10-QPeriod: Q2 FY2011

LOCKHEED MARTIN CORP Quarterly Report for Q2 Ended Jun 26, 2011

Filed July 27, 2011For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported its financial results for the second quarter and the first six months ended June 26, 2011. For the quarter, net sales increased by 2% to $11.55 billion, driven by a 1% rise in product sales and a 9% increase in services sales. Net earnings from continuing operations were $742 million, or $2.14 per diluted share, an increase from $714 million, or $1.92 per diluted share, in the prior-year quarter. The company highlighted a strategic review impacting its Aeronautics and Space Systems segments, leading to severance charges of $97 million. For the first six months of the year, net sales grew by 3% to $22.18 billion. Net earnings from continuing operations rose to $1.29 billion, or $3.69 per diluted share, compared to $1.23 billion, or $3.29 per diluted share, in the same period last year. The company also addressed industry considerations, including ongoing discussions regarding the U.S. debt ceiling, and noted a change in its accounting for services contracts with the U.S. Government to the percentage-of-completion method.

Financial Highlights

46 data points
Beta

Revenue

$11.54B

7.8% Gross Margin

Net Income

$742.00M

6.4% Net Margin

EPS (Diluted)

$2.14

Total Assets

$35.72B

Cash & Equivalents

$3.27B

Free Cash Flow

$696.00M

Financial Statements
Beta
Revenue$11.54B
Cost of Revenue$10.64B
Gross Profit$906.00M
Operating Income$999.00M
Interest Expense$84.00M
Net Income$742.00M
EPS (Basic)$2.16
EPS (Diluted)$2.14
Shares Outstanding (Basic)342.80M
Shares Outstanding (Diluted)346.60M

Key Highlights

  • 1Total net sales for Q2 2011 increased by 2% to $11.55 billion, compared to $11.28 billion in Q2 2010.
  • 2Net earnings from continuing operations for Q2 2011 were $742 million, or $2.14 per diluted share, up from $714 million, or $1.92 per diluted share, in Q2 2010.
  • 3The company recorded $97 million in severance charges in Q2 2011 related to strategic workforce reductions in its Aeronautics and Space Systems segments.
  • 4A change in accounting principle, adopting the percentage-of-completion method for U.S. Government services contracts, was implemented effective January 1, 2011, with prior periods restated.
  • 5Net cash provided by operating activities for the first six months of 2011 was $2.53 billion, a decrease from $2.87 billion in the prior-year period, primarily due to higher tax payments and separation program payments.
  • 6Share repurchases totaled $1.31 billion in the first six months of 2011, with $926 million remaining authorization under the current program.
  • 7The company's largest segment, Electronic Systems, saw net sales increase by 6% to $3.76 billion in Q2 2011.

Frequently Asked Questions

The increase in net sales for the second quarter of 2011 was primarily driven by a 1% increase in product sales and a 9% increase in services sales compared to the prior-year quarter. Specific segment contributions included growth in product sales from Aeronautics and Electronic Systems, and services sales from Electronic Systems and Information Systems & Global Solutions (IS&GS).

Lockheed Martin recorded $97 million in severance charges in the second quarter of 2011, which reduced net earnings by $63 million, or $0.18 per diluted share. These charges were part of a strategic review to align costs with changing economic conditions and were primarily related to the Aeronautics and Space Systems segments.

Effective January 1, 2011, Lockheed Martin changed its accounting for U.S. Government services contracts to the percentage-of-completion (POC) method, aligning it with its product contracts. This change was applied retrospectively to prior periods. While the company stated it was not material to the consolidated results of operations or financial position, it reflects a more consistent approach to revenue recognition across its contracts with the U.S. Government.

The company noted ongoing discussions between the Administration and Congress regarding debt ceiling increases and deficit reductions. While it's unclear how these actions might impact government obligations, Lockheed Martin believes key defense programs would likely receive priority. The company stated that any potential impact on individual programs or Lockheed Martin could not be predicted at that time.