Lockheed Martin 1996 Annual Report Download - page 75

Lockheed Martin Corporation
On February 3, 1997, concurrent with the announcement of
this transaction, the Corporation announced a new organizational
structure which reassigned management responsibility for certain
business units. As a result, the Corporation's operations are now
divided into five business segments. The operations of Tactical
Systems have been reflected, for 1996 segment reporting purposes,
in the Electronics, Information & Services, and Energy, Materials
and Other segments. The segment data displayed in Note 15 has
been presented in accordance with the new structure, and prior
year data has been reclassified to conform to the new presentation.
Note 4 — Restructuring and Other Charges
During the fourth quarter of 1996, the Corporation recorded
nonrecurring pretax charges, net of state income tax benefits, of
$307 million, which decreased net earnings by $209 million, or
$.94 per common share assuming full dilution. Approximately
one-half of the charges reflected the financial impacts of a con-
servative strategy on the part of the Corporation toward its environ-
mental remediation business with regard to current business
conditions, existing contractual issues on a Department of Energy
(DOE) program, and the pursuit of other environmental opportuni-
ties. The remaining charges resulted from a number of other corpo-
rate actions to improve efficiencies, increase competitiveness and
focus on core businesses.
During the first quarter of 1995, the Corporation recorded a
pretax charge of $165 million for merger related expenses in con-
nection with the formation of Lockheed Martin. During the second
quarter of 1995, the Corporation recorded a pretax charge of
$525 million in conjunction with a corporate-wide consolidation
plan under which the Corporation would close certain facilities
and laboratories and eliminate duplicative field offices in the US.
and abroad, eliminating up to approximately 12,000 positions. The
charge represented the portion of the accrued costs and net realiz-
able value adjustments that were not probable of recovery. The
after-tax effect of these charges was $436 million, or $1.96 per
common share assuming full dilution. As of December 31, 1996,
cumulative merger related and consolidation payments were
approximately $452 million, which primarily relate to the forma-
tion of the Corporation, the elimination of positions and the closure
of foreign and domestic offices and facilities.
During 1996, the Corporation incurred costs anticipated in the
1995 consolidation plan which had not met the requirements for
accrual earlier. These costs include relocation of personnel and
programs, retraining, process re-engineering and certain capital
expenditures, among others. Management estimates that, consis-
tent with the original 1995 consolidation plan, $750 million of such
costs will be incurred in the future, and currently anticipates that
the remaining consolidation actions will be substantially com-
pleted by the end of 1998.
Under existing U.S. Government regulations, certain costs
incurred for consolidation actions that can be demonstrated to
result in savings in excess of the cost to implement can be deferred
and amortized for government contracting purposes and included
as allowable costs in future pricing of the Corporation's products
and services. Included in other assets at December 31, 1996 is
approximately $250 million of deferred costs that will be reflected
in future sales and cost of sales.
Note 5 — Receivables
Receivables consisted of the following components:
(In millions)
US. Government:
Amounts billed
Unbilled costs and accrued profits
Commercial and foreign governments:
Amounts billed
Unbilled costs and accrued profits,
primarily related to commercial contracts
1996
$1,012
2,317
875
795
$4,999
1995
$ 925
1,622
654
675
$3,876
Unbilled costs and accrued profits consisted primarily of rev-
enues on long-term contracts that had been recognized for account-
ing purposes but not yet billed to customers. Approximately $360
million of the December 31, 1996 unbilled costs and accrued prof-
its are not expected to be billed within one year.
Inventories at December 31, 1996 included unamortized
deferred costs of approximately $360 million which are anticipated
to be recovered through future contracts. Customer advances and
progress payments applied above were those where the customer
has title to, or a security interest in, inventories identified with the
related contracts. Other customer advances were classified as cur-
rent liabilities. Also included in 1996 inventories above were
approximately $370 million of costs which are not expected to be
recovered within one year.
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Note 6 — Inventories
Inventories consisted of the following components:
(In millions)
Work in process, primarily related to
long-term contracts and programs
in progress
Less customer advances and
progress payments
Other inventories
1996
$4,456
(2,446)
2,010
1,043
$3,053
1995
$3,752
(1,772)
1,980
855
$2,835