Lockheed Martin 2005 Annual Report Download - page 76

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(a)฀ ฀Includes฀the฀effects฀of฀items฀not฀considered฀in฀senior฀management’s฀assessment฀of฀the฀operating฀performance฀of฀the฀Corporation’s฀business฀segments฀(see฀the฀section,฀“Results฀
of฀Operations”฀in฀Management’s฀Discussion฀and฀Analysis฀of฀Financial฀Condition฀and฀Results฀of฀Operations฀(MD&A))฀which,฀on฀a฀combined฀basis,฀increased฀earnings฀from฀
continuing฀operations฀before฀income฀taxes฀by฀$173฀million,฀$113฀million฀after฀tax฀($0.25฀per฀share).฀
(b)฀ ฀Includes฀the฀effects฀of฀items฀not฀considered฀in฀senior฀management’s฀assessment฀of฀the฀operating฀performance฀of฀the฀Corporation’s฀business฀segments฀(see฀the฀section,฀“Results฀
of฀Operations”฀in฀MD&A)฀which,฀on฀a฀combined฀basis,฀decreased฀earnings฀from฀continuing฀operations฀before฀income฀taxes฀by฀$215฀million,฀$154฀million฀after฀tax฀($ 0.34฀per฀
share).฀Also฀includes฀a฀reduction฀in฀income฀tax฀expense฀resulting฀from฀the฀closure฀of฀an฀Internal฀Revenue฀Service฀examination฀of฀$144฀million฀($ 0.32฀per฀share).฀These฀items฀
reduced฀earnings฀by฀$10฀million฀after฀tax฀($0.02฀per฀share).
(c)฀ ฀Includes฀ the฀ effects฀ of฀ items฀ not฀ considered฀ in฀ senior฀ management’s฀ assessment฀ of฀ the฀ operating฀ performance฀ of฀ the฀ Corporation’s฀ business฀ segments฀ (see฀ the฀ section,฀฀
“Results฀of฀Operations”฀in฀MD&A)฀which,฀on฀a฀combined฀basis,฀decreased฀earnings฀from฀continuing฀operations฀before฀income฀taxes฀by฀$153฀million,฀$102฀million฀after฀tax฀
($ 0.22฀per฀share).
(d)฀฀Includes฀the฀effects฀of฀items฀not฀considered฀in฀senior฀management’s฀assessment฀of฀the฀operating฀performance฀of฀the฀Corporation’s฀business฀segments฀which,฀on฀a฀combined฀
basis,฀decreased฀earnings฀from฀continuing฀operations฀before฀income฀taxes฀by฀$1,112฀million,฀$632฀million฀after฀tax฀($1.40฀per฀share).฀In฀2002,฀the฀Corporation฀adopted฀
FAS฀142฀which฀prohibits฀the฀amortization฀of฀goodwill.
(e)฀ ฀Includes฀the฀ effects฀ of฀items฀not฀considered฀in฀senior฀management’s฀assessment฀of฀the฀ operating฀ performance฀ of฀ the฀Corporation’s฀ business฀segments฀ which,฀ on฀a฀combined฀
basis,฀decreased฀earnings฀from฀continuing฀operations฀before฀income฀taxes฀by฀$973฀million,฀$651฀million฀after฀tax฀($1.50฀per฀share).฀Also฀includes฀a฀gain฀from฀the฀disposal฀of฀a฀
business฀and฀charges฀for฀the฀Corporation’s฀exit฀from฀its฀global฀telecommunications฀services฀business฀which฀is฀included฀in฀discontinued฀operations฀and฀which,฀on฀a฀combined฀
basis,฀increased฀the฀net฀loss฀by฀$1฀billion฀($2.38฀per฀share).
(f)฀ ฀The฀Corporation฀defines฀return฀on฀invested฀capital฀(ROIC)฀as฀net฀income฀plus฀after-tax฀interest฀expense฀divided฀by฀average฀invested฀capital฀(stockholders’฀equity฀plus฀debt),฀
after฀adjusting฀stockholders’฀equity฀by฀adding฀back฀the฀minimum฀pension฀liability.฀The฀adjustment฀to฀add฀back฀the฀minimum฀pension฀liability฀is฀a฀revision฀to฀our฀calculation฀in฀
2005,฀ which฀ the฀ Corporation฀ believes฀ more฀closely฀ links฀ROIC฀to฀management฀ performance.฀Further,฀the฀Corporation฀ believes฀ that฀reporting฀ROIC฀provides฀investors฀with฀
greater฀visibility฀into฀how฀effectively฀Lockheed฀Martin฀uses฀the฀capital฀invested฀in฀its฀operations.฀The฀Corporation฀uses฀ROIC฀to฀evaluate฀multi-year฀investment฀decisions฀and฀
as฀ a฀ long-term฀ performance฀ measure,฀ and฀ also฀ uses฀ ROIC฀ as฀ a฀ factor฀ in฀ evaluating฀ management฀ performance฀ under฀ certain฀ incentive฀ compensation฀ plans.฀ ROIC฀ is฀฀
not฀a฀measure฀of฀financial฀performance฀under฀GAAP,฀and฀may฀not฀be฀defined฀and฀calculated฀by฀other฀companies฀in฀the฀same฀manner.฀ROIC฀should฀not฀be฀considered฀in฀isola-
tion฀ or฀ as฀an฀alternative฀ to฀net฀earnings฀as฀an฀indicator฀of฀performance.฀The฀following฀calculations฀ of฀ROIC฀reflect฀the฀revision฀to฀ the฀calculation฀discussed฀above฀for฀all฀
periods฀presented.฀
(In฀millions) 2005 2004 2003 2002 2001
Net฀earnings $฀ 1,825 $฀ 1,266 $฀ 1,053 $฀ 500 $฀(1,046)
Interest฀expense฀(multiplied฀by฀65%)1241 276 317 378 455
฀ Return $฀ 2,066 $฀ 1,542 $฀ 1,370 $฀ 878 $฀ (591)
Average฀debt฀2,5 $฀ 5,077 $฀ 5,932 $฀ 6,612 $฀ 7,491 $฀ 8,782
Average฀equity฀3,5 7,590 7,015 6,170 6,853 7,221
Average฀minimum฀pension฀liability฀3,4,5 1,545 1,296 1,504 341 6
฀ Average฀invested฀capital $฀฀14,212 $฀14,243 $฀14,286 $฀14,685 $฀16,009
Return฀on฀invested฀capital 14.5% 10.8% 9.6% 6.0% (3.7)%
1฀Represents฀after-tax฀interest฀expense฀utilizing฀the฀federal฀statutory฀rate฀of฀35%.
2฀Debt฀consists฀of฀long-term฀debt,฀including฀current฀maturities,฀and฀short-term฀borrowings฀(if฀any).
3฀Equity฀includes฀non-cash฀adjustments฀for฀other฀comprehensive฀losses,฀primarily฀for฀the฀additional฀minimum฀pension฀liability.
4฀฀Minimum฀pension฀liability฀values฀reflect฀the฀ cumulative฀value฀of฀entries฀identified฀in฀our฀Statement฀of฀Stockholders฀ Equity฀under฀the฀caption฀“Minimum฀ pension฀liability.”฀The฀
annual฀minimum฀pension฀liability฀adjustments฀to฀equity฀were:฀2001฀=฀($33฀million);฀2002฀=฀($1,537฀million);฀2003฀=฀$331฀million;฀2004฀=฀($285฀million);฀2005฀=฀($105฀million).฀
As฀these฀entries฀are฀recorded฀in฀the฀fourth฀quarter,฀the฀value฀added฀back฀to฀our฀average฀equity฀in฀a฀given฀year฀is฀the฀cumulative฀impact฀of฀all฀prior฀year฀entries฀plus฀20%฀of฀the฀cur-
rent฀year฀entry฀value.฀
5฀Yearly฀averages฀are฀calculated฀using฀balances฀at฀the฀start฀of฀the฀year฀and฀at฀the฀end฀of฀each฀quarter.
Lockheed฀Martin฀Corporation