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 the
U.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 the U.S. and global community, we are currently facilitating the
provision of vaccines to our workforce.
The U.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 our U.S. production facilities
largely operational in support of national security commitments to U.S.
Government customers and to accelerate payments to small business suppliers,
which we expect to continue while the U.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 the U.S. Government, whether directly or
through prime contractors, will be relatively predictable, in part due to the
responsive actions taken by the U.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
under U.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 the U.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.
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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 on May 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 on May 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 on July 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 on February 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 on February 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 on March 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.
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