Lockheed Martin Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing provides annual results; it does not provide a clear standalone fourth-quarter financial summary.
Business context
Lockheed Martin is a global security and aerospace contractor operating through Aeronautics, Missiles and Fire Control (MFC), Rotary and Mission Systems (RMS), and Space. U.S. Government customers generated 71% of sales, including 62% from the Department of Defense; international customers generated 28%, and U.S. commercial and other customers 1%. The F-35 was the largest program, representing 27% of consolidated sales.
Financial performance
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net sales | $67.044 billion | $65.398 billion | +2.5% |
| Operating profit | $9.123 billion | $8.644 billion | +5.5% |
| Operating margin | 13.6% | 13.2% | +0.4 percentage points |
| Net earnings | $6.315 billion | $6.833 billion | -7.6% |
| Diluted EPS | $22.76 | $24.50 | -7.1% |
| Operating cash flow | $9.221 billion | $8.183 billion | +$1.038 billion |
| Capital expenditures | $1.522 billion | $1.766 billion | -$244 million |
| Backlog | $135.355 billion | $147.131 billion | -8.0% |
Gross profit was $9.061 billion, or 13.5% of sales. Net margin was 9.4%. Cash and cash equivalents were $3.604 billion at year-end; total debt, net, was $11.676 billion ($12.799 billion before unamortized discounts and issuance costs). The company had a $3.0 billion revolving credit facility with no year-end borrowings and reported compliance with debt covenants. Current assets were $19.815 billion and current liabilities $13.997 billion. Funded backlog was $88.5 billion.
Operating cash flow increased primarily because no pension contributions were made in 2021, versus $1.0 billion in 2020. Financing cash outflow rose to $7.616 billion, including $4.087 billion of share repurchases and $2.940 billion of dividends. The declared annual dividend was $10.60 per share, up from $9.80.
Segments and changes versus prior year
| Segment | 2021 sales | 2021 operating profit | Year-over-year highlights |
|---|---|---|---|
| Aeronautics | $26.748 billion | $2.799 billion | Sales +2%; profit -2%. A $225 million loss on a classified program weighed on results. |
| MFC | $11.693 billion | $1.648 billion | Sales +4%; profit +7%, led by PAC-3, LRASM and JASSM volume and contract adjustments. |
| RMS | $16.789 billion | $1.798 billion | Sales +5%; profit +11%, supported by helicopter production and delivery of an international pilot training system. |
| Space | $11.814 billion | $1.134 billion | Sales -1%; profit -1%. AWE renationalization and lower ULA equity earnings offset growth in missile defense and national security space. |
Net earnings fell despite higher sales and operating profit, principally because of a $1.665 billion noncash pension settlement charge ($1.3 billion after tax, or $4.72 per share) associated with transferring $4.9 billion of pension obligations and assets to an insurer. Earnings also included $265 million of pretax unrealized gains on Lockheed Martin Ventures Fund investments and the $225 million classified-program loss. The effective tax rate was 16.4% in both 2021 and 2020.
Backlog declined from 2020, with funded backlog down from $102.3 billion to $88.5 billion. Management expected to recognize approximately 38% of year-end backlog as revenue within 12 months and 60% within 24 months. The UK Ministry of Defence renationalized the Atomic Weapons Establishment (AWE) on June 30, 2021; AWE contributed $885 million of 2021 sales, compared with $1.4 billion in 2020.
Outlook, risks and unusual items
- 2022 outlook: Management expected sales to decline approximately 2% from 2021, total business-segment operating margin of approximately 10.9%, and operating cash flow of at least $7.9 billion. The cash-flow outlook assumes no pension contributions and includes an estimated approximately $500 million adverse 2022 cash impact from the tax requirement to amortize research and development expenditures over five years.
- Outlook assumes continued program funding, no significant customer budget reductions, and no extended continuing resolution restricting new starts. It excludes the proposed Aerojet Rocketdyne acquisition and does not incorporate additional COVID-19 impacts that management could not predict.
- F-35 deliveries were 142 aircraft in 2021; management anticipated 148–153 in 2022 and 156 annually thereafter for the foreseeable future. The program remained exposed to supplier, software, testing, schedule, cost, sustainment and affordability challenges.
- The proposed Aerojet Rocketdyne acquisition, valued at approximately $4.4 billion after assumed net cash, faced significant FTC opposition. As of the filing, Lockheed Martin considered an FTC suit to block the transaction highly likely; either party could terminate if it had not closed by March 21, 2022. Completion was expected to require new debt financing.
- COVID-19 continued to affect supplier deliveries, employee availability and program schedules. Lockheed Martin had accelerated $2.2 billion of supplier payments due in future periods and expected to continue targeted acceleration through 2022. Supply-chain constraints, including semiconductor shortages, and cost inflation could pressure delivery and margins, particularly on fixed-price contracts.
- Additional exposures include dependence on government appropriations and the F-35 program; contract performance and cost-estimate risk; international export controls and geopolitical actions, including Turkey-related license restrictions; environmental remediation; pension assumptions; and litigation and government audits. Environmental liabilities were $742 million, partly offset by $645 million of recorded expected recoveries. The filing describes potential future environmental cost increases if contaminant standards tighten.
- Auditors issued an unqualified opinion on the financial statements and internal controls. Critical audit matters included percentage-of-completion revenue estimates and the defined-benefit pension obligation.
Key facts for investors to verify
- Whether 2022 sales, segment margins and operating cash flow meet management’s outlook, including the effects of tax-law changes and supplier-payment acceleration.
- Backlog conversion and funded orders, particularly F-35 contract awards, delivery rates and sustainment performance.
- Progress on the $225 million classified Aeronautics loss program and other programs with recorded losses or performance reserves.
- The status and financing of the Aerojet Rocketdyne transaction, including regulatory or litigation developments and potential effects on leverage.
- Cash generation after dividends, repurchases, pension activity and other funding needs; year-end net debt was $11.676 billion.