Business Context and Reporting Period
Company: Lockheed Martin Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1999
Filing Date: March 9, 2000
Lockheed Martin is a diversified global enterprise formed in 1995 by the merger of Martin Marietta and Lockheed. The company researches, designs, develops, manufactures, and integrates advanced technology systems, primarily for the U.S. Government. As of December 31, 1999, the company employed approximately 147,000 people. Approximately 70% of net sales were derived from the U.S. Government, with 20% from other government entities and 10% from commercial customers.
Key Financial Metrics
Note: Specific consolidated revenue, profit, cash flow, and debt figures are incorporated by reference from the 1999 Annual Report to Shareholders and are not explicitly stated in the provided text.
- Backlog: Total negotiated backlog was $45.9 billion at December 31, 1999, compared to $45.3 billion at the end of 1998.
- Segment Revenue Share (1999):
- Systems Integration: 42.9%
- Space Systems: 22.8%
- Aeronautical Systems: 21.5%
- Technology Services: 8.9% (excluding intercompany sales)
- Corporate and Other: 3.9%
- Dividends: Total dividends paid in 1999 were $0.88 per share. In January 2000, the dividend rate was reduced to $0.11 per quarter.
- Market Value: Approximately $7.36 billion of voting stock held by non-affiliates as of January 31, 2000.
- Shares Outstanding: 398,164,999 shares as of January 31, 2000.
Material Changes and Developments
- COMSAT Transaction: In September 1999, Lockheed Martin completed a cash tender offer for approximately 49% of COMSAT Corporation's stock for $1.2 billion. The second phase of the merger (exchange of remaining shares) is contingent upon federal legislation to remove ownership restrictions and regulatory approvals. Legislation was expected to be enacted before May 2000.
- Organizational Restructuring: In January 2000, the Space Systems and Aeronautical Systems segments were consolidated into single operating units (Lockheed Martin Space Systems Company and Lockheed Martin Aeronautics Company).
- Divestitures: Several operations within Systems Integration (Aerospace Electronics, Control Systems) and Technology Services were identified as candidates for divestiture or strategic alliances.
- Program Milestones:
- F-22: Met test criteria for full contract award for the second lot of test vehicles.
- F-16: Signed a multi-billion dollar contract with the United Arab Emirates in March 2000; selected by Israel and Greece for new orders.
- X-33: Rollout delayed to early 2002 following a composite liquid hydrogen tank failure in November 1999.
- IKONOS: Successfully launched the world's first one-meter resolution commercial imaging satellite in September 1999.
Outlook, Risks, and Contingencies
Guidance and Outlook: The company anticipates continued Congressional focus on the F-22 program funding in 2000. The COMSAT merger remains a key strategic objective, pending legislative action. Management expects to continue investing in fixed assets and working capital to maintain government business.
Key Risks:
- Government Dependence: High sensitivity to U.S. Government budgetary constraints, policy changes, and funding availability. Contracts are subject to termination for convenience.
- Regulatory and Legislative: The COMSAT merger is contingent on specific federal legislation and FCC/DOJ approvals. PanAmSat Corporation has appealed the FCC order permitting the transaction.
- Competition: Intensified competition due to industry consolidation and reduced number of prime contractors.
- Environmental Liability: Significant exposure to environmental remediation costs at former facilities (Redlands, Burbank, Glendale). Estimated expenditures for approved work are approximately $140 million (Redlands) and $100 million (Burbank/Glendale), with a recorded liability of approximately $200 million for other cases.
- Legal Proceedings: Subject to multiple grand jury subpoenas and investigations regarding government contract performance (e.g., LANTIRN program, Unisys facility, NASA contracts) and securities class action lawsuits filed in 1999.
Investor Verification Checklist
- Verify the status of federal legislation required to consummate the COMSAT merger and the outcome of the PanAmSat appeal.
- Review the "Selected Financial Data" and "Consolidated Statement of Earnings" in the 1999 Annual Report to Shareholders for specific revenue, net income, and cash flow figures not detailed in this text.
- Monitor the outcome of the F-22 program funding debates in Congress and the impact on production schedules.
- Assess the potential financial impact of ongoing environmental remediation obligations and the resolution of the Defense Contract Audit Agency's inquiry into environmental cost accounting.
- Track the progress of securities class action lawsuits and government investigations into contract performance.