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OTHER | 9 Months Ended
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Sep. 26, 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 $580 million and $1.5 billion during the quarter and nine months ended September 26, 2021 and $415 million and $1.4 billion during the quarters and nine months ended September 27, 2020. These adjustments increased net earnings by approximately $458 million ($1.65 per share) and $1.2 billion ($4.14 per share) during the quarter and nine months ended September 26, 2021 and $328 million ($1.17 per share) and $1.1 billion ($3.82 per share) during the quarter and nine months ended September 27, 2020. We recognized net sales from performance obligations satisfied in prior periods of approximately $616 million and $1.6 billion during the quarter and nine months ended September 26, 2021, and $487 million and $1.5 billion during the quarter and nine months ended September 27, 2020, which primarily relate to changes in profit booking rates that impacted revenue. As previously disclosed, we have experienced performance issues on a classified fixed-price incentive fee contract that involves highly complex design and systems integration at our Aeronautics business segment. During the second quarter of 2021, we completed a comprehensive review and negotiation of scope of the program with our customer, including the technical requirements, performance to date, remaining work, schedule, and estimated costs to complete the program. At the conclusion of the review, we determined that the total costs to complete the current phase of the program will exceed the contract price. Accordingly, during the second quarter of 2021, we recognized a loss of $225 million ($169 million, or $0.61 per share, after tax) on the program at our Aeronautics business segment, which represented our estimated total losses on the current phase of the program. During the third quarter of 2021, we signed a Memorandum of Agreement (MOA) with the customer to modify the contract scope and price. We are working with the customer to incorporate the MOA updates into the contract, which we currently expect to complete by the end of 2021. The terms of the MOA are consistent with the assumptions used to estimate the loss recognized in the second quarter of 2021. Therefore, our current estimated loss remains at $225 million. 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 will incur advanced procurement costs (also referred to as precontract costs) in order to enhance our ability to achieve the revised schedule and certain milestones. We will monitor the recoverability of precontract costs, which could be impacted by the customer’s decision regarding future phases of the program. As previously disclosed, we are responsible for a program to design, develop and construct a ground-based radar at our RMS business segment. The program has experienced performance issues for which we have periodically accrued reserves. During the quarter ended September 26, 2021, we revised our estimated costs to complete the program by reviewing the technical requirements, performance to date, remaining work, and schedule and recorded a charge of approximately $45 million ($34 million, or $0.12 per share, after-tax) at our RMS business segment, which resulted in cumulative losses of approximately $280 million on this program as of September 26, 2021. 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. However, based on the losses previously 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, 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 September 26, 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”) at our MFC business segment. 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. 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 during the second quarter of 2021. These negotiations were completed during the third quarter of 2021 along with the final settlement of substantially all of our claims. Upon completion of final settlements, we determined that future losses will not be incurred. As a result, we reversed previously recognized losses of approximately $25 million ($19 million, or $0.07 per share, after-tax) during the quarter ended September 26, 2021 to reflect the removal of terminated scope on this program, net of incremental close-out costs, and the settlement of the claims. Total cumulative losses on this program were approximately $75 million at September 26, 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 September 26, 2021, our ending backlog was $134.8 billion. We expect to recognize approximately 38% of our backlog over the next 12 months and approximately 60% 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 (Level 1) 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 $355 million and $173 million at September 26, 2021 and December 31, 2020. During the quarter and nine months ended September 26, 2021, we recorded $98 million ($74 million, or $0.27 per share, after-tax) and $180 million ($135 million, or $0.49 per share, after-tax) of net gains due to changes in fair value and/or sales of investments which are reflected in the other non-operating income, net account on our consolidated statements of earnings. 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 nine months ended September 27, 2020. The sale was completed on November 25, 2020. The purchase price was paid in cash installments in 2021, of which we received $231 million as of September 26, 2021 (the end of our third quarter). The final installment payment of $76 million was received on September 30, 2021 (subsequent to our third quarter). 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. Income Taxes Our effective income tax rate was 9.6% and 15.7% for the quarters and nine months ended September 26, 2021, and 14.7% and 15.7% for the quarters and nine months ended September 27, 2020. The rate for the third quarter of 2021 is lower than the third quarter of 2020 primarily due to lower pretax earnings resulting from a noncash pension settlement charge of $1.7 billion, which reduced the tax expense by approximately $355 million. 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. Net Loss on Discontinued Operations During the third quarter of 2020, we recognized a $55 million ($0.20 per share) non-cash charge resulting from the resolution of certain tax matters related to the former IS&GS business divested in 2016. Revolving Credit Facility On August 24, 2021, we entered into a new $3.0 billion revolving credit facility (the Revolving Credit Facility) with various banks that is available for general corporate purposes including supporting commercial paper borrowings and which has an expiration date of August 24, 2026. We concurrently terminated our existing $2.5 billion revolving credit facility. We may request and the banks may grant, at their discretion, an increase in the borrowing capacity under the Revolving Credit Facility of up to an additional $500 million. There were no borrowings outstanding under the Revolving Credit Facility at September 26, 2021. Long-Term Debt In September 2021, we repaid $500 million of long-term notes with a fixed interest rate of 3.35% according to their scheduled maturities. In May 2020, we received net cash proceeds of $1.1 billion from issuance of senior unsecured notes. In June 2020, we used the net proceeds from the offering plus cash on hand to redeem $750 million of notes due in 2020 and $400 million of notes due in 2021, each at their redemption price.

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