Revenue Recognition

We account for revenue in accordance with ASC Topic 606: Revenue from Contracts with Customers.

Performance Obligations. A performance obligation is a promise in a contract with a customer to transfer a distinct good or service to the customer. Some of our contracts with customers contain a single performance obligation, while others contain multiple performance obligations most commonly when a contract spans multiple phases of the product life-cycle such as development, production, maintenance and support. A contract's transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. When there are multiple performance obligations within a contract, we allocate the transaction price to each performance obligation based on its standalone selling price.

We consider the contractual consideration payable by the customer and assess variable consideration that may affect the total transaction price, including contractual discounts, contract incentive payments, estimates of award fees, unfunded contract value under U.S. Government contracts, and other sources of variable consideration, when determining the transaction price of each contract. We include variable consideration in the estimated transaction price when there is a basis to reasonably estimate the amount. These estimates are based on historical experience, anticipated performance and our best judgment at the time. We also consider whether our contracts provide customers with significant financing. Generally, our contracts do not contain significant financing.

Timing of the satisfaction of performance obligations varies across our businesses due to our diverse product and service mix, customer base, and contractual terms.

Remaining Performance Obligations (RPO). RPO represents the aggregate amount of total contract transaction price that is unsatisfied or partially unsatisfied. As of March 31, 2019 our total RPO was approximately $117.5 billion. Of this total, we expect approximately 46% will be recognized as sales over the following 24 months. On December 31, 2018, we had approximately $115.5 billion of remaining performance obligations, at which time we expected to recognize approximately 46% of these remaining performance obligations as sales in the next 24 months.

Capitalized Contract Costs. We incur costs for engineering and development of aerospace products directly related to existing or anticipated contracts with customers. Such costs generate or enhance our ability to satisfy our performance obligations under these contracts. We capitalize these costs as contract fulfillment costs to the extent the costs are recoverable from the associated contract margin and subsequently amortize the costs as the OEM products performance obligations are satisfied. In instances where intellectual property does not transfer to the customer, we defer the customer funding of OEM product engineering and development and recognize revenue when the performance obligations related to the OEM products are satisfied. Capitalized net contract fulfillment costs were $1,072 million and $914 million as of March 31, 2019 and December 31, 2018, respectively and are recognized in Other assets in our Condensed Consolidated Balance Sheet.

Contract Assets and Liabilities. Contract assets reflect revenue recognized and performance obligations satisfied in advance of customer billing. Contract liabilities relate to payments received in advance of the satisfaction of performance under the contract. We receive payments from customers based on the terms established in our contracts. Total contract assets and contract liabilities as of March 31, 2019 and December 31, 2018 are as follows:



(dollars in millions)	March 31, 2019			December 31, 2018
Contract assets, current	$	3,795		$	3,486
Contract assets, noncurrent (included within Other assets)	1,209			1,142
Total contract assets	5,004			4,628
Contract liabilities, current	(6,107		)	(5,720		)
Contract liabilities, noncurrent (included within Other long-term liabilities)	(5,166		)	(5,069		)
Total contract liabilities	(11,273		)	(10,789		)
Net contract liabilities	$	(6,269	)	$	(6,161	)

Contract assets increased $376 million during the quarter ended March 31, 2019 primarily due to revenue recognition in excess of customer billings, primarily on Pratt & Whitney commercial aftermarket and military engines contracts and various programs at Collins Aerospace Systems. Contract liabilities increased $484 million during the quarter ended March 31, 2019 primarily due to customer billings in excess of revenue on Otis maintenance contracts and on certain Pratt & Whitney commercial aftermarket contracts. We recognized revenue of $2.0 billion during the quarter ended March 31, 2019 related to contract liabilities as of December 31, 2018.