Segment Information

The Company has four reportable segments, which are described in Note 1. The Company evaluates the performance of its operating segments and reportable segments based on their sales, operating income and operating margin. Corporate expenses are allocated to the Company’s operating segments using an allocation methodology prescribed by U.S. Government regulations for government contractors. Accordingly, segment results include all costs and expenses, except for goodwill impairment charges and certain other items that are excluded by management for purposes of evaluating the operating performance of the Company’s business segments.

The tables below present net sales, operating income, depreciation and amortization and total assets by reportable segment.



	First Quarter Ended
	March 30, 2018			March 31, 2017
	(in millions)
Net Sales:
Electronic Systems	$	802		$	760
Aerospace Systems	699			701
Communication Systems	499			543
Sensor Systems	412			354
Elimination of intercompany sales	(41		)	(37		)
Consolidated total	$	2,371		$	2,321
Operating Income:
Electronic Systems	$	108		$	90
Aerospace Systems	57			56
Communication Systems	37			42
Sensor Systems	49			49
Consolidated total	$	251		$	237
Depreciation and amortization:
Electronic Systems	$	19		$	18
Aerospace Systems	12			11
Communication Systems	13			12
Sensor Systems	12			11
Consolidated total	$	56		$	52



	March 30, 2018		December 31, 2017
	(in millions)
Total Assets:
Electronic Systems	$	4,966	$	4,796
Aerospace Systems	2,163		2,014
Communication Systems	2,128		2,063
Sensor Systems	2,814		2,706
Corporate	379		709
Assets held for sale	136		135
Assets of discontinued operations	287		306
Consolidated total	$	12,873	$	12,729

Disaggregation of Total Net Sales. The Company disaggregates its sales from contracts with customers by end customer, contract type, deliverable type and revenue recognition method for each of its segments, as the Company believes these factors affect the nature, amount, timing, and uncertainty of the Company’s revenue and cash flows.

Sales by End Customer. Direct sales to the end customer represented approximately 65% of the Company’s consolidated sales for the quarterly period ended March 30, 2018 and indirect sales as a subcontractor or supplier represented the remaining 35%. The table below presents total net sales disaggregated by end customer.



	First Quarter Ended March 30, 2018
End Customer	Electronic Systems		Aerospace Systems		Communication Systems		Sensor Systems		Consolidated L3
					(in millions)
Total DoD	$	417	$	568	$	371	$	206	$	1,562
Other U.S. Government	39		5		24		25		93
Total U.S. Government	456		573		395		231		1,655
Foreign governments ⁽¹⁾	68		103		34		126		331
Commercial — foreign	167		8		21		21		217
Commercial — domestic	94		2		43		29		168
Total	$	785	$	686	$	493	$	407	$	2,371

__________________


⁽¹⁾	Includes sales under foreign military sales agreements, which are made directly between the U.S. Government and foreign governments.

Sales by Contract Type. Generally, the sales price arrangements for the Company’s contracts are either fixed-price, cost-plus or time-and-material type. Fixed-price type contracts generally offer higher profit margin potential than cost-plus type or time-and-material type contracts due to the greater levels of risk assumed on a fixed-price type contract.

On a fixed-price type contract, the Company agrees to perform the contractual statement of work for a predetermined sales price. On a cost-plus type contract, the Company is paid its allowable incurred costs plus a profit which can be fixed or variable depending on the contract’s fee arrangement up to predetermined funding levels determined by the customer. Cost-plus type contracts with award and incentive fee provisions are the Company’s primary variable contract fee arrangement. On a time-and-material type contract, the Company is paid on the basis of direct labor hours expended at specified fixed-price hourly rates (that include wages, overhead, allowable general and administrative expenses and profit) and materials at cost.

Substantially all of the Company’s cost-plus type contracts and time-and-material type contracts are with U.S. Government customers, while sales to foreign government and commercial customers are generally transacted under fixed-price sales arrangements and are included in the Company’s fixed-price contract type sales. The table below presents total net sales disaggregated by contract type.



	First Quarter Ended March 30, 2018
Contract Type	Electronic Systems		Aerospace Systems		Communication Systems		Sensor Systems		Consolidated L3
					(in millions)
Fixed-price⁽¹⁾	$	664	$	366	$	329	$	333	$	1,692
Cost-plus⁽²⁾	108		269		148		71		596
Time-and-material	13		51		16		3		83
Total sales	$	785	$	686	$	493	$	407	$	2,371

__________________


⁽¹⁾	Includes fixed-price incentive fee type contracts, which contributed approximately 2% to the Company's total net sales.


⁽²⁾	Includes cost-plus award and incentive fee type contracts, which contributed approximately 4% to the Company's total net sales.

Sales by Deliverable Type: The table below presents total net sales disaggregated by the type of deliverable, which is determined by the Company at the performance obligation level.



	First Quarter Ended March 30, 2018
Sales by Deliverable Type	Electronic Systems		Aerospace Systems		Communication Systems		Sensor Systems		Consolidated L3
					(in millions)
Products	$	560	$	372	$	364	$	350	$	1,646
Services	225		314		129		57		725
Total sales	$	785	$	686	$	493	$	407	$	2,371

Revenue Recognition Method: The table below presents total net sales disaggregated based on the revenue recognition method applied.



	First Quarter Ended March 30, 2018
Revenue Recognition Method	Electronic Systems		Aerospace Systems		Communication Systems		Sensor Systems		Consolidated L3
					(in millions)
Cost to cost method	$	533	$	666	$	390	$	213	$	1,802
Point in time	194		2		77		159		432
Output method	51		—		7		16		74
Billing method	7		18		19		19		63
Total sales	$	785	$	686	$	493	$	407	$	2,371