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<p style="margin-top: 12px; margin-bottom: 0px;"><font style="font-family: ARIAL;" class="_mt" size="2"><b><i><a name="tx125267_33"> </a>Note 3 – Restructuring and Other Activities </i></b></font></p>
<p style="margin-top: 12px; text-indent: 4%; margin-bottom: 0px;"><font style="font-family: Times New Roman;" class="_mt" size="2">In 2010, we recorded a charge to cost of sales, net of state income tax benefits, of $<font class="_mt">178</font> million related to the Voluntary Executive Separation Program (VESP) we announced in July 2010. The charge, which included the anticipated lump-sum special payments for qualifying executives, reduced our net earnings for 2010 by $<font class="_mt">116</font> million ($<font class="_mt">.31</font> per share). Approximately <font class="_mt">600</font> executives, or about <font class="_mt">25</font>% of our total executive population, applied to voluntarily participate in the program and were subsequently approved. Approved VESP participants will receive a lump-sum special payment upon termination. The effective date of termination of employment for most participants was February 
;1, 2011, with the lump-sum special payments to be made within <font class="_mt">90</font> days from separation of service. </font></p>
<p style="margin-top: 12px; text-indent: 4%; margin-bottom: 0px;"><font style="font-family: Times New Roman;" class="_mt" size="2">In the fourth quarter of 2010, the Mission Systems & Sensors (MS2) line of business in Electronic Systems announced a plan to consolidate certain of its operations. Accordingly, we recorded a charge to cost of sales, net of state income tax benefits, of $<font class="_mt">42</font> million which reduced our net earnings for 2010 by $<font class="_mt">27</font> million ($<font class="_mt">.07</font> per share). The majority of the charge was associated with the accrual of severance payments to employees, with the remainder associated with impairment of assets. The consolidation plan primarily related to the decision to close down the MS2 facility in Eagan, Minnesota and move the operations to other MS2 locations. We expect to complete these activities by 2013. </font></p>
<p style="margin-top: 12px; text-indent: 4%; margin-bottom: 0px;"><font style="font-family: Times New Roman;" class="_mt" size="2">In 2008, we recognized a deferred gain, net of state income taxes, of $<font class="_mt">108</font> million in other income, net. The deferred gain was originally recorded in 2006 in connection with the sale of our interests in Lockheed Khrunichev Energia International, Inc. (LKEI) and International Launch Services, Inc. (ILS). Under the sale agreement, we were responsible to refund advances to certain customers if launch services were not provided and ILS did not refund the advances. Due to this continuing involvement with those customers of ILS, many of the risks related to this business had not been transferred and we had not recognized this transaction as a divestiture for financial reporting purposes. In 2008, Khrunichev provided the remaining launch services for which we had potential responsibility to refund advances, such that we were not required
to repay advances. Recognition of the deferred gain increased net earnings by $<font class="_mt">70</font> million ($<font class="_mt">.17</font> per share). </font></p>
<p style="margin-top: 12px; text-indent: 4%; margin-bottom: 0px;"><font style="font-family: Times New Roman;" class="_mt" size="2">In 2008, we recognized, net of state income taxes, $<font class="_mt">85</font> million in other income, net, due to the elimination of reserves related to various land sales in California. Reserves were originally recorded at the time of each land sale in 2007 and prior years based on the U.S. Government's assertion that a significant portion of the sale proceeds should be allocated to the buildings and improvements on the properties, thereby giving the U.S. Government the right to share in the gains associated with the land sales. At the time the land sales occurred, we believed the value of the properties sold was attributable to the land versus the buildings and improvements. The dispute was resolved by the Armed Services Board of Contract Appeals, which determined that our accounting for the land sales was in accordance with the Federal Acquisition Re
gulation and CAS. We reached a settlement with the U.S. Government in 2008, and the previously recorded reserves were no longer required. Resolution of this matter increased our net earnings by $<font class="_mt">56</font> million ($<font class="_mt">.14</font> per share). </font></p></div> </div>Note 3 – Restructuring and Other Activities
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