BUSINESS SEGMENTS INFORMATION

9 Months Ended

Sep. 25, 2016

BUSINESS SEGMENTS INFORMATION

NOTE 5 – BUSINESS SEGMENTS INFORMATION

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), RMS and Space Systems. 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. 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 not reflected in discontinued operations; 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				Nine Months Ended
	September 25, 2016		September 27, 2015		September 25, 2016		September 27, 2015
Net sales
Aeronautics	$	4,188	$	3,921	$	12,362	$	11,186
Missiles and Fire Control		1,737		1,769		4,851		4,801
Rotary and Mission Systems		3,346		2,162		9,653		6,306
Space Systems		2,280		2,208		6,630		6,723
Total net sales	$	11,551	$	10,060	$	33,496	$	29,016
Operating profit
Aeronautics	$	437	$	418	$	1,335	$	1,233
Missiles and Fire Control		289		316		763		895
Rotary and Mission Systems		247		245		678		687
Space Systems		450		265		1,034		883
Total business segment operating profit		1,423		1,244		3,810		3,698
Unallocated items
FAS pension expense (a)		(256)		(280)		(758)		(841)
Less: CAS pension cost (a)		482		382		1,430		1,146
FAS/CAS pension adjustment (a)		226		102		672		305
Stock-based compensation		(28)		(27)		(124)		(112)
Severance charges		—		(15)		(80)		(15)
Other, net		(33)		(112)		(157)		(264)
Total unallocated items		165		(52)		311		(86)
Total consolidated operating profit	$	1,588	$	1,192	$	4,121	$	3,612
Intersegment sales
Aeronautics	$	30	$	22	$	105	$	68
Missiles and Fire Control		81		86		225		241
Rotary and Mission Systems		469		364		1,382		1,066
Space Systems		21		39		90		108
Total intersegment sales	$	601	$	511	$	1,802	$	1,483

^(a)  FAS pension expense and CAS pension costs reflect the reclassification for discontinued operations presentation of benefits related to former IS&GS salaried employees (See Note 7).

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

	September 25, 2016		December 31, 2015
Assets
Aeronautics	$	8,012	$	6,618
Missiles and Fire Control		3,950		4,027
Rotary and Mission Systems		18,978		19,187
Space Systems		5,396		4,861
Total business segment assets		36,336		34,693
Assets of discontinued operations		—		4,130
Corporate assets (a)		12,403		10,481
Total assets	$	48,739	$	49,304

^(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 23% of our total consolidated net sales from continuing operations for both the quarter and nine months ended

September 25, 2016 and 23% of our total consolidated net sales from continuing operations for both the quarter and nine months ended September 27, 2015.