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Summary of Significant Accounting Policies (Tables)
 12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Schedule of Change in Accounting Estimate
The aggregate impact of net changes in contract estimates is presented in the table below.
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
 
 
(in millions, except per share data)
Operating income
 
$
213

 
$
185

 
$
149

Diluted earnings per share
 
$
2.03

 
$
1.49

 
$
1.23
Schedule of New Accounting Pronouncements and Changes in Accounting Principles
The table below presents the cumulative effect of the changes made to the consolidated January 1, 2018 balance sheet due to the adoption of ASC 606.
BALANCE SHEET
December 31, 2017
As Reported
Under ASC 605
 
Adjustments Due
to ASC 606
 
January 1, 2018 As
Adjusted Under
ASC 606
 
(in millions)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Contract assets
$
—

 
$
1,349

 
$
1,349

Contracts in process
1,933

 
(1,933
)
 
—

Inventories
389

 
537

 
926

Prepaid expenses and other current assets
300

 
17

 
317

Assets held for sale
135

 
3

 
138

Assets of discontinued operations
306

 
(21
)
 
285

Total current assets
4,448

 
(48
)
 
4,400

Other assets
264

 
49

 
313

Total assets
$
12,729

 
$
1

 
$
12,730

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accrued expenses
$
217

 
$
(13
)
 
$
204

Contract liabilities
—

 
565

 
565

Advance payments and billing in excess of costs incurred
509

 
(509
)
 
—

Other current liabilities
367

 
(49
)
 
318

Liabilities held for sale
17

 
(1
)
 
16

Liabilities of discontinued operations
226

 
(23
)
 
203

Total current liabilities
2,379

 
(30
)
 
2,349

Deferred income taxes
158

 
4

 
162

Other liabilities
398

 
14

 
412

Total liabilities
7,578

 
(12
)
 
7,566

Shareholders' Equity
 
 
 
 
 
Retained earnings
6,659

 
13

 
6,672

Total equity
$
5,151

 
$
13

 
$
5,164

The table below presents the impact of the adoption of ASC 606 on the Company's statement of operations.
 
Year Ended December 31, 2018
STATEMENT OF OPERATIONS
Under
ASC 605
 
Effect of
ASC 606
 
As Reported
Under ASC 606
 
(in millions)
Net Sales:
 
 
 
 
 
Products
$
7,004

 
$
161

 
$
7,165

Services
3,101

 
(22
)
 
3,079

Total
10,105

 
139

 
10,244

 
 
 
 
 
 
Operating costs and expenses:
 
 
 
 
 
Cost of sales — Products
$
(5,235
)
 
$
(110
)
 
$
(5,345
)
Cost of sales — Services
(2,193
)
 
1

 
(2,192
)
 General and administrative expenses
(1,598
)
 
(3
)
 
(1,601
)
 Gain on sale of the Crestview & TCS Businesses
41

 
1

 
42

 Merger and acquisition related expenses
(28
)
 
—

 
(28
)
Operating income
1,092

 
28

 
1,120

Income from continuing operations before income taxes
896

 
28

 
924

Provision for income taxes
(96
)
 
(7
)
 
(103
)
Income from continuing operations
800

 
21

 
821

Income from discontinued operations, net of income taxes
214

 
(9
)
 
205

Net income
1,014

 
12

 
1,026

Net income attributable to L3
$
993

 
$
12

 
$
1,005

 
 
 
 
 
 
Basic earnings per share attributable to common shareholders:
 
 
 
 
 
Continuing operations
$
9.92

 
$
0.27

 
$
10.19

Discontinued operations
2.73

 
(0.12
)
 
2.61

Basic earnings per share
$
12.65

 
$
0.15

 
$
12.80

Diluted earnings per share attributable to common shareholders:
 
 
 
 
 
Continuing operations
$
9.79

 
$
0.26

 
$
10.05

Discontinued operations
2.69

 
(0.11
)
 
2.58

Diluted earnings per share
$
12.48

 
$
0.15

 
$
12.63

The following table quantifies the impact of adopting ASC 606 on segment net sales and segment operating income.
 
Effect of ASC 606
 
Year Ended December 31, 2018
 
Sales
 
Operating Income
 
(in millions)
ISRS
$
21

 
$
1

C&NS
68

 
12

Electronic Systems
50

 
14

Segment totals
$
139

 
$
27

The table below presents the impact of the adoption of ASC 606 on the Company's balance sheet.
 
December 31, 2018
BALANCE SHEET
Under
ASC 605
 
Effect of
ASC 606
 
As Reported
Under ASC 606
 
(in millions)
Assets
 
 
 
 
 
Current assets:
 
 
 
 
 
Contract assets
$
—

 
$
1,590

 
$
1,590

Contracts in process
2,127

 
(2,127
)
 
—

Inventories
393

 
486

 
879

Prepaid expenses and other current assets
340

 
16

 
356

Total current assets
4,845

 
(35
)
 
4,810

Other assets
295

 
46

 
341

Total assets
$
13,507

 
$
11

 
$
13,518

 
 
 
 
 
 
Liabilities
 
 
 
 
 
Current liabilities:
 
 
 
 
 
Accrued expenses
$
275

 
$
(24
)
 
$
251

Contract liabilities
—

 
669

 
669

Advance payments and billings in excess of costs incurred
604

 
(604
)
 
—

Income taxes payable
53

 
(4
)
 
49

Other current liabilities
364

 
(76
)
 
288

Total current liabilities
2,486

 
(39
)
 
2,447

Deferred income taxes
185

 
11

 
196

Other liabilities
422

 
14

 
436

Total liabilities
7,625

 
(14
)
 
7,611

Shareholders' Equity
 
 

 
 
Retained earnings
7,399

 
25

 
7,424

Total equity
$
5,882

 
$
25

 
$
5,907

The aggregate impact of net changes in contract estimates is presented in the table below.
 
 
Year Ended December 31,
 
 
2018
 
2017
 
2016
 
 
(in millions, except per share data)
Operating income
 
$
213

 
$
185

 
$
149

Diluted earnings per share
 
$
2.03

 
$
1.49

 
$
1.23
Summary of Net Sales by Revenue Recognition Method as Percentage of Total Net Sales
The following table presents a summary of the Company’s net sales by revenue recognition method as a percentage of total net sales for the year ended December 31, 2018.
 
% of Total Net Sales
Over time (cost-to-cost method)
74
%
Point in time
19
%
Output method
4
%
Billing method
3
%
Total
100
%
Changes in Company's Accrued Product Warranty Costs
The table below presents the changes in the Company’s accrued product warranty costs.
 
Year Ended December 31,
 
2018
 
2017
 
(in millions)
Accrued product warranty costs(1):
 
 
 
Balance at January 1
$
99

 
$
109

Acquisitions during the period
—

 
3

Accruals for product warranties issued during the period
44

 
52

Changes to accruals for product warranties existing before January 1
1

 
—

Settlements made during the period
(55
)
 
(66
)
Foreign currency translation adjustments
(1
)
 
1

Balance at December 31
$
88

 
$
99


__________________
(1) 
The balances above include both the current and non-current amounts.