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Business Segments
 3 Months Ended
Sep. 30, 2016
Segment Reporting [Abstract]  
Business Segments
Business Segments
We structure our operations primarily around the products and services we sell and the markets we serve, and we report the financial results of our operations in the following four operating segments, which are also our reportable segments and are referred to as our business segments:
•
Communication Systems, serving markets in tactical communications and defense and public safety networks;
•
Space and Intelligence Systems, providing complete Earth observation, environmental, geospatial, space protection, and intelligence solutions from advanced sensors and payloads, as well as ground processing and information analytics;
•
Electronic Systems, offering an extensive portfolio of solutions in electronic warfare, avionics, wireless technology, command, control, communications, computers and intelligence and undersea systems; and
•
Critical Networks, providing managed services supporting air traffic management, energy and maritime communications, and ground network operation and sustainment, as well as high-value IT and engineering services.
The accounting policies of our business segments are the same as those described in Note 1: “Significant Accounting Policies” in our Notes to Consolidated Financial Statements in our Fiscal 2016 Form 10-K. We evaluate each segment’s performance based on its operating income or loss, which we define as profit or loss from operations before income taxes excluding interest income and expense, royalties and related intellectual property expenses, equity method investment income or loss and gains or losses from securities and other investments. Intersegment sales are generally transferred at cost to the buying segment, and the sourcing segment recognizes a profit that is eliminated. The “Corporate eliminations” line items in the tables below represent the elimination of intersegment sales and their related profits. The “Unallocated corporate expense” line item in the tables below represents the portion of corporate expenses not allocated to our business segments.
Total assets by business segment are summarized below:
 
 
 
September 30,
2016
 
July 1,
2016
 
 
 
 
 
 
 
(In millions)
Total Assets
 
 
 
Communication Systems
$
1,683

 
$
1,667

Space and Intelligence Systems
2,150

 
2,149

Electronic Systems
2,268

 
2,253

Critical Networks
2,978

 
3,001

Corporate (1)
2,699

 
2,926

 
$
11,778

 
$
11,996

 
 
 
 
 
(1)
Identifiable intangible assets acquired in connection with our acquisition of Exelis Inc. (“Exelis”) in the fourth quarter of fiscal 2015 were recorded as Corporate assets because they benefit the entire Company as opposed to any individual segment. Exelis identifiable intangible asset balances recorded as Corporate assets were $1.4 billion as of September 30, 2016 and July 1, 2016.
Segment revenue, segment operating income and a reconciliation of segment operating income to total income before income taxes follow:
 
 
 
Quarter Ended
 
 
September 30,
2016
 
October 2,
2015
 
 
 
 
 
 
 
(In millions)
Revenue
 
 
 
Communication Systems
$
431

 
$
454

Space and Intelligence Systems
453

 
435

Electronic Systems
361

 
374

Critical Networks
527

 
566

Corporate eliminations
(18
)
 
(18
)
 
$
1,754

 
$
1,811

Income Before Income Taxes
 
 
 
Segment Operating Income:
 
 
 
Communication Systems
$
119

 
$
138

Space and Intelligence Systems
80

 
68

Electronic Systems
74

 
69

Critical Networks
66

 
63

Unallocated corporate expense (1)
(70
)
 
(75
)
Corporate eliminations
(1
)
 
(1
)
Non-operating income
—

 
1

Net interest expense
(43
)
 
(47
)
 
$
225

 
$
216

 
 
 
 
 
(1)
Unallocated corporate expense included: (i) charges of $17 million and $23 million in the quarters ended September 30, 2016 and October 2, 2015, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015 and (ii) $33 million of expense in the quarters ended September 30, 2016 and October 2, 2015 for amortization of intangible assets acquired as a result of our acquisition of Exelis. Because the acquisition of Exelis benefited the entire Company as opposed to any individual segment, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.