Segment Information

12 Months Ended

Dec. 31, 2019

16. SEGMENT INFORMATION

The company is aligned in four operating sectors, which also comprise our reportable segments: Aerospace Systems, Innovation Systems, Mission Systems and Technology Services.

The following table presents sales and operating income by segment:



	Year Ended December 31
$ in millions	2019			2018			2017
Sales
Aerospace Systems	$	13,862		$	13,096		$	12,131
Innovation Systems	6,119			3,276			—
Mission Systems	12,263			11,709			11,470
Technology Services	4,110			4,297			4,687
Intersegment eliminations	(2,513		)	(2,283		)	(2,284		)
Total sales	33,841			30,095			26,004
Operating income
Aerospace Systems	1,434			1,411			1,289
Innovation Systems	671			343			—
Mission Systems	1,639			1,520			1,442
Technology Services	457			443			449
Intersegment eliminations	(292		)	(270		)	(277		)
Total segment operating income	3,909			3,447			2,903
Net FAS (service)/CAS pension adjustment	465			613			638
Unallocated corporate expense	(405		)	(280		)	(323		)
Total operating income	$	3,969		$	3,780		$	3,218

Net FAS (Service)/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 the FAR and the related CAS. The net FAS (service)/CAS pension adjustment reflects the difference between CAS pension expense included as cost in segment operating income and the service cost component of FAS expense included in total operating income.

Unallocated Corporate Expense

Unallocated corporate expense includes the portion of corporate costs not considered allowable or allocable under applicable CAS or FAR, and therefore not allocated to the segments, such as a portion of management and administration, legal, environmental, compensation, retiree benefits and other corporate unallowable costs. Unallocated corporate expense also includes costs not considered part of management’s evaluation of segment

operating performance, such as amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations.

Disaggregation of Revenue



Sales by Customer Type	Year Ended December 31
	2019				2018				2017
$ in millions	$		%⁽³⁾		$		%⁽³⁾		$		%⁽³⁾
Aerospace Systems
U.S. government ⁽¹⁾	$	12,044	87	%	$	11,380	87	%	$	10,521	87	%
International ⁽²⁾	1,508		11	%	1,371		10	%	1,160		10	%
Other customers	106		1	%	148		1	%	155		1	%
Intersegment sales	204		1	%	197		2	%	295		2	%
Aerospace Systems sales	13,862		100	%	13,096		100	%	12,131		100	%
Innovation Systems
U.S. government ⁽¹⁾	4,419		72	%	2,241		68	%	—		—
International ⁽²⁾	960		16	%	615		19	%	—		—
Other customers	409		7	%	293		9	%	—		—
Intersegment sales	331		5	%	127		4	%	—		—
Innovation Systems sales	6,119		100	%	3,276		100	%	—		—
Mission Systems
U.S. government ⁽¹⁾	9,079		74	%	8,803		75	%	8,876		77	%
International ⁽²⁾	1,840		15	%	1,647		14	%	1,540		14	%
Other customers	117		1	%	114		1	%	100		1	%
Intersegment sales	1,227		10	%	1,145		10	%	954		8	%
Mission Systems sales	12,263		100	%	11,709		100	%	11,470		100	%
Technology Services
U.S. government ⁽¹⁾	2,392		58	%	2,372		55	%	2,572		55	%
International ⁽²⁾	846		21	%	801		19	%	752		16	%
Other customers	121		3	%	310		7	%	328		7	%
Intersegment sales	751		18	%	814		19	%	1,035		22	%
Technology Services sales	4,110		100	%	4,297		100	%	4,687		100	%
Total
U.S. government ⁽¹⁾	27,934		83	%	24,796		82	%	21,969		85	%
International ⁽²⁾	5,154		15	%	4,434		15	%	3,452		13	%
Other customers	753		2	%	865		3	%	583		2	%
Total Sales	$	33,841	100	%	$	30,095	100	%	$	26,004	100	%


⁽¹⁾	Sales to the U.S. government include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is the U.S. government. Each of the company’s segments derives substantial revenue from the U.S. government.

⁽²⁾ International sales include sales from contracts for which we are the prime contractor, as well as those for which we are a subcontractor and the ultimate customer is an international customer. These sales include foreign military sales contracted through the U.S. government.

⁽³⁾ Percentages calculated based on total segment sales.



Sales by Contract Type	Year Ended December 31
	2019				2018				2017
$ in millions	$		%⁽¹⁾		$		%⁽¹⁾		$		%⁽¹⁾
Aerospace Systems
Cost-type	$	8,049	59	%	$	7,634	59	%	$	7,193	61	%
Fixed-price	5,609		41	%	5,265		41	%	4,643		39	%
Intersegment sales	204				197				295
Aerospace Systems sales	13,862				13,096				12,131
Innovation Systems
Cost-type	1,699		29	%	843		27	%	—		—
Fixed-price	4,089		71	%	2,306		73	%	—		—
Intersegment sales	331				127				—
Innovation Systems sales	6,119				3,276				—
Mission Systems
Cost-type	5,164		47	%	4,939		47	%	5,311		51	%
Fixed-price	5,872		53	%	5,625		53	%	5,205		49	%
Intersegment sales	1,227				1,145				954
Mission Systems sales	12,263				11,709				11,470
Technology Services
Cost-type	1,567		47	%	1,588		46	%	1,693		46	%
Fixed-price	1,792		53	%	1,895		54	%	1,959		54	%
Intersegment sales	751				814				1,035
Technology Services sales	4,110				4,297				4,687
Total
Cost-type	16,479		49	%	15,004		50	%	14,197		55	%
Fixed-price	17,362		51	%	15,091		50	%	11,807		45	%
Total Sales	$	33,841			$	30,095			$	26,004


⁽¹⁾	Percentages calculated based on external customer sales.



Sales by Geographic Region	Year Ended December 31
	2019				2018				2017
$ in millions	$		%⁽²⁾		$		%⁽²⁾		$		%⁽²⁾
Aerospace Systems
United States	$	12,150	89	%	$	11,528	89	%	$	10,676	90	%
Asia/Pacific	822		6	%	705		6	%	649		6	%
All other ⁽¹⁾	686		5	%	666		5	%	511		4	%
Intersegment sales	204				197				295
Aerospace Systems sales	13,862				13,096				12,131
Innovation Systems
United States	4,828		83	%	2,534		80	%	—		—
Asia/Pacific	156		3	%	151		5	%	—		—
All other ⁽¹⁾	804		14	%	464		15	%	—		—
Intersegment sales	331				127				—
Innovation Systems sales	6,119				3,276				—
Mission Systems
United States	9,196		83	%	8,917		85	%	8,976		86	%
Asia/Pacific	676		6	%	659		6	%	671		6	%
All other ⁽¹⁾	1,164		11	%	988		9	%	869		8	%
Intersegment sales	1,227				1,145				954
Mission Systems sales	12,263				11,709				11,470
Technology Services
United States	2,513		75	%	2,682		77	%	2,900		79	%
Asia/Pacific	182		5	%	151		4	%	141		4	%
All other ⁽¹⁾	664		20	%	650		19	%	611		17	%
Intersegment sales	751				814				1,035
Technology Services sales	4,110				4,297				4,687
Total
United States	28,687		85	%	25,661		85	%	22,552		87	%
Asia/Pacific	1,836		5	%	1,666		6	%	1,461		5	%
All other ⁽¹⁾	3,318		10	%	2,768		9	%	1,991		8	%
Total Sales	$	33,841			$	30,095			$	26,004


⁽¹⁾	All other is principally comprised of Europe and the Middle East.


⁽²⁾	Percentages calculated based on external customer sales.

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 average 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	2019					2018					2017
	Sales		Operating Income			Sales		Operating Income			Sales		Operating Income
Intersegment sales and operating income
Aerospace Systems	$	204		$	23	$	197		$	23	$	295		$	33
Innovation Systems	331			14		127			1		—			—
Mission Systems	1,227			177		1,145			165		954			141
Technology Services	751			78		814			81		1,035			103
Total	$	2,513		$	292	$	2,283		$	270	$	2,284		$	277

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	2019		2018
Assets
Aerospace Systems	$	10,772	$	9,750
Innovation Systems	11,551		10,368
Mission Systems	11,641		11,047
Technology Services	3,089		2,957
Corporate assets⁽¹⁾	4,036		3,531
Total assets	$	41,089	$	37,653


⁽¹⁾	Corporate assets principally consist of cash and cash equivalents, refundable taxes, deferred tax assets, property, plant and equipment and marketable securities.

Capital Expenditures and Depreciation and Amortization

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



	Year Ended December 31
$ in millions	2019		2018		2017		2019		2018		2017
	Capital Expenditures						Depreciation and Amortization⁽¹⁾
Aerospace Systems	$	650	$	781	$	665	$	262	$	243	$	234
Innovation Systems	271		141		—		173		84		—
Mission Systems	244		206		164		146		134		131
Technology Services	15		18		15		9		45		40
Corporate	84		103		84		428		294		70
Total	$	1,264	$	1,249	$	928	$	1,018	$	800	$	475

⁽¹⁾

Beginning in 2018, corporate amounts include the amortization of purchased intangible assets and the additional depreciation expense related to the step-up in fair value of property, plant and equipment acquired through business combinations as they are not considered part of management’s evaluation of segment operating performance.