NOTE 4—REVENUE RECOGNITION

Effect of ASC Topic 606 Adoption

The cumulative effect of adopting ASC 606 due to our change in method of measuring project progress toward completion, as discussed in Note 2, Basis of Presentation and Significant Accounting Policies, is as follows:

	Impact of ASC 606 adoption
	Recognition under previous guidance		Adjustment			Recognition under ASC 606
	(In millions)
Consolidated Statement of Operations for six months ended June 30, 2018
Revenues	$	2,550	$	(207	)	$	2,343
Cost of operations		2,141		(179	)		1,962
Net income		110		(28	)		82

Consolidated Balance Sheet as of June 30, 2018
Assets
Current assets:
Contracts in progress		926		(8	)		918

Stockholders' equity ⁽¹⁾
Retained earnings		62		(8	)		54

⁽¹⁾

Includes $20 million of cumulative catch-up adjustment to Retained earnings (Accumulated deficit) on January 1, 2018, upon adoption of ASC 606.

Remaining Performance Obligations (“RPOs”)

Our RPOs by segment were as follows:

	June 30, 2018				December 31, 2017
	(In approximate millions)
NCSA	$	5,181	51	%	$	437	11	%
EARC		1,250	12	%		732	19	%
MENA		2,630	26	%		2,249	58	%
APAC		638	6	%		483	12	%
Technology		487	5	%		-	-
Total	$	10,186	100	%	$	3,901	100	%

Of the June 30, 2018 RPOs, we expect to recognize revenues as follows:

	2018		2019		Thereafter
	(In approximate millions)
Total RPOs	$	4,480	$	4,249	$	1,457

Revenue Disaggregation

Our revenue by product offering, contract types and revenue recognition methodology was as follows:

	Three months ended June 30, ⁽²⁾				Six months ended June 30, ⁽²⁾
	2018		2017		2018		2017
	(In millions)
Revenue by product offering:
Offshore and subsea	$	653	$	789	$	1,261	$	1,308
LNG		382		-		382		-
Downstream ⁽¹⁾		496		-		496		-
Power		204		-		204		-
	$	1,735	$	789	$	2,343	$	1,308

Contract types:
Fixed priced	$	1,313	$	786	$	1,896		1,262
Reimbursable		269		-		269		-
Hybrid		124		-		124		-
Unit-basis and other		29		3		54		46
	$	1,735	$	789	$	2,343	$	1,308

Revenue recognition methodology
Over time	$	1,707	$	789	$	2,315	$	1,308
At a point in time		28		-		28		-
	$	1,735	$	789	$	2,343	$	1,308

⁽¹⁾

Includes the results of our Technology operating group.

⁽²⁾

Intercompany amounts have been eliminated in consolidation.

Unapproved Change Orders, Claims and Incentives

Unapproved Change Orders, Claims and Incentives—At June 30, 2018 we had unapproved change orders and claims included in transaction prices aggregating to approximately $472 million, of which approximately $99 million were included in our RPO balance. At December 31, 2017, we had unapproved change orders and claims included in transaction prices aggregating to approximately $117 million, of which approximately $8 million were included in our RPO balance.

At June 30, 2018, we also had incentives included in transaction prices of approximately $89 million, of which approximately $13 million were included in our RPO balance. At December 31, 2017, we did not have any material incentives included in transaction prices for our projects.

The aforementioned amounts recorded in contract prices and recognized as revenue reflect our best estimates of recovery; however, the ultimate resolution and amounts received could differ from these estimates and could have a material adverse effect on our results of operations, financial position and cash flow.

Loss Projects

Included in the Combination were three projects in a substantial loss position at the Combination Date. The loss positions include our changes in cost estimates of $165 million on the Cameron LNG project, $23 million on the Calpine project and $33 million on the now-completed IPL gas power project. These changes in cost estimates did not have a direct impact on our net income for the three months ended June 30, 2018 as the impact of their changes in estimates were included as adjustments to the fair value of the acquired balance sheet. Summary information for the ongoing projects as of June 30, 2018 is as follows:

Cameron LNG―At June 30, 2018, our U.S. LNG export facility project in Hackberry, Louisiana for Cameron LNG (within our NCSA operating group) was in a loss position. The project was acquired in the Combination and at June 30, 2018 was approximately 23% complete on a post-Combination basis (approximately 88% on a pre-Combination basis) and had a reserve for estimated losses of approximately $32 million. A reduction in workforce on the project has subsequently been implemented to improve productivity and maintain schedule.

Calpine Power Project―At June 30, 2018, our U.S. gas turbine power project in the Northeast for Calpine (within our NCSA operating group) was in a loss position. The project was acquired in the Combination and at June 30, 2018 was approximately 28% complete on a post-Combination basis (approximately 89% on a pre-Combination basis) and had a reserve for estimated losses of approximately $42 million.

There were no other material active projects as of June 30, 2018 in a substantial loss position.