Lockheed Martin 2013 Annual Report Download - page 39

Restructuring Charges
2013 Actions
During 2013, we recorded charges related to certain severance actions totaling $201 million, net of state tax benefits, of
which $83 million, $37 million, and $81 million related to our IS&GS, MST, and Space Systems business segments. These
charges reduced our net earnings by $130 million ($.40 per share) and primarily related to a plan we committed to in
November 2013 to close and consolidate certain facilities and reduce our total workforce by approximately 4,000 positions
within our IS&GS, MST, and Space Systems business segments. These charges also include $30 million related to certain
severance actions at our IS&GS business segment that occurred in the first quarter of 2013, which were subsequently paid
in 2013.
The November 2013 plan resulted from a strategic review of these businesses’ facility capacity and future workload
projections and is intended to better align our organization and cost structure and improve the affordability of our products
and services given the continued decline in U.S. Government spending as well as the rapidly changing competitive and
economic landscape. Upon separation, terminated employees will receive lump-sum severance payments primarily based on
years of service. During 2013, we paid approximately $15 million in severance payments associated with these actions, with
the remainder expected to be paid through the middle of 2015.
In addition to the severance charges described above, we expect to incur accelerated and incremental costs (e.g.,
accelerated depreciation expense related to long-lived assets at the sites to be closed, relocation of equipment and other
employee related costs) of approximately $15 million, $50 million, and $135 million at our IS&GS, MST, and Space
Systems business segments related to the facility closures and consolidations. The accelerated and incremental costs will be
expensed as incurred in the respective business segment’s results of operations through their completion in 2015. We expect
to recover a substantial amount of the restructuring charges through the pricing of our products and services to the U.S.
Government and other customers in future periods, with the impact included in the respective business segment’s results of
operations. Of the total accelerated and incremental costs to be incurred mentioned above, we expect $25 million, net of
recoveries, at MST and $55 million, net of recoveries, at Space Systems will be incurred in 2014. Also, we expect the
restructuring charges will reduce our 2014 cash flow from operations by approximately $150 million, mostly due to expected
severance payments in 2014.
2012 and 2011 Actions
During 2012, we recorded charges related to certain severance actions totaling $48 million, net of state tax benefits, of
which $25 million related to our Aeronautics business segment and $23 million related to the reorganization of our former
Electronic Systems business segment. These charges reduced our net earnings by $31 million ($.09 per share) and consisted
of severance costs associated with the elimination of certain positions through either voluntary or involuntary actions. These
severance actions resulted from cost reduction initiatives to better align our organization with changing economic conditions.
Upon separation, terminated employees received lump-sum severance payments primarily based on years of service, all of
which were paid in 2013.
During 2011, we recorded charges related to certain severance actions totaling $136 million, net of state tax benefits, of
which $49 million, $48 million, and $39 million related to our Aeronautics, Space Systems, and our IS&GS business
segments and Corporate Headquarters. These charges reduced our net earnings by $88 million ($.26 per share) and consisted
of severance costs associated with the elimination of certain positions through either voluntary or involuntary actions. These
severance actions resulted from a strategic review of these businesses and our Corporate Headquarters and are intended to
better align our organization and cost structure with changing economic conditions. The workforce reductions at the business
segments also reflected changes in program lifecycles, where several of our major programs were either transitioning out of
development and into production or were ending. Upon separation, terminated employees received lump-sum severance
payments based on years of service. During 2011, we made approximately half of the severance payments associated with
these 2011 severance actions, and paid the remaining amounts in 2012.
Other Unallocated Costs
Other unallocated costs principally include FAS/CAS pension expense, stock-based compensation, and other corporate
costs. These costs are not allocated to the business segments and, therefore, are excluded from the costs of products and
services sales (see “Note 4 – Information on Business Segments” of our consolidated financial statements for a description of
these items). The decreases of $219 million and $77 million in other unallocated costs from 2012 to 2013 and 2011 to 2012
31