10-QPeriod: Q2 FY2015

LOCKHEED MARTIN CORP Quarterly Report for Q2 Ended Jun 28, 2015

Filed July 22, 2015For Securities:LMT

Summary

Lockheed Martin Corporation's (LMT) second quarter 2015 filing shows a modest increase in net sales to $11.64 billion, up 3% year-over-year, driven primarily by growth in its Aeronautics and Space Systems segments. Diluted earnings per share improved to $2.94 from $2.76 in the prior year's quarter. For the six-month period, net sales saw a slight decrease to $21.75 billion, while diluted EPS increased to $5.68 from $5.63. The company's financial position remains strong, with total assets growing to $39.85 billion and a healthy cash position of $3.20 billion. Notably, the company announced its intention to acquire Sikorsky Aircraft for $9 billion and initiated a strategic review of certain IT and technical services businesses, signaling significant future strategic realignments. Key financial drivers include a slight increase in product sales offset by a decrease in service sales for the six-month period. The company's operating profit saw a slight increase for the quarter but a decrease for the six-month period, impacted by segment performance and unallocated items. The effective income tax rate decreased due to favorable tax reserve adjustments in the prior year. Despite ongoing U.S. government budget constraints, Lockheed Martin continues to invest in its business and return capital to shareholders through share repurchases and dividends, demonstrating a commitment to long-term value creation.

Financial Highlights

42 data points
Beta

Revenue

$10.23B

13.4% Gross Margin

Net Income

$929.00M

9.1% Net Margin

EPS (Diluted)

$2.94

Total Assets

$39.85B

Cash & Equivalents

$3.20B

Free Cash Flow

$1.26B

Financial Statements
Beta
Revenue$10.23B
Cost of Revenue$10.27B
Gross Profit$1.37B
Operating Income$1.27B
Interest Expense$104.00M
Net Income$929.00M
EPS (Basic)$2.98
EPS (Diluted)$2.94
Shares Outstanding (Basic)312.00M
Shares Outstanding (Diluted)316.10M

Key Highlights

  • 1Total net sales for the second quarter of 2015 increased by 3% to $11.64 billion compared to $11.31 billion in the prior year's quarter.
  • 2Diluted earnings per common share rose to $2.94 for the second quarter of 2015, up from $2.76 in the second quarter of 2014.
  • 3The company announced a definitive agreement to acquire Sikorsky Aircraft for $9.0 billion, expected to close in late 2015 or early 2016.
  • 4Lockheed Martin is conducting a strategic review of its government IT infrastructure services and technical services businesses, with a potential spin-off or sale.
  • 5Cash and cash equivalents increased significantly to $3.20 billion at June 28, 2015, up from $1.45 billion at December 31, 2014.
  • 6The Aeronautics segment reported strong net sales growth of 7% for the quarter, driven by production contracts and the F-35 program.
  • 7Interest expense increased due to the issuance of $2.25 billion in long-term debt in February 2015.

Frequently Asked Questions

Revenue growth in the second quarter was primarily driven by an increase in product sales within the Aeronautics segment, particularly on production contracts and the F-35 program, and by higher volume in the Space Systems segment for the Orion program. Service sales also increased due to sustainment activities on the F-35 program and newly acquired businesses in Space Systems.

Lockheed Martin announced an agreement to acquire Sikorsky Aircraft for $9.0 billion. The company expects to fund this acquisition with a combination of new debt and available cash. This strategic move is anticipated to expand Lockheed Martin's capabilities, particularly within its Mission Systems and Training segment, and is expected to generate a significant tax benefit due to a joint election under the Internal Revenue Code. The financial results will not include Sikorsky until the acquisition is closed, expected in late 2015 or early 2016.

Lockheed Martin is undertaking a strategic review of its government IT infrastructure services business (within IS&GS) and its technical services business (within MFC). The company expects this review to result in a spin-off to shareholders or a sale of these businesses. The businesses not included in the review will be realigned into other segments. This review is expected to be completed in 2015, and financial results for these businesses will continue to be reported in continuing operations during the review period.

The company's cash and cash equivalents significantly increased to $3.20 billion as of June 28, 2015, up from $1.45 billion at the end of 2014. This increase was primarily due to net cash provided by operating activities, which was partially offset by investing and financing activities. Lockheed Martin relies on operating cash flows as its primary funding source and has access to a $1.5 billion revolving credit facility and commercial paper agreements for additional liquidity if needed. The company also issued $2.25 billion of long-term debt in February 2015.