Lockheed Martin 2015 Annual Report Download - page 11

PART I
ITEM 1. Business.
General
We are a global security and aerospace company principally engaged in the research, design, development, manufacture,
integration and sustainment of advanced technology systems, products and services. We also provide a broad range of
management, engineering, technical, scientific, logistics and information services. We serve both U.S. and international
customers with products and services that have defense, civil and commercial applications, with our principal customers
being agencies of the U.S. Government. In 2015, 78% of our $46.1 billion in net sales were from the U.S. Government, either
as a prime contractor or as a subcontractor (including 58% from the Department of Defense (DoD)), 21% were from
international customers (including foreign military sales (FMS) contracted through the U.S. Government) and 1% were from
U.S. commercial and other customers. Our main areas of focus are in defense, space, intelligence, homeland security and
information technology, including cybersecurity.
We operate in an environment characterized by both increasing complexity in global security and continuing economic
pressures in the U.S. and globally. A significant component of our strategy in this environment is to focus on program
execution, improving the quality and predictability of the delivery of our products and services, and placing security
capability quickly into the hands of our U.S. and international customers at affordable prices. Recognizing that our customers
are resource constrained, we are endeavoring to develop and extend our portfolio domestically in a disciplined manner with a
focus on adjacent markets close to our core capabilities, as well as growing our international sales. We continue to focus on
affordability initiatives. We also expect to continue to invest in technologies to fulfill new mission requirements for our
customers and invest in our people so that we have the technical skills necessary to succeed without limiting our ability to
return cash to our investors in the form of dividends and share repurchases.
We operate in five business segments: Aeronautics, Information Systems & Global Solutions (IS&GS), Missiles and
Fire Control (MFC), Mission Systems and Training (MST) and Space Systems. We organize our business segments based on
the nature of the products and services offered.
Strategic Actions
Acquisition of Sikorsky Aircraft Corporation
On November 6, 2015, pursuant to a Stock Purchase Agreement, dated as of July 19, 2015 by and between us and United
Technologies Corporation (UTC) and certain wholly-owned subsidiaries of UTC, we completed the acquisition of Sikorsky
Aircraft Corporation (Sikorsky) for $9.0 billion, net of cash acquired. Sikorsky, a global company primarily engaged in the
design, manufacture and support of military and commercial helicopters, has become a wholly-owned subsidiary of ours,
aligned under the MST business segment. We funded the acquisition with new debt issuances, commercial paper and cash on
hand. We and UTC made a joint election under Section 338(h)(10) of the Internal Revenue Code, which treats the transaction
as an asset purchase for tax purposes. This election generates a cash tax benefit with an estimated net present value of
$1.9 billion for us and our stockholders. The financial results of the acquired Sikorsky business have been included in our
consolidated results of operations from the November 6, 2015 acquisition date through December 31, 2015. Accordingly, the
consolidated financial results for the year ended December 31, 2015 do not reflect a full year of Sikorsky operations.
Strategic Review of Government Information Technology (IT) and Technical Services Businesses
Information Systems & Global Solutions Divestiture
On January 26, 2016 we entered into definitive agreements to separate and combine our IS&GS business segment with
Leidos Holdings, Inc. (Leidos) in a tax-efficient Reverse Morris Trust transaction anticipated to unlock approximately
$5.0 billion in estimated enterprise value for our stockholders, including a $1.8 billion one-time special cash payment to us.
We intend to use the net proceeds of the transaction to repay debt, pay dividends or repurchase our stock. Additionally, our
stockholders will receive approximately 50.5 percent of the outstanding equity of Leidos on a fully diluted basis
(approximately 77 million shares) with an estimated value of $3.2 billion based on Leidos’ stock price on the date of
announcement. However, the actual value of the stock to be received by our stockholders will depend on the value of such
shares at the time of closing of the transaction and our stockholders may receive more or less than the anticipated value. At
our election, the distribution may be effected by means of a pro rata dividend in a spin-off transaction or in an exchange offer
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