Lockheed Martin 2015 Annual Report Download - page 38

Other Acquisitions
In addition to the previously described acquisition of Sikorsky in 2015, we had the following significant acquisition
related activity in each of the prior two years:
In 2014, we paid $898 million for acquisitions of businesses and investments in affiliates, net of cash acquired, primarily
related to the following acquisitions:
• Systems Made Simple – a provider of health information technology solutions, which is included in our IS&GS business
segment;
• Zeta Associates, Inc. – a designer of systems that enable collection, processing, safeguarding and dissemination of
information for intelligence and defense communities, which is included in our Space Systems business segment; and
• Industrial Defender – a provider of cybersecurity solutions for control systems in the oil and gas, utility and chemical
industries, which is included in our IS&GS business segment.
In 2013, we paid $269 million for acquisitions of businesses and investments in affiliates, net of cash acquired, primarily
related to the acquisition of Amor Group, a United Kingdom-based company specializing in information technology, civil
government services and the energy market. Amor Group is included in our IS&GS business segment.
For additional information, see “Note 3 – Acquisitions and Divestitures” of our consolidated financial statements.
Industry Considerations
U.S. Government Funding Constraints
The U.S. Government, our principal customer, continues to face significant fiscal and economic challenges such as
financial deficits, budget uncertainty, increasing debt levels, and an economy with restrained growth. To address these
challenges, the U.S. Government continues to focus on discretionary spending, entitlement programs, taxes, and other
initiatives to stimulate the economy, create jobs, and reduce the deficit. In doing so, the Administration and Congress must
balance decisions regarding defense, homeland security and other federal spending priorities in a constrained fiscal
environment largely imposed by the Budget Control Act of 2011 (Budget Control Act). The Budget Control Act established
limits on discretionary spending, which provided for reductions to planned defense spending of $487 billion over a 10 year
period that began with GFY 2012 (a U.S. Government fiscal year starts on October 1 and ends on September 30). The Budget
Control Act also provided for additional automatic spending reductions, known as sequestration, which went into effect on
March 1, 2013, that would have reduced planned defense spending by an additional $500 billion over a nine-year period that
began in GFY 2013.
On November 2, 2015, the President signed into law the Bipartisan Budget Act of 2015 (BBA 2015). BBA 2015 raises
the limit on the government’s debt until March 2017 and raises the sequester caps imposed by the Budget Control Act by
$80 billion, split equally between defense and non-defense spending over the next two years ($50 billion in GFY 2016 and
$30 billion in GFY 2017). On December 18, 2015, the President signed into law the Consolidated Appropriations Act of
2016, funding the government through September 30, 2016 and on February 9, 2016, the President submitted a budget
proposal for GFY 2017, consistent with BBA 2015 funding levels. BBA 2015 includes discretionary funding for DoD of
approximately $580 billion in GFY 2016 and $583 billion in GFY 2017. This funding includes a base budget for the DoD of
approximately $521 billion in GFY 2016 and $524 billion in GFY 2017. BBA 2015 also provides approximately $59 billion
for DoD Overseas Contingency Operations (OCO) spending in each of GFY 2016 and GFY 2017.
The Bipartisan Budget Act of 2013 (BBA 2013) passed by Congress in December 2013 alleviated some budget cuts that
would have otherwise been instituted through sequestration in GFY 2014 and GFY 2015. Together, BBA 2013 and BBA
2015 (collectively, the Bipartisan Budget Acts) increased discretionary spending limits through GFY 2017. However, the
Bipartisan Budget Acts retained sequestration cuts for GFYs 2018 through 2021, including the across-the-board spending
reduction methodology provided for in the Budget Control Act. As a result, there remains uncertainty regarding how, or if,
sequestration cuts will be applied in GFY 2018 and beyond. DoD and other agencies may have significantly less flexibility in
how to apply budget cuts in future years. While the defense budget sustained the largest single reductions under the Budget
Control Act, other civil agencies and programs have also been impacted by significant spending reductions. In light of the
Budget Control Act and deficit reduction pressures, it is likely that discretionary spending by the U.S. Government will
remain constrained for a number of years. Additionally, if an annual appropriations bill is not enacted for GFY 2017 or
beyond, the U.S. Government may operate under a continuing resolution, restricting new contract or program starts and
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