Lockheed Martin 2007 Annual Report Download - page 39

Download and view the complete annual report

Please find page 39 of the 2007 Lockheed Martin annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 118

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118

(c) Includes the effects of items not considered in the assessment of the operating performance of our business segments which increased
Operating profit by $230 million, $150 million after tax ($0.34 per share). Also includes expenses of $16 million, $11 million after tax
($0.03 per share) for a debt exchange, and a reduction in Income tax expense of $62 million ($0.14 per share) resulting from a tax
benefit related to claims we filed for additional extraterritorial income exclusion (ETI) tax benefits. On a combined basis, these items
increased earnings by $201 million after tax ($0.45 per share).
(d) Includes the effects of items not considered in the assessment of the operating performance of our business segments which, on a
combined basis, increased Operating profit by $173 million, $113 million after tax ($0.25 per share).
(e) Includes the effects of items not considered in the assessment of the operating performance of our business segments which decreased
Operating profit by $61 million, $54 million after tax ($0.12 per share). Also includes a charge of $154 million, $100 million after tax
($0.22 per share) for the early repayment of debt, and a reduction in Income tax expense resulting from the closure of an Internal
Revenue Service examination of $144 million ($0.32 per share). On a combined basis, these items reduced earnings by $10 million
after tax ($0.02 per share).
(f) Includes the effects of items not considered in the assessment of the operating performance of our business segments which, on a
combined basis, decreased Operating profit by $7 million, $6 million after tax ($0.01 per share). Also includes a charge of $146
million, $96 million after tax ($0.21 per share) for the early repayment of debt.
(g) We define return on invested capital (ROIC) as Net earnings plus after-tax interest expense divided by average invested capital
(Stockholders’ equity plus debt), after adjusting Stockholders’ equity by adding back adjustments related to postretirement benefit
plans. We believe that reporting ROIC provides investors with greater visibility into how effectively we use the capital invested in our
operations. We use ROIC to evaluate multi-year investment decisions and as a long-term performance measure, and also use it as a
factor in evaluating management performance under certain of our incentive compensation plans. ROIC is not a measure of financial
performance under generally accepted accounting principles, and may not be defined and calculated by other companies in the same
manner. ROIC should not be considered in isolation or as an alternative to Net earnings as an indicator of performance. We calculate
ROIC as follows:
(In millions) 2007 2006 2005 2004 2003
Net earnings $ 3,033 $ 2,529 $ 1,825 $ 1,266 $ 1,053
Interest expense (multiplied by 65%) 1229 235 241 276 317
Return $ 3,262 $ 2,764 $ 2,066 $ 1,542 $ 1,370
Average debt 2, 5 $ 4,416 $ 4,727 $ 5,077 $ 5,932 $ 6,612
Average equity 3, 5 7,661 7,686 7,590 7,015 6,170
Average benefit plan adjustments 3, 4, 5 3,171 2,006 1,545 1,296 1,504
Average invested capital $15,248 $14,419 $14,212 $14,243 $14,286
Return on invested capital 21.4% 19.2% 14.5% 10.8% 9.6%
1Represents after-tax interest expense utilizing the federal statutory rate of 35%.
2Debt consists of Long-term debt, including Current maturities of long-term debt, and short-term borrowings (if any).
3Equity includes non-cash adjustments, primarily for unrecognized benefit plan actuarial losses and prior service costs in 2007 and
2006, the adjustment for the adoption of FAS 158 in 2006, and the additional minimum pension liability in years prior to 2007.
4Average benefit plan adjustments reflect the cumulative value of entries identified in our Statement of Stockholders Equity under
the captions “Postretirement benefit plans,” “Adjustment for adoption of FAS 158” and “Minimum pension liability.” The total of
annual benefit plan adjustments to equity were: 2007 = $1,706 million; 2006 = ($1,883) million; 2005 = ($105) million; 2004 =
($285) million; 2003 = $331 million; 2002 = ($1,537 million); and 2001 = ($33 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
current year entry value.
5Yearly averages are calculated using balances at the start of the year and at the end of each quarter.
31