SEC Filing | Lockheed Martin Corp

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 29, 2019



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 1-11437

LOCKHEED MARTIN CORPORATION

(Exact name of registrant as specified in its charter)



Maryland			52-1893632
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

6801 Rockledge Drive,	Bethesda,	Maryland	20817
(Address of principal executive offices)			(Zip Code)

(301) 897-6000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $1 par value	LMT	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non–accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b–2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non–accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

There were 282,071,418 shares of our common stock, $1 par value per share, outstanding as of October 18, 2019.

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Lockheed Martin Corporation

Form 10-Q

For the Quarterly Period Ended September 29, 2019

Table of Contents



			Page

PART I. FINANCIAL INFORMATION

	ITEM 1.	Financial Statements

		Consolidated Statements of Earnings for the Quarters and Nine Months Ended September 29, 2019 and September 30, 2018	3

		Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 29, 2019 and September 30, 2018	4

		Consolidated Balance Sheets as of September 29, 2019 and December 31, 2018	5

		Consolidated Statements of Cash Flows for the Nine Months Ended September 29, 2019 and September 30, 2018	6

		Consolidated Statements of Equity for the Quarters Ended September 29, 2019 and September 30, 2018	7

		Consolidated Statements of Equity for the Nine Months Ended September 29, 2019 and September 30, 2018	8

		Notes to Consolidated Financial Statements	9

		Report of Independent Registered Public Accounting Firm	27

	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	44

	ITEM 4.	Controls and Procedures	45

PART II. OTHER INFORMATION

	ITEM 1.	Legal Proceedings	47

	ITEM 1A.	Risk Factors	47

	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49

	ITEM 6.	Exhibits	50

SIGNATURE			51

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

Lockheed Martin Corporation

Consolidated Statements of Earnings

(unaudited; in millions, except per share data)



	Quarters Ended						Nine Months Ended
	September 29, 2019			September 30, 2018			September 29, 2019			September 30, 2018
Net sales
Products	$	12,728		$	11,918		$	36,701		$	32,830
Services	2,443			2,400			7,233			6,521
Total net sales	15,171			14,318			43,934			39,351
Cost of sales
Products	(11,339		)	(10,701		)	(32,638		)	(29,391		)
Services	(2,211		)	(2,070		)	(6,452		)	(5,726		)
Severance and restructuring charges	—			—			—			(96		)
Other unallocated, net	442			374			1,400			1,194
Total cost of sales	(13,108		)	(12,397		)	(37,690		)	(34,019		)
Gross profit	2,063			1,921			6,244			5,332
Other income, net	42			42			152			151
Operating profit	2,105			1,963			6,396			5,483
Interest expense	(162		)	(177		)	(496		)	(497		)
Other non-operating expense, net	(162		)	(211		)	(491		)	(631		)
Earnings before income taxes	1,781			1,575			5,409			4,355
Income tax expense	(173		)	(102		)	(677		)	(562		)
Net earnings	$	1,608		$	1,473		$	4,732		$	3,793

Earnings per common share
Basic	$	5.70		$	5.18		$	16.77		$	13.31
Diluted	$	5.66		$	5.14		$	16.66		$	13.21

Cash dividends paid per common share	$	2.20		$	2.00		$	6.60		$	6.00

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Comprehensive Income

(unaudited; in millions)



	Quarters Ended					Nine Months Ended
	September 29, 2019			September 30, 2018		September 29, 2019			September 30, 2018
Net earnings	$	1,608		$	1,473	$	4,732		$	3,793
Other comprehensive income, net of tax
Recognition of previously deferred postretirement benefit plan amounts	227			300		681			900
Other, net	(41		)	18		(13		)	(30		)
Other comprehensive income, net of tax	186			318		668			870
Comprehensive income	$	1,794		$	1,791	$	5,400		$	4,663

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Balance Sheets

(in millions, except par value)



	September 29, 2019			December 31, 2018
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	2,539		$	772
Receivables, net	2,384			2,444
Contract assets	11,004			9,472
Inventories	3,474			2,997
Other current assets	402			418
Total current assets	19,803			16,103
Property, plant and equipment, net	6,240			6,124
Goodwill	10,762			10,769
Intangible assets, net	3,278			3,494
Deferred income taxes	2,912			3,208
Other noncurrent assets	6,280			5,178
Total assets	$	49,275		$	44,876
Liabilities and equity
Current liabilities
Accounts payable	$	2,904		$	2,402
Contract liabilities	6,777			6,491
Salaries, benefits and payroll taxes	2,308			2,122
Current maturities of long-term debt and commercial paper	900			1,500
Other current liabilities	2,626			1,883
Total current liabilities	15,515			14,398
Long-term debt, net	12,652			12,604
Accrued pension liabilities	11,436			11,410
Other postretirement benefit liabilities	677			704
Other noncurrent liabilities	5,058			4,311
Total liabilities	45,338			43,427
Stockholders’ equity
Common stock, $1 par value per share	281			281
Additional paid-in capital	—			—
Retained earnings	17,265			15,434
Accumulated other comprehensive loss	(13,653		)	(14,321		)
Total stockholders’ equity	3,893			1,394
Noncontrolling interests in subsidiary	44			55
Total equity	3,937			1,449
Total liabilities and equity	$	49,275		$	44,876

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Cash Flows

(unaudited; in millions)



	Nine Months Ended
	September 29, 2019			September 30, 2018
Operating activities
Net earnings	$	4,732		$	3,793
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	867			857
Stock-based compensation	158			148
Gain on property sale	(51		)	—
Severance and restructuring charges	—			96
Changes in assets and liabilities
Receivables, net	60			(151		)
Contract assets	(1,532		)	(1,777		)
Inventories	(477		)	(172		)
Accounts payable	524			1,237
Contract liabilities	286			(539		)
Postretirement benefit plans	828			(3,935		)
Income taxes	(117		)	729
Other, net	543			635
Net cash provided by operating activities	5,821			921
Investing activities
Capital expenditures	(841		)	(819		)
Other, net	38			146
Net cash used for investing activities	(803		)	(673		)
Financing activities
Dividends paid	(1,881		)	(1,725		)
Repurchases of common stock	(710		)	(826		)
(Repayments of) proceeds from commercial paper, net	(600		)	490
Other, net	(60		)	(151		)
Net cash used for financing activities	(3,251		)	(2,212		)
Net change in cash and cash equivalents	1,767			(1,964		)
Cash and cash equivalents at beginning of period	772			2,861
Cash and cash equivalents at end of period	$	2,539		$	897

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Equity

(unaudited; in millions)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests in Subsidiary			Total Equity
Balance at June 30, 2019	$	281		$	—		$	16,408		$	(13,839	)	$	2,850		$	46		$	2,896
Net earnings	—			—			1,608			—			1,608			—			1,608
Other comprehensive income, net of tax	—			—			—			186			186			—			186
Repurchases of common stock	—			(146		)	(72		)	—			(218		)	—			(218		)
Dividends declared	—			—			(679		)	—			(679		)	—			(679		)
Stock-based awards, ESOP activity and other	—			146			—			—			146			—			146
Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(2		)	(2		)
Balance at September 29, 2019	$	281		$	—		$	17,265		$	(13,653	)	$	3,893		$	44		$	3,937

Balance at June 24, 2018	$	283		$	—		$	14,528		$	(14,395	)	$	416		$	63		$	479
Net earnings	—			—			1,473			—			1,473			—			1,473
Other comprehensive income, net of tax	—			—			—			318			318			—			318
Repurchases of common stock	(1		)	(139		)	(63		)	—			(203		)	—			(203		)
Dividends declared	—			—			(1,201		)	—			(1,201		)	—			(1,201		)
Stock-based awards, ESOP activity and other	1			139			—			—			140			—			140
Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(4		)	(4		)
Balance at September 30, 2018	$	283		$	—		$	14,737		$	(14,077	)	$	943		$	59		$	1,002

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Consolidated Statements of Equity

(unaudited; in millions)



	Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Stockholders’ Equity			Noncontrolling Interests in Subsidiary			Total Equity
Balance at December 31, 2018	$	281		$	—		$	15,434		$	(14,321	)	$	1,394		$	55		$	1,449
Net earnings	—			—			4,732			—			4,732			—			4,732
Other comprehensive income, net of tax	—			—			—			668			668			—			668
Repurchases of common stock	(2		)	(366		)	(350		)	—			(718		)	—			(718		)
Dividends declared	—			—			(2,551		)	—			(2,551		)	—			(2,551		)
Stock-based awards, ESOP activity and other	2			366			—			—			368			—			368
Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(11		)	(11		)
Balance at September 29, 2019	$	281		$	—		$	17,265		$	(13,653	)	$	3,893		$	44		$	3,937

Balance at December 31, 2017	$	284		$	—		$	11,405		$	(12,539	)	$	(850	)	$	74		$	(776	)
Net earnings	—			—			3,793			—			3,793			—			3,793
Other comprehensive income, net of tax	—			—			—			870			870			—			870
Repurchases of common stock	(3		)	(300		)	(523		)	—			(826		)	—			(826		)
Dividends declared	—			—			(2,346		)	—			(2,346		)	—			(2,346		)
Stock-based awards, ESOP activity and other	2			300			—			—			302			—			302
Reclassification of income tax effects from tax reform	—			—			2,408			(2,408		)	—			—			—
Net decrease in noncontrolling interests in subsidiary	—			—			—			—			—			(15		)	(15		)
Balance at September 30, 2018	$	283		$	—		$	14,737		$	(14,077	)	$	943		$	59		$	1,002

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited)

NOTE 1 – BASIS OF PRESENTATION

We prepared these consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of U.S. Securities and Exchange Commission (SEC) Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

In the opinion of management, these consolidated financial statements reflect all adjustments that are of a normal recurring nature necessary for a fair presentation of our results of operations, financial condition, and cash flows for the interim periods presented. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base these estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying amounts of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates. Significant estimates inherent in the preparation of our consolidated financial statements include, but are not limited to, accounting for sales and cost recognition, postretirement benefit plans, environmental receivables and liabilities, evaluation of goodwill and other assets for impairment, income taxes including deferred tax assets, fair value measurements and contingencies. The consolidated financial statements include the accounts of subsidiaries we control and variable interest entities if we are the primary beneficiary. We eliminate intercompany balances and transactions in consolidation.

We close our books and records on the last Sunday of the calendar quarter, which was on September 29 for the third quarter of 2019 and September 30 for the third quarter of 2018, to align our financial closing with our business processes. The consolidated financial statements and tables of financial information included herein are labeled based on that convention. This practice only affects interim periods as our fiscal year ends on December 31.

We adopted Accounting Standards Update (ASU) 2016-02, Leases (Topic 842), effective January 1, 2019, using the optional transition method whereby we applied the new lease requirements under ASU 2016-02 through a cumulative-effect adjustment, which after completing our implementation analysis, resulted in no adjustment to our January 1, 2019 beginning retained earnings balance. Consequently, periods prior to January 1, 2019 are not restated for the adoption of ASU 2016-02. See “Note 6 – Leases” and “Note 12 – Recent Accounting Pronouncements” for more information regarding our adoption of this standard. Other than the changes in our accounting policies related to adoption of ASU 2016-02, we followed the accounting policies disclosed in the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K) filed with the SEC.

The results of operations for the interim periods presented are not necessarily indicative of results to be expected for the full year or future periods. Unless otherwise noted, we present all per share amounts cited in these consolidated financial statements on a “per diluted share” basis. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our 2018 Form 10-K.

NOTE 2 – EARNINGS PER COMMON SHARE

The weighted average number of shares outstanding used to compute earnings per common share were as follows (in millions):



	Quarters Ended		Nine Months Ended
	September 29, 2019	September 30, 2018	September 29, 2019	September 30, 2018
Weighted average common shares outstanding for basic computations	282.0	284.3	282.2	284.9
Weighted average dilutive effect of equity awards	1.9	2.4	1.8	2.3
Weighted average common shares outstanding for diluted computations	283.9	286.7	284.0	287.2

We compute basic and diluted earnings per common share by dividing net earnings by the respective weighted average number of common shares outstanding for the periods presented. Our calculation of diluted earnings per

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

common share also includes the dilutive effects for the assumed vesting of outstanding restricted stock units (RSUs) and performance stock units (PSUs) and exercise of outstanding stock options based on the treasury stock method. There were no significant anti-dilutive equity awards during the quarters and nine months ended September 29, 2019 or September 30, 2018.

NOTE 3 – INFORMATION ON BUSINESS SEGMENTS

We operate in four business segments: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. We organize our business segments based on the nature of products and services offered.

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

Business segment operating profit 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.

Excluded items are included in the reconciling item “Unallocated items” between operating profit from our business segments and our consolidated operating profit. See “Note 11 – Other” for a discussion related to certain factors that may impact the comparability of net sales and operating profit of our business segments.

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Lockheed Martin Corporation

Notes to Consolidated Financial Statements (unaudited) (continued)

Summary operating results for each of our business segments were as follows (in millions):



	Quarters Ended				Nine Months Ended
	September 29, 2019		September 30, 2018		September 29, 2019		September 30, 2018
Net sales
Aeronautics	$	6,178	$	5,642	$	17,312	$	15,361
Missiles and Fire Control	2,601		2,273		7,362		6,035
Rotary and Mission Systems	3,709		3,848		11,239		10,637
Space	2,683		2,555		8,021		7,318
Total net sales	$	15,171	$	14,318	$	43,934	$	39,351
Operating profit
Aeronautics	$	665	$	600