OVERVIEW
The following Management's Discussion and Analysis ("MD&A") is intended to assist in an understanding of our financial condition and results of operations. This MD&A is provided as a supplement to, should be read in conjunction with, and is qualified in its entirety by reference to, our Condensed Consolidated Financial Statements (Unaudited) and accompanying Notes appearing elsewhere in this Report (the "Notes"). In addition, reference should be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Fiscal 2020 Form 10-K. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in this MD&A under "Forward-Looking Statements and Factors that May Affect Future Results." COVID The ongoing attempts to contain and reduce the spread of COVID, such as mandatory closures, "shelter-in-place" orders and travel and quarantine restrictions, have caused significant disruptions and adverse effects on theU.S. and global economies, such as impacts to supply chains, customer demand, international trade and capital markets. Our response has involved increasing our focus on keeping our employees safe while striving to maintain continuity of operations, meet customer commitments and support suppliers. For example, we instituted work-from-home (for employees who are able to work remotely) and social distancing arrangements; canceled travel and external events; procured personal protective equipment for employees; implemented health screening procedures at all facilities; staggered work shifts, redesigned work stations, implemented stringent cleaning protocols and initiated more detailed safety precautions and protocols for on-site work, such as daily health assessments and mandatory face coverings, which currently remain in effect. We have also maintained an active dialog with key suppliers and developed plans to mitigate supply chain risks. We have allowed certain essential business travel to resume, and we continue to expect to utilize a phased approach based on local conditions for transitioning employees from work-from-home arrangements to on-site work or hybrid arrangements. As COVID vaccines are being distributed and administered throughout theU.S. and global community, we are currently facilitating the provision of vaccines to our workforce. TheU.S. Government response to COVID has included identifying the defense industrial base as a Critical Infrastructure Sector and enhancing cash flow and liquidity for the defense industrial base, such as by increasing progress payments and accelerating contract awards. As a part of the defense industrial base, these actions have enabled us to keep ourU.S. production facilities largely operational in support of national security commitments toU.S. Government customers and to accelerate payments to small business suppliers, which we expect to continue while theU.S. Government's responsive actions remain in effect. Although we believe that the large percentage of our revenue, earnings and cash flow that is derived from sales to theU.S. Government , whether directly or through prime contractors, will be relatively predictable, in part due to the responsive actions taken by theU.S. Government described above, our commercial, international and public safety businesses are at a higher risk of adverse impacts related to COVID. For example, the severe decline in global air traffic from travel restrictions and the resulting downturn in the commercial aviation market and its impact on customer operations has significantly reduced demand for flight training, flight simulators and commercial avionics products in our Aviation Systems segment. As a result, we recognized$767 million of charges for impairment of goodwill and other assets and other COVID-related impacts in fiscal 2020. The extent of these disruptions and impacts, including on our ability to perform underU.S. Government contracts and other contracts within agreed timeframes and ultimately on our results of operations and cash flows, will depend on future developments, including the severity and duration of the pandemic and associated containment and mitigation actions taken by theU.S. Government , state and local government officials and international governments, and consequences thereof, and global air traffic demand and governmental subsidies to airlines, all of which are uncertain and unpredictable. The impact of COVID may also exacerbate other risks discussed in "Item 1A. Risk Factors" of our Fiscal 2020 Form 10-K, any of which could have a material effect on us. We continue to work with our customers, employees, suppliers, subcontractors, distributors, resellers and communities to address the impact of the ongoing pandemic. We continue to assess possible implications to our business, supply chain and customers, and to take actions in an effort to mitigate adverse consequences. For further information regarding the impact, and the risks of the impact, of COVID on the Company, see "Item 1A. Risk Factors" of our Fiscal 2020 Form 10-K. 25
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KEY DEVELOPMENTS The following is a list of the remaining sections of this MD&A, together with our perspective on their contents, which we hope will assist in reading these pages: •Results of Operations - an analysis of our consolidated results of operations and the results in each of our business segments, to the extent the segment results are helpful to an understanding of our business as a whole, for the periods presented in our Condensed Consolidated Statement of Income (Unaudited). •Liquidity, Capital Resources and Financial Strategies - an analysis of cash flows, funding of pension plans, common stock repurchases, dividends, capital structure and resources, off-balance sheet arrangements and commercial commitments and contractual obligations. •Critical Accounting Policies and Estimates - information about accounting policies that require critical judgments and estimates and about accounting standards that have been issued, but are not yet effective for us, and their potential impact on our financial condition, results of operations, cash flows and equity. •Forward-Looking Statements and Factors that May Affect Future Results - cautionary information about forward-looking statements and a description of certain risks and uncertainties that could cause our actual results to differ materially from our historical results or our current expectations or projections. We report the financial results of our continuing operations in the following four segments, which are also 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; public safety and global communications solutions; and •Aviation Systems, including defense aviation; commercial aviation products; commercial and military pilot training; and mission networks for air traffic management. As described in more detail in Note B - Business Divestitures and elsewhere in the Notes, during fiscal 2020 and 2021, we announced the following business divestitures: •Airport security and automation business, completed onMay 4, 2020 , the results of which were reported as part of our Aviation Systems segment through the date of divestiture; •Applied Kilovolts and Analytical Instrumentation business, completed onMay 15, 2020 , the results of which were reported as part of our Space and Airborne Systems segment through the date of divestiture; •EOTech business, completed onJuly 31, 2020 , the results of which were reported as part of our Communication Systems segment through the date of divestiture; •VSE disposal group, definitive agreement entered into onFebruary 23, 2021 , expected to be completed in the second half of fiscal 2021, the results of which are reported as part of our Aviation Systems segment; •Military training business, definitive agreement entered into onFebruary 27, 2021 , expected to be completed in the second half of 2021, the results of which are reported as part of our Aviation Systems segment; and •CPS business, definitive agreement entered into onMarch 1, 2021 , expected to be completed in the second half of 2021, the results of which are reported as part of our Aviation Systems segment. Amounts contained in this Report may not always add to totals due to rounding. 26
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