Lockheed Martin 2007 Annual Report Download - page 52

Our Operating profit for 2007 was $4.5 billion, an increase of 20% compared to 2006. Our Operating profit for 2006
was $3.8 billion, an increase of 32% compared to 2005. Operating profit increased across all business segments in both
comparative periods and was also favorably impacted by lower Unallocated Corporate costs, primarily due to a decline in the
FAS/CAS pension adjustment.
Interest expense for 2007 was $352 million, $9 million lower than 2006. This decrease was mainly driven by lower
interest expense associated with the September 2006 debt exchange. Interest expense for 2006 was $361 million, $9 million
lower than in 2005. This decrease in interest expense primarily was due to reductions in our debt outstanding.
Other non-operating income (expense), net totaled $193 million in 2007, an increase of 5% from 2006, and was $183
million in 2006, an increase of 38% from 2005. The increase in 2007 was mainly due to the $16 million of debt exchange
expenses recorded in 2006, as there were no comparable charges in 2007. The increase in 2006 over 2005 primarily was
attributable to higher interest rates and amounts invested.
Our effective tax rates were 30.6% for 2007, 29.6% for 2006, and 30.2% for 2005. The effective rates for all years were
lower than the statutory rate of 35% primarily due to tax deductions for U.S. manufacturing activities, dividends related to
our employee stock ownership plan, and research and development (R&D) tax credits. In addition, the rate for 2007 reflected
a reduction in Income tax expense of $59 million related to the completion of an IRS audit in the first quarter. The rate for
2006 reflected a reduction in Income tax expense of $62 million related to a refund claim for additional extraterritorial
income exclusion (ETI) benefits in prior years recognized in the third quarter of 2006. The rates in 2006 and 2005 also
reflected tax benefits related to ETI.
The increase in the 2007 effective tax rate when compared to 2006 is primarily the result of the elimination of the
extraterritorial tax benefits in 2007, partially offset by additional tax benefits resulting from a statutory increase in U.S.
manufacturing benefits, new legislation that provided enhanced R&D tax credits, and the favorable closure of an IRS audit.
The small decrease in the 2006 tax rate when compared to 2005 is primarily the result of higher extraterritorial tax benefits in
2006 resulting from a refund claim for additional prior year benefits.
Net earnings increased as compared to the prior year for the sixth consecutive year. We reported Net earnings of $3.0
billion ($7.10 per share) in 2007, Net earnings of $2.5 billion ($5.80 per share) in 2006, and Net earnings of $1.8 billion
($4.10 per share) in 2005.
Discussion of Business Segments
In February 2007, we announced a realignment of our operations to enhance support for critical customer missions and
increase our integration of resources. The realignment included the combination of our IT&GS and IS&S business segments
into a new business segment named IS&GS, along with certain other changes.
We now operate in four principal business segments: Aeronautics, Electronic Systems, IS&GS and Space Systems. We
organize our business segments based on the nature of the products and services offered.
Our Aeronautics business segment is engaged in the design, research and development, systems integration, production,
sustainment, support and upgrade of advanced military aircraft, air vehicles and related technologies, primarily for U.S. and
allied country military services. Combat aircraft programs include the F-35, F-22 and F-16 aircraft. The F-35 Lightning II is
currently in the System Development and Demonstration phase and has entered low rate production. Aeronautics has been
producing F-22 Raptors since 1997, and delivered 24 to the U.S. Air Force in 2007, bringing the total deliveries to 110. We
also received a 60 aircraft multi-year contract for Production Lots 7, 8 and 9. A total of 41 F-16 Fighting Falcons were
delivered in 2007 worldwide, bringing the total deliveries to 4,389. Sales at Aeronautics are expected to decline in 2008
primarily due to a projected reduction in F-16 activities. In the area of Air Mobility, we produce the C-130J Super Hercules
aircraft. We delivered 12 aircraft in 2007. A total of 213 have been ordered and 159 delivered through 2007. In addition to
aircraft production, the segment provides logistics support, sustainment, and upgrade modification and services for its
aircraft.
The Electronic Systems business segment is engaged in the design, research, development, integration, production and
sustainment of high performance systems and subsystems for undersea, shipboard, land and airborne applications, including
tactical missiles, surface ship and submarine combat systems, ground combat vehicle integration and radars, among others.
With such a broad portfolio of products and services, many of its activities involve a combination of both development and
production contracts with varying delivery schedules. This business segment has continued to expand its core competencies
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