Lockheed Martin 2005 Annual Report Download - page 30
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In November 2004, a private equity firm purchased the
outstandingsharesofNewSkiesSatellites,N.V.(NewSkies).
Wesoldoursharesfor$148million.Thetransactionresulted
in the recording of a gain, net of state income taxes, of $91
millioninotherincomeandexpenses,andanincreaseinnet
earningsof$59million($0.13pershare).Thecarryingvalue
ofourinvestmentinNewSkieswasmarkedtomarketthrough
othercomprehensiveincomepriortothesale.
Sinceouroperatingcycleislong-termandinvolvesmanytypes
ofdevelopmentandproductioncontractswithvaryingproduc-
tiondeliveryschedules,theresultsofoperationsofaparticular
year,oryear-to-yearcomparisonsofrecordedsalesandprofits,
maynotbeindicativeoffutureoperatingresults.Thefollowing
discussions of comparative results among periods should be
viewedinthiscontext.Allpershareamountscitedinthisdis-
cussionarepresentedona“perdilutedshare”basis.
Net Sales
(In billions)
Net Sales
(In billions)
0
5
10
15
20
25
30
35
40
0
5
10
15
20
25
30
35
$40
Operating Profit
(In millions)
0
500
1000
1500
2000
2500
3000
3500
0
500
1,000
1,500
2,000
2,500
3,000
$3,500
Net Cash Provided by Operating Activities
(In millions)
0
500
1000
1500
2000
2500
3000
3500
0
500
1,000
1,500
2,000
2,500
3,000
$3,500
2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
Segment Operating Profit
(In millions)
2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
Net Cash Provided By Operating Activities
(In millions)
2004 2003
Debt-To-Total Capital Ratio
(In percent)
0.0
0.1
0.2
0.3
0.4
0.5
0%
10%
20%
30%
40%
50%
Debt-To-Total Capital Ratio
2004 2003
0%
3%
6%
9%
12%
15%
Revised Return On Invested Capital Ratio(1)
2004 2003
Return On Invested Capital
(In percent)
0.00
0.03
0.06
0.09
0.12
0.15
Negotiated Backlog
(In billions)
Negotiated Backlog
(In billions)
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
$80
2004 2003
Aeronautics
Electronic Systems
Space Systems
IS&S
I&TS
(1) Calculation was revised in 2005. See Note (f) to
the Consolidated Financial Data—Five Year
Summary on page 74 for additional information
on the calculation.
Thefollowingdiscussionofnetsalesandoperatingresults
providesanoverviewofouroperationsbyfocusingonkeyele-
mentssetforthinourstatementofearnings.The“Discussion
ofBusinessSegments”whichfollowsdescribesthe contribu-
tions of each of our business segments to our consolidated
salesandoperatingprofitfor2005,2004and2003.Wefollow
an integratedapproachformanagingthe performance ofour
businessesandgenerallyfocusthediscussionofourresultsof
operationsaroundmajorlinesofbusiness,versusdistinguish-
ingbetweenproducts andservices.As mentionedpreviously,
mostofourservicesrevenuesaregeneratedinourInformation
&TechnologyServicessegment.
For2005,netsaleswere$37.2billion,a5%increaseover
2004 sales.Salesfor2004were$35.5 billion,anincrease of
12%comparedto2003.Sales,ascomparedtotheprioryear,
increased in all segments except Aeronautics in 2005, where
there was a slight decline due to an anticipated reduction in
combataircraftdeliveries.TheU.S.Governmentisourlargest
customer, accounting for about 85% of our sales for 2005,
comparedto80%in2004and78%in2003.
Otherincomeandexpenses,netwas$449millionfor2005
comparedto$121millionin2004.Thiswasduetoanincrease
ininvestmentincome,gainsfromthesaleofinvestments(pri-
marilyIntelsatandInmarsat)andchargesin2004fortheearly
retirement of debt. Other income and expenses, net increased
$78millionfrom2003to2004duetogainsfromthesaleofthe
COMSATGeneralbusinessandtheinvestmentinNewSkies.
Ouroperatingprofitfor2005was$3.0billion,anincrease
of43%comparedto2004.Ouroperatingprofitfor2004was
$2.1billion,anincreaseof3%comparedto2003.
Interest expense for 2005 was $370 million, $55 million
lowerthanin2004.Interestexpensefor2004was$425million,
$62millionlower thantheamount for2003.Thedecreasein
interestexpensewasduetoreductionsinourdebtoutstanding.
Our effective tax rates were 30.2% for 2005, 23.9% for
2004and31.3%for2003.Foreachofthethreeyears,ourtax
rate was reduced from the statutory rate by the tax benefits
relatedtoexportsalesandtaxdeductibledividends.For2005,
ourtaxratewasreducedbythenewtaxdeductionforsalesof
products manufactured in the U.S. For 2004, our tax rate
reflecteda$144millionreductioninourincometaxexpense
primarily resulting from the closure of an Internal Revenue
Service(IRS)examination.
Netearningsincreasedascomparedtotheprioryearfor
thefourthstraightyear.Wereportednetearningsof$1.8bil-
lion($4.10pershare)in2005,comparedtonetearningsof$1.3
billion($2.83per share)in 2004 andearningsof$1.1billion
($2.34pershare)in2003.
Weoperateinfivebusinesssegments:Aeronautics,Electronic
Systems, Space Systems, Integrated Systems & Solutions
(IS&S)andInformation&TechnologyServices(I&TS).
In the Aeronautics business segment, sales have leveled
comparedtothegrowththathadbeenexperiencedthelastfew
years. This is largely due to lower sales on Combat Aircraft
programs driven by declines in F-16 volume, completion of
initial ramp-up activities associated with F-35 development
and F-22 production, and the completion of the F-22
Engineering and Manufacturing Development (EMD) phase
oftheprogram.ThenumberofF-16deliveriesisexpectedto
LockheedMartinCorporation
MANAGEMENT’SDISCUSSIONANDANALYSISOF
FINANCIALCONDITIONANDRESULTSOFOPERATIONS
December31,2005