Lockheed Martin 2007 Annual Report Download - page 51

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as Equity in net earnings (losses) of equity investees in Other income (expense), net. Our investment in ULA totaled $402
million and $197 million at December 31, 2007 and 2006. ULA did not have a material impact on our consolidated results of
operations, financial position or cash flows in 2007.
Results of Operations
Since our operating cycle is long-term and involves many types of development and production contracts with varying
production delivery schedules, the results of operations of a particular year, or year-to-year comparisons of recorded net sales
and profits, may not be indicative of future operating results. The following discussions of comparative results among periods
should be viewed in this context. All per share amounts cited in this discussion are presented on a “per diluted share” basis.
Net Sales
(In billions)
The following discussion of net sales and operating results provides an overview of our operations by focusing on key
elements in our Statement of Earnings. The “Discussion of Business Segments” which follows describes the contributions of
each of our business segments to our consolidated Net sales and Operating profit for 2007, 2006 and 2005. We follow an
integrated approach for managing the performance of our business, and generally focus the discussion of our results of
operations around major lines of business versus distinguishing between products and services. Product sales are
predominantly generated in the Aeronautics, Electronic Systems and Space Systems segments, while most of our services
revenues are generated in our IS&GS segment.
For 2007, Net sales were $41.9 billion, a 6% increase over 2006 sales. Sales for 2006 were $39.6 billion, a 6% increase
over 2005 sales. Sales increased during 2007 in all segments as compared to 2006. Except for anticipated reductions at
Aeronautics, sales increased in all segments in 2006 as compared to 2005. The U.S. Government is our largest customer,
accounting for about 84% of our sales in 2007, 84% in 2006, and 85% in 2005.
Other income (expense), net was $293 million for 2007 compared to $336 million in 2006. This decrease was primarily
due to gains recognized in 2006 from the sale of shares of Inmarsat and assets of Space Imaging, offset partially by increased
equity earnings in affiliates in 2007. Other income (expense), net increased $20 million from 2005 to 2006 due to higher
equity earnings in affiliates and gains from the sale of land in 2006.
Effective January 1, 2006, we adopted FAS 123(R), Share-Based Payments, and related rules, on a modified prospective
basis (see Note 11). Under this method, we recognize compensation cost related to the estimated fair value of nonvested stock
options and restricted stock granted in 2006 and prior years. Prior to January 1, 2006, we measured compensation cost for stock
options using the intrinsic value method, but disclosed the pro forma effects on Net earnings and Earnings per share as if
compensation cost had been recognized based upon the fair value-based method. During the years ended December 31, 2007
and 2006, we recorded compensation cost related to stock options and restricted stock totaling $149 million and $111 million
which is included in the Statement of Earnings in Cost of sales. The net impact to earnings was $96 million ($0.22 per share)
and $70 million ($0.16 per share). Compensation cost related to restricted stock in 2005 was not material. As of December 31,
2007, we had $136 million of total unrecognized compensation cost related to nonvested stock options, restricted stock units and
restricted stock awards. That cost is expected to be recognized over a weighted-average period of 1.6 years.
State income taxes are included in our operations as general and administrative costs and, under U.S. Government
regulations, are allowable in establishing prices for the products and services we sell to the U.S. Government. Therefore, a
substantial portion of state income taxes is included in our Net sales and Cost of sales. As a result, the impact on our
Operating profit of certain transactions and other matters disclosed in this Form 10-K is disclosed net of state income taxes.
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