Lockheed Martin 2003 Annual Report Download - page 35

(In millions) 2003 2002 2001
FAS/CAS pension adjustment $(300) $243 $ 360
Items not considered in segment
operating performance (153) (1,112) (973)
Other, net 4711
$(449) $(862) $(602)
The difference between pension costs calculated and funded
in accordance with CAS and pension expense or income deter-
mined in accordance with FAS 87 is not included in segment
operating results and therefore is a reconciling item between
operating profit from the business segments and consolidated
operating profit (FAS/CAS adjustment). The CAS funding
amount is allocated among the business segments and is included
as an expense item in the segments’ cost of goods sold. A
majority of the cost is also passed along to our customers
through contract pricing, and is consequently included in the
segments’ sales.
The change in the FAS/CAS pension adjustment in 2003
was mainly due to the Corporation reporting FAS pension
expense versus FAS pension income in 2002. The following
table shows the CAS funding that is included as expense in the
segments’ operating results, the related FAS (expense) income,
and the resulting FAS/CAS adjustment:
(In millions) 2003 2002 2001
FAS 87 (expense) income $(484) $156 $354
Less: CAS expense and funding (184) (87) (6)
FAS/CAS pension adjustment —
(expense) income $(300) $243 $360
LIQUIDITY AND CASH FLOWS
Our management has set forth strategic cash deployment objec-
tives to help ensure that we keep a focus toward growing our
core business and increasing shareholder value, and that we are
in a position to take advantage of opportunities to do so when
they arise. Those objectives include internal investment in our
business (e.g., capital expenditures, independent research and
development), share repurchases, increases in dividends, debt
reduction and management, and acquisitions of businesses that
will complement our core operations. The following discussion
highlights our cash depolyment activities over the past three
years as well as our future plans.
Operating Activities
Our operating cash flow continues to be the primary source
of funds for financing our activities. Cash from operations
amounted to $1.8 billion in 2003, $2.3 billion in 2002 and
$1.8 billion in 2001. Our earnings, adjusted for non-cash items
such as depreciation, amortization and impairment charges,
were the driving force behind these cash flows. Our working
capital has remained relatively stable the last 2 years, even
though our sales have increased by 20 percent in 2003 and
11 percent in 2002 when compared to the prior year. We attribute
this to our continued discipline in managing our cash conversion
cycle, including the negotiation of performance-based progress
payment or advance payment terms in our contracts, inventory
management, and billing and collection activities. Cash from
operations is net of internal investments we have made in our
business relative to independent research and development and
bid and proposal activities aggregating $903 million in 2003,
$830 million in 2002 and $679 million in 2001. In December
2003, we made a discretionary prepayment of $450 million to
our defined benefit pension plan trust that reduced cash from
operations, the majority of which will reduce our cash funding
requirements for 2004. Our 2002 cash from operations included
$117 million from the settlement of a research and development
tax credit claim, while in 2001 we paid $655 million of income
taxes related to divested businesses. We expect cash from oper-
ations to continue to be strong over the next 2 years.
Lockheed Martin Corporation
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