Releases

Lockheed Martin Reports Second Quarter 2018 Results
- Net sales of $13.4 billion
- Net earnings of $1.2 billion, or $4.05 per share
- Achieved backlog of $105 billion
- Increases 2018 financial outlook for all metrics

BETHESDA, Md., July 24, 2018 /PRNewswire/ -- Lockheed Martin (NYSE: LMT) today reported second quarter 2018 net sales of $13.4 billion, compared to $12.6 billion in the second quarter of 2017. Net earnings in the second quarter of 2018 was $1.2 billion, or $4.05 per share, compared to $955 million, or $3.28 per share, in the second quarter of 2017. Net earnings in the second quarter of 2018 include special charges for severance and restructuring activities of $96 million, which reduced net earnings by $76 million, or $0.26 per share. Cash used for operations in the second quarter of 2018 was $(72) million after pension contributions of $2.0 billion, compared to cash from operations of $1.5 billion in the second quarter of 2017, with no pension contributions.

Lockheed Martin Logo.  (PRNewsFoto/Lockheed Martin)

"The corporation achieved strong results in the second quarter, allowing us to increase our financial guidance for sales, profit, earnings per share and cash from operations," said Lockheed Martin Chairman, President and CEO Marillyn Hewson. "Our team remains dedicated to performing with excellence, providing affordable and innovative solutions for our customers, and generating outstanding value for our shareholders."

Adoption of New Accounting Standards

As previously reported, effective Jan. 1, 2018, the corporation adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, as amended (commonly referred to as ASC 606), which changed the way the corporation recognizes revenue for certain contracts. In addition, effective Jan. 1, 2018, the corporation adopted ASU 2017-07, Compensation-Retirement Benefits, which changed the income statement presentation of certain components of pension and other postretirement benefit plan expense. The financial results for all periods presented in this news release have been adjusted to reflect the new methods of accounting.

Summary Financial Results

The following table presents the corporation's summary financial results.

 

(in millions, except per share data)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

 

$

13,398

   

$

12,563

   

$

25,033

   

$

23,775

   
                     
 

Business segment operating profit1

 

$

1,466

   

$

1,347

   

$

2,776

   

$

2,438

   
 

Unallocated items

                 
 

   FAS/CAS operating adjustment

 

451

   

404

   

902

   

807

   
 

   Special item - severance and
      restructuring charges2

 

(96)

   

   

(96)

   

   
 

   Other, net

 

(26)

   

(35)

   

(62)

   

(127)

   
 

Total unallocated items

 

329

   

369

   

744

   

680

   
 

Consolidated operating profit

 

$

1,795

   

$

1,716

   

$

3,520

   

$

3,118

   
                     
 

Net earnings2

 

$

1,163

   

$

955

   

$

2,320

   

$

1,744

   
                     
 

Diluted earnings per share2

 

$

4.05

   

$

3.28

   

$

8.07

   

$

5.97

   
                     
 

Cash (used for) generated from
   operations3

 

$

(72)

   

$

1,544

   

$

560

   

$

3,210

   
                     

1

Business segment operating profit is a non-GAAP measure. See the Non-GAAP Financial Measures section of this news release for more information.

 

2

Unallocated items for the second quarter and the first six months of 2018 includes severance and restructuring charges totaling $96 million ($76 million,
or $0.26 per share, after tax) associated with planned workforce reductions and the consolidation of certain operations at the corporation's Rotary and
Mission Systems (RMS) business segment.

 

3

Cash from operations in the second quarter and first six months of 2018 is after pension contributions of $2.0 billion and $3.5 billion, respectively.

 

 

2018 Financial Outlook

 

The following tables 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 new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the corporation's actual results, refer to the "Forward-Looking Statements" section in this news release.

 

(in millions, except per share data)

 

Current Update

 

April Outlook

 
             
 

Net sales

 

$51,600 – $53,100

 

$50,350 – $51,850

 
             
 

Business segment operating profit

 

$5,575 – $5,725

 

$5,315 – $5,465

 
             
 

Net FAS/CAS pension adjustment1

 

~$1,010

 

~$1,010

 
             
 

Diluted earnings per share

 

$16.75 – $17.05

 

$15.80 – $16.10

 
             
 

Cash from operations

 

≥ $3,300

 

≥ $3,000

 
             

1

Consistent with the corporation's historical presentation, the net FAS/CAS pension adjustment is presented as a single amount and includes expected 2018 U.S. Government cost accounting standards (CAS) pension cost of approximately $2.4 billion and expected financial accounting standards (FAS) pension expense of approximately $1.4 billion. CAS pension cost and the service cost component of FAS pension expense will be included in operating profit as part of cost of sales. The non-service cost component of FAS pension expense will be included in non-operating expense on the corporation's consolidated statement of earnings. For additional detail on the corporation's FAS/CAS pension adjustment see the supplemental table included on page 19 of this news release.

 

 

Cash Deployment Activities

The corporation's cash deployment activities in the second quarter of 2018 consisted of the following:

  • making contributions to its pension trust of $2.0 billion, compared to no contributions in the second quarter of 2017;
  • repurchasing 1.0 million shares for $310 million, compared to 1.9 million shares for $500 million in the second quarter of 2017;
  • paying cash dividends of $570 million, compared to $525 million in the second quarter of 2017; and
  • making capital expenditures of $264 million, compared to $278 million in the second quarter of 2017.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), RMS and Space. The following table presents summary operating results of the corporation's business segments and reconciles these amounts to the corporation's consolidated financial results.

 

(in millions)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

                 
 

Aeronautics

 

$

5,321

   

$

4,922

   

$

9,719

   

$

9,042

   
 

Missiles and Fire Control

 

2,085

   

1,784

   

3,762

   

3,333

   
 

Rotary and Mission Systems

 

3,566

   

3,414

   

6,789

   

6,541

   
 

Space

 

2,426

   

2,443

   

4,763

   

4,859

   
 

Total net sales

 

$

13,398

   

$

12,563

   

$

25,033

   

$

23,775

   
                     
 

Operating profit

                 
 

Aeronautics

 

$

572

   

$

567

   

$

1,046

   

$

1,006

   
 

Missiles and Fire Control

 

279

   

253

   

540

   

487

   
 

Rotary and Mission Systems

 

341

   

271

   

652

   

399

   
 

Space

 

274

   

256

   

538

   

546

   
 

Total business segment operating profit

 

1,466

   

1,347

   

2,776

   

2,438

   
 

Unallocated items

                 
 

   FAS/CAS operating adjustment

 

451

   

404

   

902

   

807

   
 

   Special item - severance and restructuring
      charges

 

(96)

   

   

(96)

   

   
 

   Other, net

 

(26)

   

(35)

   

(62)

   

(127)

   
 

Total unallocated items

 

329

   

369

   

744

   

680

   
 

Total consolidated operating profit

 

$

1,795

   

$

1,716

   

$

3,520

   

$

3,118

   
                     

 

Net sales of the business segments exclude intersegment sales as these activities are eliminated in consolidation. Operating profit of the business segments includes the corporation's share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the corporation's business segments. In addition, operating profit of the corporation's business segments includes total pension costs recoverable on U.S. Government contracts as determined in accordance with CAS.

Operating profit of the business segments excludes the FAS/CAS operating adjustment, which represents the difference between the service cost component of pension expense recorded in accordance with FAS and CAS pension cost; the FAS non-service cost component for all postretirement benefit plans, which is recorded in other non-operating expense, net; 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 certain asset impairments; gains or losses from significant 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 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 margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation's contracts for which it recognizes revenue over a period of time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; certain asset impairments; and losses on sales of certain assets.

The corporation's consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 32 percent of total segment operating profit in the second quarter of 2018, compared to approximately 38 percent in the second quarter of 2017.

Aeronautics

 

(in millions)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

 

$

5,321

   

$

4,922

   

$

9,719

   

$

9,042

   
 

Operating profit

 

$

572

   

$

567

   

$

1,046

   

$

1,006

   
 

Operating margin

 

10.7

%

 

11.5

%

 

10.8

%

 

11.1

%

 

 

Aeronautics' net sales in the second quarter of 2018 increased $399 million, or 8 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $370 million for the F-35 program due to increased production volume, partially offset by lower volume on development activities; and about $50 million for the F-22 program due to increased sustainment volume. These increases were partially offset by a decrease of approximately $70 million for the C-5 program due to lower production volume as the current modernization program nears completion.

Aeronautics' operating profit in the second quarter of 2018 increased $5 million, or 1 percent, compared to the same period in 2017. Operating profit increased approximately $65 million for the F-35 program primarily due to increased volume on higher margin production contracts and new development activities, and better performance on sustainment. This increase was partially offset by a decrease of approximately $40 million for the C-5 program due to lower risk retirements and lower production volume; and about $20 million for the C-130 program due to lower volume and timing on sustainment programs. Adjustments not related to volume, including net profit booking rate adjustments, were $50 million lower in the second quarter of 2018 compared to the same period in 2017.

Missiles and Fire Control

 

(in millions)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

 

$

2,085

   

$

1,784

   

$

3,762

   

$

3,333

   
 

Operating profit

 

$

279

   

$

253

   

$

540

   

$

487

   
 

Operating margin

 

13.4

%

 

14.2

%

 

14.4

%

 

14.6

%

 

 

MFC's net sales in the second quarter of 2018 increased $301 million, or 17 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $95 million for increased volume on classified programs; about $80 million for air and missile defense programs due to increased volume (primarily Terminal High Altitude Area Defense (THAAD) and Patriot Advanced Capability-3 (PAC-3)); about $70 million for sensors and global sustainment programs due to increased volume (primarily LANTIRN® and SNIPER®); and about $45 million for tactical missiles programs due to increased volume (primarily Precision Fires).

MFC's operating profit in the second quarter of 2018 increased $26 million, or 10 percent, compared to the same period in 2017. Operating profit increased approximately $35 million for sensors and global sustainment programs due to increased risk retirements and higher volume (primarily LANTIRN® and SNIPER®); and about $35 million for air and missile defense programs due to increased risk retirements and higher volume (primarily THAAD and PAC-3). These increases were partially offset by a decrease of $50 million for tactical missile programs primarily due to a charge recorded in the second quarter of 2018 of approximately $65 million for performance matters on the Warrior Capability Sustainment Program, which relates to designing, developing and installing an upgraded turret. Adjustments not related to volume, including net profit booking rate adjustments, were comparable in the second quarter of 2018 to the same period in 2017.

Rotary and Mission Systems

 

(in millions)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

 

$

3,566

   

$

3,414

   

$

6,789

   

$

6,541

   
 

Operating profit

 

$

341

   

$

271

   

$

652

   

$

399

   
 

Operating margin

 

9.6

%

 

7.9

%

 

9.6

%

 

6.1

%

 

 

RMS' net sales in the second quarter of 2018 increased $152 million, or 4 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $180 million for integrated warfare systems and sensors (IWSS) programs due to higher volume (primarily radar surveillance systems programs and Aegis); and about $105 million for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume on various programs. These increases were partially offset by a decrease in net sales of approximately $105 million for Sikorsky helicopter programs. Sikorsky helicopter sales reflect lower volume for Black Hawk helicopters, partially offset by higher volume for CH-53K King Stallion helicopters.

RMS' operating profit in the second quarter of 2018 increased $70 million, or 26 percent, compared to the same period in 2017. Operating profit increased approximately $40 million for IWSS programs due to increased risk retirements and higher volume (primarily radar surveillance systems programs and Aegis); and about $30 million for C6ISR programs due to favorable cost performance and higher volume on various programs. Operating profit increased about $10 million for Sikorsky helicopter programs due to favorable cost performance across the Sikorsky portfolio and better performance on the Multi-Year IX contract, which more than offset lower volume on the Multi-Year VIII contract. Adjustments not related to volume, including net profit booking rate adjustments, were about $20 million lower in the second quarter of 2018 compared to the same period in 2017.

Space

 

(in millions)

 

Quarters Ended

 

Six Months Ended

 
     

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
 

Net sales

 

$

2,426

   

$

2,443

   

$

4,763

   

$

4,859

   
 

Operating profit

 

$

274

   

$

256

   

$

538

   

$

546

   
 

Operating margin

 

11.3

%

 

10.5

%

 

11.3

%

 

11.2

%

 

 

Space's net sales in the second quarter of 2018 decreased $17 million, or 1 percent, compared to the same period in 2017. The decrease was primarily attributable to lower net sales of approximately $60 million for government satellite programs due to lower volume (primarily Advanced Extremely High Frequency systems (AEHF)); and about $20 million for commercial satellite programs due to lower volume. These decreases were partially offset by an increase of approximately $65 million for strategic and missile defense programs due to higher volume (primarily AWE Management Limited (AWE)).

Space's operating profit in the second quarter of 2018 increased $18 million, or 7 percent, compared to the same period in 2017. Operating profit increased approximately $25 million for strategic and missile defense programs due to increased risk retirements (primarily Fleet Ballistic Missiles); and about $25 million for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters on certain programs. These increases were partially offset by a decrease of approximately $30 million for government satellite programs due to lower risk retirements and lower volume (primarily AEHF). Adjustments not related to volume, including net profit booking rate adjustments, were about $15 million higher in the second quarter of 2018, compared to the same period in 2017.

Total equity earnings recognized by Space (primarily ULA) represented approximately $50 million, or 18 percent, of Space's operating profit in the second quarter of 2018, compared to approximately $45 million, or 18 percent, in the second quarter of 2017.

Income Taxes

The corporation's effective income tax rate was 18.1 percent in the second quarter of 2018, compared to 28.8 percent in the second quarter of 2017. The lower rate for the second quarter of 2018 is primarily due to the reduction of the federal statutory rate from 35% to 21% as a result of the Tax Cuts and Jobs Act (the Tax Act) enacted in December 2017. The rates for both periods benefited from tax deductions for dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature, tax deductions for employee equity awards, and the research and development tax credit. The rate for the second quarter of 2018 benefited from the Tax Act's deduction for foreign derived intangible income. The rate for the second quarter of 2017 also benefited from tax deductions for U.S. manufacturing activities, which the Tax Act repealed for years after 2017.

Use of Non-GAAP Financial Measures

This news release contains the following non-generally accepted accounting principles (GAAP) financial measures (as defined by U.S. Securities and Exchange Commission Regulation G). While the corporation believes that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed Martin, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP. In addition, the corporation's definitions for non-GAAP financial measures may differ from similarly titled measures used by other companies or analysts.

Business segment operating profit represents the total earnings from the corporation's business segments before unallocated income and expense, interest expense, other non-operating income and expenses, and income tax expense. This measure is used by the corporation's senior management in evaluating the performance of its business segments and is a performance goal in the corporation's annual incentive plan. The table below reconciles the non-GAAP measure business segment operating profit with the most directly comparable GAAP financial measure, consolidated operating profit.

 

(in millions)

 

2018 Financial Outlook

 
     

Current Update

 

April Outlook

 
             
 

Business segment operating profit (non-GAAP)

 

$5,575 – $5,725

 

$5,315 – $5,465

 
 

FAS/CAS operating adjustment1

 

~1,805

 

~1,805

 
 

Other, net2, 3

 

~(270)

 

~(175)

 
 

Consolidated operating profit (GAAP)

 

$7,110 – $7,260

 

$6,945 – $7,095

 
             

1

Refer to the supplemental table on page 19 of this news release for a detail of the FAS/CAS operating adjustment, which excludes $795 million of expected non-service cost that will be recorded in other non-operating expense, net in accordance with ASU 2017-07.

 

2

Other, net presented above previously included $75 million of expected non-service cost related to the corporation's non-qualified and other postretirement benefit plans, which is recorded in other non-operating expense, net in accordance with ASU 2017-07.

 

3

Other, net included in the Current Update above includes severance and restructuring charges totaling $96 million recorded during the second quarter of 2018 associated with planned workforce reductions and the consolidation of certain operations at the corporation's RMS business segment.

 

 

Conference Call Information

Lockheed Martin will webcast live its second quarter 2018 earnings results conference call (listen-only mode) on Tuesday, July 24, 2018, at 11:00 a.m. ET. The live webcast and relevant financial charts will be available for download on the Lockheed Martin Investor Relations website at www.lockheedmartin.com/investor.

For additional information, visit our website: www.lockheedmartin.com.

About Lockheed Martin

Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 100,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

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 corporation's reliance on contracts with the U.S. Government, which are conditioned upon the availability of funding and can be terminated by the U.S. Government for convenience, and the corporation's ability to negotiate favorable contract terms;
  • budget uncertainty; affordability initiatives; the risk of future sequestration under the Budget Control Act of 2011 or other budget cuts;
  • risks related to the development, production, sustainment, performance, schedule, cost and requirements of complex and technologically advanced programs including the corporation's largest, the F-35 program;
  • economic, industry, business and political conditions including their effects on governmental policy (including trade policy and sanctions);
  • the corporation's success expanding into and doing business in adjacent markets and internationally; the differing risks posed by international sales, including those involving commercial relationships with unfamiliar customers and different cultures; our ability to recover investments, which is frequently dependent upon the successful operation of ventures that we do not control; and changes in foreign national priorities, and foreign government budgets;
  • the competitive environment for the corporation's products and services, including increased pricing pressures, competition from outside the aerospace and defense industry, and increased bid protests;
  • planned production rates for significant programs; compliance with stringent performance and reliability standards; materials availability;
  • the performance and financial viability of key suppliers, teammates, ventures, venture partners, subcontractors and customers;
  • the timing and customer acceptance of product deliveries;
  • the corporation's ability to continue to innovate and develop new products and to attract and retain key personnel and transfer knowledge to new personnel; the impact of work stoppages or other labor disruptions;
  • the impact of cyber or other security threats or other disruptions to the corporation's businesses;
  • the corporation's ability to implement and continue capitalization changes such as share repurchases and dividend payments, pension funding as well as the pace and effect of any such capitalization changes;
  • the corporation's ability to recover certain costs under U.S. Government contracts and changes in contract mix;
  • the accuracy of the corporation's estimates and projections;
  • movements in interest rates and other changes that may affect pension plan assumptions, equity, the level of the FAS/CAS adjustment and actual returns on pension plan assets;
  • realizing the anticipated benefits of acquisitions or divestitures, ventures, teaming arrangements or internal reorganizations, and the corporation's efforts to increase the efficiency of its operations and improve the affordability of its products and services;
  • risk of an impairment of goodwill, investments or other long-term assets, including the potential impairment of goodwill, intangible assets and inventory recorded as a result of the acquisition of the Sikorsky business and the potential impairment of our equity investment in Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC);
  • the adequacy of the corporation's insurance and indemnities;
  • the effect of changes in (or the interpretation of): legislation, regulation or policy, including those applicable to procurement (including aggressive government positions seeking intellectual property and broad license rights to use and have others use such intellectual property), cost allowability or recovery, accounting, taxation (including the impact of the Tax Cuts and Jobs Act), or export; and
  • the outcome of legal proceedings, bid protests, environmental remediation efforts, government investigations or government allegations that we have failed to comply with law, other contingencies and U.S. Government identification of deficiencies in the corporation's business systems.

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 U.S. Securities and Exchange Commission (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, 2017 and subsequent 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, 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

 

Six Months Ended

 
   

June 24,
2018

 

June 25,
2017

 

June 24,
2018

 

June 25,
2017

 
                   

Net sales

 

$           13,398

 

$           12,563

 

$           25,033

 

$           23,775

 
                   

Cost of sales

 

(11,645)

 

(10,907)

 

(21,622)

 

(20,713)

 
                   

Gross profit

 

1,753

 

1,656

 

3,411

 

3,062

 
                   

Other income, net

 

42

 

60

 

109

 

56

 
                   

Operating profit

 

1,795

 

1,716

 

3,520

 

3,118

 
                   

Interest expense

 

(165)

 

(160)

 

(320)

 

(315)

 
                   

Other non-operating expense, net 

 

(210)

 

(214)

 

(420)

 

(426)

 
                   

Earnings before income taxes

 

1,420

 

1,342

 

2,780

 

2,377

 
                   

Income tax expense

 

(257)

 

(387)

 

(460)

 

(633)

 
                   

Net earnings

 

$             1,163

 

$                955

 

$             2,320

 

$             1,744

 
                   

   Effective tax rate

 

18.1

%

28.8

%

16.5

%

26.6

%

                   

Earnings per common share

                 

   Basic

 

$               4.08

 

$               3.31

 

$               8.13

 

$               6.03

 

   Diluted

 

$               4.05

 

$               3.28

 

$               8.07

 

$               5.97

 
                   

Weighted average shares outstanding

                 

   Basic

 

285.0

 

288.5

 

285.2

 

289.2

 

   Diluted

 

287.1

 

291.2

 

287.5

 

292.0

 
                   

Common shares reported in stockholders' equity at end of period

         

283

 

286

 
                   

The corporation closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its business

 

   processes, which was on June 24 for the second quarter of 2018 and June 25 for the second quarter of 2017. 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.

                 

 

 

 

Lockheed Martin Corporation

                               

Business Segment Summary Operating Results

                             

(unaudited; in millions)

                               
                                 
   

Quarters Ended

         

Six Months Ended

       
   

June 24,
2018

 

June 25,
2017

   

% Change

 

June 24,
2018

 

June 25,
2017

   

% Change

Net sales 

                               

  Aeronautics

 

$      5,321

 

$      4,922

   

8

%

 

$       9,719

 

$       9,042

   

7

%

  Missiles and Fire Control

 

2,085

 

1,784

   

17

%

 

3,762

 

3,333

   

13

%

  Rotary and Mission Systems

 

3,566

 

3,414

   

4

%

 

6,789

 

6,541

   

4

%

  Space

 

2,426

 

2,443

   

(1)

%

 

4,763

 

4,859

   

(2)

%

     Total net sales

 

$     13,398

 

$     12,563

   

7

%

 

$     25,033

 

$     23,775

   

5

%

                                 

Operating profit 

                               

  Aeronautics

 

$         572

 

$         567

   

1

%

 

$       1,046

 

$       1,006

   

4

%

  Missiles and Fire Control

 

279

 

253

   

10

%

 

540

 

487

   

11

%

  Rotary and Mission Systems

 

341

 

271

   

26

%

 

652

 

399

   

63

%

  Space

 

274

 

256

   

7

%

 

538

 

546

   

(1)

%

     Total business segment operating profit

 

1,466

 

1,347

   

9

%

 

2,776

 

2,438

   

14

%

Unallocated items

                               

  FAS/CAS operating adjustment

 

451

 

404

         

902

 

807

       

  Special item - severance and restructuring charges1

(96)

 

-

         

(96)

 

-

       

  Other, net

 

(26)

 

(35)

         

(62)

 

(127)

       

Total unallocated items

 

329

 

369

   

(11)

%

 

744

 

680

   

9

%

     Total consolidated operating profit

 

$      1,795

 

$      1,716

   

5

%

 

$       3,520

 

$       3,118

   

13

%

                                 

Operating margin

                               

  Aeronautics

 

10.7

%

11.5

%

       

10.8

%

11.1

%

     

  Missiles and Fire Control

 

13.4

%

14.2

%

       

14.4

%

14.6

%

     

  Rotary and Mission Systems

 

9.6

%

7.9

%

       

9.6

%

6.1

%

     

  Space

 

11.3

%

10.5

%

       

11.3

%

11.2

%

     

     Total business segment operating margin

 

10.9

%

10.7

%

       

11.1

%

10.3

%

     
                                 

     Total consolidated operating margin

 

13.4

%

13.7

%

       

14.1

%

13.1

%

     
                                 

1  Unallocated items for the second quarter and the first six months of 2018 include severance and restructuring charges totaling $96 million

       

   ($76 million, or $0.26 per share, after tax) associated with planned workforce reductions and the consolidation of certain operations at the

       

   corporation's Rotary and Mission Systems (RMS) business segment.

       

 

 

 

Lockheed Martin Corporation

       

Consolidated Balance Sheets

       

(unaudited; in millions, except par value)

       
         
         
         
   

June 24,
2018

 

Dec. 31,
2017

Assets

       

Current assets

       

  Cash and cash equivalents

 

$              1,181

 

$              2,861

  Receivables, net

 

2,482

 

2,265

  Contract assets

 

9,281

 

7,992

  Inventories

 

3,038

 

2,878

  Other current assets

 

522

 

1,509

    Total current assets

 

16,504

 

17,505

         

Property, plant and equipment, net

 

5,786

 

5,775

Goodwill 

 

10,781

 

10,807

Intangible assets, net

 

3,646

 

3,797

Deferred income taxes

 

3,051

 

3,156

Other noncurrent assets

 

5,357

 

5,580

      Total assets

 

$            45,125

 

$            46,620

         

Liabilities and equity

       

Current liabilities

       

  Accounts payable

 

$              2,675

 

$              1,467

  Contract liabilities

 

6,413

 

7,028

  Salaries, benefits and payroll taxes

 

2,051

 

1,785

  Current maturities of long-term debt

 

750

 

750

  Other current liabilities

 

1,992

 

1,883

      Total current liabilities

 

13,881

 

12,913

         

Long-term debt, net

 

13,479

 

13,513

Accrued pension liabilities

 

12,196

 

15,703

Other postretirement benefit liabilities

 

706

 

719

Other noncurrent liabilities

 

4,384

 

4,548

      Total liabilities

 

44,646

 

47,396

         

Stockholders' equity

       

  Common stock, $1 par value per share

 

283

 

284

  Additional paid-in capital

 

-

 

-

  Retained earnings

 

14,528

 

11,405

  Accumulated other comprehensive loss

 

(14,395)

 

(12,539)

      Total stockholders' equity (deficit)

 

416

 

(850)

  Noncontrolling interests in subsidiary

 

63

 

74

      Total equity (deficit)

 

479

 

(776)

      Total liabilities and equity

 

$            45,125

 

$            46,620

 

 

 

Lockheed Martin Corporation

     

Consolidated Statements of Cash Flows

     

(unaudited; in millions)

     
       
       
 

Six Months Ended

 

June 24,
2018

 

June 25,
2017

       

Operating activities

     

Net earnings

$           2,320

 

$           1,744

Adjustments to reconcile net earnings to net cash provided by operating activities

     

  Depreciation and amortization

566

 

581

  Stock-based compensation

98

 

101

  Severance and restructuring charges

96

 

-

  Changes in assets and liabilities

     

        Receivables, net

(217)

 

(619)

        Contract assets

(1,289)

 

(170)

        Inventories

(160)

 

(38)

        Accounts payable

1,224

 

940

        Contract liabilities

(615)

 

(388)

        Postretirement benefit plans

(2,790)

 

685

        Income taxes

928

 

3

      Other, net

399

 

371

      Net cash provided by operating activities

560

 

3,210

       

Investing activities

     

Capital expenditures

(480)

 

(448)

Other, net

151

 

9

      Net cash used for investing activities

(329)

 

(439)

       

Financing activities

     

Dividends paid

(1,156)

 

(1,069)

Repurchases of common stock

(610)

 

(1,000)

Other, net

(145)

 

(87)

      Net cash used for financing activities

(1,911)

 

(2,156)

       

Net change in cash and cash equivalents

(1,680)

 

615

Cash and cash equivalents at beginning of period

2,861

 

1,837

Cash and cash equivalents at end of period

$           1,181

 

$           2,452

 

 

 

Lockheed Martin Corporation

                         

Consolidated Statement of Equity

                         

(unaudited; in millions)

                         
                           
             

Accumulated

           
     

Additional

     

Other

 

Total

 

Noncontrolling

   
 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

Stockholders'

 

Interests

 

Total

 

Stock

 

Capital

 

Earnings

 

Loss

 

Equity

 

in Subsidiary

 

Equity

                           
                           

Balance at Dec. 31, 2017

$             284

 

$            -

 

$        11,405

 

$         (12,539)

 

$              (850)

 

$            74

 

$              (776)

                           

Net earnings

-

 

-

 

2,320

 

-

 

2,320

 

-

 

2,320

                           

Other comprehensive income, net of tax1

-

 

-

 

-

 

552

 

552

 

-

 

552

                           

Repurchases of common stock 

(2)

 

(161)

 

(460)

 

-

 

(623)

 

-

 

(623)

                           

Dividends declared2

-

 

-

 

(1,145)

 

-

 

(1,145)

 

-

 

(1,145)

                           

Stock-based awards, ESOP activity and other

1

 

161

 

-

 

-

 

162

 

-

 

162

                           

Reclassification of effects from tax reform3

-

 

-

 

2,408

 

(2,408)

 

-

 

-

 

-

                           

Net decrease in noncontrolling interests in subsidiary

-

 

-

 

-

 

-

 

-

 

(11)

 

(11)

                           
                           

Balance at June 24, 2018

$             283

 

$            -

 

$        14,528

 

$         (14,395)

 

$               416

 

$            63

 

$               479

                           
                           
                           

1  Primarily represents the reclassification adjustment for the recognition of prior period amounts related to pension and other postretirement benefit plans.

       
                           

2  Represents dividends of $2.00 per share declared for the first and second quarters of 2018. On June 28, 2018, subsequent to the end of the 

       

    corporation's second quarter, the corporation declared its third quarter dividend of $2.00 per share.

               
                           

3  In the first quarter of 2018, the corporation adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification

       

    of Certain Tax Effects from Accumulated Other Comprehensive Income. Accordingly, the corporation reclassified the stranded income tax effects in

       

    accumulated other comprehensive loss resulting from the Tax Cuts and Jobs Act to retained earnings.
 

               
                           

 

 

 

Lockheed Martin Corporation

               

Other Financial and Operating Information

             

(unaudited; in millions, except for deliveries)

             
                   
             

2018
Outlook

 

2017
Actual

Total FAS expense and CAS costs

               

FAS pension expense

           

$       (1,425)

 

$       (1,372)

Less: CAS pension cost

         

2,435

 

2,248

Net FAS/CAS pension adjustment

         

$        1,010

 

$           876

                   

Service and non-service cost reconciliation

             

FAS pension service cost

         

$          (630)

 

$          (635)

Less: CAS pension cost

         

2,435

 

2,248

FAS/CAS operating adjustment

         

1,805

 

1,613

Non-operating FAS pension expense

         

(795)

 

(737)

Net FAS/CAS pension adjustment

         

$        1,010

 

$           876

                   

Backlog

           

June 24,
2018

 

Dec. 31,
2017

Aeronautics

           

$       36,639

 

$       35,692

Missiles and Fire Control

         

19,167

 

17,729

Rotary and Mission Systems

         

29,106

 

30,030

Space

           

20,091

 

22,042

  Total backlog

           

$     105,003

 

$     105,493

                   
   

Quarters Ended

   

Six Months Ended

Aircraft Deliveries 

 

June 24,
2018

 

June 25,
2017

   

June 24,
2018

 

June 25,
2017

F-35

 

25

 

14

   

39

 

29

F-16 

 

-

 

3

   

-

 

5

C-130J

 

8

 

6

   

11

 

11

C-5

 

2

 

3

   

3

 

4

Government helicopter programs 

29

 

39

   

47

 

71

Commercial helicopter programs 

-

 

3

   

1

 

3

International military helicopter programs

-

 

-

   

1

 

1

 

 

 

 

SOURCE Lockheed Martin

For further information: Media Contact: Bill Phelps, 301-897-6308; william.phelps@lmco.com; Investor Relations Contacts: Greg Gardner, 301-897-6584; greg.m.gardner@lmco.com; Kelly Stevens, 301-897-6455; kelly.stevens@lmco.com