INFORMATION ON BUSINESS SEGMENTS

We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on the nature of the products and services offered.

Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation. Operating profit of our business segments includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments. In addition, operating profit of our business segments includes total pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government cost accounting standards (CAS). Operating profit of the business segments excludes the FAS/CAS operating adjustment for our qualified defined benefit pension plans (described below); the adjustment from CAS to the FAS service cost component for all other postretirement benefit plans; expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions and certain asset impairments; gains or losses from significant divestitures; the effects of certain legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 2 – Significant Accounting Policy Updates” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

Summary operating results for each of our business segments were as follows (in millions):



	Quarters Ended						Nine Months Ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
Net sales
Aeronautics	$	5,642		$	4,716		$	15,361		$	13,758
Missiles and Fire Control	2,273			1,957			6,035			5,290
Rotary and Mission Systems	3,848			3,363			10,637			9,904
Space	2,555			2,305			7,318			7,164
Total net sales	$	14,318		$	12,341		$	39,351		$	36,116
Operating profit
Aeronautics	$	600		$	513		$	1,646		$	1,519
Missiles and Fire Control	332			298			872			785
Rotary and Mission Systems ^(a)	361			257			1,013			656
Space	293			219			831			765
Total business segment operating profit	1,586			1,287			4,362			3,725
Unallocated items
FAS/CAS operating adjustment ^(b)	451			403			1,353			1,210
Stock-based compensation	(50		)	(32		)	(148		)	(133		)
Severance and restructuring charges ^(c)	—			—			(96		)	—
Other, net ^(d)	(24		)	19			12			(7		)
Total unallocated items	377			390			1,121			1,070
Total consolidated operating profit	$	1,963		$	1,677		$	5,483		$	4,795
Intersegment sales
Aeronautics	$	35		$	33		$	87		$	98
Missiles and Fire Control	122			104			330			243
Rotary and Mission Systems	544			453			1,509			1,446
Space	63			31			156			76
Total intersegment sales	$	764		$	621		$	2,082		$	1,863


^(a)	Operating profit at our RMS business segment for the nine months ended September 24, 2017 includes a charge of $120 million ($74 million, or $0.25 per share, after tax) recognized in the first quarter of 2017 for performance matters on the EADGE-T contract. See “Note 2 – Significant Accounting Policy Updates” (under the caption “Revenue Recognition”) for more information.


^(b)	The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension expense and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS. For a detail of the FAS/CAS operating adjustment and the total net FAS/CAS pension adjustment, see the table below.

^(c)

Unallocated items for the nine months ended September 30, 2018 includes severance and restructuring charges totaling $96 million ($76 million, or $0.26 per share, after tax) recognized in the second quarter of 2018 for planned workforce reductions and the consolidation of certain operations at our RMS business segment. See “Note 11 – Other” (under the caption “Severance and Restructuring Charges”) for more information.

^(d)

Other, net for the nine months ended September 24, 2017 includes a $64 million charge ($40 million, or $0.14 per share, after tax) recognized in the first quarter of 2017, which represents our portion of a non-cash asset impairment charge recorded by our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). See “Note 11 – Other” (under the caption “Equity Method Investee Impairment”) for more information.

Our total net FAS/CAS pension adjustment for the quarters and nine months ended September 30, 2018 and September 24, 2017, including the service and non-service cost components of FAS pension expense for our qualified defined benefit pension plans, were as follows (in millions):



	Quarters Ended						Nine Months Ended
	September 30, 2018			September 24, 2017			September 30, 2018			September 24, 2017
Total FAS expense and CAS costs
FAS pension expense	$	(356	)	$	(342	)	$	(1,069	)	$	(1,030	)
Less: CAS pension cost	608			562			1,825			1,686
Net FAS/CAS pension adjustment	$	252		$	220		$	756		$	656

Service and non-service cost reconciliation
FAS pension service cost	$	(157	)	$	(159	)	$	(472	)	$	(476	)
Less: CAS pension cost	608			562			1,825			1,686
FAS/CAS operating adjustment	451			403			1,353			1,210
Non-operating FAS pension expense^(a)	(199		)	(183		)	(597		)	(554		)
Net FAS/CAS pension adjustment	$	252		$	220		$	756		$	656

^(a)

We record the non-service cost components of net periodic benefit cost as part of other non-operating expense, net in the consolidated statement of earnings. The non-service cost components in the table above relate only to our qualified defined benefit pension plans. We incurred total non-service costs for our qualified defined benefit pension plans in the table above, along with similar costs for our other postretirement benefit plans of $16 million and $49 million for the quarters and nine months ended September 30, 2018 and $28 million and $82 million for the quarters and nine months ended September 24, 2017.

We recover CAS pension cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segment’s net sales and cost of sales. Our consolidated financial statements must present FAS pension and other postretirement benefit plan expense calculated in accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension cost component is included in other non-operating expense, net on our consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension cost (both service and non-service).

Net sales by total products and services, contract type, customer category and geographic region for each of our business segments were as follows (in millions):



	Quarter Ended September 30, 2018
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	4,799	$	1,873	$	3,132	$	2,114	$	11,918
Services	843		400		716		441		2,400
Total net sales	$	5,642	$	2,273	$	3,848	$	2,555	$	14,318
Net sales by contract type
Fixed-price	$	4,163	$	1,536	$	2,710	$	534	$	8,943
Cost-reimbursable	1,479		737		1,138		2,021		5,375
Total net sales	$	5,642	$	2,273	$	3,848	$	2,555	$	14,318
Net sales by customer
U.S. Government	$	3,700	$	1,625	$	2,765	$	2,174	$	10,264
International ^(a)	1,909		600		959		362		3,830
U.S. commercial and other	33		48		124		19		224
Total net sales	$	5,642	$	2,273	$	3,848	$	2,555	$	14,318
Net sales by geographic region
United States	$	3,733	$	1,673	$	2,889	$	2,193	$	10,488
Asia Pacific	854		126		377		8		1,365
Europe	691		112		213		324		1,340
Middle East	326		347		202		30		905
Other	38		15		167		—		220
Total net sales	$	5,642	$	2,273	$	3,848	$	2,555	$	14,318

	Nine Months Ended September 30, 2018
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	13,080	$	4,935	$	8,753	$	6,062	$	32,830
Services	2,281		1,100		1,884		1,256		6,521
Total net sales	$	15,361	$	6,035	$	10,637	$	7,318	$	39,351
Net sales by contract type
Fixed-price	$	11,284	$	4,043	$	7,368	$	1,394	$	24,089
Cost-reimbursable	4,077		1,992		3,269		5,924		15,262
Total net sales	$	15,361	$	6,035	$	10,637	$	7,318	$	39,351
Net sales by customer
U.S. Government	$	9,909	$	4,215	$	7,729	$	6,114	$	27,967
International ^(a)	5,321		1,696		2,562		1,162		10,741
U.S. commercial and other	131		124		346		42		643
Total net sales	$	15,361	$	6,035	$	10,637	$	7,318	$	39,351
Net sales by geographic region
United States	$	10,040	$	4,339	$	8,075	$	6,156	$	28,610
Asia Pacific	2,394		349		1,002		62		3,807
Europe	1,877		227		592		1,082		3,778
Middle East	903		1,091		516		18		2,528
Other	147		29		452		—		628
Total net sales	$	15,361	$	6,035	$	10,637	$	7,318	$	39,351


^(a)	International sales include FMS contracted through the U.S. Government and direct commercial sales to international governments and other international customers.



	Quarter Ended September 24, 2017
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	4,196	$	1,614	$	2,861	$	1,957	$	10,628
Services	520		343		502		348		1,713
Total net sales	$	4,716	$	1,957	$	3,363	$	2,305	$	12,341
Net sales by contract type
Fixed-price	$	3,396	$	1,321	$	2,471	$	464	$	7,652
Cost-reimbursable	1,320		636		892		1,841		4,689
Total net sales	$	4,716	$	1,957	$	3,363	$	2,305	$	12,341
Net sales by customer
U.S. Government	$	3,093	$	1,404	$	2,417	$	1,919	$	8,833
International ^(a)	1,589		511		848		367		3,315
U.S. commercial and other	34		42		98		19		193
Total net sales	$	4,716	$	1,957	$	3,363	$	2,305	$	12,341
Net sales by geographic region
United States	$	3,127	$	1,446	$	2,515	$	1,938	$	9,026
Asia Pacific	653		88		371		28		1,140
Europe	555		58		226		310		1,149
Middle East	348		353		103		23		827
Other	33		12		148		6		199
Total net sales	$	4,716	$	1,957	$	3,363	$	2,305	$	12,341

	Nine Months Ended September 24, 2017
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	12,036	$	4,323	$	8,372	$	6,132	$	30,863
Services	1,722		967		1,532		1,032		5,253
Total net sales	$	13,758	$	5,290	$	9,904	$	7,164	$	36,116
Net sales by contract type
Fixed-price	$	9,624	$	3,664	$	7,199	$	1,566	$	22,053
Cost-reimbursable	4,134		1,626		2,705		5,598		14,063
Total net sales	$	13,758	$	5,290	$	9,904	$	7,164	$	36,116
Net sales by customer
U.S. Government	$	9,009	$	3,540	$	7,091	$	6,036	$	25,676
International ^(a)	4,647		1,643		2,548		1,082		9,920
U.S. commercial and other	102		107		265		46		520
Total net sales	$	13,758	$	5,290	$	9,904	$	7,164	$	36,116
Net sales by geographic region
United States	$	9,111	$	3,647	$	7,356	$	6,082	$	26,196
Asia Pacific	1,878		294		988		68		3,228
Europe	1,657		215		673		932		3,477
Middle East	983		1,105		339		76		2,503
Other	129		29		548		6		712
Total net sales	$	13,758	$	5,290	$	9,904	$	7,164	$	36,116


^(a)	International sales include FMS contracted through the U.S. Government and direct commercial sales to international governments and other international customers.

Total assets for each of our business segments were as follows (in millions):



	September 30, 2018		December 31, 2017
Assets
Aeronautics	$	8,746	$	7,713
Missiles and Fire Control	4,865		4,577
Rotary and Mission Systems	18,545		18,292
Space	5,469		5,240
Total business segment assets	37,625		35,822
Corporate assets ^(a)	7,870		10,798
Total assets	$	45,495	$	46,620


^(a)	Corporate assets primarily include cash and cash equivalents, deferred income taxes, environmental receivables, and investments held in a separate trust to fund certain of our non-qualified deferred compensation plans.

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft. Net sales for the F-35 program represented approximately 27% and 26% of our total consolidated net sales for the quarter and nine months ended September 30, 2018 and 26% and 25% of our total consolidated net sales for the quarter and nine months ended September 24, 2017.