Performance Obligations. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account for revenue. A contract’s transaction price is allocated to each distinct performance obligation within that contract and recognized as revenue when, or as, the performance obligation is satisfied. The majority of our contracts have a single performance obligation as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and is, therefore, not distinct. Some of our contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the product lifecycle (development, production, maintenance and support). For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach, under which we forecast our expected costs of satisfying a performance obligation and then add an appropriate margin for that distinct good or service.

Contract modifications are routine in the performance of our contracts. Contracts are often modified to account for changes in contract specifications or requirements. In most instances, contract modifications are for goods or services that are not distinct and, therefore, are accounted for as part of the existing contract.

Our performance obligations are satisfied over time as work progresses or at a point in time. Revenue from products and services transferred to customers over time accounted for 81% and 75% of our revenue for the three-month periods ended March 29, 2020, and March 31, 2019, respectively. Substantially all of our revenue in the defense segments is recognized over time, because control is transferred continuously to our customers. Typically, revenue is recognized over time using costs incurred to date relative to total estimated costs at completion to measure progress toward satisfying our performance obligations. Incurred cost represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. Contract costs include labor, material, overhead and, when appropriate, G&A expenses.

Revenue from goods and services transferred to customers at a point in time accounted for 19% and 25% of our revenue for the three-month periods ended March 29, 2020, and March 31, 2019, respectively. The majority of our revenue recognized at a point in time is for the manufacture of business-jet aircraft in

On March 29, 2020, we had $85.7 billion of remaining performance obligations, which we also refer to as total backlog. We expect to recognize approximately 55% of our remaining performance obligations as revenue by year-end 2021, an additional 30% by year-end 2023 and the balance thereafter.

Contract Estimates. The majority of our revenue is derived from long-term contracts and programs that can span several years. Accounting for long-term contracts and programs involves the use of various techniques to estimate total contract revenue and costs. For long-term contracts, we estimate the profit on a contract as the difference between the total estimated revenue and expected costs to complete a contract and recognize that profit over the life of the contract.

Contract estimates are based on various assumptions to project the outcome of future events that often span several years. These assumptions include labor productivity and availability; the complexity of the work to be performed; the cost and availability of materials; the performance of subcontractors; and the availability and timing of funding from the customer.

The nature of our contracts gives rise to several types of variable consideration, including claims and award and incentive fees. We include in our contract estimates additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include award or incentive fees in the estimated transaction price when there is a basis to reasonably estimate the amount of the fee. These estimates are based on historical award experience, anticipated performance and our best judgment at the time. Because of our certainty in estimating these amounts, they are included in the transaction price of our contracts and the associated remaining performance obligations.

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the impact of the adjustment on profit recorded to date on a contract is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on the contract, we recognize the total loss in the period it is identified.

The impact of adjustments in contract estimates on our operating earnings can be reflected in either operating costs and expenses or revenue. The aggregate impact of adjustments in contract estimates increased our revenue, operating earnings and diluted earnings per share as follows:



Three Months Ended	March 29, 2020		March 31, 2019
Aircraft manufacturing and completions	$	1,194	$	1,733
Aircraft services	497		507
Total Aerospace	1,691		2,240
Military vehicles	1,146		1,134
Weapons systems, armament and munitions	433		401
Engineering and other services	129		101
Total Combat Systems	1,708		1,636
IT services	1,988		2,169
Total Information Technology	1,988		2,169
C4ISR solutions	1,116		1,158
Total Mission Systems	1,116		1,158
Nuclear-powered submarines	1,560		1,377
Surface ships	462		446
Repair and other services	224		235
Total Marine Systems	2,246		2,058
Total revenue	$	8,749	$	9,261

Revenue by contract type was as follows:



Three Months Ended March 29, 2020	Aerospace		Combat Systems		Information Technology		Mission Systems		Marine Systems		Total Revenue
Fixed-price	$	1,478	$	1,465	$	769	$	620	$	1,569	$	5,901
Cost-reimbursement	—		229		893		454		675		2,251
Time-and-materials	213		14		326		42		2		597
Total revenue	$	1,691	$	1,708	$	1,988	$	1,116	$	2,246	$	8,749
Three Months Ended March 31, 2019
Fixed-price	$	2,040	$	1,416	$	921	$	651	$	1,416	$	6,444
Cost-reimbursement	—		211		841		463		640		2,155
Time-and-materials	200		9		407		44		2		662
Total revenue	$	2,240	$	1,636	$	2,169	$	1,158	$	2,058	$	9,261

Our segments operate under fixed-price, cost-reimbursement and time-and-materials contracts. Our production contracts are primarily fixed-price. Under these contracts, we agree to perform a specific scope of work for a fixed amount. Contracts for research, engineering, repair and maintenance, and other services are typically cost-reimbursement or time-and-materials. Under cost-reimbursement contracts, the customer reimburses contract costs incurred and pays a fixed, incentive or award-based fee. These fees are determined by our ability to achieve targets set in the contract, such as cost, quality, schedule and performance. Under time-and-materials contracts, the customer pays a fixed hourly rate for direct labor and generally reimburses us for the cost of materials.

Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with fixed-price contracts. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Cost-reimbursement contracts generally subject us to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under time-and-materials contracts, our profit may vary if actual labor-hour rates vary significantly from the negotiated rates. Also, because these contracts can provide little or no fee for managing material costs, the content mix can impact profitability.

Revenue by customer was as follows:



Three Months Ended March 29, 2020	Aerospace		Combat Systems		Information Technology		Mission Systems		Marine Systems		Total Revenue
U.S. government:
DoD	$	161	$	888	$	849	$	788	$	2,159	$	4,845
Non-DoD	—		3		1,078		106		1		1,188
Foreign Military Sales (FMS)	18		89		4		9		49		169
Total U.S. government	179		980		1,931		903		2,209		6,202
U.S. commercial	845		55		48		33		33		1,014
Non-U.S. government	16		663		9		143		3		834
Non-U.S. commercial	651		10		—		37		1		699
Total revenue	$	1,691	$	1,708	$	1,988	$	1,116	$	2,246	$	8,749
Three Months Ended March 31, 2019
U.S. government:
DoD	$	123	$	793	$	950	$	784	$	1,975	$	4,625
Non-DoD	—		3		1,166		135		—		1,304
FMS	15		79		5		9		44		152
Total U.S. government	138		875		2,121		928		2,019		6,081
U.S. commercial	1,329		50		40		35		36		1,490
Non-U.S. government	59		701		8		166		2		936
Non-U.S. commercial	714		10		—		29		1		754
Total revenue	$	2,240	$	1,636	$	2,169	$	1,158	$	2,058	$	9,261

Contract Balances. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customer advances and deposits (contract liabilities) on the Consolidated Balance Sheet. In our defense segments, amounts are billed as work progresses in accordance with agreed-upon contractual terms, either at periodic intervals (e.g., biweekly or monthly) or upon achievement of contractual milestones. Generally, billing occurs subsequent to revenue recognition, resulting in contract assets. However, we sometimes receive advances or deposits from our customers, particularly on our international contracts, before revenue is recognized, resulting in contract liabilities. These assets and liabilities are reported on the Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period. In our Aerospace segment, we generally receive deposits from customers upon contract execution and upon achievement of contractual milestones. These deposits are liquidated when revenue is recognized. Changes in the contract asset and liability balances during the three-month period ended March 29, 2020, were not materially impacted by any other factors.

Revenue recognized for the three-month periods ended March 29, 2020, and March 31, 2019, that was included in the contract liability balance at the beginning of each year was $1.2 billion and $1.7 billion, respectively. This revenue represented primarily the sale of business-jet aircraft.