BUSINESS SEGMENT INFORMATION

9 Months Ended

Sep. 29, 2013

BUSINESS SEGMENT INFORMATION

NOTE 3 – BUSINESS SEGMENT INFORMATION

We operate in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control, Mission Systems and Training, 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. Intercompany transactions are generally negotiated under terms and conditions that share many similar characteristics (e.g., contract structures, funding profiles, target cost values, contract progress reports) with our third-party contracts, primarily with the U.S. Government.

Operating profit of our business segments includes our share of earnings or losses from equity method investees because the operating activities of the equity method investees are closely aligned with the operations of those business segments. Operating profit of our business segments excludes the non-cash 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 significant severance actions (Note 8, under the caption “Severance Activities”); 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 expenses, net” between operating profit from our business segments and our consolidated operating profit.

The results of operations of our business segments include pension expense only as determined and funded in accordance with U.S. Government Cost Accounting Standards (CAS). The non-cash FAS/CAS pension adjustment represents the difference between pension expense calculated in accordance with GAAP and pension costs calculated and funded in accordance with CAS. CAS governs the extent to which pension costs can be allocated to and recovered on U.S. Government contracts. The CAS expense is recovered through the pricing of our products and services on U.S. Government contracts and, therefore, is recognized in each of our business segments’ net sales and cost of sales.

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

	Quarters Ended				Nine Months Ended
	September 29, 2013		September 30, 2012		September 29, 2013		September 30, 2012
Net sales
Aeronautics	$	3,632	$	3,698	$	10,225	$	10,812
Information Systems & Global Solutions		2,059		2,292		6,266		6,645
Missiles and Fire Control		2,003		1,951		6,034		5,560
Mission Systems and Training		1,698		1,862		5,298		5,719
Space Systems		1,955		2,066		6,002		6,347
Total net sales	$	11,347	$	11,869	$	33,825	$	35,083
Operating profit
Aeronautics	$	412	$	415	$	1,198	$	1,254
Information Systems & Global Solutions		187		209		570		605
Missiles and Fire Control		356		300		1,081		984
Mission Systems and Training		216		198		692		550
Space Systems		284		312		790		851
Total business segment operating profit		1,455		1,434		4,331		4,244
Unallocated expenses, net
Severance charges (a)		—		(23)		(30)		(23)
Other unallocated expenses, net (b)		(201)		(274)		(630)		(848)
Total consolidated operating profit	$	1,254	$	1,137	$	3,671	$	3,373
Intersegment sales
Aeronautics	$	53	$	55	$	152	$	145
Information Systems & Global Solutions		160		231		523		659
Missiles and Fire Control		72		70		196		225
Mission Systems and Training		249		230		728		667
Space Systems		25		32		74		84
Total intersegment sales	$	559	$	618	$	1,673	$	1,780

^(a)  Severance charges during the nine months ended September 29, 2013 consisted of amounts, net of state tax benefits, associated with the elimination of certain positions at our IS&GS business segment during the quarter ended March 31, 2013. Severance charges during the quarter and nine months ended September 30, 2012 consisted of amounts, net of state tax benefits, associated with the elimination of certain positions at our former Electronic Systems business segment (Note 8, under the caption “Severance Activities”). Severance charges for initiatives that are not significant are included in business segment operating profit.

^(b)  Other unallocated expenses, net for the quarter and nine months ended September 30, 2012 includes amounts related to discontinued operations that are not significant.

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

	September 29, 2013		December 31, 2012
Assets
Aeronautics		$    6,556		$     6,525
Information Systems & Global Solutions		5,811		5,664
Missiles and Fire Control		4,259		4,186
Mission Systems and Training		6,724		6,589
Space Systems		3,465		3,478
Total business segment assets		26,815		26,442
Corporate assets (a)		12,092		12,215
Total assets		$  38,907		$   38,657

^(a)  Corporate assets primarily include cash and cash equivalents, deferred income taxes, environmental receivables, and investments held in a separate trust.

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, stealth fighter aircraft. Net sales for the F-35 program represented approximately 16% and 15% of our total consolidated net sales for the quarter and nine months ended September 29, 2013 and 15% and 14% for the quarter and nine months ended September 30, 2012.