Note Q — Business Segment Information

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 defense and classified customers and mission-critical communication systems for civil and military aviation and other customers; 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 discussed in more detail in Note A — Significant Accounting Policies and Recent Accounting Standards in these Notes and in Note 1: “Significant Accounting Policies” and Note 2: “Accounting Changes or Recent Accounting Pronouncements” in our Notes to Consolidated Financial Statements in our Fiscal 2017-2018 Update 8-K, effective June 30, 2018, we adopted ASC 606 and ASU 2017-07 using the full retrospective method. 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 our adoption of ASC 606 and ASU 2017-07 for all periods presented in order to present all segment information on a comparable basis. 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 2017-2018 Update 8-K.

We evaluate each segment’s performance based on segment operating income or loss, which we define as profit or loss from operations before income taxes, including pension income and 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 the elimination of intersegment profits. The “Pension adjustment” line item in the table below represents the reconciliation of the non-service components of net periodic pension and postretirement benefit costs, which are a component of segment operating income but are included in the “Non-operating income” line item in our Condensed Consolidated Statement of Income (Unaudited) as a result of our adoption of ASU 2017-07 as discussed in Note A — Significant Accounting Policies and Recent Accounting Standards in these Notes. The non-service components of net periodic pension and postretirement benefit costs include interest cost, expected return on plan assets and amortization of net actuarial gain.

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						Two Quarters Ended
	December 28, 2018			December 29, 2017			December 28, 2018			December 29, 2017

	(In millions)
Revenue
Communication Systems	$	540		$	492		$	1,009		$	898
Electronic Systems	617			582			1,206			1,123
Space and Intelligence Systems	513			462			1,001			928
Corporate eliminations	(4		)	(1		)	(8		)	(4		)
	$	1,666		$	1,535		$	3,208		$	2,945
Income From Continuing Operations Before Income Taxes
Segment Operating Income:
Communication Systems	$	162		$	145		$	302		$	260
Electronic Systems	117			97			232			206
Space and Intelligence Systems	92			80			178			167
Unallocated corporate expense and corporate eliminations⁽¹⁾	(58		)	(54		)	(99		)	(96		)
Pension adjustment	(46		)	(46		)	(93		)	(92		)
Non-operating income	47			44			94			90
Net interest expense	(43		)	(41		)	(86		)	(82		)
	$	271		$	225		$	528		$	453

_______________

(1)

Unallocated corporate expense and corporate eliminations included: (i) $13 million of L3 Technologies, Inc. (“L3”) merger-related transaction and integration costs for the quarter and two quarters ended December 28, 2018; (ii) a $12 million adjustment for deferred compensation in the quarter and two quarters ended December 29, 2017 and (iii) $26 million and $51 million of expense in the quarter and two quarters ended December 28, 2018, respectively, compared with $25 million and $50 million of expense in the quarter and two quarters ended December 29, 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 or two quarters ended December 28, 2018 or the quarter or two quarters ended December 29, 2017.

Disaggregation of Revenue

Communication Systems: Communication Systems operates principally on a “commercial” market-driven business model through which the business segment provides ready-to-ship commercial off-the-shelf products to customers in the U.S. and internationally. Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when the product is received and accepted by the customer. We disaggregate Communication Systems revenue by geographical region, as we believe this category best depicts how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:



	Quarter Ended				Two Quarters Ended
	December 28, 2018		December 29, 2017		December 28, 2018		December 29, 2017

	(In millions)
Revenue By Geographical Region
United States	$	299	$	276	$	558	$	484
International	241		216		451		414
	$	540	$	492	$	1,009	$	898

Electronic Systems: Electronic Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Electronic Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Electronic Systems revenue and cash flows are affected by economic factors:



	Quarter Ended				Two Quarters Ended
	December 28, 2018		December 29, 2017		December 28, 2018		December 29, 2017

	(In millions)
Revenue By Customer Relationship
Prime contractor	$	399	$	410	$	793	$	808
Subcontractor	218		172		413		315
	$	617	$	582	$	1,206	$	1,123
Revenue By Contract Type
Fixed-price⁽¹⁾	$	508	$	463	$	986	$	885
Cost-reimbursable	109		119		220		238
	$	617	$	582	$	1,206	$	1,123
Revenue By Geographical Region
United States	$	486	$	464	$	964	$	890
International	131		118		242		233
	$	617	$	582	$	1,206	$	1,123

_______________


(1)	Includes revenue derived from time-and-materials contracts.

Space and Intelligence Systems: Space and Intelligence Systems revenue is primarily derived from U.S. Government development and production contracts and is generally recognized over time using the POC cost-to-cost method. We disaggregate Space and Intelligence Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Space and Intelligence Systems revenue and cash flows are affected by economic factors:



	Quarter Ended				Two Quarters Ended
	December 28, 2018		December 29, 2017		December 28, 2018		December 29, 2017

	(In millions)
Revenue By Customer Relationship
Prime contractor	$	362	$	329	$	714	$	663
Subcontractor	151		133		287		265
	$	513	$	462	$	1,001	$	928
Revenue By Contract Type
Fixed-price⁽¹⁾	$	188	$	120	$	360	$	243
Cost-reimbursable	325		342		641		685
	$	513	$	462	$	1,001	$	928
Revenue By Geographical Region
United States	$	500	$	446	$	976	$	898
International	13		16		25		30
	$	513	$	462	$	1,001	$	928

_______________


(1)	Includes revenue derived from time-and-materials contracts.

Total assets by business segment are summarized below:



	December 28, 2018		June 29, 2018

	(In millions)
Total Assets
Communication Systems	$	1,578	$	1,567
Electronic Systems	4,196		4,174
Space and Intelligence Systems	2,242		2,193
Corporate⁽¹⁾	1,836		1,917
	$	9,852	$	9,851

_______________

(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 benefited the entire Company as opposed to any individual segment. Exelis identifiable intangible asset balances recorded as Corporate assets were $923 million and $974 million at December 28, 2018 and June 29, 2018, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan assets and buildings and equipment.