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Information on Business Segments | 12 Months Ended
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Dec. 31, 2018
Segment Reporting [Abstract] |
Information on Business Segments | Information on Business Segments We operate in four business segments: Aeronautics, MFC, RMS and Space. We organize our business segments based on the nature of the products and services offered. Following is a brief description of the activities of our business segments:
• | Aeronautics – Engaged in the research, design, development, manufacture, integration, sustainment, support and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles and related technologies.
• | Missiles and Fire Control – Provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics; fire control systems; mission operations support, readiness, engineering support and integration services; manned and unmanned ground vehicles; and energy management solutions.
• | Rotary and Mission Systems – Provides design, manufacture, service and support for a variety of military and commercial helicopters; ship and submarine mission and combat systems; mission systems and sensors for rotary and fixed-wing aircraft; sea and land-based missile defense systems; radar systems; the Littoral Combat Ship (LCS); simulation and training services; and unmanned systems and technologies. In addition, RMS supports the needs of customers in cybersecurity and delivers communications and command and control capability through complex mission solutions for defense applications.
• | Space – Engaged in the research and development, design, engineering and production of satellites, space transportation systems, and strategic, advanced strike, and defensive systems. Space provides network-enabled situational awareness and integrates complex space and ground global systems to help our customers gather, analyze and securely distribute critical intelligence data. Space is also responsible for various classified systems and services in support of vital national security systems. Prior to August 24, 2016, the date we obtained control of AWE we accounted for the venture using the equity method of accounting with 33% of AWE’s earnings or losses recognized by Space. Subsequent to August 24, 2016, we obtained control of AWE and 100% of AWE’s sales and 51% of AWE’s earnings have been included in our consolidated results of operations. Accordingly, the consolidated results of operations for the year ended December 31, 2016 do not reflect a full year of AWE operations. Operating profit for our Space business segment also includes our share of earnings for our investment in ULA, which provides expendable launch services to the U.S. Government.
The financial information in the following tables includes the results of businesses we have acquired from their respective dates of acquisition and excludes businesses included in discontinued operations (see “Note 3 – Acquisition and Divestitures”) for all years presented. Net sales of our business segments exclude intersegment sales as these activities are eliminated in consolidation. Operating profit of our business segments includes our share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of our business segments. ULA, results of which are included in our Space business segment, is our primary equity method investee. Operating profit of our business segments excludes the FAS/CAS operating adjustment for our qualified defined benefit pension plans (described below); the adjustment from CAS to FAS service cost component for all other postretirement benefit plans; 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 and restructuring actions (see “Note 15 – Severance and Restructuring Charges”) and goodwill 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 1 – Significant Accounting Policies” (under the caption “Use of 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. Our consolidated operating profit in our consolidated financial statements must present the service cost component of FAS pension and other postretirement benefit plan expense calculated in accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension expense and the CAS pension cost recorded in our business segments’ results of operations. The non-service FAS pension and other postretirement benefit plan cost component is included in other non-operating expenses, net on our consolidated statement of earnings. Selected Financial Data by Business Segment Summary operating results for each of our business segments were as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Net sales |  |  |  |  |  |
Aeronautics |  | $ | 21,242 |  |  | $ | 19,410 |  |  | $ | 17,293 |
Missiles and Fire Control |  | 8,462 |  |  | 7,282 |  |  | 6,789 |
Rotary and Mission Systems |  | 14,250 |  |  | 13,663 |  |  | 13,595 |
Space |  | 9,808 |  |  | 9,605 |  |  | 9,613 |
Total net sales |  | $ | 53,762 |  |  | $ | 49,960 |  |  | $ | 47,290 |
Operating profit |  |  |  |  |  |
Aeronautics |  | $ | 2,272 |  |  | $ | 2,176 |  |  | $ | 1,845 |
Missiles and Fire Control |  | 1,248 |  |  | 1,034 |  |  | 1,004 |
Rotary and Mission Systems |  | 1,302 |  |  | 902 |  |  | 845 |
Space (a) |  | 1,055 |  |  | 980 |  |  | 1,288 |
Total business segment operating profit |  | 5,877 |  |  | 5,092 |  |  | 4,982 |
Unallocated items |  |  |  |  |  |
FAS/CAS operating adjustment (b) |  | 1,803 |  |  | 1,613 |  |  | 1,250 |
Stock-based compensation |  | (173 | ) |  | (158 | ) |  | (149 | )
Severance and restructuring charges (c) |  | (96 | ) |  | — |  |  | (80 | )
Other, net (d) |  | (77 | ) |  | 197 |  |  | (115 | )
Total unallocated, net |  | 1,457 |  |  | 1,652 |  |  | 906 |
Total consolidated operating profit |  | $ | 7,334 |  |  | $ | 6,744 |  |  | $ | 5,888 |
(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 business segment, which increased net earnings from continuing operations by $104 million ($0.34 per share) in 2016. See “Note 3 – Acquisition and Divestitures” for more information.
(b) | The FAS/CAS operating adjustment represents the difference between the service cost component of FAS pension expense and total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS. For a detail of the FAS/CAS operating adjustment and the total net FAS/CAS pension adjustment, see the table below.
(c) | See “Note 15 – Severance and Restructuring Charges” for information on charges related to certain severance actions at our business segments. Severance and restructuring charges for initiatives that are not significant are included in business segment operating profit.
(d) | Other, net in 2018 includes a non-cash asset impairment charge of $110 million related to our equity method investee, AMMROC (see “Note 1 – Significant Accounting Policies”). Other, net in 2017 includes a previously deferred non-cash gain of $198 million related to properties sold in 2015 as a result of completing our remaining obligations (see “Note 8 – Property, Plant and Equipment, net”) and a $64 million charge, which represents our portion of a non-cash asset impairment charge recorded by AMMROC (see “Note 1 – Significant Accounting Policies”).
Total net FAS/CAS pension adjustments, including the service and non-service cost components of FAS pension expense, were as follows (in millions):
|  | 2018 |  |  | 2017 |  |  | 2016 |
Total FAS expense and CAS costs |  |  |  |  |  |
FAS pension expense |  | $ | (1,431 | ) |  | $ | (1,372 | ) |  | $ | (1,019 | )
Less: CAS pension cost |  | 2,433 |  |  | 2,248 |  |  | 1,921 |
Net FAS/CAS pension adjustment |  | $ | 1,002 |  |  | $ | 876 |  |  | $ | 902 |
Service and non-service cost reconciliation |  |  |  |  |  |
FAS pension service cost |  | (630 | ) |  | (635 | ) |  | (671 | )
Less: CAS pension cost |  | 2,433 |  |  | 2,248 |  |  | 1,921 |
FAS/CAS operating adjustment |  | 1,803 |  |  | 1,613 |  |  | 1,250 |
Non-operating FAS pension expense (a) |  | (801 | ) |  | (737 | ) |  | (348 | )
Net FAS/CAS pension adjustment |  | $ | 1,002 |  |  | $ | 876 |  |  | $ | 902 |
(a) | We record the non-service cost components of net periodic benefit cost as part of other non-operating expense, net in the consolidated statement of earnings. The non-service cost components in the table above relate only to our qualified defined benefit pension plans. We incurred total non-service costs for our qualified defined benefit pension plans in the table above, along with similar costs for our other postretirement benefit plans of $67 million, $109 million, and $123 million for the years ended 2018, 2017 and 2016.
We recover CAS pension cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS pension cost in each of our business segment’s net sales and cost of sales. Our consolidated financial statements must present FAS pension and other postretirement benefit plan expense calculated in accordance with FAS requirements under U.S. GAAP. The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension cost component is included in other non-operating expense, net on our consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).
|  | 2018 |  |  | 2017 |  |  | 2016 |
Intersegment sales |  |  |  |  |  |
Aeronautics |  | $ | 120 |  |  | $ | 122 |  |  | $ | 142 |
Missiles and Fire Control |  | 423 |  |  | 355 |  |  | 299 |
Rotary and Mission Systems |  | 2,026 |  |  | 2,020 |  |  | 1,854 |
Space |  | 237 |  |  | 111 |  |  | 110 |
Total intersegment sales |  | $ | 2,806 |  |  | $ | 2,608 |  |  | $ | 2,405 |
Depreciation and amortization |  |  |  |  |  |
Aeronautics |  | $ | 304 |  |  | $ | 311 |  |  | $ | 299 |
Missiles and Fire Control |  | 105 |  |  | 99 |  |  | 105 |
Rotary and Mission Systems |  | 458 |  |  | 468 |  |  | 476 |
Space |  | 229 |  |  | 245 |  |  | 212 |
Total business segment depreciation and amortization |  | 1,096 |  |  | 1,123 |  |  | 1,092 |
Corporate activities |  | 65 |  |  | 72 |  |  | 75 |
Total depreciation and amortization (a) |  | $ | 1,161 |  |  | $ | 1,195 |  |  | $ | 1,167 |
Capital expenditures |  |  |  |  |  |
Aeronautics |  | $ | 460 |  |  | $ | 371 |  |  | $ | 358 |
Missiles and Fire Control |  | 244 |  |  | 156 |  |  | 167 |
Rotary and Mission Systems |  | 255 |  |  | 308 |  |  | 271 |
Space |  | 255 |  |  | 179 |  |  | 183 |
Total business segment capital expenditures |  | 1,214 |  |  | 1,014 |  |  | 979 |
Corporate activities |  | 64 |  |  | 163 |  |  | 75 |
Total capital expenditures (b) |  | $ | 1,278 |  |  | $ | 1,177 |  |  | $ | 1,054 |
(a) | Total depreciation and amortization in the table above excludes $48 million for the year ended December 31, 2016 related to the former IS&GS business segment. These amounts are included in depreciation and amortization in our consolidated statement of cash flows as we did not reclassify our cash flows to exclude the IS&GS business segment. See “Note 3 – Acquisition and Divestitures” for more information.
(b) | Total capital expenditures in the table above excludes $9 million for the year ended December 31, 2016 related to the former IS&GS business segment. These amounts are included in capital expenditures in our consolidated statement of cash flows as we did not reclassify our cash flows to exclude the IS&GS business segment. See “Note 3 – Acquisition and Divestitures” for more information.
Net Sales by Type Net sales by total products and services, contract type, customer category and geographic region for each of our business segments were as follows (in millions):
|  | 2018
|  | Aeronautics |  | MFC |  | RMS |  | Space |  | Total
Net sales |  |  |  |  |  |  |  |  |  |
Products |  | $ | 18,207 |  |  | $ | 6,945 |  |  | $ | 11,714 |  |  | $ | 8,139 |  |  | $ | 45,005 |
Services |  | 3,035 |  |  | 1,517 |  |  | 2,536 |  |  | 1,669 |  |  | 8,757 |
Total net sales |  | $ | 21,242 |  |  | $ | 8,462 |  |  | $ | 14,250 |  |  | $ | 9,808 |  |  | $ | 53,762 |
Net sales by contract type |  |  |  |  |  |  |  |  |  |
Fixed-price |  | $ | 15,719 |  |  | $ | 5,653 |  |  | $ | 9,975 |  |  | $ | 1,892 |  |  | $ | 33,239 |
Cost-reimbursable |  | 5,523 |  |  | 2,809 |  |  | 4,275 |  |  | 7,916 |  |  | 20,523 |
Total net sales |  | $ | 21,242 |  |  | $ | 8,462 |  |  | $ | 14,250 |  |  | $ | 9,808 |  |  | $ | 53,762 |
Net sales by customer |  |  |  |  |  |  |  |  |  |
U.S. Government |  | $ | 13,321 |  |  | $ | 6,088 |  |  | $ | 10,083 |  |  | $ | 8,224 |  |  | $ | 37,716 |
International (a) |  | 7,735 |  |  | 2,190 |  |  | 3,693 |  |  | 1,538 |  |  | 15,156 |
U.S. commercial and other |  | 186 |  |  | 184 |  |  | 474 |  |  | 46 |  |  | 890 |
Total net sales |  | $ | 21,242 |  |  | $ | 8,462 |  |  | $ | 14,250 |  |  | $ | 9,808 |  |  | $ | 53,762 |
Net sales by geographic region |  |  |  |  |  |  |  |  |  |
United States |  | $ | 13,507 |  |  | $ | 6,272 |  |  | $ | 10,557 |  |  | $ | 8,270 |  |  | $ | 38,606 |
Asia Pacific |  | 3,335 |  |  | 427 |  |  | 1,433 |  |  | 85 |  |  | 5,280 |
Europe |  | 2,837 |  |  | 321 |  |  | 829 |  |  | 1,416 |  |  | 5,403 |
Middle East |  | 1,380 |  |  | 1,404 |  |  | 781 |  |  | 37 |  |  | 3,602 |
Other |  | 183 |  |  | 38 |  |  | 650 |  |  | — |  |  | 871 |
Total net sales |  | $ | 21,242 |  |  | $ | 8,462 |  |  | $ | 14,250 |  |  | $ | 9,808 |  |  | $ | 53,762 |
(a) | International sales include foreign military sales contracted through the U.S. Government, direct commercial sales with international governments and commercial and other sales to international customers.
|  | 2017
|  | Aeronautics |  | MFC |  | RMS |  | Space |  | Total
Net sales |  |  |  |  |  |  |  |  |  |
Products |  | $ | 16,981 |  |  | $ | 5,940 |  |  | $ | 11,398 |  |  | $ | 8,183 |  |  | $ | 42,502 |
Services |  | 2,429 |  |  | 1,342 |  |  | 2,265 |  |  | 1,422 |  |  | 7,458 |
Total net sales |  | $ | 19,410 |  |  | $ | 7,282 |  |  | $ | 13,663 |  |  | $ | 9,605 |  |  | $ | 49,960 |
Net sales by contract type |  |  |  |  |  |  |  |  |  |
Fixed-price |  | $ | 13,828 |  |  | $ | 5,102 |  |  | $ | 10,059 |  |  | $ | 2,058 |  |  | $ | 31,047 |
Cost-reimbursable |  | 5,582 |  |  | 2,180 |  |  | 3,604 |  |  | 7,547 |  |  | 18,913 |
Total net sales |  | $ | 19,410 |  |  | $ | 7,282 |  |  | $ | 13,663 |  |  | $ | 9,605 |  |  | $ | 49,960 |
Net sales by customer |  |  |  |  |  |  |  |  |  |
U.S. Government |  | $ | 12,609 |  |  | $ | 4,467 |  |  | $ | 9,715 |  |  | $ | 8,088 |  |  | $ | 34,879 |
International (a) |  | 6,641 |  |  | 2,672 |  |  | 3,575 |  |  | 1,446 |  |  | 14,334 |
U.S. commercial and other |  | 160 |  |  | 143 |  |  | 373 |  |  | 71 |  |  | 747 |
Total net sales |  | $ | 19,410 |  |  | $ | 7,282 |  |  | $ | 13,663 |  |  | $ | 9,605 |  |  | $ | 49,960 |
Net sales by geographic region |  |  |  |  |  |  |  |  |  |
United States |  | $ | 12,769 |  |  | $ | 4,610 |  |  | $ | 10,088 |  |  | $ | 8,159 |  |  | $ | 35,626 |
Asia Pacific |  | 2,823 |  |  | 516 |  |  | 1,344 |  |  | 92 |  |  | 4,775 |
Europe |  | 2,331 |  |  | 305 |  |  | 927 |  |  | 1,270 |  |  | 4,833 |
Middle East |  | 1,316 |  |  | 1,798 |  |  | 572 |  |  | 81 |  |  | 3,767 |
Other |  | 171 |  |  | 53 |  |  | 732 |  |  | 3 |  |  | 959 |
Total net sales |  | $ | 19,410 |  |  | $ | 7,282 |  |  | $ | 13,663 |  |  | $ | 9,605 |  |  | $ | 49,960 |
(a) | International sales include foreign military sales contracted through the U.S. Government, direct commercial sales with international governments and commercial and other sales to international customers.
|  | 2016
|  | Aeronautics |  | MFC |  | RMS |  | Space |  | Total
Net sales |  |  |  |  |  |  |  |  |  |
Products |  | $ | 15,066 |  |  | $ | 5,602 |  |  | $ | 11,401 |  |  | $ | 8,012 |  |  | $ | 40,081 |
Services |  | 2,227 |  |  | 1,187 |  |  | 2,194 |  |  | 1,601 |  |  | 7,209 |
Total net sales |  | $ | 17,293 |  |  | $ | 6,789 |  |  | $ | 13,595 |  |  | $ | 9,613 |  |  | $ | 47,290 |
Net sales by contract type |  |  |  |  |  |  |  |  |  |
Fixed-price |  | $ | 11,926 |  |  | $ | 4,926 |  |  | $ | 9,871 |  |  | $ | 2,324 |  |  | $ | 29,047 |
Cost-reimbursable |  | 5,367 |  |  | 1,863 |  |  | 3,724 |  |  | 7,289 |  |  | 18,243 |
Total net sales |  | $ | 17,293 |  |  | $ | 6,789 |  |  | $ | 13,595 |  |  | $ | 9,613 |  |  | $ | 47,290 |
Net sales by customer |  |  |  |  |  |  |  |  |  |
U.S. Government |  | $ | 11,265 |  |  | $ | 4,304 |  |  | $ | 9,350 |  |  | $ | 8,516 |  |  | $ | 33,435 |
International (a) |  | 5,825 |  |  | 2,344 |  |  | 3,791 |  |  | 719 |  |  | 12,679 |
U.S. commercial and other |  | 203 |  |  | 141 |  |  | 454 |  |  | 378 |  |  | 1,176 |
Total net sales |  | $ | 17,293 |  |  | $ | 6,789 |  |  | $ | 13,595 |  |  | $ | 9,613 |  |  | $ | 47,290 |
Net sales by geographic region |  |  |  |  |  |  |  |  |  |
United States |  | $ | 11,468 |  |  | $ | 4,445 |  |  | $ | 9,804 |  |  | $ | 8,894 |  |  | $ | 34,611 |
Asia Pacific |  | 2,077 |  |  | 341 |  |  | 1,194 |  |  | 98 |  |  | 3,710 |
Europe |  | 2,020 |  |  | 237 |  |  | 1,045 |  |  | 475 |  |  | 3,777 |
Middle East |  | 1,423 |  |  | 1,739 |  |  | 429 |  |  | 146 |  |  | 3,737 |
Other |  | 305 |  |  | 27 |  |  | 1,123 |  |  | — |  |  | 1,455 |
Total net sales |  | $ | 17,293 |  |  | $ | 6,789 |  |  | $ | 13,595 |  |  | $ | 9,613 |  |  | $ | 47,290 |
(a) | International sales include foreign military sales contracted through the U.S. Government, direct commercial sales with international governments and commercial and other sales to international customers.
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 27%, 26% and 23% of our total consolidated net sales during 2018, 2017 and 2016. Total assets for each of our business segments were as follows (in millions):
|  | 2018 |  |  | 2017 |
Assets (a) |  |  |  |
Aeronautics |  | $ | 8,435 |  |  | $ | 7,713 |
Missiles and Fire Control |  | 5,017 |  |  | 4,577 |
Rotary and Mission Systems |  | 18,333 |  |  | 18,292 |
Space |  | 5,445 |  |  | 5,240 |
Total business segment assets |  | 37,230 |  |  | 35,822 |
Corporate assets (b) |  | 7,646 |  |  | 10,798 |
Total assets |  | $ | 44,876 |  |  | $ | 46,620 |
(a) | We have no long-lived assets with material carrying values located in foreign countries.
(b) | Corporate assets primarily include cash and cash equivalents, deferred income taxes, environmental receivables and investments held in a separate trust.

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- Definition The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 280 -URI http://asc.fasb.org/topic&trid=2134510 + Details
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