20 Oct 09. Lockheed Martin Corporation (NYSE: LMT) today reported third quarter 2009 net earnings of $797 m ($2.07 per diluted share), compared to $782m ($1.92 per diluted share) in 2008. Net earnings in 2009 included higher pension expense as disclosed in our Jan. 22, 2009 earnings release and in our 2008 Form 10-K. The third quarter of 2009 included a FAS/CAS pension adjustment of ($113)m and an unusual tax benefit of $58m from the resolution of an IRS examination. These items together decreased third quarter 2009 net earnings by $15m ($0.04 per share). The third quarter of 2008 included a FAS/CAS pension adjustment of $32 m and an unusual gain of 44m, which together increased net earnings by $49 m ($0.12 per share). Net sales for the third quarter of 2009 were $11.1bn, compared to $10.6bn in 2008. Cash from operations for the third quarter of 2009 was $1.4bn, compared to $1.1bn in 2008.
“Our third quarter results keep the Corporation on track to achieve full year 2009 operational and financial commitments,” said Bob Stevens, Chairman, President and CEO. “Our diverse portfolio of programs is well positioned to provide critical, global security solutions to our customers as we support their changing program priorities and generate shareholder value.”
The Corporation’s updated outlook for 2009 diluted earnings per share primarily reflects the following revisions: An unusual benefit of $0.15 related to resolution of an IRS examination; and an increase in Other non-operating income, net as a result of improved market performance during the third quarter on Rabbi
The outlook for 2010 earnings before income taxes and earnings per share assumes that the Corporation’s 2010 non-cash FAS/CAS pension adjustment would be calculated using a discount rate of 6.125%, that the return on plan assets in 2009 would be approximately 8.5%, and that the Corporation will make a $1bn discretionary contribution to the defined benefit pension plans’ trust in 2009. The outlook for 2010 cash from operations anticipates that the Corporation will make additional contributions of approximately $1.4bn to the defined benefit pension plans’ trust during 2010. The Corporation anticipates recovering approximately $1 bn during 2010 as CAS cost, with the remainder being recoverable in future years.
The 2010 non-cash FAS/CAS pension adjustment and related assumptions will not be finalized until year-end 2009, consistent with the Corporation’s pension plan measurement date. These assumptions may change and could differ materially at the year-end measurement date. For example, a 25 basis point change in the discount rate would result in a $95 m change in the FAS/CAS pension adjustment. Similarly, a 100 basis point change in the actual return on plan assets would result in a $10 m change in the FAS/CAS pension adjustment. The Corporation will update its FAS/CAS pension adjustment and projections for cash from operations taking into account any changes in required defined benefit plan funding obligations, as necessary, when it announces 2009 year-end financial results.
The research and development (R&D) tax credit expires on Dec. 31, 2009, and has not been incorporated into our outlook for 2010. The benefit of the R&D tax credit (approximately $0.11 per share for 2009) will not be incorporated into our 2010 outlook or results unless it is extended by Congress. It is the Corporation’s practice not to incorporate adjustments to its outlook for proposed acquisitions, divestitures, joint ventures, or unusual items until such transactions have been consummated.
Balanced Cash Deployment Strategy
The Corporation continued to execute its balanced cash deployment strategy during the quarter and nine months ended Sept. 27, 2009 by: repurchasing 4.6m shares at a cost of $354 m during the quarter and 18.3m shares at a cost of $1.4bn during the nine month period of the year; paying