Lockheed Martin 2013 Annual Report Download - page 37

programs); about $440 million at MST due to fewer deliveries (primarily Persistent Threat Detection Systems (PTDS) as
final surveillance system deliveries occurred during the second quarter of 2012) and lower volume (primarily integrated
warfare systems and sensors programs); and about $405 million at Space Systems due to lower volume (primarily
commercial satellites and the Orion Multi-Purpose Crew Vehicle (Orion) program) partially offset by increased volume
(primarily various government satellite programs). The decreases were partially offset by higher products sales of about
$380 million at MFC due to increased volume and risk retirements (primarily THAAD and deliveries of PAC-3).
Our products sales represent about 80% of our net sales for both 2012 and 2011. Products sales increased $892 million,
or 2%, in 2012 compared to 2011 primarily due to higher volume and deliveries, as well as higher risk retirements on certain
programs. Products sales increased about $555 million at Aeronautics due to increased volume and risk retirements on F-35
production contracts and deliveries (primarily F-16 and C-5), partially offset by decreased volume and risk retirements
(primarily F-22); about $510 million at MST due to increased deliveries (primarily PTDS) and increased volume (primarily
LCS); about $225 million at Space Systems due to increased volume (primarily commercial satellites and Orion); and about
$100 million at MFC due to increased volume (primarily THAAD and PAC-3). These increases partially were offset by
lower products sales of about $495 million at IS&GS due to the substantial completion of certain programs (such as Joint
Tactical Radio System (JTRS) and U.K. Census).
Services Sales
Our services sales represent about 20% of our net sales for 2013 and 2012. Services sales increased $302 million, or 3%,
in 2013 compared to 2012. Services sales increased about $270 million at IS&GS primarily due to the start-up of certain
programs (such as the Defense Information Systems Agency – Global Information Grid Services Management-Operations
(DISA GSM-O) and the National Science Foundation Antarctic Support); and about $85 million at Aeronautics primarily due
to increased sustainment activities (primarily F-16). The increases were partially offset by lower services sales of about
$80 million at MFC for various technical services programs due to lower volume, partially offset by various fire control
programs (primarily Special Operations Forces Contractor Logistics Support Services (SOF CLSS)) due to higher volume.
Services sales for 2013 were comparable to 2012 at both MST and Space Systems.
Our services sales represent about 20% of our net sales for 2012 and 2011. Services sales decreased $209 million, or 2%,
in 2012 compared to 2011. Services sales decreased about $105 million at MFC primarily due to lower volume and risk
retirements on various technical services programs. Services sales decreased about $60 million at MST primarily due to
lower volume on various training services programs. Services sales decreased about $40 million at IS&GS primarily due to
the substantial completion of the Outsourcing Desktop Initiative for NASA (ODIN) during 2011 and lower volume on the
Hanford Mission Support (Hanford) contract, partially offset by higher net sales from QTC, which was acquired in the fourth
quarter of 2011.
Cost of Sales
Cost of sales, for both products and services, consist of materials, labor, and subcontracting costs, as well as an
allocation of indirect costs (overhead and general and administrative). For each of our contracts, we monitor the nature and
amount of costs at the contract level, which form the basis for estimating our total costs at the completion of the contract. Our
consolidated cost of sales were as follows (in millions):
2013 2012 2011
Cost of sales
Cost of products sales $31,346 $33,495 $32,968
% of products sales 87.8% 88.6% 89.3%
Cost of services sales 8,588 8,383 8,514
% of services sales 88.8% 89.5% 88.9%
Goodwill impairment charge 195 ——
Severance charges 201 48 136
Other unallocated costs 841 1,060 1,137
Total cost of sales $41,171 $42,986 $42,755
Due to the nature of percentage-of-completion accounting, changes in our cost of products and services sales are
typically accompanied by changes in our net sales. The following discussion of material changes in our consolidated cost of
products and services sales should be read in tandem with the preceding discussion of changes in our consolidated net sales
and with our “Business Segment Results of Operations” section. We have not identified any developing trends in cost of
products and services sales that would have a material impact on our future operations.
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