Lockheed Martin 2004 Annual Report Download - page 30

DISCUSSION OF BUSINESS SEGMENTS
We operate in five business segments: Aeronautics, Electronic
Systems, Space Systems, Integrated Systems & Solutions
(IS&S) and Information & Technology Services (I&TS).
Net sales have increased in each of our business segments
over the last three years. Our demonstrated performance and
broad portfolio of capabilities have contributed to this growth.
In the Aeronautics business segment, sales growth has been
driven by Combat Aircraft activities, which made up over 80%
of this business segment’s revenue. Sales on the F-35 Joint
Strike Fighter program have increased as we completed the
third full year on the SDD contract. During 2004, we initiated a
weight reduction effort focusing on the Short Take-Off Vertical
Landing (STOVL) variant of the aircraft. Approximately 3,000
pounds were removed from the STOVL design and significant
weight-savings were applied to the other two variants. The F/A-22
program has contributed to our sales growth as we continue to
build aircraft under low-rate initial production contracts. In
2004, 15 F/A-22s, our highest annual total to date on the pro-
gram, were delivered including the final six Production Lot 1
aircraft and the first nine Production Lot 2 aircraft. Activities on
our F-16 programs increased as we delivered 83 aircraft during
2004 as compared to 62 aircraft in 2003. Activity on the C-130J
program included delivery of 13 aircraft in 2004, which repre-
sented the near completion of the initial 119 aircraft program
and delivery of the first two aircraft under the multi-year award
for 60 aircraft that was received in 2003. We began to recognize
profits on the 13 C-130J aircraft delivered in 2004.
The Electronic Systems business segment has a broad port-
folio of products and services. Many of its activities involve a
combination of both development and production contracts with
varying delivery schedules. The mix of contract types varies, and
we expect this to continue in the short term; it may affect the
year-to-year comparisons of segment margins and the operating
results of the lines of businesses within Electronic Systems.
The Space Systems business segment is a key supplier of
space solutions, primarily to our U.S. Government customers.
Satellites and Strategic & Defensive Missile System activities
are expected to experience steady growth. The commercial
satellite and launch vehicle industries continue to be very com-
petitive, with resulting pricing pressures. The activities in the
Titan launch vehicle program will continue, though at a lower
level than prior years, as we work to complete the remaining
two U.S. Government missions.
The IS&S and I&TS business segments continue to focus
their capabilities in providing information technology services
to defense, intelligence and other government customers. We
expect continued strong growth in providing information tech-
nology solutions to government agencies.
In the following tables of financial data, the total of the
operating results of the business segments is reconciled to the
corresponding consolidated amount. With respect to the caption
“Operating profit,” the reconciling item “Net unallocated
Corporate expense” includes the FAS/CAS pension adjustment
(see discussion below), earnings and losses from equity invest-
ments, interest income, costs for certain stock-based compen-
sation programs, the effects of items not considered part of
management’s evaluation of segment operating performance,
and Corporate costs not allocated to the operating segments, as
well as other miscellaneous Corporate activities.
The FAS/CAS pension adjustment represents the differ-
ence between pension expense or income calculated for finan-
cial reporting purposes in accordance with FAS 87, and pension
costs calculated and funded in accordance with U.S.
Government CAS, which are reflected in the business segment
results. CAS is a major factor in determining our pension fund-
ing requirements, and governs the extent of allocability and
recoverability of pension costs on government contracts. The
CAS expense is recovered through the pricing of our products
and services on U.S. Government contracts, and therefore rec-
ognized in segment net sales. The results of operations of the
segments only include pension expense as determined and
funded in accordance with CAS rules.
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2004
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