Lockheed Martin 2011 Annual Report Download - page 39

The 2010 effective tax rate was affected by the enactment of the Patient Protection and Affordable Care Act and the
Health Care and Education Reconciliation Act of 2010, which eliminated the tax deduction for company-paid retiree
prescription drug expenses to the extent they are reimbursed under Medicare Part D, beginning in 2013. As a result, we
recorded additional income tax expense of $96 million in 2010.
The 2009 effective tax rate reflected a reduction of income tax expense of $69 million primarily arising from the
resolution of IRS examinations of the years 2005 through 2007 and 2008.
The Administration’s recent proposal to lower the corporate tax rate would require us to reduce our deferred tax assets
upon enactment of the related tax legislation with a corresponding material, one-time increase to income tax expense;
however, our income tax expense and payments would be reduced in subsequent years.
Net Earnings from Continuing Operations
We reported net earnings from continuing operations of $2.7 billion ($7.85 per share) in 2011, $2.6 billion ($7.10 per
share) in 2010, and $3.0 billion ($7.63 per share) in 2009. Both net earnings from continuing operations and earnings per
share were affected by the factors discussed above. In addition, earnings per share has benefitted from a significant number
of shares repurchased under our share repurchase program, partially offset by common stock issued under our stock-based
compensation and defined contribution plans. Share repurchases of 31.8 million, 33.0 million, and 24.9 million in 2011,
2010, and 2009 represented 9%, 9%, and 6% of our shares outstanding at the beginning of each year.
Net Earnings from Discontinued Operations
Net earnings from discontinued operations included the operating results of Savi for all periods presented. Discontinued
operations also included PAE for 2009, 2010, and through the date of its sale on April 4, 2011, and those of EIG for 2009 and
through the date of its sale on November 22, 2010. We reported a net loss from discontinued operations of $12 million
($.04 per share) in 2011, and net earnings from discontinued operations of $264 million ($.71 per share) in 2010 and
$6 million ($.01 per share) in 2009.
Net earnings from discontinued operations for 2011 included a net benefit of $40 million related to the decision to sell
Savi, the principal driver of which is the recognition of a deferred tax asset for book and tax basis differences. A similar tax
benefit of $15 million related to the sale of PAE was also recorded in 2011. Net earnings from discontinued operations for
2010 included a gain, net of income taxes, of $184 million ($.50 per share) from the sale of EIG. Additionally, as a result of
our decision to sell PAE in 2010, we recorded net adjustments that increased 2010 earnings from discontinued operations by
$73 million ($.20 per share). For additional information, see Note 14 to the accompanying consolidated financial statements.
Discussion of Business Segments
We operate in four business segments: Aeronautics, Electronic Systems, IS&GS, and Space Systems. We organize our
business segments based on the nature of the products and services offered.
The following table presents net sales and operating profit of our four business segments. Net sales exclude
intersegment revenue, as these activities are eliminated in consolidation. Intercompany transactions are generally negotiated
under terms and conditions similar to other government and commercial contracts. Operating profit of the business segments
includes the equity earnings or losses from investees in which certain of our business segments hold equity interests, because
the activities of the investees are closely aligned with the operations of those segments.
Operating profit of the business segments excludes the non-cash FAS/CAS pension adjustment discussed below;
expense for certain stock-based compensation programs, including costs for stock options and restricted stock units; the
effects of items not considered part of management’s evaluation of segment operating performance, such as the severance
charges in 2011 and the charges in 2010 related to the VESP and facilities consolidation within Electronic Systems (Note 2);
gains or losses from divestitures (Note 14); the effects of legal settlements; corporate costs not allocated to the business
segments; and other miscellaneous corporate activities. The items other than the charges related to severance, the VESP, and
facilities consolidation are included in “Other unallocated corporate expense, net” in the following table which reconciles
operating profit from the business segments to operating profit in our Statements of Earnings. The charges related to
severance, the VESP, and facilities consolidation are presented together as a separate reconciling item.
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