Lockheed Martin Corporation

FOUNDED: 1926

Contact Information:

HEADQUARTERS: 6801 Rockledge Drive
Bethesda, MD 20817
PHONE: (301)897-6000
FAX: (301)897-6704
URL: http://www.lockheedmartin.com

OVERVIEW

Lockheed Martin Corp. is the largest defense contracting company in the world. It is a major contractor to the U.S. Department of Defense (DoD), civil agencies of the U.S. federal government, foreign governments, and private companies. The U.S. federal government is Lockheed Martin's single largest client—by far. In 2001, it was responsible for over three quarters of all Lockheed's net sales. Lockheed operates a chain of facilities, including plants, laboratories, service centers, administrative centers, and warehouses throughout the world. Most are located in the United States. Lockheed Martin is headquartered in Bethesda, Maryland.

Lockheed Martin is divided into four main corporate segments: Systems Integration, Space Systems, Aeronautics, and Technology Services. Systems Integration manufactures electronic systems for surface, sea, undersea, and air applications. These include radar and other surveillance systems, tactical missile systems, high performance sensor systems, and so-called C4I systems—command, control, communications, computers, and intelligence systems. Systems Integration is based in Bethesda Maryland. The Space Systems segment produces space systems for both the government and civilian sectors. Its products include communications and surveillance satellites, launch vehicles, ground systems for space launches, and space-based missile systems. The segment is involved with various joint ventures, including United Space Alliance, LLC, which manages and operates NASA's space shuttles. The segment is based in Denver, Colorado. Lockheed's Aeronautics segment produces a broad line of combat and transport aircraft, including the F-35 Joint Strike Fighter, the F-16 multi-role fighter, the F-22 Raptor fighter, and the C-130J tactical airlift aircraft. The segment is based in Fort Worth, Texas. The Technology Services segment produces a line of scientific, engineering, and logistic products and services. They include software modernization services, data management, engineering, and scientific consulting for NASA, training, maintenance and logistical support for government and civilian systems, and R&D in connection with government nuclear weapons and reactor programs. Technology Services is headquartered in Cherry Hill, New Jersey. Lockheed Martin had a fifth segment, Global Telecommunications, which it discontinued at the end of 2001.

COMPANY FINANCES

Lockheed Martin reported about $24 billion in net sales in 2001, down 2 percent from 2000. Its largest customer, the U.S. federal government, accounted for about 78 percent of Lockheed's sales in 2001, or about $18.6 billion. In comparison, foreign governments made $3.89 billion in purchases from Lockheed in 2001. The commercial sector brought up the rear, accounting for just under __BODY__.5 billion of Lockheed Martin's net sales that year, primarily space launch services, satellites, and information technology services. Systems Integration accounted for more of Lockheed's net sales than any other segment in 2001 with about $9 billion generated. Space Systems was second in sales with $6.84 billion, 87 percent of sales were to the federal government. The Aeronautics segment made about $5.35 in net sales in 2001; sixty-five percent of those sales were to the U.S. government and 35 percent to foreign governments. Technology Services was responsible for 12 percent of Lockheed's 2001 sales. At the end of 2001, the company had just under $71.3 in backlog, or firm orders from clients, an increase of almost 30 percent from 2000. Most of those orders would not be filled by the end of 2002.

Lockheed's 2001 operating profit was $888 million, down from __BODY__,251 million in 2000 and __BODY__,997 million in 1999. In the end the company reported a net loss of __BODY__.05 billion in 2001, which worked out to a loss of $2.42 per share, almost double the loss in 2000. The loss was attributable in part to the write-off of its discontinued Global Telecommunications segment and to a change in the company's accounting procedures. Lockheed Martin's share price remained relatively stable during 2001, but jumped at year end following the terrorist attacks on the World Trade Center and the Pentagon.

ANALYSTS' OPINIONS

Analysts were confident that 2002 marked a new chapter for Lockheed Martin, and a recovery from its woes of the late 1990s. Value Line predicted an "earnings surge" as the result of new contracts received from the federal government and foreign governments. For example, Lockheed received orders for its new F-35 fighter from Britain, Canada, Turkey, the Netherlands, and Denmark. Value Line predicted a continuing rise in the company's stock price until the mid-2000s.

HISTORY

The company known today as Lockheed Martin was formed by the merger of two smaller firms, each founded in the early 1900s: The Lockheed Company and the Martin Company.

The Lockheed Company grew out of the Alco Hydro-Aeroplane Company founded in 1912 by Allan and Malcolm Loughead, who pronounced their name "Lockheed." In 1916 they established the Loughead Aircraft Manufacturing Company in Santa Barbara, California and were producing flying boats. The company made its first sale to the U.S. Navy in 1918, the same year the firm built the first twin engine bomber, the MB-2. In 1926, the company was reestablished as the Lockheed Aircraft Company, this time spelled phonetically—the brothers were tired of people getting it wrong. The company was sold in 1932 to Detroit Aircraft Company.

In the 1930s, the company manufactured a series of innovative planes, including the model flown by Amelia Earhart in 1932 when she made the first transatlantic flight by a woman. It supplied the Army Air Force with bombers during World War II, and in the 1950s developed, among other products, the U-2 spy plane, the Polaris submarine-launched ballistic missile, and the Titan I rocket used in the U.S. space program. In 1958 Lockheed introduced the flight recorder—the so-called black box—that is now standard equipment on all commercial and military aircraft. After attempting to break into the market for planes for commercial airlines, Lockheed experienced financial problems that almost drove it out of business in 1971. It survived with the aid of guaranteed loans from the federal government. In the later 1970s, Lockheed's relationship with certain foreign governments unleashed a bribery scandal that toppled governments in Japan and Italy. In the 1980s, it did much of the development work on the Hubble Space Telescope and the F-117A stealth fighter jet.

The other half of the organization that would become Lockheed Martin, was founded in 1909. Glenn L. Martin founded a company that supplied training aircraft to the U.S. Army Signal Corporations. It manufactured bombers and flying boats during the First World War. In the 1930s it developed new planes for military and commercial use, including the famous China Clipper, the model Pan Am used to make its first transpacific commercial flights. It supplied the military with bombers during World War II—including the two planes that dropped the atomic bombs on Hiroshima and Nagasaki—and with missiles and nuclear systems in the 1950s. After its merger with American Marietta in 1961 it became Martin Marietta. The company was the target of a hostile takeover by Bendix in 1980, but was able to avert the corporate action. The cost of the takeover defense left the company deep in debt and forced it to sell off a number of holdings.

Lockheed and Martin Marietta merged in 1995, a deal valued at $10 billion. A year later it acquired the defense electronics businesses of the Loral Corporation. With the end of the Cold War defense spending was cut 35 percent between 1985 and 1998. The company purchased the Consat Corporation hoping to break into the commercial telecommunications market and lessen its dependence on government contracts.

In the late 1990s problems emerged. Some of the company's space projects suffered catastrophic failures, including the very public loss of two Mars spacecraft in 1999. The failures were blamed on the lack of management oversight. Lockheed Martin also experienced difficulties during its attempts to integrate the operations of 17 recently acquired companies. An attempt to buy major competitor Northrop Grumman was blocked by government regulators on antitrust grounds. Lockheed's stock price dropped from $49 a share in 1998 to $16.62 in 2000. Profits had dropped 66 percent, and only large orders from the Pentagon, Greece, and the United Arab Emirates saved the firm. Meanwhile CEO Vance Coffman initiated a reorganization of the firm in 1999, which split it into four operating segments. Some of the company's holdings were also sold. A new program was implemented in 2001 to streamline operations. The company was back on the road to profitability in 2001 when it won the Joint Strike Fighter contract from the Department of Defense (DoD). Valued at $200 billion, it was the largest defense contract ever awarded.

STRATEGY

Lockheed Martin's strategic plan was initiated and implemented by Chairman and CEO Vance D. Coffman as a response to the company's decline in the late 1990s. It called for the company to focus on key areas such as active phased arrays, photonics and optical computing, virtual environments, systems integration, advanced sensors, advanced software technology, advanced structures and materials, and data transmission and communication, which supported advanced military platforms. An important corollary to this was the divestiture of non-core businesses and Lockheed's reorganization into four core areas, with strong lines of accountability and an emphasis on product quality. Lockheed's goal was to realize $3.7 billion in annual savings.

INFLUENCES

The events of September 11, 2001 had a great impact on Lockheed Martin. The resulting focus on civil defense, as well as the war in Afghanistan created a political climate that supported the modernization and expansion of the nation's defense infrastructure. The new political climate resulted in a proposed 2003 federal budget which included increases for defense procurement and research and development. After more than a decade of budget cuts, Lockheed Martin saw itself as the beneficiary of an increase in defense spending. The new emphasis on homeland defense may also spur demand for other Lockheed products, such as air traffic systems, biohazard detection systems, and other security systems.

CURRENT TRENDS

The defense budgets of foreign governments declined in the late 1990s and the early 2000s. The result was not only fewer contracts, but a general consolidation of the industry, particularly in Europe. The companies that remained were larger and possessed the cream of the talent from the constituent firms. They were also more able competitors. The consolidation of the European defense community signaled less demand for American manufactured products.

PRODUCTS

Lockheed Martin's most significant product, in size and long-term impact, is the Joint Strike Fighter. The Joint Strike Fighter, commissioned by the largest defense contract in history, is an aircraft designed with certain basic features—stealth technology and the capability of supersonic speeds—that can be modified to meet the individual needs of each branch of the military. The Marine version, for example, will be able to land vertically, like a helicopter. The British military is taking part in the specifications for the aircraft as well. The first 14 planes, which cost about $30 million each, are scheduled for completion in 2008. Lockheed Martin is the leading contractor on the Joint Strike Fighter project. Other firms, such as Northrop Grumman and BAE SYSTEMS are working on it as well. Other important Lockheed products include the F-16 multi-role fighter, the F-22 Raptor, and the C-130J tactical airlift aircraft.

CORPORATE CITIZENSHIP

Lockheed Martin Corporation supports a variety of efforts to help minority students in the areas of math, science, and engineering. It sponsors Math, Engineering and Science Achievement (MESA) Grants which are given to African-American, Native American, and Latino students. Similarly the Inroads program helps prepare minority students for roles in their communities and the corporate world. The company provides participating high school graduates with career-related summer jobs for three summer terms. Lockheed Martin provides financial support and volunteers to organizations such as the American Red Cross, the American Cancer Society, and the Multiple Sclerosis Association.

Lockheed Martin encourages its employees to volunteer for educational and environmental initiatives in the communities in which they work and live. They tutor disadvantaged or at-risk elementary and high school students, rehabilitate housing for the poor and elderly, organize food drives, work at senior citizens centers, take part in environmental clean-up projects, and support public television.

GLOBAL PRESENCE

Lockheed Martin's international business consists primarily of sales of its products to foreign governments in Europe, the Middle East, and Asia. In late 2001, Israel purchased 52 F-161 fighter jets worth __BODY__.3 billion. Sales are sometimes made directly to foreign governments, but frequently they are mediated by the U.S. government. In 2001 the company was involved in various joint ventures with foreign companies. It worked with Alenia Marconi Systems of Italy, European Aeronautic Defence and Space (EADS), and LFK—Lenkflugkorpersysteme GmbH of Germany—on the development of the Medium Extended Air Defense System for NATO. Its Aeronautics segment was part of a joint U.S.-Japanese venture to produce F-2 jets. Lockheed is the majority owner of Lockheed-Khrunichev-Energia International (LKEI), a joint venture with two space firms owned by the Russian government, to organize and market commercial space launches from sites in Kazakhstan. Lockheed Martin's Aircraft and Logistics Center is a partner in a joint venture with the Chinese government that provides aircraft maintenance engineering. It also provides Lockheed's international customers with aircraft maintenance and other related services.

EMPLOYMENT

Lockheed's workforce of 125,000 includes approximately 45,000 of the world's most talented engineers and scientists. Lockheed encourages its employees to supplement their skills through continuing education and training.

SOURCES OF INFORMATION

Bibliography

Anselma, Joseph C. "Vance Coffman: With great tenacity, the low-key CEO of Lockheed Martin guided the defense contractor out of stormy weather and into sunnier skies." Washington Techway, 7 January 2002.

Flight in America 1900-1983: From the Wrights to the Astronauts. Baltimore: The Johns Hopkins University Press, 1984.

Guccione, Jean. "Lockheed Settles With Residents For $5 Million." Los Angeles Times, 18 October 2000.

Scott, William B. "Lockheed Martin Hangs Onto Space Science Missions." Aviation Week & Space Technology, 10 December 2001.

Smith, Bruce. The Sky's the Limit. London: Macmillan, 1979.

Sutton, Oliver, and Michael Taverna. Conquest of the Skies. Boston: Little Brown, 1979.

For an annual report:

on the Internet at: http://www.lockheedmartin.com/investor or write: Lockheed Martin Investor Relations, 6801 Rockledge Drive, Bethesda, MD 20817

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Lockheed Martin Corporation's primary SICs are:

3721 Aircraft

3760 Guided Missiles & Space Vehicles & Parts

Also investigate companies by their North American Industrial Classification System codes, also known as NAICS codes. Lockheed Martin Corporation's primary NAICS codes are:

336411 Aircraft Manufacturing

336414 Guided Missile and Space Vehicle Manufacturing