Note 4 – Information on Business Segments

We operate in four business segments: Aeronautics, Electronic Systems, IS&GS, 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. Aeronautics also provides logistics support, sustainment, and upgrade modification services for its aircraft. Aeronautics' major programs include the F-35 Lightning II Joint Strike Fighter, F-16 Fighting Falcon, F-22 Raptor, C-130J Hercules, and the C-5M Super Galaxy.

•

Electronic Systems – Provides surface ship and submarine combat systems; sea-based missile defense systems; ship systems integration; littoral combat ships; nuclear instrumentation and control systems for naval submarines, aircraft carriers, and surface warships; air and defense missile systems; air-to-ground precision strike weapons systems; tactical missiles; munitions; fire control and navigation systems for rotary and fixed-wing aircraft; manned and unmanned ground vehicles; mission operations support, readiness, engineering support, and integration services; simulation and training services; and energy programs. Electronic Systems' major programs include the Aegis Combat System, Patriot Advanced Capability-3, Terminal High Altitude Area Defense, Multiple Launch Rocket System, Hellfire, Joint Air-to-Surface Standoff Missile, Apache Fire Control System, Littoral Combat Ship, and Special Operations Forces Contractor Logistics Support Services.

•

Information Systems & Global Solutions – Provides management services, Information Technology (IT) solutions, and advanced technology expertise across a broad spectrum of applications. IS&GS supports the needs of customers in human capital planning, data protection and sharing, cyber-security, financial services, health care, energy and environment, security, space exploration, biometrics, and transportation. IS&GS provides network-enabled situation awareness, delivers communications and command and control capability through complex mission solutions for defense applications, and integrates complex global systems to help our customers gather, analyze, and securely distribute critical intelligence data. IS&GS has a portfolio of many smaller contracts as compared to our other business segments. IS&GS' major programs include the Command and Control, Battle Management, and Communications contract, En-Route Automation Modernization contract, the Hanford Mission Support contract, and the National Science Foundation's U.S. Antarctic Support program.

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Space Systems – Engaged in the design, research and development, engineering, and production of satellites, strategic and defensive missile systems, and space transportation systems, including activities related to the planned replacement of the Space Shuttle. Space Systems is responsible for various classified systems and services in support of vital national security systems. Space Systems' major programs include the Trident II D5 Fleet Ballistic Missile, Space-Based Infrared System, Orion Multi-Purpose Crew Vehicle, Advanced Extremely High Frequency system, Global Positioning Satellite III system, and Mobile User Objective System. Space Systems has an ownership interest in United Launch Alliance, which provides expendable launch services for the U.S. Government, and in United Space Alliance, which provided processing activities for the Space Shuttle, which is winding down following the completion of the last mission in 2011.

The financial information in the following tables below excludes businesses included in discontinued operations (Note 14) for all periods presented. Also, the 2011 financial information in the following tables includes the results of QTC Holdings Inc. (QTC) in the IS&GS business segment information and Sim-Industries B.V. in the Electronic Systems business segment information from the date of acquisition in the fourth quarter through the end of the year (Note 14).

The following table presents net sales and operating profit of our four business segments. Net sales exclude intersegment revenue, as these activities are eliminated in consolidation. Intercompany transactions are generally negotiated under terms and conditions similar to other government and commercial contracts. Operating profit of the business segments includes the equity earnings or losses from investees in which certain of our business segments hold equity interests, because the activities of the investees are closely aligned with the operations of those segments.

Operating profit of the business segments excludes the non-cash FAS/CAS pension adjustment discussed below; expense for certain stock-based compensation programs including costs for stock options and restricted stock units; the effects of items not considered part of management's evaluation of segment operating performance, such as severance charges in 2011 and the charges in 2010 related to the VESP and facilities consolidation within Electronic Systems (Note 2); gains or losses from divestitures (Note 14); the effects of legal settlements; corporate costs not allocated to the business segments; and other miscellaneous corporate activities. The items other than the charges related to severance, the VESP, and facilities consolidation are included in "Other unallocated corporate expense, net" in the following table which reconciles operating profit from the business segments to operating profit in our Statements of Earnings. The charges related to severance, the VESP, and facilities consolidation are presented together as a separate reconciling item.

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) rules. The non-cash FAS/CAS pension adjustment represents the difference between pension expense or income calculated in accordance with GAAP and pension costs calculated and funded in accordance with CAS. CAS is a major factor in determining our pension funding requirements, and governs the extent to which pension costs can be allocated to and recovered on U.S. Government contracts. The CAS expense 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


(In millions)	*2011*			2010			2009
Net sales
Aeronautics	$	14,362		$	13,109		$	11,988
Electronic Systems		14,622			14,399			13,630
Information Systems & Global Solutions		9,381			9,921			9,599
Space Systems		8,134			8,242			8,650
Total	$	46,499		$	45,671		$	43,867

Operating profit ^(a)
Aeronautics	$	1,630		$	1,498		$	1,567
Electronic Systems		1,788			1,748			1,648
Information Systems & Global Solutions		874			814			874
Space Systems		989			968			967
Total business segments		5,281			5,028			5,056
Severance and other charges ^(b)		(136	)		(220	)		—
Other unallocated corporate expense, net ^(c)		(1,165	)		(759	)		(689	)
Operating profit	$	3,980		$	4,049		$	4,367

Intersegment revenue
Aeronautics	$	193		$	128		$	210
Electronic Systems		1,095			988			856
Information Systems & Global Solutions		864			912			827
Space Systems		113			124			122
Total	$	2,265		$	2,152		$	2,015

Depreciation and amortization
Aeronautics	$	345		$	334		$	304
Electronic Systems		276			286			287
Information Systems & Global Solutions		83			106			119
Space Systems		199			212			209
Total business segments		903			938			919
Corporate activities		105			114			95
Total	$	1,008		$	1,052		$	1,014

Expenditures for property, plant and equipment and capitalized software
Aeronautics	$	361		$	422		$	436
Electronic Systems		280			288			290
Information Systems & Global Solutions		71			67			66
Space Systems		192			205			232
Total business segments		904			982			1,024
Corporate activities		83			92			142
Total	$	987		$	1,074		$	1,166

^(a)	Operating profit included equity in net earnings (losses) of equity investees as follows:


(In millions)	*2011*		2010			2009
Aeronautics	$	7	$	7		$	9
Electronic Systems		64		50			53
Space Systems		227		259			218
Total business segments		298		316			280
Corporate activities		34		(4	)		(2	)
Total	$	332	$	312		$	278

^(b)	Severance and other charges include the severance charges recorded in 2011 associated with Aeronautics, IS&GS, and Space Systems business segments, and Corporate Headquarters, and for 2010, included the charges related to the VESP and facilities consolidation within Electronic Systems (Note 2).

^(c)	Other unallocated corporate expense, net included the following:


(In millions)	*2011*			2010			2009
Non-cash FAS/CAS pension adjustment	$	(922	)	$	(454	)	$	(456	)
Stock-based compensation and other, net		(243	)		(305	)		(233	)
Total	$	(1,165	)	$	(759	)	$	(689	)

Net Sales by Customer Category


(In millions)	*2011*		2010		2009
U.S. Government
Aeronautics	$	10,749	$	10,623	$	9,966
Electronic Systems		10,662		10,749		9,864
Information Systems & Global Solutions		8,769		9,488		9,156
Space Systems		7,821		8,000		8,401
Total	$	38,001	$	38,860	$	37,387
International ^(a)
Aeronautics	$	3,577	$	2,458	$	1,973
Electronic Systems		3,883		3,562		3,664
Information Systems & Global Solutions		464		320		267
Space Systems		144		97		241
Total	$	8,068	$	6,437	$	6,145
U.S. Commercial and Other
Aeronautics	$	36	$	28	$	49
Electronic Systems		77		88		102
Information Systems & Global Solutions		148		113		176
Space Systems		169		145		8
Total	$	430	$	374	$	335
Total net sales	$	46,499	$	45,671	$	43,867

^(a)	Sales made to foreign governments through the U.S. Government (i.e., foreign military sales) are included in the "International" category.

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, stealth fighter. F-35 program related net sales represented approximately 13%, 12%, and 10% of our total net sales during 2011, 2010, and 2009.


(In millions)	*2011*		2010
Assets ^(a)
Aeronautics	$	5,752	$	5,231
Electronic Systems		10,480		9,925
Information Systems & Global Solutions		5,838		5,463
Space Systems		3,121		3,041
Total business segments		25,191		23,660
Corporate assets ^(b)		12,717		11,057
Assets of discontinued operation held for sale		—		396
Total	$	37,908	$	35,113

Goodwill
Aeronautics	$	146	$	148
Electronic Systems		5,760		5,601
Information Systems & Global Solutions		3,749		3,363
Space Systems		493		493
Total ^(c)	$	10,148	$	9,605

Customer advances and amounts in excess of costs incurred
Aeronautics	$	2,443	$	2,774
Electronic Systems		3,214		2,491
Information Systems & Global Solutions		350		284
Space Systems		392		341
Total	$	6,399	$	5,890

^(a)	We have no significant long-lived assets located in foreign countries.

^(b)	Corporate assets primarily include cash and cash equivalents, short-term investments, deferred income taxes, environmental receivables, and investments held in a Rabbi Trust.

^(c)

During 2011, the increase in goodwill primarily was due to the acquisition of QTC and Sim-Industries B.V. In 2010, goodwill decreased primarily due to the sale of Enterprise Integration Group (EIG) and the reclassification of Pacific Architects and Engineers, Inc.'s (PAE) assets and liabilities to discontinued operations in 2010 (Note 14).