Lockheed Martin 2010 Annual Report Download - page 36

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The Aeronautics segment generally includes fewer programs that have much larger sales and operating results than programs
included in the other segments. Due to the large number of comparatively smaller programs in the remaining segments, the discussion
of the results of operations of those business segments focuses on lines of business within the segment rather than on specific
programs. The following tables of financial information and related discussion of the results of operations of our business segments
are consistent with the presentation of segment information in Note 5 to the financial statements. We have a number of programs that
are classified by the U.S. Government and cannot be specifically described. The operating results of these classified programs are
included in our consolidated and business segment results, and are subjected to the same oversight and internal controls as our other
programs.
Aeronautics
Our Aeronautics business segment is engaged in the research, design, development, manufacture, integration, sustainment,
support, and upgrade of advanced military aircraft, including combat and air mobility aircraft, unmanned air vehicles, and related
technologies. Key Combat Aircraft programs include the F-35 Lightning II, F-16 Fighting Falcon, and F-22 Raptor fighter aircraft.
Key Air Mobility programs include the C-130J Super Hercules and the C-5M Super Galaxy. Aeronautics provides logistics support,
sustainment, and upgrade modification services for its aircraft. Aeronautics’ operating results included the following:
(In millions)
2010
2009
2008
Net sales
$ 13,235
$ 12,201
$ 11,473
Operating profit
1,502
1,577
1,433
Operating margin
11.3%
12.9%
12.5%
Backlog at year-end
27,500
26,700
27,200
Net sales for Aeronautics increased by 8% in 2010 compared to 2009. Sales increased in all three lines of business during the
year. The $800 million increase in Air Mobility primarily was attributable to higher volume on C-130 programs, including deliveries
and support activities, as well as higher volume on the C-5 Reliability Enhancement and Re-engining Program (RERP). There were 25
C-130J deliveries in 2010 compared to 16 in 2009. The $179 million increase in Combat Aircraft principally was due to higher
volume on F-35 production contracts, which partially was offset by lower volume on the F-35 SDD contract and a decline in volume
on F-16, F-22 and other combat aircraft programs. There were 20 F-16 deliveries in 2010 compared to 31 in 2009. The $55 million
increase in Other Aeronautics Programs mainly was due to higher volume on P-3 and advanced development programs, which
partially were offset by a decline in volume on sustainment activities.
Net sales for Aeronautics increased by 6% in 2009 compared to 2008. During the year, sales increased in all three lines of
business. The increase of $296 million in Air Mobility’s sales primarily was attributable to higher volume on the C-130 programs,
including deliveries and support activities. There were 16 C-130J deliveries in 2009 and 12 in 2008. Combat Aircraft sales increased
$316 million principally due to higher volume on the F-35 program and increases in F-16 deliveries, which partially were offset by
lower volume on F-22 and other combat aircraft programs. There were 31 F-16 deliveries in 2009 compared to 28 in 2008. The $116
million increase in Other Aeronautics Programs mainly was due to higher volume on P-3 programs and advanced development
programs, which partially were offset by declines in sustainment activities.
Operating profit for the segment decreased by 5% in 2010 compared to 2009. A decline in operating profit in Combat Aircraft
partially was offset by increases in Other Aeronautics Programs and Air Mobility. The $149 million decrease in Combat Aircraft’s
operating profit primarily was due to lower volume and a decrease in the level of favorable performance adjustments on the F-22
program, the F-35 SDD contract and F-16 and other combat aircraft programs in 2010. These decreases more than offset increased
operating profit resulting from higher volume and improved performance on F-35 production contracts in 2010. The $35 million
increase in Other Aeronautics Programs mainly was attributable to higher volume and improved performance on P-3 and advanced
development programs as well as an increase in the level of favorable performance adjustments on sustainment activities in 2010. The
$19 million increase in Air Mobility operating profit primarily was due to higher volume and improved performance in 2010 on
C-130J support activities, which more than offset a decrease in operating profit due to a lower level of favorable performance
adjustments on C-130J deliveries in 2010. The remaining change in operating profit is attributable to an increase in other income, net
between the comparable periods.
Aeronautics’ 2010 operating margins have decreased when compared to 2009. The operating margin decrease reflects the life
cycles of our significant programs. Specifically, Aeronautics is performing more development and initial production work on the F-35
program and is performing less work on more mature programs such as the F-22 and F-16. Development and initial production
contracts yield lower profits than mature full rate programs. Accordingly, while net sales increased in 2010 relative to 2009, operating
profit decreased and consequently operating margins have declined.