INFORMATION ON BUSINESS SEGMENTS

6 Months Ended

Jun. 30, 2019

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of the products and services offered.

Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Business segment operating profit 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.

Business segment operating profit also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management’s evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.

Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 11 – Other” 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						Six Months Ended
	June 30, 2019			June 24, 2018			June 30, 2019			June 24, 2018
Net sales
Aeronautics	$	5,550		$	5,321		$	11,134		$	9,719
Missiles and Fire Control	2,411			2,085			4,761			3,762
Rotary and Mission Systems	3,768			3,566			7,530			6,789
Space	2,698			2,426			5,338			4,763
Total net sales	$	14,427		$	13,398		$	28,763		$	25,033
Operating profit
Aeronautics	$	592		$	572		$	1,177		$	1,046
Missiles and Fire Control	327			279			744			540
Rotary and Mission Systems	347			341			726			652
Space	288			274			622			538
Total business segment operating profit	1,554			1,466			3,269			2,776
Unallocated items
FAS/CAS operating adjustment ^(a)	512			451			1,024			902
Stock-based compensation	(67		)	(60		)	(104		)	(98		)
Severance and restructuring charges ^(b)	—			(96		)	—			(96		)
Other, net	9			34			102			36
Total unallocated items	454			329			1,022			744
Total consolidated operating profit	$	2,008		$	1,795		$	4,291		$	3,520
Intersegment sales
Aeronautics	$	47		$	27		$	89		$	52
Missiles and Fire Control	144			113			265			208
Rotary and Mission Systems	538			504			1,118			965
Space	85			48			153			93
Total intersegment sales	$	814		$	692		$	1,625		$	1,318


^(a)	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.

^(b)

Unallocated items for the quarter and six months ended June 24, 2018 include severance and restructuring charges totaling $96 million ($76 million, or $0.26 per share, after tax) associated with 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.

Our total net FAS/CAS pension adjustment for the quarters and six months ended June 30, 2019 and June 24, 2018, 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						Six Months Ended
	June 30, 2019			June 24, 2018			June 30, 2019			June 24, 2018
Total FAS expense and CAS costs
FAS pension expense	$	(273	)	$	(357	)	$	(546	)	$	(713	)
Less: CAS pension cost	641			609			1,282			1,217
Net FAS/CAS pension adjustment	$	368		$	252		$	736		$	504

Service and non-service cost reconciliation
FAS pension service cost	$	(129	)	$	(158	)	$	(258	)	$	(315	)
Less: CAS pension cost	641			609			1,282			1,217
FAS/CAS operating adjustment	512			451			1,024			902
Non-operating FAS pension cost^(a)	(144		)	(199		)	(288		)	(398		)
Net FAS/CAS pension adjustment	$	368		$	252		$	736		$	504

^(a)

The non-service cost components of net periodic benefit cost relate only to our qualified defined benefit pension plans. In addition to the non-service cost components in the table above, we incurred similar costs for our other postretirement benefit plans of $27 million and $57 million for the quarter and six months ended June 30, 2019 and $16 million and $33 million for the quarter and six months ended June 24, 2018.

We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS 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 total CAS pension cost. The non-service FAS pension cost components are included in other non-operating expense, net in 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 products and services, contract type, customer, and geographic region were as follows (in millions):



	Quarter Ended June 30, 2019
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	4,740	$	1,963	$	3,023	$	2,277	$	12,003
Services	810		448		745		421		2,424
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by contract type
Fixed-price	$	4,040	$	1,444	$	2,526	$	535	$	8,545
Cost-reimbursable	1,510		967		1,242		2,163		5,882
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by customer
U.S. Government	$	3,476	$	1,900	$	2,675	$	2,332	$	10,383
International ^(a)	2,010		475		974		360		3,819
U.S. commercial and other	64		36		119		6		225
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427
Net sales by geographic region
United States	$	3,540	$	1,936	$	2,794	$	2,338	$	10,608
Asia Pacific	784		86		418		23		1,311
Europe	847		103		143		328		1,421
Middle East	335		272		247		9		863
Other	44		14		166		—		224
Total net sales	$	5,550	$	2,411	$	3,768	$	2,698	$	14,427

	Six Months Ended June 30, 2019
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	9,536	$	3,879	$	6,082	$	4,476	$	23,973
Services	1,598		882		1,448		862		4,790
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by contract type
Fixed-price	$	8,210	$	2,979	$	5,145	$	1,058	$	17,392
Cost-reimbursable	2,924		1,782		2,385		4,280		11,371
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by customer
U.S. Government	$	6,911	$	3,533	$	5,350	$	4,568	$	20,362
International ^(a)	4,105		1,145		1,969		755		7,974
U.S. commercial and other	118		83		211		15		427
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763
Net sales by geographic region
United States	$	7,029	$	3,616	$	5,561	$	4,583	$	20,789
Asia Pacific	1,690		208		748		31		2,677
Europe	1,645		225		341		709		2,920
Middle East	672		685		532		15		1,904
Other	98		27		348		—		473
Total net sales	$	11,134	$	4,761	$	7,530	$	5,338	$	28,763


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



	Quarter Ended June 24, 2018
	Aeronautics		MFC		RMS		Space			Total
Net sales
Products	$	4,511	$	1,709	$	2,904	$	2,026		$	11,150
Services	810		376		662		400			2,248
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by contract type
Fixed-price	$	3,906	$	1,395	$	2,450	$	460		$	8,211
Cost-reimbursable	1,415		690		1,116		1,966			5,187
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by customer
U.S. Government	$	3,444	$	1,502	$	2,608	$	2,070		$	9,624
International ^(a)	1,835		542		822		344			3,543
U.S. commercial and other	42		41		136		12			231
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398
Net sales by geographic region
United States	$	3,486	$	1,543	$	2,744	$	2,082		$	9,855
Asia Pacific	786		125		301		31			1,243
Europe	678		46		224		332			1,280
Middle East	320		364		143		(19		)	808
Other	51		7		154		—			212
Total net sales	$	5,321	$	2,085	$	3,566	$	2,426		$	13,398

	Six Months Ended June 24, 2018
	Aeronautics		MFC		RMS		Space			Total
Net sales
Products	$	8,281	$	3,062	$	5,621	$	3,948		$	20,912
Services	1,438		700		1,168		815			4,121
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by contract type
Fixed-price	$	7,121	$	2,507	$	4,658	$	860		$	15,146
Cost-reimbursable	2,598		1,255		2,131		3,903			9,887
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by customer
U.S. Government	$	6,209	$	2,590	$	4,964	$	3,940		$	17,703
International ^(a)	3,412		1,096		1,603		800			6,911
U.S. commercial and other	98		76		222		23			419
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033
Net sales by geographic region
United States	$	6,307	$	2,666	$	5,186	$	3,963		$	18,122
Asia Pacific	1,540		223		625		54			2,442
Europe	1,186		115		379		758			2,438
Middle East	577		744		314		(12		)	1,623
Other	109		14		285		—			408
Total net sales	$	9,719	$	3,762	$	6,789	$	4,763		$	25,033


^(a)	International sales include foreign military sales (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):



	June 30, 2019		December 31, 2018
Assets
Aeronautics	$	9,750	$	8,435
Missiles and Fire Control	5,368		5,017
Rotary and Mission Systems	18,934		18,333
Space	5,912		5,445
Total business segment assets	39,964		37,230
Corporate assets ^(a)	7,876		7,646
Total assets	$	47,840	$	44,876


^(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 26% of our total consolidated net sales for both the quarter and six months ended June 30, 2019 and 27% and 26% of our total consolidated net sales for the quarter and six months ended June 24, 2018.