MANAGEMENT’S DISCUSSION AND ANALYSIS Sikorsky’s aftermarket business includes spare parts sales, overhaul and repair services, maintenance contracts and logistics support programs for helicopters and other aircraft. Sales are principally made to the U.S. and foreign governments, and commercial helicopter operators. Sikorsky is increasingly engaging in logistics support programs and partnering with its government and commercial customers to manage and provide logistics, maintenance and repair services. TOTAL CHANGE YEAR-OVER-YEAR FOR: 2011 Compared with 2010 2010 Compared with 2009 (Dollars in millions) 2011 2010 2009 $ % $ % Net Sales $7,355 $6,684 $6,287 $671 10% $397 6% Cost of Sales 6,120 5,539 5,319 581 10% 220 4% 1,235 1,145 968 Operating Expenses and Other 395 429 360 Operating Profits $ 840 $7 1 6 $6 0 8 $124 17% $ 108 18% FACTORS CONTRIBUTING TO TOTAL % CHANGE YEAR-OVER-YEAR IN: 2011 2010 Net Sales Cost of Sales Operating Profits Net Sales Cost of Sales Operating Profits Organic / Operational 10% 10% 12 % 6% 4% 17 % Acquisitions and divestitures, net — — — — — (1)% Restructuring costs — — (5)% — — (1)% Other — — 10 % — — 3 % Total % change 10% 10% 17 % 6% 4% 18 % The increase in organic sales (10%) was primarily attributable to higher military aircraft sales including higher international development aircraft sales and favorable military aircraft configuration mix (8% combined), which more than offset a decrease from commercial operations (2%) due to fewer aircraft deliveries. Net sales from aftermarket support increased (4%) primarily driven by higher spares volume. The operational profit improvement (12%) was primarily attributable to an increase in aftermarket support (10%) driven by higher spares volume. Operating profits in the military business increased as higher aircraft deliveries and favorable aircraft configuration mix more than offset the adverse impact of losses associated with higher than expected development costs on international military development aircraft sales (2% combined). The remainder of the operational profit increase was primarily driven by lower manufacturing costs, higher volume on customer funded development and lower research and development costs, which more than offset the impact of fewer aircraft deliveries from commercial operations. The 10% increase contributed by “Other” reflects the gain recognized on contribution of a business to a venture in the United Arab Emirates. The organic sales growth (6%) was primarily attributable to higher military aircraft sales (6%), partially offset by the impact of fewer aircraft deliveries from commercial operations (2%) due to continued commercial market Eliminations and other reflects the elimination of sales, other income and operating profit transacted between segments, as well as the operating results of certain smaller businesses such as UTC Power and Clipper. The change in sales in 2011, as compared with 2010, primarily reflects the acquisition of Clipper. The change in the operating profit elimination in 2011, as compared with 2010, primarily reflects the impact from the acquisition of Clipper and costs associated with the pending acquisition of Goodrich, partially offset by the absence of the $159 million other-than-temporary impairment charge on our investment in Clipper, which was recorded during the third quarter of 2010. Gross margin and operational profit improvement were primarily attributable to increased military aircraft sales (15%), partially offset by a decline in commercial operations (2%) due to unfavorable aircraft configuration mix and fewer deliveries as a result of continued commercial market weakness. Improvement in aftermarket support (4%) was driven by higher military sales and aircraft modernizations. The remainder of the operational profit change was driven by higher year-over-year research and development costs, which were substantially offset by favorable gross margin from lower manufacturing costs. The 3% increase contributed by “Other” primarily reflects the absence of prior year costs associated with a union contract ratified in 2009. weakness. Sales from aftermarket support increased (2%) primarily driven by higher military sales volume and aircraft modernizations. 2011 ANNUAL REPORT 43 Eliminations and other 2010 Compared with 2009 2011 Compared with 2010