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Lockheed Martin today reported second quarter 2015 net sales of $11.6 billion, compared to $11.3 billion in the second quarter of 2014. Net earnings in the second quarter of 2015 were $929 million, or $2.94 per share, compared to $889 million, or $2.76 per share, in the second quarter of 2014. Cash from operations in the second quarter of 2015 was $1.3 billion, compared to $977 million in the second quarter of 2014.
"Solid operational and program execution in the second quarter allowed us to increase our financial guidance for profit and earnings per share," said Lockheed Martin chairman, president and CEO Marillyn Hewson. "Separately, we announced two portfolio shaping initiatives today, the acquisition of Sikorsky Aircraft and a strategic review of our IT services business in IS&GS and our technical services business in MFC. We look forward to welcoming Sikorsky to the Lockheed Martin team and determining the best path to long-term growth for the business under review."
Acquisition of Sikorsky Aircraft
On July 20, 2015, the Corporation announced that it entered into a definitive agreement to acquire Sikorsky Aircraft (Sikorsky), a global company engaged in the design, manufacture and support of military and commercial helicopters, for $9.0 billion of cash, subject to certain adjustments. The Corporation expects to fund the acquisition with a combination of new debt issuances and available cash. The Corporation and United Technologies Corporation have agreed to make a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction as an asset purchase for tax purposes. This election generates a cash tax benefit with an estimated net present value of $1.9 billion for the Corporation and its shareholders. The acquisition is subject to customary closing conditions, including regulatory approval, and is expected to close in the fourth quarter of 2015 or the first quarter of 2016. Once the acquisition is complete, the Corporation plans to align Sikorsky under its Mission Systems and Training business segment. The Corporation's financial results will not include Sikorsky's results until the acquisition is closed.
Strategic Review of Government IT and Technical Services Businesses
On July 20, 2015, the Corporation also announced that it will conduct a strategic review of the government IT infrastructure services business within its IS&GS business segment and the technical services business within its MFC business segment. The programs to be reviewed represent approximately $6.0 billion in estimated 2015 annual sales and approximately 17,000 employees. The Corporation expects the strategic review will result in a spin-off to its shareholders or sale of these businesses. The IS&GS programs that are not included in the strategic review are mostly focused on defense and intelligence customers and will be realigned into the Corporation's other business segments following completion of the review. The Corporation expects to complete the strategic review in 2015. While the Corporation performs its strategic review, it will maintain the current operating and reporting structure and will continue to report the financial results of the government IT infrastructure services and technical services businesses in its continuing operations.
Cash Deployment Activities
The Corporation's cash deployment activities in the second quarter of 2015 consisted of the following:
- repurchasing 4.9 million shares for $937 million, compared to 0.8 million shares for $124 million in the second quarter of 2014;
- paying cash dividends of $467 million, compared to $421 million in the second quarter of 2014;
- making capital expenditures of $191 million, compared to $150 million in the second quarter of 2014; and
- no contributions to the Corporation's pension trust, compared to $515 million during the second quarter of 2014.
The Corporation operates in five business segments: Aeronautics, Information Systems & Global Solutions (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 the products and services offered.
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 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 operating performance, such as charges related to significant severance actions and goodwill impairments; gains or losses from divestitures; the effects of certain legal settlements; corporate costs not allocated to the Corporation's business segments; and other miscellaneous corporate activities.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Changes in volume also include the effect of fluctuations in contract profit booking rates that have occurred in reporting periods other than those presented in the comparative segment results. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract.
In addition, comparability of the Corporation's segment sales, operating profit and operating margins may be impacted favorably or unfavorably by changes in profit booking rates on the Corporation's contracts accounted for using the percentage-of-completion method of accounting. Increases in the profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate resulting in an increase in the estimated total costs to complete and a reduction in the profit booking rate. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes. Segment operating profit and margins may also be impacted favorably or unfavorably by other items. Favorable items may include the positive resolution of contractual matters, cost recoveries on restructuring charges, insurance recoveries and gains on sales of assets. Unfavorable items may include the adverse resolution of contractual matters; restructuring charges, except for significant severance actions which are excluded from segment operating results; reserves for disputes; asset impairments; and losses on sales of assets. Segment operating profit and items such as risk retirements, reductions of profit booking rates or other matters are presented net of state income taxes.
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About Lockheed Martin
Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company that employs approximately 112,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services. The Corporation's net sales for 2014 were $45.6 billion.