Lockheed Martin 2008 Annual Report Download - page 40

($0.14 per share) resulting from the closure of Internal Revenue Service examinations for the 2003 and 2004 tax years and claims we
filed for additional extraterritorial income tax benefits for years prior to 2005. On a combined basis, these items increased net earnings
by $105 million after tax ($0.25 per share).
(c) Includes the effects of items not considered in the assessment of the operating performance of our business segments which increased
operating profit by $230 million, $150 million after tax ($0.34 per share). Also includes a charge of $16 million, $11 million after tax
($0.03 per share), in other non-operating income (expense), net for a debt exchange, and a reduction in income tax expense of $62
million ($0.14 per share) resulting from a tax benefit related to claims we filed for additional extraterritorial income exclusion tax
benefits. On a combined basis, these items increased net earnings by $201 million after tax ($0.45 per share).
(d) Includes the effects of items not considered in the assessment of the operating performance of our business segments which, on a
combined basis, increased operating profit by $173 million, $113 million after tax ($0.25 per share).
(e) Includes the effects of items not considered in the assessment of the operating performance of our business segments which decreased
operating profit by $61 million, $54 million after tax ($0.12 per share). Also includes a charge of $154 million, $100 million after tax
($0.22 per share), in other non-operating income (expense), net for the early repayment of debt, and a reduction in income tax expense
resulting from the closure of an Internal Revenue Service examination of $144 million ($0.32 per share). On a combined basis, these
items reduced net earnings by $10 million after tax ($0.02 per share).
(f) In 2008, we reclassified certain amounts from other liabilities to other current liabilities. Prior year amounts have been reclassified to
conform to the 2008 presentation. The amounts associated with the reclassification for the prior periods are as follows: $166 million in
2007; $142 million in 2006; $114 million in 2005; and $70 million in 2004.
(g) In 2008, we reclassified the effect of exchange rate changes on cash held in foreign currencies on our Statement of Cash Flows from
cash provided by operating activities to effect of exchange rate changes on cash and cash equivalents. Prior year amounts of cash
provided by operating activities in the table above have been reclassified to conform to the 2008 presentation. The amounts associated
with the effect of exchange rate changes on cash and cash equivalents for prior periods increased (decreased) cash provided by
operating activities as follows: $(3) million in 2007; $(18) million in 2006; $10 million in 2005; and $(3) million in 2004.
(h) We define return on invested capital (ROIC) as net earnings plus after-tax interest expense divided by average invested capital
(stockholders’ equity plus total debt), after adjusting stockholders’ equity by adding back adjustments related to postretirement benefit
plans. We believe that reporting ROIC provides investors with greater visibility into how effectively we use the capital invested in our
operations. We use ROIC as one of the inputs in our evaluation of multi-year investment decisions and as a long-term performance
measure, and also use it as a factor in evaluating management performance under certain of our incentive compensation plans. ROIC
is not a measure of financial performance under generally accepted accounting principles, and may not be defined and calculated by
other companies in the same manner. ROIC should not be considered in isolation or as an alternative to net earnings as an indicator of
performance. We calculate ROIC as follows:
(In millions) 2008 2007 2006 2005 2004
Net earnings $ 3,217 $ 3,033 $ 2,529 $ 1,825 $ 1,266
Interest expense (multiplied by 65%) 1222 229 235 241 276
Return $ 3,439 $ 3,262 $ 2,764 $ 2,066 $ 1,542
Average debt 2, 5 $ 4,346 $ 4,416 $ 4,727 $ 5,077 $ 5,932
Average equity 3, 5 8,236 7,661 7,686 7,590 7,015
Average benefit plan adjustments 4, 5 3,256 3,171 2,006 1,545 1,296
Average invested capital $15,838 $15,248 $14,419 $14,212 $14,243
Return on invested capital 21.7% 21.4% 19.2% 14.5% 10.8%
1Represents after-tax interest expense utilizing the federal statutory rate of 35%.
2Debt consists of long-term debt, including current maturities of long-term debt, and short-term borrowings (if any).
3Equity includes non-cash adjustments, primarily related to average benefit plan adjustments discussed in Note 4 below.
4Average benefit plan adjustments reflect the cumulative value of entries identified in our Statement of Stockholders’ Equity under
the captions “Postretirement benefit plans,” “Adjustment for adoption of FAS 158” and “Minimum pension liability.” The total of
annual benefit plan adjustments to equity were: 2008 = $(7,253) million; 2007 = $1,706 million; 2006 = $(1,883) million; 2005 =
$(105) million; and 2004 = $(285) million. As these entries are recorded in the fourth quarter, the value added back to our average
equity in a given year is the cumulative impact of all prior year entries plus 20% of the current year entry value. The cumulative
impact of benefit plan adjustments through December 31, 2003 was $(1,239) million.
5Yearly averages are calculated using balances at the start of the year and at the end of each quarter.
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