Business Segments

6 Months Ended

Dec. 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 and ground network operation and sustainment, as well as high-value IT and engineering services.

In the second quarter of fiscal 2017, we entered into a definitive agreement to sell our CapRock business. CapRock was formerly part of our Critical Networks segment and is reported as discontinued operations in this Report. As a result, our historical financial results have been restated to account for CapRock as discontinued operations for all periods presented in this Report. See Note B — Discontinued Operations in these Notes for additional information regarding discontinued operations. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in the accompanying Condensed Consolidated Financial Statements (Unaudited) and these Notes relate solely to our continuing operations.

Beginning with the third quarter of fiscal 2017, we will report the financial results of our operations in the following three business segments: Communication Systems, Space and Intelligence Systems and Electronic Systems. See “Business Segments” under Note S — Subsequent Events in these Notes for additional information.

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:

	December 30, 2016		July 1, 2016
	(In millions)
Total Assets
Communication Systems	$	1,606	$	1,667
Space and Intelligence Systems	2,119		2,149
Electronic Systems	2,241		2,253
Critical Networks	2,639		2,656
Corporate (1) (2)	3,013		3,268
	$	11,618	$	11,993

(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 December 30, 2016 and July 1, 2016.

(2) Corporate assets include the assets and liabilities of discontinued operations. See Note B — Discontinued Operations in these Notes for additional information regarding discontinued operations.

Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes follow:

	Quarter Ended						Two Quarters Ended
	December 30, 2016			January 1, 2016			December 30, 2016			January 1, 2016
	(In millions)
Revenue
Communication Systems	$	413		$	489		$	843		$	943
Space and Intelligence Systems	468			446			921			881
Electronic Systems	384			381			745			756
Critical Networks	454			446			905			910
Corporate eliminations	(19		)	(14		)	(36		)	(32		)
	$	1,700		$	1,748		$	3,378		$	3,458
Income From Continuing Operations Before Income Taxes
Segment Operating Income:
Communication Systems (1)	$	121		$	121		$	240		$	259
Space and Intelligence Systems	77			68			157			135
Electronic Systems	79			63			153			132
Critical Networks (2)	75			63			135			123
Unallocated corporate income (expense) (3)	(65		)	14			(135		)	(61		)
Corporate eliminations	(1		)	(1		)	(2		)	(2		)
Non-operating income	1			—			2			1
Net interest expense	(43		)	(46		)	(87		)	(92		)
	$	244		$	282		$	463		$	495

(1) Communication Systems operating income included $17 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions, facility consolidation and other items. We recorded $14 million of these charges in the “Cost of product sales and services” line item and the remaining $3 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

(2) Critical Networks operating income included $4 million of charges in the quarter and two quarters ended January 1, 2016, primarily related to workforce reductions and facility consolidation. We recorded these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited).

(3) Unallocated corporate income (expense) included: (i) the impact of a net liability reduction of $101 million in the quarter and two quarters ended January 1, 2016 for certain post-employment benefit plans, (ii) charges of $13 million and $29 million in the quarter and two quarters ended December 30, 2016, respectively, compared with charges of $41 million and $61 million in the quarter and two quarters ended January 1, 2016, respectively, for integration and other costs associated with our acquisition of Exelis in the fourth quarter of fiscal 2015 and (iii) $33 million and $66 million of expense in the quarters and two quarters ended December 30, 2016 and January 1, 2016, respectively, 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.