Note Q — Business Segments

We structure our operations primarily around the products, systems and services we sell and the markets we serve, and we report the financial results of our continuing operations in the following three reportable segments, which are also referred to as our business segments:


•	Communication Systems, serving markets in tactical communications and defense products, including tactical ground and airborne radio communications solutions and night vision technology, and in public safety networks;


•	Electronic Systems, providing electronic warfare, avionics, and command, control, communications, computers, intelligence, surveillance and reconnaissance (“C4ISR”) solutions for the defense industry and ATM solutions for the civil aviation industry; and


•	Space and Intelligence Systems, providing intelligence, space protection, geospatial, complete Earth observation, universe exploration, positioning, navigation and timing (“PNT”), and environmental solutions for national security, defense, civil and commercial customers, using advanced sensors, antennas and payloads, as well as ground processing and information analytics.

As described in more detail in “Basis of Presentation” in Note A — Significant Accounting Policies and Recent Accounting Standards and Note B — Discontinued Operations in these Notes, in connection with our divestiture of CapRock and entering into the definitive agreement to sell IT Services in the third quarter of fiscal 2017, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business primarily serving the FAA, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated. The historical results, discussion and presentation of our business segments as set forth in our Condensed Consolidated Financial Statements (Unaudited) and these Notes reflect the impact of these changes for all periods presented in order to present all segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these segment changes.

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 2017 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 item in the table below represents the elimination of intersegment sales. The “Unallocated corporate expense and corporate eliminations” line item in the table below represents the portion of corporate expenses not allocated to our business segments and elimination of intersegment profits.

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



	Quarter Ended						Three Quarters Ended
	March 30, 2018			March 31, 2017			March 30, 2018			March 31, 2017

	(In millions)
Revenue
Communication Systems	$	481		$	461		$	1,380		$	1,304
Electronic Systems	609			553			1,733			1,660
Space and Intelligence Systems	482			475			1,413			1,396
Corporate eliminations	(4		)	—			(10		)	(2		)
	$	1,568		$	1,489		$	4,516		$	4,358
Income From Continuing Operations Before Income Taxes
Segment Operating Income:⁽¹⁾
Communication Systems	$	147		$	140		$	409		$	379
Electronic Systems	112			115			322			360
Space and Intelligence Systems	82			76			250			231
Unallocated corporate expense and corporate eliminations⁽²⁾	(85		)	(56		)	(181		)	(172		)
Non-operating income (loss)	—			—			(2		)	2
Net interest expense	(41		)	(42		)	(123		)	(129		)
	$	215		$	233		$	675		$	671


(1)	Segment operating income for the quarter and three quarters ended March 31, 2017 included stranded costs and Financial Accounting Standards (“FAS”) pension income previously reported as part of our former Critical Networks segment but now re-allocated to our remaining three segments.

(2)

Unallocated corporate expense and corporate eliminations included: (i) $45 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business in the quarter and three quarters ended March 30, 2018 (see Note D — Restructuring and Other Exit Costs in these Notes for additional information), (ii) a $12 million adjustment for deferred compensation in the three quarters ended March 30, 2018, (iii) $8 million and $38 million of Exelis acquisition-related charges in the quarter and three quarters ended March 31, 2017, respectively, and (iv) $25 million and $75 million of expense in the quarter and three quarters ended March 30, 2018, respectively, compared with $27 million and $82 million of expense in the quarter and three quarters ended March 31, 2017, respectively, for amortization of identifiable 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. Corporate eliminations of intersegment profits were not material in the quarter and three quarters ended March 30, 2018 or in the quarter and three quarters ended March 31, 2017.

Total assets by business segment are summarized below:



	March 30, 2018		June 30, 2017

	(In millions)
Total Assets
Communication Systems	$	1,592	$	1,534
Electronic Systems	4,177		4,094
Space and Intelligence Systems	2,190		2,117
Corporate⁽¹⁾	2,111		2,345
	$	10,070	$	10,090

(1)

Identifiable intangible assets acquired in connection with our acquisition of 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 approximately $1 billion as of March 30, 2018 and June 30, 2017. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan assets and buildings and equipment.