LOCKHEED MARTIN CORPORATION BETHESDA, Md., Oct. 21, 2014 /PRNewswire/ -- Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2014 net sales of $11.1 billion compared to $11.3 billion in the third quarter of 2013. Net earnings from continuing operations in the third quarter of 2014 were $888 million, or $2.76 per diluted share, compared to $842 million, or $2.57 per diluted share, in the third quarter of 2013. Cash from operations in the third quarter of 2014 was $990 million, compared to $900 million in the third quarter of 2013.
Third quarter 2014 net earnings include FAS/CAS pension income of $84 million, which increased net earnings by $52 million, or $0.16 per diluted share. FAS/CAS pension income reflects an approximate $55 million reduction in CAS pension costs due to the enactment of The Highway and Transportation Funding Act of 2014 (HATFA), which lowered earnings by $35 million, or $0.11 per diluted share. Third quarter 2013 net earnings include FAS/CAS pension expense of $121 million, which reduced net earnings by $75 million, or $0.23 per diluted share.
"Although we continue to face global economic challenges, our program and operational performance this quarter resulted in increased earnings per share and strong cash generation," said Chairman, President and CEO Marillyn Hewson. "As we look ahead to 2015, we will remain focused on delivering for our customers, returning value to our shareholders, advancing our technologies and investing in our people."
Summary Financial Results
The following table presents the Corporation's summary financial results prepared in accordance with U.S. generally accepted accounting principles (GAAP).
(in millions, except per share data) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---- ---- ---- ----
Net sales $11,114 $11,347 $33,070 $33,825
======= ======= ======= =======
Business segment operating profit $1,346 $1,455 $4,181 $4,331
Unallocated, net
FAS/CAS pension income (expense)(1) 84 (121) 255 (362)
Other, net (38) (80) (186) (298)
--- --- ---- ----
Total unallocated, net 46 (201) 69 (660)
--- ---- --- ----
Consolidated operating profit $1,392 $1,254 $4,250 $3,671
====== ====== ====== ======
Net earnings from
Continuing operations $888 $842 $2,710 $2,462
Discontinued operations(2) - 31 - 31
--- --- --- ---
Net earnings $888 $873 $2,710 $2,493
==== ==== ====== ======
Diluted earnings per share from
Continuing operations $2.76 $2.57 $8.39 $7.54
Discontinued operations(2) - 0.09 - 0.09
--- ---- --- ----
Diluted earnings per share $2.76 $2.66 $8.39 $7.63
===== ===== ===== =====
Cash from operations(3) $990 $900 $4,067 $3,608
==== ==== ====== ======
1 FAS/CAS pension income reflects both lower FAS pension expense and CAS pension costs for the third quarter of 2014
compared to the
same period in 2013. FAS pension expense is lower due to higher discount rates used to calculate the Corporation's qualified
defined
benefit obligations and net periodic benefit cost and the impacts of the June 2014 plan amendments to certain of its defined
benefit plans.
CAS pension cost is lower due to the effect of using a higher interest rate required by the HATFA. The HATFA was enacted on
Aug. 8, 2014 and
extends the methodology in the Moving Ahead for Progress in the 21st Century Act of 2012 (MAP-21) to calculate the interest
rate
assumption. The effect of adopting the HATFA reduced the Corporation's CAS pension cost by approximately $55 million
(including about
$35 million related to the first six months of 2014) in the third quarter of 2014.
2 Discontinued operations for the third quarter and first nine months of 2013 include a benefit resulting from the
resolution of certain tax
matters related to a business sold prior to 2013.
3 The Corporation made contributions to its defined benefit pension trust of $485 million and $1.0 billion during the
third quarter and first nine
months of 2014, respectively, compared to $750 million and $1.5 billion during the third quarter and first nine months of
2013, respectively.
Additionally, the Corporation made net tax payments of $451 million and $1.0 billion during the third quarter and first nine
months of 2014,
respectively, compared to $247 million and $387 million during the third quarter and first nine months of 2013,
respectively.
--------------------------------------------------------------------------------------------------------------------
2014 Financial Outlook
The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation's current expectations. Actual results may differ materially from those projected. It is the Corporation's practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities (including special items) until such items have been consummated or enacted. For additional factors that may impact the Corporation's actual results, refer to the "Forward-Looking Statements" section contained in this news release.
(in millions, except per share data) Current Update July 2014
-------------- ---------
Orders $41,500 - $43,000 $41,500 - $43,000
================= =================
Net sales ~$45,000 $44,000 - $45,500
======== =================
Business segment operating profit ~$5,500 $5,375 - $5,525
FAS/CAS pension income(1) ~375 ~445
Other, net ~(275) ~(345)
----- -----
Consolidated operating profit ~$5,600 $5,475 - $5,625
======= ===============
Diluted earnings per share ~$11.15 $10.85 - $11.15
======= ===============
Cash from operations(2) >/= $3,800 >/= $4,800
========== ==========
1 FAS/CAS pension income in the Current Update reflects lower CAS pension cost of
approximately $70
million due to the effect of using a higher interest rate required by the HATFA, of which
about $55 million
was recognized in the third quarter of 2014.
2 Cash from operations in the Current Update includes the effect of $1.0 billion of
incremental pension
contributions anticipated in the fourth quarter of 2014.
--------------------------------------------------------
2015 Financial Trends
The Corporation expects 2015 net sales will decline at a low single digit rate from 2014 levels and that total business segment operating margin will be in the 11.5 percent to 12.0 percent range. The Corporation's preliminary outlook for 2015 assumes the U.S. Government continues to support and fund its key programs, consistent with the continuing resolution funding measure through Dec. 11, 2014, and the U.S. Government approves budget legislation for government fiscal year (GFY) 2015 consistent with the President's proposed budget. Changes in circumstances may require the Corporation to revise its assumptions, which could materially change its current estimate of 2015 net sales and operating margin.
The Corporation expects 2015 FAS/CAS pension income of approximately $650 million assuming a 4.25 percent discount rate at the end of 2014, the same rate used for the re-measurement of its defined benefit pension obligations in June 2014, an 8.00 percent actual return on plan assets in 2014, and incremental pension contributions of $1.0 billion anticipated in the fourth quarter of 2014, among other assumptions. The Corporation does not expect to make contributions to its qualified defined benefit pension plans in 2015 through 2017. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $120 million to the estimated 2015 FAS/CAS pension income. The Corporation will finalize the postretirement benefit plan assumptions and determine the 2014 actual return on plan assets on Dec. 31, 2014. The final assumptions and actual investment returns for 2014 may differ materially from those discussed above.
Cash Deployment Activities
The Corporation's cash deployment activities in the third quarters of 2014 and 2013 consisted of the following:
-- repurchasing 2.6 million shares for $446 million during the third
quarter of 2014, compared to 4.9 million shares for $607 million during
the third quarter of 2013;
-- paying cash dividends of $421 million during the third quarter of 2014,
compared to $370 million during the third quarter of 2013;
-- making contributions to its pension trust of $485 million during the
third quarter of 2014, compared to $750 million during the third quarter
of 2013;
-- paying $450 million for acquisitions of businesses and investments in
affiliates during the third quarter of 2014, compared to $203 million
during the third quarter of 2013; and
-- making capital expenditures of $203 million during the third quarter of
2014, compared to $209 million during the third quarter of 2013.
On Sept. 25, 2014, the Board of Directors approved a $2.0 billion increase to the Corporation's share repurchase program. Inclusive of this increase, the total remaining authorization for future common share repurchases under the program was $3.9 billion as of Sept. 28, 2014. The Corporation anticipates at least $2.0 billion of share repurchases in 2015, subject to market conditions and management's discretion.
On Sept. 25, 2014, the Corporation increased its quarterly dividend 13 percent, or $0.17 per share, to $1.50 per share beginning with the payment to be made on Dec. 26, 2014 to stockholders of record as of the close of business on Dec. 1, 2014.
Segment Results
The Corporation operates in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. The Corporation organizes its business segments based on the nature of the products and services offered.
Operating profit for the business segments includes the Corporation's share of earnings or losses from equity method investees because the operating activities of the equity method investees are closely aligned with the operations of the Corporation's business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation's primary equity method investee. Operating profit of the Corporation's business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with GAAP (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management's evaluation of segment operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation's business segments; and other miscellaneous corporate activities.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.
In addition, comparability of the Corporation's segment sales, operating profit and operating margins may be impacted by changes in profit booking rates on the Corporation's contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs 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 complete 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 margins may also be impacted, favorably or unfavorably, by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges and insurance recoveries. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; and significant asset impairments. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.
The following table presents summary operating results of the Corporation's five business segments and reconciles these amounts to the Corporation's consolidated financial results.
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, 2014 Sept. 29, Sept. 28, 2014 Sept. 29,
2013 2013
-------------- ---------- -------------- ----------
Net sales
Aeronautics $3,544 $3,632 $10,785 $10,225
Information Systems & Global Solutions 1,949 2,059 5,800 6,266
Missiles and Fire Control 1,908 2,003 5,666 6,034
Mission Systems and Training 1,679 1,698 5,078 5,298
Space Systems 2,034 1,955 5,741 6,002
----- ----- ----- -----
Total net sales $11,114 $11,347 $33,070 $33,825
======= ======= ======= =======
Operating profit
Aeronautics $362 $412 $1,208 $1,198
Information Systems & Global Solutions 175 187 524 570
Missiles and Fire Control 335 356 1,038 1,081
Mission Systems and Training 193 216 628 692
Space Systems 281 284 783 790
--- --- --- ---
Total business segment operating profit 1,346 1,455 4,181 4,331
Unallocated, net
FAS/CAS pension adjustment
FAS pension expense (258) (487) (885) (1,461)
Less: CAS pension cost 342 366 1,140 1,099
--- --- ----- -----
FAS/CAS pension income (expense) 84 (121) 255 (362)
Special item - Severance charges - - - (30)
Stock-based compensation (31) (38) (128) (150)
Other, net (7) (42) (58) (118)
--- --- --- ----
Total unallocated, net 46 (201) 69 (660)
--- ---- --- ----
Total consolidated operating profit $1,392 $1,254 $4,250 $3,671
====== ====== ====== ======
The Corporation's consolidated net adjustments not related to volume, including net profit booking rate adjustments and other items, represented approximately 30 percent of total segment operating profit in the third quarter of 2014 compared to approximately 35 percent of total segment operating profit in the third quarter of 2013.
Aeronautics
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---------- ---------- ---------- ----------
Net sales $3,544 $3,632 $10,785 $10,225
Operating profit $362 $412 $1,208 $1,198
Operating margins 10.2% 11.3% 11.2% 11.7%
----------------- ---- ---- ---- ----
Aeronautics' net sales for the third quarter of 2014 decreased $88 million, or 2 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $225 million for the C-130 program due to fewer deliveries (five aircraft delivered in the third quarter of 2014 compared to eight delivered in the same period of 2013) and lower sustainment activities; about $80 million for the F-35 development contract due to lower volume; and approximately $30 million for other sustainment activities due to lower volume. The decreases were partially offset by higher net sales of approximately $130 million for F-35 production contracts due to increased volume, partially offset by lower risk retirements; and approximately $115 million for various other programs due to increased volume.
Aeronautics' operating profit for the third quarter of 2014 decreased $50 million, or 12 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $50 million for the C-130 program due to lower risk retirements and fewer aircraft deliveries; about $40 million for other sustainment activities due to lower risk retirements and lower volume; and approximately $30 million due to reserves recorded for contractual matters. The decreases were partially offset by higher operating profit of about $35 million for the C-5 program due to the absence in the third quarter of 2014 of the downward revision in the profit booking rate that occurred in the third quarter of 2013; and approximately $40 million for various other programs and equity earnings from a joint venture. Operating profit was comparable for the F-35 development contract. Operating profit was comparable for F-35 production contracts due to increased volume offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $65 million lower for the third quarter of 2014 compared to the same period in 2013.
Information Systems & Global Solutions
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---------- ---------- ---------- ----------
Net sales $1,949 $2,059 $5,800 $6,266
Operating profit $175 $187 $524 $570
Operating margins 9.0% 9.1% 9.0% 9.1%
----------------- --- --- --- ---
IS&GS' net sales for the third quarter of 2014 decreased $110 million, or 5 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $150 million due to the wind-down or completion of certain programs (primarily command and control programs); and about $60 million due to a decline in volume for various programs, which reflects lower funding levels and programs impacted by in-theater force reductions. The decreases were partially offset by higher net sales of about $100 million due to the start-up of new programs, growth in recently awarded programs and integration of recently acquired companies.
IS&GS' operating profit for the third quarter of 2014 decreased $12 million, or 6 percent, compared to the same period in 2013. The decrease was primarily attributable to the activities mentioned above for sales. Adjustments not related to volume, including net profit booking rate adjustments, for the third quarter of 2014 were comparable to the same period in 2013.
Missiles and Fire Control
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---------- ---------- ---------- ----------
Net sales $1,908 $2,003 $5,666 $6,034
Operating profit $335 $356 $1,038 $1,081
Operating margins 17.6% 17.8% 18.3% 17.9%
----------------- ---- ---- ---- ----
MFC's net sales for the third quarter of 2014 decreased $95 million, or 5 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $95 million for various technical services programs due to lower volume reflecting market pressures; and about $70 million for tactical missile programs due to fewer missile and launcher deliveries (including the Guided Multiple Launch Rocket System). The decreases were partially offset by higher net sales of about $60 million for various programs due to increased volume. Net sales for air and missile defense programs were comparable as increased volume for Terminal High-Altitude Area Defense was offset by fewer deliveries for the Patriot Advanced Capability-3 program.
MFC's operating profit for the third quarter of 2014 decreased $21 million, or 6 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $20 million for various technical services programs due to lower volume and reserves recorded on certain programs. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were approximately $15 million lower for the third quarter of 2014 compared to the same period in 2013.
Mission Systems and Training
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---------- ---------- ---------- ----------
Net sales $1,679 $1,698 $5,078 $5,298
Operating profit $193 $216 $628 $692
Operating margins 11.5% 12.7% 12.4% 13.1%
----------------- ---- ---- ---- ----
MST's net sales for the third quarter of 2014 decreased $19 million, or 1 percent, compared to the same period in 2013. The decrease was primarily attributable to lower net sales of approximately $30 million for ship and aviation systems programs due to lower volume (primarily the Merlin Capability Sustainment Program). The decrease was partially offset by higher net sales of approximately $25 million for undersea systems programs due to higher volume.
MST's operating profit for the third quarter of 2014 decreased $23 million, or 11 percent, compared to the same period in 2013. The decrease was primarily attributable to lower operating profit of approximately $35 million for integrated warfare systems and sensor programs due to lower risk retirements (primarily radar surveillance programs). Adjustments not related to volume, including net profit booking rate adjustments, were approximately $20 million lower for the third quarter of 2014 compared to the same period in 2013.
Space Systems
(in millions) Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---------- ---------- ---------- ----------
Net sales $2,034 $1,955 $5,741 $6,002
Operating profit $281 $284 $783 $790
Operating margins 13.8% 14.5% 13.6% 13.2%
----------------- ---- ---- ---- ----
Space Systems' net sales for the third quarter of 2014 increased $79 million, or 4 percent, compared to the same period in 2013. The increase was primarily attributable to higher net sales of approximately $145 million for commercial space transportation programs due to launch-related activities; and about $70 million for the Orion program due to increased volume. The increases were partially offset by lower net sales of approximately $140 million for government satellite programs due to lower volume (primarily the Advanced Extremely High Frequency (AEHF) program).
Space Systems' operating profit for the third quarter of 2014 was comparable to the same period in 2013. Operating profit decreased by approximately $30 million for government satellite programs due to lower volume and risk retirements (primarily AEHF). Operating profit increased by approximately $20 million due to higher equity earnings for joint ventures. Adjustments not related to volume, including net profit booking rate adjustments, were approximately $15 million lower for the third quarter of 2014 compared to the same period in 2013.
Total equity earnings (primarily ULA) recognized by Space Systems represented approximately $90 million, or 32 percent, of this business segment's operating profit for the third quarter of 2014, compared to approximately $70 million, or 25 percent, for the third quarter of 2013.
Income Taxes
The Corporation's effective income tax rates were 32.3 percent and 28.2 percent for the third quarter of 2014 and 2013, respectively. The rates for both periods benefited from tax deductions for U.S. manufacturing activities and for dividends paid to the Corporation's defined contribution plans with an employee stock ownership plan feature. The effective tax rate for the third quarter of 2014 was higher primarily due to the benefit of research and development tax credits recognized in the third quarter of 2013. The credit expired on Dec. 31, 2013 and, therefore, will not be recognized in 2014 unless and until legislation is enacted.
About Lockheed Martin
Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 113,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2013 were $45.4 billion.
Website: www.lockheedmartin.com
Conference Call Information
Lockheed Martin will webcast the earnings conference call (listen-only mode) at 11:00 a.m. ET on Oct. 21, 2014. A live audio broadcast, including relevant charts, will be available on the Investor Relations page of the Corporation's website at: www.lockheedmartin.com/investor.
Forward-Looking Statements
This news release contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on Lockheed Martin's current expectations and assumptions. The words "believe," "estimate," "anticipate," "project," "intend," "expect," "plan," "outlook," "scheduled," "forecast" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as:
-- the availability of funding for the Corporation's products and services
both domestically and internationally due to general economic
conditions, performance, cost or other factors;
-- the Corporation's dependence on U.S. Government contracts (e.g., the
F-35 program);
-- changes in domestic and international customer priorities and
requirements (including declining budgets resulting from general
economic conditions; affordability initiatives; the potential for
deferral or termination of awards; the implementation of automatic
sequestration under the Budget Control Act of 2011 or Congressional
actions intended to replace sequestration; U.S. Government operations
under a continuing resolution; or any future shutdown of U.S. Government
operations) and the success of the Corporation's strategy to mitigate
some of these risks by focusing on expanding into adjacent markets close
to the Corporation's core capabilities and growing international sales;
-- lower demand for the Corporation's services due to improved product
field performance requiring less service support; lower in-theater
support as troop levels are drawn down; and increased re-competition
coupled with the fragmentation of large contracts into multiple smaller
contracts that are awarded primarily on the basis of price;
-- the accuracy of the Corporation's estimates and assumptions including
those as to schedule, cost, technical and performance issues under its
contracts, cash flow, actual returns (or losses) on pension plan assets,
movements in interest rates and other changes that may affect pension
plan assumptions;
-- the ability to implement, pace and effect capitalization changes such as
share repurchase activity and accelerated pension funding, and the
effect of stock option exercises or debt levels;
-- difficulties in developing and producing operationally advanced
technology systems, cyber security or other security threats,
information technology failures, natural disasters, public health crises
or other disruptions;
-- the timing and customer acceptance of product deliveries;
-- materials availability and the performance of key suppliers, teammates,
venture partners, subcontractors and customers;
-- charges from any future impairment reviews that may result in the
recognition of losses and a reduction in the book value of goodwill or
other long-term assets;
-- the future effect of legislation, rulemaking and changes in accounting,
tax, defense procurement, changes in policy, interpretations, or
challenges to the allowability and recovery of costs incurred under
government cost accounting standards, export policy, changes in
contracting policy and contract mix;
-- the future impact of acquisitions or divestitures, ventures, teaming
arrangements or internal reorganizations;
-- compliance with laws and regulations, the outcome of legal proceedings
and other contingencies (including lawsuits, government investigations
or audits, and the cost of completing environmental remediation
efforts), and U.S. Government identification of deficiencies in the
Corporation's business systems;
-- the competitive environment for the Corporation's products and services,
export policies, and potential for delays in procurement due to bid
protests;
-- the Corporation's efforts to increase the efficiency of its operations
and improve the affordability of its products and services including
difficulties associated with moving or consolidating operations;
providing for the orderly transition of management; attracting and
retaining key personnel or the transfer of critical knowledge to the
extent the Corporation loses key personnel through wage competition,
normal attrition (including retirement) and specific actions such as
workforce reductions; and supply chain management; and
-- economic, business and political conditions domestically and
internationally (including potential impacts resulting from the
continuing tension between the international community and Russia over
Ukraine) and the Corporation's increased reliance on securing
international and adjacent business.
These are only some of the factors that may affect the forward-looking statements contained in this news release. For a discussion identifying additional important factors that could cause actual results to vary materially from those anticipated in the forward-looking statements, see the Corporation's filings with the SEC including, but not limited to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in the Corporation's Annual Report on Form 10-K for the year ended Dec. 31, 2013 and its 2014 quarterly reports on Form 10-Q. The Corporation's filings may be accessed through the Investor Relations page of its website, www.lockheedmartin.com/investor, or through the website maintained by the SEC at www.sec.gov.
The Corporation's actual financial results likely will be different from those projected due to the inherent nature of projections. Given these uncertainties, the forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this news release speak only as of the date of its filing. Except where required by applicable law, the Corporation expressly disclaims a duty to provide updates to forward-looking statements after the date of this news release to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this news release are intended to be subject to the safe harbor protection provided by the federal securities laws.
Lockheed Martin Corporation
Consolidated Statements of Earnings(1)
(unaudited; in millions, except per share data)
Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---- ---- ---- ----
Net sales $11,114 $11,347 $33,070 $33,825
Cost of sales (9,839) (10,163) (29,083) (30,376)
------ ------- ------- -------
Gross profit 1,275 1,184 3,987 3,449
Other income, net 117 70 263 222
--- --- --- ---
Operating profit 1,392 1,254 4,250 3,671
Interest expense (82) (84) (253) (264)
Other non-operating income, net 1 3 3 2
--- --- --- ---
Earnings from continuing operations before income taxes 1,311 1,173 4,000 3,409
Income tax expense (423) (331) (1,290) (947)
---- ---- ------ ----
Net earnings from continuing operations 888 842 2,710 2,462
Net earnings from discontinued operations(2) - 31 - 31
--- --- --- ---
Net earnings $888 $873 $2,710 $2,493
==== ==== ====== ======
Effective tax rate 32.3% 28.2% 32.3% 27.8%
==== ==== ==== ====
Earnings per common share
Basic
Continuing operations $2.81 $2.62 $8.54 $7.66
Discontinued operations(2) - 0.10 - 0.10
--- ---- --- ----
Basic earnings per common share $2.81 $2.72 $8.54 $7.76
===== ===== ===== =====
Diluted
Continuing operations $2.76 $2.57 $8.39 $7.54
Discontinued operations(2) - 0.09 - 0.09
--- ---- --- ----
Diluted earnings per common share $2.76 $2.66 $8.39 $7.63
===== ===== ===== =====
Weighted average shares outstanding
Basic 316.3 321.3 317.4 321.3
Diluted 321.8 327.5 323.0 326.6
Common shares reported in stockholders' equity at end of period 314 318
(1) The Corporation closes its books
and records on the last Sunday of
the calendar quarter, which was
on Sept. 28 for the third quarter
of 2014 and Sept. 29 for the
third quarter of 2013, to align
its financial closing with its
business processes. The
consolidated financial statements
and tables of financial
information included herein are
labeled based on that convention.
This practice only affects
interim periods, as the
Corporation's fiscal year ends on
Dec. 31.
(2) Discontinued operations for the
third quarter and first nine
months of 2013 include a benefit
resulting from the resolution of
certain tax matters related to a
business sold prior to 2013.
Lockheed Martin Corporation
Business Segment Summary Operating Results
(unaudited; in millions)
Quarters Ended Nine Months Ended
-------------- -----------------
Sept. 28, Sept. 29, % Change Sept. 28, Sept. 29, % Change
2014 2013 2014 2013
---- ---- ---- ----
Net sales
Aeronautics $3,544 $3,632 (2)% $10,785 $10,225 5%
Information Systems & Global Solutions 1,949 2,059 (5)% 5,800 6,266 (7)%
Missiles and Fire Control 1,908 2,003 (5)% 5,666 6,034 (6)%
Mission Systems and Training 1,679 1,698 (1)% 5,078 5,298 (4)%
Space Systems 2,034 1,955 4% 5,741 6,002 (4)%
----- ----- ----- -----
Total net sales $11,114 $11,347 (2)% $33,070 $33,825 (2)%
======= ======= ======= =======
Operating profit
Aeronautics $362 $412 (12)% $1,208 $1,198 1%
Information Systems & Global Solutions 175 187 (6)% 524 570 (8)%
Missiles and Fire Control 335 356 (6)% 1,038 1,081 (4)%
Mission Systems and Training 193 216 (11)% 628 692 (9)%
Space Systems 281 284 (1)% 783 790 (1)%
--- --- --- ---
Total business segment operating profit 1,346 1,455 (7)% 4,181 4,331 (3)%
Unallocated, net
FAS/CAS pension adjustment
FAS pension expense (258) (487) (885) (1,461)
Less: CAS pension cost 342 366 1,140 1,099
--- --- ----- -----
FAS/CAS pension income (expense) 84 (121) 255 (362)
Special item - severance charges - - - (30)
Stock-based compensation (31) (38) (128) (150)
Other, net (7) (42) (58) (118)
--- --- --- ----
Total unallocated, net 46 (201) N/M 69 (660) N/M
--- ---- --- ----
Total consolidated operating profit $1,392 $1,254 11% $4,250 $3,671 16%
====== ====== ====== ======
Operating margins
Aeronautics 10.2% 11.3% 11.2% 11.7%
Information Systems & Global Solutions 9.0% 9.1% 9.0% 9.1%
Missiles and Fire Control 17.6% 17.8% 18.3% 17.9%
Mission Systems and Training 11.5% 12.7% 12.4% 13.1%
Space Systems 13.8% 14.5% 13.6% 13.2%
Total business segment operating margins 12.1% 12.8% 12.6% 12.8%
Total consolidated operating margins 12.5% 11.1% 12.9% 10.9%
Lockheed Martin Corporation
Consolidated Balance Sheets
(unaudited; in millions, except
par value)
Sept. 28, Dec. 31,
2014 2013
---- ----
Assets
Current assets
Cash and cash equivalents $2,963 $2,617
Receivables, net 6,081 5,834
Inventories, net 2,898 2,977
Deferred income taxes 1,183 1,088
Other current assets 559 813
--- ---
Total current assets 13,684 13,329
Property, plant, and equipment,
net 4,590 4,706
Goodwill 10,774 10,348
Deferred income taxes 2,954 2,850
Other noncurrent assets 4,931 4,955
----- -----
Total assets $36,933 $36,188
======= =======
Liabilities and stockholders'
equity
Current liabilities
Accounts payable $2,000 $1,397
Customer advances and amounts
in excess of costs incurred 5,904 6,349
Salaries, benefits, and payroll
taxes 1,919 1,809
Other current liabilities 2,310 1,565
----- -----
Total current liabilities 12,133 11,120
Accrued pension liabilities 9,556 9,361
Other postretirement benefit
liabilities 901 902
Long-term debt, net 6,165 6,152
Other noncurrent liabilities 3,604 3,735
----- -----
Total liabilities 32,359 31,270
Stockholders' equity
Common stock, $1 par value per
share 314 319
Additional paid-in capital - -
Retained earnings 14,124 14,200
Accumulated other comprehensive
loss (9,864) (9,601)
------ ------
Total stockholders' equity 4,574 4,918
----- -----
Total liabilities and
stockholders' equity $36,933 $36,188
======= =======
Lockheed Martin Corporation
Consolidated Statements of Cash Flows
(unaudited; in millions)
Nine Months Ended
-----------------
Sept. 28, Sept. 29,
2014 2013
---- ----
Operating activities
Net earnings $2,710 $2,493
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 726 704
Stock-based compensation 128 150
Special item - severance charges - 30
Changes in assets and liabilities
Receivables, net (231) (310)
Inventories, net 66 18
Accounts payable 596 (119)
Customer advances and amounts in excess of costs incurred (458) (157)
Postretirement benefit plans (96) (20)
Income taxes 270 690
Other, net 356 129
--- ---
Net cash provided by operating activities(1) 4,067 3,608
----- -----
Investing activities
Capital expenditures (456) (491)
Acquisitions of businesses and investments in affiliates (622) (266)
Other, net 14 (27)
--- ---
Net cash used for investing activities (1,064) (784)
------ ----
Financing activities
Repurchases of common stock (1,676) (1,533)
Proceeds from stock option exercises 278 749
Dividends paid (1,286) (1,112)
Repayments of long-term debt - (150)
Other, net 27 (15)
--- ---
Net cash used for financing activities (2,657) (2,061)
------ ------
Net change in cash and cash equivalents 346 763
Cash and cash equivalents at beginning of period 2,617 1,898
----- -----
Cash and cash equivalents at end of period $2,963 $2,661
====== ======
(1) The Corporation made contributions to its defined benefit pension trust of $1.0 billion during the first nine months of 2014,
compared to $1.5 billion during the first nine months of 2013. Additionally, the Corporation made net tax payments of
$1.0 billion during the first nine months of 2014, compared to $387 million during the first nine months of 2013.
Lockheed Martin Corporation
Consolidated Statement of Stockholders' Equity
(unaudited; in millions)
Accumulated
Additional Other Total
Common Paid-In Retained Comprehensive Stockholders'
Stock Capital Earnings Loss Equity
----- ------- -------- ---- ------
Balance at Dec. 31, 2013 $319 $ - $14,200 $(9,601) $4,918
Net earnings - - 2,710 - 2,710
Other comprehensive loss, net of tax(1) - - - (263) (263)
Repurchases of common stock (10) (643) (1,023) - (1,676)
Dividends declared(2) - - (1,763) - (1,763)
Stock-based awards and ESOP activity 5 643 - - 648
Balance at Sept. 28, 2014 $314 $ - $14,124 $(9,864) $4,574
==== ============== ======= ======= ======
(1) The Corporation recognized a non-
cash, after-tax decrease to
stockholders' equity of $735 million,
as a result of the re-measurements
of the assets and benefit obligations
related to substantially all of its
defined benefit pension plans in the
second quarter of 2014. This decrease
primarily was due to the
incorporation of the new participant
longevity assumptions (also known as
mortality), a reduction in the
discount rate from 4.75% at Dec. 31,
2013 to 4.25% at the re-measurement
date, partially offset by the impact
of the amendments of certain of the
Corporation's qualified and
nonqualified defined benefit pension
plans for non-union employees to
freeze future retirement benefits.
Partially offsetting the re-
measurement decrease was an increase
of $520 million related to the
recognition of previously deferred
amounts.
(2) Represents dividends of $1.33 per
share declared during each of the
first, second and third quarters of
2014. Additionally, includes
dividends of $1.50 per share declared
in the third quarter of 2014 and
payable in the fourth quarter of
2014.
Lockheed Martin Corporation
Operating Data
(unaudited; in millions, except aircraft
deliveries)
Backlog Sept. 28, Dec. 31,
2014 2013
---- ----
Aeronautics $23,300 $28,000
Information Systems &
Global Solutions 8,000 8,300
Missiles and Fire
Control 12,800 15,000
Mission Systems and
Training 12,200 10,800
Space Systems 20,200 20,500
Total backlog $76,500 $82,600
======= =======
Quarters Ended Nine Months Ended
-------------- -----------------
Aircraft Deliveries Sept. 28, Sept. 29, Sept. 28, Sept. 29,
2014 2013 2014 2013
---- ---- ---- ----
F-16 3 2 11 9
F-35 8 10 22 22
C-130J 5 8 16 19
C-5 2 1 6 2
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SOURCE Lockheed Martin
