8-KOther Events

LOCKHEED MARTIN CORP 8-K Report, Corporate Update (Mar 31, 2010)

Filed March 31, 2010For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) filed an 8-K on March 31, 2010, to disclose the financial impact of the Patient Protection and Affordable Care Act (PPACA) and its subsequent amendment. While the core legislation, enacted on March 23, 2010, originally planned to eliminate the tax deduction for retiree prescription drug expenses reimbursed by Medicare Part D starting January 1, 2011, a subsequent amendment signed on March 30, 2010, deferred this effective date to January 1, 2013. Despite the delayed cash impact, Lockheed Martin is required by GAAP to recognize the accounting effect in its 2010 financial statements. This will result in a one-time, after-tax charge to net earnings of approximately $96 million, or $0.25 per diluted share, in the first quarter of 2010. The company noted that its previously issued 2010 earnings per share outlook did not account for this legislation, and it plans to provide an updated financial outlook alongside its first quarter 2010 earnings release on April 21, 2010.

Key Highlights

  • 1The Patient Protection and Affordable Care Act (PPACA) impacts the tax deductibility of retiree prescription drug expenses reimbursed by Medicare Part D.
  • 2An amendment deferred the effective date of this tax change from January 1, 2011, to January 1, 2013.
  • 3Lockheed Martin will recognize a one-time, pre-tax GAAP charge of approximately $96 million ($0.25 per diluted share) in Q1 2010.
  • 4The cash impact of this change will be realized over several years, beginning in 2013.
  • 5The company's prior 2010 earnings outlook did not include this tax law change.
  • 6Lockheed Martin will provide an updated 2010 financial outlook on April 21, 2010, with its Q1 earnings release.
  • 7The company is continuing to evaluate the full potential effects of the new legislation.

Frequently Asked Questions

The main event is Lockheed Martin's disclosure of the accounting impact of the Patient Protection and Affordable Care Act (PPACA) and its amendment on its financial statements. Specifically, it addresses changes to the tax deductibility of Medicare Part D reimbursements for retiree prescription drug expenses.

Lockheed Martin is required to record a one-time after-tax charge of approximately $96 million, or $0.25 per diluted share, in the first quarter of 2010, due to the change in the tax treatment of Medicare Part D subsidies. This is an accounting impact and not a cash expenditure in Q1 2010.

The actual cash impacts related to the elimination of the tax deduction will be realized over several years, beginning in 2013, when the legislation becomes effective.

Yes, Lockheed Martin announced that it expects to provide an update to its 2010 financial outlook on April 21, 2010, when it issues its first quarter 2010 earnings release. This update will reflect the impact of the new legislation and its first quarter operating results.