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Lockheed Martin Reports Third Quarter 2015 Results

The following excerpt is from the company's SEC filing.

Net sales of $11.5 billion

Net earnings of $865 million, or $2.77 per share

Generated cash from operations of $1.5 billion

Repurchased 4.1 million shares, and increased share repurchase program by $3.0 billion

Increased quarterly dividend rate 10 percent to $1.65 per share

Updates 2015 outlook and provides trend information for 2016
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– Lockheed Martin (NYSE: LMT) today reported third quarter 2015 net sales of $11.5 billion, compared to $11.1 billion in the third quarter of 2014. Net earnings in the third quarter of 2015 were $865 million, or $2.77 per share, compared to $888 million, or $2.76 per share, in the third quarter of 2014. Cash from operations in the third quarter of 2015 was $1.5 billion, compared to $990 million in the third quarter of 2014.

“Our strong operating results this quarter are a reflection of our corporate-wide focus on program execution and delivery of value to customers and shareholders,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “As we look ahead to 2016, we will remain focused on performing with excellence and providing affordable and innovative solutions for our customers, while strategically positioning our business portfolio on the best path to long-term growth and value for the corporation.”

Summary Financial Results

The following table presents the Corporation’s summary financial results.

(in millions, except per share data)

Quarters Ended

Nine Months Ended

Sept. 27,

Sept. 28,

Net sales





Business segment operating profit

Unallocated items

FAS/CAS pension adjustment

Special item - severance charges

Other, net

Total unallocated items

Consolidated operating profit

Net earnings

Diluted earnings per share

Cash from operations


Severance charges for the third quarter of 2015 consist of amounts associated with the planned elimination of certain positions at the Corporation’s Information Systems & Global Solutions (IS&GS) business segment. Severance charges for initiatives that are not significant are included in business segment operating profit.


The Corporation made no contributions to its defined benefit pension trust during the third quarter of 2015 compared to $485 million during the third quarter of 2014. Additionally, the Corporation made net income tax payments of $670 million during the third quarter of 2015 compared to $451 million during the third quarter of 2014.

2015 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the Corporation’s current expectations. Actual results may differ materially from those projected. It is the Corporation’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law and restructuring activities until such items have been consummated or enacted. Accordingly, the Corporation’s outlook for 2015 does not reflect any impact from the strategic review of the government IT infrastructure services and technical services businesses (strategic review) or its pending acquisition of Sikorsky Aircraft Corporation (Sikorsky). For additional factors that may impact the Corporation’s actual results, refer to the “Forward-Looking Statements” section in this news release.

Current Update

July Outlook


No Change

$43,500 – $45,000

Net sales


Business segment operating profit


$5,225 – $5,375

FAS/CAS pension adjustment

No Change

Special Item - Severance


Other, net




$5,425 – $5,575


$11.00 – $11.30

≥ $5,000

The Corporation may determine to fund customer programs itself pending government appropriations and is doing so with increased frequency. If the Corporation incurs costs in excess of funds obligated on a contract, it may be at risk for reimbursement of the excess costs. In 2014, the Corporation received customer authorization and initial customer funding to begin production of C-130J aircraft to be procured under the Multiyear II contract. Similarly, in 2014 and 2015, the Corporation received customer authorization and initial funding to begin producing F-35 aircraft to be acquired under low-rate initial production (LRIP) 9 and 10 contracts, respectively. The Corporation continues to negotiate these contracts with its customer. Throughout the negotiations process the Corporation has incurred costs in excess of funds obligated and has provided notification to its customer that current funding is insufficient to cover the production process. Despite not yet receiving additional funding, the Corporation continued work in an effort to meet its customer’s desired aircraft delivery dates. As a result, as of Sept. 27, 2015, the Corporation has $2.4 billion in potential cost and termination liability exposure related to the C-130J Multiyear II and F-35 LRIP 9 and 10 contracts. The Corporation is currently negotiating final contract terms with its customer and expects to receive additional funding by the end of 2015. Depending on when the Corporation receives the additional funding, approximately $750 million of cash the Corporation expects to collect in 2015 may be delayed until 2016.

2016 Financial Trends

The Corporation expects its 2016 net sales will be comparable with 2015 and that total business segment operating margin will be in the 11.0 percent to 11.5 percent range. The Corporation also expects its 2016 cash from operations will be comparable with 2015. The Corporation’s preliminary outlook for 2016 does not reflect any impacts from the ongoing strategic review or its pending acquisition of Sikorsky. The Corporation’s outlook for 2016 will be updated at the conclusion of its strategic review, and when the acquisition of Sikorsky closes. In addition, the preliminary outlook assumes the U.S. Government continues to support and fund the Corporation’s key programs, consistent with the continuing resolution funding measure through Dec. 11, 2015, and Congress approves budget legislation for government fiscal year (GFY) 2016 soon. Changes in circumstances may require the Corporation to revise its assumptions, which could materially change its current estimate of 2016 net sales, operating margin and cash flows.

The Corporation expects the 2016 FAS/CAS benefit to be approximately $810 million assuming a 4.25 percent discount rate at the end of 2015, a 25 basis points increase from 2014, and zero return on plan assets in 2015, among other assumptions. The Corporation does not expect to make contributions to its qualified defined benefit pension plans in 2016. A change of plus or minus 25 basis points to the assumed discount rate, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $120 million to the estimated 2016 FAS/CAS pension adjustment. The Corporation will finalize the postretirement benefit plan assumptions and determine the 2015 actual return on plan assets on Dec. 31, 2015. The final assumptions and actual investment returns for 2015 may differ materially from those discussed above.

Cash Deployment Activities

The Corporation’s cash deployment activities in the third quarter of 2015 consisted of the following:

repurchasing 4.1 million shares for $823 million, compared to 2.6 million shares for $446 million in the third quarter of 2014;

paying cash dividends of $462 million, compared to $421 million in the third quarter of 2014;

making capital expenditures of $191 million, compared to $203 million in the third quarter of 2014; and


no contributions to the Corporation’s pension trust, compared to $485 million during the third quarter of 2014.

On Sept. 24, 2015, the Corporation increased its share repurchase program by $3.0 billion. Inclusive of this increase, the total remaining authorization for future common share repurchases under the program was $4.3 billion as of Sept. 27, 2015. The Corporation anticipates at least $2.0 billion of share repurchases in 2016, which is consistent with the Corporation’s plan to reduce its total outstanding share count to below 300 million shares by the end of 2017, subject to market conditions and fiduciary obligations permitting.

On Sept. 24, 2015, the Corporation increased its quarterly dividend 10 percent, or $0.15 per share, to $1.65 per share beginning with the payment to be made on Dec. 24, 2015 to stockholders of record as of the close of business on Dec. 1, 2015.

Segment Results

The Corporation currently operates in five business segments: Aeronautics, IS&GS, Missiles and Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. The Corporation organizes its business segments based on the nature of products and services offered. The Corporation’s segment results for the third quarter of 2015 do not reflect any impacts from the ongoing strategic review or the pending acquisition of Sikorsky.

Operating profit of the business segments includes the Corporation’s share of earnings or losses from equity method investees as the operating activities of the equity method investees are closely aligned with the operations of the Corporation’s business segments. United Launch Alliance (ULA), which is part of the Space Systems business segment, is the Corporation’s primary equity method investee. Operating profit of the Corporation’s business segments excludes the FAS/CAS pension adjustment, which represents the difference between total pension expense recorded in accordance with U.S. generally accepted accounting principles (GAAP) (FAS) and pension costs recoverable on U.S. Government contracts as determined in accordance with U.S. Government Cost Accounting Standards (CAS); expense for stock-based compensation; the effects of items not considered part of management’s evaluation of segment...