REVENUE RECOGNITION

The initial impact of the adoption of the FASB Topic Revenue from Contracts with Customers, which was recognized in a cumulative catch-up adjustment, is illustrated below:



	January 1,		December 31,
	2018		2017
	(In thousands)
Assets:
Contracts in progress	$	260,932	$	420,628
Deferred Income Taxes	$	85,193	$	86,740
Liabilities:
Accrued liabilities – other	$	66,371	$	64,738
Advance billings on contracts	$	73,390	$	246,192
Stockholders' Equity:
Retained earnings	$	1,000,578	$	990,652

Within our Nuclear Operations Group segment, we continue to recognize revenue over time, and now measure progress on performance obligations using a cost-to-cost method. Historically, we utilized man-hours or a cost-to-cost method to measure progress on certain performance obligations within this segment. The performance obligations identified for recognizing revenue are similar to our historical units of account. As a result of the change to a cost-to-cost method, the timing of revenue recognition on affected contracts, in the aggregate, results in the recognition of revenue and cost of operations earlier in the process of satisfying performance obligations. This change impacted the life-to-date revenue and costs of operations recognized on performance obligations, and the adjustment to capture the impact of the new revenue recognition standard was recorded as a cumulative catch-up adjustment in Retained earnings. The new standard also resulted in a reduction in both our Contracts in progress and Advance billings on contracts account balances as a result of measuring the asset and liability at the contract level. Historically, contract assets and liabilities were measured at the unit of account, which we concluded was at a lower level than that of the contract.

The impact of the adoption of the new revenue standard on our Nuclear Power Group and Nuclear Services Group segments was not material.

Contracts and Revenue Recognition

Nuclear Operations Group

Our Nuclear Operations Group segment recognizes revenue over time for the manufacturing of naval nuclear reactor components and fuel, submarine missile launch tubes and the downblending of high-enriched uranium. Certain of our contracts contain two or more different types of components, each of which we identify as a separate performance obligation. We recognize revenue using a cost-to-cost method to measure progress as control is continually transferred to the customer as we incur costs on the performance obligations. We allocate revenue to the individual performance obligations within contracts with multiple performance obligations based on the stand-alone selling price of the individual performance obligations.

Our fixed-price incentive fee contracts include incentives that we concluded to be variable consideration. The amount of the variable consideration to which we are entitled is dependent on our actual costs incurred on the performance obligation compared to the target costs for that performance obligation and subject to incentive price revisions included within the contracts. We include these incentive fees in revenue when there is sufficient evidence to determine that the variable consideration is not constrained. The remaining contracts typically have immaterial amounts of variable consideration and have a single performance obligation. Our estimates of variable consideration and total estimated costs at completion are determined through a detailed process based on historical performance and our expertise using the most likely method. Variations from estimated contract performance could result in a material effect on our financial condition and results of operations in future periods.

Our Nuclear Operations Group segment's contracts allow for billings as costs are incurred, subject to certain retainages on our fixed-price incentive fee contracts, that require milestones to be reached for the remaining consideration to be paid.

Nuclear Services Group

Our contracts within our Nuclear Services Group segment are primarily cost-plus service contracts on which we recognize revenue over time based on a cost-to-cost method, which is consistent with the structure of the billings associated with these contracts. Ownership continuously transfers to the customer as we perform the services. The contracts within this segment do not contain significant variable consideration and contain a single performance obligation. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact on the contracts based on our historical experience.

Nuclear Power Group

Our Nuclear Power Group segment recognizes revenue over time using a cost-to-cost method for the manufacturing of large components, non-standard parts, fuel bundles and service contracts as control continually transfers to the customers. For standard parts, revenue is recognized at the point in time control transfers to the customer, which is consistent with the transfer of ownership. This segment generates revenue primarily from firm-fixed-price contracts that do not contain variable consideration as well as time-and-materials based contracts. Certain of these contracts contain assurance warranties and/or provisions for liquidated damages, which are expected to have an immaterial impact to the contracts based on our historical experience. We are entitled to payment on the majority of our Nuclear Power Group segment contracts when we achieve certain milestones related to our progress on the contract.

Disaggregated Revenues

Revenues by geographical area and customer type are as follows:



	Three Months Ended March 31, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
United States:
Government	$	316,631	$	25,881	$	—	$	342,512
Non-Government	—		3,177		260		3,437
	$	316,631	$	29,058	$	260	$	345,949
Canada:
Government	$	—	$	—	$	—	$	—
Non-Government	—		975		82,325		83,300
	$	—	$	975	$	82,325	$	83,300
Other:
Government	$	—	$	—	$	—	$	—
Non-Government	—		—		30,231		30,231
	$	—	$	—	$	30,231	$	30,231
Segment Revenues	$	316,631	$	30,033	$	112,816	459,480
Adjustments and Eliminations							(2,017		)
Revenues							$	457,463

Revenues by timing of transfer of goods or services are as follows:



	Three Months Ended March 31, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
Over-time	$	316,631	$	30,033	$	105,109	$	451,773
Point-in-time	—		—		7,707		7,707
Segment Revenues	$	316,631	$	30,033	$	112,816	459,480
Adjustments and Eliminations							(2,017		)
Revenues							$	457,463

Revenues by contract type are as follows:



	Three Months Ended March 31, 2018
	Nuclear Operations Group		Nuclear Services Group		Nuclear Power Group		Total
	(In thousands)
Fixed-Price Incentive Fee	$	249,240	$	—	$	4,028	$	253,268
Firm-Fixed-Price	47,058		5,410		74,282		126,750
Cost-Plus Fee	20,233		23,953		45		44,231
Time-and-Materials	100		670		34,461		35,231
Segment Revenues	$	316,631	$	30,033	$	112,816	459,480
Adjustments and Eliminations							(2,017		)
Revenues							$	457,463

Performance Obligations

As we progress on our contracts and the underlying performance obligations for which we recognize revenue over time, we refine our estimates of variable consideration and total estimated costs at completion, which impact the overall profitability on our contracts and performance obligations. Changes in these estimates result in the recognition of cumulative catch-up adjustments that impact our revenue and/or costs of contracts. During the three months ended March 31, 2018, we recognized net favorable changes in estimates that resulted in an increase in revenue of $5.3 million.

Contract Assets and Liabilities

We include revenues and related costs incurred, plus accumulated contract costs that exceed amounts invoiced to customers under the terms of the contracts, in Contracts in progress. We include in Advance billings on contracts billings that exceed accumulated contract costs and revenues and costs recognized over time. Most long-term contracts contain provisions for progress payments. Our unbilled receivables do not contain an allowance for credit losses as we expect to invoice customers and collect all amounts for unbilled revenues. Changes in Contracts in progress and Advance billings on contracts are primarily driven by differences in the timing of revenue recognition and billings to our customers. During the three months ended March 31, 2018, our unbilled receivables increased $75.4 million, primarily as a result of revenue in excess of billings on certain firm-fixed-price contracts within our Nuclear Operations Group segment and the timing of milestone payments on large components and contracts started in 2018 within our Nuclear Power Group segment. Our fixed-price incentive fee contracts for our Nuclear Operations Group segment include provisions that result in an increase in retainages on contracts during the first and third quarters of the year, with larger payments made during the second and fourth quarters. This resulted in an increase in retainages on contracts from January 1 to March 31, 2018 as shown below:



	March 31,		January 1,
	2018		2018
	(In thousands)
Included in Contracts in progress:
Unbilled receivables	$	325,745	$	250,325
Included in Accounts receivable – trade, net:
Retainages	$	93,258	$	82,801
Included in Other Assets:
Retainages	$	1,656	$	1,669
Advance billings on contracts	$	77,140	$	73,390

During the three months ended March 31, 2018, we recognized $30.4 million of revenue that was in Advance billings on contracts at January 1, 2018.

Remaining Performance Obligations

Remaining performance obligations represent the dollar amount of revenue we expect to recognize in the future from performance obligations on contracts previously awarded and in progress. Of the March 31, 2018 remaining performance obligations on our contracts with customers, we expect to recognize revenues as follows:



	2018		2019		Thereafter		Total
	(In approximate millions)
Nuclear Operations Group	$	944	$	802	$	1,256	$	3,002
Nuclear Services Group	21		3		4		28
Nuclear Power Group	168		111		271		550
Total Remaining Performance Obligations	$	1,133	$	916	$	1,531	$	3,580

Historical Method

Prior to the adoption of FASB Topic Revenue from Contracts with Customers, we accounted for revenue under previous GAAP. In accordance with our adoption of the new revenue recognition standard utilizing the modified retrospective approach, we are required to disclose the impact on our financial statements on a line item basis.

A comparison of certain line items in our condensed consolidated balance sheet is shown below:



	March 31, 2018
	Current Method		Historical Method
	(In thousands)
Assets:
Contracts in progress	$	337,375	$	365,192
Deferred Income Taxes	$	84,727	$	85,443
Liabilities:
Accrued liabilities – other	$	51,662	$	49,327
Advance billings on contracts	$	77,140	$	117,174
Stockholders' Equity:
Retained earnings	$	1,053,090	$	1,043,924

Differences in the amounts above are primarily the result of the initial adoption of the new revenue recognition standard. Additional differences were caused by revenue under the current method being $8.1 million lower than the historical method as discussed below.

A comparison of certain line items in our condensed consolidated statement of operations is shown below:



	Three Months Ended March 31, 2018
	Current Method		Historical Method
	(In thousands)
Revenues	$	457,463	$	465,530
Cost of operations	$	327,364	$	334,542
Operating Income	$	79,888	$	80,777
Provision for Income Taxes	$	18,603	$	18,732
Net Income	$	66,413	$	67,173

We recognized $8.1 million less revenue under the current method compared to the historical method for the three months ended March 31, 2018. This was primarily driven by less progress being achieved on contracts as a result of using a cost-to-cost method for measuring progress under the current method as compared to man-hours or units of output under our historical method.