Lockheed Martin 2013 Annual Report Download - page 75

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average
number of common shares outstanding for the periods presented. Our calculation of diluted earnings per common share also
includes the dilutive effects for the assumed exercise of outstanding stock options and vesting of outstanding restricted stock
units based on the treasury stock method.
The computation of diluted earnings per common share excluded 2.4 million, 8.0 million, and 13.4 million stock options
for the years ended December 31, 2013, 2012, and 2011 because their inclusion would have been anti-dilutive, primarily due
to their exercise prices exceeding the average market prices of our common stock during the respective periods.
Note 4 – Information on Business Segments
We operate in five business segments: Aeronautics, IS&GS, MFC, MST, and Space Systems. We organize our business
segments based on the nature of the products and services offered. The following is a brief description of the activities of our
business segments:
•Aeronautics – 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.
•Information Systems & Global Solutions – Provides advanced technology systems and expertise, integrated information
technology solutions, and management services across a broad spectrum of applications for civil, defense, intelligence,
and other government customers.
•Missiles and Fire Control – Provides air and missile defense systems; tactical missiles and air-to-ground precision strike
weapon systems; logistics and other technical services; fire control systems; mission operations support, readiness,
engineering support, and integration services; and manned and unmanned ground vehicles.
•Mission Systems and Training – Provides ship and submarine mission and combat systems; mission systems and sensors
for rotary and fixed-wing aircraft; sea and land-based missile defense systems; radar systems; the Littoral Combat Ship;
simulation and training services; and unmanned systems and technologies.
•Space Systems – Engaged in the research and development, design, engineering, and production of satellites, strategic
and defensive missile systems, and space transportation systems. Space Systems is also responsible for various classified
systems and services in support of vital national security systems. Operating profit for our Space Systems business
segment includes our share of earnings for our investment in ULA, which provides expendable launch services to the U.S.
Government.
The financial information in the following tables includes the results of businesses we have acquired during the past
three years (Note 14) from their respective dates of acquisition. The business segment operating results in the following
tables exclude businesses included in discontinued operations (Note 14) for all years presented.
Net sales of our business segments exclude intersegment sales, as these activities are eliminated in consolidation.
Intercompany transactions are generally negotiated under terms and conditions that share many similar characteristics (e.g.,
contract structures, funding profiles, target cost values, contract progress reports) with our third-party contracts, primarily
with the U.S. Government.
Operating profit of our business segments includes our share of earnings or losses from equity method investees because
the operating activities of the equity method investees are closely aligned with the operations of those business segments.
Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense for stock-
based compensation; the effects of items not considered part of management’s evaluation of segment operating performance,
such as charges related to goodwill impairment (Note 1) and significant severance actions (Note 2); gains or losses from
divestitures (Note 14); the effects of certain legal settlements; corporate costs not allocated to our business segments; and
other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated expenses, net”
between operating profit from our business segments and our consolidated operating profit.
The results of operations of our business segments include pension expense only as determined and funded in
accordance with U.S. Government Cost Accounting Standards (CAS). The FAS/CAS pension adjustment represents the
difference between pension expense calculated in accordance with GAAP and pension costs calculated and funded in
accordance with CAS. CAS governs the extent to which pension costs can be allocated to and recovered on U.S. Government
contracts. The CAS cost is recovered through the pricing of our products and services on U.S. Government contracts and,
therefore, is recognized in each of our business segments’ net sales and cost of sales.
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