Releases

Lockheed Martin Reports Third Quarter 2014 Results
-- Net sales decreased 2 percent to $11.1 billion
-- Net earnings from continuing operations increased 5 percent to $888 million, or $2.76 per diluted share
-- Generated cash from operations of $990 million
-- Increased quarterly dividend rate 13 percent to $1.50 per share
-- Updates 2014 outlook and provides trend information for 2015
PR Newswire
BETHESDA, Md.

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,
2014



Sept. 29,
2013



Sept. 28,
2014



Sept. 29,
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 operations2






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 operations2






0.09







0.09




Diluted earnings per share


$

2.76



$

2.66



$

8.39



$

7.63























Cash from operations3


$

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 income1

~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 operations2


>/= $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, 2013



Sept. 28, 2014



Sept. 29, 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, 2014



Sept. 29, 2013



Sept. 28, 2014



Sept. 29, 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, 2014



Sept. 29, 2013



Sept. 28, 2014



Sept. 29, 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, 2014



Sept. 29, 2013



Sept. 28, 2014



Sept. 29, 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, 2014



Sept. 29, 2013



Sept. 28, 2014



Sept. 29, 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, 2014



Sept. 29, 2013



Sept. 28, 2014



Sept. 29, 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 Earnings1










(unaudited; in millions, except per share data)
































Quarters Ended


Nine Months Ended














Sept. 28,
2014


Sept. 29,
2013


Sept. 28,
2014


Sept. 29,
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 operations2


-


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 operations2


-


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 operations2


-


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,
2014


Sept. 29,
2013



% Change


Sept. 28,
2014


Sept. 29,
2013



% Change

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,
2014


Dec. 31,
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,
2014


Sept. 29,
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 activities1

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 tax1

-


-


-


(263)


(263)











Repurchases of common stock 

(10)


(643)


(1,023)


-


(1,676)











Dividends declared2

-


-


(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,
2014


Dec. 31,
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,
2014


Sept. 29,
2013



Sept. 28,
2014


Sept. 29,
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