Releases

Lockheed Martin Reports Third Quarter 2019 Results
- Net sales of $15.2 billion
- Net earnings of $1.6 billion, or $5.66 per share
- Generated cash from operations of $2.5 billion
- Achieved record backlog of $137.4 billion
- Increased quarterly dividend rate to $2.40 per share
- Increased share repurchase authority by $1.0 billion
- Updates 2019 financial outlook and provides 2020 financial trends

BETHESDA, Md., Oct. 22, 2019 /PRNewswire/ -- Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2019 net sales of $15.2 billion, compared to $14.3 billion in the third quarter of 2018. Net earnings in the third quarter of 2019 were $1.6 billion, or $5.66 per share, compared to $1.5 billion, or $5.14 per share, in the third quarter of 2018. Cash from operations in the third quarter of 2019 was $2.5 billion, compared to cash from operations of $361 million after pension contributions of $1.5 billion in the third quarter of 2018.

"The corporation achieved another quarter of strong growth and outstanding operational performance," said Lockheed Martin Chairman, President and CEO Marillyn Hewson. "As we look ahead to 2020, we remain focused on providing innovative solutions for our customers, investing for long-term growth, and generating value for our shareholders."

Summary Financial Results

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

 

(in millions, except per share data)

 

Quarters Ended2

 

Nine Months Ended2

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

 

$

15,171

   

$

14,318

   

$

43,934

   

$

39,351

   
                     
 

Business segment operating profit1

 

$

1,665

   

$

1,586

   

$

4,934

   

$

4,362

   
 

Unallocated items

                 
 

FAS/CAS operating adjustment

 

513

   

451

   

1,537

   

1,353

   
 

Severance and restructuring charges3

 

   

   

   

(96)

   
 

Other, net4

 

(73)

   

(74)

   

(75)

   

(136)

   
 

Total unallocated items

 

440

   

377

   

1,462

   

1,121

   
 

Consolidated operating profit

 

$

2,105

   

$

1,963

   

$

6,396

   

$

5,483

   
                     
 

Net earnings5

 

$

1,608

   

$

1,473

   

$

4,732

   

$

3,793

   
                     
 

Diluted earnings per share

 

$

5.66

   

$

5.14

   

$

16.66

   

$

13.21

   
                     
 

Cash generated from operations6

 

$

2,490

   

$

361

   

$

5,821

   

$

921

   
                     

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

For the quarter ended Sept. 29, 2019, the corporation's accounting period included 13 weeks compared to 14 weeks for the quarter ended
Sept. 30, 2018. For the first nine months of 2019 and 2018, the corporation's accounting period included 39 weeks.

 

3

In the first nine months of 2018, the corporation recognized 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 business segment.

 

4

In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per
share, after tax) related to properties sold in 2015 as a result of completing its remaining obligations.

 

5

Net earnings for the quarter and the first nine months of 2019 include benefits of $62 million ($0.22 per share) and $127 million ($0.45 per
share), respectively, for additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment
based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method. Net earnings for the quarter and
the first nine months of 2018 include benefits of $148 million ($0.52 per share) and $152 million ($0.53 per share), respectively, for additional
tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted
on Dec. 22, 2017 and our change in tax accounting method. See the "Income Taxes" section for further discussion.

 

6

Cash from operations in the third quarter of 2018 is after pension contributions of $1.5 billion. Cash from operations in the first nine months
of 2018 is after pension contributions $5.0 billion and includes $870 million of tax refunds. The corporation made no pension contributions
in 2019.

 
     

2019 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 typical practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law, or 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 Update3

 

July Outlook

 
             
 

Net sales

 

~$59,100

 

$58,250 - $59,750

 
             
 

Business segment operating profit

 

~$6,425

 

$6,325 - $6,475

 
             
 

Net FAS/CAS pension adjustment1

 

~$1,475

 

~$1,475

 
             
 

Diluted earnings per share2

 

~$21.55

 

$20.85 - $21.15

 
             
 

Cash from operations

 

≥$7,600

 

≥$7,600

 
             

1

The net FAS/CAS pension adjustment above is presented as a single amount and includes expected 2019 U.S. Government cost

accounting standards (CAS) pension cost of approximately $2,565 million and expected financial accounting standards (FAS) pension

expense of approximately $1,090 million. CAS pension cost and the service cost component of FAS pension expense is included in

operating profit as part of cost of sales. The non-service cost components of FAS pension expense are included in other non-operating

expense, net in the corporation's consolidated statements 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.

 

2

Although the corporation typically does not update its outlook for proposed changes in law, the above includes the effect of proposed tax

regulations confirming that foreign military sales (FMS) qualify for tax deductions for foreign derived intangible income. The corporation

believes incorporating the effect of the proposed regulations yields more accurate disclosure of the company's expectations because the

proposed regulations describe the tax treatment of FMS sales in accordance with the corporation's analysis of the Internal Revenue Code.

 

3

The corporation's financial outlook for 2019 does not include potential impacts to the corporation's programs, including the F-35 program,

resulting from U.S. Government actions related to Turkey or potential financial impacts related to the U.S. Government operating under a

continuing resolution funding measure. During periods covered by continuing resolutions or until the regular appropriations bills are

passed, the corporation may experience delays in procurement of products and services due to lack of funding, and those delays may

affect its results of operations. The corporation currently does not expect either of these events to have an impact on its 2019

financial results.

 

2020 Financial Trends

The corporation expects its 2020 net sales to increase to approximately $62.0 billion. Total business segment operating margin in 2020 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 $7.2 billion, net of $500 million of pension contributions. The preliminary outlook for 2020 assumes there is no impact from U.S. Government actions related to Turkey and 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 the corporation's current estimate of 2020 net sales, operating margin and cash flows.

The corporation currently expects a total net FAS/CAS pension benefit of approximately $2.1 billion in 2020. This estimate assumes a 3.25 percent discount rate (a 100 basis point decrease from the end of 2018), a 15.00 percent return on plan assets in 2019, and a 7.00 percent expected long-term rate of return on plan assets in future years, among other assumptions. 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 $15 million to the estimated net 2020 FAS/CAS pension benefit. The impact of changes in the discount rate is significantly less than in prior years (i.e., $15 million for 2020 compared to $120 million for 2019) due to the expected completion of the planned freeze of the corporation's salaried pension plans that was previously announced on July 1, 2014, which is discussed in further detail below. A change of 100 basis points to the return on plan assets in 2019, with all other assumptions held constant, would impact the net 2020 FAS/CAS pension benefit by approximately $15 million. As noted above, the corporation expects to make contributions of approximately $500 million to its qualified defined benefit pension plans in 2020 and anticipates recovering approximately $2.2 billion of CAS pension cost. The corporation will complete the annual remeasurement of its postretirement benefit plans and update its estimated 2020 FAS/CAS pension adjustment on Dec. 31, 2019. The final assumptions and actual investment return for 2019 may differ materially from those discussed above.

As previously announced on July 1, 2014, the corporation will complete the final step of the planned freeze of its qualified and nonqualified defined benefit pension plans for salaried employees effective Jan. 1, 2020. The service-based component of the formula used to determine retirement benefits will be frozen such that participants will no longer earn further credited service for any period after Dec. 31, 2019. As a result of these changes, the plans will be fully frozen effective Jan. 1, 2020. Retirees already collecting benefits and former employees with a vested benefit will not be affected by the change. Current employees also will retain all benefits already earned in their pension plan to date.

Cash Activities

The corporation's cash activities in the third quarter of 2019 included the following:

  • paying cash dividends of $621 million, compared to $569 million in the third quarter of 2018;
  • repurchasing 0.6 million shares for $210 million, compared to 0.6 million shares for $216 million in the third quarter of 2018;
  • making capital expenditures of $308 million, compared to $339 million in the third quarter of 2018;
  • no net proceeds from or repayments of commercial paper, compared to net proceeds of $490 million in the third quarter of 2018; and
  • making no pension contributions, compared to pension contributions of $1.5 billion in the third quarter of 2018.

As previously reported on Sept. 26, 2019, the corporation increased its quarterly dividend by $0.20 per share, to $2.40 per share, beginning with the dividend payment in the fourth quarter of 2019. The corporation also increased its share repurchase authority by $1.0 billion with $3.3 billion in total remaining authorization for future repurchases of common stock under the program as of Sept. 29, 2019.

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), Rotary and Mission Systems (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

 

Nine Months Ended

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

                 
 

Aeronautics

 

$

6,178

   

$

5,642

   

$

17,312

   

$

15,361

   
 

Missiles and Fire Control

 

2,601

   

2,273

   

7,362

   

6,035

   
 

Rotary and Mission Systems

 

3,709

   

3,848

   

11,239

   

10,637

   
 

Space

 

2,683

   

2,555

   

8,021

   

7,318

   
 

Total net sales

 

$

15,171

   

$

14,318

   

$

43,934

   

$

39,351

   
                     
 

Operating profit

                 
 

Aeronautics

 

$

665

   

$

600

   

$

1,842

   

$

1,646

   
 

Missiles and Fire Control

 

349

   

332

   

1,093

   

872

   
 

Rotary and Mission Systems

 

342

   

361

   

1,068

   

1,013

   
 

Space

 

309

   

293

   

931

   

831

   
 

Total business segment operating profit

 

1,665

   

1,586

   

4,934

   

4,362

   
 

Unallocated items

                 
 

FAS/CAS operating adjustment

 

513

   

451

   

1,537

   

1,353

   
 

Severance and restructuring charges

 

   

   

   

(96)

   
 

Other, net

 

(73)

   

(74)

   

(75)

   

(136)

   
 

Total unallocated items

 

440

   

377

   

1,462

   

1,121

   
 

Total consolidated operating profit

 

$

2,105

   

$

1,963

   

$

6,396

   

$

5,483

   
                     

Net sales and operating profit of the corporation's business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation's business segments includes the corporation's share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.

Operating profit of the corporation's business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management's evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.

The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segment's net sales and cost of sales. The corporation's consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS pension expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension cost component is included in other non‑operating expense, net on the corporation's consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).

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 margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation's contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in 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 29 percent of total segment operating profit in the third quarter of 2019 as compared to 34 percent in the third quarter of 2018.

Aeronautics

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

 

$

6,178

   

$

5,642

   

$

17,312

   

$

15,361

   
 

Operating profit

 

$

665

   

$

600

   

$

1,842

   

$

1,646

   
 

Operating margin

 

10.8

%

 

10.6

%

 

10.6

%

 

10.7

%

 

Aeronautics' net sales in the third quarter of 2019 increased $536 million, or 10 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $480 million for the F-35 program due to increased volume on production, development and sustainment contracts and about $80 million for classified development programs due to higher volume.

Aeronautics' operating profit in the third quarter of 2019 increased $65 million, or 11 percent, compared to the same period in 2018. Operating profit increased approximately $35 million for the F-16 program due to higher risk retirements on sustainment contracts, and about $20 million for the F-35 program due to increased volume on production, development, and sustainment contracts, partially offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable during the third quarter of 2019 compared to the same period in 2018.

Missiles and Fire Control

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

 

$

2,601

   

$

2,273

   

$

7,362

   

$

6,035

   
 

Operating profit

 

$

349

   

$

332

   

$

1,093

   

$

872

   
 

Operating margin

 

13.4

%

 

14.6

%

 

14.8

%

 

14.4

%

 

MFC's net sales in the third quarter of 2019 increased $328 million, or 14 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $200 million for tactical and strike missile programs due to increased volume (primarily precision fires and new hypersonic development programs); and about $120 million for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)).

MFC's operating profit in the third quarter of 2019 increased $17 million, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $45 million due to higher risk retirements on energy programs and about $15 million for integrated air and missile defense programs due to higher risk retirements and higher volume (primarily THAAD and PAC-3), partially offset by charges for performance matters on an air and missile defense development program. These increases were partially offset by a decrease of approximately $40 million for sensors and global sustainment programs due to lower risk retirements (primarily Low Altitude Navigation and Targeting Infrared for Night (LANTIRN®) and Sniper Advanced Targeting Pod (SNIPER®)). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were $30 million lower in the third quarter of 2019 compared to the same period in 2018.

Rotary and Mission Systems

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

 

$

3,709

   

$

3,848

   

$

11,239

   

$

10,637

   
 

Operating profit

 

$

342

   

$

361

   

$

1,068

   

$

1,013

   
 

Operating margin

 

9.2

%

 

9.4

%

 

9.5

%

 

9.5

%

 

RMS' net sales in the third quarter of 2019 decreased $139 million, or 4 percent, compared to the same period in 2018. The decrease was primarily attributable to lower net sales of approximately $160 million for Sikorsky helicopter programs due to lower volume (primarily Black Hawk production and mission systems programs). This decrease was partially offset by an increase of approximately $40 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume.

RMS' operating profit in the third quarter of 2019 decreased $19 million, or 5 percent, compared to the same period in 2018. Operating profit decreased approximately $50 million for integrated warfare systems and sensors (IWSS) programs due to lower risk retirements (primarily Radar Surveillance Systems programs). This decrease was partially offset by an increase of about $20 million for Sikorsky helicopter programs due to risk retirements on commercial after-market programs and better cost performance across the portfolio; and about $10 million for training and logistics solutions (TLS) programs due to lower program charges. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were about $35 million lower in the third quarter of 2019 compared to the same period in 2018.

Space

 

(in millions)

 

Quarters Ended

 

Nine Months Ended

 
     

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 
 

Net sales

 

$

2,683

   

$

2,555

   

$

8,021

   

$

7,318

   
 

Operating profit

 

$

309

   

$

293

   

$

931

   

$

831

   
 

Operating margin

 

11.5

%

 

11.5

%

 

11.6

%

 

11.4

%

 

Space's net sales in the third quarter of 2019 increased $128 million, or 5 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $100 million for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR) and Global Positioning System (GPS) III) and about $95 million for strategic and missile defense programs due to higher volume (primarily new hypersonic development programs). These increases were partially offset by a decrease of $35 million due to lower volume on the Orion program and a decrease of $25 million due to lower volume on commercial satellite programs.

Space's operating profit in the third quarter of 2019 increased $16 million, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $10 million due to higher equity earnings for ULA and $10 million for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters. These increases were partially offset by a decrease of approximately $10 million for government satellite programs due to lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable in the third quarter of 2019, to the same period in 2018.

Total equity earnings recognized by Space (primarily ULA) represented approximately $55 million, or 18 percent of Space's operating profit in the third quarter of 2019, compared to approximately $45 million, or 15 percent in the third quarter of 2018.

Income Taxes

The corporation's effective income tax rate was 9.7 percent in the third quarter of 2019, compared to 6.5 percent in the third quarter of 2018. The rate for the third quarter of 2019 benefited from $62 million, or $0.22 per share, of additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method, 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 2018 benefited from $148 million, or $0.52 per share, of additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on December 22, 2017 and additional tax deductions from the corporation's change in tax accounting method reflecting the 2012 Court of Federal Claims decision. 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 foreign derived intangible income, tax deductions for employee equity awards, and the research and development tax credit.

Use of Non-GAAP Financial Measures

This news release contains the following non-generally accepted accounting principles (non-GAAP) financial measures (as defined by U.S. Securities and Exchange Commission (SEC) Regulation G). While the corporation believes that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed Martin Corporation, 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. 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 included in the corporation's 2019 financial outlook.

 

(in millions)

 

2019 Financial Outlook

 
     

Current Update

 

July Outlook

 
             
 

Business segment operating profit (non-GAAP)

 

~$6,425

 

$6,325 - $6,475

 
 

FAS/CAS operating adjustment1

 

~2,050

 

~2,050

 
 

Other, net

 

~(125)

 

~(115)

 
 

Consolidated operating profit (GAAP)

 

~$8,350

 

$8,260 - $8,410

 
             

1

Refer to the supplemental table "Other Financial and Operating Information" included in this news release for a detail of the FAS/CAS

operating adjustment, which excludes $575 million of expected non-service FAS cost that will be recorded in other non-operating expense,

net.

 

Conference Call Information

Lockheed Martin Corporation will webcast live its third quarter 2019 earnings results conference call (listen-only mode) on Tuesday, Oct. 22, 2019, 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 Corporation is a global security and aerospace company that employs approximately 105,000 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:

  • our 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 our ability to negotiate favorable contract terms;
  • budget uncertainty; affordability initiatives; the impact of continuing resolution funding mechanisms and the potential for a government shutdown (including the potential that we work on unfunded contracts to preserve their cost and/or schedule);
  • risks related to the development, production, sustainment, performance, schedule, cost and requirements of complex and technologically advanced programs including our largest, the F‑35 program;
  • 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;
  • economic, industry, business and political conditions including their effects on governmental policy and government actions that disrupt our supply chain or prevent the sale or delivery of our products (such as delays in obtaining Congressional approvals for exports requiring Congressional notification);
  • trade policies or sanctions (including the impact of U.S. Government sanctions on Turkey and Turkey's removal from the F-35 program and potential sanctions on the Kingdom of Saudi Arabia);
  • our success expanding into and doing business in adjacent markets and internationally and the differing risks posed by international sales;
  • changes in foreign national priorities and foreign government budgets;
  • the competitive environment for our 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;
  • the timing and customer acceptance of product deliveries;
  • our 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 our businesses;
  • our ability to implement and continue, and the timing and impact of, capitalization changes such as share repurchases and dividend payments;
  • our ability to recover costs under U.S. Government contracts and changes in contract mix;
  • the accuracy of our estimates and projections;
  • timing and estimates regarding pension funding and movements in interest rates and other changes that may affect pension plan assumptions, stockholders' equity, the level of the FAS/CAS adjustment and actual returns on pension plan assets;
  • the successful operation of ventures that we do not control and our ability to recover our investments;
  • realizing the anticipated benefits of acquisitions or divestitures, ventures, teaming arrangements or internal reorganizations;
  • our efforts to increase the efficiency of our operations and improve the affordability of our products and services;
  • risk of an impairment of our 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 further impairment of our equity investment in Advanced Military Maintenance, Repair and Overhaul Center LLC (AMMROC);
  • the availability and adequacy of our insurance and indemnities;
  • the effect of changes in (or in the interpretation of) procurement and other regulations and policies affecting our industry, including export of our products, cost allowability or recovery, aggressive government positions on the use and ownership of intellectual property and potential changes to the DoD's acquisition regulations relating to progress payments and performance-based payments and a preference for fixed-price contracts;
  • the effect of changes in accounting, taxation, or export laws, regulations, and policies; 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 our 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 differ materially from those anticipated in the forward-looking statements, see the corporation's filings with the U.S. Securities and Exchange Commission 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, 2018 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. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 

Net sales

 

$

15,171

   

$

14,318

   

$

43,934

   

$

39,351

 
 

Cost of sales2

 

(13,108)

   

(12,397)

   

(37,690)

   

(34,019)

 
 

Gross profit

 

2,063

   

1,921

   

6,244

   

5,332

 
 

Other income, net3

 

42

   

42

   

152

   

151

 
 

Operating profit

 

2,105

   

1,963

   

6,396

   

5,483

 
 

Interest expense

 

(162)

   

(177)

   

(496)

   

(497)

 
 

Other non-operating expense, net

 

(162)

   

(211)

   

(491)

   

(631)

 
 

Earnings before income taxes

 

1,781

   

1,575

   

5,409

   

4,355

 
 

Income tax expense4

 

(173)

   

(102)

   

(677)

   

(562)

 
 

Net earnings

 

$

1,608

   

$

1,473

   

$

4,732

   

$

3,793

 
 

Effective tax rate

 

9.7

%

 

6.5

%

 

12.5

%

 

12.9

%

                   
 

Earnings per common share

               
 

Basic

 

$

5.70

   

$

5.18

   

$

16.77

   

$

13.31

 
 

Diluted

 

$

5.66

   

$

5.14

   

$

16.66

   

$

13.21

 
                   
 

Weighted average shares outstanding

               
 

Basic

 

282.0

   

284.3

   

282.2

   

284.9

 
 

Diluted

 

283.9

   

286.7

   

284.0

   

287.2

 
                   
 

Common shares reported in stockholders' equity at
  end of period

         

281

   

283

 
                   

1

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. 29 for the third quarter of 2019 and Sept. 30 for the third quarter of 2018. 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

In the first nine months of 2018, the corporation recognized 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 business segment.

3

In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share,

after tax) related to properties sold in 2015 as a result of completing its remaining obligations.

4

Net earnings for the quarter and the first nine months of 2019 include benefits of $62 million ($0.22 per share) and $127 million ($0.45 per

share), respectively, for additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based

on proposed tax regulations released on March 4, 2019 and our change in tax accounting method. Net earnings for the quarter and the first nine

months of 2018 include benefits of $148 million ($0.52 per share) and $152 million ($0.53 per share), respectively, for additional tax deductions for

the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on Dec. 22, 2017 and

our change in tax accounting method.

 

 

Lockheed Martin Corporation

Business Segment Summary Operating Results

(unaudited; in millions)

 
     

Quarters Ended

     

Nine Months Ended

   
     

Sept. 29,
2019

 

Sept. 30,
2018

 

%
Change

 

Sept. 29,
2019

 

Sept. 30,
2018

 

%
Change

 

Net sales

                       
 

Aeronautics

 

$

6,178

   

$

5,642

   

10

%

 

$

17,312

   

$

15,361

   

13

%

 

Missiles and Fire Control

 

2,601

   

2,273

   

14

%

 

7,362

   

6,035

   

22

%

 

Rotary and Mission Systems

 

3,709

   

3,848

   

(4)

%

 

11,239

   

10,637

   

6

%

 

Space

 

2,683

   

2,555

   

5

%

 

8,021

   

7,318

   

10

%

 

Total net sales

 

$

15,171

   

$

14,318

   

6

%

 

$

43,934

   

$

39,351

   

12

%

                           
 

Operating profit

                       
 

Aeronautics

 

$

665

   

$

600

   

11

%

 

$

1,842

   

$

1,646

   

12

%

 

Missiles and Fire Control

 

349

   

332

   

5

%

 

1,093

   

872

   

25

%

 

Rotary and Mission Systems

 

342

   

361

   

(5)

%

 

1,068

   

1,013

   

5

%

 

Space

 

309

   

293

   

5

%

 

931

   

831

   

12

%

 

Total business segment operating
  profit

 

1,665

   

1,586

   

5

%

 

4,934

   

4,362

   

13

%

 

Unallocated items

                       
 

FAS/CAS operating adjustment

 

513

   

451

       

1,537

   

1,353

     
 

Severance and restructuring charges1

 

   

       

   

(96)

     
 

Other, net2

 

(73)

   

(74)

       

(75)

   

(136)

     
 

Total unallocated items

 

440

   

377

   

17

%

 

1,462

   

1,121

   

30

%

 

Total consolidated operating profit

 

$

2,105

   

$

1,963

   

7

%

 

$

6,396

   

$

5,483

   

17

%

                           
 

Operating margin

                       
 

Aeronautics

 

10.8

%

 

10.6

%

     

10.6

%

 

10.7

%

   
 

Missiles and Fire Control

 

13.4

%

 

14.6

%

     

14.8

%

 

14.4

%

   
 

Rotary and Mission Systems

 

9.2

%

 

9.4

%

     

9.5

%

 

9.5

%

   
 

Space

 

11.5

%

 

11.5

%

     

11.6

%

 

11.4

%

   
 

Total business segment operating
  margin

 

11.0

%

 

11.1

%

     

11.2

%

 

11.1

%

   
                           
 

Total consolidated operating
  margin

 

13.9

%

 

13.7

%

     

14.6

%

 

13.9

%

   
                           

1

In the first nine months of 2018, the corporation recognized 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

business segment.

2

In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per share, after

tax) related to properties sold in 2015 as a result of completing its remaining obligations.

 

 

Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)

 
     

Sept. 29,
2019

 

Dec. 31,
2018

     

(unaudited)

   
 

Assets

       
 

Current assets

       
 

Cash and cash equivalents

 

$

2,539

   

$

772

 
 

Receivables, net

 

2,384

   

2,444

 
 

Contract assets

 

11,004

   

9,472

 
 

Inventories

 

3,474

   

2,997

 
 

Other current assets

 

402

   

418

 
 

Total current assets

 

19,803

   

16,103

 
           
 

Property, plant and equipment, net

 

6,240

   

6,124

 
 

Goodwill

 

10,762

   

10,769

 
 

Intangible assets, net

 

3,278

   

3,494

 
 

Deferred income taxes

 

2,912

   

3,208

 
 

Other noncurrent assets1

 

6,280

   

5,178

 
 

Total assets

 

$

49,275

   

$

44,876

 
           
 

Liabilities and equity

       
 

Current liabilities

       
 

Accounts payable

 

$

2,904

   

$

2,402

 
 

Contract liabilities

 

6,777

   

6,491

 
 

Salaries, benefits and payroll taxes

 

2,308

   

2,122

 
 

Current maturities of long-term debt and commercial paper

 

900

   

1,500

 
 

Other current liabilities1

 

2,626

   

1,883

 
 

Total current liabilities

 

15,515

   

14,398

 
           
 

Long-term debt, net

 

12,652

   

12,604

 
 

Accrued pension liabilities

 

11,436

   

11,410

 
 

Other postretirement benefit liabilities

 

677

   

704

 
 

Other noncurrent liabilities1

 

5,058

   

4,311

 
 

Total liabilities

 

45,338

   

43,427

 
           
 

Stockholders' equity

       
 

Common stock, $1 par value per share

 

281

   

281

 
 

Additional paid-in capital

 

   

 
 

Retained earnings

 

17,265

   

15,434

 
 

Accumulated other comprehensive loss

 

(13,653)

   

(14,321)

 
 

Total stockholders' equity

 

3,893

   

1,394

 
 

Noncontrolling interests in subsidiary

 

44

   

55

 
 

Total equity

 

3,937

   

1,449

 
 

Total liabilities and equity

 

$

49,275

   

$

44,876

 
           

1

Effective Jan. 1, 2019, the corporation adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). As of Sept. 29, 2019, right-

of-use operating lease assets were $984 million and operating lease liabilities were $1.1 billion. Approximately $818 million of operating lease

liabilities were classified as noncurrent. There was no impact to the corporation's consolidated statements of earnings or cash flows as a result

of adopting this standard. The 2018 periods were not restated for the adoption of ASU 2016-02.

 

 

Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)

 
   

Nine Months Ended

   

Sept. 29,
2019

 

Sept. 30,
2018

Operating activities

       

Net earnings

 

$

4,732

   

$

3,793

 

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

       

Depreciation and amortization

 

867

   

857

 

Stock-based compensation

 

158

   

148

 

Severance and restructuring charges

 

   

96

 

Gain on property sale

 

(51)

   

 

Changes in assets and liabilities

       

Receivables, net

 

60

   

(151)

 

Contract assets

 

(1,532)

   

(1,777)

 

Inventories

 

(477)

   

(172)

 

Accounts payable

 

524

   

1,237

 

Contract liabilities

 

286

   

(539)

 

Postretirement benefit plans

 

828

   

(3,935)

 

Income taxes

 

(117)

   

729

 

Other, net

 

543

   

635

 

Net cash provided by operating activities

 

5,821

   

921

 
         

Investing activities

       

Capital expenditures

 

(841)

   

(819)

 

Other, net

 

38

   

146

 

Net cash used for investing activities

 

(803)

   

(673)

 
         

Financing activities

       

Dividends paid

 

(1,881)

   

(1,725)

 

Repurchases of common stock

 

(710)

   

(826)

 

(Repayments of) proceeds from commercial paper, net

 

(600)

   

490

 

Other, net

 

(60)

   

(151)

 

Net cash used for financing activities

 

(3,251)

   

(2,212)

 
         

Net change in cash and cash equivalents

 

1,767

   

(1,964)

 

Cash and cash equivalents at beginning of period

 

772

   

2,861

 

Cash and cash equivalents at end of period

 

$

2,539

   

$

897

 

 

 

Lockheed Martin Corporation

Consolidated Statement of Equity

(unaudited; in millions)

 
     

Common
Stock

 

Additional
Paid-in
Capital

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Loss

 

Total
Stockholders'
Equity

 

Noncontrolling
Interests
in Subsidiary

 

Total
Equity

 

Balance at December 31, 2018

 

$

281

   

$

   

$

15,434

   

$

(14,321)

   

$

1,394

   

$

55

   

$

1,449

 
 

Net earnings

 

   

   

4,732

   

   

4,732

   

   

4,732

 
 

Other comprehensive income, net of tax1

 

   

   

   

668

   

668

   

   

668

 
 

Repurchases of common stock

 

(2)

   

(366)

   

(350)

   

   

(718)

   

   

(718)

 
 

Dividends declared2

 

   

   

(2,551)

   

   

(2,551)

   

   

(2,551)

 
 

Stock-based awards, ESOP activity and
  other

 

2

   

366

   

   

   

368

   

   

368

 
 

Net decrease in noncontrolling interests in
  subsidiary

 

   

   

   

   

   

(11)

   

(11)

 
 

Balance at Sept. 29, 2019

 

$

281

   

$

   

$

17,265

   

$

(13,653)

   

$

3,893

   

$

44

   

$

3,937

 
                               

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 $2.20 per share declared for each of the first, second and third quarters of 2019 and dividends of $2.40 per share declared for

the fourth quarter of 2019.

 

 

Lockheed Martin Corporation

Other Financial and Operating Information

(unaudited; in millions, except aircraft deliveries and weeks)

                     
               

2019
Outlook

 

2018
Actual

 

Total FAS expense and CAS costs

               
 

FAS pension expense

         

$

(1,090)

 

$

(1,431)

 

Less: CAS pension cost

         

2,565

 

2,433

 

Net FAS/CAS pension adjustment

         

$

1,475

 

$

1,002

                   
 

Service and non-service cost reconciliation

             
 

FAS pension service cost

         

$

(515)

 

$

(630)

 

Less: CAS pension cost

         

2,565

 

2,433

 

FAS/CAS operating adjustment

         

2,050

 

1,803

 

Non-operating FAS pension cost 1

         

(575)

 

(801)

 

Net FAS/CAS pension adjustment

         

$

1,475

 

$

1,002

                     

1

The corporation records the non-service cost components of FAS pension expense as part of other non-operating expense, net in the

consolidated statements 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 $115 million, to total $690 million for 2019. The corporation recorded non-

service costs for its other postretirement benefit plans of $67 million in 2018, in addition to its total non-service costs for its qualified defined

benefit pension plans in the table above, for a total of $868 million in 2018.

                     
 

Backlog

         

Sept. 29,
2019

 

Dec. 31,
2018

 

Aeronautics

         

$

49,426

 

$

55,601

 

Missiles and Fire Control

         

26,973

 

21,363

 

Rotary and Mission Systems

         

31,867

 

31,320

 

Space

         

29,089

 

22,184

 

Total backlog

         

$

137,355

 

$

130,468

                   
       

Quarters Ended

 

Nine Months Ended

 

Aircraft Deliveries

 

Sept. 29,
2019

 

Sept. 30,
2018

 

Sept. 29,
2019

 

Sept. 30,
2018

 

F-35

 

28

 

20

 

83

 

59

 

C-130J

 

6

 

7

 

19

 

18

 

C-5

 

-

 

1

 

-

 

4

 

Government helicopter programs

 

20

 

28

 

61

 

75

 

Commercial helicopter programs

 

-

 

1

 

-

 

2

 

International military helicopter programs

2

 

4

 

5

 

5

                   
 

Number of Weeks in Reporting Period

       

2019

 

2018

 

First quarter

         

13

 

12

 

Second quarter

         

13

 

13

 

Third quarter

         

13

 

14

 

Fourth quarter

         

13

 

13

 

 

 

 

SOURCE Lockheed Martin

For further information: Media Contact: Jarrod Agen, 301-897-6412; jarrod.p.agen@lmco.com; Investor Relations Contacts: Greg Gardner, 301-897-6584; greg.m.gardner@lmco.com; Kelly Stevens, 301-897-6455; kelly.stevens@lmco.com