Lockheed Martin 2013 Annual Report Download - page 40

were primarily attributable to the decrease in FAS/CAS pension expense, partially offset by fluctuations in other costs
associated with various corporate items, none of which were individually significant. We expect FAS/CAS pension income
of $345 million in 2014 as further discussed in the “Critical Accounting Policies - Postretirement Benefit Plans” section
below.
Other Income, Net
Other income, net for 2013 was $318 million, compared to $238 million in 2012 and $276 million in 2011. The changes
between years primarily were due to fluctuations in equity earnings in investees in our Space Systems business segment, as
discussed in the “Business Segment Results of Operations” section below.
Interest Expense
Interest expense for 2013 was $350 million, compared to $383 million in 2012 and $354 million in 2011. The decrease
from 2012 to 2013 was primarily attributable to lower interest rates on our outstanding debt from the December 2012 debt
exchange (Note 9). The increase from 2011 to 2012 was primarily due to increased interest expense from the $2.0 billion
issuance of long-term debt in September 2011, partially offset by the redemption of $500 million in certain long-term notes
in October 2011 (Note 9).
Other Non-Operating Income (Expense), Net
Other non-operating income, net decreased $21 million from 2012 to 2013 primarily due to a gain from the sale of an
investment in 2012. Other non-operating income (expense), net was $21 million in 2012 and $(35) million in 2011, with the
change between years primarily due to premiums of $48 million on early extinguishments of debt that occurred in 2011
(Note 9).
Income Tax Expense
Our effective income tax rate from continuing operations was 29.0% for 2013, 32.6% for 2012, and 26.5% for 2011. The
rates generally benefit from tax deductions for U.S. manufacturing activities and tax deductions for dividends paid to our
defined contribution plans with an employee stock ownership plan feature.
The U.S. manufacturing deduction benefit for 2013 and 2011 reduced our effective tax rate by approximately two
percentage points as compared to 2012. These fluctuations between years occurred because our tax-deductible discretionary
pension contributions of $2.5 billion in 2012, which reduced U.S. manufacturing deduction benefits by $59 million ($.18 per
share), were significantly higher than in 2013 or 2011.
Our effective income tax rate for 2013 was reduced by approximately two percentage points because of U.S. research
and development (R&D) tax credits. On January 2, 2013, the President signed into law the American Taxpayer Relief Act of
2012, which retroactively reinstated the R&D tax credit for two years, from January 1, 2012 through December 31, 2013. As
the effects of tax law changes are recognized in the period in which new legislation is enacted, $37 million ($.11 per share)
of tax benefit attributable to 2012 was recorded during 2013, in addition to $39 million ($.12 per share) of tax benefit
attributable to 2013. Since we recorded two years of R&D tax credit in 2013, we expect our effective tax rate to increase in
2014 whether or not Congress reenacts the R&D tax credit for 2014.
Our effective tax rate for 2013 was increased by approximately one percentage point due to the non-cash goodwill
impairment charge recorded in the fourth quarter of 2013 (Note 1), as only a portion of the charge will qualify for a tax
deduction.
Our effective income tax rate for 2011 was reduced by approximately two and one-half percentage points because in
April 2011 the U.S. Congressional Joint Committee on Taxation completed its review of the Internal Revenue Service (IRS)
Appeals Division’s resolution of certain adjustments related to our tax years 2003 through 2008. As a result, we recognized
additional tax benefits and reduced our income tax expense for 2011 by $89 million ($.26 per share). Our effective income
tax rate for 2011 also was reduced by approximately one percentage point due to R&D tax credits.
Future changes in tax law could significantly impact the provision for income taxes, the amount of taxes payable, and
the deferred tax asset and liability balances. Recent proposals to lower the U.S. corporate income tax rate would require us to
reduce our net deferred tax assets upon enactment of the related tax legislation, with a corresponding material, one-time
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