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BUSINESS SEGMENTS | 6 Months Ended
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Jan. 03, 2020
Segment Reporting [Abstract] |
BUSINESS SEGMENTS | NOTE 25: BUSINESS SEGMENTS During the two quarters ended January 3, 2020, we adjusted our segment reporting to reflect our new organizational structure announced July 1, 2019. We structure our operations primarily around the products and services we sell and the markets we serve, and effective June 29, 2019, 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:
• | Integrated Mission Systems, including multi-mission ISR and communication systems; integrated electrical and electronic systems for maritime platforms; and advanced electro-optical and infrared solutions;
• | Space and Airborne Systems, including space payloads, sensors and full-mission solutions; classified intelligence and cyber defense; avionics; and electronic warfare;
• | Communication Systems, including tactical communications; broadband communications; integrated vision solutions; and public safety; and
• | Aviation Systems, including defense aviation products; security, detection and other commercial aviation products; commercial and military pilot training; and mission networks for air traffic management.
The historical results, discussion and presentation of our business segments as set forth in our Consolidated Financial Statements and these Notes reflect the impact of these adjustments to our segment reporting for all periods presented in order to present the segment information on a comparable basis. There is no impact on our previously reported consolidated statements of income, balance sheets, statements of cash flows or statements of equity resulting from these adjustments. Segment revenue, segment operating income and a reconciliation of segment operating income to total income from continuing operations before income taxes are as follows:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue |  |  |  |  |  |  |
Integrated Mission Systems | $ | 2,774 |  |  | $ | 48 |  |  | $ | 45 |  |  | $ | 38 |
Space and Airborne Systems | 2,360 |  |  | 3,715 |  |  | 3,304 |  |  | 3,156 |
Communication Systems | 2,151 |  |  | 2,208 |  |  | 2,015 |  |  | 1,891 |
Aviation Systems | 2,038 |  |  | 672 |  |  | 668 |  |  | 697 |
Other non-reportable business segments(1) | 23 |  |  | 165 |  |  | 148 |  |  | 121 |
Corporate eliminations | (83 | ) |  | (7 | ) |  | (12 | ) |  | (6 | )
| $ | 9,263 |  |  | $ | 6,801 |  |  | $ | 6,168 |  |  | $ | 5,897 |
Income from Continuing Operations before Income Taxes
Segment Operating Income: |  |  |  |  |  |  |
Integrated Mission Systems | $ | 377 |  |  | $ | 9 |  |  | $ | 7 |  |  | $ | 7 |
Space and Airborne Systems | 442 |  |  | 697 |  |  | 628 |  |  | 559 |
Communication Systems | 493 |  |  | 637 |  |  | 561 |  |  | 522 |
Aviation Systems | 289 |  |  | 76 |  |  | 54 |  |  | 131 |
Other business activities and non-reportable business segments(1) | — |  |  | 27 |  |  | 20 |  |  | 9 |
Unallocated corporate expenses and corporate eliminations(2) | (140 | ) |  | (2 | ) |  | (65 | ) |  | (62 | )
L3Harris Merger-related transaction and integration expenses and losses | (390 | ) |  | (65 | ) |  | — |  |  | — |
Amortization of acquisition-related intangibles(3) | (289 | ) |  | (101 | ) |  | (101 | ) |  | (109 | )
Gain on sale of business | 229 |  |  | — |  |  | — |  |  | — |
Pension adjustment | (172 | ) |  | (186 | ) |  | (184 | ) |  | (164 | )
Non-operating income | 192 |  |  | 188 |  |  | 156 |  |  | 166 |
Net interest expense | (123 | ) |  | (167 | ) |  | (168 | ) |  | (170 | )
Total | $ | 908 |  |  | $ | 1,113 |  |  | $ | 908 |  |  | $ | 889 |
_______________
(1) | Includes the operating results of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for more information.
(2) | Includes: (i) $142 million of additional cost of sales related to the fair value step-up in inventory sold (see Note 5: Business Combination in these Notes for more information), a $12 million gain on the sale of an asset group and a $10 million non-cash cumulative adjustment to lease expense for the two quarters ended January 3, 2020; (ii) $47 million of charges related to our decision to transition and exit a commercial air-to-ground LTE radio communications line of business and other items, a $12 million non-cash adjustment for deferred compensation and $5 million of Exelis acquisition-related and other charges in fiscal 2018; and (iii) $58 million of Exelis acquisition-related and other charges in fiscal 2017.
(3) | Includes $239 million of amortization of identifiable intangible assets acquired as a result of the L3Harris Merger for the two quarters ended January 3, 2020 and $50 million, $101 million, $101 million and $109 million of amortization of identifiable intangible assets acquired as a result of our acquisition of Exelis for the two quarters ended January 3, 2020 and fiscal 2019, 2018 and 2017, respectively. Because the L3Harris Merger and the acquisition of Exelis benefited the entire Company as opposed to any individual segment, the amortization of identifiable intangible assets acquired was not allocated to any segment.
Disaggregation of Revenue Integrated Mission Systems: Integrated Mission 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 revenue recognition method. We disaggregate Integrated Mission Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Integrated Mission Systems revenue and cash flows are affected by economic factors:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue By Customer Relationship |  |  |  |  |  |  |
Prime contractor | $ | 1,904 |  |  | $ | 25 |  |  | $ | 20 |  |  | $ | 24 |
Subcontractor | 870 |  |  | 23 |  |  | 25 |  |  | 14 |
| $ | 2,774 |  |  | $ | 48 |  |  | $ | 45 |  |  | $ | 38 |
Revenue By Contract Type |  |  |  |  |  |  |
Fixed-price(1) | $ | 2,138 |  |  | $ | 48 |  |  | $ | 45 |  |  | $ | 37 |
Cost-reimbursable | 636 |  |  | — |  |  | — |  |  | 1 |
| $ | 2,774 |  |  | $ | 48 |  |  | $ | 45 |  |  | $ | 38 |
Revenue By Geographical Region |  |  |  |  |  |  |
United States | $ | 2,300 |  |  | $ | 30 |  |  | $ | 39 |  |  | $ | 27 |
International | 474 |  |  | 18 |  |  | 6 |  |  | 11 |
| $ | 2,774 |  |  | $ | 48 |  |  | $ | 45 |  |  | $ | 38 |
_______________
(1) | Includes revenue derived from time-and-materials contracts.
Space and Airborne Systems: Space and Airborne 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 revenue recognition method. We disaggregate Space and Airborne 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 Airborne Systems revenue and cash flows are affected by economic factors:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue By Customer Relationship |  |  |  |  |  |  |
Prime contractor | $ | 1,337 |  |  | $ | 2,246 |  |  | $ | 2,159 |  |  | $ | 2,067 |
Subcontractor | 1,023 |  |  | 1,469 |  |  | 1,145 |  |  | 1,089 |
| $ | 2,360 |  |  | $ | 3,715 |  |  | $ | 3,304 |  |  | $ | 3,156 |
Revenue By Contract Type |  |  |  |  |  |  |
Fixed-price(1) | $ | 1,367 |  |  | $ | 2,097 |  |  | $ | 1,634 |  |  | $ | 1,390 |
Cost-reimbursable | 993 |  |  | 1,618 |  |  | 1,670 |  |  | 1,766 |
| $ | 2,360 |  |  | $ | 3,715 |  |  | $ | 3,304 |  |  | $ | 3,156 |
Revenue By Geographical Region |  |  |  |  |  |  |
United States | $ | 2,037 |  |  | $ | 3,255 |  |  | $ | 2,937 |  |  | $ | 2,782 |
International | 323 |  |  | 460 |  |  | 367 |  |  | 374 |
| $ | 2,360 |  |  | $ | 3,715 |  |  | $ | 3,304 |  |  | $ | 3,156 |
_______________
(1) | Includes revenue derived from time-and-materials contracts.
Communication Systems: Communication Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when products are received and accepted by the customer for standard products offered to multiple customers and over time for customer-specific products, systems and services. We disaggregate Communication Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Communication Systems revenue and cash flows are affected by economic factors:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue By Customer Relationship(1) |  |  |  |  |  |  |
Prime contractor | $ | 1,406 |  |  |  |  |  |  |
Subcontractor | 745 |  |  |  |  |  |  |
| $ | 2,151 |  |  |  |  |  |  |
Revenue By Contract Type(1) |  |  |  |  |  |  |
Fixed-price(2) | $ | 1,849 |  |  |  |  |  |  |
Cost-reimbursable | 302 |  |  |  |  |  |  |
| $ | 2,151 |  |  |  |  |  |  |
Revenue By Geographical Region |  |  |  |  |  |  |
United States | $ | 1,518 |  |  | $ | 1,281 |  |  | $ | 1,031 |  |  | $ | 880 |
International | 633 |  |  | 927 |  |  | 984 |  |  | 1,011 |
| $ | 2,151 |  |  | $ | 2,208 |  |  | $ | 2,015 |  |  | $ | 1,891 |
_______________
(1) | Prior to the L3Harris Merger, Communication Systems did not recognize significant revenue for customer-specific products and systems, and currently, such customer arrangements primarily exist at operating businesses acquired in connection with the L3Harris Merger. The “Revenue by Customer Relationship” and “Revenue by Contract Type” disaggregation categories were added beginning in the Fiscal Transition Period to best depict how the nature, amount, timing and uncertainty of revenue and cash flows from these types of customer arrangements are affected by economic factors.
(2) | Includes revenue derived from time-and-materials contracts.
Aviation Systems: Aviation Systems revenue is primarily derived from fixed-price contracts and is generally recognized at the point in time when products are received and accepted by the customer for standard products offered to multiple customers and over time for customer-specific products, systems and services. We disaggregate Aviation Systems revenue by customer relationship, contract type and geographical region. We believe these categories best depict how the nature, amount, timing and uncertainty of Aviation Systems revenue and cash flows are affected by economic factors:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Revenue By Customer Relationship |  |  |  |  |  |  |
Prime contractor | $ | 1,246 |  |  | $ | 654 |  |  | $ | 656 |  |  | $ | 697 |
Subcontractor | 792 |  |  | 18 |  |  | 12 |  |  | — |
| $ | 2,038 |  |  | $ | 672 |  |  | $ | 668 |  |  | $ | 697 |
Revenue By Contract Type |  |  |  |  |  |  |
Fixed-price(1) | $ | 1,688 |  |  | $ | 587 |  |  | $ | 582 |  |  | $ | 636 |
Cost-reimbursable | 350 |  |  | 85 |  |  | 86 |  |  | 61 |
| $ | 2,038 |  |  | $ | 672 |  |  | $ | 668 |  |  | $ | 697 |
Revenue By Geographical Region |  |  |  |  |  |  |
United States | $ | 1,514 |  |  | $ | 644 |  |  | $ | 627 |  |  | $ | 647 |
International | 524 |  |  | 28 |  |  | 41 |  |  | 50 |
| $ | 2,038 |  |  | $ | 672 |  |  | $ | 668 |  |  | $ | 697 |
______________
(1) | Includes revenue derived from time-and-materials contracts.
Total assets by business segment is as follows:
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018
| (In millions)
Total Assets |  |  |  |  |
Integrated Mission Systems | $ | 7,896 |  |  | $ | 87 |  |  | $ | 90 |
Space and Airborne Systems | 6,829 |  |  | 5,027 |  |  | 4,953 |
Communication Systems | 5,930 |  |  | 1,683 |  |  | 1,724 |
Aviation Systems | 7,569 |  |  | 1,036 |  |  | 1,046 |
Corporate(1) | 10,112 |  |  | 2,284 |  |  | 2,038 |
| $ | 38,336 |  |  | $ | 10,117 |  |  | $ | 9,851 |
_______________
(1) | Identifiable intangible assets acquired in connection with the L3Harris Merger in the two quarters ended January 3, 2020 and our acquisition of Exelis in fiscal 2015 were recorded as Corporate assets because they benefited the entire Company as opposed to any individual segment. Identifiable intangible asset balances recorded as Corporate assets were approximately $8.5 billion, $869 million and $974 million at January 3, 2020, June 28, 2019 and June 29, 2018, respectively. Corporate assets also consisted of cash, income taxes receivable, deferred income taxes, deferred compensation plan investments, buildings and equipment, as well as any assets of discontinued operations and divestitures. See Note 3: Divestitures, Asset Sales and Discontinued Operations for additional information.
Other selected financial information by business segment and geographical area is summarized below:
| Two Quarters Ended |  | Fiscal Years Ended
| January 3, 2020 |  | June 28, 2019 |  | June 29, 2018 |  | June 30, 2017
| (In millions)
Capital Expenditures |  |  |  |  |  |  |
Integrated Mission Systems | $ | 29 |  |  | $ | 1 |  |  | $ | 1 |  |  | $ | — |
Space and Airborne Systems | 36 |  |  | 48 |  |  | 49 |  |  | 49 |
Communication Systems | 22 |  |  | 29 |  |  | 25 |  |  | 16 |
Aviation Systems | 64 |  |  | 54 |  |  | 37 |  |  | 22 |
Other non-reportable business segments(1) | — |  |  | 6 |  |  | 4 |  |  | 1 |
Corporate | 22 |  |  | 23 |  |  | 20 |  |  | 27 |
Discontinued operations | — |  |  | — |  |  | — |  |  | 4 |
| $ | 173 |  |  | $ | 161 |  |  | $ | 136 |  |  | $ | 119 |
Depreciation and Amortization |  |  |  |  |  |  |
Integrated Mission Systems | $ | 37 |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | 2 |
Space and Airborne Systems | 31 |  |  | 50 |  |  | 54 |  |  | 55 |
Communication Systems | 32 |  |  | 49 |  |  | 54 |  |  | 60 |
Aviation Systems | 53 |  |  | 29 |  |  | 22 |  |  | 5 |
Other non-reportable business segments(1) | — |  |  | 3 |  |  | 5 |  |  | 8 |
Corporate | 289 |  |  | 125 |  |  | 122 |  |  | 142 |
Discontinued operations | — |  |  | — |  |  | — |  |  | 39 |
| $ | 442 |  |  | $ | 258 |  |  | $ | 259 |  |  | $ | 311 |
Geographical Information for Continuing Operations |  |  |  |  |  |  |
U.S. operations: |  |  |  |  |  |  |
Revenue | $ | 8,485 |  |  | $ | 6,530 |  |  | $ | 5,854 |  |  | $ | 5,637 |
Long-lived assets | $ | 1865 |  |  | $ | 866 |  |  | $ | 892 |  |  | $ | 896 |
International operations: |  |  |  |  |  |  |
Revenue | $ | 778 |  |  | $ | 271 |  |  | $ | 314 |  |  | $ | 260 |
Long-lived assets | $ | 252 |  |  | $ | 28 |  |  | $ | 8 |  |  | $ | 8 |
_______________
(1) | Includes capital expenditures and depreciation and amortization of the Harris Night Vision business prior to the date of divestiture on September 13, 2019. See Note 3: Divestitures, Asset Sales and Discontinued Operations in these Notes for more information.
In addition to depreciation and amortization expense related to property, plant and equipment, “Depreciation and Amortization” in the table above also includes $285 million of amortization related to intangible assets, debt premium, debt discount, debt issuance costs and other items for the two quarters ended January 3, 2020. “Depreciation and Amortization” in the table above also includes amortization related to intangible assets, debt premium, debt discount and debt issuance costs of $120 million, $116 million and $125 million in fiscal 2019, 2018 and 2017, respectively. Our products and systems are produced principally in the U.S. with international revenue derived primarily from exports. No revenue earned from any individual foreign country exceeded 5 percent of our total revenue during the two quarters ended January 3, 2020 or fiscal 2019, 2018 or 2017. 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 73 percent in the two quarters ended January 3, 2020 and 77 percent, 75 percent and 74 percent in fiscal 2019, 2018 and 2017, respectively. Revenue from services in the two quarters ended January 3, 2020 was approximately 32 percent, 16 percent, 15 percent and 39 percent of total revenue in our Integrated Mission Systems, Space and Airborne Systems, Communication Systems and Aviation Systems segments, respectively. Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $2.0 billion (21 percent of our revenue) in the two quarters ended January 3, 2020. Revenue from products and services where the end consumer is located outside the U.S., including foreign military sales through the U.S. Government, was $1.5 billion (22 percent of our revenue), $1.4 billion (23 percent of our revenue) and $1.5 billion (25 percent of our revenue) in fiscal 2019, 2018 and 2017, respectively. Export revenue and revenue from international operations in the two quarters ended January 3, 2020 was principally from the EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific) regions and Canada.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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