Business Context and Reporting Period
Company: Lockheed Martin Corporation
Filing Type: Form 10-K (Annual Report)
Period Ended: December 31, 1997
Business Overview: A highly diversified global enterprise formed in 1995 by the merger of Martin Marietta and Lockheed. The company operates through five major sectors: Space & Strategic Missiles, Electronics, Information & Services, Aeronautics, and Energy & Environment. Approximately 65.5% of 1997 net sales were derived from the U.S. Government.
Key Financial Metrics
Note: Specific consolidated revenue, net income, cash flow, and debt figures are incorporated by reference to the 1997 Annual Report to Shareholders and are not explicitly stated in the provided text.
- Backlog: Total negotiated backlog was $47.1 billion at December 31, 1997, down from $50.4 billion in 1996. Approximately 67.1% ($31.6 billion) is not expected to be filled within one year.
- Research & Development: Expended approximately $1.016 billion in 1997 using Independent Research and Development (IR&D) and bid/proposal funds.
- Stock Data: 194,701,640 shares of Common Stock outstanding as of January 31, 1998. Market value of voting stock held by non-affiliates was approximately $20.23 billion as of January 31, 1998.
- Dividends: Total dividends paid in 1997 were $1.60 per share ($0.40 per quarter).
- Employees: Approximately 173,000 employees as of December 31, 1997.
Material Changes and Segment Performance
Segment Sales Mix (1997):
- Space & Strategic Missiles: 29.6% of total net sales.
- Electronics: 25.2% of total net sales.
- Information & Services: 23.0% of total net sales.
- Aeronautics: 21.5% of total net sales.
- Energy & Environment: Less than 1% of total net sales.
Divestitures: The company divested its Access Graphics business in November 1997 and its thrust reverser business in November 1997. The Armament Systems business was sold to General Dynamics effective January 1, 1997.
Backlog Change: The decrease in total backlog from 1996 to 1997 was partially attributed to divestitures.
Outlook, Risks, and Contingencies
Northrop Grumman Merger (Material Contingency)
Lockheed Martin entered into a merger agreement with Northrop Grumman in July 1997, approved by shareholders in February 1998. However, the Department of Justice (DOJ) expressed fundamental opposition to the merger on March 9, 1998, citing antitrust concerns. The DOJ demanded substantial divestitures, which the Corporation stated it could not make in an economically viable manner. As of the filing date (March 18, 1998), the DOJ had not filed suit but threatened to do so, creating significant uncertainty regarding the transaction's completion.
Legal and Environmental Proceedings
- Government Investigations: The company is subject to various ongoing civil and criminal investigations by the DOJ and Department of Defense regarding contract pricing, accounting practices, and quality control (e.g., LANTIRN program, Hellfire missile, Milan Army Ammunition Plant).
- Environmental Liability: The company is a "Potentially Responsible Party" (PRP) at various third-party sites. Management believes the probability of a material adverse effect from these liabilities is remote, though joint and several liability exists.
- Burbank Litigation: Following a $67 million settlement with residents near a former facility, the company faces multiple class-action lawsuits alleging personal injury and property damage.
Operational Risks
- Government Dependence: High reliance on U.S. Government appropriations and contract renewals.
- Competition: Intensified competition due to industry consolidation.
- Year 2000: Management does not believe Year 2000 compliance costs will have a material adverse effect.
Investor Verification Checklist
- Verify the final status of the Northrop Grumman merger and any potential divestitures required by the DOJ.
- Review the full 1997 Annual Report for specific consolidated revenue, net income, and cash flow figures not detailed in this summary.
- Monitor the outcome of ongoing government investigations (LANTIRN, Hellfire, Milan) for potential fines or contract terminations.
- Assess the impact of the $47.1 billion backlog on future revenue recognition, noting that 67% is not expected to be filled within one year.
- Confirm the financial impact of the Access Graphics and thrust reverser divestitures on comparative year-over-year results.