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OTHER | 6 Months Ended
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Jun. 27, 2021
Accounting Policies [Abstract] |
OTHER | OTHER Changes in Estimates Significant estimates and assumptions are made in estimating contract sales and costs, including the profit booking rate. At the outset of a long-term contract, we identify and monitor risks to the achievement of the technical, schedule and cost aspects of the contract, as well as variable consideration, and assess the effects of those risks on our estimates of sales and 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, general and administrative and the estimated costs to fulfill our industrial cooperation agreements, sometimes referred to as offset or localization 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 or may increase the variable consideration we expect to receive on the contract. Conversely, our profit booking rates may decrease if the estimated total costs to complete the contract increase or our estimates of variable consideration we expect to receive decrease. All of the estimates are subject to change during the performance of the contract and may affect the profit booking rate. When estimates of total costs to be incurred on a contract exceed total estimates of the transaction price, a provision for the entire loss is determined at the contract level and is recorded in the period in which the loss is determined. In addition, comparability of our segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on our contracts for which we recognize revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions, which are excluded from segment oper ating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets. Our consolidated net adjustments not related to volume, including net profit booking rate adjustments and other matters, increased segment operating profit by approximately $385 million and $880 million during the quarter and six months ended June 27, 2021 and $480 million and $945 million during the quarters and six months ended June 28, 2020. These adjustments increased net earnings by approximately $304 million ($1.09 per share) and $695 million ($2.49 per share) during the quarter and six months ended June 27, 2021 and $379 million ($1.35 per share) and $747 million ($2.65 per share) during the quarter and six months ended June 28, 2020. We recognized net sales from performance obligations satisfied in prior periods of approximately $492 million and $984 million during the quarter and six months ended June 27, 2021, and $495 million and $1.0 billion during the quarter and six months ended June 28, 2020, which primarily relate to changes in profit booking rates that impacted revenue. We have experienced performance issues on a classified fixed-price incentive fee contract that involves highly complex designs and systems integration at our Aeronautics business segment. During the quarter ended June 27, 2021, we completed a comprehensive review of the program with our customer, including the technical requirements, performance to date, remaining work, schedule, and estimated costs to complete the program. We also entered into negotiations with our customer, which are ongoing, about contract scope, price, and future courses of action. At the conclusion of the review and based on the current negotiations with our customer, it was determined that the total costs to complete the current phase of the program are expected to exceed the contract price. Accordingly, we recognized a loss of $225 million ($169 million, or $0.61 per share, after tax) on the program at our Aeronautics business segment during the quarter ended June 27, 2021, which represents our estimated total losses on the current phase of the program. However, we will continue to monitor our performance, any future changes in scope, and estimated costs to complete the program and may have to record additional losses in future periods if we experience further performance issues, increases in scope, or cost growth, which could be material to our operating results. In addition, we and our industry team may incur advanced procurement costs (also referred to as precontract costs) in order to achieve contract imperatives. We will monitor the recoverability of precontract costs, if any, which could be impacted by the customer’s decision regarding future phases of the program. As previously disclosed in our 2020 Form 10-K, we are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment, and the program has experienced performance issues for which we have periodically accrued reserves. During the quarter ended June 27, 2021, we were able to retire certain risks associated with the reserves we had previously accrued which resulted in the reversal of approximately $15 million ($11 million, or $0.04 per share, after tax) of losses previously recorded. This reversal reduced cumulative losses on this program to approximately $235 million as of June 27, 2021. However, we may continue to experience issues related to customer requirements and our performance under this contract and have to record additional charges. Based on the current amount of losses recorded and our current estimate of the sales and costs to complete the program, at this time we do not anticipate that additional losses, if any, would be material to our operating results or financial condition. As previously disclosed in our 2020 Form 10-K, we have a program, EADGE-T, to design, integrate and install an air missile defense command, control, communications, computers - intelligence (C4I) system for an international customer that has experienced performance issues and for which we have periodically accrued reserves at our RMS business segment. As of June 27, 2021, cumulative losses remained at approximately $260 million. We continue to monitor program requirements and our performance. At this time, we do not anticipate additional charges that would be material to our operating results or financial condition. As previously disclosed, we had a program to design, develop and install an upgraded turret for the Warrior Capability Sustainment Program (“Warrior”). In March 2021, we received notification from our customer that it had made a decision to not proceed with the demonstration and manufacturing phases of the program and we were directed to suspend work on the program. During the quarter ended June 27, 2021, we worked with our customer to develop a plan to wind down the program and entered into negotiations about final scope, milestones, remaining costs, and price. After an evaluation of the financial impacts of the decision to wind down the program and based on the negotiations with the customer during the second quarter of 2021, we reversed previously recognized losses of approximately $40 million ($30 million, or $0.11 per share, after tax) during the quarter ended June 27, 2021 to reflect the removal of terminated scope on this program, net of incremental close-out costs. This reversal reduced cumulative losses on this program to approximately $100 million as of June 27, 2021. Negotiations with our customer and the wind down of the program are expected to be completed during the third quarter of 2021. Backlog Backlog (i.e., unfulfilled or remaining performance obligations) represents the sales we expect to recognize for our products and services for which control has not yet transferred to the customer. Our backlog includes both funded (firm orders for our products and services for which funding has been both authorized and appropriated by the customer) and unfunded (firm orders for which funding has not been appropriated) amounts. We do not include unexercised options or potential orders under indefinite-delivery, indefinite-quantity agreements in our backlog. For our cost-reimbursable and fixed-priced-incentive contracts, the estimated consideration we expect to receive pursuant to the terms of the contract may exceed the contractual award amount. The estimated consideration is determined at the outset of the contract and is continuously reviewed throughout the contract period. In determining the estimated consideration, we consider the risks related to the technical, schedule and cost impacts to complete the contract and an estimate of any variable consideration. Periodically, we review these risks and may increase or decrease backlog accordingly. As the risks on such contracts are successfully retired, the estimated consideration from customers may be reduced, resulting in a reduction of backlog without a corresponding recognition of sales. As of June 27, 2021, our ending backlog was $141.7 billion. We expect to recognize approximately 39% of our backlog over the next 12 months and approximately 61% over the next 24 months as revenue with the remainder recognized thereafter. Lockheed Martin Ventures Fund Through our Lockheed Martin Ventures Fund, we make strategic investments in certain early stage companies that we believe are advancing or developing new technologies applicable to our business. These investments may be in the form of common or preferred stock, warrants, convertible debt securities or investments in funds. Most of the investments are in equity securities without readily determinable fair values, which are measured initially at cost and are then adjusted to fair value only if there is an observable price change or reduced for impairment, if applicable. Investments with quoted market prices in active markets are recorded at fair value at the end of each reporting period. The carrying amounts of investments held in our Lockheed Martin Ventures Fund were $240 million and $173 million at June 27, 2021 and December 31, 2020. During the quarter and six months ended June 27, 2021, we recorded $14 million ($11 million, or $0.04 per share, after tax) and $82 million ($62 million, or $0.22 per share, after tax) of net gains due to sales of investments and changes in value which are reflected in other non-operating income, net in our consolidated statements of earnings. Income Taxes Our effective income tax rate was 16.4% and 16.6% for the quarters and six months ended June 27, 2021, and 17.1% and 16.3% for the quarters and six months ended June 28, 2020. The rate for the second quarter of 2021 is lower than the second quarter of 2020 primarily due to increased tax deductions for foreign derived intangible income. The rate for the six months ended June 27, 2021 is higher than the six months ended June 28, 2020 primarily due to decreased tax deductions for employee equity awards. The rates for both periods benefited from tax deductions for foreign derived intangible income, the research and development tax credit, and dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature. Severance and Restructuring Charges During the first quarter of 2021, we recorded severance and restructuring charges of $36 million ($28 million, or $0.10 per share, after tax) associated with plans to close and consolidate certain facilities and reduce total workforce within our RMS business segment. The actions were taken to better align RMS' organization and cost structure to improve the efficiency of its operations and affordability of its products and services. Upon separation, terminated employees were to receive lump-sum severance payments primarily based on years of service, the majority of which will be paid over the next several quarters. Investment in Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC) In July 2020, we entered into an agreement to sell our ownership interest in AMMROC to our joint venture partner for $307 million. As a result, we adjusted the carrying value of our investment to the selling price of $307 million, which resulted in the recognition of a noncash impairment charge of $128 million ($96 million, or $0.34 per share, after tax) in our results of operations during the quarter ended June 28, 2020. The sale was completed on November 25, 2020. The purchase price was required to be paid in cash installments in 2021, of which we have received $231 million to date. The remaining outstanding installment payment, which is due in late 2021, is guaranteed by an irrevocable letter of credit issued by a third-party financial institution.

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