Lockheed Martin 2015 Annual Report Download - page 50

Year Ended December 31, 2013
Prior to
Realignment
Government IT
Reclassification
Technical Svcs
Reclassification As Adjusted
Net sales
Aeronautics $14,123 $ — $ — $14,123
Information Systems & Global Solutions 8,367 (3,248) 996 6,115
Missiles and Fire Control 7,757 172 (1,134) 6,795
Mission Systems and Training 7,153 1,746 138 9,037
Space Systems 7,958 1,330 — 9,288
Total net sales $45,358 $ — $ — $45,358
Operating profit
Aeronautics $ 1,612 $ — $ — $ 1,612
Information Systems & Global Solutions 759 (316) 55 498
Missiles and Fire Control 1,431 9 (61) 1,379
Mission Systems and Training 905 154 6 1,065
Space Systems 1,045 153 — 1,198
Total business segment operating profit 5,752 — — 5,752
Unallocated items, net (1,247) — — (1,247)
Total consolidated operating profit $ 4,505 $ — $ — $ 4,505
The following segment discussions also include information relating to backlog for each segment. Backlog was
approximately $99.6 billion, $80.5 billion and $82.6 billion at December 31, 2015, 2014 and 2013. Backlog at December 31,
2015 includes approximately $15.6 billion of Sikorsky backlog and $4.8 billion of backlog related to our IS&GS business
segment, which we plan to divest in 2016. These amounts included both funded backlog (firm orders for which funding has
been both authorized and appropriated by the customer – Congress in the case of U.S. Government agencies) and unfunded
backlog (firm orders for which funding has not yet been appropriated). Backlog does not include unexercised options or task
orders to be issued under indefinite-delivery, indefinite-quantity contracts. Funded backlog was approximately $70.7 billion
at December 31, 2015.
Management evaluates performance on our contracts by focusing on net sales and operating profit and not by type or
amount of operating expense. Consequently, our discussion of business segment performance focuses on net sales and
operating profit, consistent with our approach for managing the business. This approach is consistent throughout the life
cycle of our contracts, as management assesses the bidding of each contract by focusing on net sales and operating profit and
monitors performance on our contracts in a similar manner through their completion.
We regularly provide customers with reports of our costs as the contract progresses. The cost information in the reports
is accumulated in a manner specified by the requirements of each contract. For example, cost data provided to a customer for
a product would typically align to the subcomponents of that product (such as a wing-box on an aircraft) and for services
would align to the type of work being performed (such as help-desk support). Our contracts generally are cost-based, which
allows for the recovery of costs in the pricing of our products and services. Most of our contracts are bid and negotiated with
our customers under circumstances in which we are required to disclose our estimated total costs to provide the product or
service. This approach for negotiating contracts with our U.S. Government customers generally allows for the recovery of
our costs. We also may enter into long-term supply contracts for certain materials or components to coincide with the
production schedule of certain products and to ensure their availability at known unit prices.
Many of our contracts span several years and include highly complex technical requirements. At the outset of a contract,
we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract and assess the
effects of those risks on our estimates of total costs to complete the contract. The estimates consider the technical
requirements (e.g., a newly-developed product versus a mature product), the schedule and associated tasks (e.g., the number
and type of milestone events) and costs (e.g., material, labor, subcontractor, overhead and the estimated costs to fulfill our
industrial cooperation agreements required under certain contracts with international customers). The initial profit booking
rate of each contract considers risks surrounding the ability to achieve the technical requirements, schedule and costs in the
initial estimated total costs to complete the contract. Profit booking rates may increase during the performance of the contract
if we successfully retire risks surrounding the technical, schedule and cost aspects of the contract which decreases the
estimated total costs to complete the contract. Conversely, our profit booking rates may decrease if the estimated total costs
to complete the contract increase. All of the estimates are subject to change during the performance of the contract and may
affect the profit booking rate.
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