10-QPeriod: Q1 FY2007

LOCKHEED MARTIN CORP Quarterly Report for Q1 Ended Mar 31, 2007

Filed April 26, 2007For Securities:LMT

Summary

Lockheed Martin Corporation reported solid financial results for the first quarter of 2007, with net sales of $9.3 billion, a slight increase from $9.2 billion in the prior year's first quarter. Net earnings saw a significant boost, reaching $690 million, or $1.60 per diluted share, up from $591 million, or $1.34 per diluted share, in Q1 2006. This growth was driven by improved operating profit across most segments, particularly Aeronautics and Electronic Systems, and favorable adjustments related to tax matters. The company also demonstrated strong operational cash flow, generating $1.5 billion. While investing activities saw a net outflow due to business acquisitions, financing activities reflected substantial share repurchases ($739 million) and dividend payments ($148 million), indicating a continued focus on returning capital to shareholders. The company's financial position remains robust, with total assets of $28.85 billion and a healthy cash position of $2.78 billion.

Key Highlights

  • 1Net sales for the first quarter of 2007 increased slightly to $9.3 billion from $9.21 billion in the same period of 2006.
  • 2Net earnings rose by 16.8% to $690 million ($1.60 per diluted share) in Q1 2007, compared to $591 million ($1.34 per diluted share) in Q1 2006.
  • 3Operating profit increased by 5.2% to $1.02 billion in Q1 2007.
  • 4Net cash provided by operating activities was strong at $1.48 billion for the first quarter of 2007.
  • 5The company declared a dividend of $0.35 per share in Q1 2007, an increase from $0.30 per share in Q1 2006.
  • 6Lockheed Martin repurchased approximately $739 million of its common stock during the first quarter of 2007.
  • 7The effective income tax rate decreased significantly to 25.7% in Q1 2007 from 32.6% in Q1 2006, primarily due to tax benefits from the closure of IRS examinations.

Frequently Asked Questions

The increase in net earnings was primarily driven by improved operating profit across most business segments, particularly Aeronautics and Electronic Systems, along with favorable tax adjustments. The company benefited from the closure of IRS examinations and recognition of tax benefits related to extraterritorial income (ETI) tax claims, which reduced income tax expense by $59 million ($0.14 per share).

Lockheed Martin generated strong operating cash flow of $1.48 billion. Cash was used for significant share repurchases totaling $739 million, dividend payments of $148 million, capital expenditures of $84 million, and business acquisitions amounting to $95 million.

The company's long-term debt remained stable at $4.4 billion. Lockheed Martin has effectively fixed interest rates on its debt through an interest rate swap agreement. With cash and cash equivalents of $2.78 billion and short-term investments of $296 million, the company maintains a strong liquidity position and expects its resources to be sufficient to meet anticipated operational, capital expenditure, and debt service requirements for the next three years.

Lockheed Martin is involved in various legal and environmental proceedings. While the company believes the probability of a material adverse effect on its consolidated results is remote, the outcome of legal proceedings cannot be predicted with certainty. Environmental liabilities recorded were $475 million as of March 31, 2007. The company is actively managing these matters and seeking contribution from other responsible parties where applicable.