As reflected in this report, financial results were consistently strong in 2011 with sales of $46.5 billion, representing a two percent increase over 2010. We grew our diluted earnings per share from continuing operations to $7.85, and we grew our backlog to a record $80.7 billion at the end of 2011. 

Balanced cash deployment is a key element of our strategy. In 2011, we generated $4.3 billion in cash from operations after making $2.3 billion in contributions to our pension plans. We deployed cash to generate shareholder value through cash dividends of $1.1 billion and share repurchases of $2.4 billion. Our total shareholder return for the year was 21 percent, outperforming all major indices. 

Our record of strong cash generation has allowed us to pursue selected acquisitions that add greater depth to our portfolio. In 2011, we completed our acquisition of QTC Holdings, Inc., the largest provider of outsourced medical evaluation services to the U.S. Government and Department of Veterans Affairs. Our distinction as the number one supplier of IT services to the federal government, coupled with QTC’s case management services and health care expertise, now position us to help improve health care for veterans, reservists, active duty, and civilian government personnel. We also acquired Netherlands-based Sim-Industries, B.V., which develops and manufactures fl ight simulators for a wide range of airline customers. These acquisitions demonstrate our commitment to expand into closely related markets that build on our core capabilities and grow our customer base. 

## Structuring and Managing the Enterprise for Effi ciency 

Because we operate in a dynamic environment, we continuously evolve our organizational structure to respond with even greater agility and precision to changing business conditions and customer priorities. To that end, in 

September 2011 we created the Executive Office of the Chairman to include the Chief Executive Officer and Chief Operating Offi cer. 

Through this structure, we stay closely aligned on all operational and functional matters as they arise, and we act interchangeably and decisively to ensure we meet our customers’ expectations, and that we focus on excellent performance and profitable growth. We are confident this new structure better aligns business strategy with program execution and affordability. 

Additionally, we announced this year the appointment of Larry A. Lawson as executive vice president for Aeronautics, effective April 1. Larry, who currently serves as vice president and general manager of the F-35 program, brings a keen understanding of the entire Aeronautics portfolio. He succeeds Ralph D. Heath, whose leadership of our Aeronautics business has been defi ned by innovation, attention to performance, and a dedication to the highest standards of ethics and accountability. 

## Operational Excellence Drives Financial Results 

We realize that affordability – creating greater efficiencies and lowering costs in everything we do – is a permanent feature of our corporate culture. We monitor all aspects of our operations to ensure we are always aligned with business needs and positioned to offer value to our customers. We also work closely with our 29,000 active suppliers to drive affordability into every program. 

We also recognize that the greatest contributor to the vitality of this company is solid execution on our customers’ programs. We have made considerable progress on the development and production phases of the F-35 as evidenced by Secretary of Defense Leon Panetta’s lifting of the probation on the F-35B Short-Takeoff/Vertical 

