Segment Information

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Segment Information

3. SEGMENT INFORMATION

The company is aligned in three operating sectors, which are also 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 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 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:

	Year Ended December 31
$ in millions	2016			2015			2014
Sales
Aerospace Systems	$	10,828		$	9,940		$	9,910
Mission Systems	10,928			10,674			11,001
Technology Services	4,825			4,819			4,902
Intersegment eliminations	(2,073		)	(1,907		)	(1,834		)
Total sales	24,508			23,526			23,979
Operating income
Aerospace Systems	1,236			1,205			1,285
Mission Systems	1,445			1,410			1,557
Technology Services	512			514			461
Intersegment eliminations	(258		)	(209		)	(204		)
Total segment operating income	2,935			2,920			3,099
Net FAS/CAS pension adjustment	316			348			269
Unallocated corporate expenses	(53		)	(190		)	(169		)
Other	(5		)	(2		)	(3		)
Total operating income	$	3,193		$	3,076		$	3,196

Net FAS/CAS Pension Adjustment

For financial statement purposes, we account for our employee pension plans in accordance with FAS. However, the cost of these plans is charged to our contracts in accordance with CAS. The net FAS/CAS pension adjustment reflects the difference between CAS pension expense included as cost in segment operating income and FAS expense included in total operating income.

2016 - The decrease in net FAS/CAS pension adjustment 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.

2015 - The increase in net FAS/CAS pension adjustment is principally due to higher 2015 CAS expense resulting from changes in mortality assumptions and demographic experience, partially offset by an increase in 2015 FAS expense as a result of changes in our FAS discount rate and mortality assumptions as of December 31, 2014.

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, retiree benefits and corporate unallowable costs.

2016 - Unallocated corporate expenses declined in 2016, as compared to 2015. In 2016, unallocated corporate expenses included a $35 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. In 2015, unallocated corporate expenses included a $45 million expense recognized for deferred state income taxes due to a change in accounting methods approved by the Internal Revenue Service (IRS) that lowered our deductions for domestic production activities and a $25 million expense recognized for deferred state income taxes resulting from a discretionary pension contribution.

2015 - The increase in unallocated corporate expenses for 2015, as compared to 2014, is principally due to a $21 million increase in unallocated state income taxes due in part to a change in accounting methods approved by the IRS during the fourth quarter of 2015.

Intersegment Sales and Operating Income

Sales between segments are recorded at values that include intercompany operating income for the performing segment based on that segment’s estimated operating margin rate for external sales. Such intercompany operating income is eliminated in consolidation, so that the company's total sales and total operating income reflect only those transactions with external customers. See Note 1 for additional information.

The following table presents intersegment sales and operating income before eliminations:

	Year Ended December 31
$ in millions	2016					2015					2014
	Sales		Operating Income			Sales		Operating Income			Sales		Operating Income
Intersegment sales and operating income
Aerospace Systems	$	239		$	28	$	221		$	27	$	166		$	21
Mission Systems	875			136		781			97		842			115
Technology Services	959			94		905			85		826			68
Total	$	2,073		$	258	$	1,907		$	209	$	1,834		$	204

Assets

Substantially all of the company’s operating assets are located in the U.S. The following table presents assets by segment:

	December 31
$ in millions	2016		2015
Assets
Aerospace Systems	$	7,523	$	7,049
Mission Systems	9,991		9,475
Technology Services	3,082		3,047
Segment assets	20,596		19,571
Corporate assets(1)	5,018		4,853
Total assets	$	25,614	$	24,424

⁽¹⁾  Corporate assets principally consist of cash and cash equivalents and deferred tax assets.

Capital Expenditures and Depreciation and Amortization

The following table presents capital expenditures and depreciation and amortization by segment:

	Capital Expenditures						Depreciation and Amortization(1)
$ in millions	2016		2015		2014		2016		2015		2014
Aerospace Systems	$	451	$	237	$	376	$	216	$	215	$	208
Mission Systems	372		141		131		140		153		158
Technology Services	6		3		3		37		36		36
Corporate	91		90		51		63		63		60
Total	$	920	$	471	$	561	$	456	$	467	$	462

⁽¹⁾  Depreciation and amortization expense includes amortization of purchased intangible assets, as well as amortization of deferred and other outsourcing costs.