Lockheed Martin 2003 Annual Report Download - page 20

We would like to draw your attention to the following items dis-
closed in this financial section and where you will find them:
Topic Location(s)
Critical accounting policies Page 21
Post-retirement benefit plans Page 23 and page 59
Environmental matters Page 24, page 48 and page 63
Acquisition and divestiture activities Page 25 and page 50
Changes in our business segment
presentation, and discussions of
each segment’s operations Page 28 and page 65
Unallocated Corporate (expense)
income, net Page 32 and page 66
Liquidity and cash flows Page 33 and page 44
Capital structure and resources Page 34, page 43 and page 45
Commitments and contingencies Page 35 and page 63
Goodwill (FAS 142) Page 47 and page 50
Stock-based compensation Page 49 and page 57
INDUSTRY CONSIDERATIONS
Defense Business Considerations
Domestic and worldwide political and economic developments
continue to have a significant impact on the markets for defense and
advanced technology systems, products and services. Markets for
defense and advanced technology systems during 2004 and beyond
will continue to be affected by the worldwide war against terrorism,
and the continued need for military missions in Iraq and
Afghanistan and related reconstruction efforts. These realities have
increased the need for greater attention to the security of our home-
land and for better communication and interplay between law
enforcement, civil government agencies, intelligence agencies and
our military services. Our nation’s overall defense posture continues
to move toward a more capabilities-based structure, which creates
the ability for a more flexible response with greater force mobility,
stronger space capabilities, enhanced missile defense and improved
information systems capabilities and security.
We anticipate that the next Congressionally mandated
“Quadrennial Defense Review” (QDR) undertaken by the U.S.
Department of Defense (DoD) will reinforce and advance efforts at
the DoD to refocus activities towards joint operations, net-centric
command and control, and integrated capabilities for the armed
forces. Recognizing this emerging priority at the DoD, we formed
Integrated Systems & Solutions, a new business segment, in 2003
from existing components of our Electronic Systems and Space
Systems segments. We believe this new segment will help us better
focus our integrated solutions capabilities across the Corporation
and enhance our ability to serve as a lead partner with the DoD to
respond to this customer priority.
The President’s budget for the DoD for fiscal year 2004 and
beyond responds to increased needs for homeland security and
combating terrorism. This is evidenced by budget increases for
operational readiness and personnel needs, as well as for both pro-
curement and research and development. This trend was reiterated
in the Future Year Defense Plan (FYDP) submitted with the
President’s budget for fiscal year 2005. It projects sustained growth
in both the procurement and research and development budgets for
the DoD through fiscal year 2006 and, in the case of the procure-
ment budgetary authority, through fiscal year 2009. While there is
no assurance that the increased DoD budget levels will be approved
by Congress, the current defense budget outlook appears to be one
of modest growth. However, the level of growth and the amount of
the budget that will ultimately be allocated to the investment
accounts most closely aligned with our business (i.e., procurement,
research and development) is unknown.
During 2003, Congress appropriated additional amounts to pay
for operational costs for military missions in Iraq and Afghanistan,
as well as for reconstruction activities. These supplemental appro-
priations enabled the DoD to proceed on critical modernization and
acquisition programs, versus using amounts available for those pro-
grams to pay for the Iraq and Afghanistan missions. The DoD
expects a further supplemental appropriation to continue these mis-
sions as needed through 2005. As a result, we do not anticipate that
sustained operations in Iraq and Afghanistan will materially impact
the procurement and research and development budget levels pro-
jected in the 2005 to 2009 FYDP.
Our broad mix of programs and capabilities gives us the abili-
ty to support the needs of the various agencies of the U.S.
Government that require our products and services. Our major pro-
grams and capabilities include: missile defense; space intelligence;
command, control, communications, computers, intelligence, sur-
veillance and reconnaissance (C4ISR); air mobility aircraft; and air-
power projection/precision-strike capability. In terms of size and
long-term potential impact, two of our more significant programs
are the F/A-22 Raptor and the F-35 Joint Strike Fighter. We are also
represented in almost every aspect of land, sea, air and space-based
missile defense, including the Medium Extended Air Defense
System (MEADS), the Patriot Advanced Capability (PAC-3)
missile program, the Terminal High Altitude Area Defense
(THAAD) system, the Multiple Kill Vehicle program, and the High
Lockheed Martin Corporation
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
December 31, 2003
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