Business Segments

6 Months Ended

Jan. 01, 2016

Business Segments [Abstract]

Business Segments

Note R— Business Segments

We adjusted our segment reporting in the first quarter of fiscal 2016 to reflect our new organizational structure that was effective at the beginning of fiscal 2016. We structure our operations primarily around the products and services we sell and the markets we serve, and commencing with the first quarter of fiscal 2016, 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 and airborne radios, night vision technology, 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 (“C4I”), undersea systems and aerostructures; 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 information technology (“IT”) and engineering services.

The historical results, discussion and presentation of our business segments as set forth in this Quarterly Report on Form 10-Q reflect the impact of these adjustments for all periods presented. There is no impact on our previously reported consolidated statements of income, balance sheets or statements of cash flows resulting from these adjustments.

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 2015 Form 10-K. We evaluate each segment's performance based on its operating income or loss, which we define as profit or loss fromoperations 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:

	January 1,		July 3,
	2016		2015
	(In millions)
Total Assets
Communication Systems	$	1,722	$	1,906
Space and Intelligence Systems		2,078		2,096
Electronic Systems		2,511		2,513
Critical Networks		2,999		3,492
Corporate (1)		2,787		3,120
	$	12,097	$	13,127
_____________

(1)Because the acquisition of Exelis in the fourth quarter of fiscal 2015 benefited the entire Company as opposed to any individual segments, the approximately $1.6 billion of identifiable intangible assets acquired in the Exelis acquisition was recorded as Corporate assets.

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

		Quarter Ended				Two Quarters Ended
		January 1,		January 2,		January 1,		January 2,
		2016		2015		2016		2015
		(In millions)
Revenue
Communication Systems		$	489	$	435	$	943	$	824
Space and Intelligence Systems			446		221		881		474
Electronic Systems			382		128		756		237
Critical Networks			541		423		1,107		830
Corporate eliminations			(15)		(1)		(33)		(4)
		$	1,843	$	1,206	$	3,654	$	2,361
Income (Loss) From Continuing Operations Before Income Taxes
Segment Operating Income (Loss):
	Communication Systems (1)		121	$	126	$	259	$	242
	Space and Intelligence Systems		67		34		135		71
	Electronic Systems		63		24		132		46
	Critical Networks (2)		(308)		50		(245)		92
Unallocated corporate income (expense) (3)			14		(21)		(61)		(38)
Corporate eliminations			(1)		(3)		(2)		(5)
Non-operating income			―		―		1		―
Net interest expense			(45)		(21)		(92)		(43)
		$	(89)	$	189	$	127	$	365
____________

(1)Communication Systemsoperating 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 loss in the quarter and two quarters ended January 1, 2016 included a preliminary estimate of $367 million for a non-cash impairment charge to write down goodwill and other assets related to Harris CapRock Communications. We recorded this charge in the “Impairment of goodwill and other assets” line item in the accompanying Condensed Consolidated Statement of Income (Unaudited). Additionally, operating loss included $12 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 $46 million and $69 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 quarter and two quarters ended 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 segments, the amortization of identifiable intangible assets acquired in the Exelis acquisition was recorded as unallocated corporate expense.