Note 4 – Information on Business Segments
We operate in five business segments: Aeronautics, IS&GS, MFC, MST, and Space Systems. We organize our business segments based on the nature of the products and services offered. The 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. |
| • |
Information Systems & Global Solutions – Provides advanced technology systems and expertise, integrated information technology solutions, and management services across a broad spectrum of applications for civil, defense, intelligence, and other government customers. |
| • |
Missiles and Fire Control – Provides air and missile defense systems; tactical missiles and air-to-ground precision strike weapon systems; logistics and other technical services; fire control systems; mission operations support, readiness, engineering support, and integration services; and manned and unmanned ground vehicles. |
| • |
Mission Systems and Training – Provides 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; simulation and training services; and unmanned systems and technologies. |
| • |
Space Systems – Engaged in the research and development, design, engineering, and production of satellites, strategic and defensive missile systems, and space transportation systems. Space Systems is also responsible for various classified systems and services in support of vital national security systems. Operating profit for our Space Systems business segment 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 during the past three years (Note 14) from their respective dates of acquisition. The business segment operating results in the following tables exclude businesses included in discontinued operations (Note 14) for all years presented.
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 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 goodwill impairment (Note 1) and significant severance actions (Note 2); gains or losses from divestitures (Note 14); 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 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 cost 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.
Selected Financial Data by Business Segment
Summary operating results for each of our business segments were as follows (in millions):
| 2013 | 2012 | 2011 | ||||||||||
|
Net sales |
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|
Aeronautics |
$ | 14,123 | $ | 14,953 | $ | 14,362 | ||||||
|
Information Systems & Global Solutions |
8,367 | 8,846 | 9,381 | |||||||||
|
Missiles and Fire Control |
7,757 | 7,457 | 7,463 | |||||||||
|
Mission Systems and Training |
7,153 | 7,579 | 7,132 | |||||||||
|
Space Systems |
7,958 | 8,347 | 8,161 | |||||||||
|
Total net sales |
$ | 45,358 | $ | 47,182 | $ | 46,499 | ||||||
|
Operating profit |
||||||||||||
|
Aeronautics |
$ | 1,612 | $ | 1,699 | $ | 1,630 | ||||||
|
Information Systems & Global Solutions |
759 | 808 | 874 | |||||||||
|
Missiles and Fire Control |
1,431 | 1,256 | 1,069 | |||||||||
|
Mission Systems and Training |
905 | 737 | 645 | |||||||||
|
Space Systems |
1,045 | 1,083 | 1,063 | |||||||||
|
Total business segment operating profit |
5,752 | 5,583 | 5,281 | |||||||||
|
Unallocated expenses, net |
||||||||||||
|
FAS/CAS pension expense |
(482 | ) | (830 | ) | (922) | |||||||
|
Goodwill impairment charge (a) |
(195 | ) | — | — | ||||||||
|
Severance charges (b) |
(201 | ) | (48 | ) | (136) | |||||||
|
Stock-based compensation |
(189 | ) | (167 | ) | (157) | |||||||
|
Other, net |
(180 | ) | (104 | ) | (46) | |||||||
|
Total unallocated expenses, net |
(1,247 | ) | (1,149 | ) | (1,261) | |||||||
|
Total consolidated operating profit |
$ | 4,505 | $ | 4,434 | $ | 4,020 | ||||||
|
Intersegment sales |
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|
Aeronautics |
$ | 195 | $ | 197 | $ | 193 | ||||||
|
Information Systems & Global Solutions |
687 | 838 | 864 | |||||||||
|
Missiles and Fire Control |
273 | 298 | 304 | |||||||||
|
Mission Systems and Training |
991 | 908 | 958 | |||||||||
|
Space Systems |
101 | 107 | 113 | |||||||||
|
Total intersegment sales |
$ | 2,247 | $ | 2,348 | $ | 2,432 | ||||||
|
Depreciation and amortization |
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|
Aeronautics |
$ | 318 | $ | 311 | $ | 345 | ||||||
|
Information Systems & Global Solutions |
94 | 92 | 83 | |||||||||
|
Missiles and Fire Control |
98 | 104 | 102 | |||||||||
|
Mission Systems and Training |
174 | 179 | 174 | |||||||||
|
Space Systems |
199 | 191 | 199 | |||||||||
|
Total business segment depreciation and amortization |
883 | 877 | 903 | |||||||||
|
Corporate activities |
107 | 111 | 105 | |||||||||
|
Total depreciation and amortization |
$ | 990 | $ | 988 | $ | 1,008 | ||||||
|
Capital expenditures |
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Aeronautics |
$ | 271 | $ | 271 | $ | 361 | ||||||
|
Information Systems & Global Solutions |
64 | 78 | 71 | |||||||||
|
Missiles and Fire Control |
128 | 128 | 119 | |||||||||
|
Mission Systems and Training |
132 | 158 | 161 | |||||||||
|
Space Systems |
170 | 167 | 192 | |||||||||
|
Total business segment capital expenditures |
765 | 802 | 904 | |||||||||
|
Corporate activities |
71 | 140 | 83 | |||||||||
|
Total capital expenditures |
$ | 836 | $ | 942 | $ | 987 | ||||||
| (a) |
We recognized a non-cash goodwill impairment charge related to the Technical Services reporting unit within our MFC business segment. See Note 1 for more information. |
| (b) |
See Note 2 for information on charges related to certain severance actions at our business segments and Corporate Headquarters. Severance charges for initiatives that are not significant are included in business segment operating profit. |
Selected Financial Data by Business Segment (continued)
Net Sales by Customer Category
Net sales by customer category were as follows (in millions):
| 2013 | 2012 | 2011 | ||||||||||
|
U.S. Government |
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|
Aeronautics |
$ | 11,025 | $ | 11,587 | $ | 10,749 | ||||||
|
Information Systems & Global Solutions |
7,768 | 8,340 | 8,769 | |||||||||
|
Missiles and Fire Control |
5,177 | 5,224 | 5,455 | |||||||||
|
Mission Systems and Training |
5,370 | 5,685 | 5,180 | |||||||||
|
Space Systems |
7,833 | 7,952 | 7,848 | |||||||||
|
Total U.S. Government net sales |
$ | 37,173 | $ | 38,788 | $ | 38,001 | ||||||
|
International (a) |
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Aeronautics |
$ | 3,078 | $ | 3,323 | $ | 3,577 | ||||||
|
Information Systems & Global Solutions |
399 | 380 | 464 | |||||||||
|
Missiles and Fire Control |
2,546 | 2,208 | 1,977 | |||||||||
|
Mission Systems and Training |
1,672 | 1,826 | 1,906 | |||||||||
|
Space Systems |
73 | 319 | 144 | |||||||||
|
Total international net sales |
$ | 7,768 | $ | 8,056 | $ | 8,068 | ||||||
|
U.S. Commercial and Other |
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|
Aeronautics |
$ | 20 | $ | 43 | $ | 36 | ||||||
|
Information Systems & Global Solutions |
200 | 126 | 148 | |||||||||
|
Missiles and Fire Control |
34 | 25 | 31 | |||||||||
|
Mission Systems and Training |
111 | 68 | 46 | |||||||||
|
Space Systems |
52 | 76 | 169 | |||||||||
|
Total U.S. commercial and other net sales |
$ | 417 | $ | 338 | $ | 430 | ||||||
|
Total net sales |
$ | 45,358 | $ | 47,182 | $ | 46,499 | ||||||
| (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 16%, 14%, and 13% of our total net sales during 2013, 2012, and 2011.
Selected Financial Data by Business Segment (continued)
Total assets, goodwill, and customer advances and amounts in excess of costs incurred for each of our business segments were as follows (in millions):
| 2013 | 2012 | |||||||
|
Assets (a) |
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|
Aeronautics |
$ | 5,821 | $ | 6,525 | ||||
|
Information Systems & Global Solutions |
5,798 | 5,664 | ||||||
|
Missiles and Fire Control |
4,159 | 4,186 | ||||||
|
Mission Systems and Training |
6,512 | 6,589 | ||||||
|
Space Systems |
3,522 | 3,478 | ||||||
|
Total business segment assets |
25,812 | 26,442 | ||||||
|
Corporate assets (b) |
10,376 | 12,215 | ||||||
|
Total assets |
$ | 36,188 | $ | 38,657 | ||||
|
Goodwill |
||||||||
|
Aeronautics |
$ | 146 | $ | 146 | ||||
|
Information Systems & Global Solutions |
3,942 | 3,767 | ||||||
|
Missiles and Fire Control |
2,288 | 2,485 | ||||||
|
Mission Systems and Training |
3,264 | 3,264 | ||||||
|
Space Systems |
708 | 708 | ||||||
|
Total goodwill (c) |
$ | 10,348 | $ | 10,370 | ||||
|
Customer advances and amounts in excess of costs incurred |
||||||||
|
Aeronautics |
$ | 2,433 | $ | 2,382 | ||||
|
Information Systems & Global Solutions |
322 | 323 | ||||||
|
Missiles and Fire Control |
1,942 | 1,988 | ||||||
|
Mission Systems and Training |
1,188 | 1,335 | ||||||
|
Space Systems |
464 | 475 | ||||||
|
Total customer advances and amounts in excess of costs incurred |
$ | 6,349 | $ | 6,503 | ||||
| (a) |
We have no significant long-lived assets 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. |
| (c) |
During 2013, the decrease in goodwill primarily was due to a non-cash impairment charge of $195 million, net of state tax benefits, related to our MFC business segment (Note 1), partially offset by the acquisition of Amor Group at our IS&GS business segment (Note 14). During 2012, goodwill increased $222 million primarily due to the acquisitions of Chandler/May, Inc. (Chandler/May), CDL Systems Ltd. (CDL), and Procerus Technologies, L.C. (Procerus) at our MST business segment (Note 14). |
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