Lockheed Martin 2015 Annual Report Download - page 44

lower volume for various technical services programs. The decline at MST was primarily attributable to lower costs upon
wind-down or completion of certain programs. The decline at Aeronautics was mostly attributable to decreased sustainment
activities. The increase at Space Systems was primarily attributable to commercial space transportation programs due to
launch-related activities. The 0.5% decrease in service costs as a percentage of service sales in 2014 compared to 2013 was
primarily due to items decreasing service costs at IS&GS.
Goodwill Impairment Charges
In the fourth quarter of 2015, we performed our annual goodwill impairment test for each of our reporting units.
Additionally, as part of our previously described program realignment, goodwill was re-allocated between affected reporting
units on a relative fair value basis and goodwill impairment tests were performed prior and subsequent to the realignment. In
connection with our goodwill impairment testing in 2015, we determined there was no goodwill impairment.
In the fourth quarters of 2014 and 2013, we recorded non-cash goodwill impairment charges of $119 million and
$195 million, which reduced our net earnings by $107 million ($.33 per share) and $176 million ($.54 per share). For
additional information, see the “Critical Accounting Policies – Goodwill” section below and “Note 1 – Significant
Accounting Policies” of our consolidated financial statements.
Restructuring Charges
2015 Actions
During 2015, we recorded charges related to certain severance actions totaling $102 million, of which $67 million
related to our MST business segment and $35 million related to our IS&GS business segment (prior to realignment). These
charges reduced our 2015 net earnings by $66 million ($.21 per share). These severance actions resulted from a review of
future workload projections and to reduce our costs in order to improve the affordability of our products and services. The
charges consisted of severance costs associated with the planned elimination of certain positions through either voluntary or
involuntary actions. Upon separation, terminated employees will receive lump-sum severance payments primarily based on
years of service, the majority of which are expected to be paid over the next several quarters. As of December 31, 2015, we
have paid approximately $18 million in severance payments associated with these actions.
In connection with the Sikorsky acquisition, we assumed obligations related to certain restructuring actions committed to
by Sikorsky in June 2015. These actions included a global workforce reduction of approximately 1,400 production-related
positions and facilities consolidations. As of December 31, 2015, accrued restructuring costs associated with these actions are
approximately $15 million, all of which are expected to be paid in 2016. Net of amounts we anticipate to recover through the
pricing of our products and services to our customers, we also expect to incur an additional $40 million of costs in 2016
related to these actions.
2013 Actions
During 2013, we recorded charges related to certain severance actions totaling $201 million, of which $83 million,
$37 million and $81 million related to our IS&GS, MST and Space Systems business segments (prior to realignment). These
charges reduced our 2013 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.
These charges also include $30 million related to certain severance actions 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. Upon separation, terminated employees receive lump-sum severance payments primarily based on years of
service. As of December 31, 2015, we have paid approximately $153 million in severance payments associated with this
action, of which approximately $46 million, $92 million and $15 million was paid in 2015, 2014 and 2013, respectively. The
remaining severance payments are expected to be paid in 2016.
We also expect to incur total accelerated costs (e.g., accelerated depreciation expense related to long-lived assets at sites
closed) and incremental costs (e.g., relocation of equipment and other employee related costs) of approximately $10 million,
$50 million and $180 million at our IS&GS, MST and Space Systems business segments through the completion of this plan
in 2016. As of December 31, 2015, we have incurred total accelerated and incremental costs of approximately $225 million,
of which approximately $115 million, $90 million and $20 million was recorded in 2015, 2014 and 2013, respectively. The
accelerated and incremental costs are recorded as incurred in cost of sales on our Statements of Earnings and included in the
respective business segment’s results of operations.
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