10-QPeriod: Q3 FY2011

LOCKHEED MARTIN CORP Quarterly Report for Q3 Ended Sep 25, 2011

Filed October 27, 2011For Securities:LMT

Summary

Lockheed Martin Corporation reported strong revenue growth in the third quarter and first nine months of 2011 compared to the prior year, driven primarily by increases in product sales across its key segments. Net sales rose to $12.1 billion for the quarter and $34.3 billion for the nine-month period. Diluted earnings per share also saw a significant increase, reaching $2.10 for the quarter and $5.73 for the nine months, up from $1.54 and $5.17 respectively in the prior year periods. This performance reflects robust demand in its core defense and aerospace businesses. The company also actively managed its capital structure, with substantial share repurchases and dividend payments contributing to shareholder returns, alongside new debt issuances to optimize its financial leverage. Despite the positive top-line and bottom-line performance, investors should note ongoing industry considerations, particularly the potential impact of U.S. government budget control acts and spending reductions on future defense appropriations. The company is actively engaged in managing these uncertainties while continuing to execute on its strategic objectives and maintain its commitment to shareholder value.

Financial Highlights

47 data points
Beta

Revenue

$12.12B

8.2% Gross Margin

Net Income

$700.00M

5.8% Net Margin

EPS (Diluted)

$2.10

Total Assets

$36.19B

Cash & Equivalents

$4.56B

Free Cash Flow

$310.00M

Financial Statements
Beta
Revenue$12.12B
Cost of Revenue$11.12B
Gross Profit$996.00M
Operating Income$1.03B
Interest Expense$89.00M
Net Income$700.00M
EPS (Basic)$2.12
EPS (Diluted)$2.10
Shares Outstanding (Basic)329.80M
Shares Outstanding (Diluted)333.60M

Key Highlights

  • 1Total net sales increased by 7% to $12.1 billion for the third quarter ended September 25, 2011, compared to $11.3 billion in the same period of 2010.
  • 2Net sales for the nine months ended September 25, 2011, increased by 4% to $34.3 billion compared to $32.9 billion in the prior year period.
  • 3Diluted earnings per share (EPS) rose to $2.10 in Q3 2011 from $1.54 in Q3 2010, and to $5.73 for the nine months from $5.17 in the prior year.
  • 4Operating profit increased by 19% to $1.04 billion in Q3 2011, compared to $877 million in Q3 2010, driven by higher sales and reduced severance charges.
  • 5Cash and cash equivalents significantly increased to $4.56 billion as of September 25, 2011, from $2.26 billion at December 31, 2010.
  • 6The company repurchased $2.32 billion of its common stock in the first nine months of 2011, up from $1.57 billion in the same period of 2010.
  • 7Long-term debt increased significantly due to the issuance of $2.0 billion in new notes in September 2011.

Frequently Asked Questions

The primary driver of Lockheed Martin's revenue growth in the third quarter and first nine months of 2011 was an increase in product sales, particularly in the Aeronautics and Electronic Systems segments. This was supported by higher sales volumes in key programs and the recognition of sales on services contracts under the percentage-of-completion method, which was adopted effective January 1, 2011.

Lockheed Martin actively manages its capital structure by issuing new debt, as evidenced by the $2.0 billion in long-term notes issued in September 2011. The company also demonstrated a strong commitment to shareholder returns through significant share repurchases, totaling $2.32 billion in the first nine months of 2011, and increased dividend payments, with quarterly dividends rising to $0.75 per share and an increased fourth-quarter dividend declared at $1.00 per share.

A significant risk factor highlighted is the evolving U.S. government budget environment, particularly the effects of the Budget Control Act of 2011 and potential automatic sequestration of defense spending. This could materially impact the company's portfolio of business, which is heavily reliant on government appropriations. Additionally, the company faces ongoing legal proceedings and environmental remediation obligations, though management believes these are unlikely to have a material adverse effect on the corporation as a whole.

Effective January 1, 2011, Lockheed Martin adopted the percentage-of-completion (POC) method for recognizing sales on its services contracts with the U.S. Government, aligning it with its existing method for product contracts. While the company states this change was not material to its consolidated results for the periods presented, it provides a more consistent accounting approach across its U.S. Government contracts and better reflects their underlying economics.