Lockheed Martin 2015 Annual Report Download - page 45

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, with the impact included in the respective business segment’s results of
operations. Of the total severance, accelerated and incremental costs mentioned above, we recovered approximately
$65 million in 2015 and $50 million in 2014 and expect to recover approximately $60 million in 2016.
Other Unallocated, Net
Other unallocated, net primarily includes the FAS/CAS pension adjustment as described in the Business Segment
Results of Operations section below, stock-based compensation and other corporate costs. These items are not allocated to
the business segments and, therefore, are excluded from the cost of sales for products and services. Other unallocated, net
was $187 million of income in 2015, $132 million of income in 2014 and $841 million of expense in 2013.
The fluctuation between each respective period was primarily attributable to the change in the FAS/CAS pension
adjustment to income of $471 million in 2015 and $376 million in 2014, compared to expense of $482 million in 2013,
partially offset by fluctuations in other costs associated with various corporate items, none of which were individually
significant. The changes in the FAS/CAS pension adjustment between the periods were attributable to various items
impacting the calculations of financial accounting standards (FAS) pension expense and U.S. Government Cost Accounting
Standards (CAS) pension cost. FAS pension expense in 2015 and 2014 was less than 2013 primarily due to the June 2014
plan amendments to certain of our defined benefit pension plans to freeze future retirement benefits, partially offset by the
impact of using new longevity (also known as mortality) assumptions (Note 11). The higher CAS pension cost in 2015 and
2014 compared to 2013 primarily reflects the impact of phasing in CAS Harmonization. See “Critical Accounting Policies –
Postretirement Benefit Plans” for more discussion of our CAS pension cost.
Other Income, Net
Other income, net primarily includes our share of earnings or losses from equity method investees and other various
items. Other income, net in 2015 was $236 million, compared to $337 million in 2014 and $318 million in 2013. The
decrease in 2015, compared to 2014, was primarily due to a $90 million non-cash impairment charge related to our decision
to divest Lockheed Martin Commercial Flight Training (LMCFT) in 2016 and non-recoverable transaction costs of
approximately $45 million associated with the Sikorsky acquisition and the strategic review of our government IT and
technical services businesses, partially offset by fluctuations in other various costs, none of which were individually
significant. The asset impairment charge was partially offset by a net deferred tax benefit related to LMCFT of about
$80 million, which is recorded in income tax expense. Earnings from equity method investees in 2015 were comparable to
2014 (reflecting decreased earnings from equity method investees in our Space Systems business segment, offset by
increased earnings form Sikorsky equity method investees). The increase in 2014, compared to 2013, was primarily due to
fluctuations in earnings from equity method investees in our Aeronautics and Space Systems business segments, as discussed
in the “Business Segment Results of Operations” section below.
Interest Expense
Interest expense in 2015 was $443 million, compared to $340 million in 2014 and $350 million in 2013. The increase in
interest expense in 2015 relates to debt we incurred to fund the acquisition of Sikorsky, and the issuance of notes in February
of 2015 for general corporate purposes. See “Capital Structure, Resources and Other” for a discussion of our debt.
Other Non-Operating Income, Net
Other non-operating income, net increased $24 million from 2014 to 2015 primarily due to a gain from the sale of an
investment in 2015. Other non-operating income, net in 2014 was comparable to 2013.
Income Tax Expense
Our effective income tax rate from continuing operations was 28.2% for 2015, 31.3% for 2014, and 29.0% for 2013. The
rates for all periods benefited from tax deductions for U.S. manufacturing activities, deductions for dividends paid to our
defined contribution plans with an employee stock ownership plan feature and the retroactive reinstatement of the U.S.
research and development (R&D) tax credit. These benefits were partially offset by the unfavorable impacts of the non-cash
goodwill impairment charges in 2014 and 2013. The U.S. manufacturing deduction benefit for 2015, 2014 and 2013 reduced
our effective tax rate by approximately two percentage points.
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