Lockheed Martin 2003 Annual Report Download - page 67

Lockheed Martin Corporation
65
NOTE 16 — INFORMATION ON BUSINESS
SEGMENTS AND MAJOR CUSTOMERS
In 2003, the Corporation announced the formation of Integrated
Systems & Solutions (IS&S), a new business segment, from
components of the Electronic Systems and Space Systems seg-
ments. IS&S is leveraging the Corporation’s existing and
emerging capabilities related to addressing customers’ growing
needs for integrated, net-centric solutions. With the formation
of IS&S, the former Systems Integration business segment is
now called Electronic Systems. Also in 2003, the Corporation
changed the name of its Technology Services segment to
Information & Technology Services (I&TS) to better reflect the
scope of its activities. The Aeronautics business segment was
unaffected by these changes.
The Corporation operates in five business segments:
Aeronautics, Electronic Systems, Space Systems, IS&S, and
I&TS. In the following tables of financial data, the total of the
operating results of the principal business segments is recon-
ciled to the corresponding consolidated amount. With respect to
the caption “Operating profit,” the reconciling item
“Unallocated Corporate (expense) income, net” includes the
FAS/CAS pension adjustment (see discussion below), earnings
and losses from equity investments (mainly telecommunica-
tions), interest income, costs for stock-based compensation
programs, the effects of items not considered part of manage-
ment’s evaluation of segment operating performance, Corporate
costs not allocated to the operating segments and other miscel-
laneous Corporate activities. The remaining reconciling item
relates to the effects of the Corporation’s adoption of FAS 142
in 2002. For financial data other than “Operating profit,” all
activities other than those pertaining to the principal business
segments are included in “Other.”
The FAS/CAS pension adjustment represents the differ-
ence between pension expense or income calculated for finan-
cial reporting purposes under GAAP in accordance with FAS
87, and pension costs calculated and funded in accordance with
U.S. Government Cost Accounting Standards (CAS), which are
reflected in the business segment results. CAS is a major factor
in determining pension funding requirements for the
Corporation, and governs the extent of allocability and recover-
ability of pension costs on government contracts. The CAS
expense is recovered through the pricing of the Corporation’s
products and services on U.S. Government contracts, and there-
fore recognized in segment net sales. The results of operations
of the Corporation’s segments 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 and
for purposes of the presentation of “Net sales” in the related
table that follows. Other accounting policies of the business
segments are the same as those described in “Note 1 —
Significant Accounting Policies.”
Following is a brief description of the activities of the prin-
cipal business segments:
•Aeronautics — Engaged in design, research and develop-
ment, systems integration, production, support and
upgrade of advanced military aircraft and related technolo-
gies. Its customers include the military services of the
United States and allied countries throughout the world.
Major products and programs include the F-16 multi-role
fighter, F/A-22 air dominance and multi-mission combat
aircraft, F-35 Joint Strike Fighter, Japanese F-2 combat
aircraft, Korean T-50 advanced trainer, C-130 tactical airlift
aircraft, C-5 strategic airlift aircraft, C-27J medium trans-
port aircraft and support for the F-117 stealth fighter and
special mission and reconnaissance aircraft (e.g., P-3
Orion, S-3 Viking, U-2 and Big Safari modifications).
•Electronic Systems — Engaged in the design, research,
development, integration and production of high perform-
ance 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-subma-
rine and undersea warfare systems; avionics and ground
combat vehicle integration; radars; platform integration
systems; homeland security systems; surveillance and
reconnaissance systems; advanced aviation management,
security and information technology solutions; simulation
and training systems; and postal automation systems.
•Space Systems — Engaged in the design, research, devel-
opment, engineering, integration and production of satel-
lites, strategic and defensive missile systems and launch
services. The satellite product line includes both govern-
ment and commercial satellites. Strategic and defensive