Lockheed Martin 2015 Annual Report Download - page 46

In 2015, the R&D tax credit was permanently extended and reinstated, retroactive to the beginning of 2015, which
reduced our effective income tax rate by 1.4 percentage points. In 2014, the R&D tax credit was temporarily reinstated for
one year, retroactive to the beginning of 2014, which reduced our effective tax rate by 0.9 percentage point. In 2013, the
R&D tax credit was temporarily reinstated for two years, retroactive to the beginning of 2012. As a result, the effective
income tax rate for 2013 reflects the credit for all of 2013 and 2012, which reduced our effective tax rate by 1.8 percentage
points.
As a result of electing to treat the acquisition of the stock of Sikorsky as an asset acquisition under section 338(h)(10) of
the Internal Revenue Code, we expect tax deductions for the amortization of intangibles and goodwill over 15 years to reduce
our tax payments by a net present value of approximately $1.9 billion.
As a result of a decision in 2015 to divest LMCFT in 2016, we recorded an asset impairment charge of approximately
$90 million. This charge was partially offset by a net deferred tax benefit of about $80 million. The net impact of the
resulting tax benefit reduced the effective income tax rate by 1.0 percentage point in 2015.
A limited amount of the non-cash goodwill impairment charges will be deductible for tax purposes. Accordingly, the
non-cash goodwill impairment charges increased our effective income tax rates by 0.6 percentage point for 2014 and
1.2 percentage points for 2013 (Note 1).
Future changes in tax law could significantly impact our provision for income taxes, the amount of taxes payable, and
our 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 new tax legislation, with a corresponding material, one-time, non-cash
increase in 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, 2015 and 2014 were $5.9 billion and $5.5 billion, based on a 35% Federal
statutory income tax rate, and primarily relate to our postretirement benefit plans. If legislation reducing the Federal statutory
income tax rate to 25% had been enacted at December 31, 2015, our net deferred tax assets would have been reduced by
$1.7 billion and we would have recorded a corresponding one-time, non-cash increase in income tax expense of $1.7 billion.
This additional expense would be less if the legislation phased in the tax rate reduction or if the final rate was higher than
25%. The amount of net deferred tax assets will change periodically based on several factors, including the 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 $3.6 billion ($11.46 per share) in 2015, $3.6 billion ($11.21 per
share) in 2014 and $3.0 billion ($9.04 per share) in 2013. Both net earnings and earnings per share from continuing
operations were affected by the factors mentioned above. Earnings per share also benefited from a net decrease of
approximately eleven million common shares outstanding from December 31, 2014 to December 31, 2015 and
approximately five million common shares outstanding from December 31, 2013 to December 31, 2014 as a result of share
repurchases, which were partially offset by share issuance under our stock-based awards and certain defined contribution
plans.
Net Earnings from Discontinued Operations
Net earnings from discontinued operations for 2013 include a benefit of $31 million resulting from the resolution of
certain tax matters related to a business sold prior to 2013.
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