10-QPeriod: Q2 FY2009

LOCKHEED MARTIN CORP Quarterly Report for Q2 Ended Jun 28, 2009

Filed July 22, 2009For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported its second quarter and first six months results for the period ending June 28, 2009. For the quarter, net sales increased slightly to $11.2 billion from $11.0 billion in the prior year, while net earnings decreased to $734 million ($1.88 per share) from $882 million ($2.15 per share). For the six-month period, net sales grew to $21.6 billion from $21.0 billion, but net earnings declined to $1.4 billion ($3.55 per share) from $1.6 billion ($3.90 per share). The company experienced a decrease in operating profit for both the quarter and the six-month period. This was primarily attributed to higher unallocated corporate costs, particularly related to pension adjustments, and a reduction in other income. Segment-wise, while Aeronautics showed a stronger quarter, Electronic Systems and Space Systems saw declines in sales and operating profit. Information Systems & Global Services (IS&GS) reported increased net sales but a decrease in operating profit. Despite the earnings dip, Lockheed Martin maintained a strong liquidity position with $2.7 billion in cash and cash equivalents. The company continued its capital deployment strategy, repurchasing shares and paying dividends, though at a slightly lower pace for share repurchases compared to the prior year. Management highlighted ongoing assessments of the defense budget and its potential impact, with certain programs like the Joint Strike Fighter and AEHF satellite program expected to receive stable or increased support, while others like the VH-71 Presidential Helicopter and TSAT program were terminated.

Financial Highlights

48 data points
Beta

Revenue

$10.94B

9.3% Gross Margin

Net Income

$734.00M

6.7% Net Margin

EPS (Diluted)

$1.88

Total Assets

$34.79B

Cash & Equivalents

$2.67B

Free Cash Flow

$969.00M

Financial Statements
Beta
Revenue$10.94B
Cost of Revenue$10.06B
Gross Profit$1.01B
Operating Income$1.06B
Interest Expense$74.00M
Net Income$734.00M
EPS (Basic)$1.90
EPS (Diluted)$1.88
Shares Outstanding (Basic)386.90M
Shares Outstanding (Diluted)390.90M

Key Highlights

  • 1Net sales for the second quarter of 2009 increased by 2% year-over-year to $11.2 billion, while net sales for the first six months increased by 3% to $21.6 billion.
  • 2Net earnings decreased by 17% for the second quarter to $734 million ($1.88 per diluted share) and by 13% for the first six months to $1.4 billion ($3.55 per diluted share), compared to the prior year.
  • 3Operating profit declined by 21% for the quarter to $1.08 billion and by 16% for the six-month period to $2.14 billion, impacted by higher unallocated corporate costs, including pension adjustments.
  • 4The company continues to manage its capital structure, with cash and cash equivalents of $2.7 billion at June 28, 2009.
  • 5Share repurchases for the first six months of 2009 totaled $969 million, down from $1.93 billion in the same period of 2008, while dividends paid increased to $449 million from $340 million.
  • 6Several significant legal proceedings are ongoing, including a contract dispute with the U.K. Ministry of Defence and a breach of contract claim against the N.Y. Metropolitan Transportation Authority.
  • 7The company is actively assessing the impact of the U.S. Fiscal Year 2010 defense budget proposal, with some key programs expected to see continued or increased funding, while others face termination or restructuring.

Frequently Asked Questions

The decrease in net earnings and operating profit was primarily due to higher unallocated corporate costs, particularly the FAS/CAS pension adjustment which shifted from income to expense year-over-year, and a reduction in other income, net, partly due to the absence of certain favorable items recognized in the prior year. Segment-wise, certain programs experienced lower volumes or performance adjustments.

Lockheed Martin maintained a strong liquidity position with $2.7 billion in cash and cash equivalents as of June 28, 2009. The company has a $1.5 billion revolving credit facility and access to commercial paper markets. It continues to deploy capital through share repurchases and dividends, although share repurchases were reduced compared to the prior year. Management expects operating cash flow to be sufficient to support operations and capital expenditures.

The company is actively assessing the impact of the U.S. Fiscal Year 2010 defense budget proposal. While some programs like the Joint Strike Fighter and AEHF satellite are expected to maintain or increase support, others such as the VH-71 Presidential Helicopter and TSAT program have been terminated. The company expects to be well-positioned in areas like intelligence, surveillance, reconnaissance, cybersecurity, and training. Contract terminations for convenience are being evaluated for their impact, with management not anticipating a material adverse effect overall.

Yes, Lockheed Martin is involved in several significant legal proceedings, including disputes with the U.K. Ministry of Defence and the N.Y. Metropolitan Transportation Authority, as well as defending against claims related to past subcontractor invoicing and environmental matters. While the company believes the probability of a material adverse effect on the Corporation as a whole from these matters is remote, legal outcomes cannot be predicted with certainty. Environmental liabilities recorded were $821 million at June 28, 2009.