6.	Revenue Recognition

The Company’s products and services are sold based upon purchase orders or other contracts with customers that include fixed or determinable prices and do not generally include right of return or other significant post-delivery obligations. The majority of our revenue streams record revenue at a point in time when a performance obligation has been satisfied by transferring control of promised goods or services to the customer. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.

Payment terms and conditions vary by contract type. The Company’s contracts are structured to align milestone billings with progress and revenue recognition, so generally do not include a financing component. We have elected to apply the practical expedient that does not require an adjustment for a financing component if, at contract inception, the period between when we transfer the promised goods or service to the customer and when the customer pays for the goods or service is one year or less.

The Company elects to treat shipping and handling costs as costs to fulfill a performance obligation instead of as a separate performance obligation. We recognize the cost for shipping and handling when incurred, generally when control over the products has transferred to the customer, as an expense in cost of sales.

Our contracts with customers often include promises to transfer multiple products and services. Determining whether products and services are considered distinct performance obligations that should be accounted for separately, versus together, may require significant judgment. We consider the degree of customization, integration and interdependency of the related products and services when assessing distinctness.

Judgment is also required to determine the stand-alone selling price (“SSP”) for each distinct performance obligation. To determine the SSP, the Company uses the price at which the products and services would be sold separately to the customer. We also review past sales transactions to confirm that invoice prices for each distinct performance obligation reasonably approximate SSP and that there are no significant deviations. A discount, when provided, is also allocated based on the relative SSP of the various products and services.

We may provide other credits or incentives, which are accounted for as variable consideration when determining the transaction price. These credits or incentives are estimated at contract inception and recognized only to the extent that it is probable that a significant reversal of any incremental revenue will not occur. The estimates are updated each reporting period as additional information becomes available.

For revenue that is not recognized at a point in time, the Company follows accounting guidance for revenue recognized over time, as follows:

Revenue Recognition under Long-term Construction Contracts

The Company uses the over-time method to account for certain long-term construction contracts in the Completion & Production Solutions and Rig Technologies segments. These long-term construction contracts include the following characteristics:

•

the contracts include custom designs for customer-specific applications;

•

the structural design is unique and requires significant engineering efforts; and

•

the Company has an enforceable right to payment for performance completed to date, including a reasonable profit.

Because of control transferring over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. We generally use the cost-to-cost (input) measure of progress for our contracts because it best depicts the transfer of assets to the customer which occurs as we incur costs. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues, including estimated fees or profits, are recorded proportionally as costs are incurred. These costs include labor, materials, subcontractors’ costs, and other direct costs. If estimates of total costs to be incurred on a performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Our long-term construction contracts generally include a significant service of integrating a complex set of tasks and components into a single project or capability, so are accounted for as one performance obligation.

Estimating total revenue and cost at completion of long-term construction contracts is complex, subject to many variables and requires significant judgment. It is common for our long-term contracts to contain late delivery fees, work performance guarantees, and other provisions that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount we expect to receive. We include variable consideration in the estimated transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur, or when the uncertainty associated with the variable consideration is resolved. Our estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based on an assessment of our anticipated performance and historical, current and forecasted information that is reasonably available to us. Net revenue recognized from performance obligations satisfied in previous periods was $56 million for the nine months ended September 30, 2018 primarily due to change orders.

Service and Repair Work

For service contracts, we generally use the output method to measure progress due to the manner in which the customer receives and derives value from the services provided. For repair contracts, we generally use the cost-to-cost measure of progress because it best depicts the transfer of assets to the customer.

Remaining Performance Obligations

Remaining performance obligations represents the transaction price of firm orders for all revenue streams for which work has not been performed on contracts with an original expected duration of one year or more. We do not disclose the remaining performance obligations of royalty contracts, service contracts for which there is a right to invoice, and short-term contracts that are expected to have a duration of one year or less.

As of September 30, 2018, the aggregate amount of the transaction price allocated to remaining performance obligations was $2,147 million. The Company expects to recognize approximately $408 million in revenue for the remaining performance obligations in 2018 and $1,739 million in 2019 and thereafter.

Costs to Obtain and Fulfill a Contract

We recognize an asset for the incremental costs of obtaining a contract, such as sales commissions, with a customer when we expect the benefit of those costs to be longer than one year. Costs to fulfill a contract, such as set-up and mobilization costs, are also capitalized when we expect to recover those costs. These contract costs are deferred and amortized over the period of contract performance. Total capitalized costs to obtain and fulfill a contract and the related amortization were immaterial during the periods presented and are included in other current and long-term assets on our consolidated balance sheets. We apply the practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less.

Disaggregation of Revenue

The following tables disaggregate our revenue by destinations, as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are affected by economic factors. In the tables below, North America includes only the U.S. and Canada. (in millions):

	Three Months Ended September 30,
	2018											2017
			Completion											Completion
	Wellbore		& Production		Rig							Wellbore		& Production		Rig
	Technologies		Solutions		Technologies		Eliminations			Total		Technologies		Solutions		Technologies		Eliminations			Total
North America	$	469	$	343	$	189	$	—		$	1,001	$	377	$	282	$	139	$	—		$	798
International		362		372		419		—			1,153		305		384		348		—			1,037
Eliminations		16		20		29		(65	)		—		11		16		23		(50	)		—
	$	847	$	735	$	637	$	(65	)	$	2,154	$	693	$	682	$	510	$	(50	)	$	1,835

Land	$	707	$	521	$	206	$	—		$	1,434	$	553	$	468	$	174	$	—		$	1,195
Offshore		124		194		402		—			720		129		198		313		—			640
Eliminations		16		20		29		(65	)		—		11		16		23		(50	)		—
	$	847	$	735	$	637	$	(65	)	$	2,154	$	693	$	682	$	510	$	(50	)	$	1,835

	Nine Months Ended September 30,
	2018											2017
			Completion											Completion
	Wellbore		& Production		Rig							Wellbore		& Production		Rig
	Technologies		Solutions		Technologies		Eliminations			Total		Technologies		Solutions		Technologies		Eliminations			Total
North America	$	1,333	$	977	$	467	$	—		$	2,777	$	1,024	$	780	$	399	$	—		$	2,203
International		970		1,104		1,204		—			3,278		802		1,162		1,168		—			3,132
Eliminations		48		62		100		(210	)		—		36		40		71		(147	)		—
	$	2,351	$	2,143	$	1,771	$	(210	)	$	6,055	$	1,862	$	1,982	$	1,638	$	(147	)	$	5,335

Land	$	1,950	$	1,476	$	586	$	—		$	4,012	$	1,479	$	1,281	$	508	$	—		$	3,268
Offshore		353		605		1,085		—			2,043		347		661		1,059		—			2,067
Eliminations		48		62		100		(210	)		—		36		40		71		(147	)		—
	$	2,351	$	2,143	$	1,771	$	(210	)	$	6,055	$	1,862	$	1,982	$	1,638	$	(147	)	$	5,335

Contract Assets and Liabilities

Contract assets include unbilled amounts resulting from sales under long-term contracts when the cost-to-cost method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer, and right to payment is not only subject to the passage of time. There were no impairment losses recorded on contract assets for the periods ending September 30, 2018 or 2017.

Contract liabilities consist of advance payments, billings in excess of revenue recognized and deferred revenue. For the balance at December 31, 2017, we reclassified $240 million of advance payments and deferred revenue from accrued liabilities to contract liabilities to conform with the 2018 presentation.

The changes in the carrying amount of contract assets and contract liabilities are as follows (in millions):

Contract Assets
Balance at December 31, 2017	$	495
Additions and Milestone Billings		(606	)
Revenue Recognized		637
Currency translation adjustments and other		(43	)
Balance at September 30, 2018	$	483

Contract Liabilities
Balance at December 31, 2017	$	519
Additions		856
Revenue Recognized		(676	)
Currency translation adjustments and other		(129	)
Balance at September 30, 2018	$	570