Why did Lockheed Martin report a net loss in 2000?

The $519 million net loss reflects $951 million after-tax of nonrecurring and unusual items, the largest being the $598 million pretax ($878 million after-tax) loss on the sale of the AES businesses to BAE Systems. Other charges included a $141 million Globalstar guarantee charge, a $117 million ACeS impairment, and a $95 million extraordinary loss on early debt extinguishment, partly offset by a $302 million gain on the sale of Control Systems. Management's adjusted figures exclude these items.

How strong is the company's backlog and what drives it?

Total negotiated backlog reached $56.4 billion at year-end 2000, up 23% from $45.9 billion. The Aeronautics backlog rose 95% to $17.6 billion, driven by roughly $10.6 billion of F-16 orders from the UAE, Israel, Greece, Singapore, Korea, and the U.S. Air Force. About 72% of the backlog ($40.7 billion) is not expected to be filled within one year. Part of the backlog is not yet funded by appropriations, so timing and conversion to sales remain uncertain.

What are the biggest risks to future earnings?

Key risks include the outcome of the Bush administration's review of defense programs, the F-22 production decision (Lot 1 authorization still pending as of the filing), and the Joint Strike Fighter down-select expected in late 2001. The C-130J program has been at reduced production with profit recognition suspended, the commercial launch vehicle and satellite businesses face pricing pressure, and the Global Telecommunications segment depends on regulatory decisions by the FCC regarding INTELSAT and Inmarsat. Several government investigations and lawsuits, including the Pit 9 contract dispute with the DOE, remain unresolved.

How did the company improve its balance sheet in 2000?

Lockheed Martin used proceeds from the AES sale ($1.67 billion), Control Systems sale ($510 million), and partial Inmarsat sale ($164 million) to fund tender offers that retired about $1.9 billion of long-term debt. Total debt fell roughly 17%, from about $12.0 billion to about $10.0 billion, and the debt-to-capitalization ratio improved from 65% to 58%. The company also had $1.5 billion of cash at year-end and an undrawn $3.5 billion revolving credit facility expiring December 2001.

Why was the dividend cut, and what does it signal?

The quarterly dividend was reduced to $0.11 from $0.22 beginning in the first quarter of 2000, cutting annual dividends paid to $183 million from $345 million. The filing does not state a single rationale in the excerpt provided, but the timing coincides with the 2000 net loss, the debt reduction program, and the company's stated focus on generating cash to repay debt used in the period of industry consolidation. Investors should consider that the lower payout reflects a shift toward deleveraging rather than dividend growth.

LMT 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 9, 2001. Cited figures are marked; the original filing is the authoritative source.

Lockheed Martin's fiscal 2000 results were marked by a reported net loss of $519 million^a, or $(1.29) per diluted share, driven largely by nonrecurring and unusual items totaling $539 million pretax ($951 million after tax, or $2.36 per diluted share).

The largest of these was a $598 million^b pretax loss on the sale of the Aerospace Electronics Systems (AES) businesses to BAE Systems for $1.67 billion. Excluding these items, management reports net earnings of $432 million and diluted EPS of $1.07, versus $1.50 in 1999 on the same basis, so underlying profitability declined materially. Net sales were roughly flat at $25.3 billion (down 1%), with Systems Integration and Technology Services growing while Space Systems and Aeronautics declined.

Operating profit fell 40% to $1.2 billion^c as reported. The balance sheet and cash flow improved meaningfully. Operating cash flow rose to $2.0 billion from $1.1 billion, divestiture proceeds and the Inmarsat stake sale supported $1.8 billion of investing inflows, and the company used these funds to cut long-term debt by about $2.1 billion through tender offers.

The total debt-to-capitalization ratio fell from 65% to 58%, and stockholders' equity rose to $7.2 billion^d, helped by the non-cash issuance of 27.5 million shares for the COMSAT merger. Dividends were cut to $0.11 per quarter, and the company ended the year with a record negotiated backlog of $56.4 billion, up 23%, led by $10.6 billion in F-16 orders and a 95% jump in Aeronautics backlog.

Investors should weigh several risks: the F-22 and Joint Strike Fighter programs depend on pending U.S. defense budget decisions under the new administration, the C-130J and launch vehicle programs face production and pricing pressure, the Global Telecommunications segment posted a $215 million operating loss, and the company faces numerous government investigations, class action suits, and environmental and Pit 9 contract disputes. Management states that none of the pending matters are expected to have a material adverse effect, though several remain unresolved.

02—Key points

Key Highlights

Reported net loss of $519 million ($1.29 per diluted share) in 2000, versus net earnings of $382 million in 1999, largely due to a $598 million pretax loss on the AES divestiture and other nonrecurring charges
Excluding nonrecurring and unusual items, net earnings were $432 million ($1.07 per diluted share) versus $575 million ($1.50) in 1999 on the company's own adjusted basis
Net sales of $25.3 billion, down 1%, with Systems Integration ($9.6B) the largest segment; Space Systems sales fell 1% and Aeronautics fell 11%
Operating cash flow improved to $2.0 billion from $1.1 billion; long-term debt was reduced by about $2.1 billion through tender offers, lowering debt-to-capitalization from 65% to 58%
Record negotiated backlog of $56.4 billion (up from $45.9 billion), with 72% not expected to be filled within one year; Aeronautics backlog nearly doubled on $10.6 billion of F-16 orders
Quarterly dividend reduced to $0.11 from $0.22; full-year dividends paid fell to $0.44 from $0.88
Global Telecommunications segment, anchored by the August 2000 COMSAT acquisition, posted a $215 million operating loss and faces ACeS satellite impairment and Globalstar guarantee charges

03—Questions

Frequently Asked Questions

Why did Lockheed Martin report a net loss in 2000?
The $519 million net loss reflects $951 million after-tax of nonrecurring and unusual items, the largest being the $598 million pretax ($878 million after-tax) loss on the sale of the AES businesses to BAE Systems. Other charges included a $141 million Globalstar guarantee charge, a $117 million ACeS impairment, and a $95 million extraordinary loss on early debt extinguishment, partly offset by a $302 million gain on the sale of Control Systems. Management's adjusted figures exclude these items.
How strong is the company's backlog and what drives it?
Total negotiated backlog reached $56.4 billion at year-end 2000, up 23% from $45.9 billion. The Aeronautics backlog rose 95% to $17.6 billion, driven by roughly $10.6 billion of F-16 orders from the UAE, Israel, Greece, Singapore, Korea, and the U.S. Air Force. About 72% of the backlog ($40.7 billion) is not expected to be filled within one year. Part of the backlog is not yet funded by appropriations, so timing and conversion to sales remain uncertain.
What are the biggest risks to future earnings?
Key risks include the outcome of the Bush administration's review of defense programs, the F-22 production decision (Lot 1 authorization still pending as of the filing), and the Joint Strike Fighter down-select expected in late 2001. The C-130J program has been at reduced production with profit recognition suspended, the commercial launch vehicle and satellite businesses face pricing pressure, and the Global Telecommunications segment depends on regulatory decisions by the FCC regarding INTELSAT and Inmarsat. Several government investigations and lawsuits, including the Pit 9 contract dispute with the DOE, remain unresolved.
How did the company improve its balance sheet in 2000?
Lockheed Martin used proceeds from the AES sale ($1.67 billion), Control Systems sale ($510 million), and partial Inmarsat sale ($164 million) to fund tender offers that retired about $1.9 billion of long-term debt. Total debt fell roughly 17%, from about $12.0 billion to about $10.0 billion, and the debt-to-capitalization ratio improved from 65% to 58%. The company also had $1.5 billion of cash at year-end and an undrawn $3.5 billion revolving credit facility expiring December 2001.
Why was the dividend cut, and what does it signal?
The quarterly dividend was reduced to $0.11 from $0.22 beginning in the first quarter of 2000, cutting annual dividends paid to $183 million from $345 million. The filing does not state a single rationale in the excerpt provided, but the timing coincides with the 2000 net loss, the debt reduction program, and the company's stated focus on generating cash to repay debt used in the period of industry consolidation. Investors should consider that the lower payout reflects a shift toward deleveraging rather than dividend growth.

04—Continue

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