TEXT-S&P revises Lockheed Martin outlook to negative

Tue Feb 7, 2012 2:25pm EST

Feb 7 -     -- Defense spending cuts are likely to result in modestly
lower revenues, 	
earnings, and cash flow for Lockheed Martin over the next few years. We expect 	
the company to continue to return most excess cash to shareholders.	
     -- We are affirming our ratings on the U.S.-based defense contractor.	
     -- We are also revising the outlook to negative from stable to reflect 	
our concerns about financial pressures from cuts in defense spending, a wider 	
pension deficit, and substantial shareholder rewards.	
    	
     Feb 7 - Standard & Poor's Ratings Services said today that it affirmed its
ratings on Lockheed Martin Corp., including the 'A-' corporate credit
rating, and revised the outlook to negative from stable.	
	
"The outlook revision reflects our expectations that lower defense spending 	
will result in a modest decline in revenues, earnings, and cash flow over the 	
next few years," said Standard & Poor's credit analyst Christopher DeNicolo. 	
	
Following almost a decade of material increases in defense spending, efforts 	
to reduce the huge federal deficit will result in reduced defense spending for 	
the foreseeable future. The Budget Control Act of 2011 requires more than $450 	
billion in cuts to previously planned defense spending over the next 10 	
years.	
	
"Although cash flow likely will remain substantial, in recent years 	
dividends and share repurchases have exceeded free cash flow," Mr. DeNicolo 	
said. "If this continues, credit protection measures could decline to levels 	
that no longer support the current rating." 	
	
Standard & Poor's also expects the company to make large contributions to 	
address significant post-retirement obligations (mostly pensions), which 	
increased $3 billion at the end of 2011. However, the company can recover most 	
of these costs over time through its government contracts; our ratio 	
adjustments assume they recover 50%. 	
	
The ratings on Bethesda, Md.-based Lockheed Martin reflect the company's 	
position as the largest defense contractor worldwide, a healthy contractual 	
backlog, solid cash generation, and strong liquidity. We assess the company's 	
business risk profile as "strong" and financial risk profile as "intermediate" 	
under our criteria. 	
	
RELATED CRITERIA AND RESEARCH	
     -- Methodology And Assumptions: Liquidity Descriptors For Global 	
Corporate Issuers, Sept. 28, 2011	
     -- Key Credit Factors: Methodology And Assumptions On Risks In The 	
Aerospace And Defense Industries, June 24, 2009	
     -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009	
     -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008	
	
Complete ratings information is available to subscribers of RatingsDirect on 	
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 	
by this rating action can be found on Standard & Poor's public Web site at 	
www.standardandpoors.com. Use the Ratings search box located in the left 	
column.	
	
Primary Credit Analyst: Christopher DeNicolo, CFA, New York (1) 212-438-1449;	
                        christopher_denicolo@standardandpoors.com	
Secondary Contact: Lisa Jenkins, New York (1) 212-438-7697;	
                   lisa_jenkins@standardandpoors.com
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