Lockheed Martin Reports Third Quarter 2002 Earnings
BETHESDA, MD, October 25th, 2002 -- Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2002 earnings from continuing operations of $0.66 per diluted share, compared to a third quarter 2001 loss from continuing operations of $0.20 per diluted share. Third quarter 2001 results were reduced by $0.63 per share for the effects of certain nonrecurring and unusual items. There were no nonrecurring and unusual items in the third quarter of 2002. After adjusting last year's results for the impact of adopting SFAS No. 142 and excluding the nonrecurring and unusual items, third quarter 2001 earnings per share from continuing operations would have been $0.59. Including discontinued operations, the Corporation reported net earnings of $0.64 in the third quarter of 2002 versus net earnings of $0.50 per share in the third quarter of 2001.
Download the 3rd Quarter Earnings Attachment 3Q02 Earnings (PDF, 26.1 KB)
- LOCKHEED MARTIN REPORTS THIRD QUARTER 2002 EARNINGS PER SHARE FROM CONTINUING OPERATIONS OF $0.66
- GENERATES $1.1 BILLION OF FREE CASH FLOW IN THE THIRD QUARTER
- INCREASES 2002 FREE CASH FLOW GUIDANCE TO AT LEAST $1.5 BILLION AND IMPROVES THE TWO-YEAR GUIDANCE TO AT LEAST $2.2 BILLION
- EXPECTS SALES OF APPROXIMATELY $26.0 BILLION IN 2002 AND REAFFIRMS 2003 GUIDANCE OF $27.0 - $28.0 BILLION
- PROJECTS OUTLOOK FOR 2002 EARNINGS PER SHARE FROM CONTINUING OPERATIONS TO REACH HIGHER END OF THE $2.50 - $2.55 RANGE AND PROVIDES GUIDANCE FOR 2003 EARNINGS PER SHARE OF $2.75 - $2.85 BEFORE POSSIBLE PENSION IMPACTS
Net sales for the third quarter of 2002 were $6.5 billion, a five percent increase over the third quarter 2001 sales of $6.2 billion. Year-to-date sales increased by 13 percent to $18.8 billion. Forecasted sales for the year 2002 are now expected to be approximately $26.0 billion as compared to the prior guidance range of between $25.4 - $26.0 billion. Forecasted sales for the year 2003 were reaffirmed between $27.0 - $28.0 billion.
The Corporation generated $1.1 billion in free cash flow in the third quarter of 2002 and $2.4 billion of free cash flow year-to-date. Free cash flow is defined as cash provided by operating activities less capital expenditures and excludes any proceeds from, or income tax payments on, divestitures. The Corporation increased its free cash flow outlook to at least $1.5 billion from at least $1.3 billion for the year 2002 and to at least $2.2 billion from at least $2.0 billion over the two-year period 2002 - 2003.
"In the third quarter, we are pleased with solid results in both the operational and financial areas," said Chairman and Chief Executive Officer Vance Coffman. "We continue to achieve mission success and customer satisfaction in all of our business areas as demonstrated by the successful inaugural launch of the Atlas V, completion of test events on precision guided munitions and sustained progress on the F/A-22 and F-35 programs. Additionally, our cash flow continues to improve the Corporation's financial strength and flexibility."
|GAAP Earnings (Loss) Per Share|
|Net Earnings Per Share||$0.64||$0.50||$1.88||$1.07|
|Adjusted Earnings Per Share|
|Less: Benefit of R&D tax credit||0.00||0.00||(0.20)||0.00|
|Nonrecurring and Unusual Items in Continuing Operations||0.00||0.63||0.00||0.62|
|Add: Impact of SFAS 142 adoption||NA||0.16||NA||0.43|
Adjusted Earnings from Continuing Operations
The Corporation expects its 2002 earnings per share from continuing operations outlook to reach the higher end of the $2.50 - $2.55 range, excluding nonrecurring and unusual items. The 2002 earnings projection excludes the one-time impact of a research and development (R&D) tax credit claim benefit of $0.20 per share and is based, among other factors, upon an assumed tax rate of approximately 31 percent. Prior guidance for earnings per share from continuing operations of $2.75 - $2.85 in 2003 is subject to possible pension plan assumption changes. The 2003 earnings projections assume an effective tax rate of approximately 32 percent.
As previously disclosed, GAAP earnings are impacted by pension (SFAS 87) and retiree medical (SFAS 106) benefit plans. This is particularly true with pension benefits, where SFAS 87 income or expense calculations are sensitive to changes in various key economic assumptions and workforce demographics.
Based on the current market performance and our preliminary analysis, the Corporation anticipates that the discount rate and the long-term rate of return on plan assets that will be used for the 2003 SFAS 87 pension expense calculation may be lower. The pension plan assumptions in our existing 2003 guidance include a discount rate of 7.25%, expected long-term rate of return on plan assets of 9.5% and an assumed 2002 return on plan assets of approximately 5%. The existing guidance for retirement plan expense (SFAS 106 and SFAS 87) in 2003 is $200 million to $300 million. The retiree medical element (SFAS 106) of that guidance is an expense of approximately $150 million to $200 million and is not expected to change materially. The SFAS 87 pension expense in that guidance is approximately $50 million to $100 million.
The discount rate assumption, the long-term rate of return assumption and the actual return on plan assets that will be used for calculating the 2003 SFAS 87 pension expense will be finalized at year-end consistent with the Corporation's pension plan measurement date. The actual year-to-date return on plan assets through September 30, 2002 was negative.
The following is provided to assist with the analysis of the potential incremental impact to the Corporation's existing guidance for 2003 SFAS 87 pension expense of approximately $50 million to $100 million:
- Lowering the discount rate by 25 basis points would increase 2003 SFAS 87 pension expense by approximately $40 million to $50 million.
- Lowering the long-term rate of return on assets by 25 basis points would increase 2003 SFAS 87 pension expense by approximately $55 million to $65 million.
- Each 100 basis point decline in the actual return on plan assets, compared to the 2002 assumed rate of return of approximately 5%, would increase 2003 SFAS 87 pension expense by approximately $10 million.
SFAS 87 determines pension income or expense for GAAP financial reporting purposes but not the funding requirements for the pension plans, which are subject to Cost Accounting Standards as well as Internal Revenue Service (IRS) minimum funding calculations. Additionally, since pension funding is an allowable cost under federal acquisition regulations, a majority of the Corporation's pension funding is recoverable on government contracts. However, to the extent that IRS funding requirements exceed those allowable in a given year, any excess would be recoverable in subsequent years. Due to its recoverability, the impact of increased funding requirements is not expected to materially affect cash flow in 2003 and has been reflected in the Corporation's improved free cash flow guidance.
The balance sheet is expected to be adjusted at year-end in accordance with SFAS 87 to record a minimum pension liability. This adjustment would be a non-cash reduction of equity, would not impact earnings and would be reversible should market performance improve and interest rates increase at the end of 2003. Assuming there is no significant change in interest rates or equity market performance for the remainder of the year, we anticipate that the after-tax adjustment to equity would be in the range of $1 billion to $2 billion.
Consistent with our prior practice, updated earnings and cash flow guidance for 2003 and our initial 2004 guidance will be provided in January 2003.
THIRD QUARTER AND YEAR-TO-DATE DETAILED REVIEW
Net sales for the third quarter of 2002 were $6.5 billion, a five percent increase over third quarter 2001 sales of $6.2 billion. Net sales for the nine months ended September 30, 2002 were $18.8 billion, a 13 percent increase over the $16.7 billion sales recorded in the comparable 2001 period.
Earnings from continuing operations for the third quarter of 2002 were $300 million, or $0.66 per share, compared to a loss from continuing operations of $87 million, or $0.20 per share, reported in the third quarter of 2001. There were no nonrecurring and unusual items recorded in the third quarter of 2002. Earnings from continuing operations for the third quarter of 2001 included the after-tax impact of three nonrecurring and unusual items which decreased third quarter 2001 earnings from continuing operations by $274 million, or $0.63 per share.
Earnings from continuing operations for the nine months ended September 30, 2002 were $875 million, or $1.94 per share, which included the one-time impact of a settlement of an R&D tax credit claim which increased 2002 earnings from continuing operations by $90 million, or $0.20 per share. Earnings from continuing operations for the nine months ended September 30, 2001 were $189 million, or $0.44 per share. The combination of all nonrecurring and unusual items decreased earnings from continuing operations for the nine months ended September 30, 2001 by $267 million, or $0.62 per share.
Interest expense of $147 million and $440 million for the quarter and nine months ended September 30, 2002, respectively, was lower by $25 million and $109 million than the comparable periods in 2001 primarily as a result of the reduction in the Corporation's debt.
On December 7, 2001, the Corporation announced its plans to sell certain of its Global Telecommunications services businesses and realign the other LMGT businesses and equity investments to other Lockheed Martin business units. The results of operations of the businesses held for sale are reported in discontinued operations. On January 11, 2002 the Corporation completed the sale of its Mobile Communications business and on October 11, 2002 completed the sale of an 81% equity interest in COMSAT International. Agreements are in place to sell the remaining discontinued operations business - World Systems and Lockheed Martin Intersputnik. The pending sales are subject to regulatory and customary closing conditions. No gains or losses are expected to be recognized on these sales.
The Corporation reported a loss from discontinued operations of $10 million, or $0.02 per share in the third quarter of 2002 as compared to earnings from discontinued operations of $300 million, or $0.70 per share in the comparable 2001 period. For the nine months ended September 30, 2002, the loss from discontinued operations was $28 million or $0.06 per share, as compared to earnings from discontinued operations of $273 million, or $0.63 per share in the comparable 2001 period. Both periods of 2001 were favorably impacted by an after-tax gain of $309 million from the sale of Lockheed Martin IMS Corporation.
For the third quarters of 2002 and 2001, the Corporation's net earnings were $290 million or $0.64 per share and $213 million or $0.50 per share, respectively. For the nine month periods, the net earnings were $847 million or $1.88 per share in 2002 and $462 million or $1.07 per share for 2001.
To enhance the comparability and discussion of continuing operations, the Corporation reflects all goodwill amortization for periods prior to January 1, 2002 in the Corporate and Other segment since such amortization ceased with the adoption of SFAS No. 142. The effect of extending Aeronautics' contract intangible asset related to the F-16 program is also reflected in the Corporate and Other segment. As a result of these changes, 2001 earnings before interest and taxes (EBIT) for all segments have been adjusted for the adoption of this Statement. In addition, as disclosed in the 2001 Annual Report, retirement plan income (SFAS 87 and SFAS 106) is allocated to the segments and has declined from 2001 due to a decrease in pension income (SFAS 87) which negatively affects margins over comparable periods.
Net sales for the Systems Integration segment increased by one percent and five percent for the quarter and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. For the quarter, increased sales in the segment's Command, Control, Communication, Computers and Intelligence (C4I) line of business were partially offset by lower sales in the segment's remaining lines of business. For the nine months, volume increases in the segment's Missiles & Fire Control, and C4I lines of business were partially offset by lower volume in the segment's Systems Integration-Owego line of business.
EBIT for the quarter and year-to-date periods in 2002 increased slightly from the respective periods of the prior year. In both periods increased EBIT at Missiles & Fire Control and C4I were offset by declines at Owego and Naval Electronics and Surveillance Systems. Year-to-date margins were reduced by the decline in volume on mature production programs and by higher volume on development programs.
and unusual items
Net sales for the Space Systems segment increased by three percent and by nine percent for the quarter and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. For the quarter the increases in the segment's commercial space line of business more than offset declines in the segment's government space line of business. The increase in commercial space is primarily attributable to higher commercial satellite deliveries. The decrease in government space is mainly due to declines in volume on government launch vehicle programs (Titan) and ground systems activities partially offset by higher volumes on government satellite programs.
The increase in net sales for the nine months ended September 30, 2002 resulted from higher volumes in both commercial space and government space. The increase in commercial space is primarily attributable to higher commercial satellite deliveries and increased launch vehicle activities, with seven commercial launches during the nine-month period of 2002 compared to five during the comparable 2001 period. In government space, increases in government satellite programs and ground systems activities more than offset declines in volume on government launch vehicle programs.
Adjusted EBIT (excluding nonrecurring and unusual items) decreased two percent and increased 12 percent for the quarter and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. Commercial space decreased quarter over quarter due primarily to the lower profitability of the three commercial launches this quarter as compared to the two launches in the respective 2001 period. EBIT also included the adverse effects of adjustments of $25 million in 2002 and $45 million in 2001 recorded to reflect the continued industry-wide oversupply and further deterioration of pricing in the commercial launch market. In government space, EBIT increases due to the higher volume on government satellite programs more than offset the declines resulting from the decreased volume on government launch vehicle programs.
The increase in adjusted EBIT for the nine months ended September 30, 2002 is primarily attributable to reduced losses in commercial space that more than offset lower EBIT in government space. Commercial satellite losses declined in 2002 as operating performance improved. In the first quarter of 2001, a $40 million loss provision was recorded on certain commercial satellite contracts. Financial performance on commercial launch vehicles continues to deteriorate including charges of $60 million (net of a favorable contract adjustment of $20 million) recorded in 2002 for market and pricing pressures compared to $85 million in 2001. The 2002 year-to-date decrease in government space is primarily due to the reduced volume on government launch vehicle programs partially offset by increases on government satellite programs and ground systems activities.
In 2001, the nonrecurring and unusual item was related to the sale of surplus real estate.
Net sales for the Aeronautics segment increased by 15 percent and 35 percent for the quarter and nine months ended September 2002, respectively, from the comparable 2001 periods. The increase in sales for both periods is the result of initial ramp-up of F-35 Joint Strike Fighter System Development & Demonstration activities and higher volume on F/A-22 Low Rate Initial Production (LRIP) as well as higher volume of development activities on the F-16 and C-5 programs. In the quarter, sales increases were partially offset by four fewer C-130J deliveries while for the nine month period sales were increased by the delivery of one additional C-130J in 2002 over the comparable 2001 period.
EBIT for the quarter and year-to-date periods in 2002 increased by one percent and 17 percent, respectively, from the comparable 2001 periods. These increases are primarily due to the higher volume on the programs described above partially offset by a $15 million charge related to performance issues on an aircraft modification contract. Margins were lower due to increased development activities on F-35, F-16 and C-5 aircraft programs, the ramp-up of F/A-22 LRIP and the previously mentioned performance issue. The comparative margins for the quarter were also affected by having one C-130J delivery in 2002 compared to five deliveries in 2001. C-130J deliveries do not impact EBIT due to the previously disclosed suspension of earnings recognition on the program.
Net sales for Technology Services increased by six percent and nine percent for the quarter and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. For the quarter and nine months, the increase in sales was primarily attributable to growth in the government information technology and defense lines of business. This growth was partially offset by lower sales in the commercial information technology and NASA lines of business.
EBIT for the segment increased by 23 percent and 20 percent for the quarter and nine months ended September 30, 2002, respectively, from the comparable 2001 periods. In both periods, the EBIT increased mainly due to the higher volume in government information technology and improved performance in commercial information technology partially offset by lower EBIT on the military aircraft, NASA and energy lines of business.
Corporate and Other
|Nonrecurring and unusual items||0||421||0||521|
|Impact of SFAS No. 142||0||68||0||205|
Adjusted EBIT for the Corporate and Other segment increased by $19 million for the quarter and decreased by $32 million for the nine months ended September 30, 2002 from the comparable 2001 periods. For the nine month period, lower interest income and an increase in corporate expenses, primarily in stock-based deferred compensation costs, partially offset by lower losses from certain equity investments accounted for the decline in EBIT. The increase in EBIT for the quarter is primarily the result of a decrease in corporate expenses, mainly in stock-based deferred compensation costs, and by lower losses from certain equity investments.
In 2001, the nonrecurring and unusual items included a charge related to the Corporation's investment in Loral Space & Communications LTD, a charge related to the impairment of the Corporation's investment in Americom Asia-Pacific, and a loss on the early extinguishment of debt. Also, the Corporation now reflects all goodwill amortization for periods prior to January 1, 2002 and the effect of extending Aeronautics' contract intangible asset related to the F-16 program (impact of SFAS No. 142) in Corporate and Other's adjusted EBIT to enhance comparability.
THIRD QUARTER 2002 ACHIEVEMENTS
- First Atlas V launch vehicle debuted successfully, delivering Eutelsat Hot Bird 6 satellite into orbit.
- Atlas IIAS launch vehicle successfully boosted Hispasat satellite into orbit-62nd consecutive Atlas success.
- Selected by the U.S. Postal Service to build and deploy the Automated Package Processing Systems. More than 120 systems could eventually be delivered under contract with a value up to $550 million.
- Turkey joined the F-35 Joint Strike Fighter System Development and Demonstration phase, becoming the seventh international partner.
- Space Operations awarded $314 million contract to support NASA in conducting research, developing products and serving space community in astrobiology and related areas of earth, space and life sciences.
- The Kwajalein Range Services (KRS) joint venture, of which we own 49%, was awarded the Kwajalein Range logistics contract - a key facility to the missile defense program. The potential value to the joint venture is $2.7 billion over 15 years.
- Awarded $90 million funding increment for continued leadership of Missile Defense National Team's battle management, command and control and communications program.
- Awarded $200 million FBI Technology Refresh program. Five-year program will modernize agency's critical infrastructure.
- Received one of two $75 million U.S. Army contracts to develop and test system architecture and technology that will be core to Army's multibillion Warfighter Information Network-Tactical (WIN-T) program.
- F/A-22 successfully completed its first supersonic missile launch. F/A-22 also completed the 1,000th test sortie with over 2,400 test hours.
Conference call: Lockheed Martin will webcast the earnings conference call (listen-only mode) at 11 a.m. E.D.S.T. on October 25, 2002. A live audio broadcast will be available on the Investor Relations page of the company's web site at http://www.lockheedmartin.com/investor.
NOTE: Statements in this press release, including the statements relating to projected future financial performance, are considered forward-looking statements under the federal securities laws. Sometimes these statements will contain words such as "anticipates," "expects," "plans," "projects," "estimates," "outlook," "forecast," and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we may project.
Our actual financial results will likely be different from those projected due to the inherent nature of projections and may be better or worse than projected. Given these uncertainties, you should not rely on forward-looking statements. Forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to forward-looking statements, and the estimates and assumptions associated with them, after the date of this press release to reflect the occurrence of subsequent events, changed circumstances or changes in our expectations.
In addition to the factors set forth in our 2001 Form 10-K and 2002 Form 10-Q filings with the Securities and Exchange Commission (www.sec.gov), the following factors could affect our forward-looking statements: our ability to achieve or quantify savings for our customers or ourselves through our global cost-cutting program and other financial management programs; the ability to obtain or the timing of obtaining future government awards; the availability of government funding and customer requirements both domestically and internationally; changes in government or customer priorities due to program reviews or revisions to strategic objectives (including changes in priorities to respond to recent terrorist threats or to improve homeland security); difficulties in developing and producing operationally advanced technology systems; the competitive environment; economic business and political conditions domestically and internationally; program performance and the timing of contract payments; the timing and customer acceptance of product deliveries and launches; the level of returns on pension and retirement plan assets, and the outcome of contingencies (including completion of any acquisitions and divestitures, litigation and environmental remediation efforts). Our ability to monetize assets or businesses placed in discontinued operations will depend upon market and economic conditions, and other factors, and may require receipt of regulatory or governmental approvals. Realization of the value of the Corporation's investments in equity securities, or related equity earnings for a given period, may be affected by the investee's ability to obtain adequate funding and execute its business plan, general market conditions, industry considerations specific to the investee's business, and/or other factors. These are only some of the numerous factors that may affect the forward-looking statements contained in this press release.
NEWS MEDIA CONTACT: Thomas Jurkowsky, 301/897-6352
INVESTOR RELATIONS CONTACT: James Ryan, 301/897-6584 or
Randa Middleton, 301/897-6455