Releases

Lockheed Martin Reports Third Quarter 2018 Results
- Net sales of $14.3 billion
- Net earnings of $1.5 billion, or $5.14 per share
- Increased quarterly dividend rate to $2.20 per share
- Increased share repurchase authority by $1.0 billion
- Achieved backlog of $109 billion
- Updates 2018 financial outlook and provides financial trend information for 2019

 

BETHESDA, Md., Oct. 23, 2018 /PRNewswire/ -- Lockheed Martin (NYSE: LMT) today reported third quarter 2018 net sales of $14.3 billion, compared to $12.3 billion in the third quarter of 2017. Net earnings in the third quarter of 2018 were $1.5 billion, or $5.14 per share, compared to $963 million, or $3.32 per share, in the third quarter of 2017. Cash from operations in the third quarter of 2018 was $361 million after pension contributions of $1.5 billion, compared to cash from operations of $1.8 billion in the third quarter of 2017, with no pension contributions.

"Our team achieved another quarter of strong growth leading us to improve our expectations for our full-year financial results," said Lockheed Martin Chairman, President and CEO Marillyn Hewson. "As we look ahead to 2019, we remain focused on providing innovative, essential solutions to customers, and continuing to generate growth and long-term value for 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

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

 

$

14,318

   

$

12,341

   

$

39,351

   

$

36,116

   
                     
 

Business segment operating profit1

 

$

1,586

   

$

1,287

   

$

4,362

   

$

3,725

   
 

Unallocated items

                 
 

FAS/CAS operating adjustment

 

451

   

403

   

1,353

   

1,210

   
 

Special item - severance and
   restructuring charges2

 

   

   

(96)

   

   
 

Other, net

 

(74)

   

(13)

   

(136)

   

(140)

   
 

Total unallocated items

 

377

   

390

   

1,121

   

1,070

   
 

Consolidated operating profit

 

$

1,963

   

$

1,677

   

$

5,483

   

$

4,795

   
                     
 

Net earnings

 

$

1,473

   

$

963

   

$

3,793

   

$

2,707

   
                     
 

Diluted earnings per share

 

$

5.14

   

$

3.32

   

$

13.21

   

$

9.29

   
                     
 

Cash generated from operations3

 

$

361

   

$

1,754

   

$

921

   

$

4,964

   
                     

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 first nine months of 2018 includes the previously announced 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.

 

3

Cash from operations in the third quarter and the first nine months of 2018 is after pension contributions of $1.5 billion and $5.0 billion, respectively.

 

 

2018 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 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

 

July Outlook

 
             
 

Net sales

 

~$53,000

 

$51,600 – $53,100

 
             
 

Business segment operating profit

 

~$5,800

 

$5,575 – $5,725

 
             
 

Net FAS/CAS pension adjustment1

 

~$1,010

 

~$1,010

 
             
 

Diluted earnings per share

 

~$17.50

 

$16.75 – $17.05

 
             
 

Cash from operations

 

≥ $3,400

 

≥ $3,300

 
             

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 at the end of this news release.

 

2019 Financial Trends

The corporation expects its 2019 net sales to increase by approximately 5.0 percent to 6.0 percent as compared to the 2018 outlook. Total business segment operating margin in 2019 is expected to be in the 10.5 percent to 10.8 percent range and cash from operations is expected to be greater than or equal to $7.0 billion. The preliminary outlook for 2019 assumes the U.S. Government continues to support and fund the corporation's key programs. Changes in circumstances may require the corporation to revise its assumptions, which could materially change its current estimate of 2019 net sales, operating margin and cash flows.

The corporation expects the net 2019 FAS/CAS pension benefit to be approximately $1.5 billion assuming a 4.125 percent discount rate (a 50 basis point increase from the end of 2017), a 1.00 percent return on plan assets in 2018, and a 7.00 percent expected long-term rate of return on plan assets in future years (a 50 basis point decrease from the end of 2017), among other assumptions. As a result of the $5.0 billion in contributions to its qualified defined benefit pension plans in 2018 the corporation does not expect to make contributions to its qualified defined benefit pension plans in 2019. 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 net 2019 FAS/CAS pension adjustment. A change of plus or minus 100 basis points to the return on plan assets in 2018 only, with all other assumptions held constant, would increase or decrease the net 2019 FAS/CAS pension adjustment by approximately $20 million. The corporation will finalize the postretirement benefit plan assumptions and determine the 2018 actual return on plan assets on Dec. 31, 2018. The final assumptions and actual investment return for 2018 may differ materially from those discussed above.

Cash Activities

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

  • making contributions to its pension trust of $1.5 billion, compared to no contributions in the third quarter of 2017;
  • paying cash dividends of $569 million, compared to $522 million in the third quarter of 2017;
  • repurchasing 0.6 million shares for $216 million, compared to 1.6 million shares for $500 million in the third quarter of 2017;
  • making capital expenditures of $339 million, compared to $222 million in the third quarter of 2017 and;
  • receiving net proceeds of $490 million for issuance of commercial paper, compared to no net proceeds in the third quarter of 2017.

As previously reported on Sept. 27, 2018, the corporation increased its quarterly dividend by $0.20 per share, to $2.20 per share, beginning with the dividend payment in the fourth quarter of 2018. The corporation also increased its share repurchase authority by $1.0 billion with $3.7 billion in total remaining authorization for future common share repurchases under the program as of Sept. 30, 2018.

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. During the third quarter of 2018 the corporation realigned certain programs among the lines of business at MFC. The amounts discussed and presented for the MFC lines of business results reflect this realignment for all periods presented. 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

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

                 
 

Aeronautics

 

$

5,642

   

$

4,716

   

$

15,361

   

$

13,758

   
 

Missiles and Fire Control

 

2,273

   

1,957

   

6,035

   

5,290

   
 

Rotary and Mission Systems

 

3,848

   

3,363

   

10,637

   

9,904

   
 

Space

 

2,555

   

2,305

   

7,318

   

7,164

   
 

Total net sales

 

$

14,318

   

$

12,341

   

$

39,351

   

$

36,116

   
                     
 

Operating profit

                 
 

Aeronautics

 

$

600

   

$

513

   

$

1,646

   

$

1,519

   
 

Missiles and Fire Control

 

332

   

298

   

872

   

785

   
 

Rotary and Mission Systems

 

361

   

257

   

1,013

   

656

   
 

Space

 

293

   

219

   

831

   

765

   
 

Total business segment operating profit

 

1,586

   

1,287

   

4,362

   

3,725

   
 

Unallocated items

                 
 

FAS/CAS operating adjustment

 

451

   

403

   

1,353

   

1,210

   
 

Special item - severance and restructuring
   charges

 

   

   

(96)

   

   
 

Other, net

 

(74)

   

(13)

   

(136)

   

(140)

   
 

Total unallocated items

 

377

   

390

   

1,121

   

1,070

   
 

Total consolidated operating profit

 

$

1,963

   

$

1,677

   

$

5,483

   

$

4,795

   
                     

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 adjustment from CAS to the FAS service cost component for all other postretirement benefit plans; 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 34 percent of total segment operating profit in the third quarter of 2018, compared to approximately 28 percent in the third quarter of 2017.

Aeronautics

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

 

$

5,642

   

$

4,716

   

$

15,361

   

$

13,758

   
 

Operating profit

 

$

600

   

$

513

   

$

1,646

   

$

1,519

   
 

Operating margin

 

10.6

%

 

10.9

%

 

10.7

%

 

11.0

%

 

Aeronautics' net sales in the third quarter of 2018 increased $926 million, or 20 percent, compared to the same period in 2017. The increase was primarily attributable to an increase of approximately $655 million for the F-35 program due to increased volume on production and sustainment, partially offset by lower volume on development activities; about $105 million for other programs due to higher volume (primarily advanced development programs (ADP)); about $70 million for the F-16 program due to increased volume on modernization contracts; and about $50 million for the F-22 program due to increased sustainment volume.

Aeronautics' operating profit in the third quarter of 2018 increased $87 million, or 17 percent, compared to the same period in 2017. Operating profit increased approximately $155 million for the F-35 program primarily due to increased volume on higher margin production contracts and new development activities, better performance on sustainment, and higher risk retirements on production contracts. This increase was partially offset by a decrease of about $50 million for the F-16 program due to lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments, were about $10 million lower in the third quarter of 2018 compared to the same period in 2017.

Missiles and Fire Control

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

 

$

2,273

   

$

1,957

   

$

6,035

   

$

5,290

   
 

Operating profit

 

$

332

   

$

298

   

$

872

   

$

785

   
 

Operating margin

 

14.6

%

 

15.2

%

 

14.4

%

 

14.8

%

 

MFC's net sales in the third quarter of 2018 increased $316 million, or 16 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $295 million for tactical and strike missiles programs due to increased volume (primarily classified programs and precision fires) and about $115 million for sensors and global sustainment programs due to increased volume (primarily LANTIRN®, SNIPER®, and Apache). These increases were partially offset by a decrease of approximately $75 million for integrated air and missile defense programs due to lower volume (primarily Terminal High Altitude Area Defense (THAAD)).

MFC's operating profit in the third quarter of 2018 increased $34 million, or 11 percent, compared to the same period in 2017. Operating profit increased approximately $55 million for sensors and global sustainment programs due to increased risk retirements and increased volume (primarily LANTIRN, SNIPER, and Apache); and about $45 million for tactical and strike missiles programs due to reserves which were recorded in 2017 but did not recur in 2018 (primarily Joint Air-to-Ground Missile (JAGM)) and higher volume (primarily precision fires). These increases were partially offset by a decrease of approximately $50 million for integrated air and missile defense programs due to lower volume and lower risk retirements (primarily THAAD). Adjustments not related to volume, including net profit booking rate adjustments, were about $90 million higher in the third quarter of 2018 to the same period in 2017.

Rotary and Mission Systems

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

 

$

3,848

   

$

3,363

   

$

10,637

   

$

9,904

   
 

Operating profit

 

$

361

   

$

257

   

$

1,013

   

$

656

   
 

Operating margin

 

9.4

%

 

7.6

%

 

9.5

%

 

6.6

%

 

RMS' net sales in the third quarter of 2018 increased $485 million, or 14 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $250 million for integrated warfare systems and sensors (IWSS) programs due to higher volume (primarily radar surveillance systems programs and Multi Mission Surface Combatant); about $115 million for C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume on multiple programs; and about $100 million for Sikorsky helicopter programs due to higher volume for CH-53K King Stallion helicopters and higher volume for mission systems programs, partially offset by lower volume for Black Hawk helicopters.

RMS' operating profit in the third quarter of 2018 increased $104 million, or 40 percent, compared to the same period in 2017. Operating profit increased approximately $85 million for IWSS programs primarily due to a reduction in charges for performance matters (primarily vertical launching system (VLS)) and due to increased risk retirements (primarily radar surveillance systems programs); and about $20 million for Sikorsky helicopter programs due to better cost performance across the Sikorsky portfolio and better performance on the Multi-Year IX contract. Adjustments not related to volume, including net profit booking rate adjustments, were about $50 million higher in the third quarter of 2018 compared to the same period in 2017.

Space

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
 

Net sales

 

$

2,555

   

$

2,305

   

$

7,318

   

$

7,164

   
 

Operating profit

 

$

293

   

$

219

   

$

831

   

$

765

   
 

Operating margin

 

11.5

%

 

9.5

%

 

11.4

%

 

10.7

%

 

Space's net sales in the third quarter of 2018 increased $250 million, or 11 percent, compared to the same period in 2017. The increase was primarily attributable to higher net sales of approximately $120 million for government satellite programs due to higher volume (primarily Space Based Infrared System (SBIRS) and government satellite services); about $85 million for strategic and missile defense programs due to higher volume (primarily Fleet Ballistic Missiles and AWE Management Limited (AWE)); and about $50 million for the Orion program due to higher volume.

Space's operating profit in the third quarter of 2018 increased $74 million, or 34 percent, compared to the same period in 2017. Operating profit increased approximately $80 million for government satellite programs due to a reduction in charges and higher volume (primarily SBIRS and government satellite services). Adjustments not related to volume, including net profit booking rate adjustments, were about $50 million higher in the third quarter of 2018, compared to the same period in 2017.

Total equity earnings recognized by Space (primarily ULA) represented approximately $45 million, or 15 percent, of Space's operating profit in the third quarter of 2018, compared to approximately $45 million, or 21 percent, in the third quarter of 2017.

Income Taxes

The corporation's effective income tax rate was 6.5 percent in the third quarter of 2018, compared to 25.8 percent in the third quarter of 2017. The lower rate for the third quarter of 2018 was primarily due to the reduction of the federal statutory rate from 35 percent to 21 percent and the deduction for foreign derived intangible income, both as a result of the Tax Cuts and Jobs Act (the Tax Act) enacted in Dec. 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 third quarter of 2018 benefited from the corporation's change in a tax accounting method recorded discretely in this quarter, reflecting a 2012 Court of Federal Claims decision, which held that the tax basis in certain assets should be increased and realized upon the assets' disposition. The rate for the third quarter of 2017 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. Business segment operating margin is calculated by dividing business segment operating profit by sales. 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

 

July Outlook

 
             
 

Business segment operating profit (non-GAAP)

 

~$5,800

 

$5,575 – $5,725

 
 

FAS/CAS operating adjustment1

 

~1,805

 

~1,805

 
 

Other, net

 

~(275)

 

~(270)

 
 

Consolidated operating profit (GAAP)

 

~$7,330

 

$7,110 – $7,260

 
             

1

Refer to the supplemental table "Other Financial and Operating Information" 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.

 

Conference Call Information

Lockheed Martin will webcast live its third quarter 2018 earnings results conference call (listen-only mode) on Tuesday, Oct. 23, 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 legislation, the effect of which is to temporarily prohibit deliveries of F-35s to Turkey until certain conditions are met (although not affecting payments to the corporation), or other trade policies or 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; its ability to recover investments, which is frequently dependent upon the successful operation of ventures that it does 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, aggressive pricing in the absence of cost realism evaluation criteria, 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 and intangible assets, 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 its 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 in the interpretation of) procurement and other regulations and policies affecting the corporation's industry, including export, cost allowability or recovery, aggressive government positions with respect to the use and ownership of intellectual property and potential changes to the Department of Defense's acquisition regulations relating to progress payments and performance-based payments;
  • the effect of changes in accounting, taxation (including the impact of the Tax Cuts and Jobs Act), or export regulations; and
  • the outcome of legal proceedings, bid protests, environmental remediation efforts, government investigations or government allegations that the corporation has 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

 

Nine Months Ended

 
   

Sept. 30,
2018

 

Sept. 24,
2017

 

Sept. 30,
2018

 

Sept. 24,
2017

 
                   

Net sales

 

$           14,318

 

$           12,341

 

$           39,351

 

$           36,116

 
                   

Cost of sales

 

(12,397)

 

(10,741)

 

(34,019)

 

(31,454)

 
                   

Gross profit

 

1,921

 

1,600

 

5,332

 

4,662

 
                   

Other income, net

 

42

 

77

 

151

 

133

 
                   

Operating profit

 

1,963

 

1,677

 

5,483

 

4,795

 
                   

Interest expense

 

(177)

 

(162)

 

(497)

 

(477)

 
                   

Other non-operating expense, net 

 

(211)

 

(218)

 

(631)

 

(644)

 
                   

Earnings before income taxes

 

1,575

 

1,297

 

4,355

 

3,674

 
                   

Income tax expense

 

(102)

 

(334)

 

(562)

 

(967)

 
                   

Net earnings

 

$             1,473

 

$                963

 

$             3,793

 

$             2,707

 
                   

   Effective tax rate

 

6.5

%

25.8

%

12.9

%

26.3

%

                   

Earnings per common share

                 

   Basic

 

$               5.18

 

$               3.35

 

$             13.31

 

$               9.38

 

   Diluted

 

$               5.14

 

$               3.32

 

$             13.21

 

$               9.29

 
                   

Weighted average shares outstanding

                 

   Basic

 

284.3

 

287.1

 

284.9

 

288.5

 

   Diluted

 

286.7

 

290.0

 

287.2

 

291.3

 
                   

Common shares reported in stockholders' equity at end of period

         

283

 

285

 
                   

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 Sept. 30 for the third quarter of 2018 and Sept. 24 for the third 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

         

Nine Months Ended

       
   

Sept. 30,
2018

 

Sept. 24,
2017

   

% Change

 

Sept. 30,
2018

 

Sept. 24,
2017

   

% Change

Net sales 

                               

  Aeronautics

 

$      5,642

 

$      4,716

   

20

%

 

$     15,361

 

$     13,758

   

12

%

  Missiles and Fire Control

 

2,273

 

1,957

   

16

%

 

6,035

 

5,290

   

14

%

  Rotary and Mission Systems

 

3,848

 

3,363

   

14

%

 

10,637

 

9,904

   

7

%

  Space

 

2,555

 

2,305

   

11

%

 

7,318

 

7,164

   

2

%

     Total net sales

 

$     14,318

 

$     12,341

   

16

%

 

$     39,351

 

$     36,116

   

9

%

                                 

Operating profit 

                               

  Aeronautics

 

$         600

 

$         513

   

17

%

 

$       1,646

 

$       1,519

   

8

%

  Missiles and Fire Control

 

332

 

298

   

11

%

 

872

 

785

   

11

%

  Rotary and Mission Systems

 

361

 

257

   

40

%

 

1,013

 

656

   

54

%

  Space

 

293

 

219

   

34

%

 

831

 

765

   

9

%

     Total business segment operating profit

 

1,586

 

1,287

   

23

%

 

4,362

 

3,725

   

17

%

Unallocated items

                               

  FAS/CAS operating adjustment

 

451

 

403

         

1,353

 

1,210

       

  Special item - severance and restructuring charges1

-

 

-

         

(96)

 

-

       

  Other, net

 

(74)

 

(13)

         

(136)

 

(140)

       

Total unallocated items

 

377

 

390

   

(3)

%

 

1,121

 

1,070

   

5

%

     Total consolidated operating profit

 

$      1,963

 

$      1,677

   

17

%

 

$       5,483

 

$       4,795

   

14

%

                                 

Operating margin

                               

  Aeronautics

 

10.6

%

10.9

%

       

10.7

%

11.0

%

     

  Missiles and Fire Control

 

14.6

%

15.2

%

       

14.4

%

14.8

%

     

  Rotary and Mission Systems

 

9.4

%

7.6

%

       

9.5

%

6.6

%

     

  Space

 

11.5

%

9.5

%

       

11.4

%

10.7

%

     

     Total business segment operating margin

 

11.1

%

10.4

%

       

11.1

%

10.3

%

     
                                 

     Total consolidated operating margin

 

13.7

%

13.6

%

       

13.9

%

13.3

%

     
                                 

1  Unallocated items include severance and restructuring charges totaling $96 million ($76 million, or $0.26 per share, after tax),

       

    which was recorded in the second quarter of 2018 and is 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)

       
         
         
         
   

Sept. 30,
2018

 

Dec. 31,
2017

Assets

       

Current assets

       

  Cash and cash equivalents

 

$                 897

 

$              2,861

  Receivables, net

 

2,416

 

2,265

  Contract assets

 

9,769

 

7,992

  Inventories

 

3,050

 

2,878

  Other current assets

 

727

 

1,509

    Total current assets

 

16,859

 

17,505

         

Property, plant and equipment, net

 

5,902

 

5,775

Goodwill 

 

10,788

 

10,807

Intangible assets, net

 

3,570

 

3,797

Deferred income taxes

 

3,036

 

3,156

Other noncurrent assets

 

5,340

 

5,580

      Total assets

 

$            45,495

 

$            46,620

         

Liabilities and equity

       

Current liabilities

       

  Accounts payable

 

$              2,691

 

$              1,467

  Contract liabilities

 

6,489

 

7,028

  Salaries, benefits and payroll taxes

 

2,165

 

1,785

  Current maturities of long-term debt and commercial paper

 

1,240

 

750

  Other current liabilities

 

2,619

 

1,883

      Total current liabilities

 

15,204

 

12,913

         

Long-term debt, net

 

13,486

 

13,513

Accrued pension liabilities

 

10,692

 

15,703

Other postretirement benefit liabilities

 

700

 

719

Other noncurrent liabilities

 

4,411

 

4,548

      Total liabilities

 

44,493

 

47,396

         

Stockholders' equity

       

  Common stock, $1 par value per share

 

283

 

284

  Additional paid-in capital

 

-

 

-

  Retained earnings

 

14,737

 

11,405

  Accumulated other comprehensive loss

 

(14,077)

 

(12,539)

      Total stockholders' equity (deficit)

 

943

 

(850)

  Noncontrolling interests in subsidiary

 

59

 

74

      Total equity (deficit)

 

1,002

 

(776)

      Total liabilities and equity

 

$            45,495

 

$            46,620

 

 

Lockheed Martin Corporation

     

Consolidated Statements of Cash Flows

     

(unaudited; in millions)

     
       
       
 

Nine Months Ended

 

Sept. 30,
2018

 

Sept. 24,
2017

       

Operating activities

     

Net earnings

$           3,793

 

$           2,707

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

     

  Depreciation and amortization

857

 

880

  Stock-based compensation

148

 

133

  Severance and restructuring charges

96

 

-

  Changes in assets and liabilities

     

      Receivables, net

(151)

 

(834)

      Contract assets

(1,777)

 

(228)

      Inventories

(172)

 

(66)

      Accounts payable

1,237

 

1,229

      Contract liabilities

(539)

 

(492)

      Postretirement benefit plans

(3,935)

 

1,012

      Income taxes

729

 

(202)

  Other, net

635

 

825

      Net cash provided by operating activities

921

 

4,964

       

Investing activities

     

Capital expenditures

(819)

 

(670)

Other, net

146

 

15

      Net cash used for investing activities

(673)

 

(655)

       

Financing activities

     

Dividends paid

(1,725)

 

(1,591)

Repurchases of common stock

(826)

 

(1,500)

Proceeds from issuance of commercial paper, net

490

 

-

Other, net

(151)

 

(114)

      Net cash used for financing activities

(2,212)

 

(3,205)

       

Net change in cash and cash equivalents

(1,964)

 

1,104

Cash and cash equivalents at beginning of period

2,861

 

1,837

Cash and cash equivalents at end of period

$              897

 

$           2,941

 

 

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

-

 

-

 

3,793

 

-

 

3,793

 

-

 

3,793

                           

Other comprehensive income, net of tax1

-

 

-

 

-

 

870

 

870

 

-

 

870

                           

Repurchases of common stock 

(3)

 

(300)

 

(523)

 

-

 

(826)

 

-

 

(826)

                           

Dividends declared2

-

 

-

 

(2,346)

 

-

 

(2,346)

 

-

 

(2,346)

                           

Stock-based awards, ESOP activity and other

2

 

300

 

-

 

-

 

302

 

-

 

302

                           

Reclassification of effects from tax reform3

-

 

-

 

2,408

 

(2,408)

 

-

 

-

 

-

                           

Net decrease in noncontrolling interests in subsidiary

-

 

-

 

-

 

-

 

-

 

(15)

 

(15)

                           

Balance at Sept. 30, 2018

$             283

 

$            -

 

$        14,737

 

$         (14,077)

 

$               943

 

$            59

 

$            1,002

                           
                           

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, second and third quarters of 2018 and dividends of $2.20 per share declared for the

       

    fourth quarter of 2018.

                         
                           

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 expense1

         

(795)

 

(737)

Net FAS/CAS pension adjustment

         

$        1,010

 

$           876

                   

1 The corporation records the non-service cost components of net periodic benefit cost as part of other non-
   operating expense, net in the consolidated statement of earnings. The non-service cost components in the
   table above relate only to the corporation's qualified defined benefit pension plans. The corporation expects
   total non-service costs for its qualified defined benefit pension plans in the table above, along with non-service
   costs for its other postretirement benefit plans of $70 million, to total $865 million for 2018. The corporation
   recorded non-service costs for its other postretirement benefit plans of $109 million in 2017, in addition to its
   total non-service costs for its qualified defined benefit pension plans in the table above, for a total of $846
   million in 2017.

                   

Backlog

           

Sept. 30,
2018

 

Dec. 31,
2017

Aeronautics

           

$       36,766

 

$       35,692

Missiles and Fire Control

         

19,930

 

17,729

Rotary and Mission Systems

         

29,214

 

30,030

Space

           

23,281

 

22,042

  Total backlog

           

$     109,191

 

$     105,493

                   
   

Quarters Ended

   

Nine Months Ended

Aircraft Deliveries 

 

Sept. 30,
2018

 

Sept. 24,
2017

   

Sept. 30,
2018

 

Sept. 24,
2017

F-35

 

20

 

15

   

59

 

44

F-16 

 

-

 

2

   

-

 

7

C-130J

 

7

 

5

   

18

 

16

C-5

 

1

 

1

   

4

 

5

Government helicopter programs 

28

 

39

   

75

 

110

Commercial helicopter programs 

1

 

-

   

2

 

3

International military helicopter programs

4

 

2

   

5

 

3

 

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