Business Segment Information

9 Months Ended

Sep. 30, 2012

Business Segment Information

NOTE 3 – BUSINESS SEGMENT INFORMATION

We currently operate in four business segments: Aeronautics, Electronic Systems, Information Systems & Global Solutions (IS&GS), and Space Systems. We organize our business segments based on the nature of the products and services offered.

As announced on October 8, 2012, in order to streamline our operations and enhance customer alignment, our Electronic Systems business segment will be reorganized effective December 31, 2012 into two new business segments: Missiles and Fire Control (MFC) and Mission Systems and Training (MST). In connection with this reorganization, the Electronic Systems corporate management layer will be eliminated and the Global Training and Logistics business will be split between the two new business segments. In addition, the business reporting relationship for the Sandia National Laboratories and the U.K. Atomic Weapons Establishment joint venture will transfer from Electronic Systems to Space Systems. Following the reorganization, we will have five business segments comprised of Aeronautics, IS&GS, MFC, MST, and Space Systems. These changes do not affect the amounts, discussion, or presentation of our business segments as set forth in this Form 10-Q. We will begin to report our financial results consistent with this new structure beginning with our Annual Report on Form 10-K for the year ended December 31, 2012.

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 similar to our third-party contracts.

Operating profit of our business segments includes the equity earnings and 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 business segments. Operating profit of our business segments excludes the non-cash FAS/CAS pension adjustment described below; expense for stock-based compensation programs; the effects of items not considered part of management’s evaluation of segment operating performance, such as charges related to significant severance actions (Note 8, under the caption “Severance Activities”); gains or losses from divestitures; the effects of legal settlements; corporate costs not allocated to our business segments; and other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated expense, 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 non-cash 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 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.

The operating results in the following table exclude businesses included in discontinued operations (Note 8, under the caption “Discontinued Operations”). During the quarter ended December 31, 2011, we realigned an immaterial supply chain services business from our Aeronautics business segment to our Electronic Systems business segment. The realignment had no effect on our consolidated results of operations, financial position, or cash flows. The financial information in the following table has been reclassified to reflect this realignment.

Summary operating results for each of our business segments were as follows (in millions):

	Quarters Ended						Nine Months Ended
	September 30, 2012			September 25, 2011			September 30, 2012			September 25, 2011
Net sales
Aeronautics		$  3,698			$  3,965			$10,812			$10,507
Electronic Systems		3,818			3,663			11,293			10,925
Information Systems & Global Solutions		2,292			2,323			6,645			6,833
Space Systems		2,061			2,168			6,333			6,023
Total net sales		$11,869			$12,119			$35,083			$34,288
Operating profit
Aeronautics		$415			$444			$  1,254			$  1,169
Electronic Systems		509			447			1,576			1,357
Information Systems & Global Solutions		209			213			605			620
Space Systems		301			251			809			731
Total business segment operating profit		1,434			1,355			4,244			3,877
Unallocated expense, net
Severance charges (a)		(23	)		(39	)		(23	)		(136	)
Other unallocated expense, net		(313	)		(275	)		(911	)		(843	)
Total consolidated operating profit		$  1,098			$  1,041			$  3,310			$  2,898
Intersegment sales
Aeronautics		$55			$58			$145			$     140
Electronic Systems		259			266			775			770
Information Systems & Global Solutions		231			227			659			635
Space Systems		32			30			84			81
Total intersegment sales		$     577			$     581			$  1,663			$  1,626

^(a)  Severance charges for 2012 consisted of amounts, net of state tax benefits, associated with the elimination of certain positions at our Electronic Systems business segment. For 2011, severance charges consisted of amounts related to actions taken at various business segments as well as Corporate Headquarters (Note 8, under the caption “Severance Activities”). Severance charges for initiatives that are not significant are included in business segment operating profit.

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

	September 30, 2012		December 31, 2011
Assets
Aeronautics		$  6,335		$  5,752
Electronic Systems		10,700		10,480
Information Systems & Global Solutions		5,640		5,838
Space Systems		3,179		3,121
Total business segment assets		25,854		25,191
Corporate assets (a)		13,467		12,717
Total assets		$39,321		$37,908

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

Our Aeronautics business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, stealth fighter. Net sales for the F-35 program represented approximately 15% and 14% of our total consolidated net sales for the quarter and nine months ended September 30, 2012, and approximately 12% of our total consolidated net sales for both the quarter and nine months ended September 25, 2011.