Military Space Quarterly | ULA Keeps Lockheed Space Profit up as Revenue Declines in 2013
PARIS — Lockheed Martin expects lower revenue and sharply lower operating profit at its Space Systems division in 2014 on reduced military satellite sales and a hefty restructuring charge following the company’s plant shutdowns and workforce reductions.
The company said the Space Systems division posted record operating earnings in 2013 in part because of increased income from its 50 percent share of( ) of Denver, which provides and Atlas rocket launches to the U.S. government.
Bethesda, Md.-based Lockheed Martin and Boeing Co. of Chicago own ULA. The two companies have received a combined $1.05 billion in earnings from ULA in the seven years since the launch-vehicle joint venture was created.
ULA accounted for 29 percent of’ operating profit in 2013, contributing $300 million in cash, up 13 percent from 2012, Lockheed said in a Feb. 14 filing with the U.S. Securities and Exchange Commission (SEC).
The $300 million figure includes a small amount of equity earnings from Lockheed’s share of the joint venture operating the U.K. Atomic Weapons Establishment. It also includes a one-time reimbursement from ULA to its two parent companies.
Denver-based Lockheed Martin Space Systems has work on multiple U.S. government satellite programs, mainly military, and on NASA’s Orion crew transport vehicle, now in development. It also includes the U.S. Fleet Ballistic Missile program, whose revenue increased in 2013 by $65 million.
Space Systems reported $7.96 billion in revenue in 2013, down 5 percent from 2012. But the division’s operating profit margin was a record 13.1 percent, slightly better than 2012’s 13 percent, which was also a record.
The drop in total revenue followed a $305 million decline in commercial satellite business in 2013. The company made no commercial satellite deliveries in 2013, compared to two in 2012.
Also contributing to the decline was a drop of $290 million in Orion revenue from NASA. But while Orion revenue in 2013 was down, Lockheed reported a large increase in Orion backlog in 2013.
This increased Orion backlog was due to a NASA decision to provide several years of Orion funding at one go rather than parceling it out in one-year increments, Lockheed Martin Chief Financial Officer Bruce L. Tanner said in a Jan. 23 conference call with investors.
Space Systems’ backlog stood at $20.5 billion as of Dec. 31, up 13 percent from a year earlier. The backlog increased despite the decline in backlog for the U.S. Air Force’s Advanced Extremely High Frequency military telecommunications satellite program, on which Lockheed is prime contractor.
Lockheed Martin in November announced it was closing several plants, reducing the size of others and shedding 4,000 employees in an effort to tailor its business to the expected future U.S. government order flow. The Space Systems division was among those affected, with the closure of the Newtown, Pa., commercial satellite plant and reductions at its Sunnyvale, Calif., facility.
The Space Systems division will incur a charge of $81 million to finance severance payments to the laid-off employees.
For 2014, Lockheed forecasts Space Systems revenue at about $7.5 billion, down 11.4 percent on lower satellite revenue. Operating profit expected to drop by 18 percent, to $855 million, with a further $55 million restructuring charge the main reason. Lockheed said it expects ULA’s equity contribution to decline in 2014 from the $300 million in 2013.
The effects of the restructuring and head-count reductions will taper off in 2015, Tanner said.
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