Note 3 – Information on Business Segments

We organize our business segments based on the nature of the products and services offered. Effective December 31, 2012, we operate in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST), and Space Systems. This structure reflects the reorganization of our former Electronic Systems business segment into the new MFC and MST business segments in order to streamline our operations and enhance customer alignment. In connection with this reorganization, management layers at our former Electronic Systems business segment and our former Global Training and Logistics (GTL) business were eliminated, and the former GTL business was split between the two new business segments. In addition, operating results for Sandia Corporation, which manages the Sandia National Laboratories for the U.S. Department of Energy, and our equity interest in the U.K. Atomic Weapons Establishment joint venture were transferred from our former Electronic Systems business segment to our Space Systems business segment. The amounts, discussion, and presentation of our business segments reflect this reorganization for all years presented in this Annual Report on Form 10-K. 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 management services, integrated information technology solutions, and advanced technology systems and expertise 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; fire control systems; mission operations support, readiness, engineering support, and integration services; logistics and other technical services; and manned and unmanned ground vehicles.

Mission Systems and Training – Provides surface ship and submarine combat systems; sea and land-based missile defense systems; radar systems; mission systems and sensors for rotary and fixed-wing aircraft; littoral combat ships; simulation and training services; unmanned technologies and platforms; ship systems integration; and military and commercial training systems.

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 results for our Space Systems business segment include our equity interests in United Launch Alliance, which provides expendable launch services for the U.S. Government, United Space Alliance, which provided processing activities for the Space Shuttle program and is winding down following the completion of the last Space Shuttle mission in 2011, and a joint venture that manages the U.K.’s Atomic Weapons Establishment program.

The financial information in the following tables includes the results of Chandler/May, Inc. (Chandler/May); CDL Systems Ltd. (CDL); and Procerus Technologies, L.C. (Procerus) in the MST business segment information from their respective dates of acquisition in 2012 (Note 14) and QTC Holdings Inc. (QTC) in the IS&GS business segment information and Sim-Industries B.V. (Sim Industries) in the MST business segment information from their respective dates of acquisition in 2011 (Note 14). Also, the 2011 and 2010 financial information in the tables below excludes businesses included in discontinued operations (Note 14). Amounts related to discontinued operations in 2012 were not significant and, accordingly, are included in “Other unallocated expenses, net” in the table below.

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 equity earnings and losses from investees because the operating 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 in 2012 and 2011 and the charges in 2010 related to the Voluntary Executive Separation Program (VESP) and facilities consolidation within MST (Note 13); 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 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 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

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


	2012				2011				2010
Net sales
Aeronautics		$	14,953			$	14,362			$	13,109
Information Systems & Global Solutions			8,846				9,381				9,921
Missiles and Fire Control			7,457				7,463				6,930
Mission Systems and Training			7,579				7,132				7,443
Space Systems			8,347				8,161				8,268
Total net sales		$	47,182			$	46,499			$	45,671

Operating profit
Aeronautics		$	1,699			$	1,630			$	1,498
Information Systems & Global Solutions			808				874				814
Missiles and Fire Control			1,256				1,069				973
Mission Systems and Training			737				645				713
Space Systems			1,083				1,063				1,030
Total business segment operating profit			5,583				5,281				5,028
Unallocated expenses, net
Severance and other charges ⁽^a⁾			(48	)			(136	)			(220	)
Other unallocated expenses, net ⁽ ^b⁾			(1,101	)			(1,125	)			(703	)
Total consolidated operating profit		$	4,434			$	4,020			$	4,105

Intersegment sales
Aeronautics		$	197			$	193			$	128
Information Systems & Global Solutions			838				864				912
Missiles and Fire Control			298				304				295
Mission Systems and Training			908				958				857
Space Systems			107				113				124
Total intersegment sales		$	2,348			$	2,432			$	2,316

Depreciation and amortization
Aeronautics		$	311			$	345			$	334
Information Systems & Global Solutions			92				83				106
Missiles and Fire Control			104				102				103
Mission Systems and Training			179				174				183
Space Systems			191				199				212
Total business segment depreciation and amortization			877				903				938
Corporate activities			111				105				114
Total depreciation and amortization		$	988			$	1,008			$	1,052

Capital expenditures
Aeronautics		$	271			$	361			$	422
Information Systems & Global Solutions			78				71				67
Missiles and Fire Control			128				119				112
Mission Systems and Training			158				161				176
Space Systems			167				192				205
Total business segment capital expenditures			802				904				982
Corporate activities			140				83				92
Total capital expenditures		$	942			$	987			$	1,074

^(a⁾

Severance and other charges include the severance charges recorded in 2012 associated with our Aeronautics business segment and the reorganization of our former Electronic Systems business segment; for 2011, include the severance charges associated with our Aeronautics, IS&GS, and Space Systems business segments, and Corporate Headquarters; and for 2010, include the charges related to the VESP and the facilities consolidation within our MST business segment (Note 13). Severance charges for initiatives that are not significant are included in business segment operating profit.

⁽^b⁾	Other unallocated expenses, net included the following (in millions):


	2012				2011				2010
Non-cash FAS/CAS pension adjustment		$	(830	)		$	(922	)		$	(454	)
Stock-based compensation			(167	)			(157	)			(168	)
Other, net			(104	)			(46	)			(81	)
Total		$	(1,101	)		$	(1,125	)		$	(703	)

Net Sales by Customer Category

Net sales by customer category were as follows (in millions):


	2012			2011			2010
U.S. Government
Aeronautics		$	11,587		$	10,749		$	10,623
Information Systems & Global Solutions			8,340			8,769			9,488
Missiles and Fire Control			5,224			5,455			5,422
Mission Systems and Training			5,685			5,180			5,301
Space Systems			7,952			7,848			8,026
Total U.S. Government net sales		$	38,788		$	38,001		$	38,860
International ^(a)
Aeronautics		$	3,323		$	3,577		$	2,458
Information Systems & Global Solutions			380			464			320
Missiles and Fire Control			2,208			1,977			1,480
Mission Systems and Training			1,826			1,906			2,082
Space Systems			319			144			97
Total international net sales		$	8,056		$	8,068		$	6,437
U.S. Commercial and Other
Aeronautics		$	43		$	36		$	28
Information Systems & Global Solutions			126			148			113
Missiles and Fire Control			25			31			28
Mission Systems and Training			68			46			60
Space Systems			76			169			145
Total U.S. commercial and other net sales		$	338		$	430		$	374
Total net sales		$	47,182		$	46,499		$	45,671

^(a)	Sales made to other 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. Net sales for the F-35 program represented approximately 14%, 13%, and 12% of our total net sales during 2012, 2011, and 2010.

Total assets, goodwill, and customer advances and amounts in excess of costs incurred for each of our business segments were as follows (in millions):


	2012			2011
Assets ^(a)
Aeronautics		$	6,525		$	5,752
Information Systems & Global Solutions			5,664			5,838
Missiles and Fire Control			4,186			4,096
Mission Systems and Training			6,589			6,159
Space Systems			3,478			3,346
Total business segment assets			26,442			25,191
Corporate assets ^(b)			12,215			12,717
Total assets		$	38,657		$	37,908

Goodwill
Aeronautics		$	146		$	146
Information Systems & Global Solutions			3,767			3,749
Missiles and Fire Control			2,485			2,481
Mission Systems and Training			3,264			3,065
Space Systems			708			707
Total goodwill ^(c)		$	10,370		$	10,148

Customer advances and amounts in excess of costs incurred
Aeronautics		$	2,382		$	2,443
Information Systems & Global Solutions			323			350
Missiles and Fire Control			1,988			1,888
Mission Systems and Training			1,335			1,326
Space Systems			475			392
Total customer advances and amounts in excess of costs incurred		$	6,503		$	6,399

^(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 2012, the increase in goodwill primarily was due to the acquisitions of Chandler/May, CDL, and Procerus at our MST business segment (Note 14). During 2011, goodwill increased $543 million primarily due to the acquisitions of QTC at our IS&GS business segment and Sim-Industries at our MST business segment (Note 14). As a result of the previously discussed reorganization, the goodwill related to the former Electronic Systems business segment was reassigned on a relative fair value basis to the MFC, MST, and Space Systems business segments.