http://www.yourindustrynews.com/news_item.php?newsID=55469
Summary:
Lockheed Martin Corporation announced the third quarter results of 2010. The corporation has a net sale of $11.4B which is a 6% increase from last year’s report. The net sales of Lockheed are the total sales combined with four divisions. Although Lockheed has a 6% increase in sales, they have a 30% decrease in profit this year. Lockheed Martin planned to discontinue two of their sister company in 2010. Enterprise Integration Group (EIG) and Pacific Architects and Engineer Inc. (PAE) will discontinue operations for all periods and their assets and liabilities are held for sale on the balance sheet as of Sept, 26 2010.
Analysis:
It is quite odd to have 6% increases in sales but 30% decrease in profit. According to 2009 3rd quarter report, Lockheed received an unusual tax benefit from the resolution of IRS examination. The corporation also incurred an unusual charge of $178 million related to voluntary executive separation program. Lockheed Martin staffs receive an extra $1 billion in pension plan. All these factors do affect the profit of 2010 quarter but some usage of money cannot avoid and some do benefit their own company.
Two of the partner company EIG and PAE are sold out to private firms. It is a loss for Lockheed because they have lost the high quality technology provide from those companies. However, they do no have a choice to keep the company as the Pentagon would like to remove companies that have potential conflict with government contractors. There is a concern in those company will end up bidding a government contracts if they are partner with government contractors. Lockheed is the number one federal government contractors in the United State and it will cause a conflict if its sister company bid on a government project.
Lockheed has a potential comprehensive loss from selling two of its sister company. A company can receive comprehensive gain or loss depends on its situation and Lockheed seems to have a loss at this point. Lockheed may sell those companies lower than their acquiring price. There are two possible reasons, first, the company may depreciate and second, American dollar depreciates and the company receives loss from currency exchange. The difference of the initial price and final price is the comprehensive gain/loss.
Reflection:
A large amount of military projects are awarded to Lockheed Martin in the recent years. This year they received a “Go” for the F-35 manufacture possession and they should have net profit in the next 10 years if the inflation does not rise as much. Many projects under development receive funding time to time. Although Lockheed has higher chances to receive profit, they might lose money in some area such as currency exchange. But it would not affect the overall net profit of the next 10 years. Lockheed has a very high demand rates in their products and they are lacking human resources. If they expand their factory and hire more employees, the production will be faster and the company can redeem their full amount of money quicker. If the customers decide to stop the project, they might require paying a penalty fee. The penalty fee considers as comprehensive income because the income is unexpected. A positive trend can be seen from now, since new blood will add into Lockheed Group and income will be generated from the new partners.
