1

Financial ComparisonBetween

The Boeing Companyand

Lockheed Martin

Keith L. Hohl

EMGT 452

Semester Project

14 December 1999

2

Agenda

• Objective

• Background– The Boeing Company

– Lockheed Martin

• Consolidated Financial Comparisons– Total Assets

– Income• Sales and Earnings

– Ratio Analysis• Profitability, Liquidity, Asset Management, and Debt Management

• Military Aircraft & Space Divisional Financial Comparison– Total Assets and Net Capital Expenditures

– Income• Sales and EBIT

• Conclusions

3

Study Objective

• To research and analyze two major defense contractors to determine the company’s financial position

• To financially compare the Military and Space divisions

4

The Boeing CompanyBackground

• Corporation divided into four major divisions – Commercial Airplane Group

– Military Aircraft and Missiles Group

– Space and Communications Group

– Customer and Commercial Financing group

• Company Statistics– Largest Aerospace Company in the world as measured by Total Sales

– Largest manufacturer of Commercial Jetliners and Military Aircraft

– Largest NASA Contractor

– Merged with McDonnell Douglas corporation in August 1997

– Subdivided the Information, Space and Defense Group into the Military Aircraft and Missiles Group and the Space and Communications group in 1998

5

Lockheed MartinBackground

• Corporation divided into five major divisions– Space & Strategic Missiles

– Electronics

– Aeronautics

– Information & Services

– Energy and Other

• Company Statistics– Includes a two for one stock split as of December 1998

– Merged with Loral Electronic Corporation in April 1996

– Merged with Martin Marietta Corporation in March 1995

– Merged with General Dynamics Fort Worth Division and GE Aerospace in 1993

6 Consolidated Total AssetsFinancial Comparison

05000

10000150002000025000300003500040000

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•Boeing’s total Assets are 1.30 times greater than LM•Boeing’s assets are decreasing while LM are remaining roughly the same

7 Consolidated SalesFinancial Comparison

0

10000

20000

30000

40000

50000

60000

Dollars(in

Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•Boeing sales are increasing while LM remain basically flat•Boeing sales are 1.69x greater than LM over the last three years

•Commercial a/c division accounts for 63% of Total Sales

8 Consolidated Net EarningsFinancial Comparison

-2000

200400600800

100012001400160018002000

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•LM operations more efficient than Boeing over this three year period•Earnings are comparable to Boeing and yet Boeing has much more sales

•LM earnings are decreasing

9 Consolidated Earnings From OperationsFinancial Comparison

-500

0

500

1000

1500

2000

2500

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•LM cost of operations much lower than Boeings respect to Sales•LM earnings remain consistent with flat sales receipts•Boeing needs much improvement in its cost of operations

10 Consolidated Earnings per ShareFinancial Comparison

-2-1.5

-1-0.5

00.5

11.5

22.5

33.5

Dollars(per Share)

1996 1997 1998

The Boeing Company Lockheed Martin

• LM has generally higher earnings per share than Boeing•More efficient costs of operations•Effectively utilizing assets and inventories

• Boeing has much room for improvement

11

Consolidate Return on Assets(ROA)Profitability Financial Comparison

0 1 2 3 4 5 6 7

1996

1997

1998

%

The Boeing Company Lockheed Martin

• Shows that LM much more efficient at operations than Boeing

12

Consolidated Return on Equity (ROE)Profitability Financial Comparison

-5 0 5 10 15 20 25 30

1996

1997

1998

%

The Boeing Company Lockheed Martin

• Shows that LM much more efficient at operations than Boeing

13 Consolidated Profit MarginProfitability Financial Comparison

-2 -1 0 1 2 3 4 5 6

1996

1997

1998

%

The Boeing Company Lockheed Martin

• LM Profit Margins are decreasing even though Sales have remained the same• Shows LM has a more efficient operations than Boeing•Beta coefficients: Boeing = 1.10. LM = 0.80

14 Consolidated InventoriesFinancial Comparison

0

2000

4000

6000

8000

10000

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•LM inventories are increasing while Boeing’s inventory is decreasing•LM inventory to Total Assets ratio is 50% less than Boeing’s

•Shows that LM operations are more efficient than Boeing’s

15 Consolidated Current RatioLiquidity Financial Comparison

0 0.5 1 1.5 2 2.5

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

•Ability to meet short term obligations•Ratio is much lower than industry average•Shows the 1998 Liquidity position relatively weak

•Must liquidate current assets at 97% (1/1.03) for LM and at 61% (1/1.22) for Boeing of book value and still payoff creditors in full

16 Consolidated Quick RatioLiquidity Financial Comparison

0 0.2 0.4 0.6 0.8 1

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

•Ratio is decreasing compared to the industry average•Both companies would have to liquidate its inventory in order to payoff its current liabilities

•Inventories are the least liquid of current assets

17

Consolidated Inventory Turnover RatioAsset Management Ratio Financial Comparison

0 2 4 6 8 10

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

•Inventory sold out and restocked higher than the industry average•LM ratio is higher than Boeing•Shows possibly superior merchandising and/or a shortage of needed inventory to support sales for both companies

18

0 2 4 6 8 10

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

Consolidated Fixed Asset RatioAsset Management Ratio Financial Comparison

•Shows that LM is effectively using its plant and equipment compared to the industry average and to Boeing•Boeing requires improvement to better utilize its plant and equipment

19

0 0.5 1 1.5 2

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

Consolidated Total Asset RatioAsset Management Ratio Financial Comparison

•Evaluates Total Asset usage•LM is generating less sales than total asset investment•Boeing is generating more sales than total asset investment

20

0 10 20 30 40 50 60 70 80

1996

1997

1998

Days

The Boeing Company Lockheed Martin Industry Average

Consolidated Day Sales Outstanding RatioAsset Management Ratio Financial Comparison

•Represents the average length of time after making a sale before receiving a cash payment•Boeing is approximately 2.5 times better than industry average•LM is exceeding the industry average on collecting payments

21 Consolidated Debt RatioDebt Management Ratio Financial Comparison

56 58 60 62 64 66 68 70 72

1996

1997

1998

%

The Boeing Company Lockheed Martin Industry Average

• Shows how the company is financed•Both companies debt ratios are higher than the industry average

•Creditors have supplied approximately 67% of the total financing•May make it costly to borrow additional funds without raising more equitycapital

22

Consolidated Times Interest Earned RatioDebt Management Ratio Financial Comparison

0 1 2 3 4 5 6 7 8

1996

1997

1998

The Boeing Company Lockheed Martin Industry Average

• Shows the ability to pay interest•Both companies have sufficient funds to meet annual interest costs even ifoperating incomes declines

23

The Boeing Company

and

Lockheed Martin

Divisional Financial Comparisons

24 Divisional SalesMilitary Aircraft & Space

Financial Comparison

0

5,000

10,000

15,000

20,000

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

•Boeing and LM Military Aircraft and Space divisions Sales are nearly equal•Note Boeing Overall Sales exceed LM by 1.6 times

•Boeing’s sales are increasing while LM are remaining flat

25 Divisional EBIT Military Aircraft & Space

Financial Comparison

0200400600800

10001200140016001800

1996 1997 1998

The Boeing Company Lockheed Martin

•Military a/c and Space divisions did not contribute to the overall 1997 earningsper share loss

26 Divisional Total AssetsMilitary Aircraft & Space

Financial Comparison

0100020003000400050006000700080009000

10000

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

27 Divisional Net Capital ExpendituresMilitary Aircraft & Space

Financial Comparison

050

100150200250300350400450500

Dollars(in Millions)

1996 1997 1998

The Boeing Company Lockheed Martin

28

Conclusions

29

The Boeing Company Financial Summary

• Boeing 1999 Profitability is increasing– Lowering their long term debt

– Reducing overall inventories

– Lowering Operating costs

– Increasing usage of fixed assets

– Generating more Sales than total Asset investment

– Improving account receivables payments

• Areas of Improvement Required– Further reduction in operating costs

– Further improvement of asset utilization

• Boeing may have merged with McDonnell Douglas to “Prop up” Earnings for interim fix due to the lagging Earnings performance from the Commercial Division

30

Lockheed MartinFinancial Summary

• Lockheed Martin profitability is decreasing– Sales are Decreasing

– Cost of operations are increasing

– Short term debt increasing

• Areas of Improvement– Reduce operating costs

– Reduce time of Account Receivables

– Increase Sales

– Reduce short term and long debt

31

Military Aircraft & Space DivisionSummary

• Sales, EBIT, Total Assets, and Capital Expenditures are nearly equal between both companies.

• Outstanding Contribution to Overall 1998 Net Earnings– Boeing: 127%

– Lockheed Martin: 65%

• Satisfactory 1998 Sales Contribution– Boeing: 35%

– Lockheed Martin: 51%

• Overall the Military Aircraft and Space Divisions are contributing more than fair share to the overall company performance