Lockheed Martin 2015 Annual Report Download - page 84

each component of capital structure (equity and debt) and represents the expected cost of new capital, adjusted as appropriate
to consider the risk inherent in future cash flows of the respective reporting unit.
In the fourth quarter of 2015, we performed our annual goodwill impairment test for each of our reporting units. During
the fourth quarter of 2015, we realigned certain programs between our business segments in connection with our strategic
review of our government IT and technical services businesses. As part of the realignment, goodwill was reallocated between
affected reporting units on a relative fair value basis. We performed goodwill impairment tests prior and subsequent to the
realignment. The results of our 2015 annual impairment tests of goodwill indicated that no impairment existed.
In the fourth quarter of 2014, we completed our annual goodwill impairment test for each of our reporting units. The
results of these tests indicated that the estimated fair values of our reporting units exceeded their carrying values, with the
exception of our Technical Services reporting unit within our IS&GS business segment. The impact of market pressures such
as lower in-theater support as troop levels are drawn down and increased re-competition on existing contracts that are
awarded primarily on the basis of price adversely impacted the fair value of this reporting unit. As a result, we compared the
implied value of that reporting unit’s goodwill with the carrying value of its goodwill, and since the carrying value exceeded
the implied value, we recorded a non-cash impairment charge of $119 million in the fourth quarter of 2014 equal to that
differential. This charge reduced our net earnings by $107 million ($.33 per share).
During the fourth quarter of 2013, due to the continuing impact of defense budget reductions and related competitive
pressures on the Technical Services business, we recorded a non-cash goodwill impairment charge of $195 million. This
charge reduced our 2013 net earnings by $176 million ($.54 per share).
Intangible assets – Intangible assets from acquired businesses are recognized at their estimated fair values at the date of
acquisition and consist of customer programs, trademarks, customer relationships, technology and other intangible assets.
Customer programs include values assigned to major programs of acquired businesses and represent the aggregate value
associated with the customer relationships, contracts, technology and trademarks underlying the associated program.
Acquired intangibles deemed to have indefinite lives are not amortized, but are subject to annual impairment testing. This
testing compares carrying value to fair value and, when appropriate, the carrying value of these assets is reduced to fair
value. Finite-lived intangibles are amortized to expense over the applicable useful lives, ranging from three to twenty years,
based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows.
Customer advances and amounts in excess of cost incurred – We receive advances, performance-based payments and
progress payments from customers that may exceed costs incurred on certain contracts, including contracts with agencies of
the U.S. Government. We classify such advances, other than those reflected as a reduction of receivables or inventories as
discussed above, as current liabilities.
Debt issuance costs – In 2015, we early adopted a new standard of the Financial Accounting Standards Board (FASB)
which simplifies the presentation of debt issuance costs. In accordance with the new standard, we now reflect debt issuance
costs as a reduction from the face amount of debt on our consolidated balance sheets. These costs, which are $95 million and
$27 million as of December 31, 2015 and 2014, are amortized as interest expense over the life of the related debt. In prior
year presentation, these costs were reflected within other noncurrent assets on our consolidated balance sheets.
Postretirement benefit plans – Many of our employees are covered by defined benefit pension plans and we provide
certain health care and life insurance benefits to eligible retirees (collectively, postretirement benefit plans). GAAP requires
that the amounts we record related to our postretirement benefit plans be computed, based on service to date, using actuarial
valuations that are based in part on certain key economic assumptions we make, including the discount rate, the expected
long-term rate of return on plan assets and other actuarial assumptions including participant longevity (also known as
mortality) estimates, health care cost trend rates and employee turnover, each as appropriate based on the nature of the plans.
We recognize on a plan-by-plan basis the funded status of our postretirement benefit plans under GAAP as either an asset
recorded within other noncurrent assets or a liability recorded within noncurrent liabilities on our Balance Sheets. There is a
corresponding non-cash adjustment to accumulated other comprehensive loss, net of tax benefits recorded as deferred tax
assets, in stockholders’ equity. The GAAP funded status is measured as the difference between the fair value of the plan’s
assets and the benefit obligation of the plan. The funded status under the Employee Retirement Income Security Act of 1974
(ERISA), as amended by the Pension Protection Act of 2006 (PPA), is calculated on a different basis than under GAAP.
Environmental matters – We record a liability for environmental matters when it is probable that a liability has been
incurred and the amount can be reasonably estimated. The amount of liability recorded is based on our estimate of the costs
to be incurred for remediation at a particular site. We do not discount the recorded liabilities, as the amount and timing of
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