Segment Information (Unaudited)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

The company is aligned in three operating sectors, which also comprise our reportable segments: Aerospace Systems, Mission Systems and Technology Services. Effective January 1, 2016, the company streamlined our sectors from four to three to better align our business with the evolving needs of our customers and enhance innovation across the company. Mission Systems and Technology Services were created by merging elements of our former Electronic Systems, Information Systems and Technical Services sectors. The new Mission Systems sector is composed of the majority of our former Electronic Systems sector and the businesses from our former Information Systems sector focused on the development of new capabilities for our military and intelligence customers. The new Technology Services sector was formed by combining the services portfolio in the former Information Systems sector with the former Technical Services sector. Among other operations that were realigned, the military and civil space hardware business in Azusa, California, previously reporting to the Electronic Systems sector, moved to the Aerospace Systems sector, and the electronic attack business, previously in the Aerospace Systems sector, moved to the Mission Systems sector.

The following table presents sales and operating income by segment:

	Three Months Ended September 30						Nine Months Ended September 30
$ in millions	2016			2015			2016			2015
Sales
Aerospace Systems	$	2,782		$	2,544		$	7,956		$	7,540
Mission Systems	2,698			2,723			8,081			8,062
Technology Services	1,190			1,193			3,617			3,698
Intersegment eliminations	(515		)	(481		)	(1,543		)	(1,468		)
Total sales	6,155			5,979			18,111			17,832
Operating income
Aerospace Systems	311			298			909			929
Mission Systems	351			355			1,055			1,047
Technology Services	130			128			387			389
Intersegment eliminations	(61		)	(55		)	(188		)	(162		)
Total segment operating income	731			726			2,163			2,203
Reconciliation to total operating income:
Net FAS/CAS pension adjustment	91			97			234			261
Unallocated corporate expenses	5			(29		)	(31		)	(76		)
Other	(1		)	—			(4		)	(1		)
Total operating income	$	826		$	794		$	2,362		$	2,387

Net FAS/CAS Pension Adjustment

For financial statement purposes, we account for our employee pension plans in accordance with GAAP under FAS (GAAP Financial Accounting Standards). However, the cost of these plans is charged to our contracts in accordance with the Federal Acquisition Regulation (FAR) and the related U.S. Government Cost Accounting Standards (CAS) that govern such plans. The net FAS/CAS pension adjustment reflects the difference between CAS pension expense included as cost in segment operating income and FAS expense determined in accordance with GAAP.

The decrease in net FAS/CAS pension adjustment for the three and nine months ended September 30, 2016, as compared to the same periods in 2015, is primarily due to lower than expected asset returns during 2015, partially offset by the increase in our FAS discount rate assumption as of December 31, 2015 and the continued phase-in of the effects of CAS harmonization.

Unallocated Corporate Expenses

Unallocated corporate expenses include the portion of corporate expenses not considered allowable or allocable under applicable CAS or the FAR, and therefore not allocated to the segments. Such costs consist of a portion of management and administration, legal, environmental, compensation costs, retiree benefits and corporate unallowable costs.

Current Quarter

Unallocated corporate expenses decreased for the three months ended September 30, 2016, as compared with the same period in 2015, principally due to a $30 million benefit recognized for state tax refunds claimed on our prior year tax returns and a $25 million benefit recognized for estimated prior year overhead claim recoveries, partially offset by an increase in provisions for environmental remediation.

Year to Date

Unallocated corporate expenses decreased for the nine months ended September 30, 2016, as compared with the same period in 2015, principally due to the current quarter items discussed above. Further, unallocated corporate expenses in the prior year period were impacted by higher deferred state taxes resulting from a $500 million discretionary pension contribution made in the first quarter of 2015.