Lockheed Martin 2008 Annual Report Download - page 52

Results of Operations
Since our operating cycle is long-term and involves many types of design, development and production contracts with
varying production delivery schedules, the results of operations of a particular year, or year-to-year comparisons of recorded sales
and profits, may not be indicative of future operating results. The following discussions of comparative results among periods
should be viewed in this context. All per share amounts cited in this discussion are presented on a “per diluted share” basis.
Net Sales
(In billions)
The following discussion of operating results provides an overview of our operations by focusing on key elements in
our Statement of Earnings. The “Discussion of Business Segments” section which follows describes the contributions of each
of our business segments to our consolidated net sales and operating profit for 2008, 2007 and 2006. We follow an integrated
approach for managing the performance of our business, and generally focus the discussion of our results of operations
around major lines of business versus distinguishing between products and services. Product sales are predominantly
generated in the Electronic Systems, Aeronautics and Space Systems segments, while most of our services revenues are
generated in our IS&GS segment.
For 2008, net sales were $42.7 billion, a 2% increase over 2007. Net sales for 2007 were $41.9 billion, a 6% increase
over 2006. Net sales increased during 2008 in the Electronic Systems and IS&GS segments but declined in Aeronautics
primarily due to fewer combat aircraft deliveries and at Space Systems due to both government and commercial satellite
activities. Net sales increased during 2007 in all segments as compared to 2006. The U.S. Government is our largest
customer, accounting for about 84% of our net sales in 2008, 2007, and 2006.
Other income (expense), net was $482 million for 2008 compared to $293 million in 2007. This increase was primarily
due to higher equity earnings in affiliates, the recognition of the deferred gain from the 2006 sale of our ownership interest in
Lockheed Khrunichev Energia International, Inc. (LKEI) and earnings associated with reserves related to various land sales
that were no longer required. Other income (expense), net was $293 million for 2007 compared to $336 million in 2006. This
decrease primarily was due to gains recognized in 2006 from the sale of shares of Inmarsat and assets of Space Imaging,
offset partially by increased equity earnings in affiliates in 2007.
State income taxes are included in our operations as general and administrative costs and, under U.S. Government
regulations, are allowable in establishing prices for the products and services we sell to the U.S. Government. Therefore, a
substantial portion of state income taxes is included in our net sales and cost of sales. As a result, the impact on our operating
profit of certain transactions and other matters disclosed in this Form 10-K is disclosed net of state income taxes.
Our operating profit for 2008 was $5.1 billion, an increase of 13% compared to 2007. Our operating profit for 2007 was
$4.5 billion, an increase of 20% compared to 2006. Except for anticipated reductions at Aeronautics, operating profit
increased in all business segments in 2008 as compared to 2007. Operating profit was favorably impacted by lower
unallocated Corporate costs and the increase in other income (expense), net as discussed above. In 2007, operating profit
increased across all business segments as compared to 2006 and was also favorably impacted by lower unallocated Corporate
costs. Unallocated corporate costs in both 2008 and 2007 were favorably impacted by declines in the FAS/CAS pension
adjustment, primarily due to the decline in FAS 87 expense.
Interest expense for 2008 was $341 million, or $11 million lower than 2007. This decrease mainly was driven by the
August 2008 redemption of our $1 billion of floating rate convertible debentures, offset by interest expense on the $500
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