Lockheed Martin Reports Third Quarter 2020 Results

BETHESDA, Md., Oct. 20, 2020 /PRNewswire/ -- Lockheed Martin Corporation [NYSE: LMT] today reported third quarter 2020 net sales of $16.5 billion, compared to $15.2 billion in the third quarter of 2019. Net earnings from continuing operations in the third quarter of 2020 were $1.8 billion, or $6.25 per share, compared to $1.6 billion, or $5.66 per share, in the third quarter of 2019. Cash from operations in the third quarter of 2020 was $1.9 billion, compared to cash from operations of $2.5 billion in the third quarter of 2019.

"In the third quarter, our dedicated workforce and resilient supply chain continued to support our customers' vital national security missions, overcoming the challenges of the pandemic," said James Taiclet, Lockheed Martin president and CEO. "As a result, we delivered strong results across our key financial metrics and we expect to build on this success through the remainder of the year. Looking ahead to 2021, we remain focused on driving innovation and growing our assets and capabilities to further benefit our customers and shareholders."

Summary Financial Results

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


          (in millions, except per share data)                                                    
            
         Quarters Ended(1)                 
         
             Nine Months Ended



                                                                                              Sept. 27                             Sept. 29          Sept. 27                        Sept. 29
                                                                                                  2020                                  2019               2020                             2019



        
     
              Net sales                                                                           $
       
              16,495                                 $
            15,171                 $
      
      48,366  $
      43,934





                     Business segment operating profit(2)                                                 $
       
              1,762                                  $
            1,665                  $
      
      5,277   $
      4,934


        
     Unallocated items


        
     FAS/CAS operating adjustment                                                             469                                         513                                        1,407           1,537


        
     Other, net3,4                                                                           (84)                                       (73)                                       (329)           (75)



        
     Total unallocated items                                                                  385                                         440                                        1,078           1,462



                     Consolidated operating profit                                                        $
       
              2,147                                  $
            2,105                  $
      
      6,355   $
      6,396





                     Net earnings (loss) from


                     Continuing operations                                                                $
       
              1,753                                  $
            1,608                  $
      
      5,096   $
      4,732


                     Discontinued operations5                                                     (55)                                                                                   (55)



        
     
              Net earnings6                                                                        $
       
              1,698                                  $
            1,608                  $
      
      5,041   $
      4,732





                     Diluted earnings (loss) per share from


                     Continuing operations                                                                 $
       
              6.25                                   $
            5.66                  $
      
      18.12   $
      16.66


                     Discontinued operations5                                                   (0.20)                                                                                 (0.20)



                     Diluted earnings per share                                                            $
       
              6.05                                   $
            5.66                  $
      
      17.92   $
      16.66





                     Cash generated from operations7,8                                                    $
       
              1,880                                  $
            2,490                  $
      
      6,376   $
      5,821






     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. 27 for the third quarter
           of 2020 and Sept. 29 for the third quarter of 2019. 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   Business segment operating profit is a non-GAAP measure. See the "Non-GAAP Financial Measures"
           section of this news release for more information.



     3   In the first nine months of 2020, the corporation recognized a non-cash impairment charge of
           $128 million ($96 million, or $0.34 per share, after tax) for its investment in the
           international equity method investee, Advanced Military Maintenance, Repair and Overhaul Center
           (AMMROC).



     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   Discontinued operations for the third quarter and first nine months of 2020 include a $55 million
           ($0.20 per share) non-cash charge resulting from the resolution of certain tax matters related
           to the former Information Systems & Global Solutions business divested in 2016.



     6   Net earnings for the third quarter and the first nine months of 2019 included a benefit of
           approximately $62 million ($0.22 per share) and $127 million ($0.45 per share), respectively,
           from the discrete recording of additional tax deductions related to 2018, primarily attributable
           to foreign derived intangible income treatment based on proposed tax regulations released on
           March 4, 2019, and a change in tax accounting method. See "Income Taxes" section for further
           discussion.



     7   Cash generated from operations in the third quarter of 2020 reflects the receipt of approximately
           $200 million of net accelerated progress payments due to the U.S. Government's increase in the
           progress payment rate from 80 percent to 90 percent and the deferral of $155 million for the
           employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act. These were offset
           by $400 million of federal estimated income tax payments deferred from the second quarter of
           2020 pursuant to IRS guidance, in addition to the third quarter 2020 tax payment of $410
           million. Additionally, the corporation used the accelerated progress payments from the U.S.
           Government plus cash on hand to accelerate payments to its suppliers resulting in a $530 million
           net impact to cash from operations in the third quarter of 2020.



     8   Cash generated from operations for the first nine months of 2020 reflects the receipt of
           approximately $1.1 billion of net accelerated progress payments due to the U.S. Government's
           increase in the progress payment rate from 80 percent to 90 percent and the deferral of $315
           million for the employer portion of payroll taxes to 2021 and 2022 pursuant to the CARES Act.
           The corporation used the accelerated progress payments from the U.S. Government plus cash on
           hand to accelerate $1.8 billion of payments to its suppliers as of Sept. 27, 2020 that are due
           by their terms in future periods.

2020 Financial Outlook

The following table and other sections of this news release contain forward-looking statements, which are based on the corporation's current expectations. Actual results may differ materially from those projected. It is the corporation's practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, changes in law, 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 Guidance(1) 
     
            July 2020 Outlook





          
     Net sales                                           
          
           ~$65,250           
           $63,500 - $65,000




            Business segment operating
             profit                                             
          
           ~$7,125              
           $6,900 - $7,050




            Net FAS/CAS pension
             adjustment(2)                                      
          
           ~$2,090          
          ~$2,090




            Diluted earnings per share from
             continuing operations                              
          
           ~$24.45              
           $23.75 - $24.05




          
     Cash from operations                                
          
           >=$8,000        
          >=$8,000





       1   The corporation's 2020 financial outlook reflects the
             currently expected impacts related to COVID-19,
             however, the ultimate impacts of COVID-19 on the
             corporation's financial outlook for 2020 and beyond
             remains uncertain.



       2   The net FAS/CAS pension adjustment is presented as a
             single amount and includes total expected U.S.
             Government cost accounting standards (CAS) pension cost
             of approximately $1,975 million and total expected
             financial accounting standards (FAS) pension income of
             approximately $115 million. CAS pension cost and the
             service cost component of FAS pension expense are
             included in operating profit. The non-service cost
             components of FAS pension expense are included in non-
             operating income (expense). For additional detail on
             the corporation's FAS/CAS pension adjustment, see the
             supplemental table included at the end of this news
             release.

    ---

2021 Financial Trends

The corporation expects its 2021 net sales to increase to greater than or equal to $67 billion. Total business segment operating margin in 2021 is expected to be in the 10.9 percent to 11.1 percent range and cash from operations is expected to be greater than or equal to $8.1 billion, net of $1.0 billion of planned pension contributions. The preliminary outlook for 2021 assumes continued support and funding of our programs, including recovery of COVID-19 cost impacts, and a statutory tax rate of 21%. Additionally, the preliminary outlook for 2021 assumes that there will not be significant reductions in customer budgets, changes in funding priorities and that the U.S. Government will not continue to operate under a continuing resolution for an extended period in which new contract and program starts are restricted. Changes in circumstances may require the corporation to revise its assumptions, which could materially change its current estimate of 2021 net sales, operating margin and cash flows.

The corporation currently expects a total net FAS/CAS pension benefit of approximately $2.1 billion in 2021. This estimate assumes a 2.50 percent discount rate (a 75 basis point decrease from the end of 2019), a 7.00 percent return on plan assets in 2020, 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 2021 FAS/CAS pension benefit. A change of plus or minus 100 basis points to the return on plan assets in 2020 only, with all other assumptions held constant, would result in an incremental increase or decrease of approximately $15 million to the estimated net 2021 FAS/CAS pension benefit. The corporation expects to make contributions of approximately $1.0 billion to its qualified defined benefit pension plans in 2021 and anticipates recovering approximately $2.1 billion of CAS pension cost. The corporation will complete the annual remeasurement of its postretirement benefit plans and update its estimated 2021 FAS/CAS pension adjustment on Dec. 31, 2020. The final assumptions and actual investment return for 2020 may differ materially from those discussed above.

COVID-19

The global outbreak of the coronavirus disease 2019 (COVID-19) was declared a pandemic by the World Health Organization and a national emergency by the U.S. Government in March 2020 and has negatively affected the U.S. and global economies, disrupted global supply chains, resulted in significant travel and transport restrictions, including mandated closures and orders to "shelter-in-place" and quarantine restrictions, and created significant disruption of the financial markets. Lockheed Martin has taken measures to protect the health and safety of its employees, work with its customers and suppliers to minimize disruptions and support its community in addressing the challenges posed by this ongoing global pandemic. The pandemic has presented unprecedented business challenges, and the corporation has experienced impacts in each business area related to COVID-19, primarily in increased coronavirus-related costs, delays in supplier deliveries, impacts of travel restrictions, site access and quarantine requirements, and the impacts of remote work and adjusted work schedules. Despite these challenges, the corporation and the U.S. Government's pro-active efforts, especially with regard to the supply chain, helped to partially mitigate the disruptions caused by COVID-19 on the corporation's operations in the first nine months of 2020. In addition, favorable contract award timing, strong operational performance and lower travel and overhead expenditures due to COVID-19 restrictions partially offset the impacts of COVID-19 on the corporation's financial results in the first nine months of 2020. However, the ultimate impact of COVID-19 in future periods remains uncertain. The corporation's 2020 outlook and 2021 financial trends assumes, among other things, that its production facilities continue to operate and it does not experience significant work stoppages or closures, it is able to mitigate any supply chain disruptions and these do not worsen, and it is able to recover its costs under U.S. Government contracts and government funding priorities do not change. While these are the corporation's current assumptions, they could change and will depend on future pandemic related developments, including the duration of the pandemic and any potential subsequent waves of COVID-19 infection and government actions.

Cash Activities

The corporation's cash activities in the third quarter of 2020 included the following:

    --  paying cash dividends of $672 million, compared to $621 million in the
        third quarter of 2019;
    --  repurchasing 0.2 million shares for $85 million, which includes $26
        million paid for shares repurchased in the second quarter of 2020;
        compared to repurchasing 0.6 million shares for $210 million in the
        third quarter of 2019; and
    --  making capital expenditures of $408 million, compared to $308 million in
        the third quarter of 2019.

As previously reported on Sept. 25, 2020, the corporation increased its quarterly dividend by $0.20 per share, to $2.60 per share, beginning with the dividend payment in the fourth quarter of 2020. The corporation also increased its share repurchase authority by $1.3 billion with $3.0 billion in total remaining authorization for future repurchases of common stock under the program as of Sept. 27, 2020.

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. 27                           Sept. 29        Sept. 27                           Sept. 29
                                                            2020                                2019             2020                                2019



     
     
                Net sales


     
     Aeronautics                                                $
        
              6,680                               $
              6,178                  $
      
      19,552  $
      17,312


     
     Missiles and Fire Control                           2,971                                     2,601                                         8,391           7,362


     
     Rotary and Mission Systems                          3,998                                     3,709                                        11,783          11,239


     
     Space                                               2,846                                     2,683                                         8,640           8,021



                    Total net sales                              $
        
              16,495                              $
              15,171                  $
      
      48,366  $
      43,934





                    Operating profit


     
     Aeronautics                                                  $
        
              705                                 $
              665                   $
      
      2,116   $
      1,842


     
     Missiles and Fire Control                             405                                       349                                         1,171           1,093


     
     Rotary and Mission Systems                            404                                       342                                         1,209           1,068


     
     Space                                                 248                                       309                                           781             931



                    Total business segment operating
                     profit                                1,762                                     1,665                                         5,277           4,934


     
     Unallocated items


       FAS/CAS operating adjustment                          469                                       513                                         1,407           1,537


     
     Other, net                                           (84)                                     (73)                                        (329)           (75)



     
     Total unallocated items                               385                                       440                                         1,078           1,462



                    Total consolidated operating profit           $
        
              2,147                               $
              2,105                   $
      
      6,355   $
      6,396

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 segments' 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 expense). The operating portion of the net FAS/CAS pension adjustment represents the difference between the service cost component of FAS pension expense and total CAS pension cost. The non-service FAS pension expense components are included in other non-operating expense. 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, 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 24 percent of total segment operating profit in the third quarter of 2020 as compared to 29 percent in the third quarter of 2019.

Aeronautics


     
     (in millions)                                   Quarters Ended                                Nine Months Ended



                                     Sept. 27                         Sept. 29       Sept. 27                          Sept. 29
                                         2020                              2019            2020                               2019



                    Net sales                 $
       
              6,680                             $
          6,178                      $
      
      19,552 $
      17,312


                    Operating profit            $
       
              705                               $
          665                       $
      
      2,116  $
      1,842


                    Operating margin     10.6                                   10.8                                         10.8
                                                                                  %                                                          %
                                            %                                                                                 %           10.6

Aeronautics' net sales in the third quarter of 2020 increased $502 million, or 8 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $325 million for the F-35 program due to increased volume on development, sustainment, and production contracts; and about $130 million for higher volume on classified development contracts.

Aeronautics' operating profit in the third quarter of 2020 increased $40 million, or 6 percent, compared to the same period in 2019. Operating profit increased approximately $65 million for the F-35 program due to higher volume on production, development, and sustainment contracts and higher risk retirements on production contracts. This increase was partially offset by a decrease of approximately $20 million for the F-16 program due to lower risk retirements on sustainment contracts. Adjustments not related to volume, including net profit booking rate adjustments, in the third quarter of 2020 were comparable to the same period in 2019.

Missiles and Fire Control


     
     (in millions)                                   Quarters Ended                                Nine Months Ended



                                     Sept. 27                         Sept. 29       Sept. 27                          Sept. 29
                                         2020                              2019            2020                               2019



                    Net sales                 $
       
              2,971                             $
              2,601                  $
     
      8,391 $
     7,362


                    Operating profit            $
       
              405                               $
              349                  $
     
      1,171 $
     1,093


                    Operating margin     13.6                                   13.4                                         14.0
                                                                                  %                                                        %
                                            %                                                                                 %         14.8

MFC's net sales in the third quarter of 2020 increased $370 million, or 14 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $250 million for tactical and strike missile programs due to increased volume (primarily Guided Multiple Launch Rocket Systems (GMLRS) and High-Mobility Artillery Rocket Systems (HIMARS)); and about $200 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)). These increases were partially offset by lower net sales of approximately $60 million for sensors and global sustainment programs due to lower volume on the Apache sensors program; and about $35 million due to the divestiture of the Distributed Energy Solutions business in November 2019.

MFC's operating profit in the third quarter of 2020 increased $56 million, or 16 percent, compared to the same period in 2019. Operating profit increased approximately $50 million for integrated air and missile defense programs due to increased volume and higher risk retirements on international contracts (primarily PAC-3); and about $45 million for tactical and strike missile programs due to higher volume (primarily GMLRS and HIMARS) and higher risk retirements (primarily Long Range Standoff Weapon (LRSO)). These increases were partially offset by a decrease of approximately $40 million for sensors and global sustainment programs due primarily to lower risk retirements and a reduction in the profit booking rate on the Apache sensors program. Adjustments not related to volume, including net profit booking rate adjustments, were $25 million lower in the third quarter of 2020 compared to the same period in 2019.

Rotary and Mission Systems


     
     (in millions)                                   Quarters Ended                               Nine Months Ended



                                     Sept. 27                         Sept. 29      Sept. 27                          Sept. 29
                                         2020                              2019           2020                               2019



                    Net sales                 $
       
              3,998                            $
          3,709                      $
      
      11,783 $
      11,239


                    Operating profit            $
       
              404                              $
          342                       $
      
      1,209  $
      1,068


                    Operating margin     10.1                                   9.2                                         10.3
                                                                                 %                                                          %
                                            %                                                                                %            9.5

RMS' net sales in the third quarter of 2020 increased $289 million, or 8 percent, compared to the same period in 2019. Net sales increased approximately $180 million for Sikorsky helicopter programs due to higher volume primarily on production contracts (primarily Seahawk, VH-92A, and Combat Rescue Helicopter (CRH)); about $55 million for various training and logistics solutions (TLS) programs due to higher volume; and about $35 million for integrated warfare systems and sensors (IWSS) programs due to higher volume primarily on the Aegis Combat System (Aegis) partially offset by lower volume on Littoral Combat Ship (LCS).

RMS' operating profit in the third quarter of 2020 increased $62 million, or 18 percent, compared to the same period in 2019. Operating profit increased approximately $30 million for Sikorsky helicopter programs due to higher volume on production contracts (primarily VH-92A and CRH), customer mix, and better cost performance on international military aircraft programs; and about $30 million for IWSS programs due to higher risk retirements (primarily Radar Surveillance Systems and Aegis). Adjustments not related to volume, including net profit booking rate adjustments, were $15 million lower in the third quarter of 2020 compared to the same period in 2019.

Space


     
     (in millions)                                   Quarters Ended                                Nine Months Ended



                                     Sept. 27                         Sept. 29       Sept. 27                          Sept. 29
                                         2020                              2019            2020                               2019



                    Net sales                 $
       
              2,846                             $
              2,683                  $
       
        8,640 $
       8,021


                    Operating profit            $
       
              248                               $
              309                    $
       
        781   $
       931


                    Operating margin      8.7                                   11.5                                          9.0
                                                                                  %                                                            %
                                            %                                                                                 %             11.6

Space's net sales in the third quarter of 2020 increased $163 million, or 6 percent, compared to the same period in 2019. The increase was primarily attributable to higher net sales of approximately $90 million for government satellite programs due to higher volume (primarily Next Generation Overhead Persistent Infrared (Next Gen OPIR)); and about $60 million for strategic and missile defense programs due to higher volume (primarily hypersonic development programs).

Space's operating profit in the third quarter of 2020 decreased $61 million, or 20 percent, compared to the same period in 2019. Operating profit decreased approximately $50 million due to lower equity earnings from the corporation's investment in United Launch Alliance (ULA); about $15 million for government satellite programs due to lower risk retirements (primarily Advanced Extremely High Frequency (AEHF)); and about $15 million for strategic and missile defense programs due to lower risk retirements (primarily Fleet Ballistic Missiles). These decreases were partially offset by an increase of approximately $15 million for commercial satellite programs due to charges recorded for performance matters in 2019 not repeated in 2020. Adjustments not related to volume, including net profit booking rate adjustments, were $25 million lower in the third quarter of 2020, compared to the same period in 2019.

Total equity earnings recognized by Space (primarily ULA) represented approximately $5 million, or 2 percent of Space's operating profit in the third quarter of 2020, compared to approximately $55 million, or 18 percent in the third quarter of 2019.

Income Taxes

The corporation's effective income tax rate was 14.7 percent in the third quarter of 2020, compared to 9.7 percent in the third quarter of 2019. The rate for the third quarter of 2019 was lower primarily due to a $62 million benefit, or $0.22 per share, of additional tax deductions for 2018 attributable to foreign derived intangible income treatment based on proposed tax regulations released on March 4, 2019, and a 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 rates for both periods benefited from additional tax deductions based on proposed tax regulations released on March 4, 2019, which clarified that foreign military sales qualify for foreign derived intangible income treatment. On July 9, 2020, the U.S. Treasury Department issued final tax regulations related to foreign derived intangible income. The final tax regulations confirm foreign military sales qualify for foreign derived intangible income treatment. We continue to assess the other effects of the final regulations.

The rates for both periods also benefited from the research and development tax credit, dividends paid to the corporation's defined contribution plans with an employee stock ownership plan feature, and tax deductions for employee equity awards.

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 management believes that these non-GAAP financial measures may be useful in evaluating the financial performance of the 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 operating profit 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.


          
     (in millions)                                                2020 Financial Outlook(1)



                                                                 
       
             Current Update      
      
        July Outlook





                         Business segment operating profit
                          (non-GAAP)                               
       
               ~$7,125            
      $6,900 - $7,050


            FAS/CAS operating adjustment(2)                        
       
               ~1,875            
      ~1,875


          
     Other, net                                             
       
               ~(405)            
      ~(390)



                         Consolidated operating profit (GAAP)      
       
               ~$8,595            
      $8,385 - $8,535






       1   The corporation's 2020 financial outlook reflects
             the currently expected impacts related to COVID-
             19, however, the ultimate impact of COVID-19 on
             the corporation's financial outlook for 2020 and
             beyond remains uncertain.



       2   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 $215 million of expected
             non-service FAS income that will be recorded in
             non-operating income (expense).

    ---

Conference Call Information

Lockheed Martin Corporation will webcast live the earnings results conference call (listen-only mode) on Tuesday, Oct. 20, 2020, 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 the corporation's website: www.lockheedmartin.com.

About Lockheed Martin

Headquartered in Bethesda, Maryland, Lockheed Martin Corporation is a global security and aerospace company that employs approximately 110,000 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:

    --  the impact of the COVID-19 disease or future epidemics on our business,
        including the potential for facility closures or work stoppages, supply
        chain disruptions, program delays, our ability to recover our costs
        under contracts, changing government funding and acquisition priorities
        and payment policies and regulations; and potential impacts to the fair
        value of our assets;
    --  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 or the risk of future
        budget cuts;
    --  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,
        joint ventures, joint 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 and export license delays due to COVID-19);
    --  trade policies or sanctions (including potential Chinese sanctions on us
        or our suppliers, teammates or partners; Turkey's removal from the F-35
        program and potential U.S. Government sanctions on Turkey and 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 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 and the potential impact
        of changes in U.S. or foreign tax laws;
    --  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 joint ventures that we do not control and
        our ability to recover our investments;
    --  realizing the anticipated benefits of acquisitions or divestitures,
        joint ventures, teaming arrangements or internal reorganizations;
    --  our efforts to increase the efficiency of our operations and improve the
        affordability of our products and services;
    --  the 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;
    --  the availability and adequacy of our insurance and indemnities;
    --  our ability to benefit fully from or adequately protect our intellectual
        property rights;
    --  procurement and other regulations and policies affecting our industry,
        including federal rules prohibiting the use of certain Chinese
        telecommunications equipment, export of our products, cost allowability
        or recovery, preferred contract type, and performance and progress
        payments policy, including a reversal or modification to the DoD's
        increase to the progress payment rate in response to COVID-19;
    --  the effect of changes in accounting, taxation, or export laws,
        regulations, and policies and their interpretation or application; and
    --  the outcome of legal proceedings, bid protests, environmental
        remediation efforts, audits, 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, 2019 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. 27                            Sept. 29                Sept. 27                         Sept. 29
                                                               2020                                 2019                     2020                              2019



        
     
                Net sales                                      $
        
               16,495                                    $
              15,171                     $
      
          48,366  $
      43,934


        
     Cost of sales                                      (14,359)                                        (13,108)                                     (41,926)              (37,690)



        
     Gross profit                                          2,136                                            2,063                                         6,440                  6,244


          Other (expense) income, net2,3                           11                                               42                                          (85)                   152



                       Operating profit                         2,147                                            2,105                                         6,355                  6,396


        
     Interest expense                                      (145)                                           (162)                                        (442)                 (496)


          Other non-operating income (expense),
           net                                                     54                                            (162)                                          135                  (491)



          Earnings from continuing operations
           before income taxes                                  2,056                                            1,781                                         6,048                  5,409


        
     Income tax expense4                                   (303)                                           (173)                                        (952)                 (677)



          Net earnings from continuing operations               1,753                                            1,608                                         5,096                  4,732


          Net loss from discontinued operations5                 (55)                                                                                         (55)



        
     
                Net earnings                                    $
        
               1,698                                     $
              1,608                      $
      
          5,041   $
      4,732



        
     Effective tax rate                                     14.7                                    9.7
            %                                         15.7                   12.5
                                                           
            %                                                                                   
            %                     %





                       Earnings (loss) per common share


        
     Basic


        
     Continuing operations                                         $
        
               6.28                                      $
              5.70                      $
      
          18.19   $
      16.77


        
     Discontinued operations5                             (0.20)                                                                                       (0.20)



          Basic earnings per common share                               $
        
               6.08                                      $
              5.70                      $
      
          17.99   $
      16.77





        
     Diluted


        
     Continuing operations                                         $
        
               6.25                                      $
              5.66                      $
      
          18.12   $
      16.66


        
     Discontinued operations5                             (0.20)                                                                                       (0.20)



          Diluted earnings per common share                             $
        
               6.05                                      $
              5.66                      $
      
          17.92   $
      16.66





                       Weighted average shares outstanding


        
     Basic                                                 279.3                                            282.0                                         280.1                  282.2


        
     Diluted                                               280.6                                            283.9                                         281.3                  284.0




          Common shares reported in stockholders'
           equity at end of period                                                                                            278                                    281




              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. 27 for the
                                third quarter of 2020 and
                                Sept. 29 for the third
                                quarter of 2019. 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
                                2020, the corporation
                                recognized a non-cash
                                impairment charge of $128
                                million ($96 million, or
                                $0.34 per share, after tax)
                                for its investment in the
                                international equity method
                                investee, Advanced Military
                                Maintenance, Repair and
                                Overhaul Center (AMMROC).



              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 third
                                quarter and the first nine
                                months of 2019 included a
                                benefit of approximately
                                $62 million ($0.22 per
                                share) and $127 million
                                ($0.45 per share),
                                respectively, from the
                                discrete recording of
                                additional tax deductions
                                related to 2018, primarily
                                attributable to foreign
                                derived intangible income
                                treatment based on proposed
                                tax regulations released on
                                March 4, 2019, and a change
                                in tax accounting method.
                                See "Income Taxes" section
                                for further discussion.



              5               Net loss from discontinued
                                operations for the third
                                quarter and the first nine
                                months of 2020 includes a
                                $55 million ($0.20 per
                                share) non-cash charge
                                resulting from the
                                resolution of certain tax
                                matters related to the
                                former IS&GS business
                                divested in 2016.



     
       Lockheed Martin Corporation



     
       Business Segment Summary Operating Results



     
       (unaudited; in millions)




                                                                       
            
          Quarters Ended                                          
     
              Nine Months Ended



                                                                 Sept. 27                             Sept. 29                  %                Sept. 27                     Sept. 29                     %
                                                                     2020                                  2019        Change                          2020                          2019         Change



        
       
                Net sales


        
       Aeronautics                                                      $
        
                6,680                      $
          6,178                               8%                  $
      
             19,552                 $
      17,312  13%


        
       Missiles and Fire Control                                 2,971                                      2,601                     14%                      8,391                                  7,362            14%


        
       Rotary and Mission Systems                                3,998                                      3,709                      8%                     11,783                                 11,239             5%


        
       Space                                                     2,846                                      2,683                      6%                      8,640                                  8,021             8%



        
       
                Total net sales                                    $
        
                16,495                     $
          15,171                               9%                  $
      
             48,366                 $
      43,934  10%





        
       
                Operating profit


        
       Aeronautics                                                        $
        
                705                        $
          665                               6%                   $
      
             2,116                  $
      1,842  15%


        
       Missiles and Fire Control                                   405                                        349                     16%                      1,171                                  1,093             7%


        
       Rotary and Mission Systems                                  404                                        342                     18%                      1,209                                  1,068            13%


        
       Space                                                       248                                        309                   (20%)                        781                                    931          (16%)



                         Total business segment operating profit      1,762                                      1,665                      6%                      5,277                                  4,934             7%


        
       
                Unallocated items


        
       FAS/CAS operating adjustment                                469                                        513                                                               1,407                          1,537


        
         Stock-based compensation                                 (67)                                      (54)                                                              (182)                         (158)


        
       Other, net1,2                                              (17)                                      (19)                                                              (147)                            83



                         Total unallocated items                        385                                        440                   (13%)                      1,078                                  1,462          (26%)



                         Total consolidated operating profit                 $
        
                2,147                      $
          2,105                               2%                   $
      
             6,355                  $
      6,396 (1%)





        
       
                Operating margin


        
       Aeronautics                                               10.6%                                10.8%                                      10.8%                        10.6%


        
       Missiles and Fire Control                                 13.6%                                13.4%                                      14.0%                        14.8%


        
       Rotary and Mission Systems                                10.1%                                 9.2%                                      10.3%                         9.5%


        
       Space                                                      8.7%                                11.5%                                       9.0%                        11.6%


                         Total business segment operating margin      10.7%                                11.0%                                      10.9%                        11.2%




                         Total consolidated operating margin          13.0%                                13.9%                                      13.1%                        14.6%




              1               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.



              2               In the first nine months of 2020, the
                                corporation recognized a non-cash
                                impairment charge of $128 million ($96
                                million, or $0.34 per share, after tax)
                                for its investment in the international
                                equity method investee, AMMROC.



     
       Lockheed Martin Corporation



     
       Consolidated Balance Sheets



     
       (in millions, except par value)




                                                   Sept. 27                  Dec. 31
                                                        2020                     2019



                                                 (unaudited)


        
     
                Assets


        
     Current assets


        
     Cash and cash equivalents                             $
      
      3,585                     $
      1,514


        
     Receivables, net                               2,480                            2,337


        
     Contract assets                               10,388                            9,094


        
     Inventories                                    3,293                            3,619


        
     Other current assets                             544                              531



        
     Total current assets                          20,290                           17,095




          Property, plant and equipment, net             6,803                            6,591


        
     Goodwill                                      10,589                           10,604


        
     Intangible assets, net                         3,013                            3,213


        
     Deferred income taxes                          3,198                            3,319


        
     Other noncurrent assets                        6,880                            6,706



        
     Total assets                                         $
      
      50,773                    $
      47,528





                       Liabilities and equity


        
     Current liabilities


        
     Accounts payable                                      $
      
      1,491                     $
      1,281


        
     Contract liabilities                           7,354                            7,054


          Salaries, benefits and payroll taxes           2,818                            2,466


          Current maturities of long-term debt           1,000                            1,250


        
     Other current liabilities                      2,538                            1,921



        
     Total current liabilities                     15,201                           13,972




        
     Long-term debt, net                           11,675                           11,404


        
     Accrued pension liabilities                   12,765                           13,234


        
     Other noncurrent liabilities                   6,146                            5,747



        
     Total liabilities                             45,787                           44,357




        
     Stockholders' equity


          Common stock, $1 par value per share             278                              280


        
     Additional paid-in capital                        90


        
     Retained earnings                             19,844                           18,401


          Accumulated other comprehensive loss        (15,259)                        (15,554)



        
     Total stockholders' equity                     4,953                            3,127


          Noncontrolling interests in subsidiary            33                               44



        
     Total equity                                   4,986                            3,171



        
     Total liabilities and equity                         $
      
      50,773                    $
      47,528



     
                Lockheed Martin Corporation



     
                Consolidated Statements of Cash Flows



     
                (unaudited; in millions)




                                                                         Nine Months Ended



                                                           Sept. 27                        Sept. 29
                                                               2020                             2019



                   Operating activities



     Net earnings                                                  $
     
             5,041                        $
     4,732


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



     Depreciation and amortization                             927                                       867



     Stock-based compensation                                  182                                       158


      Equity method investment impairment                       128


      Tax resolution related to former IS&GS
       business                                                  55



     Gain on property sale                                                                             (51)


      Changes in assets and liabilities



     Receivables, net                                        (143)                                       60



     Contract assets                                       (1,294)                                  (1,532)



     Inventories                                               326                                     (477)



     Accounts payable                                          247                                       524



     Contract liabilities                                      300                                       286



     Postretirement benefit plans                            (130)                                      828



     Income taxes                                               58                                     (117)



     Other, net                                                679                                       543



                   Net cash provided by operating
                    activities                                6,376                                     5,821





                   Investing activities



     Capital expenditures                                  (1,044)                                    (841)



     Other, net                                                 27                                        38



                   Net cash used for investing activities   (1,017)                                    (803)





                   Financing activities



     Dividends paid                                        (2,036)                                  (1,881)



     Repurchases of common stock                           (1,100)                                    (710)


      Issuance of long-term debt, net of
       related costs                                          1,131


      Repayments of current and long-term
       debt                                                 (1,150)


      Repayments of commercial paper, net                                                              (600)



     Other, net                                              (133)                                     (60)



                   Net cash used for financing activities   (3,288)                                  (3,251)





                   Net change in cash and cash equivalents    2,071                                     1,767


                   Cash and cash equivalents at beginning
                    of period                                 1,514                                       772



                   Cash and cash equivalents at end of
                    period                                          $
     
             3,585                        $
     2,539



     
       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 Dec. 31, 2019                $
     
     280                       
       
               $                                              $
      
      18,401                                      $
      
      (15,554)       $
      
      3,127             $
      
      44  $
      
      3,171


        
     Net earnings                                                                                                                  5,041                                                            5,041                                          5,041


          Other comprehensive income, net of
           tax(1)                                                                                                                                                     295                                  295                                            295


          Repurchases of common stock                      (3)                         (256)                                            (841)                                                         (1,100)                                       (1,100)


        
     Dividends declared(2)                                                                                                       (2,757)                                                         (2,757)                                       (2,757)


          Stock-based awards, ESOP activity
           and other                                         1                            346                                                                                                               347                                            347


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



                       Balance at Sept. 27, 2020               $
     
     278                                         $
     
     90                                       $
      
      19,844                                      $
      
      (15,259)       $
      
      4,953             $
      
      33  $
      
      4,986




              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 $2.40 per share
                                declared for each of the first, second and
                                third quarters of 2020 and dividends of $2.60
                                per share declared for the fourth quarter of
                                     2020.



     
       Lockheed Martin Corporation



     
       Other Financial and Operating Information



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




                                                                                2020                     2019
                                                                             Outlook                  Actual



                       Total FAS income (expense) and CAS
                        costs


          FAS pension income (expense)(1)                                                $
       
       115               $
       (1,093)


        
     Less: CAS pension cost                                                 1,975                        2,565



          Net FAS/CAS pension adjustment                                               $
       
       2,090                 $
       1,472





                       Service and non-service cost
                        reconciliation


        
     FAS pension service cost                                                     $
       
       (100)                $
       (516)


        
     Less: CAS pension cost                                                 1,975                        2,565



        
     FAS/CAS operating adjustment                                           1,875                        2,049


          Non-operating FAS pension income
           (expense)(2)                                                            215                        (577)



          Net FAS/CAS pension adjustment                                               $
       
       2,090                 $
       1,472




              1               The corporation
                                projects FAS
                                pension income
                                in 2020,
                                compared to
                                FAS pension
                                expense in
                                2019, as a
                                result of
                                completing the
                                planned freeze
                                of its
                                salaried
                                pension plans
                                effective Jan.
                                1, 2020, that
                                was previously
                                announced on
                                July 1, 2014.
                                The
                                corporation's
                                FAS pension
                                expense is
                                comprised of
                                service cost,
                                interest cost,
                                expected
                                return on plan
                                assets,
                                amortization
                                of prior
                                service
                                credit, and
                                amortization
                                of actuarial
                                losses. The
                                service cost
                                and
                                amortization
                                of actuarial
                                losses
                                components of
                                FAS pension
                                expense are
                                significantly
                                lower due to
                                the freeze. As
                                a result, the
                                expected
                                return on plan
                                assets and
                                amortization
                                of prior
                                service credit
                                exceed all
                                other FAS
                                pension
                                expense
                                components in
                                2020. For
                                additional
                                information
                                regarding the
                                corporation's
                                FAS pension
                                expense or
                                income and CAS
                                pension cost,
                                see the
                                corporation's
                                Annual Report
                                on Form 10-K
                                for the year
                                ended Dec. 31,
                                2019.



              2               The corporation
                                records the
                                non-service
                                cost
                                components of
                                net periodic
                                benefit cost
                                as part of
                                other non-
                                operating
                                income
                                (expense) in
                                the
                                consolidated
                                statement 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
                                income (cost)
                                for its
                                qualified
                                defined
                                benefit
                                pension plans
                                in the table
                                above, along
                                with non-
                                service cost
                                for its other
                                postretirement
                                benefit plans
                                of $30
                                million, to
                                total non-
                                service credit
                                of $185
                                million for
                                2020. The
                                corporation
                                recorded non-
                                service cost
                                for its other
                                postretirement
                                benefit plans
                                of $116
                                million in
                                2019, in
                                addition to
                                its total non-
                                service cost
                                for its
                                qualified
                                defined
                                benefit
                                pension plans
                                in the table
                                above, for a
                                total of $693
                                million in
                                2019.





     
                Backlog                             Sept. 27                           Dec. 31
                                                           2020                                2019




     Aeronautics                                                $
              
         57,763                                                $
       55,636



     Missiles and Fire Control                          30,290                                        25,796



     Rotary and Mission Systems                         36,137                                        34,296



     Space                                              26,257                                        28,253




     
                Total backlog                                $
              
         150,447                                               $
       143,981







                                                                   Quarters Ended                             Nine Months Ended




     
                Aircraft Deliveries                 Sept. 27                           Sept. 29                           Sept. 27                Sept. 29
                                                           2020                                2019                                2020                     2019




     F-35                                                   31                                  28                                  78                       83



     C-130J                                                  3                                   6                                  11                       19



     Government helicopter programs                         19                                  20                                  48                       61



     International military helicopter programs              3                                   2                                   7                        5







     
                Number of Weeks in Reporting Period                                              2020                                    2019




     First quarter                                                                                   13                                      13



     Second quarter                                                                                  13                                      13



     Third quarter                                                                                   13                                      13



     Fourth quarter                                                                                  13                                      13

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SOURCE Lockheed Martin