Lockheed Martin CorporationLockheed Martin CorporationMatt ShearerMatt Shearer

ACG 2021.080ACG 2021.080

Executive SummaryExecutive Summary The future looks great for the Lockheed Martin The future looks great for the Lockheed Martin

Corporation. They’ve recently won a contract with Corporation. They’ve recently won a contract with the U.S. government to produce several Marine the U.S. government to produce several Marine

One’s, which is the Presidential Helicopter. They’re in One’s, which is the Presidential Helicopter. They’re in the process of acquiring the Titan Co. and Orincon the process of acquiring the Titan Co. and Orincon

which will greatly expand information and abilities. which will greatly expand information and abilities. And with America’s renewed vigor in the space And with America’s renewed vigor in the space programs, all areas of business are doing well.programs, all areas of business are doing well.

Lockheed Martin Financial Reports Lockheed Martin Financial Reports

Part A. IntroductionPart A. Introduction

CEO: Robert J. StevensCEO: Robert J. Stevens Headquarters: Bathesda, MarylandHeadquarters: Bathesda, Maryland End of last fiscal year: December 31, 2003End of last fiscal year: December 31, 2003 Engaged in research, design, development, Engaged in research, design, development,

manufacturing and the integration of manufacturing and the integration of advanced technology systems, products and advanced technology systems, products and services services

This includes Aeronautics, Space Operations, This includes Aeronautics, Space Operations, Information Technology, Missile and Fire Information Technology, Missile and Fire Control, and Transportation and Security Control, and Transportation and Security SolutionsSolutions

Part A. Audit ReportPart A. Audit Report

Independent Auditors: Ernst & Young LLP, Independent Auditors: Ernst & Young LLP, Independent Auditors Independent Auditors

What did they say about the Co.? After the What did they say about the Co.? After the auditors ran their tests in accordance with auditors ran their tests in accordance with auditing standards generally accepted in the auditing standards generally accepted in the United States, they found no misrepresentation in United States, they found no misrepresentation in the financial statements of Lockheed Martin Co. the financial statements of Lockheed Martin Co. So the reports were fair and assembled correctly.So the reports were fair and assembled correctly.

Part A. Stock Market Part A. Stock Market InformationInformation

Most recent price of the company’s stock: Most recent price of the company’s stock: $58.88$58.88

Twelve month trading range of the company’s Twelve month trading range of the company’s stock: $45.00 - $62.50stock: $45.00 - $62.50

Dividend per share: $.88Dividend per share: $.88 Date of the above information: December 31, Date of the above information: December 31,

20032003 My opinion about the company stock as an My opinion about the company stock as an

investment? Buy! Lockheed Martin is almost investment? Buy! Lockheed Martin is almost single handedly defending America, and some single handedly defending America, and some of our allies. With the administration’s hard of our allies. With the administration’s hard lined approach to threats and terrorism, the lined approach to threats and terrorism, the next few years look awful green.next few years look awful green.

Part B. Industry Situation Part B. Industry Situation and Company Plansand Company Plans

In today’s world, information is the single most important In today’s world, information is the single most important weapon for defense. weapon for defense.

Lockheed Martin is on the very forefront of Integrated Lockheed Martin is on the very forefront of Integrated Systems Technologies. Systems Technologies.

Along with these computer systems and satellites, Along with these computer systems and satellites, Lockheed Martin recorded a record year in its aeronautics Lockheed Martin recorded a record year in its aeronautics business and its 8business and its 8thth consecutive year of organic growth in consecutive year of organic growth in

its electronics system business.its electronics system business.They completed strategic transactions to acquire the They completed strategic transactions to acquire the Titan Corporation, which will bolster intelligence and Titan Corporation, which will bolster intelligence and

defense capabilities upon completion.defense capabilities upon completion.

Part C. Income StatementPart C. Income Statement

Income from operations didn’t change much Income from operations didn’t change much from 2002 to 2003, but Net Income did see a from 2002 to 2003, but Net Income did see a nice increase. This tells me that Lockheed nice increase. This tells me that Lockheed trimmed some fat and found a ways to keep trimmed some fat and found a ways to keep some of its own money.some of its own money.

Single Step FormatSingle Step Format

(in millions)(in millions) 20022002 20032003

Income from Income from OperationsOperations

19491949 19761976

Net IncomeNet Income 11581158 20192019

Part C. Balance SheetPart C. Balance Sheet

Assets decreased by more than two thousand Assets decreased by more than two thousand with Liabilities and Stockholder’s equity with Liabilities and Stockholder’s equity

both increasing by less than one thousandboth increasing by less than one thousand. .

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

20022002 37,60537,605 11,54511,545 5,8645,864

20032003 35,57635,576 10,80710,807 6,7566,756

Part C. Statement of Cash FlowsPart C. Statement of Cash FlowsAre cash flows from operations more or less than net income for the past Are cash flows from operations more or less than net income for the past two years? In 2002, Income from Operations was 33 million more than two years? In 2002, Income from Operations was 33 million more than Net Income. In 2003, both Income from Op. and Net Income recorded Net Income. In 2003, both Income from Op. and Net Income recorded gains of 1053 milliongains of 1053 million

Is the company growing through investing activities, i.e., buying Is the company growing through investing activities, i.e., buying property, plant and equipment and other long lived assets? Yes, property, plant and equipment and other long lived assets? Yes, Lockheed Martin invests millions in its affiliated companies.Lockheed Martin invests millions in its affiliated companies.

What is the company’s primary source of financing, i.e., long-term loans, What is the company’s primary source of financing, i.e., long-term loans, stock sales? Long-term loans were the main source of financing for 2003.stock sales? Long-term loans were the main source of financing for 2003.

Overall, has cash increased or decreased over the past two years? In Overall, has cash increased or decreased over the past two years? In 2002, cash saw a huge increase, entering 2003 with $2738 million, but at 2002, cash saw a huge increase, entering 2003 with $2738 million, but at years end it was down to $1010 million. Acquisitions and doubling years end it was down to $1010 million. Acquisitions and doubling dividends from $.44 to $.88 probably had the most to do with this.dividends from $.44 to $.88 probably had the most to do with this.

Part D. Accounting PoliciesPart D. Accounting PoliciesCash and Cash EquivalentsCash and Cash Equivalents – Cash equivalents are – Cash equivalents are generally composed of highly liquid instruments with generally composed of highly liquid instruments with maturities of 3 months or less. Approx. fair value.maturities of 3 months or less. Approx. fair value.Short term InvestmentsShort term Investments – The Corporation’s short- – The Corporation’s short-term investments consist of marketable securities that term investments consist of marketable securities that are categorized as available-for sale.are categorized as available-for sale.InventoriesInventories – Inventories are stated at the lower of – Inventories are stated at the lower of cost or estimated net realizable value. Costs on long-cost or estimated net realizable value. Costs on long-term contracts and programs in progress represent term contracts and programs in progress represent recoverable costs inrecoverable costs inSales & EarningsSales & Earnings – Sales and anticipated profits under – Sales and anticipated profits under long term fixed-price production contracts are recorded long term fixed-price production contracts are recorded on a percentage of completion basis, generally using on a percentage of completion basis, generally using units-of-delivery as the basis to measure progress units-of-delivery as the basis to measure progress toward completing and contract and recognizing toward completing and contract and recognizing revenues.revenues.

Part D. AccountingPart D. AccountingTopics of Notes to Financial StatementsTopics of Notes to Financial Statements

Significant Accounting PoliciesSignificant Accounting Policies Acquisitions & DivestituresAcquisitions & Divestitures ReceivablesReceivables InventoriesInventories DebtDebt Income TaxesIncome Taxes

Part E. Financial AnalysisPart E. Financial AnalysisLiquidity Ratios for 2003Liquidity Ratios for 2003

Working Capital: $508Working Capital: $508 Current Ratio: 1.05Current Ratio: 1.05 Receivable turnover: 8.27Receivable turnover: 8.27 Average days’ sales uncollected: 44Average days’ sales uncollected: 44 Inventory turnover: 12.9Inventory turnover: 12.9 Average days’ inventory on hand: 28.3Average days’ inventory on hand: 28.3

Part E. Financial AnalysisPart E. Financial AnalysisProfitability Ratios for 2003Profitability Ratios for 2003

Profit margin: .003Profit margin: .003 Asset turnover: 1.2Asset turnover: 1.2 Return on assets: .04Return on assets: .04 Return on equity: .156Return on equity: .156

Part E. Financial AnalysisPart E. Financial AnalysisSolvency RatioSolvency Ratio

Debt to equity: Debt to equity: 2003: 1.322003: 1.32

2002: 1.672002: 1.67

At this point, the bank owns Lockheed Martin, but this is At this point, the bank owns Lockheed Martin, but this is because most of its business is done on credit with contracts because most of its business is done on credit with contracts extending beyond one cycle of operations.extending beyond one cycle of operations.

Part E. Financial AnalysisPart E. Financial AnalysisMarket Strength RatiosMarket Strength Ratios

Price/earnings per share: $62.5Price/earnings per share: $62.5 Dividend yield: .016Dividend yield: .016