Lockheed Martin and Raytheon   Term Paper ID:36352 Click to get this paper

Essay Subject: A comparisson of the financial statements of Lockheed Martin and Raytheon corporations.... More...

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Paper Abstract: A comparison of the financial statements of Lockheed Martin and Raytheon corporations. Maintains that although the two companies had similar transactions and accounts in their equity activities, there are major differences. Cites the differences. Paper Introduction: Lockheed Martin and Raytheon had very similar transactions and accounts intheir equity activities Raytheon\'s major difference lay in the adjustmentfor exchange rate changes and the effects on some asset valuations towhich Lockheed Martin is not materially exposed The shareholders\' equity of Lockheed Martin was most effected by thecompany\'s net earnings Lockheed which is the final outcome of theincome statement calculation Lockheed The company also declareddividends which decreased retained earnings As the table shows thedividends paid by the company have been increasing each Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. If the netpresent value of the lease payments are included, the debt amount rises to$14,675 million and the debt to equity ratio rises to 1.39. The deduction from retained earnings isthe more common result (Lockheed 45). Raytheon's major difference lay in the adjustmentfor exchange rate changes and the effects on some asset valuations, towhich Lockheed Martin is not materially exposed. government benefits from leasing by lowering itscontract cost to Lockheed, controlling what equipment is used, and havingthe worj done at convenhent facilities. The stock-based awards and ESOP activity reflects the amounts paidinto for shares that are part of employee compensation programs. Theexercise price of employee stock options are "of not less than 1 % of themarket value of the underlying stock on the date of grant" (Lockheed, 57).However, the amount paid into equity was still less than the market pricefor the stock. 4 |189.64 | Stock was repurchased as part of an ongoing plan to do so (Lockheed57). Dividends (Lockheed 69)|2 4 |2 3 |2 2 |2 1 |2 || .91 | .58 | .44 | .44 | .44 ||438 |446 |455 |441 |431 ||398.58 |258.68 |2 .2 |194. Raytheon's 2 4 debt-to-equity ratio is debt of $13,6 2 milliondivided by equity of $1 ,551 million, or 1.29 (Raytheon 5 ). Lockheed benefits by lowering itsdebt exposure, avoiding costs and losses associated with disposing ofequipment and property, and paying only for the needed use of thefacilities rather than the entire purchase price. In 2 3 theamount was added to retained earnings because the expected futureliabilities decreased, either from a change in the pension plan or a changein the employees earned benefits. For Lockheed Martin, the basic and diluted earningsper share are $2.86 and $2.83, respectively. The ESOP, in contrast, buys shares at the marketprice and they are immediately considered to be outstanding. The company also declareddividends, which decreased retained earnings. Furthermore those contracts are probably cancelable orrenegotiable on the governments part and subject to funding allocations.So it is not clear if in fact Lockheed would ever be making some of thefuture lease payments, and for this reason the should not be recognized asa liability for analysis purposes. These securities aregenerally investments of cash that is expected to be needed within the nextyear. As the table shows, thedividends paid by the company have been increasing each year both in totaland in per-share amounts. In the case of Lockheed Martin, it is inappropriate to include thefuture value of the operating lease payments in an analysis of the capitalstructure of the company. The difference between the option and market price resultsin a decrease in the value of the other shares. Repurchasingshares also maintains the companies chosen debt-to-equity ratio while theseprograms are in use. ForRaytheon, the basic and diluted earnings per share are $.95 and $.94respectively. It takes two or three years for some options to become fully vested.The negative 23 and positive 17 in the 2 4 unearned compensation columnsreflect adjustments to shares set aside until vestments are complete.Outstanding options, with thehr potential to dilute the equity per shareamount, results in the company reporting two earnings per share figures,regular and diluted. Though some of the leases go to 2 13, it isunlikely that the government contracts that the leases are related to areas long-lived. Raytheon's operatinglease contracts involve similar benefits. Government[Lockheed Martin's biggest customer] under short-term or cancelablearrangements." The U.S. The difference between thesetwo figures is increasing for Lockheed Martin over time (Lockheed 69). Accounting requires that these assets be included in the financialstatements at their market value, and any gain or loss realized even thoughthe securities have not yet been sold. Finally, the company deducted $56 million to realize the decrease invalue of securities available for sale (Lockheed 45). While theactual increases in the ratio amounts are the same, the effect of leases oncapital structure is significantly greater for Raytheon than LockheedMartin. The shareholders' equity of Lockheed Martin was most effected by thecompany's net earnings (Lockheed 45), which is the final outcome of theincome statement calculation (Lockheed 42). These are the discount rates used to calculate the net present valuesof the future lease payments. According to Note 13 on page 62 for Lockheed Martin, "Certain majorplant facilities and equipment are furnished by the U.S. Based onthis information Lockheed's cost of debt financing can be estimated at 8%.Raytheon's cost of debt financing is similarly estimated at 6% (Raytheon91). Note 8 on page 53 of Lockheed Martin's notes lists debt rates between7.375% and 8.2% for instruments maturing between 2 8 and 2 13. Lockheed Martin and Raytheon had very similar transactions and accounts intheir equity activities. If the net present value of the lease payments areincluded, the debt amount rises to $19,382 million and the debt to equityratio rises to 2.76. The $285 million decrease in stockholders equity for the minimumpension liability reflects the difference between the estimated presentvalue of what the company will pay out in pensions and the amount ofexpense that the company has recognized for pensions so far. Management could be trying to preserve the voting power of individualshares as new stock is awarded as part of compensation plans. This effect is documentedon page 58 of the notes. | |2 5 |2 6 |2 7 |2 8 |2 9 |Future |NPV ||Lockheed Martin |251 |184 |149 |116 |85 |281 |829 ||Raytheon |34 |263 |2 7 |159 |1 7 |283 |1, 73 | In 2 4 the debt-to-equity ratio for Lockheed Martin is totalliabilities of $18,553 million divided by total equity of $7, 21 million,or 2.64 (Lockheed 43). This relationship is less stable than Lockheed Martin'sbecause the Raytheon's stock price makes the exercise of many optionsundesirable, and so these shares are not yet included in the diluted sharecomputation (Raytheon 95). 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