Lockheed Martin Corporation [NYSE: LMT] today reported fourth quarter 2022 net sales of $19.0 billion, compared to $17.7 billion in the fourth quarter of 2021. Net earnings in the fourth quarter of 2022 were $1.9 billion, or $7.40 per share, compared to $2.0 billion, or $7.47 per share, in the fourth quarter of 2021. Net earnings for the fourth quarter of 2022 include certain non-operational items of $129 million, or $0.39 per share, compared to $(92) million, or $(0.25) per share in the fourth quarter of 2021. See table below for further details. Cash from operations was $1.9 billion in the fourth quarter of 2022, compared to $4.3 billion in the fourth quarter of 2021. Free cash flow was $1.2 billion in the fourth quarter of 2022, compared to $3.7 billion in the fourth quarter of 2021.
Net sales in 2022 were $66.0 billion, compared to $67.0 billion in 2021. Net earnings in 2022 were $5.7 billion, or $21.66 per share, compared to $6.3 billion, or $22.76 per share, in 2021. Net earnings for 2022 include certain non-operational items of $1.9 billion, or $5.57 per share, compared to $1.4 billion, or $3.99 per share in 2021. See table below for further details. Cash from operations in 2022 was $7.8 billion, compared to $9.2 billion in 2021. Free cash flow in 2022 was $6.1 billion, compared to $7.7 billion in 2021.
“Lockheed Martin’s stronger than expected finish to the year demonstrated the company’s reliability and resiliency to meet commitments in challenging environments, while leading the industry’s critical security advancements for our nation and allies,” said Chairman, President and CEO James Taiclet. “Our ongoing expansion of 21st Century capabilities and commercial partnerships are delivering deterrence solutions and value enhancing growth opportunities across our businesses. As we track toward our objective of growth resumption in 2024, we will continue to execute our dynamic and disciplined capital allocation program, by reinvesting in our business and pursuing growth opportunities, and returning capital to shareholders. We remain confident in our plans to enable our customers to stay ahead of ready and to deliver sustainable economic value.”
Adjusted earnings before income taxes, net earnings and diluted EPS
The table below shows the impact to earnings before income taxes, net earnings and diluted earnings per share (EPS) for certain non-operational items:
|
(in millions, except per share data) |
Quarters Ended |
|||||||||
|
Dec. 31, 2022 |
Dec. 31, 2021 |
|||||||||
|
Earnings |
Net |
Diluted |
Earnings |
Net |
Diluted |
|||||
|
As Reported (GAAP) |
$ 2,190 |
$ 1,912 |
$ 7.40 |
$ 2,490 |
$ 2,049 |
$ 7.47 |
||||
|
Severance and other charges |
100 |
79 |
0.31 |
— |
— |
— |
||||
|
Mark-to-market investments losses (gains)1 |
29 |
22 |
0.08 |
(92) |
(69) |
(0.25) |
||||
|
Total Adjustments |
129 |
101 |
0.39 |
(92) |
(69) |
(0.25) |
||||
|
As Adjusted (Non-GAAP)2 |
$ 2,319 |
$ 2,013 |
$ 7.79 |
$ 2,398 |
$ 1,980 |
$ 7.22 |
||||
|
1 |
Includes changes in valuations of the company’s net assets and liabilities for deferred compensation plans and other mark-to-market |
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|
2 |
See the “Use of Non-GAAP Financial Measures” section of this news release for more information. |
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|
(in millions, except per share data) |
Years Ended |
|||||||||
|
Dec. 31, 2022 |
Dec. 31, 2021 |
|||||||||
|
Earnings |
Net |
Diluted |
Earnings |
Net |
Diluted |
|||||
|
As Reported (GAAP) |
$ 6,680 |
$ 5,732 |
$ 21.66 |
$ 7,550 |
$ 6,315 |
$ 22.76 |
||||
|
Pension settlement charge |
1,470 |
1,156 |
4.33 |
1,665 |
1,310 |
4.72 |
||||
|
Mark-to-market investments losses (gains)1 |
290 |
219 |
0.83 |
(307) |
(231) |
(0.83) |
||||
|
Severance and other charges |
100 |
79 |
0.31 |
36 |
28 |
0.10 |
||||
|
Debt refinancing transaction |
34 |
26 |
0.10 |
— |
— |
— |
||||
|
Total Adjustments |
1,894 |
1,480 |
5.57 |
1,394 |
1,107 |
3.99 |
||||
|
As Adjusted (Non-GAAP)2 |
$ 8,574 |
$ 7,212 |
$ 27.23 |
$ 8,944 |
$ 7,422 |
$ 26.75 |
||||
|
1 |
Includes changes in valuations of the company’s net assets and liabilities for deferred compensation plans and other mark-to-market |
|||||||||
|
2 |
See the “Use of Non-GAAP Financial Measures” section of this news release for more information. |
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Severance and other charges
During the fourth quarter of 2022, the company recorded charges totaling $100 million ($79 million, or $0.31 per share, after-tax) that relate to actions at its Rotary and Mission Systems (RMS) business segment, which include severance costs for reduction of positions and asset impairment charges. After a strategic review of RMS, these actions will improve the efficiency of its operations, better align the organization and cost structure with changing economic conditions, and changes in program lifecycles.
Summary Financial Results
The following table presents the company’s summary financial results.
|
(in millions, except per share data) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
$ 18,991 |
$ 17,729 |
$ 65,984 |
$ 67,044 |
||||||
|
Business segment operating profit1 |
$ 2,006 |
$ 2,014 |
$ 7,219 |
$ 7,379 |
||||||
|
Unallocated items |
||||||||||
|
FAS/CAS operating adjustment |
428 |
491 |
1,709 |
1,960 |
||||||
|
Severance and other charges2 |
(100) |
— |
(100) |
(36) |
||||||
|
Other, net3 |
(41) |
(50) |
(480) |
(180) |
||||||
|
Total unallocated items |
287 |
441 |
1,129 |
1,744 |
||||||
|
Consolidated operating profit |
$ 2,293 |
$ 2,455 |
$ 8,348 |
$ 9,123 |
||||||
|
Net earnings4,5 |
$ 1,912 |
$ 2,049 |
$ 5,732 |
$ 6,315 |
||||||
|
Diluted earnings per share4,5 |
$ 7.40 |
$ 7.47 |
$ 21.66 |
$ 22.76 |
||||||
|
Cash from operations6 |
$ 1,928 |
$ 4,268 |
$ 7,802 |
$ 9,221 |
||||||
|
Capital expenditures |
(693) |
(607) |
(1,670) |
(1,522) |
||||||
|
Free Cash Flow1,6 |
$ 1,235 |
$ 3,661 |
$ 6,132 |
$ 7,699 |
||||||
|
1 |
Business segment operating profit and free cash flow are non-GAAP measures. See the “Use of Non-GAAP Financial Measures” section of this news release for more information. |
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|
2 |
Severance and other charges for the quarter and year ended Dec. 31, 2022 include $100 million ($79 million, or $0.31 per share, after-tax) |
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|
3 |
Other, net for the quarter and year ended Dec. 31, 2022 include net gains of $19 million ($14 million, or $0.06 per share, after-tax) and net losses of $176 million ($132 million, or $0.50 per share, after-tax), compared to net gains of $7 million ($5 million, or $0.02 per share, after- investments and liabilities for deferred compensation plans. |
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|
4 |
Net earnings for the quarter and year ended Dec. 31, 2022 include net losses of $48 million ($36 million, or 0.14 per share, after-tax) and |
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|
5 |
Net earnings for the quarters and years ended Dec. 31, 2022 and 2021 include certain non-operational charges. See prior table for further |
|||||||||
|
6 |
See the “Cash Flows and Capital Deployment Activities” section of this news release for more information. |
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2023 Financial Outlook
The following table and other sections of this news release contain forward-looking statements, which are based on the company’s current expectations. Actual results may differ materially from those projected. It is the company’s practice not to incorporate adjustments into its financial outlook for proposed acquisitions, divestitures, ventures, pension risk transfer transactions, financing transactions, changes in law, or new accounting standards until such items have been consummated, enacted or adopted. For additional factors that may impact the company’s actual results, refer to the “Forward-Looking Statements” section in this news release.
|
(in millions, except per share data) |
2023 Outlook1 |
|||
|
Net sales |
~$65,000 – $66,000 |
|||
|
Business segment operating profit2 (conforming to 2022 presentation excluding intangible asset amortization expense) |
~$7,010 – $7,110 |
|||
|
Effect of Jan. 1, 2023 reclassification of intangible amortization expense3 |
~$245 |
|||
|
Business segment operating profit2, 3 |
~$7,255 – $7,355 |
|||
|
Total FAS/CAS pension adjustment4 |
~$2,100 |
|||
|
Diluted earnings per share |
~$26.60 – $26.90 |
|||
|
Cash from operations4 |
≥$8,150 |
|||
|
Capital expenditures |
~$(1,950) |
|||
|
Free cash flow2,4 |
≥$6,200 |
|||
|
1 |
The company’s current 2023 financial outlook does not include any future gains or losses related to changes in valuations of the company’s net assets and liabilities for deferred compensation plans or mark-to-market investments. The outlook assumes continued accelerated payments to suppliers, with a focus on small and at-risk businesses. In addition, the outlook reflects no significant reduction in customer budgets or changes in priorities, continued support and funding of the company’s programs, and a statutory tax rate of 21%. It also includes known impacts to the company and broader defense supply chain from the COVID-19 pandemic based on the company’s understanding at the time of this news release and its experience to date. |
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|
2 |
Business segment operating profit and free cash flow are non-GAAP measures. See the “Use of Non-GAAP Financial Measures” section of this news release for more information. |
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|
3 |
Effective Jan. 1, 2023, the company no longer considers amortization expense related to purchased intangible assets in its evaluation of business segment operating performance. As a result, beginning on Jan 1. 2023, purchased intangible asset amortization expense, which was previously included in business segment operating profit, will be reported in unallocated corporate expense within operating income. The financial results for the years ended Dec. 31, 2022 and 2021 reported in the news release do not reflect the impact of this change as the company did not change its evaluation of business segment operating performance until Jan. 1, 2023. However, the 2023 Financial Outlook included in the news release reflects the impact of this change. For further information on the impact of this change, refer to the Pro Forma Business Segment Summary Results included in the supplemental tables of this news release. |
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|
4 |
The total FAS/CAS pension adjustment is presented as a single amount and includes total expected U.S. Government cost accounting standards (CAS) pension cost of approximately $1.7 billion and total expected financial accounting standards (FAS) pension income of approximately $375 million. FAS pension income was calculated using a 5.25% discount rate at Dec. 31, 2022, an approximate (18)% return on plan assets in 2022, and an expected 6.5% long-term rate of return on plan assets in future years. Additionally, the company does not expect to make discretionary contributions to its qualified defined benefit pension plans in 2023. For additional detail regarding the pension amounts reported in operating and non-operating results, refer to the supplemental table included at the end of this news release. |
|||
Cash Flows and Capital Deployment Activities
Cash from operations in the fourth quarter of 2022 was $1.9 billion. Capital expenditures were $693 million, resulting in free cash flow of $1.2 billion. The decrease in operating and free cash flows in the fourth quarter of 2022 was primarily due to timing of production and billing cycles impacting contract assets (primarily F-35).
Cash from operations in 2022 was $7.8 billion. Capital expenditures were $1.7 billion, resulting in free cash flow of $6.1 billion in 2022. The decrease in operating and free cash flows in 2022 was primarily due to timing of production and billing cycles impacting contract assets and receivables, timing of liquidation of inventories (primarily TLS and Sikorsky helicopter programs in the company’s RMS business segment), and higher federal tax payments (including $610 million in payments attributable to the elimination in 2022 of the option to deduct R&D expenses immediately), all of which were partially offset by the deferral of cash payments for accounts payable (primarily Aeronautics).
The company’s cash activities in the quarter and year end Dec. 31, 2022, included the following:
- paying cash dividends of $766 million and $3.0 billion during the quarter and year ended Dec. 31, 2022;
- paying $4.2 billion to repurchase 7.2 million shares, and $7.9 billion to repurchase 18.4 million shares (excluding, in each period, shares to be received upon final settlement of the fourth quarter 2022 accelerated share repurchase agreement (ASR) in the first half of 2023) during the quarter and year ended Dec. 31, 2022;
- receiving $3.9 billion and $6.2 billion of net proceeds from the issuance of debt during the quarter and year ended Dec. 31, 2022; and
- repayment of $2.3 billion of long-term debt during the year ended Dec. 31, 2022.
Segment Results
The company operates in four business segments organized based on the nature of products and services offered: Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS) and Space. The following table presents summary operating results of the company’s business segments and reconciles these amounts to the company’s consolidated financial results.
|
(in millions) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
||||||||||
|
Aeronautics |
$ 7,635 |
$ 7,127 |
$ 26,987 |
$ 26,748 |
||||||
|
Missiles and Fire Control |
3,287 |
3,219 |
11,317 |
11,693 |
||||||
|
Rotary and Mission Systems |
4,803 |
4,460 |
16,148 |
16,789 |
||||||
|
Space |
3,266 |
2,923 |
11,532 |
11,814 |
||||||
|
Total net sales |
$ 18,991 |
$ 17,729 |
$ 65,984 |
$ 67,044 |
||||||
|
Operating profit |
||||||||||
|
Aeronautics |
$ 816 |
$ 820 |
$ 2,866 |
$ 2,799 |
||||||
|
Missiles and Fire Control |
451 |
438 |
1,635 |
1,648 |
||||||
|
Rotary and Mission Systems |
508 |
448 |
1,673 |
1,798 |
||||||
|
Space |
231 |
308 |
1,045 |
1,134 |
||||||
|
Total business segment operating profit |
2,006 |
2,014 |
7,219 |
7,379 |
||||||
|
Unallocated items |
||||||||||
|
FAS/CAS operating adjustment |
428 |
491 |
1,709 |
1,960 |
||||||
|
Severance and other charges |
(100) |
— |
(100) |
(36) |
||||||
|
Other, net |
(41) |
(50) |
(480) |
(180) |
||||||
|
Total unallocated items |
287 |
441 |
1,129 |
1,744 |
||||||
|
Total consolidated operating profit |
$ 2,293 |
$ 2,455 |
$ 8,348 |
$ 9,123 |
||||||
Net sales and operating profit of our business segments exclude intersegment sales, cost of sales, and profit as these activities are eliminated in consolidation and not included in management’s evaluation of performance of each segment. 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 excludes the FAS/CAS pension operating adjustment, 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 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.
Changes in net sales and operating profit generally are expressed in terms of volume. Changes in volume refer to increases or decreases in sales or operating profit resulting from varying production activity levels, deliveries or service levels on individual contracts. Volume changes in segment operating profit are typically based on the current profit booking rate for a particular contract. In addition, comparability of the company’s segment sales, operating profit and operating margin may be impacted favorably or unfavorably by changes in profit booking rates on the company’s contracts. Increases in profit booking rates, typically referred to as favorable profit adjustments, usually relate to revisions in the estimated total costs to fulfill the performance obligations that reflect improved conditions on a particular contract. Conversely, conditions on a particular contract may deteriorate, resulting in an increase in the estimated total costs to fulfill the performance obligations and a reduction in the profit booking rate and are typically referred to as unfavorable profit adjustments. Increases or decreases in profit booking rates are recognized in the current period and reflect the inception-to-date effect of such changes.
The company’s consolidated net favorable profit booking rate adjustments represented approximately 25% of total segment operating profit in both the quarter and year ended Dec. 31, 2022, as compared to 29% and 28% in the quarter and year ended Dec. 31, 2021.
Aeronautics
|
(in millions) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
$ 7,635 |
$ 7,127 |
$ 26,987 |
$ 26,748 |
||||||
|
Operating profit |
816 |
820 |
2,866 |
2,799 |
||||||
|
Operating margin |
10.7 % |
11.5 % |
10.6 % |
10.5 % |
||||||
Aeronautics’ net sales during the fourth quarter of 2022 increased $508 million, or 7%, compared to the same period in 2021. Net sales increased by approximately $275 million for the F-35 program due to higher volume on production contracts that was partially offset by lower volume on sustainment contracts; about $75 million for the C-130 program due to higher volume on production contracts; approximately $65 million on classified contracts due to higher volume that was partially offset by both an unfavorable profit adjustment of $20 million on a classified program and lower net favorable profit adjustments; and about $55 million for the F-16 program due to higher volume on production contracts.
Aeronautics’ operating profit during the fourth quarter of 2022 was comparable to the same period in 2021. Operating profit decreased approximately $55 million on classified contracts primarily due to lower net favorable profit adjustments and an unfavorable profit adjustment of $20 million on a classified program that were both partially offset by higher volume. This decrease was offset by an increase of approximately $45 million for the F-35 program due to higher volume and net favorable profit adjustments on production contracts. Net favorable profit booking rate adjustments were $45 million lower in the fourth quarter of 2022 compared to the same period in 2021.
Aeronautics’ net sales in 2022 increased $239 million, or 1%, compared to 2021. Net sales increased by approximately $375 million on classified contracts primarily due to higher volume; about $80 million for the F-22 program due to higher net favorable profit adjustments; and approximately $55 million for the F-16 program due to higher volume on production contracts that was partially offset by lower volume on sustainment contracts and unfavorable profit adjustments on a production contract and modernization contracts. These increases were partially offset by a decrease of about $310 million for the F-35 program due to lower volume and favorable profit adjustments on sustainment and production contracts that were partially offset by higher volume on development contracts.
Aeronautics’ operating profit in 2022 increased $67 million, or 2%, compared to 2021. Operating profit increased approximately $145 million on classified contracts primarily due to lower unfavorable profit adjustments on a classified program ($45 million in 2022 compared to $225 million in 2021) that were partially offset by lower favorable profit adjustments; and about $100 million for the F-22 program due to higher net favorable profit adjustments. These increases were partially offset by lower operating profit of approximately $110 million for the F-16 program due to unfavorable profit adjustments in 2022 on a production contract and modernization contracts; and about $80 million for the F-35 program due to lower net favorable profit adjustments on production and sustainment contracts and volume on sustainment contracts. Net favorable profit booking rate adjustments were $30 million higher in 2022 compared to 2021.
Missiles and Fire Control
|
(in millions) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
$ 3,287 |
$ 3,219 |
$ 11,317 |
$ 11,693 |
||||||
|
Operating profit |
451 |
438 |
1,635 |
1,648 |
||||||
|
Operating margin |
13.7 % |
13.6 % |
14.4 % |
14.1 % |
||||||
MFC’s net sales during the fourth quarter of 2022 increased $68 million, or 2%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $115 million for tactical and strike missile programs due to higher volume (Precision Strike Missile (PrSM) and Guided Multiple Launch Rocket Systems (GMLRS®)). This increase was partially offset by a decrease of about $50 million for integrated air and missile defense programs due to lower volume (THAAD).
MFC’s operating profit during the fourth quarter of 2022 increased $13 million, or 3%, compared to the same period in 2021. The increase was primarily attributable to higher operating profit of approximately $15 million for tactical and strike missile programs due to higher net favorable profit adjustments on an international tactical and strike missile program that were partially offset by an unfavorable profit adjustment of about $25 million on an air-to-ground missile program. Net favorable profit booking rate adjustments were $10 million higher in the fourth quarter of 2022 compared to the same period in 2021.
MFC’s net sales in 2022 decreased $376 million, or 3%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $280 million for sensors and global sustainment programs due to lower volume on SOF GLSS as a result of changes in mission requirements and lower volume on Sniper Advanced Targeting Pod (SNIPER®); and about $60 million for integrated air and missile defense programs due to lower volume (THAAD) and lower net favorable profit adjustments (PAC-3) that were partially offset by higher volume (PAC-3). Net sales for tactical and strike missile programs were comparable as higher volume (PrSM) was offset by lower volume (air dominance weapon systems).
MFC’s operating profit in 2022 decreased $13 million, or 1%, compared to 2021. The decrease was primarily attributable to lower operating profit of approximately $85 million for integrated air and missile defense programs due to lower net favorable profit adjustments for the PAC-3 program and an unfavorable profit adjustment of about $40 million on an air and missile defense development program. This decrease was partially offset by an increase of about $50 million for tactical and strike missile programs due to contract mix and higher net favorable profit adjustments (an international tactical and strike missile program and HIMARS®) that were partially offset by an unfavorable profit adjustment of about $25 million on an air-to-ground missile program. There also were unfavorable profit adjustments of approximately $25 million on an energy program in 2021 that did not recur in 2022. Operating profit for sensors and global sustainment programs was comparable as both contract mix and the net effect of favorable profit adjustments on an international program in 2022 were offset by the closeout activities related to the Warrior program in 2021 that did not recur in 2022. Net favorable profit booking rate adjustments were $45 million lower in 2022 compared to 2021.
Rotary and Mission Systems
|
(in millions) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
$ 4,803 |
$ 4,460 |
$ 16,148 |
$ 16,789 |
||||||
|
Operating profit |
508 |
448 |
1,673 |
1,798 |
||||||
|
Operating margin |
10.6 % |
10.0 % |
10.4 % |
10.7 % |
||||||
RMS’ net sales during the fourth quarter of 2022 increased $343 million, or 8%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $260 million for integrated warfare systems and sensors (IWSS) programs due to higher volume (Aegis, TPY-4 and TPQ-53); and about $130 million for Sikorsky helicopter programs due to higher production volume (CH-53K and Combat Rescue Helicopter (CRH)) that was partially offset by lower production volume (Black Hawk). These increases were partially offset by a decrease of approximately $65 million for various C6ISR programs due to lower volume.
RMS’ operating profit during the fourth quarter of 2022 increased $60 million, or 13%, compared to the same period in 2021. The increase was primarily attributable to approximately $25 million for Sikorsky helicopter programs due to higher net favorable profit adjustments (Seahawk) and production volume (CH-53K) that were partially offset by lower production volume (Black Hawk); about $25 million for IWSS programs due to higher net favorable profit adjustments (Littoral Combat Ship (LCS); and approximately $20 million for TLS programs due to higher net favorable profit adjustments. Net favorable profit booking rate adjustments were $30 million higher in the fourth quarter of 2022 compared to the same period in 2021.
RMS’ net sales in 2022 decreased $641 million, or 4%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $280 million for TLS programs primarily due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022; about $205 million for various C6ISR programs due to lower volume; and approximately $170 million for Sikorsky helicopter programs due to lower production volume (Black Hawk) that was partially offset by higher production volume (CH-53K).
RMS’ operating profit in 2022 decreased $125 million, or 7%, compared to 2021. The decrease was primarily attributable to approximately $70 million for Sikorsky helicopter programs due to lower production volume and net favorable profit adjustments (Black Hawk) that were partially offset by higher net favorable profit adjustments (CRH); about $50 million for various C6ISR programs due to lower net favorable profit adjustments; and approximately $15 million for IWSS programs due to lower net favorable profit adjustments (TPQ-53 and Aegis) that were partially offset by $30 million of unfavorable profit adjustments on a ground-based radar program in 2021 that did not recur in 2022. These decreases were partially offset by an increase of approximately $35 million for TLS programs due to higher net favorable profit adjustments that were partially offset by lower volume due to the delivery of an international pilot training system in the first quarter of 2021 that did not recur in 2022. Net favorable profit booking rate adjustments were $65 million lower in 2022 compared to 2021.
Space
|
(in millions) |
Quarters Ended Dec. 31, |
Years Ended Dec. 31, |
||||||||
|
2022 |
2021 |
2022 |
2021 |
|||||||
|
Net sales |
$ 3,266 |
$ 2,923 |
$ 11,532 |
$ 11,814 |
||||||
|
Operating profit |
231 |
308 |
1,045 |
1,134 |
||||||
|
Operating margin |
7.1 % |
10.5 % |
9.1 % |
9.6 % |
||||||
Space’s net sales during the fourth quarter of 2022 increased $343 million, or 12%, compared to the same period in 2021. The increase was primarily attributable to higher net sales of approximately $210 million for national security space programs due to higher development volume (classified programs); about $110 million for strategic and missile defense programs due to higher development volume (Next Generation Interceptor (NGI)); and approximately $40 million for commercial civil space programs due to higher volume (Orion).
Space’s operating profit during the fourth quarter of 2022 decreased $77 million, or 25%, compared to the same period in 2021. The decrease was primarily attributable to approximately $40 million for national security space programs primarily due to lower net favorable profit adjustments (classified programs) and higher net unfavorable profit adjustments of $25 million on a ground solutions program; about $15 million due to lower equity earnings from the corporation’s investment in United Launch Alliance (ULA) due to lower launch volume; and approximately $10 million for strategic and missile defense programs due to lower net favorable profit adjustments (Fleet Ballistic Missile (FBM)). Net favorable profit booking rate adjustments were $80 million lower in the fourth quarter of 2022 compared to the same period in 2021.
Space’s net sales in 2022 decreased $282 million, or 2%, compared to 2021. The decrease was primarily attributable to lower net sales of approximately $885 million due to the renationalization of the AWE program on June 30, 2021, which was no longer included in the company’s financial results beginning in the third quarter of 2021; and about $125 million for commercial civil space programs due to lower volume (Orion). These decreases were partially offset by higher net sales of about $495 million for strategic and missile defense programs due to higher development volume (NGI); and about $245 million for national security space programs due to higher development volume (classified programs).
Space’s operating profit in 2022 decreased $89 million, or 8%, compared to 2021. The decrease was primarily attributable to approximately $85 million for national security space programs primarily due to lower net favorable profit adjustments (classified programs and SBIRS) that were partially offset by lower net unfavorable profit adjustments of $25 million on a ground solutions program; and about $40 million for commercial civil space programs due to lower net favorable profit adjustments (Human Lander System (HLS)) and lower volume (Orion). These decreases were partially offset by higher equity earnings of approximately $35 million from the company’s investment in ULA due to higher launch volume and launch mix; and about $20 million for strategic and missile defense programs due to higher net favorable profit adjustments (primarily NGI). Operating profit for the AWE program was comparable as its operating profit in 2021 was mostly offset by accelerated amortization expense for intangible assets as a result of the renationalization. Net favorable profit booking rate adjustments were $150 million lower in 2022 compared to 2021.
Total equity earnings (primarily ULA) represented approximately $15 million, or 6%, and $100 million, or 10%, of Space’s operating profit during the quarter and year ended Dec. 31, 2022, compared to approximately $30 million, or 10%, and $65 million, or 6%, in the quarter and year ended Dec. 31, 2021.
Income Taxes
The company’s effective income tax rate was 12.7% and 14.2% for the quarter and year ended Dec. 31, 2022, compared to 17.7% and 16.4% in the quarter and year ended Dec. 31, 2021. The rate for the quarter ended Dec. 31, 2022 was lower than the rate for the quarter ended Dec. 31, 2021 primarily due to increased tax deductions for foreign derived intangible income and research and development tax credits. The rate for the year ended Dec. 31, 2022 was lower than the rate for the year ended Dec. 31, 2021 primarily due to increased research and development tax credits. The rates for all periods benefited from tax deductions for foreign derived intangible income, dividends paid to the company’s defined contribution plans with an employee stock ownership plan feature, and employee equity awards.
Free cash flow
Free cash flow is cash from operations less capital expenditures. The company’s capital expenditures are comprised of equipment and facilities infrastructure and information technology (inclusive of costs for the development or purchase of internal-use software that are capitalized). The company uses free cash flow to evaluate its business performance and overall liquidity and it is a performance goal in the company’s annual and long-term incentive plans. The company believes free cash flow is a useful measure for investors because it represents the amount of cash generated from operations after reinvesting in the business and that may be available to return to stockholders and creditors (through dividends, stock repurchases and debt repayments) or available to fund acquisitions or other investments. The entire free cash flow amount is not necessarily available for discretionary expenditures, however, because it does not account for certain mandatory expenditures, such as the repayment of maturing debt and pension contributions.
Adjusted earnings before income taxes; adjusted net earnings and adjusted diluted EPS
Earnings before income taxes, net earnings and diluted earnings per share (EPS) were impacted by certain non-operational charges for all periods. Management believes the presentation of these measures adjusted for the impacts of these non-operational items is useful to investors in understanding the company’s underlying business performance and comparing performance from period to period. The tax effects related to each adjustment that impacted earnings before income taxes are based on a blended tax rate that combines the federal statutory rate of 21% plus an estimated state tax rate.
Total FAS/CAS pension adjustment – adjusted; Total FAS pension income – adjusted
Total FAS/CAS pension adjustment and Total FAS pension income have been adjusted for the noncash, non-operating pension settlement charges recorded in the second quarter 2022 and third quarter 2021. Management believes that the exclusion of the pension settlement charge is useful to understanding the company’s underlying business performance and comparing performance from period to period.
About Lockheed Martin
Headquartered in Bethesda, Maryland, Lockheed Martin Corporation is a global security and aerospace company that employs approximately 116,000 people worldwide and is principally engaged in the research, design, development, manufacture, integration and sustainment of advanced technology systems, products and services.
