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 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, 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 Note 1: Significant Accounting Policies under “Principles of Consolidation” and in Note 3: Discontinued Operations and Divestitures, we completed the divestiture of CapRock in the third quarter of fiscal 2017 and the divestiture of IT Services in the fourth quarter of fiscal 2017. CapRock and IT Services were part of our former Critical Networks segment and are reported as discontinued operations in the Consolidated Financial Statements and these Notes. Our historical financial results for all periods presented have been restated to account for businesses reported as discontinued operations in the Consolidated Financial Statements and these Notes. Except for disclosures related to our cash flows, or unless otherwise specified, disclosures in our Consolidated Financial Statements and these Notes relate solely to our continuing operations.

In connection with entering into the definitive agreement to sell IT Services, our other remaining operations that had been part of our former Critical Networks segment, including our ATM business, primarily serving the FAA and our PMRF program, were integrated with our Electronic Systems segment effective for the third quarter of fiscal 2017, and our Critical Networks segment was eliminated.

Total assets by business segment is as follows:

Total Assets



	2017		2016

	(In millions)

Communication Systems	$	1,534	$	1,667
Electronic Systems	4,094		4,094
Space and Intelligence Systems	2,117		2,149
Corporate ⁽¹⁾⁽²⁾	2,345		4,099
	$	10,090	$	12,009

(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 of continuing operations recorded as Corporate assets were approximately $1.1 billion and $1.2 billion as of June 30, 2017 and July 1, 2016, respectively.


(2)	Corporate assets primarily consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment and identifiable intangibles, and also included any assets and liabilities from discontinued operations. See Note 3: Discontinued Operations and Divestitures for additional information regarding discontinued operations.

Other selected financial information by business segment and geographical area is summarized below:



	2017		2016		2015

	(In millions)
Capital Expenditures
Communication Systems	$	14	$	16	$	26
Electronic Systems	40		40		29
Space and Intelligence Systems	34		38		52
Corporate	27		41		7
Discontinued operations	4		19		34
	$	119	$	154	$	148
Depreciation and Amortization
Communication Systems	$	64	$	63	$	65
Electronic Systems	29		56		36
Space and Intelligence Systems	37		40		32
Corporate	142		124		27
Discontinued operations	39		78		84
	$	311	$	361	$	244
Geographical Information for Continuing Operations
U.S. operations:
Revenue	$	5,639	$	5,798	$	3,756
Long-lived assets	$	896	$	917	$	1,020
International operations:
Revenue	$	261	$	194	$	129
Long-lived assets	$	8	$	7	$	11

Depreciation and amortization included intangible asset and capitalized software amortization and debt premium, debt discount, and debt issuance costs amortization of $137 million, $140 million and $48 million in fiscal 2017, 2016 and 2015, respectively.

Our products and systems are produced principally in the United States with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during fiscal 2017, 2016 or 2015.

Sales made to U.S. Government customers, including foreign military sales funded through the U.S. Government, whether directly or through prime contractors, by all segments as a percentage of total revenue were 74 percent, 77 percent, and 66 percent in fiscal 2017, 2016 and 2015, respectively. Revenue from services in fiscal 2017 was approximately 13 percent, 12 percent and 34 percent of total revenue in our Communication Systems, Electronic Systems and Space and Intelligence Systems segments, respectively.

Revenue from products and services exported from the U.S., including foreign military sales and products manufactured or services rendered abroad in fiscal 2017, 2016 and 2015 was $1.3 billion (22 percent of our revenue), $1.2 billion (20 percent of our revenue) and $1.1 billion (29 percent of our revenue), respectively. Fiscal 2017 export revenue and revenue from international operations was principally from Europe, Asia, the Middle East, Africa, Australia and Canada.

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

Revenue



	2017			2016			2015

	(In millions)
Communication Systems	$	1,753		$	1,864		$	1,836
Electronic Systems	2,251			2,233			1,019
Space and Intelligence Systems	1,902			1,899			1,007
Corporate eliminations	(6		)	(4		)	23
	$	5,900		$	5,992		$	3,885

Income From Continuing Operations Before Income Taxes



	2017			2016			2015

	(In millions)
Segment Operating Income:⁽¹⁾
Communication Systems ⁽²⁾	$	524		$	522		$	553
Electronic Systems	464			430			163
Space and Intelligence Systems	311			288			136
Unallocated corporate expense ⁽³⁾	(223		)	(180		)	(210		)
Corporate eliminations	(3		)	(5		)	(10		)
Non-operating income (loss) ⁽⁴⁾	2			10			(108		)
Net interest expense	(170		)	(181		)	(128		)
	$	905		$	884		$	396


(1)	Segment operating income includes 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)

Communication Systems operating income in fiscal 2016 included $20 million of charges 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 $6 million of these charges in the “Engineering, selling and administrative expenses” line item in the accompanying Consolidated Statement of Income.

(3)

Unallocated corporate expense included: (i) the impact of a net liability reduction of $101 million in fiscal 2016 for certain post-employment benefit plans, (ii) $58 million and $121 million of Exelis acquisition-related and other charges in fiscal 2017 and fiscal 2016, respectively, and (iii) $109 million of expense in each of fiscal 2017 and fiscal 2016 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.


(4)	Non-operating income (loss) in fiscal 2015 included loss on prepayment of long-term debt. Additional information regarding non-operating income (loss) is set forth in Note 21: Non-Operating Income (Loss).