LOCKHEED MARTIN ANNOUNCES NEW CUSTOMER-FOCUSED ORGANIZATIONAL REALIGNMENT
BETHESDA, MD, September 27th, 1999 -- Lockheed Martin Corporation (NYSE: LMT) today announced the results of the strategic and organizational review that began June 9. As a result, the Corporation plans to realign its businesses, flatten its management structure, reduce corporate staff, evaluate the divestiture of non-core operations, and enhance financial management processes. The new organizational structure will take effect October 1. Management estimates that, on a recurring basis, these actions are not expected to adversely affect the Corporation's earnings outlook for the years 1999 and 2000. "Our objective is to be the world's best integrator of complex systems for our core aerospace, defense and technology services customers," said Vance Coffman, chairman and chief executive officer of Lockheed Martin. "The actions we are announcing today are designed to organize each of our core businesses to ensure customer satisfaction, mission success and maximum operating efficiency."
Coffman continued: "Lockheed Martin has outstanding capabilities and outstanding people. Today's announced actions are part of a continuing process that will sharpen our customer focus, improve communications and increase quality and accountability throughout the organization. As the leading integrators of 21st Century technologies in the aerospace, defense and technology services markets, we will deliver for our customers and our shareholders."
Actions announced today include:
*Streamlining Lockheed Martin's business portfolio by consolidating and refocusing the number of lines of business from 27 to 17. *Eliminating the Sector organizational layer, reducing the five former Sectors to four core business areas reporting to senior management as a way to increase customer focus and coordination of priorities across the entire company. Further staff reductions are anticipated as a result of this organizational flattening. *Making key senior management assignments. *Repositioning certain related high-potential businesses to unlock value and maximize growth through strategic partnerships, joint ventures and accessing the public equity markets. *Moving forward in the evaluation of divestiture of eight non-core business units that employ approximately 9,000 people and have combined 1999 total estimated net sales of about $1.4 billion (excluding $400 million in intercompany sales). *Enhancing financial management processes.
Streamlining the Organization and Making New Senior Management Assignments
The new management structure, designed to improve operational performance by elimination of the organizational layer formerly known as Sectors and associated staff redundancies, focuses operations into 17 lines of business, and organizes the operating units into four business areas representing more than $23 billion of the Corporation's $26 billion in 1998 sales. Corporate executive vice presidents reporting directly to Peter B. Teets, president and chief operating officer of Lockheed Martin, will lead the business areas:
*Aeronautical Systems, with 1998 sales of about $5.5 billion, will be led by James A. "Micky" Blackwell, who will manage the tactical aircraft, airlift and aeronautical research and development lines of business. *Space Systems, with 1998 sales of about $7.5 billion, will be led by Albert E. Smith, who will manage the space launch, commercial satellites, government satellites and strategic missiles lines of business. *Systems Integration, with 1998 sales of approximately $9 billion, will be led by Robert B. Coutts, who will manage the missiles and fire control, naval systems, platform integration, and C4I lines of business. *Technology Services, with 1998 sales of more than $2 billion, will be led by Michael F. Camardo, who will manage the federal services, energy programs and aeronautical services lines of business.
The aeronautical systems, space systems, and systems integration business areas will be based at Corporate headquarters in Bethesda, Md., while the technology services business area will be based in Cherry Hill, N.J.
Along with eliminating the Sector layer, Lockheed Martin will implement a transition phased reduction of its headquarters staff that will be complete by year-end and ultimately result in reduced staffing levels.
Additionally, Lockheed Martin announced the following key senior management changes:
*Philip J. Duke has been named executive vice president of a new shared services function, responsible for achieving greater efficiencies and consistency in delivery of services across the Corporation. Duke previously was vice president-finance and chief financial officer. *Succeeding Duke is Robert J. Stevens, who has been promoted to executive vice president-finance and chief financial officer. Stevens previously was vice president of corporate strategic development and served as a chief financial officer and chief operating officer at the operating company and sector levels within Lockheed Martin. *Succeeding Stevens as vice president of corporate strategic development is Arthur E. Johnson, who previously was president and chief operating officer of Lockheed Martin's information and services sector. The strategic development function has been expanded considerably to include operations responsibilities as indicated below.
"We have flattened the management structure and fundamentally changed how these businesses will be managed," Coffman said. "The corporate executive vice presidents will be focused on their customers, their programs and their financial results, and their incentives will be designed to help make available the full range of Lockheed Martin's technologies to serve their customers' needs."
Repositioning Certain Related High-Growth Businesses
As part of his expanded strategic development function, Johnson is responsible for maximizing the value of three business units that serve the commercial information technology and state and local government services markets. These units, Enterprise Information Systems (Lockheed Martin's internal information technology unit) of Orlando Fla., Integrated Business Solutions (Lockheed Martin's commercial information technology outsourcing business) of Orlando, Fla., and IMS (Lockheed Martin's state and local government services business) of Teaneck, N.J., have high growth potential but are distinct from core lines of business.
Each of these businesses has a promising future, but to maximize their value, they will need additional capital and domain expertise. IMS and IBS have combined sales of nearly $1 billion. EIS has equivalent sales of approximately $1 billion.
"We are going to reposition these businesses in the best interests of Lockheed Martin's customers and shareholders," Coffman stated. "These businesses represent considerable value that needs to be unlocked, and we intend to extract maximum value through exploring potential joint ventures, partnerships, spin-offs, or other structures."
Lockheed Martin Global Telecommunications of Bethesda, Md., will continue as a separate subsidiary with a dedicated management team headed by John Sponyoe as its chief executive officer. The Corporation will continue to seek strategic partners for this unit. When appropriate, the Corporation expects Global Telecommunications to access the public equity markets to obtain additional capital to fuel its growth program. On September 18 the Corporation completed the transaction giving Lockheed Martin 49 percent ownership of Comsat. The business rationale for the acquisition of Comsat remains intact. Global Telecommunications and Comsat have complementary capabilities in the commercial space and terrestrial telecommunications industry. It is a strong combination that is positioned to compete very effectively in the rapidly growing global telecommunications market. The next step is to secure legislation that would allow the Corporation to acquire the remaining 51 percent of Comsat. As the two entities are combined, Lockheed Martin anticipates that it will proceed as rapidly as possible to obtain substantial funding from strategic partners, financial partners and the capital markets to bring these businesses to their full potential.
Evaluating Divestitures of Non-Core Businesses
The Corporation intends to evaluate the divestiture, subject to appropriate valuation, negotiation and approval, of eight operating units that specialize in components and are not consistent with the Corporation's focus on systems integration. These businesses are:
*The Aerospace Electronics line of business, which includes Sanders in Nashua and Manchester, N.H.; Infrared Imaging Systems in Lexington, Mass.; Fairchild Systems in Syosset and Yonkers, N.Y. and Milpitas, Calif.; and the space electronics product line in Manassas, Va. (The undersea systems business and Defense Message System program at Manassas will not be affected.) *Control Systems in Johnson City, N.Y. and Ft. Wayne, Ind. *The Environmental Management line of business, which includes Hanford Corporation of Richland, Wash.; Retech of Ukiah, Calif.; and the Energy Technologies unit based in Bethesda, Md. (Energy defense programs and energy research will be retained as core businesses within the technology services business area).
The divestiture evaluation process is expected to take six to nine months to complete. Specific transactions related to the divestiture candidates will be explored by management and brought forward for appropriate levels of approval, based upon the evaluation of each proposed transaction in light of its potential effect on shareholder value.
Based on preliminary data, and assuming that all of the potential transactions noted above were approved by the Board and ultimately consummated in the future, management estimates that the potential one-time effects, if combined, could result in a decrease to net earnings of approximately $1.0 billion, primarily non-cash. However, the potential proceeds from these transactions, if consummated, could also generate in excess of $1.0 billion in cash -- after transaction costs and associated tax payments -- that will be used to pay down debt. Financial effects, if any, that may result, will be recorded when the transactions are consummated or when losses can be estimated.
Bear, Stearns & Co., Inc., and Goldman, Sachs & Co. are serving as financial advisors to Lockheed Martin.
Enhanced Financial Management Processes
The enhancement of financial management processes will include improving early-warning processes through the rigorous application of Earned Value Management techniques across all Lockheed Martin operating companies. It also will include making Value Based Management a formal part of the performance evaluation criteria for the corporation's Management Incentive Compensation Program. Additionally, Lockheed Martin is reinvigorating its Independent Cost Estimating process, which utilizes teams of seasoned professionals to provide second opinions on the probability of achieving projected cost performance for contracts that are in process, as well as on new-business opportunities.
NOTE: Statements in this press release are considered forward-looking statements under the federal securities laws, including the Private Securities Litigation Reform Act of 1995, including the statements relating to projected future financial performance. Sometimes these statements will contain words such as "believes," "expects," "intends," "plans" and other similar words. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we may project. As for the forward-looking statements that relate to future financial results and other projections, actual results will be different due to the inherent nature of projections and may be better or worse than projected. Given these uncertainties, you should not place any reliance on these forward-looking statements. These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this press release to reflect events or circumstances or changes in expectations or the occurrence of anticipated events. In addition to the factors set forth in our filings with the Securities and Exchange Commission (www.sec.gov), the following factors could affect the forward-looking statements: continued difficulties during space launches or adverse actions resulting from space industry reviews by the U.S. military or the Clinton Administration depends on factors outside our control; the ability to achieve or quantify savings for our customers or ourselves in our global cost-cutting program; or as a rsult of our reorganization efforts the ability to obtain or the timing of obtaining future government awards, the availability of government funding and customer requirements, economic conditions, competitive environment, timing of awards and contracts; timing of product delivery and launches, customer acceptance and the outcome of contingencies including completion of acquisitions and divestitures, litigation and environmental remediation, Year 2000 remediation, program performance, the ability to consummate the Comsat transaction. Management cannot predict the timing of the potential sales divestitures, the amount of proceeds that may be realized, or whether any or all of the potential transactions will take place. Potential transactions are subject to Board of Directors approval. These are only some of the numerous factors which may affect the forward-looking statements in this press release.
NEWS MEDIA CONTACT: Meghan Mariman, 301/897-6195