Lockheed Martin 2015 Annual Report Download - page 47

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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 products and services offered. Net sales of our business segments exclude intersegment sales
as these activities are eliminated in consolidation. The amounts, discussion and presentation of our business segments as set
forth in this Annual Report on Form 10-K reflect the program realignment described above for all periods presented
and include the results of the acquired Sikorsky business from the November 6, 2015 acquisition date through
December 31, 2015.
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 our business segments.
United Launch Alliance (ULA), which is part of our Space Systems business segment, is our primary equity method investee.
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 impairments (Note 1) and significant severance actions (Note 15); gains or losses from
divestitures (Note 3); 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 items” between
operating profit from our business segments and our consolidated operating profit.
Our business segments’ results of operations include pension expense only as calculated under U.S. Government Cost
Accounting Standards, which we refer to as CAS pension cost. We recover CAS pension cost through the pricing of our
products and services on U.S. Government contracts and, therefore, the CAS pension cost is recognized in each of our
business segments’ net sales and cost of sales. Since our consolidated financial statements must present pension expense
calculated in accordance with FAS requirements under U.S. generally accepted accounting principles (GAAP), which we
refer to as FAS pension expense, the FAS/CAS pension adjustment increases or decreases the CAS pension cost recorded in
our business segments’ results of operations to equal the FAS pension expense. As a result, to the extent that CAS pension
cost exceeds FAS pension expense, which occurred for 2015 and 2014, we have FAS/CAS pension income and, conversely,
to the extent FAS pension expense exceeds CAS pension cost, which occurred for 2013, we have FAS/CAS pension expense.
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