INFORMATION ON BUSINESS SEGMENTS

3 Months Ended

Mar. 31, 2019

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

Net sales and operating profit of our business segments exclude intersegment sales and cost of sales as these activities are eliminated in consolidation. Business segment operating profit 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.

Business segment operating profit also includes total pension and other postretirement benefit plan costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government cost accounting standards (CAS). However, our financial statements must present total costs calculated in accordance with Financial Accounting Standards (FAS) under U.S. GAAP. Accordingly, the adjustment from CAS cost to FAS service cost for our postretirement benefit plans is excluded from business segment operating profit (see additional discussion below). Business segment operating profit also excludes expense for stock-based compensation, corporate costs not considered allocable under FAR, and the effects of items not considered part of management’s evaluation of segment operating performance.

Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 11 – Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments. Summary operating results for each of our business segments were as follows (in millions):



	Quarters Ended
	March 31, 2019			March 25, 2018
Net sales
Aeronautics	$	5,584		$	4,398
Missiles and Fire Control	2,350			1,677
Rotary and Mission Systems	3,762			3,223
Space	2,640			2,337
Total net sales	$	14,336		$	11,635
Operating profit
Aeronautics	$	585		$	474
Missiles and Fire Control	417			261
Rotary and Mission Systems	379			311
Space	334			264
Total business segment operating profit	1,715			1,310
Unallocated items
FAS/CAS operating adjustment ^(a)	512			451
Stock-based compensation	(37		)	(38		)
Other, net	93			2
Total unallocated items	568			415
Total consolidated operating profit	$	2,283		$	1,725
Intersegment sales
Aeronautics	$	42		$	25
Missiles and Fire Control	121			95
Rotary and Mission Systems	580			461
Space	68			45
Total intersegment sales	$	811		$	626


^(a)	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.

Our total net FAS/CAS pension adjustment for the quarters ended March 31, 2019 and March 25, 2018, including the service and non-service cost components of FAS pension expense for our qualified defined benefit pension plans, were as follows (in millions):



	Quarters Ended
	March 31, 2019			March 25, 2018
Total FAS expense and CAS costs
FAS pension expense	$	(273	)	$	(356	)
Less: CAS pension cost	641			608
Net FAS/CAS pension adjustment	$	368		$	252

Service and non-service cost reconciliation
FAS pension service cost	$	(129	)	$	(157	)
Less: CAS pension cost	641			608
FAS/CAS operating adjustment	512			451
Non-operating FAS pension cost^(a)	(144		)	(199		)
Net FAS/CAS pension adjustment	$	368		$	252


^(a)	The non-service cost components of net periodic benefit cost relate only to our qualified defined benefit pension plans. In addition to the non service cost components in the table above, we incurred similar costs for our other postretirement benefit plans of $30 million and $17 million for the quarters ended March 31, 2019 and March 25, 2018.

We recover CAS pension and other postretirement benefit plan cost through the pricing of our products and services on U.S. Government contracts and, therefore, recognize CAS 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 total CAS pension cost. The non-service FAS pension cost component is included in other non-operating expense, net in our consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension cost (both service and non-service).

Net sales by products and services, contract type, customer, and geographic region were as follows (in millions):



	Quarter Ended March 31, 2019
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	4,796	$	1,916	$	3,059	$	2,199	$	11,970
Services	788		434		703		441		2,366
Total net sales	$	5,584	$	2,350	$	3,762	$	2,640	$	14,336
Net sales by contract type
Fixed-price	$	4,170	$	1,535	$	2,619	$	523	$	8,847
Cost-reimbursable	1,414		815		1,143		2,117		5,489
Total net sales	$	5,584	$	2,350	$	3,762	$	2,640	$	14,336
Net sales by customer
U.S. Government	$	3,435	$	1,633	$	2,675	$	2,236	$	9,979
International ^(a)	2,095		670		995		395		4,155
U.S. commercial and other	54		47		92		9		202
Total net sales	$	5,584	$	2,350	$	3,762	$	2,640	$	14,336
Net sales by geographic region
United States	$	3,489	$	1,680	$	2,767	$	2,245	$	10,181
Asia Pacific	906		122		330		8		1,366
Europe	798		122		198		381		1,499
Middle East	337		413		285		6		1,041
Other	54		13		182		—		249
Total net sales	$	5,584	$	2,350	$	3,762	$	2,640	$	14,336



	Quarter Ended March 25, 2018
	Aeronautics		MFC		RMS		Space		Total
Net sales
Products	$	3,770	$	1,353	$	2,717	$	1,922	$	9,762
Services	628		324		506		415		1,873
Total net sales	$	4,398	$	1,677	$	3,223	$	2,337	$	11,635
Net sales by contract type
Fixed-price	$	3,215	$	1,112	$	2,208	$	400	$	6,935
Cost-reimbursable	1,183		565		1,015		1,937		4,700
Total net sales	$	4,398	$	1,677	$	3,223	$	2,337	$	11,635
Net sales by customer
U.S. Government	$	2,765	$	1,088	$	2,356	$	1,870	$	8,079
International ^(a)	1,577		554		781		456		3,368
U.S. commercial and other	56		35		86		11		188
Total net sales	$	4,398	$	1,677	$	3,223	$	2,337	$	11,635
Net sales by geographic region
United States	$	2,821	$	1,123	$	2,442	$	1,881	$	8,267
Asia Pacific	754		98		324		23		1,199
Europe	508		69		155		426		1,158
Middle East	257		380		171		7		815
Other	58		7		131		—		196
Total net sales	$	4,398	$	1,677	$	3,223	$	2,337	$	11,635


^(a)	International sales include foreign military sales (FMS) contracted through the U.S. Government and direct commercial sales to international governments and other international customers.

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



	March 31, 2019		December 31, 2018
Assets
Aeronautics	$	9,469	$	8,435
Missiles and Fire Control	5,678		5,017
Rotary and Mission Systems	18,914		18,333
Space	5,792		5,445
Total business segment assets	39,853		37,230
Corporate assets ^(a)	7,831		7,646
Total assets	$	47,684	$	44,876


^(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% of our total consolidated net sales for the quarter ended March 31, 2019 and 24% of our total consolidated net sales for the quarter ended March 25, 2018.