BUSINESS SEGMENTS INFORMATION

6 Months Ended

Jun. 26, 2016

BUSINESS SEGMENTS INFORMATION

NOTE 5 – BUSINESS SEGMENTS INFORMATION

We operate in five business segments: Aeronautics, IS&GS, Missiles and Fire Control (MFC), MST and Space Systems. We organize our business segments based on the nature of the products and services offered. The results of our MST business segment include the operations of Sikorsky since its November 6, 2015 acquisition date. Accordingly, the financial results of Sikorsky operations are included in the financial results of our MST business segment for the quarter and six months ended June 26, 2016 but not for the quarter and six months ended June 28, 2015.

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. United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; 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 goodwill impairments and significant severance actions; gains or losses from 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 10 (under the caption “Changes in Estimates”) for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost Accounting Standards (CAS), which we refer to as CAS pension cost. We recover CAS pension cost through the pricing of our products and services on U.S. Government contracts and, therefore, the CAS pension cost is recognized in each of our business segments’ net sales and cost of sales. Since our consolidated financial statements must present pension expense calculated in accordance with the financial accounting standards (FAS) requirements under GAAP, which we refer to as FAS pension expense, the FAS/CAS pension adjustment increases or decreases the CAS pension cost recorded in our business segments’ results of operations to equal the FAS pension expense.

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

	Quarters Ended				Six Months Ended
	June 26, 2016		June 28, 2015		June 26, 2016		June 28, 2015
Net sales
Aeronautics	$	4,375	$	4,131	$	8,174	$	7,265
Information Systems & Global Solutions		1,337		1,408		2,671		2,798
Missiles and Fire Control		1,680		1,649		3,114		3,032
Mission Systems and Training		3,303		2,165		6,307		4,144
Space Systems		2,219		2,290		4,350		4,515
Total net sales	$	12,914	$	11,643	$	24,616	$	21,754
Operating profit
Aeronautics	$	478	$	444	$	898	$	815
Information Systems & Global Solutions		151		107		260		252
Missiles and Fire Control		253		293		474		579
Mission Systems and Training		202		262		431		442
Space Systems		340		294		584		618
Total business segment operating profit		1,424		1,400		2,647		2,706
Unallocated items
FAS/CAS pension adjustment
FAS pension expense		(254)		(284)		(508)		(568)
Less: CAS pension cost		497		404		997		807
FAS/CAS pension adjustment		243		120		489		239
Stock-based compensation		(53)		(49)		(97)		(89)
Severance charges		—		—		(99)		—
Other, net		(48)		(26)		(77)		(55)
Total unallocated items		142		45		216		95
Total consolidated operating profit	$	1,566	$	1,445	$	2,863	$	2,801
Intersegment sales
Aeronautics	$	39	$	26	$	74	$	46
Information Systems & Global Solutions		29		3		53		5
Missiles and Fire Control		69		81		144		155
Mission Systems and Training		462		384		907		703
Space Systems		36		35		69		68
Total intersegment sales	$	635	$	529	$	1,247	$	977

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

	June 26, 2016		December 31, 2015
Assets
Aeronautics	$	7,768	$	6,618
Information Systems & Global Solutions		4,103		4,206
Missiles and Fire Control		4,003		4,027
Mission Systems and Training		19,008		19,187
Space Systems		5,056		4,861
Total business segment assets		39,938		38,899
Corporate assets (a)		10,470		10,229
Total assets	$	50,408	$	49,128

^(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 21% and 20% of our total consolidated net sales for the quarter and six months ended June 26, 2016 and 20% and 19% of our total consolidated net sales for the quarter and six months ended June 28, 2015.