Lockheed Martin Reports Third Quarter 2019 Results

BETHESDA, Md., Oct. 22, 2019 /PRNewswire/ -- Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2019 net sales of $15.2 billion, compared to $14.3 billion in the third quarter of 2018. Net earnings in the third quarter of 2019 were $1.6 billion, or $5.66 per share, compared to $1.5 billion, or $5.14 per share, in the third quarter of 2018. Cash from operations in the third quarter of 2019 was $2.5 billion, compared to cash from operations of $361 million after pension contributions of $1.5 billion in the third quarter of 2018.

"The corporation achieved another quarter of strong growth and outstanding operational performance," said Lockheed Martin Chairman, President and CEO Marillyn Hewson. "As we look ahead to 2020, we remain focused on providing innovative solutions for our customers, investing for long-term growth, and generating value for our shareholders."

Summary Financial Results

The following table presents the corporation's summary financial results.


        
            (in millions, except per share data)                                                                                                  Quarters Ended(2)                                    Nine Months Ended(2)


                                                                                                                                     Sept. 29,                           Sept. 30,        Sept. 29,                              Sept. 30,
                                                                                                                                          2019                                 2018              2019                                    2018



        
            
              Net sales                                                                                                          $
       
              15,171                                 $
            14,318                        $
      
       43,934  $
        39,351





        
            
              Business segment operating profit(1)                                                                                $
       
              1,665                                  $
            1,586                         $
      
       4,934   $
        4,362


        
            Unallocated items


        
            FAS/CAS operating adjustment                                                                                              513                                        451                                              1,537            1,353


        
            Severance and restructuring charges(3)                                                                                                                                                                                               (96)


        
            Other, net4                                                                                                              (73)                                      (74)                                              (75)           (136)



        
            Total unallocated items                                                                                                   440                                        377                                              1,462            1,121



        
            
              Consolidated operating profit                                                                                       $
       
              2,105                                  $
            1,963                         $
      
       6,396   $
        5,483





        
            
              Net earnings5                                                                                                       $
       
              1,608                                  $
            1,473                         $
      
       4,732   $
        3,793





        
            
              Diluted earnings per share                                                                                           $
       
              5.66                                   $
            5.14                         $
      
       16.66   $
        13.21





        
            
              Cash generated from operations6                                                                                     $
       
              2,490                                    $
            361                         $
      
       5,821     $
        921






     1          Business segment operating profit is a non-GAAP measure. See the "Non-GAAP Financial Measures" section of this
                  news release for
        more information.



     2          For the quarter ended Sept. 29, 2019, the corporation's accounting period included 13 weeks compared to 14 weeks for
                  the quarter ended
        Sept. 30, 2018. For the first nine months of 2019 and 2018, the corporation's accounting period included 39 weeks.



     3          In the first nine months of 2018, the corporation recognized severance and restructuring charges totaling $96
                  million ($76 million, or $0.26
         per share, after tax) associated with planned workforce reductions and the consolidation of certain operations at
         the corporation's Rotary
        and Mission Systems business segment.



     4          In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million
                  ($38 million, or $0.13 per
        share, after tax) related to properties sold in 2015 as a result of completing its remaining obligations.



     5          Net earnings for the quarter and the first nine months of 2019 include benefits of $62 million ($0.22 per share) and
                  $127 million ($0.45 per
         share), respectively, for additional tax deductions for the prior year, primarily attributable to foreign derived
         intangible income treatment
         based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method. Net earnings
         for the quarter and
         the first nine months of 2018 include benefits of $148 million ($0.52 per share) and $152 million ($0.53 per share),
         respectively, for additional
         tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the
         Tax Cuts and Jobs Act enacted
        on Dec. 22, 2017 and our change in tax accounting method. See the "Income Taxes" section for further discussion.



     6          Cash from operations in the third quarter of 2018 is after pension contributions of $1.5 billion. Cash from
                  operations in the first nine months
         of 2018 is after pension contributions $5.0 billion and includes $870 million of tax refunds. The corporation made
         no pension contributions
        in 2019.

2019 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 typical practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the corporation's actual results, refer to the "Forward-Looking Statements" section in this news release.


          
     (in millions, except per share data)                                                                               
       
       Current Update(3) 
        
          July Outlook





          
     Net sales                                                                                                            
       
          ~$59,100                  
              $58,250 - $59,750




          
     Business segment operating profit                                                                                    
       
          ~$6,425                     
              $6,325 - $6,475




          
     Net FAS/CAS pension adjustment(1)                                                                                    
       
          ~$1,475         
        ~$1,475




          
     Diluted earnings per share(2)                                                                                        
       
          ~$21.55                     
              $20.85 - $21.15




          
     Cash from operations                                                                                                 
       
          >=$7,600       
        >=$7,600





       1   The net FAS/CAS pension adjustment above is presented as a single amount and includes expected 2019 U.S.
             Government cost

            accounting standards (CAS) pension cost of approximately $2,565 million and expected financial accounting
             standards (FAS) pension

            expense of approximately $1,090 million. CAS pension cost and the service cost component of FAS pension expense is
             included in

            operating profit as part of cost of sales. The non-service cost components of FAS pension expense are included in
             other non-operating

            expense, net in the corporation's consolidated statements of earnings. For additional detail on the corporation's
             FAS/CAS pension

          
     adjustment see the supplemental table included at the end of this news release.



       2   Although the corporation typically does not update its outlook for proposed changes in law, the above includes the
             effect of proposed tax

            regulations confirming that foreign military sales (FMS) qualify for tax deductions for foreign derived intangible
             income. The corporation

            believes incorporating the effect of the proposed regulations yields more accurate disclosure of the company's
             expectations because the

            proposed regulations describe the tax treatment of FMS sales in accordance with the corporation's analysis of the
             Internal Revenue Code.



       3   The corporation's financial outlook for 2019 does not include potential impacts to the corporation's programs,
             including the F-35 program,

            resulting from U.S. Government actions related to Turkey or potential financial impacts related to the U.S.
             Government operating under a

            continuing resolution funding measure. During periods covered by continuing resolutions or until the regular
             appropriations bills are

            passed, the corporation may experience delays in procurement of products and services due to lack of funding, and
             those delays may

            affect its results of operations. The corporation currently does not expect either of these events to have an
             impact on its 2019

          
     financial results.

    ---

2020 Financial Trends

The corporation expects its 2020 net sales to increase to approximately $62.0 billion. Total business segment operating margin in 2020 is expected to be in the 10.5 percent to 10.8 percent range and cash from operations is expected to be greater than or equal to $7.2 billion, net of $500 million of pension contributions. The preliminary outlook for 2020 assumes there is no impact from U.S. Government actions related to Turkey and the U.S. Government continues to support and fund the corporation's key programs. Changes in circumstances may require the corporation to revise its assumptions, which could materially change the corporation's current estimate of 2020 net sales, operating margin and cash flows.

The corporation currently expects a total net FAS/CAS pension benefit of approximately $2.1 billion in 2020. This estimate assumes a 3.25 percent discount rate (a 100 basis point decrease from the end of 2018), a 15.00 percent return on plan assets in 2019, and a 7.00 percent expected long-term rate of return on plan assets in future years, among other assumptions. 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 $15 million to the estimated net 2020 FAS/CAS pension benefit. The impact of changes in the discount rate is significantly less than in prior years (i.e., $15 million for 2020 compared to $120 million for 2019) due to the expected completion of the planned freeze of the corporation's salaried pension plans that was previously announced on July 1, 2014, which is discussed in further detail below. A change of 100 basis points to the return on plan assets in 2019, with all other assumptions held constant, would impact the net 2020 FAS/CAS pension benefit by approximately $15 million. As noted above, the corporation expects to make contributions of approximately $500 million to its qualified defined benefit pension plans in 2020 and anticipates recovering approximately $2.2 billion of CAS pension cost. The corporation will complete the annual remeasurement of its postretirement benefit plans and update its estimated 2020 FAS/CAS pension adjustment on Dec. 31, 2019. The final assumptions and actual investment return for 2019 may differ materially from those discussed above.

As previously announced on July 1, 2014, the corporation will complete the final step of the planned freeze of its qualified and nonqualified defined benefit pension plans for salaried employees effective Jan. 1, 2020. The service-based component of the formula used to determine retirement benefits will be frozen such that participants will no longer earn further credited service for any period after Dec. 31, 2019. As a result of these changes, the plans will be fully frozen effective Jan. 1, 2020. Retirees already collecting benefits and former employees with a vested benefit will not be affected by the change. Current employees also will retain all benefits already earned in their pension plan to date.

Cash Activities

The corporation's cash activities in the third quarter of 2019 included the following:

    --  paying cash dividends of $621 million, compared to $569 million in the
        third quarter of 2018;
    --  repurchasing 0.6 million shares for $210 million, compared to 0.6
        million shares for $216 million in the third quarter of 2018;
    --  making capital expenditures of $308 million, compared to $339 million in
        the third quarter of 2018;
    --  no net proceeds from or repayments of commercial paper, compared to net
        proceeds of $490 million in the third quarter of 2018; and
    --  making no pension contributions, compared to pension contributions of
        $1.5 billion in the third quarter of 2018.

As previously reported on Sept. 26, 2019, the corporation increased its quarterly dividend by $0.20 per share, to $2.40 per share, beginning with the dividend payment in the fourth quarter of 2019. The corporation also increased its share repurchase authority by $1.0 billion with $3.3 billion in total remaining authorization for future repurchases of common stock under the program as of Sept. 29, 2019.

Segment Results

The corporation operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the corporation's business segments and reconciles these amounts to the corporation's consolidated financial results.


     
     (in millions)                                                             Quarters Ended                                    Nine Months Ended


                                                            Sept. 29,                           Sept. 30,        Sept. 29,                           Sept. 30,
                                                                 2019                                 2018              2019                                 2018



     
     
                Net sales


     
     Aeronautics                                                     $
        
              6,178                                 $
              5,642                   $
      
       17,312  $
      15,361


     
     Missiles and Fire Control                                2,601                                      2,273                                           7,362            6,035


     
     Rotary and Mission Systems                               3,709                                      3,848                                          11,239           10,637


     
     Space                                                    2,683                                      2,555                                           8,021            7,318



     
     
                Total net sales                                   $
        
              15,171                                $
              14,318                   $
      
       43,934  $
      39,351





     
     
                Operating profit


     
     Aeronautics                                                       $
        
              665                                   $
              600                    $
      
       1,842   $
      1,646


     
     Missiles and Fire Control                                  349                                        332                                           1,093              872


     
     Rotary and Mission Systems                                 342                                        361                                           1,068            1,013


     
     Space                                                      309                                        293                                             931              831



     
     
                Total business segment operating profit     1,665                                      1,586                                           4,934            4,362


     
     Unallocated items


     
     FAS/CAS operating adjustment                               513                                        451                                           1,537            1,353


     
     Severance and restructuring charges                                                                                                                                (96)


     
     Other, net                                                (73)                                      (74)                                           (75)           (136)



     
     Total unallocated items                                    440                                        377                                           1,462            1,121



     
     
                Total consolidated operating profit                $
        
              2,105                                 $
              1,963                    $
      
       6,396   $
      5,483

Net sales and operating profit of the corporation's business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation. Operating profit of the corporation's business segments includes the corporation's share of earnings or losses from equity method investees as the operating activities of the investees are closely aligned with the operations of its business segments.

Operating profit of the corporation's business segments also excludes the FAS/CAS operating adjustment described below, a portion of corporate costs not considered allowable or allocable to contracts with the U.S. Government under the applicable U.S. government cost accounting standards (CAS) or federal acquisition regulations (FAR), and other items not considered part of management's evaluation of segment operating performance such as a portion of management and administration costs, legal fees and settlements, environmental costs, stock-based compensation expense, retiree benefits, significant severance actions, significant asset impairments, gains or losses from significant divestitures, and other miscellaneous corporate activities.

The corporation recovers CAS pension cost through the pricing of its products and services on U.S. Government contracts and, therefore, recognizes CAS pension cost in each of its business segment's net sales and cost of sales. The corporation's consolidated financial statements must present pension and other postretirement benefit plan expense calculated in accordance with U.S. generally accepted accounting principles (referred to as FAS pension expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and CAS pension cost. The non-service FAS pension cost component is included in other non?operating expense, net on the corporation's consolidated statements of earnings. The net FAS/CAS pension adjustment increases or decreases CAS pension cost to equal total FAS pension expense (both service and non-service).

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. 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 margin may be impacted favorably or unfavorably by changes in profit booking rates on the corporation's contracts for which it recognizes revenue over time using the percentage-of-completion cost-to-cost method to measure progress towards completion. Increases in profit booking rates, typically referred to as risk retirements, usually relate to revisions in the estimated total costs to fulfill the performance obligations 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 fulfill the performance obligations 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 margin may also be impacted favorably or unfavorably by other items, which may or may not impact sales. Favorable items may include the positive resolution of contractual matters, cost recoveries on severance and 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; certain asset impairments; and losses on sales of certain assets.

The corporation's consolidated net adjustments not related to volume, including net profit booking rate adjustments, represented approximately 29 percent of total segment operating profit in the third quarter of 2019 as compared to 34 percent in the third quarter of 2018.

Aeronautics


     
     (in millions)                                    Quarters Ended                                  Nine Months Ended


                                     Sept. 29,                         Sept. 30,       Sept. 29,                          Sept. 30,
                                          2019                               2018             2019                                2018



     
     
                Net sales                  $
       
              6,178                               $
          5,642                       $
      
      17,312 $
      15,361


     
     
                Operating profit             $
       
              665                                 $
          600                        $
      
      1,842  $
      1,646


     
     
                Operating margin      10.8                                    10.6                                           10.6
                                                                                    %                                                            %
                                             %                                                                                    %           10.7

Aeronautics' net sales in the third quarter of 2019 increased $536 million, or 10 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $480 million for the F-35 program due to increased volume on production, development and sustainment contracts and about $80 million for classified development programs due to higher volume.

Aeronautics' operating profit in the third quarter of 2019 increased $65 million, or 11 percent, compared to the same period in 2018. Operating profit increased approximately $35 million for the F-16 program due to higher risk retirements on sustainment contracts, and about $20 million for the F-35 program due to increased volume on production, development, and sustainment contracts, partially offset by lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable during the third quarter of 2019 compared to the same period in 2018.

Missiles and Fire Control


     
     (in millions)                                    Quarters Ended                                  Nine Months Ended


                                     Sept. 29,                         Sept. 30,       Sept. 29,                          Sept. 30,
                                          2019                               2018             2019                                2018



     
     
                Net sales                  $
       
              2,601                               $
              2,273                   $
     
      7,362 $
       6,035


     
     
                Operating profit             $
       
              349                                 $
              332                   $
     
      1,093   $
       872


     
     
                Operating margin      13.4                                    14.6                                           14.8
                                                                                    %                                                          %
                                             %                                                                                    %         14.4

MFC's net sales in the third quarter of 2019 increased $328 million, or 14 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $200 million for tactical and strike missile programs due to increased volume (primarily precision fires and new hypersonic development programs); and about $120 million for integrated air and missile defense programs due to increased volume (primarily Patriot Advanced Capability-3 (PAC-3) and Terminal High Altitude Area Defense (THAAD)).

MFC's operating profit in the third quarter of 2019 increased $17 million, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $45 million due to higher risk retirements on energy programs and about $15 million for integrated air and missile defense programs due to higher risk retirements and higher volume (primarily THAAD and PAC-3), partially offset by charges for performance matters on an air and missile defense development program. These increases were partially offset by a decrease of approximately $40 million for sensors and global sustainment programs due to lower risk retirements (primarily Low Altitude Navigation and Targeting Infrared for Night (LANTIRN(®)) and Sniper Advanced Targeting Pod (SNIPER(®))). Adjustments not related to volume, including net profit booking rate adjustments and other matters, were $30 million lower in the third quarter of 2019 compared to the same period in 2018.

Rotary and Mission Systems


     
     (in millions)                                    Quarters Ended                                 Nine Months Ended


                                     Sept. 29,                         Sept. 30,      Sept. 29,                          Sept. 30,
                                          2019                               2018            2019                                2018



     
     
                Net sales                  $
       
              3,709                              $
          3,848                       $
      
      11,239 $
      10,637


     
     
                Operating profit             $
       
              342                                $
          361                        $
      
      1,068  $
      1,013


     
     
                Operating margin       9.2                                    9.4                                            9.5
                                                                                   %                                                            %
                                             %                                                                                   %            9.5

RMS' net sales in the third quarter of 2019 decreased $139 million, or 4 percent, compared to the same period in 2018. The decrease was primarily attributable to lower net sales of approximately $160 million for Sikorsky helicopter programs due to lower volume (primarily Black Hawk production and mission systems programs). This decrease was partially offset by an increase of approximately $40 million for various C6ISR (command, control, communications, computers, cyber, combat systems, intelligence, surveillance, and reconnaissance) programs due to higher volume.

RMS' operating profit in the third quarter of 2019 decreased $19 million, or 5 percent, compared to the same period in 2018. Operating profit decreased approximately $50 million for integrated warfare systems and sensors (IWSS) programs due to lower risk retirements (primarily Radar Surveillance Systems programs). This decrease was partially offset by an increase of about $20 million for Sikorsky helicopter programs due to risk retirements on commercial after-market programs and better cost performance across the portfolio; and about $10 million for training and logistics solutions (TLS) programs due to lower program charges. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were about $35 million lower in the third quarter of 2019 compared to the same period in 2018.

Space


     
     (in millions)                                    Quarters Ended                                  Nine Months Ended


                                     Sept. 29,                         Sept. 30,       Sept. 29,                          Sept. 30,
                                          2019                               2018             2019                                2018



     
     
                Net sales                  $
       
              2,683                               $
              2,555                   $
       
        8,021 $
       7,318


     
     
                Operating profit             $
       
              309                                 $
              293                     $
       
        931   $
       831


     
     
                Operating margin      11.5                                    11.5                                           11.6
                                                                                    %                                                              %
                                             %                                                                                    %             11.4

Space's net sales in the third quarter of 2019 increased $128 million, or 5 percent, compared to the same period in 2018. The increase was primarily attributable to higher net sales of approximately $100 million for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR) and Global Positioning System (GPS) III) and about $95 million for strategic and missile defense programs due to higher volume (primarily new hypersonic development programs). These increases were partially offset by a decrease of $35 million due to lower volume on the Orion program and a decrease of $25 million due to lower volume on commercial satellite programs.

Space's operating profit in the third quarter of 2019 increased $16 million, or 5 percent, compared to the same period in 2018. Operating profit increased approximately $10 million due to higher equity earnings for ULA and $10 million for commercial satellite programs, which reflect a lower amount of charges recorded for performance matters. These increases were partially offset by a decrease of approximately $10 million for government satellite programs due to lower risk retirements. Adjustments not related to volume, including net profit booking rate adjustments and other matters, were comparable in the third quarter of 2019, to the same period in 2018.

Total equity earnings recognized by Space (primarily ULA) represented approximately $55 million, or 18 percent of Space's operating profit in the third quarter of 2019, compared to approximately $45 million, or 15 percent in the third quarter of 2018.

Income Taxes

The corporation's effective income tax rate was 9.7 percent in the third quarter of 2019, compared to 6.5 percent in the third quarter of 2018. The rate for the third quarter of 2019 benefited from $62 million, or $0.22 per share, of additional tax deductions for the prior year, primarily attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019 and our change in tax accounting method, reflecting a 2012 Court of Federal Claims decision, which held that the tax basis in certain assets should be increased and realized upon the assets' disposition. The rate for the third quarter of 2018 benefited from $148 million, or $0.52 per share, of additional tax deductions for the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted on December 22, 2017 and additional tax deductions from the corporation's change in tax accounting method reflecting the 2012 Court of Federal Claims decision. The rates for both periods benefited from tax deductions for dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature, tax deductions for foreign derived intangible income, tax deductions for employee equity awards, and the research and development tax credit.

Use of Non-GAAP Financial Measures

This news release contains the following non-generally accepted accounting principles (non-GAAP) financial measures (as defined by U.S. Securities and Exchange Commission (SEC) Regulation G). While the corporation believes that these non-GAAP financial measures may be useful in evaluating the financial performance of Lockheed Martin Corporation, this information should be considered supplemental and is not a substitute for financial information prepared in accordance with GAAP. In addition, the corporation's definitions for non-GAAP financial measures may differ from similarly titled measures used by other companies or analysts.

Business segment operating profit represents the total earnings from the corporation's business segments before unallocated income and expense. This measure is used by the corporation's senior management in evaluating the performance of its business segments and is a performance goal in the corporation's annual incentive plan. Business segment operating margin is calculated by dividing business segment operating profit by sales. The table below reconciles the non-GAAP measure business segment operating profit with the most directly comparable GAAP financial measure, consolidated operating profit included in the corporation's 2019 financial outlook.


          
     (in millions)                                                                                                     
         
         2019 Financial Outlook


                                                                                                                                
         
           Current Update     
       
          July Outlook





          
     
                Business segment operating profit (non-GAAP)                                                             
         
             ~$6,425              
              $6,325 - $6,475


          
     FAS/CAS operating adjustment(1)                                                                                       
         
             ~2,050           
        ~2,050


          
     Other, net                                                                                                            
         
             ~(125)           
        ~(115)


          
     
                Consolidated operating profit (GAAP)                                                                     
         
             ~$8,350              
              $8,260 - $8,410






       1   Refer to the supplemental table "Other Financial and Operating Information" included in this news release for a
             detail of the FAS/CAS

            operating adjustment, which excludes $575 million of expected non-service FAS cost that will be recorded in other
             non-operating expense,

          
     net.

    ---

Conference Call Information

Lockheed Martin Corporation will webcast live its third quarter 2019 earnings results conference call (listen-only mode) on Tuesday, Oct. 22, 2019, at 11:00 a.m. ET. The live webcast and relevant financial charts will be available for download on the Lockheed Martin Investor Relations website at www.lockheedmartin.com/investor.

For additional information, visit our website: www.lockheedmartin.com.

About Lockheed Martin

Headquartered in Bethesda, Maryland, Lockheed Martin Corporation is a global security and aerospace company that employs approximately 105,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.

Forward-Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, constitute forward-looking statements within the meaning of the federal securities laws, and are based on Lockheed Martin's current expectations and assumptions. The words "believe," "estimate," "anticipate," "project," "intend," "expect," "plan," "outlook," "scheduled," "forecast" and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially due to factors such as:

    --  our reliance on contracts with the U.S. Government, which are
        conditioned upon the availability of funding and can be terminated by
        the U.S. Government for convenience, and our ability to negotiate
        favorable contract terms;
    --  budget uncertainty; affordability initiatives; the impact of continuing
        resolution funding mechanisms and the potential for a government
        shutdown (including the potential that we work on unfunded contracts to
        preserve their cost and/or schedule);
    --  risks related to the development, production, sustainment, performance,
        schedule, cost and requirements of complex and technologically advanced
        programs including our largest, the F?35 program;
    --  planned production rates for significant programs; compliance with
        stringent performance and reliability standards; materials availability;
    --  the performance and financial viability of key suppliers, teammates,
        ventures, venture partners, subcontractors and customers;
    --  economic, industry, business and political conditions including their
        effects on governmental policy and government actions that disrupt our
        supply chain or prevent the sale or delivery of our products (such as
        delays in obtaining Congressional approvals for exports requiring
        Congressional notification);
    --  trade policies or sanctions (including the impact of U.S. Government
        sanctions on Turkey and Turkey's removal from the F-35 program and
        potential sanctions on the Kingdom of Saudi Arabia);
    --  our success expanding into and doing business in adjacent markets and
        internationally and the differing risks posed by international sales;
    --  changes in foreign national priorities and foreign government budgets;
    --  the competitive environment for our products and services, including
        increased pricing pressures, aggressive pricing in the absence of cost
        realism evaluation criteria, competition from outside the aerospace and
        defense industry, and increased bid protests;
    --  the timing and customer acceptance of product deliveries;
    --  our ability to continue to innovate and develop new products and to
        attract and retain key personnel and transfer knowledge to new
        personnel; the impact of work stoppages or other labor disruptions;
    --  the impact of cyber or other security threats or other disruptions to
        our businesses;
    --  our ability to implement and continue, and the timing and impact of,
        capitalization changes such as share repurchases and dividend payments;
    --  our ability to recover costs under U.S. Government contracts and changes
        in contract mix;
    --  the accuracy of our estimates and projections;
    --  timing and estimates regarding pension funding and movements in interest
        rates and other changes that may affect pension plan assumptions,
        stockholders' equity, the level of the FAS/CAS adjustment and actual
        returns on pension plan assets;
    --  the successful operation of ventures that we do not control and our
        ability to recover our investments;
    --  realizing the anticipated benefits of acquisitions or divestitures,
        ventures, teaming arrangements or internal reorganizations;
    --  our efforts to increase the efficiency of our operations and improve the
        affordability of our products and services;
    --  risk of an impairment of our assets, including the potential impairment
        of goodwill, intangible assets and inventory recorded as a result of the
        acquisition of the Sikorsky business and the potential further
        impairment of our equity investment in Advanced Military Maintenance,
        Repair and Overhaul Center LLC (AMMROC);
    --  the availability and adequacy of our insurance and indemnities;
    --  the effect of changes in (or in the interpretation of) procurement and
        other regulations and policies affecting our industry, including export
        of our products, cost allowability or recovery, aggressive government
        positions on the use and ownership of intellectual property and
        potential changes to the DoD's acquisition regulations relating to
        progress payments and performance-based payments and a preference for
        fixed-price contracts;
    --  the effect of changes in accounting, taxation, or export laws,
        regulations, and policies; and
    --  the outcome of legal proceedings, bid protests, environmental
        remediation efforts, government investigations or government allegations
        that we have failed to comply with law, other contingencies and U.S.
        Government identification of deficiencies in our business systems.

These are only some of the factors that may affect the forward-looking statements contained in this news release. For a discussion identifying additional important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, see the corporation's filings with the U.S. Securities and Exchange Commission including, but not limited to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Risk Factors" in the corporation's Annual Report on Form 10-K for the year ended Dec. 31, 2018 and subsequent quarterly reports on Form 10-Q. The corporation's filings may be accessed through the Investor Relations page of its website, www.lockheedmartin.com/investor, or through the website maintained by the SEC at www.sec.gov.

The corporation's actual financial results likely will be different from those projected due to the inherent nature of projections. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. The forward-looking statements contained in this news release speak only as of the date of its filing. Except where required by applicable law, the corporation expressly disclaims a duty to provide updates to forward-looking statements after the date of this news release to reflect subsequent events, changed circumstances, changes in expectations, or the estimates and assumptions associated with them. The forward-looking statements in this news release are intended to be subject to the safe harbor protection provided by the federal securities laws.



     
             Lockheed Martin Corporation



     
             Consolidated Statements of Earnings(1)



     
             (unaudited; in millions, except per share data)




                                                                                                                                                          
            
         Quarters Ended                                      Nine Months Ended


                                                                                                                                                   Sept. 29,                            Sept. 30,            Sept. 29,                         Sept. 30,
                                                                                                                                                        2019                                  2018                  2019                               2018



        
              
                Net sales                                                                                                                      $
        
               15,171                                  $
              14,318                      $
      
          43,934  $
      39,351


        
              Cost of sales(2)                                                                                                                   (13,108)                                     (12,397)                                       (37,690)              (34,019)



        
              Gross profit                                                                                                                          2,063                                         1,921                                           6,244                  5,332


        
              Other income, net(3)                                                                                                                     42                                            42                                             152                    151



        
              
                Operating profit                                                                                                         2,105                                         1,963                                           6,396                  5,483


        
              Interest expense                                                                                                                      (162)                                        (177)                                          (496)                 (497)


        
              Other non-operating expense, net                                                                                                      (162)                                        (211)                                          (491)                 (631)



        
              Earnings before income taxes                                                                                                          1,781                                         1,575                                           5,409                  4,355


        
              Income tax expense4                                                                                                                   (173)                                        (102)                                          (677)                 (562)



        
              
                Net earnings                                                                                                                    $
        
               1,608                                   $
              1,473                       $
      
          4,732   $
      3,793



        
              Effective tax rate                                                                                                                      9.7                                           6.5                                            12.5                   12.9
                                                                                                                                                    
            %                                            %                                     
            %                     %





        
              
                Earnings per common share


        
              Basic                                                                                                                                         $
        
               5.70                                    $
              5.18                       $
      
          16.77   $
      13.31


        
              Diluted                                                                                                                                       $
        
               5.66                                    $
              5.14                       $
      
          16.66   $
      13.21




        
              
                Weighted average shares outstanding


        
              Basic                                                                                                                                 282.0                                         284.3                                           282.2                  284.9


        
              Diluted                                                                                                                               283.9                                         286.7                                           284.0                  287.2




        
              Common shares reported in stockholders' equity at                                                                                                                                                 281                                     283
          end of period





     1            The corporation closes its books and records on the last Sunday of the calendar quarter to align its financial closing with its
                    business processes,

                   which was on Sept. 29 for the third quarter of 2019 and Sept. 30 for the third quarter of 2018. The consolidated financial
                    statements and tables

                   of financial information included herein are labeled based on that convention. This practice only affects interim periods, as
                    the corporation's

        
              fiscal year ends on Dec. 31.



     2            In the first nine months of 2018, the corporation recognized severance and restructuring charges totaling $96 million ($76
                    million, or $0.26 per

                   share, after tax) associated with planned workforce reductions and the consolidation of certain operations at the corporation's
                    Rotary and

        
              Mission Systems business segment.



     3            In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million,
                    or $0.13 per 
              share,

        
              after tax) related to properties sold in 2015 as a result of completing its remaining obligations.



     4            Net earnings for the quarter and the first nine months of 2019 include benefits of $62 million ($0.22 per share) and $127
                    million ($0.45 per

                   share), respectively, for additional tax deductions for the prior year, primarily attributable to foreign derived intangible
                    income treatment based

                   on proposed tax regulations released on March 4, 2019 and our change in tax accounting method. Net earnings for the quarter and
                    the first nine

                   months of 2018 include benefits of $148 million ($0.52 per share) and $152 million ($0.53 per share), respectively, for
                    additional tax deductions for

                   the prior year, primarily attributable to true-ups to the net one-time charges related to the Tax Cuts and Jobs Act enacted
                    on Dec. 22, 2017 and

        
              our change in tax accounting method.



     
             Lockheed Martin Corporation



     
             Business Segment Summary Operating Results



     
             (unaudited; in millions)




                                                                                                                                         
              
                Quarters Ended                                                       Nine Months Ended


                                                                                                                                  Sept. 29,                                     Sept. 30,                    %              Sept. 29,                             Sept. 30,                 %
                                                                                                                                       2019                                           2018            Change                       2019                          2018       Change



        
              
                Net sales


        
              Aeronautics                                                                                                                   $
              
                6,178                                 $
        5,642                                   10                              $
      
      17,312       $
      15,361   13

                                                                                                                                                                                                                                                             %                                                               %


        
              Missiles and Fire Control                                                                                            2,601                                                   2,273                                  14                           7,362                              6,035   22

                                                                                                                                                                                                                                      %                                                                      %


        
              Rotary and Mission Systems                                                                                           3,709                                                   3,848                                 (4)                         11,239                             10,637    6

                                                                                                                                                                                                                                      %                                                                      %


        
              Space                                                                                                                2,683                                                   2,555                                   5                           8,021                              7,318   10

                                                                                                                                                                                                                                      %                                                                      %



        
              
                Total net sales                                                                                                 $
              
                15,171                                $
        14,318                                    6                              $
      
      43,934       $
      39,351   12

                                                                                                                                                                                                                                                             %                                                               %





        
              
                Operating profit


        
              Aeronautics                                                                                                                     $
              
                665                                   $
        600                                   11                               $
      
      1,842        $
      1,646   12

                                                                                                                                                                                                                                                             %                                                               %


        
              Missiles and Fire Control                                                                                              349                                                     332                                   5                           1,093                                872   25

                                                                                                                                                                                                                                      %                                                                      %


        
              Rotary and Mission Systems                                                                                             342                                                     361                                 (5)                          1,068                              1,013    5

                                                                                                                                                                                                                                      %                                                                      %


        
              Space                                                                                                                  309                                                     293                                   5                             931                                831   12

                                                                                                                                                                                                                                      %                                                                      %



        
              
                Total business segment operating                                                                        1,665                                                   1,586                                   5                           4,934                              4,362   13

                                                                                                                                                                                                                                      %                                                                      %
          profit


        
              
                Unallocated items


        
              FAS/CAS operating adjustment                                                                                           513                                                     451                                                      1,537                      1,353


        
              Severance and restructuring charges(1)                                                                                                                                                                                                                           (96)


        
              Other, net(2)                                                                                                         (73)                                                   (74)                                                      (75)                     (136)



        
              
                Total unallocated items                                                                                   440                                                     377                                  17                           1,462                              1,121   30

                                                                                                                                                                                                                                      %                                                                      %



        
              
                Total consolidated operating profit                                                                              $
              
                2,105                                 $
        1,963                                    7                               $
      
      6,396        $
      5,483   17

                                                                                                                                                                                                                                                             %                                                               %





        
              
                Operating margin


        
              Aeronautics                                                                                                           10.8
                                                                                                                                                                                                   %                                                    
        %                         %
                                                                                                                                            %                                                   10.6                                                       10.6                       10.7


        
              Missiles and Fire Control                                                                                             13.4
                                                                                                                                                                                                   %                                                    
        %                         %
                                                                                                                                            %                                                   14.6                                                       14.8                       14.4


        
              Rotary and Mission Systems                                                                                             9.2                                              9.4
         %                                                       9.5
                                                                                                                                   
            %                                                                                                           
        %                9.5
         %


        
              Space                                                                                                                 11.5
                                                                                                                                                                                                   %                                                    
        %                         %
                                                                                                                                            %                                                   11.5                                                       11.6                       11.4


        
              
                Total business segment operating                                                                         11.0
                                                                                                                                                                                                   %                                                    
        %                         %
                                                                                                                                            %                                                   11.1                                                       11.2                       11.1
          margin




        
              
                Total consolidated operating                                                                             13.9
                                                                                                                                                                                                   %                                                    
        %                         %
                                                                                                                                            %                                                   13.7                                                       14.6                       13.9
          margin





     1            In the first nine months of 2018, the corporation recognized severance and restructuring charges totaling $96 million ($76 million, or $0.26 per
                    share,

                   after tax) associated with planned workforce reductions and the consolidation of certain operations at the corporation's Rotary and Mission
                    Systems

        
              business segment.



     2            In the first nine months of 2019, the corporation recognized a previously deferred non-cash gain of $51 million ($38 million, or $0.13 per
                    share, after

        
              tax) related to properties sold in 2015 as a result of completing its remaining obligations.



     
       Lockheed Martin Corporation



     
       Consolidated Balance Sheets



     
       (in millions, except par value)




                                                                                                                                    Sept. 29,                  Dec. 31,
                                                                                                                                          2019                      2018



                                                                                                                                   (unaudited)


        
        
                Assets


        
        Current assets


        
        Cash and cash equivalents                                                                                                            $
      
      2,539                        $
        772


        
        Receivables, net                                                                                                              2,384                             2,444


        
        Contract assets                                                                                                              11,004                             9,472


        
        Inventories                                                                                                                   3,474                             2,997


        
        Other current assets                                                                                                            402                               418



        
        Total current assets                                                                                                         19,803                            16,103




        
        Property, plant and equipment, net                                                                                            6,240                             6,124


        
        Goodwill                                                                                                                     10,762                            10,769


        
        Intangible assets, net                                                                                                        3,278                             3,494


        
        Deferred income taxes                                                                                                         2,912                             3,208


        
        Other noncurrent assets(1)                                                                                                    6,280                             5,178



        
        Total assets                                                                                                                        $
      
      49,275                     $
        44,876





        
        
                Liabilities and equity


        
        Current liabilities


        
        Accounts payable                                                                                                                     $
      
      2,904                      $
        2,402


        
        Contract liabilities                                                                                                          6,777                             6,491


        
        Salaries, benefits and payroll taxes                                                                                          2,308                             2,122


        
        Current maturities of long-term debt and commercial paper                                                                       900                             1,500


        
        Other current liabilities(1)                                                                                                  2,626                             1,883



        
        Total current liabilities                                                                                                    15,515                            14,398




        
        Long-term debt, net                                                                                                          12,652                            12,604


        
        Accrued pension liabilities                                                                                                  11,436                            11,410


        
        Other postretirement benefit liabilities                                                                                        677                               704


        
        Other noncurrent liabilities(1)                                                                                               5,058                             4,311



        
        Total liabilities                                                                                                            45,338                            43,427




        
        Stockholders' equity


        
        Common stock, $1 par value per share                                                                                            281                               281


        
        Additional paid-in capital


        
        Retained earnings                                                                                                            17,265                            15,434


        
        Accumulated other comprehensive loss                                                                                       (13,653)                         (14,321)



        
        Total stockholders' equity                                                                                                    3,893                             1,394


        
        Noncontrolling interests in subsidiary                                                                                           44                                55



        
        Total equity                                                                                                                  3,937                             1,449



        
        Total liabilities and equity                                                                                                        $
      
      49,275                     $
        44,876






     1      Effective Jan. 1, 2019, the corporation adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842). As of
              Sept. 29, 2019, right-

             of-use operating lease assets were $984 million and operating lease liabilities were $1.1 billion. Approximately $818
              million of operating lease

             liabilities were classified as noncurrent. There was no impact to the corporation's consolidated statements of
              earnings or cash flows as a result

        
        of adopting this standard. The 2018 periods were not restated for the adoption of ASU 2016-02.



              
                Lockheed Martin Corporation



              
                Consolidated Statements of Cash Flows



              
                (unaudited; in millions)




                                                                                                      Nine Months Ended


                                                                                       Sept. 29,                        Sept. 30,
                                                                                            2019                              2018




              
                Operating activities



              Net earnings                                                                      $
     
             4,732                         $
       3,793



              Adjustments to reconcile net earnings to net cash provided by operating
      activities



              Depreciation and amortization                                                 867                                        857



              Stock-based compensation                                                      158                                        148



              Severance and restructuring charges                                                                                      96



              Gain on property sale                                                        (51)



              Changes in assets and liabilities



              Receivables, net                                                               60                                      (151)



              Contract assets                                                           (1,532)                                   (1,777)



              Inventories                                                                 (477)                                     (172)



              Accounts payable                                                              524                                      1,237



              Contract liabilities                                                          286                                      (539)



              Postretirement benefit plans                                                  828                                    (3,935)



              Income taxes                                                                (117)                                       729



              Other, net                                                                    543                                        635




              
                Net cash provided by operating activities                      5,821                                        921






              
                Investing activities



              Capital expenditures                                                        (841)                                     (819)



              Other, net                                                                     38                                        146




              
                Net cash used for investing activities                         (803)                                     (673)






              
                Financing activities



              Dividends paid                                                            (1,881)                                   (1,725)



              Repurchases of common stock                                                 (710)                                     (826)



              (Repayments of) proceeds from commercial paper, net                         (600)                                       490



              Other, net                                                                   (60)                                     (151)




              
                Net cash used for financing activities                       (3,251)                                   (2,212)






              
                Net change in cash and cash equivalents                        1,767                                    (1,964)



              
                Cash and cash equivalents at beginning of period                 772                                      2,861




              
                Cash and cash equivalents at end of period                           $
     
             2,539                           $
       897



     
             Lockheed Martin Corporation



     
             Consolidated Statement of Equity



     
             (unaudited; in millions)




                                                                                                                                            Common                             Additional              Retained                Accumulated                          Total                    Noncontrolling                              Total
                                                                                                                                                  Stock                               Paid-in               Earnings                      Other                           Stockholders'                   Interests                            Equity
                                                                                                                                                                                      Capital                                             Comprehensive                               Equity                    in Subsidiary
                                                                                                                                                                                                                                          Loss



        
              
                Balance at December 31, 2018                                                                                                $
              
      281                       
       
               $                                  $
     
     15,434                                                       $
      
     (14,321)              $
     
     1,394           $
     
     55 $
     
     1,449


        
              Net earnings                                                                                                                                                                                          4,732                                                                           4,732                                                      4,732


        
              Other comprehensive income, net of tax(1)                                                                                                                                                                                                   668                                         668                                                        668


        
              Repurchases of common stock                                                                                                        (2)                                     (366)                      (350)                                                                          (718)                                                     (718)


        
              Dividends declared(2)                                                                                                                                                                               (2,551)                                                                         (2,551)                                                   (2,551)


        
              Stock-based awards, ESOP activity and                                                                                                2                                        366                                                                                                        368                                                        368
          other


        
              Net decrease in noncontrolling interests in                                                                                                                                                                                                                                                                                  (11)               (11)
          subsidiary



        
              
                Balance at Sept. 29, 2019                                                                                                   $
              
      281                       
       
               $                                  $
     
     17,265                                                       $
      
     (13,653)              $
     
     3,893           $
     
     44 $
     
     3,937






     1 
              Primarily represents the reclassification adjustment for the recognition of prior period amounts related to pension and other postretirement benefit

        
              plans.



     2 
              Represents dividends of $2.20 per share declared for each of the first, second and third quarters of 2019 and dividends of $2.40 per share declared for

        
              the fourth quarter of 2019.



     
     Lockheed Martin Corporation



     
     Other Financial and Operating Information



     
     (unaudited; in millions, except aircraft deliveries and weeks)




                                                                                                                                                                                    2019                                       2018
                                                                                                                                                                     Outlook                                   Actual



                                       Total FAS expense and CAS costs


               
              FAS pension expense                                                                                                                                              $
       
       (1,090)                            $
        (1,431)


               
              Less: CAS pension cost                                                                                                                                   2,565                                      2,433



               
              Net FAS/CAS pension adjustment                                                                                                                                     $
       
       1,475                               $
        1,002





                                       Service and non-service cost reconciliation


               
              FAS pension service cost                                                                                                                                           $
       
       (515)                              $
        (630)


               
              Less: CAS pension cost                                                                                                                                   2,565                                      2,433



               
              FAS/CAS operating adjustment                                                                                                                             2,050                                      1,803


                          Non-operating FAS pension cost (1)                                                                                                                       (575)                                     (801)



               
              Net FAS/CAS pension adjustment                                                                                                                                     $
       
       1,475                               $
        1,002






     
     (1)              The corporation records the non-service cost components of FAS pension expense as part of other non-operating
                           expense, net in the

                          consolidated statements of earnings. The non-service cost components in the table above relate only to the
                           corporation's qualified defined

                          benefit pension plans. The corporation expects total non-service costs for its qualified defined benefit pension
                           plans in the table above, along

                          with non-service costs for its other postretirement benefit plans of $115 million, to total $690 million for 2019.
                           The corporation recorded non-

                          service costs for its other postretirement benefit plans of $67 million in 2018, in addition to its total non-
                           service costs for its qualified defined

               
              benefit pension plans in the table above, for a total of $868 million in 2018.




               
              
                Backlog                                                                                                                                 Sept. 29,                                 Dec. 31,
                                                                                                                                                                                  2019                                       2018



               
              Aeronautics                                                                                                                                                       $
       
       49,426                              $
        55,601


               
              Missiles and Fire Control                                                                                                                               26,973                                     21,363


               
              Rotary and Mission Systems                                                                                                                              31,867                                     31,320


               
              Space                                                                                                                                                   29,089                                     22,184



               
              
                Total backlog                                                                                                                                       $
       
       137,355                             $
        130,468





                                                                                                                                                                 Quarters Ended                                      Nine Months Ended



               
              
                Aircraft Deliveries                                                                Sept. 29,            Sept. 30,                       Sept. 29,                                 Sept. 30,
                                                                                                                             2019                  2018                             2019                                       2018



               
              F-35                                                                                                   28                    20                               83                                         59


               
              C-130J                                                                                                  6                     7                               19                                         18


               
              C-5                                                                                                                          1                                                                          4


               
              Government helicopter programs                                                                         20                    28                               61                                         75


               
              Commercial helicopter programs                                                                                               1                                                                          2


                          International military helicopter programs                          2                                              4                 5                                             5




                                       Number of Weeks in Reporting Period                                                                                2019                                          2018



               
              First quarter                                                                                                                                               13                                         12


               
              Second quarter                                                                                                                                              13                                         13


               
              Third quarter                                                                                                                                               13                                         14


               
              Fourth quarter                                                                                                                                              13                                         13

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SOURCE Lockheed Martin