Lockheed Martin 2013 Annual Report Download - page 50

Backlog
Backlog increased in 2013 compared to 2012 mainly due to higher orders on the Orion program, partially offset by lower
orders on government satellite programs (primarily AEHF). Backlog increased in 2012 compared to 2011 mainly due to
higher orders on government satellites activities, partially offset by lower orders on the Orion program.
Trends
We expect Space Systems’ net sales to decline in 2014 in the mid-single digit percentage range as compared to 2013
primarily due to a decrease in volume on satellite programs in 2014. Operating profit is expected to decline in the low double
digit percentage range in 2014 primarily due to lower earnings on satellite programs, expected charges, net of recoveries, in
2014 for accelerated depreciation expense and incremental costs related to the November 2013 restructuring plan as
described in the “Consolidated Results of Operations” section above, and lower equity earnings. As a result, operating
margins are expected to decline between the years.
Liquidity and Cash Flows
We have a balanced cash deployment strategy to enhance stockholder value and position ourselves to take advantage of
new business opportunities when they arise. Consistent with that strategy, we have invested in our business, including capital
expenditures and independent research and development, returned cash to stockholders through dividends and share
repurchases, made selective acquisitions of businesses, and managed our debt levels.
We have generated strong operating cash flows, which have been the primary source of funding for our operations, debt
service and repayments, capital expenditures, dividends, share repurchases, acquisitions, and postretirement benefit plan
funding. We have accessed the capital markets on limited occasions, as needed or when opportunistic. Our cash balances and
cash from operations have historically been sufficient to support our operations and anticipated capital expenditures for the
foreseeable future. However, our liquidity and cash flows could be materially impacted in the future if the U.S. Government
were to shut down due to impasses over budget and/or debt ceiling negotiations. As discussed in the “Capital Resources”
section, we have financing resources available to fund potential cash outflows that are less predictable or more discretionary,
should they occur. We also have access to the credit markets, if needed, for liquidity or general corporate purposes,
including, but not limited to, our revolving credit facility or the ability to issue commercial paper and letters of credit to
support customer advance payments and for other trade finance purposes such as guaranteeing our performance on particular
contracts.
Cash received from customers, either from the payment of invoices for work performed or for advances in excess of
costs incurred, is our primary source of cash. We generally do not begin work on contracts until funding is appropriated by
the customer. Billing timetables and payment terms on our contracts vary based on a number of factors, including the
contract type. We generally bill and collect cash more frequently under cost-reimbursable and time-and-materials contracts,
which together represent approximately half of the sales we recorded in 2013, as we are authorized to bill as the costs are
incurred or work is performed. A number of our fixed-price contracts may provide for performance-based payments, which
allow us to bill and collect cash as we perform on the contract. The amount of performance-based payments and the related
milestones are encompassed in the negotiation of each contract. The timing of such payments may differ from our incurrence
of costs related to our contract performance, thereby affecting our cash flows.
The U.S. Government has indicated that it would consider progress payments as the baseline for negotiating payment
terms on fixed-price contracts, rather than performance-based payments. In contrast to negotiated performance-based
payment terms, progress payment provisions correspond to a percentage of the amount of costs incurred during the
performance of the contract. While the total amount of cash collected on a contract is the same, performance-based payments
have had a more favorable impact on the timing of our cash flows. In addition, our cash flows may be affected if the U.S.
Government decides to withhold payments on our billings. The amount of withholds was approximately $200 million as of
December 31, 2012. We collected substantially all of this amount in 2013 as we resolved certain deficiencies related to U.S.
Government audits of our business systems, primarily at our Aeronautics business segment. While the impact of withholding
payments delays the receipt of cash, the cumulative amount of cash collected during the life of the contract will not vary.
The majority of our capital expenditures for 2013 and those planned for 2014 can be divided into the categories of
facilities infrastructure, equipment, and information technology. Expenditures for facilities infrastructure and equipment are
generally incurred to support new and existing programs across all of our business segments. For example, we have projects
underway in our Aeronautics business segment for facilities and equipment to support production of the F-35 combat aircraft.
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