, none of which were material individually.

ASA—This segment was positively impacted by net favorable changes in estimates aggregating approximately $28 million, primarily driven by productivity improvements and associated cost savings and agreement on outstanding change orders on active and completed projects.