10-QPeriod: Q1 FY2016

LOCKHEED MARTIN CORP Quarterly Report for Q1 Ended Mar 27, 2016

Filed April 27, 2016For Securities:LMT

Summary

Lockheed Martin Corporation (LMT) reported financial results for the first quarter ended March 27, 2016. Total net sales increased by 15.7% to $11.7 billion compared to the prior year's first quarter, primarily driven by the inclusion of Sikorsky Aircraft Corporation's operations and increased sales in the Aeronautics segment. Net earnings decreased to $794 million, or $2.58 per diluted share, from $878 million, or $2.74 per diluted share, in the same period last year. This decrease was influenced by higher interest expenses related to recent debt issuances and increased severance charges, partially offset by revenue growth and favorable contract adjustments. The company continues to execute its strategic priorities, including the planned separation of its Information Systems & Global Solutions (IS&GS) business segment.

Financial Highlights

44 data points
Beta

Revenue

$10.37B

10.6% Gross Margin

Net Income

$898.00M

8.7% Net Margin

EPS (Diluted)

$2.91

Total Assets

$50.16B

Cash & Equivalents

$1.45B

Free Cash Flow

$1.67B

Financial Statements
Beta
Revenue$10.37B
Cost of Revenue$9.27B
Gross Profit$1.09B
Operating Income$1.16B
Interest Expense$165.00M
Net Income$898.00M
EPS (Basic)$2.95
EPS (Diluted)$2.91
Shares Outstanding (Basic)304.50M
Shares Outstanding (Diluted)308.70M

Key Highlights

  • 1Total net sales increased by 15.7% year-over-year to $11.7 billion, boosted by the acquisition of Sikorsky.
  • 2Net earnings decreased by 9.6% to $794 million, with diluted EPS falling to $2.58 from $2.74.
  • 3Aeronautics segment sales grew 21% driven by the F-35 program and increased deliveries.
  • 4The Mission Systems and Training (MST) segment saw a significant 52% revenue increase, largely due to Sikorsky.
  • 5Interest expense more than doubled to $164 million, reflecting increased long-term debt.
  • 6The company recorded $99 million in severance charges, primarily within the Aeronautics and IS&GS segments.
  • 7Lockheed Martin is progressing with the planned separation of its IS&GS business segment through a Reverse Morris Trust transaction with Leidos.

Frequently Asked Questions

The primary driver of the increase in net sales was the inclusion of the Sikorsky Aircraft Corporation, which was acquired in the fourth quarter of 2015. The Aeronautics segment also contributed significantly due to higher sales volumes, particularly for the F-35 program.

Net earnings decreased primarily due to higher interest expenses resulting from recent debt issuances to finance acquisitions, increased severance charges, and a decline in operating profit in segments like Missiles and Fire Control and Space Systems. These factors more than offset the revenue growth and positive contract adjustments seen in other segments.

Lockheed Martin has entered into definitive agreements to separate and combine its Information Systems & Global Solutions (IS&GS) business segment with Leidos Holdings, Inc. in a tax-efficient Reverse Morris Trust transaction. The transaction is expected to close in the third or fourth quarter of 2016, subject to customary closing conditions, including regulatory and shareholder approvals.

The acquisition of Sikorsky, completed in November 2015, significantly boosted net sales, particularly in the Mission Systems and Training (MST) segment. However, it also contributed to higher operating costs and intangible asset amortization, and resulted in preliminary purchase price allocation adjustments which are still being refined.