Lockheed Martin Corp. (LMT)

Goodwill

The assets and liabilities of acquired businesses are recorded under the acquisition method of accounting at their estimated fair values at the date of acquisition. Goodwill represents costs in excess of fair values assigned to the underlying identifiable net assets of acquired businesses.

Lockheed Martin’s goodwill balance was $10.8 billion at both December 31, 2018 and 2017. Lockheed Martin performs an impairment test of the goodwill at least annually in the fourth quarter or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may be impaired. Such events or changes in circumstances may include a significant deterioration in overall economic conditions, changes in the business climate of Lockheed Martin’s industry, a decline in the market capitalization, operating performance indicators, competition, reorganizations of the business, U.S. Government budget restrictions or the disposal of all or a portion of a reporting unit. Lockheed Martin’s goodwill has been allocated to and is tested for impairment at a level referred to as the reporting unit, which is the business segment level or a level below the business segment. The level at which Lockheed Martin tests goodwill for impairment requires Lockheed Martin to determine whether the operations below the business segment constitute a self-sustaining business for which discrete financial information is available and segment management regularly reviews the operating results.

Lockheed Martin may use either a qualitative or quantitative approach when testing a reporting unit’s goodwill for impairment. For selected reporting units where Lockheed Martin uses the qualitative approach, Lockheed Martin performs a qualitative evaluation of events and circumstances impacting the reporting unit to determine the likelihood of goodwill impairment. Based on that qualitative evaluation, if Lockheed Martin determines it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, no further evaluation is necessary. Otherwise Lockheed Martin performs a quantitative impairment test. Lockheed Martin performs quantitative tests for most reporting units at least once every three years. However, for certain reporting units Lockheed Martin may perform a quantitative impairment test every year.

For the quantitative impairment test Lockheed Martin compares the fair value of a reporting unit to its carrying value, including goodwill. If the fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired. If the carrying value of the reporting unit, including goodwill, exceeds its fair value, a goodwill impairment loss is recognized in an amount equal to that excess. Lockheed Martin generally estimates the fair value of each reporting unit using a combination of a discounted cash flow (DCF) analysis and market-based valuation methodologies such as comparable public company trading values and values observed in recent business acquisitions. Determining fair value requires the exercise of significant judgments, including the amount and timing of expected future cash flows, long-term growth rates, discount rates and relevant comparable public company earnings multiples and relevant transaction multiples. The cash flows employed in the DCF analysis are based on Lockheed Martin’s best estimate of future sales, earnings and cash flows after considering factors such as general market conditions, U.S. Government budgets, existing firm orders, expected future orders, contracts with suppliers, labor agreements, changes in working capital, long term business plans and recent operating performance. The discount rates utilized in the DCF analysis are based on the respective reporting unit’s weighted average cost of capital, which takes into account the relative weights of 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. The carrying value of each reporting unit includes the assets and liabilities employed in its operations, goodwill and allocations of certain assets and liabilities held at the business segment and corporate levels.

During the fourth quarters of 2018, 2017 and 2016, Lockheed Martin performed the annual goodwill impairment test for each of the reporting units. The results of Lockheed Martin’s annual impairment tests of goodwill indicated that no impairment existed.

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 and are amortized on a straight-line basis over a period of expected cash flows used to measure the fair value, which ranges from nine to 20 years. 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 20 years, based on the nature of the asset and the underlying pattern of economic benefit as reflected by future net cash inflows. Lockheed Martin performs an impairment test of finite-lived intangibles whenever events or changes in circumstances indicate their carrying value may be impaired.

Source: 10-K (filing date: 2019-02-08).

Lockheed Martin Corp., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

		Dec 31, 2018		Dec 31, 2017		Dec 31, 2016		Dec 31, 2015		Dec 31, 2014
	Customer programs
	Customer relationships
	Other
	Finite-lived acquired intangibles, gross carrying amount
	Accumulated amortization
	Finite-lived acquired intangibles, net carrying amount
	Trademark
	Indefinite-lived acquired intangibles
	Acquired intangibles
	Goodwill
	Goodwill and acquired intangibles

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

Lockheed Martin Corp., adjustments to financial data

USD $ in millions

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Adjustment to Total Assets
	Total assets (as reported)
	Less: Goodwill
	Total assets (adjusted)
	Adjustment to Stockholders’ Equity (deficit)
	Stockholders’ equity (deficit) (as reported)
	Less: Goodwill
	Stockholders’ equity (deficit) (adjusted)
	Adjustment to Net Earnings
	Net earnings (as reported)
	Add: Goodwill impairment charges
	Net earnings (adjusted)

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

Lockheed Martin Corp., Financial Data: Reported vs. Adjusted

Lockheed Martin Corp., adjusted ratios

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	Net Profit Margin
	Reported net profit margin
	Adjusted net profit margin
	Total Asset Turnover
	Reported total asset turnover
	Adjusted total asset turnover
	Financial Leverage
	Reported financial leverage
	Adjusted financial leverage
	Return on Equity (ROE)
	Reported ROE
	Adjusted ROE
	Return on Assets (ROA)
	Reported ROA
	Adjusted ROA

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

Lockheed Martin Corp., Ratios: Reported vs. Adjusted

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net earnings
	Net sales
	Ratio
	Net profit margin1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net earnings
	Net sales
	Ratio
	Adjusted net profit margin2

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net sales
	Total assets
	Ratio
	Total asset turnover1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Net sales
	Adjusted total assets
	Ratio
	Adjusted total asset turnover2

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Total assets
	Stockholders’ equity (deficit)
	Ratio
	Financial leverage1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted total assets
	Adjusted stockholders’ equity (deficit)
	Ratio
	Adjusted financial leverage2

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net earnings
	Stockholders’ equity (deficit)
	Ratio
	ROE1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net earnings
	Adjusted stockholders’ equity (deficit)
	Ratio
	Adjusted ROE2

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

2018 Calculations

		Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
	As Reported
	Selected Financial Data (USD $ in millions)
	Net earnings
	Total assets
	Ratio
	ROA1
	Adjusted for Goodwill
	Selected Financial Data (USD $ in millions)
	Adjusted net earnings
	Adjusted total assets
	Ratio
	Adjusted ROA2

Based on: 10-K (filing date: 2019-02-08), 10-K (filing date: 2018-02-06), 10-K (filing date: 2017-02-09), 10-K (filing date: 2016-02-24), 10-K (filing date: 2015-02-09).

2018 Calculations