Lockheed Martin 2002 Annual Report Download - page 68

SEVENTY-FIVE
The Corporation continues to operate in four principal busi-
ness segments: Systems Integration, Space Systems,
Aeronautics and Technology Services. The changes include
the following:
•The Corporate and Other segment has been eliminated;
•The operating profit or loss (earnings or loss from continuing
operations before interest and taxes) from the operations of
the four principal business segments is reconciled to the
reported consolidated results utilizing the following items:
—Unallocated Corporate income (expense), net—this
caption includes—
•Unusual items—The effects of unusual items that are
not considered part of management’s evaluation of
the segment’s operating results (e.g., sales of surplus
real estate, impairment charges, divestitures and other
portfolio shaping activities) are excluded from the
business segment results;
•The difference between pension costs calculated and
funded in accordance with Cost Accounting
Standards (CAS), which are reported in the business
segment results, and pension expense or income
determined in accordance with FAS 87 as reported in
Note 13 (FAS/CAS adjustment). This amount was
previously allocated to the business segments (see
further discussion below);
•The costs of the Corporation’s common stock-based
compensation plans. This amount was also allocated
to the business segments previously;
•Corporate costs not allocated to the business seg-
ments and other miscellaneous Corporate activities,
including interest income and earnings and losses
from the Corporation’s equity investments.
—Impact of adoption of FAS 142—As a result of the
Corporation’s adoption of FAS 142 (see Note 1), good-
will is no longer being amortized and the estimated
remaining useful life of the contract intangible asset
related to the F-16 program was extended. In connec-
tion with the adoption of the new standard, goodwill
amortization expense and the impact of the change in
the estimated remaining useful life of the F-16 intangi-
ble asset for all periods prior to January 1, 2002 are
excluded from business segment results.
With respect to pension costs and funding, FAS 87 deter-
mines pension expense or income for financial reporting pur-
poses under Generally Accepted Accounting Principles
(GAAP), not necessarily the funding requirements of pension
plans, which are determined by other factors. A major factor
for determining pension funding requirements for the
Corporation is the CAS, which governs the extent of allocabil-
ity and recoverability of pension costs on government con-
tracts. The CAS expense is recovered through the pricing of
the Corporation’s products and services on U.S. Government
contracts, and therefore is recognized in net sales of the appli-
cable segment. Previously, business segment results included
pension income or expense as determined in accordance with
FAS 87. The results of operations of the Corporation’s seg-
ments will now only include pension expense as determined
and funded in accordance with CAS rules.
Transactions between segments are generally negotiated and
accounted for under terms and conditions that are similar to
other government and commercial contracts; however, these
intercompany transactions are eliminated in consolidation. Other
accounting policies of the business segments are the same as
those described in Note 1.
Following is a brief description of the activities of the
principal business segments:
•Systems Integration—Engaged in the design, development,
integration and production of high performance systems for
undersea, shipboard, land, and airborne applications. Major
product lines include missiles and fire control systems; air and
theater missile defense systems; surface ship and submarine
combat systems; anti-submarine and undersea warfare sys-
tems; avionics and ground combat vehicle integration; radars;
platform integration services; command, control, communi-
cations, computers and intelligence (C4I) systems for naval,
airborne and ground applications; homeland security systems;
surveillance and reconnaissance systems; air traffic control
systems; simulation and training systems; and postal auto-
mation systems.
•Space Systems—Engaged in the design, development, engi-
neering and production of commercial and military space
systems, including those systems that perform intelligence,
surveillance and reconnaissance functions. Major lines of
business include government satellites and defensive sys-
tems, commercial satellites, ground systems and supporting
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