Lockheed Martin (NYSE: LMT) today reported third quarter 2016 net sales from continuing operations of $11.6 billion, compared to $10.1 billion in the third quarter of 2015. Net earnings from continuing operations in the third quarter of 2016 were $1.1 billion, or $3.61 per share, compared to $756 million, or $2.42 per share, in the third quarter of 2015. Cash from operations in the third quarter of 2016 was $1.3 billion, compared to $1.5 billion in the third quarter of 2015.
“The corporation achieved a quarter of strong operational and financial results, while also completing our strategic disposition of IS&GS,” said Lockheed Martin Chairman, President and CEO Marillyn Hewson. “Looking ahead to 2017, we are focused on providing innovative solutions to our customers, while executing on our realigned business portfolio to generate growth and value to shareholders.”
— Net sales from continuing operations of $11.6 billion
— Net earnings from continuing operations of $1.1 billion, or $3.61 per share
— Generated cash from operations of $1.3 billion
— Completed divestiture of Information Systems & Global Solutions business and retired 9.4 million shares
— Increased quarterly dividend rate 10 percent to $1.82 per share
— Increased share repurchase authorization by $2.0 billion
— Updates 2016 outlook and provides trend information for 2017
Divestiture of Information Systems & Global Solutions
On Aug. 16, 2016, the Corporation completed the previously announced divestiture of its Information Systems & Global Solutions (IS&GS) business segment, which merged with Leidos Holdings, Inc. (Leidos) in a Reverse Morris Trust transaction (the Transactions). The Transactions were the culmination of the Corporation’s strategic review of its government information technology (IT) business and its technical services business performed in 2015 to explore whether these businesses could achieve greater growth and create more value for customers and stockholders outside of Lockheed Martin. As part of the Transactions, the Corporation also completed an exchange offer that resulted in a reduction of Lockheed Martin common stock outstanding by approximately 9.4 million shares (approximately three percent). Both the exchange offer and merger qualified as tax-free transactions to the Corporation and its stockholders, except to the extent that cash was paid to the Corporation’s stockholders in lieu of fractional shares. Additionally, Lockheed Martin received a one-time special cash payment of $1.8 billion, which is reported under financing activities in the consolidated statements of cash flows.
The Corporation recognized a $1.2 billion gain as a result of the Transactions, which represents the $2.5 billion fair value of the shares of Lockheed Martin common stock tendered and retired as part of the exchange offer, plus the $1.8 billion one-time special cash payment, less the $3.0 billion net book value of the IS&GS business segment at Aug. 16, 2016 and other adjustments of $100 million. The final gain is subject to certain post-closing adjustments, including final working capital and tax adjustments, which the Corporation expects to complete in the fourth quarter of 2016 or the first quarter of 2017. The operating results of the IS&GS business segment and the gain on the Transactions have been classified as discontinued operations. However, the cash flows of the IS&GS business segment have not been classified as discontinued operations, as the Corporation retained this cash as part of the Transactions.
Consolidation of Atomic Weapons Establishment Venture
On Aug. 24, 2016, the Corporation’s ownership interest in the AWE Management Limited (AWE) venture, which operates the United Kingdom’s nuclear deterrent program, increased by 18%. As a result of the increase in ownership interest, the Corporation now holds a 51% controlling interest in the AWE venture. The operating results and cash flows of AWE have been included in the Corporation’s consolidated results since Aug. 24, 2016, the date it obtained a controlling interest. AWE has been aligned under the Corporation’s Space Systems business segment. Previously, the Corporation accounted for its investment in AWE using the equity method of accounting. The Corporation recognized a $127 million non-cash gain as a result of this transaction, which represents the fair value of the Corporation’s 51% interest in AWE, less the net book value of the previously held investment in AWE. The gain increased net earnings from continuing operations $104 million ($0.34 per share) in the third quarter of 2016.
Summary Financial Results
