Lockheed Martin 1999 Annual Report Download - page 24

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Lockheed Martin Corporation
Aeronautical Systems
Net sales of the Aeronautical Systems segment increased
by one percent in 1999 compared to 1998, and increased
by three percent in 1998 compared to 1997. The 1999
increase was comprised of $715 million in increased sales
related to C-130J airlift aircraft program activities offset by
a $717 million decrease in F-16 sales and deliveries. The
remaining increase was attributable to increased sales on
various other aircraft programs. The 1998 net sales
increase was primarily due to $116 million in increased
volume related to F-16 fighter aircraft. Activities related to
the F-22 program and other tactical aircraft programs
accounted for the remaining increase in sales.
Operating profit for the segment decreased by 62 per-
cent in 1999 compared to 1998 after increasing 10 percent
during 1998 compared to 1997. The 1999 decrease princi-
pally reflects adjustments during the second quarter that
resulted from changes in estimates in the C-130J program
due to cost growth and a reduction in production rates,
based on a current evaluation of the program’s perform-
ance. This adjustment negatively impacted operating profit
by $210 million. Additionally, until further favorable prog-
ress occurs in terms of orders and cost, the Corporation
does not intend to record profit on future deliveries of the
aircraft, and will reduce production levels over time from
16 to 8 aircraft per year. Of the remaining decrease,
$80 million resulted from reduced F-16 deliveries, with the
remaining decrease due to volume decreases on various
other aircraft programs. Operating profit increased during
1998 by $60 million as a result of increased F-16 aircraft
deliveries and the absence of approximately $60 million
in C-130J development costs incurred in 1997. These
increases were partially offset by approximately $30 mil-
lion related to a decrease in operating profit on the F-22
program, as well as decreases associated with various
other military aircraft programs.
Technology Services
Net sales of the Technology Services segment increased
by 17 percent in 1999 compared to 1998 after having
decreased three percent in 1998 compared to 1997.
The increase in 1999 net sales is mainly the result of an
approximate $300 million increase in volume on the
Consolidated Space Operations Contract, which was
awarded in September 1998. The 1998 decrease was
primarily attributable to the absence in 1998 of approxi-
mately $240 million in sales related to the segment’s
Aerostructures business unit, which was divested in
November 1997 as part of the GE Transaction. Excluding
the effect of this divestiture, 1998 net sales would have
increased by 11 percent. This increase resulted mainly from
$110 million in higher sales volume related to the aircraft
maintenance and logistics lines of business and a $70
million increase in certain technology services programs.
Operating profit for the segment increased by one per-
cent in 1999 compared to 1998 after having decreased
32 percent in 1998 compared to 1997. The increase
in 1999 operating profit is attributable to the Consolidated
Space Operations Contract as well as increases related
to improved performance in the segment’s aircraft mainte-
nance and logistics lines of business, partially offset by
decreases attributable to the timing of award fees on cer-
tain energy-related contracts. The operating profit decrease
for 1998 was primarily attributable to the absence in 1998
of $62 million in operating profit related to the segment’s
Aerostructures business unit, as discussed above. Excluding
the effect of this divestiture, the 1998 operating profit
would have only decreased by one percent due to perform-
ance issues related to certain of the segment’s aircraft main-
tenance and logistics contracts and the absence in 1998
of profit associated with a Space Station contract, which
was canceled in 1997.
Corporate and Other
Net sales of the Corporate and Other segment increased
by six percent in 1999 compared to 1998 after having
decreased 53 percent in 1998 compared to 1997. The
1999 increases of $75 million in the information technol-
ogy outsourcing business, $65 million in state and munici-
pal services, and $75 million in Global Telecommunications
programs more than offset the absence in 1999 of the
$155 million net sales of the CalComp subsidiary during
1998. The majority of this segment’s 1998 decrease is
due to the absence in 1998 of $1.2 billion in net sales
of the segment’s Access Graphics business unit which
was divested in the fourth quarter of 1997. In addition,