Lockheed MartinAnnual report analysis

Mike HudsonACG2021.0H1

Executive Summary

2004 was a very good year for Lockheed Martin. Sales were increased to a record high of 35.5 billion dollars. This is a 12 percent gain from last year. The companies debt was decreased from a staggering 12 billion dollars to 5 billion. Dividends also increased this year by 14 percent

Acquisition of the Titan Corporation fell through this year due to Titan not satisfying all the closing conditions. The purchase of Sippican Holdings Inc., a supplier of naval electronic systems went well.

Lockheed Martin 2004 Annual Report

Introduction

• President & CEO: Robert J. Stevens

• Home Office: 6801 Rockledge Dr, Bethesda, MD 20817

• Ending Date of Fiscal Year: December 31, 2004

• Principle Products: Military vehicles and weaponry comprise the bulk of Lockheed’s products. This includes cargo planes, fighter jets, naval vessels, and numerous missile models such as the Patriot missile system.

• Geographic area of activity: All over the world including space. Lockheed creates products to be used all over the world where our military needs to have a presence. Lockheed also has multiple investments in satellite companies and technology, expanding their geographic area to include space.

Audit Report

• Independent Auditor: Ernst & Young LLP

• Opinion of the Auditor: The auditor concluded that the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Lockheed Martin and the consolidated results of its operations and its cash flows for each of the three periods ended December 31, 2004, in conformity with the United States generally accepted accounting principles

Stock Market Information

• Recent Price: $61.25

• 12 month trading range: $52.54 - 65.46

• Dividend per share: $1.20

• Date of above information: as of Oct. 28, 2005

• My Opinion of the company stock: Buy! They’re moving out of debt and this is the fourth consecutive year of increased earnings. With the U.S. at war, more contracts will be awarded to companies to develop even better weapons and vehicles. Plus current technologies will be in higher demand for our soldiers.

Industry Situation & Company Plans

The military manufacturing industry continues to grow. With engagements in Iraq and Afghanistan, the U.S. will be looking to continue modernizing our armed forces and investing into new, cutting edge technologies. The recent LCS (Littoral Combat Ship) contract is proof of this as the Navy wants to take their vessels into the 21st century.

Lockheed is also creating a unified communications system that will revolutionize the way soldiers communicate in the field. Via satellites, any “net-enabled” device in the air or on the ground will be able to communicate seamlessly with other “net-enabled” equipment without any configuring. This will allow soldiers and commanders to share streaming voice, data, and video with each other live.

Lockheed Martin LCS TeamMUOS technology

Income Statement

• Single step

• Gross profit actually decreased this year probably due to the cost and transportation of raw materials. Gas prices are a possible factor. However overall, net income increased this year over last year. Interest and Income expenses decreased this year, plus an almost triple gain in Other Income were the leading factors for the increased net income.

(in millions) 2004 2003

Gross Profit 1,968 1,976

Operating Income

1,968 1,976

Net Income 1,266 1,053

Balance Sheet

(in millions) Assets = Liabilities + S.E.

2004 25,554 18,533 7,021

2003 26,175 19,419 6,756

Inventory decreased by half a billion dollars in 2004. Long term debt was reduced by almost one billion dollars resulting in a higher profit margin. Retained earnings also increased by almost a billion dollars further driving up the profit margin. Overall, streamlining the company seemed to be the main factor for this years financial gains.

Statement of Cash Flows(in millions) 2004 2003

Operating Income 2,924 1,809

Net Income 1,266 1,053

• Cash from operating activities is consistently higher in the past two years than the net income. The difference between the cash from operating activities and net income has increased by almost triple from 2003 to 2004.

• The only growth the company has in investment activities is investments in affiliated companies. The rest of their investments resulted in a loss for this year. Short-term investments took a loss this year as well as acquisitions of other businesses.

• Last year, Lockheed Martin took out a 1 billion dollar long-term loan. This year they paid 1.89 billion dollars of that. The only money they took in this year from financing activities was the issuance of 164 million dollars worth of common stock.

• Overall the amount of cash has increased, but not by much. At the end of 2002 Lockheed had 2.7 billion dollars in cash. By the end of 2003 that number dropped dramatically to 1.01 billion. At the end of 2004, the company recovered slightly with 1.06 billion in cash.

Accounting Policies

• Cash & cash equivalents: Cash equivalents are generally composed of highly liquid instruments with original maturities of 90 days or less.

• Short-term investments: The Corporation’s short-term investments consist of marketable securities that are categorized as available-for-sale securities as defined by Statement of Financial Accounting Standards (FAS) 115, Accounting for Certain Investments in Debt and Equity Securities.

• Receivables: Receivables consist of amounts billed and currently due from customers, and unbilled costs and accrued profits primarily related to revenues on long-term contracts that have been recognized for accounting purposes but not yet billed to customers.

• Inventories: Inventories are stated at the lower of cost or estimated net realizable value. Costs on long-term contracts and programs in progress represent recoverable costs incurred for production or contract-specific facilities and equipment, allocable operating overhead, advances to suppliers and, where appropriate, research and development and general and administrative expenses.

Topics of the Notes

• Accounts Payable• Customer advances and amounts in

excess of costs incurred• Current maturities of long-term debt

Liquidity Ratios

2004 2003

Working Capital 387 508

Current Ratio 1.05 1.06

Receivable Turnover 8.7 7.9

Avg. days’ sales uncollected 42 days 46 days

Inventory turnover 19.1 13.6

Avg. days’ inventory on hand

19 days 27 days

Profitability Ratios

2004 2003

Profit Margin .04 .03

Asset Turnover 1.4 1.2

Return on Assets .05 .04

Return on Equity .18 .16

Solvency Ratio

2004 2003

Debt to equity .73 .90

• The debt to equity ratio helps explain how Lockheed Martin finances major assets.

• Both years are below 1.0 which means that Lockheed finances primarily through equity and not through debt.

• The ratio decreased from 2003 to 2004 which shows that Lockheed’s purchases are becoming less and less dependant on loans.

Market Strength Ratios

2004 2003

Price/earnings per share 19.23 19.07

Dividend Yield 1.5% 1.0%

• This company would be good to invest in if you were looking for a safe and secure investment.

• The P/EPS doesn’t really equate to that much profit, but it is going up each year.

• Overall, I would recommend this stock to mutual funds or any other long term investment as you’ll get the most out of this stock if you wait.