Operating Segments and Related Disclosures

The Company’s operations are organized into two operating segments based on different products and customer bases: Aerospace and Defense, and Real Estate.

The Company evaluates its operating segments based on several factors, of which the primary financial measure is segment performance. Segment performance represents net sales less applicable costs, expenses and unusual items relating to the segment operations. Segment performance excludes corporate income and expenses, legacy income or expenses, unusual items not related to the segment operations, interest expense, interest income, and income taxes.

Customers that represented more than 10% of net sales for the periods presented are as follows:



	Three months ended June 30,				Six months ended June 30,
	2017		2016		2017		2016
Lockheed Martin Corporation	24	%	34	%	21	%	31	%
United Launch Alliance	23	%	17	%	23	%	19	%
NASA	18	%	13	%	18	%	13	%
Raytheon Company	14	%	19	%	16	%	18	%

The Company's sales to each of the major customers listed above involve several product lines and programs.

Sales to the U.S. government and its agencies, including sales to the Company’s significant customers discussed above, were as follows:



	Percentage of net sales
Three months ended June 30, 2017	93	%
Three months ended June 30, 2016	89	%
Six months ended June 30, 2017	93	%
Six months ended June 30, 2016	90	%

Selected financial information for each operating segment is as follows:



	Three months ended June 30,						Six months ended June 30,
	2017			2016			2017			2016
	(In millions)
Net Sales:
Aerospace and Defense	$	458.0		$	406.8		$	861.7		$	762.1
Real Estate	1.6			1.6			3.2			3.2
Total Net Sales	$	459.6		$	408.4		$	864.9		$	765.3
Segment Performance:
Aerospace and Defense	$	59.4		$	39.9		$	98.1		$	75.9
Environmental remediation provision adjustments	(0.5		)	0.2			(1.1		)	(0.4		)
Retirement benefits, net (1)	(4.0		)	(5.6		)	(8.0		)	(11.2		)
Unusual items	1.3			0.1			1.9			0.2
Aerospace and Defense Total	56.2			34.6			90.9			64.5
Real Estate	0.8			0.9			1.6			1.7
Total Segment Performance	$	57.0		$	35.5		$	92.5		$	66.2
Reconciliation of segment performance to income before income taxes:
Segment performance	$	57.0		$	35.5		$	92.5		$	66.2
Interest expense	(7.8		)	(10.4		)	(15.2		)	(21.5		)
Interest income	0.8			0.1			1.3			0.3
Stock-based compensation expense	(3.4		)	(3.1		)	(10.2		)	(5.4		)
Corporate retirement benefits	(5.0		)	(4.7		)	(10.0		)	(9.4		)
Corporate and other expense, net	(5.4		)	(5.8		)	(12.0		)	(9.7		)
Unusual items	—			(0.1		)	(1.0		)	(0.4		)
Income before income taxes	$	36.2		$	11.5		$	45.4		$	20.1

_____

(1) Retirement benefits are net of cash funding to the Company's tax-qualified defined benefit pension plan which are recoverable costs under the Company's U.S. government contracts. The Company's recoverable tax-qualified pension costs in the second quarter and first half of fiscal 2017 totaled $9.3 million and $18.6 million, respectively. The Company's recoverable tax-qualified pension costs in the second quarter and first half of fiscal 2016 totaled $6.9 million and $13.8 million, respectively.