Lockheed Martin 2001 Annual Report Download - page 5

Lockheed Martin Annual Report >>> 4 Lockheed Martin Annual Report >>> 5
Despite our successes last year, the job is far from finished, and we are not without our challenges
in 2002. We have ongoing concerns about the market and pricing for the launch vehicle and
commercial satellite manufacturing businesses. We continue to drive out costs in these areas as
demonstrated by our success in integrating space-related operations into a single Space Systems
Company. In the government launch vehicle business, we are working with our customer to
improve the underlying economics. As for commercial satellites, we are reviewing alternatives to
improving the business model.
Our strategy has now transitioned from recovery to disciplined growth. The cornerstone of this
strategy is continued focus on our core businesses to generate profitable backlog growth, and
achieve attractive returns on our investments. We embrace this strategy while never losing our
commitment to outstanding program performance, rigorous attention to customer satisfaction, and
maximizing cash flow generation throughout the Corporation. We continue to tap the enormous
talent of our workforce through our LM21 Operating Excellence. In fact, LM21 initiatives in lean
manufacturing and Six Sigma were instrumental in demonstrating cost and cycle time savings
opportunities as we developed the winning bid for Joint Strike Fighter.
We recognize that this Corporation’s most valuable asset is its people, a point we note with par-
ticular significance in 2001. The tragic events of September 11 deeply affected our management
team and our employees, as they did all Americans. We are more committed than ever to serve
and support our military customers. In addition, our employees have generously matched a cor-
porate donation by contributing more than $1 million to our American Spirit Fund in support of
the victims of the terrorist attacks.
As a successful business enterprise, Lockheed Martin continues to attract record numbers of diverse
and talented people in every discipline. As a Corporation, we are committed to greater diversity
in our workforce and the competitive edge that diversity brings to every one of our programs.
Before closing, we would like to express our gratitude and thanks to James F. Gibbons and
Caleb B. Hurtt, who are retiring from the Board of Directors. Their dedication and service has
contributed greatly to the success of Lockheed Martin.
The past year has been a difficult one for all those who cherish the liberty bestowed by the
founders of this nation. As we proceed through the year, we are more mindful of our responsibili-
ties and the important work Lockheed Martin’s 125,000 men and women accomplish every day.
March 1, 2002
Vance D. Coffman Robert J. Stevens
Chairman and Chief Executive Officer President and Chief Operating Officer
business that distinguish Lockheed Martin as an advanced technology enterprise—from highly
efficient lean manufacturing processes, to the revolutionary Lockheed Martin-developed lift fan
propulsion system that enables the aircraft to take off from a very short runway or small aircraft
carrier and land vertically.
Combined with other new orders, we achieved a record backlog of $71.3 billion in 2001.
Strong program performance on this backlog is paramount to our future as we continue to focus
on core business performance, customer satisfaction, profitable growth and attractive returns on
investments to enhance shareholder value.
If there was a first among equals in our financial priorities for 2001, it was to further drive our
culture to manage for cash and reduce debt, and we exceeded expectations in both.
Lockheed Martin’s ongoing emphasis on strong cash flow resulted in $2.0 billion in free cash flow
in 2001, compared with $1.8 billion in 2000. Since 1999, we have achieved over $4 billion in
debt reduction and in 2001 we lowered our leverage considerably.
This performance reflects continued working capital improvements corporatewide, particularly in
the area of advance payments on international military aircraft programs. Free cash flow is expected
to be less during each of the next two years compared with 2001 as we utilize these advance pay-
ments to execute our international military aircraft programs.
Portfolio shaping in 2001 included our divestiture of IMS Corporation, a business which provides
technology services to state and local governments, for $825 million in pre-tax proceeds. Since
1999, our six key divestitures have contributed more than $3 billion in pre-tax proceeds. The sale
of IMS completes our divestiture plans announced in late 1999.
We decided in 2001 to exit the global telecommunications services business, consistent with our
strategy to focus on our core businesses. To take advantage of relevant skills and experience, we have
reassigned the satellite networking business to Space Systems and the commercial Information
Technology (IT) outsourcing business to our IT unit in the Technology Services business area. Our
intention is that remaining operations will be divested and we are in the process of eliminating
the Lockheed Martin Global Telecommunications (LMGT) administrative infrastructure.
In December we closed our first acquisition in several years. The integration of OAO Corporation,
a government IT contractor, should further leverage the Corporation’s IT capabilities, enhance
offerings to our customers, and be accretive to our 2002 results.
Looking forward, we are confident Lockheed Martin is well positioned in key, attractive markets. Our
capabilities are aligned with the priorities of our government customers such as the Department of
Defense in critical areas of air power projection, missile defense, naval power, space intelligence,
information superiority, and airlift. As a systems integrator we have the expertise to serve the infor-
mation technology and automation needs of large federal agencies such as the Social Security
Administration, Federal Aviation Administration, and U.S. Postal Service. We serve our NASA
customer in every one of its endeavors, including planetary exploration as demonstrated by the
success of the Mars Odyssey spacecraft.