Lockheed Martin 2013 Annual Report Download - page 41

increase to income tax expense, but our income tax expense and payments would be materially reduced in subsequent years.
Our net deferred tax assets as of December 31, 2013 and 2012 were $3.9 billion and $6.1 billion, based on a 35% Federal
statutory income tax rate, and primarily relate to our postretirement benefit plans. If the Federal statutory income tax rate had
been lowered to 25% at December 31, 2013, our net deferred tax assets would have been reduced by $1.1 billion, and we
would have recorded a corresponding, one time increase in income tax expense of $1.1 billion. The amount of net deferred
tax assets will change periodically based on several factors, including the annual measurement of our postretirement benefit
plan obligations and actual cash contributions to our postretirement benefit plans.
Net Earnings from Continuing Operations
We reported net earnings from continuing operations of $2.95 billion ($9.04 per share) in 2013, $2.75 billion ($8.36 per
share) in 2012, and $2.67 billion ($7.85 per share) in 2011. Both net earnings from continuing operations and earnings per
share were affected by the factors discussed above.
Net Earnings (Loss) from Discontinued Operations
Net earnings from discontinued operations for 2013 included a benefit of $31 million resulting from the resolution of
certain tax matters related to a business previously sold. Discontinued operations for 2011 included the operating results and
other adjustments of Savi, a logistics business sold in 2012 that was in our former Electronic Systems business segment, and
PAE, a business sold in 2011 that was formerly within our IS&GS business segment. Net loss from discontinued operations
was $12 million ($.04 per share) in 2011, and included a deferred tax asset of $66 million that we expected to realize on the
sale of Savi because our tax basis was higher than our book basis. This tax benefit was largely offset by operating losses and
other adjustments. For more information, see “Note 14 – Acquisitions and Divestitures” of our consolidated financial
statements.
Business Segment Results of Operations
We operate in five business segments: Aeronautics, IS&GS, MFC, MST, and Space Systems. We organize our business
segments based on the nature of the products and services offered.
Net sales of our business segments exclude intersegment sales, as these activities are eliminated in consolidation.
Intercompany transactions are generally negotiated under terms and conditions that share many similar characteristics (e.g.,
contract structures, funding profiles, target cost values, contract progress reports) with our third-party contracts, primarily
with the U.S. Government.
Operating profit of our business segments includes our share of earnings or losses from equity method investees because
the operating activities of the equity method investees are closely aligned with the operations of those business segments.
Operating profit of our business segments excludes the FAS/CAS pension adjustment described below; expense for stock-
based compensation; the effects of items not considered part of management’s evaluation of segment operating performance,
such as charges related to goodwill impairment (Note 1) and significant severance actions (Note 2); gains or losses from
divestitures (Note 14); the effects of certain legal settlements; corporate costs not allocated to our business segments; and
other miscellaneous corporate activities. These items are included in the reconciling item “Unallocated expenses, net”
between operating profit from our business segments and our consolidated operating profit.
The results of operations of our business segments include pension expense only as determined and funded in
accordance with U.S. Government Cost Accounting Standards (CAS). The FAS/CAS pension adjustment represents the
difference between pension expense calculated in accordance with GAAP and pension costs calculated and funded in
accordance with CAS. CAS governs the extent to which pension costs can be allocated to and recovered on U.S. Government
contracts. The CAS cost is recovered through the pricing of our products and services on U.S. Government contracts and,
therefore, is recognized in each of our business segments’ net sales and cost of sales.
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