Lockheed Martin 2015 Annual Report Download - page 57

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Space Systems’ operating profit in 2015 decreased $16 million, or 1%, compared to 2014. Operating profit increased
approximately $85 million for government satellite programs due primarily to increased risk retirements. This increase was
offset by lower operating profit of approximately $65 million for commercial satellite programs due to performance matters
on certain programs; and approximately $35 million due to decreased equity earnings in joint ventures. Adjustments not
related to volume, including net profit booking rate adjustments and other matters, were approximately $105 million higher
in 2015 compared to 2014.
2014 compared to 2013
Space Systems’ net sales decreased $86 million, or 1%, in 2014 as compared to 2013. The decrease was primarily
attributable to lower net sales of approximately $335 million for government satellite programs due to decreased volume
(primarily AEHF, GPS-III and MUOS); $190 million due to mission solutions’ programs transitioning from development to
operations and support, wind-down or completion of certain programs, and defense budget cuts; and about $45 million for
various other programs due to decreased volume. The decreases were partially offset by higher net sales of approximately
$340 million for the Orion program due to increased volume (primarily the first unmanned test flight of the Orion MPCV);
and about $145 million for commercial space transportation programs due to launch-related activities.
Space Systems’ operating profit for 2014 was comparable to 2013. Operating profit decreased by approximately
$20 million for government satellite programs due to lower volume (primarily AEHF and GPS-III), partially offset by
increased risk retirements (primarily MUOS); and about $20 million due to decreased equity earnings for joint ventures. The
decreases were offset by higher operating profit of approximately $30 million for the Orion program due to increased
volume. Operating profit was reduced by approximately $40 million for charges, net of recoveries, related to the
restructuring action announced in November 2013. Adjustments not related to volume, including net profit booking rate
adjustments and other matters, were approximately $10 million lower for 2014 compared to 2013.
Equity earnings
Total equity earnings recognized by Space Systems (primarily ULA) represented approximately $245 million,
$280 million and $300 million, or 21%, 24% and 25% of this business segment’s operating profit during 2015, 2014 and
2013.
Backlog
Backlog decreased in 2015 compared to 2014 primarily due to lower orders for government satellite programs and the
Orion program and higher sales on the Orion program. Backlog decreased in 2014 compared to 2013 primarily due to lower
orders and higher sales on the Orion program, partially offset by higher orders on SBIRS.
Trends
We expect Space Systems’ 2016 net sales to decline in the mid-single digit percentage range as compared to 2015,
primarily driven by program lifecycles on government satellite programs. Operating profit is expected to decline by
approximately 10 percent, primarily driven by contract mix and slightly lower equity earnings in 2016 compared to 2015. As
a result, operating profit margin is expected to decline slightly 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 continued to invest in our business,
including capital expenditures, independent research and development and made selective business acquisitions, while
returning cash to stockholders through dividends and share repurchases, and managing our debt levels, maturities and interest
rates.
We have generated strong operating cash flows, which have been the primary source of funding for our operations,
capital expenditures, debt service and repayments, dividends, share repurchases and postretirement benefit plan
contributions. Our strong operating cash flows enabled our Board of Directors to approve two key cash deployment
initiatives in September 2015. First, we increased our fourth quarter dividend rate by 10% to $1.65 per share. Second, the
Board of Directors approved a $3.0 billion increase to our share repurchase program. Inclusive of this increase, the total
remaining authorization for future common share repurchases under our program was $3.6 billion as of December 31, 2015.
Further, based on a cash deployment initiative we announced in October 2014, we plan to reduce our total outstanding share
count to below 300 million shares by the end of 2017, market conditions and our fiduciary obligations permitting. This plan
was not affected by our acquisition of Sikorsky.
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