Lockheed Martin 1999 Annual Report Download - page 10

We are taking action to return our performance to the consistently superior level our customers and shareholders expect
and have relied upon. We are focusing intently on U.S. and international government customers in aerospace, defense and
technology services, who account for approximately 90 percent of our revenue. The outlook for U.S. defense spending,
which represented 51 percent of our sales in 1999, is encouraging, with procurement funding increases anticipated during
the next several years. Focusing more effectively on core customers will lead to improved customer satisfaction which is a
prerequisite for generating increased shareholder value.
While reinvigorating our focus on core customers, we have established increased cash flow and debt reduction as our
primary near-term financial priorities. We are managing the business aggressively to optimize cash flow, demanding that
appropriate returns are achieved on invested capital, and establishing realistic, credible financial performance plans.
We are driving operating and investment discipline throughout the corporation. We are placing much greater emphasis
on the consistent application of improved financial controls and proven management tools such as Value-Based Management,
Earned-Value Management and Independent Cost Estimating.
Additionally, we have made a number of senior management changes while streamlining and flattening the organization
to improve our customer responsiveness and communication at senior levels. We eliminated the Sector layer and combined
various operating units in the aeronautics and space systems business areas into two companies led by corporate executive
vice presidents based at major operational centers rather than at corporate headquarters. These actions are expected to
result in reductions of 2,800 positions and annual savings of $200 million.
Because of the need to reduce debt, we identified several businesses for possible divestiture and are in the process
of obtaining and evaluating bids for those businesses. We will sell them only if we obtain full and fair value. We sold our
Hanford Corporation environmental management subsidiary in December and have added our state and municipal govern-
ment services unit, Lockheed Martin IMS, to the divestiture candidate list. We anticipate generating more than $1.5 billion
in after-tax cash proceeds if we sell all divestiture candidate units. Divestiture proceeds will be applied to debt reduction.
We continue repositioning our global telecommunications and commercial information technology businesses to
approach their high-growth markets more effectively while enhancing shareholder value. Our intent is to facilitate the
growth of those adjacent businesses with strategic partners through possible injections of outside capital and domain
expertise. This is entirely consistent with our cash and value optimization initiatives.
Our average award fee rating from the U.S. government, an important indicator of their satisfaction with our perform-
ance, was 85 percent, reflecting reduced fees related to Titan mission failures. Meanwhile, we achieved a mission success
rating of 94 percent by accomplishing 435 of 462 significant events defined at the start of the year.
We also made progress in achieving the highest internationally recognized quality standards for software development
and systems engineering. Only 12 organizations worldwide have attained the Software Engineering Institute’s highest soft-
ware development quality rating—Level 5—and four of them are Lockheed Martin operating units.
In our aeronautics business, the F-16 program had an excellent year, delivering 109 units and winning major competi-
tions and follow-on selections involving 124 aircraft including: Greece (50 aircraft), Israel (50) and Egypt (24). The Israeli
F-16 program involves options for 60 additional F-16s. Recently, the United Arab Emirates signed a contract with the
corporation that results in an order for 80 F-16s. Meanwhile, the U.S. Air Force announced its intention to order
30 more F-16s. The F-22 program performed superbly, meeting demanding flight test criteria established by Congress
while remaining within strict government cost caps. Our Joint Strike Fighter design met important test criteria in 1999 as we
move toward the flight demonstration of our Preferred Weapon System Concept in 2000.
As mentioned earlier, we met our commitment to deliver 30 C-130Js. For the first time, DoD budget plans call for C-130Js
in each of the next five years. This is encouraging and bodes well for the program’s long-term future. Elsewhere in airlift,
the C-27J made its first flight and received a launch order from Italy for 12 aircraft. Other wins included a contract for
phased depot maintenance of the U.S. Customs Service P-3 Orion fleet and the U.S. Air Force Propulsion Business Area
contract for military aircraft engine servicing.
In Space Systems, Chapter 11 filings by both Iridium and ICO by mid-year disrupted the commercial space market,
which negatively impacted the launch vehicle market. On the positive side, we received a $1.3 billion order from Astrolink
to build four commercial satellites and a $400 million order from Teledesic for at least six satellite launches. Certain space
systems programs were models of consistency. With five successful launches, Atlas achieved its 46th consecutive mission
success since 1993 and our United Space Alliance joint venture safely launched and recovered the three Space Shuttle
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