
5.	Contracts in Process

The components of contracts in process are presented in the table below.


	July 1,			December 31,
	2011			2010
	(in millions)

Unbilled contract receivables, gross	$	3,019		$	2,769
Less: unliquidated progress payments		(1,199	)		(1,007	)

Unbilled contract receivables, net		1,820			1,762

Inventoried contract costs, gross		1,034			882
Less: unliquidated progress payments		(120	)		(96	)

Inventoried contract costs, net		914			786

Total contracts in process	$	2,734		$	2,548

Inventoried Contract Costs. In accordance with contract accounting standards, the Company accounts for the portion of its general and administrative (G&A), independent research and development (IRAD) and bid and proposal (B&P) costs that are allowable and reimbursable indirect contract costs under U.S. Government procurement regulations on its U.S. Government contracts (revenue arrangements) as inventoried contract costs. G&A, IRAD and B&P costs are allocated to contracts for which the U.S. Government is the end customer and are charged to costs of sales when sales on the related contracts are recognized. The Company’s unallowable portion of its G&A, IRAD and B&P costs for its U.S. Government contractor businesses are expensed as incurred and are not included in inventoried contract costs.

The table below presents a summary of G&A, IRAD and B&P costs included in inventoried contract costs and the changes to them, including amounts charged to cost of sales by the Company’s U.S. Government contractor businesses for the periods presented.


	Second Quarter Ended						First Half Ended
	July 1,			June 25,			July 1,			June 25,
	2011			2010			2011			2010
	(in millions)

Amounts included in inventoried contract costs at beginning of the period	$	102		$	84		$	97		$	77
Add: Contract costs incurred⁽¹⁾		340			342			652			655
Less: Amounts charged to cost of sales		(330	)		(333	)		(637	)		(639	)

Amounts included in inventoried contract costs at end of the period	$	112		$	93		$	112		$	93


⁽¹⁾		Includes IRAD and B&P costs of $98 million for the quarter ended July 1, 2011, $92 million for the quarter ended June 25, 2010, $179 million for the first half ended July 1, 2011 and $173 million for the first half ended June 25, 2010, and other G&A costs of $242 million for the quarter ended July 1, 2011, $250 million for the quarter ended June 25, 2010, $473 million for the first half ended July 1, 2011 and $482 million for the first half ended June 25, 2010.

The table below presents a summary of selling, general and administrative expenses and research and development expenses for the Company’s commercial businesses, which are expensed as incurred and not included in inventoried contract costs.


	Second Quarter Ended				First Half Ended
	July 1,		June 25,		July 1,		June 25,
	2011		2010		2011		2010
	(in millions)

Selling, general and administrative expenses	$	76	$	69	$	152	$	132
Research and development expenses		20		20		38		32

Total	$	96	$	89	$	190	$	164