INFORMATION ON BUSINESS SEGMENTS

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space Systems. We organize our business segments based on the nature of the products and services offered.

The financial information in the following tables excludes businesses included in discontinued operations for all periods presented and includes the results of businesses we have acquired from their respective acquisition dates (see “Note 1 – Basis of Presentation”).

Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation. Under the equity method of accounting for nonconsolidated ventures and investments, we include our share of the operating profit related to these ventures in operating profit of our business segments as the operating activities of equity method investees are closely aligned with the operations of our business segments. United Launch Alliance (ULA), results of which are included in 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 significant severance actions and certain asset impairments; gains or losses from significant 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 items” between operating profit from our business segments and our consolidated operating profit. See “Note 10 – Other” (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 24, 2017			September 25, 2016			September 24, 2017			September 25, 2016
Net sales
Aeronautics	$	4,771		$	4,188		$	14,102		$	12,362
Missiles and Fire Control	1,793			1,737			4,919			4,851
Rotary and Mission Systems	3,353			3,346			9,864			9,653
Space Systems	2,252			2,280			7,026			6,630
Total net sales	$	12,169		$	11,551		$	35,911		$	33,496
Operating profit
Aeronautics	$	517		$	437		$	1,503		$	1,335
Missiles and Fire Control	270			289			757			763
Rotary and Mission Systems	244			247			606			678
Space Systems ^(a)	218			450			762			1,034
Total business segment operating profit	1,249			1,423			3,628			3,810
Unallocated items
FAS/CAS pension adjustment
FAS pension expense	(342		)	(256		)	(1,030		)	(758		)
Less: CAS pension cost	562			482			1,686			1,430
FAS/CAS pension adjustment	220			226			656			672
Stock-based compensation	(32		)	(28		)	(133		)	(124		)
Severance charges	—			—			—			(80		)
Other, net ^{(b) (c)}	(9		)	(33		)	(89		)	(157		)
Total unallocated items	179			165			434			311
Total consolidated operating profit	$	1,428		$	1,588		$	4,062		$	4,121
Intersegment sales
Aeronautics	$	33		$	30		$	98		$	105
Missiles and Fire Control	104			81			253			225
Rotary and Mission Systems	452			469			1,438			1,382
Space Systems	31			21			76			90
Total intersegment sales	$	620		$	601		$	1,865		$	1,802

^(a)

On August 24, 2016, our ownership interest in the AWE joint venture increased from 33% to 51% and we were required to change our accounting for this investment from the equity method to consolidation. As a result of the increased ownership interest, we recognized a non-cash gain of $127 million at our Space Systems business segment, which increased net earnings from continuing operations by $104 million ($0.34 per share) in the quarter and nine months ended September 25, 2016. See “Note 1 – Basis of Presentation” for more information.


^(b)	During the nine months ended September 24, 2017, we recognized a $64 million charge, which represents our portion of a noncash asset impairment charge recorded by our equity method investee, Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC). See “Note 10 – Other” (under the caption “Equity Method Investee Impairment”) for more information.


^(c)	Includes $17 million and $82 million of corporate overhead costs incurred during the quarter and nine months ended September 25, 2016 that were previously allocated to our former IS&GS business. See “Note 3 – Divestiture” for more information.

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



	September 24, 2017		December 31, 2016
Assets
Aeronautics	$	7,918	$	7,896
Missiles and Fire Control	4,510		4,000
Rotary and Mission Systems	18,500		18,367
Space Systems	5,425		5,250
Total business segment assets	36,353		35,513
Corporate assets ^(a)	12,593		12,293
Total assets	$	48,946	$	47,806


^(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 26% and 25% of our total consolidated net sales for the quarter and nine months ended September 24, 2017 and 23% of our total consolidated net sales for both the quarter and nine months ended September 25, 2016.