Lockheed Martin Corporation 2010 Annual Report
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Lockheed Martin Corporation 2010 Annual Report Littoral Combat Ship: Freedom At Sea 2010 FINANCIAL HIGHLIGHTS (In millions, except per share data) 2010 2009 2008 Net Sales $ 45,803 $ 43,995 $ 41,372 Segment Operating Profit 5,076 5,104 4,888 Consolidated Operating Profit 4,097 4,415 5,049 Earnings From Continuing Operations 2,645 2,999 3,167 Net Earnings 2,926 3,024 3,217 Earnings Per Diluted Share Continuing Operations 7.18 7.71 7.74 Net Earnings 7.94 7.78 7.86 Cash Dividends Per Common Share 2.64 2.34 1.83 Average Diluted Common Shares Outstanding 368 389 409 Cash, Cash Equivalents and Short-Term Investments $ 2,777 $ 2,737 $ 2,229 Total Assets 35,067 35,111 33,439 Total Debt 5,019 5,052 3,805 Stockholders’ Equity 3,708 4,129 2,865 Common Shares Outstanding at Year-End 346 373 393 Net Cash Provided by Operating Activities 3,547 3,173 4,421 Return on Invested Capital 17.9% 19.9% 21.7% NOTE: For additional information regarding matters affecting the comparability of the information presented above, refer to Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K. For additional information concerning return on invested capital, including its definition and use, refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2010 Annual Report on Form 10-K. DEAR FELLOW SHAREHOLDERS, Thanks to the solid execution of our business strategy in 2010 and the efforts of the dedicated professionals who work for this industry-leading enterprise, we can confidently report that Lockheed Martin remains on course both operationally and financially. For 2010 we met or exceeded our expectations for financial performance. Sales grew 4 percent to $45.8 billion, and we increased our earnings per share to $7.94. Our backlog of orders also increased to more than $78 billion at the end of 2010. On stand from left to right: Linda R. Gooden, Executive Vice President, Information Systems & Global Solutions; Robert J. Stevens, Chairman and Chief Executive Officer; Christopher E. Kubasik, President and Chief Operating Officer. Foreground from left to right: Bruce L. Tanner, Executive Vice President and Chief Financial Officer; Marillyn A. Hewson, Executive Vice President, Electronic Systems; Joanne M. Maguire, Executive Vice President, Space Systems; Ralph D. Heath, Executive Vice President, Aeronautics. Photograph taken February 9, 2011 in front of the fi rst F-35B Short Takeoff/Vertical Landing (STOVL) variant of the Joint Strike Fighter (BF-1) at the Naval Air Station Patuxent River. On the day of the photograph, BF-1 fl ew three sorties, accomplishing three short takeoffs, one slow landing, and two vertical landings while demonstrating its unique and game- changing capabilities. 1 We generated more than $3.5 billion in operating cash for the government resources continue to put enormous pressure on our year, even after making more than $2.2 billion in discretionary customers. contributions to our pension plans. We also announced a new share repurchase program of up to $3 billion. This step, coupled The Department of Defense is committed to fundamentally with a 19 percent dividend increase, is indicative of our changing the way it conducts business, incorporating commitment to further enhance shareholder value. affordability as a firm requirement for each new program. We support the efforts of the Defense Department and all These results are most impressive when you consider the government agencies we serve to make every taxpayer dollar velocity of change in the global security and economic count. We are driving value into every level and function of this environments. That Corporation. We are relentlessly managing program costs, shortening cycle times, and allocating resources efficiently. Additionally, we must maintain a consistent tempo of operational excellence. This is our new reality, and in 2010 we took measures that will sustain and strengthen Lockheed Martin’s competitive edge. Our Approach to Delivering Value In 2010, almost 600 executives elected to participate in our Voluntary Executive Separation Program. This 26 percent reduction in our top-level management ranks contributes to a leaner operation and benefits talented individuals in the company who can expect expanded opportunities for growth and development. In addition, we further shaped Lockheed Martin’s portfolio of F-35C Carrier Variant of the Joint Strike Fighter businesses to better match our strengths and resources with the needs of our customers. speaks volumes to the passion, teamwork and, above all, the In 2010, we completed the divestiture of Enterprise Integration leadership qualities of the men and women of Lockheed Martin. Group (EIG) for $815 million in cash. Our decision to divest Their laser-sharp focus on our customers’ priorities and their EIG was based, in part, on the U.S. Government’s increased steadfast integrity has positioned our company for continued concerns about perceived organizational conflicts of interest. In success. February 2011, we announced that we entered into a definitive agreement to divest Pacific Architects and Engineers, Inc. Our New Reality (PAE). When we acquired PAE several years ago, we envisioned it as an entry point to a new customer set requiring While we are proud of our 2010 accomplishments, we recognize information technology and systems integration services. In the that Lockheed Martin is operating in a demanding business current market, however, customers are seeking a climate, and it will only get more demanding. Increasingly complex global security issues combined with constrained 2 different mix of services, such as infrastructure support, which is not in line with our strategy or core capabilities. We realigned other business units to consolidate and gain greater efficiency and synergy. We created a new organization within Electronic Systems, Global Training and Logistics, by merging several smaller business units. This will allow us to better respond to the growing requirement for simulation, training, and logistics solutions in support of the war fighter. Our Commercial Space Systems unit was merged into the Global Communications Systems business for a more integrated and affordable approach to operating our commercial and government satellite programs worldwide. Our most painful decisions involved reallocating resources that will result in layoffs. The hard and difficult truth is that in this business climate, infrastructure may have to be consolidated or closed and regrettably that results in job loss. In November, we F-35A Conventional Takeoff and Landing (CTOL) announced the end of manufacturing operations at Middle River, Variant of the Joint Strike Fighter Maryland, effective in 2011 and the closing of our Eagan, Minnesota, facility by 2013. We are also moving our ground information technology systems that deliver government vehicle business from our facility in Owego, New York, to services to millions of citizens. For them, and for us, there is no Dallas, Texas. substitute for flawless execution. Our achievements last year reflect the can-do spirit that the Operational Achievements in 2010 employees of Lockheed Martin bring to the job every day. Lockheed Martin is a company of people who embrace difficult We saw substantive progress in 2010 on the F-35 Lightning II challenges. We continue to build a corporate culture that program, surpassing its goal of 394 test flights for the year. This encourages innovation in order to respond quickly to our 5th Generation radar-evading fighter is recognized by the customers’ evolving needs. Department of Defense and our allies as a game-changing asset designed to prevail in conflict quickly and bring our pilots home Many of our customers wear the uniforms of the armed forces of safely. the United States and allied nations. They are at the front lines of homeland security and cyber security. Our customers tackle All three variants of the F-35 are engaged in flight testing and in the big issues of missile defense, military airpower, national November we received a contract to manufacture 31 aircraft, security space, renewable energy, air traffic management, space doubling the number of F-35s contracted under three previous exploration, and information technology systems that deliver orders. Additionally, in 2010, Canada and Israel selected the F- 35 as their next-generation combat aircraft. However, given delays on the F-35B Short Takeoff/Vertical Landing (STOVL) variant, Secretary of Defense Robert Gates announced in January 2011 that he would decouple 3 testing of the STOVL aircraft from the Conventional Takeoff Airspace System. This will be the foundation of the FAA’s and Landing and Carrier variants in order to address next-generation programs. performance and schedule issues. The Secretary has set a two- year probationary period for STOVL, and we are committed to • Tests in 2010 proved key missile defense technologies. A meeting the Secretary’s expectations. We recognize that there Lockheed Martin-built system, installed aboard an aircraft, are three main areas of this program that require our attention: aimed a high-energy laser beam on a boosting ballistic lowering development risks; improving momentum in the flight missile, destroying the target; and our Aegis Ballistic Missile test program to demonstrate the airplane’s superior capabilities; Defense System, deployed on a Japanese destroyer, and accelerating production. intercepted a ballistic missile target above the atmosphere. The U.S. Navy’s first Littoral Combat Ship, the USS Freedom, • We delivered the first production C-5M Super Galaxy in a was deployed in February 2010. Our second ship, the future major modernization program. This aircraft is the only USS Fort Worth, was christened and launched in December. strategic transport capable of flying directly from the United Also in December, the U.S. Navy awarded the Lockheed States to any area of operations without refueling.