Lockheed Martin Case 2011

Executive Summary Lockheed Martin is a leading security and defense company based in Bethesda, MD with operations that span the globe. Lockheed Martin experienced a positive turnaround under new CEO Robert Stevens’ leadership, and is now entrenched as a leading competitor in the Aerospace and Defense (A&D) industry. They maintain an extensive business portfolio and continue to increase shareholder value. However, recent issues with contract mismanagement and cost overruns involving the government F-35 program leave a negative outlook on their operations.

They also face increasing pressure to acquire and retain key employees from a diminishing talent pool. Government budget cuts threaten to hurt revenues, thus making it important for them to find new revenue streams. Problems 1. Contract Mismanagement 2. Overreliance on U. S. government 3. Unattractive to key talent Industry Analysis Lockheed Martin operates in the Aerospace and Defense industry. It is highly competitive with the key success factors being innovation, quality of management, contract management, attracting and retaining key workers, and program performance. See appendix 2 for industry matrix) The Aerospace and Defense Industry is best defined as an Oligopoly, while the civil aerospace sector is defined by a Duopoly. 90 percent of industry revenues come from the twenty largest companies (Hoovers, 2011). There is no one SIC code that best fits the industry due to the various sources of revenue within the industry. The SIC codes that apply are: 3761 guided missiles and space vehicles, 3721 aircraft, 3724 aircraft engines and engine parts, 3728 aircraft parts and equipment, 3764 space propulsion units and parts, 2769 space vehicle equipment.

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The industry as a whole is made up of around 1300 companies, most of which specialize in few areas, such as engines and navigation systems, and are subcontractors to the largest companies (Hoovers, 2011). Major players in the industry starts with the U. S. Government, because the industry is controlled, to an extent, by the Defense budgets implicated by the United States. Corporate profits play a large role in the industry as they affect the demand for commercial air travel, impacting companies like Boeing. Leading competitors and their respective market share are as follows: The Boeing Company 7. percent, European Aeronautic Defense and Space Company 6. 9 percent, Lockheed Martin 4. 9 percent, BAE Systems Plc 3. 8 percent, with the remaining market share being 77. 4 percent. (See appendix 1 for chart) Because this is an Oligopoly and no one company has a significant market share, competition is very intense. Obtaining government contracts is how most companies generate revenue, which is why competition for these contracts is so intense. Because of this competition having an advantage in quality of product or quicker lead times (time of production) can be very advantageous.

The current economic environment for this industry is in large part dependent on the United States market and its government spending. Because of inconsistencies in government spending, it can be hard to forecast revenues. The past few years the industry has thrived due to high government spending and defense budgets due to involvements in the Middle East. However, due to recent recession and the need to decrease the government deficit, Defense cutbacks are expected. The Civil Aerospace sector relies on overall corporate profits, which are up in 2011.

Civil Aerospace is projected to continue growth. Trend forecasts predict increased demand for passenger and cargo aircrafts of 25,000 to 30,000 over the next 15 years. The only significant demographic trend is that the United States alone accounts for 54% of industry revenues. This leaves the majority of the industry vulnerable to the fate of the U. S. economy. Politics have a significant effect of the industry, mostly in Defense. Government spending is crucial to business, so changes in military budgets and department of Defense spending, as well as Secretary of Defense, all have an impact.

Efficient buildings, where companies such as Lockheed Martin have converted their buildings to be efficient in saving energy, which is a way to cut costs in a declining economic environment, emphasize stewardship of the environment. Europe has enacted a “Clean Sky” initiative, which is a large research project with the goal of providing a step in environmentally friendly air transport technology. Technology is an important facet in the industry, and therefore has a high emphasis. Cutting edge technology has driven rising costs for consumers. This also causes R&D spending to be fairly high. Because of this, Defense companies ften seek to find commercial use for new technology. Forecasted Defense trends indicate industry adjustment to reduced government defense spending. Because companies have overlooked operational efficiency and relied heavily on government spending, efficiency will now become a focus with decreased spending. Companies will also attempt to explore new markets, such as Lockheed Martin’s secured contract with Israel for future purchase of F-35’s, as well as entering into related markets to diversify revenues. Increased competition is expected due to consolidations among smaller companies in an effort to become more competitive (Thompson).

SWOT Analysis Our SWOT (Appendix 3) focuses on the analysis of all components of Lockheed’s business and industry and the importance of these factors weights in the IFAS and EFAS. The IFAS score (Appendix 4) for Lockheed was above average and received a score of 3. 24. The IFAS score is above average mostly based on their strengths, Lockheed has a very strong relationship with the U. S. Government which is built around the defense department and a very strong product and financial portfolio. Lockheed has a significant weakness, 84% of total revenues come from the U. S. Government, and this is a significant weakness.

Lockheed’s reliance on the government is risky with recent budget cuts to the defense department. The score for the EFAS (Appendix 5); was very similar at 3. 15. The score is also above average, with the highest rated opportunity would be moving into adjacent industries. We believe that diversification is vital, and they have everything needed to expand into similar industries. The highest rated threat is the U. S. government is decreasing spending on the defense budget by $1 Trillion over the next ten years; this is serious because most of their revenue comes from the Defense budget.

Lockheed needs to diversify internationally and enter into similar industries like information technologies, security systems and use their global solutions into corporate solutions. SFAS Interpretation Analysis of Lockheed resulted in an SFAS score of 3. 21. This is above industry average, but does not indicate an overwhelming advantage. This is due to the fact that they are faced with significant threats to their revenue sources, and are not pursuing commercial and international diversification opportunities aggressively enough.

Since there is a high level of competition, there is always fierce competition for contract acquisitions. Cost overruns in high-profile programs will damage their ability to win future Government contracts. Strategic Analysis Lockheed’s success is built on the generic building blocks of innovation and quality. They spent $638 million in research and development in 2010, demonstrating their commitment to innovative design (Lockheed Martin, 2010). As of November 2011, they own 3,203 patents in the United States (United States Patent and Trademark Office, 2011).

However, they lag behind Boeing, who owns nearly 8,000 (United States Patent and Trademark Office, 2011). There is much at stake on the performance of their products, so flawless quality is always expected. Their core capabilities are decades of experience working with the U. S. Government, and their knowledgeable engineers and IT specialists. Lockheed is firmly entrenched as a supplier for the U. S. Department of Defense (DOD), resulting in an interdependent relationship. The DOD relies on Lockheed for critical products, and Lockheed relies on the DOD for most of its business.

Lockheed has extensive expertise in the areas of engineering and systems integration, and this expertise comes from their employees. Highly competent employees are of the utmost importance in this high-stakes industry, and thus far Lockheed has assembled the right human resources. However, retaining and attracting key talent is an increasing challenge in the Aerospace and Defense (A&D) industry. This will be discussed more fully in management analysis. Their strong relationship with the U. S. Government results in many contract acquisitions. This gives them a profit margin of 6. 2%, which is higher than the industry median of 4. 26% (Hoovers, 2011). However, it is unclear if this competitive advantage will be sustainable. Since it is largely based on Government contract acquisitions, DOD budget cuts and a shrinking talent pool for skilled engineers and scientists make any advantage tenuous at best. Lockheed states their vision as: “Powered by innovation, guided by integrity, we help our customers achieve their most challenging goals (Lockheed Martin, 2011). ” This answers the question of why they are in business, but provides no future orientation. Thus, the “vision” statement s more of a mission statement. If it were a mission statement, it would be effective in that it communicates what they do (help customers achieve goals), and how they do it (by innovation and integrity). It is also effective in its open-endedness. Since they offer products and services in nearly every corner of the industry, anything more specific would risk excluding areas of their business. They lack a single, unifying future vision for their company. A potential vision statement could be: “We will ensure the safety of our customers by continually adapting our company to anticipate and neutralize the threats of tomorrow. There will always be new threats, thus Lockheed will always have a business as long as they stay one step ahead of those threats. They do list six factors that will be critical to their future success. They are: manage well-aligned portfolio, robust cash generation, build and maintain solid customer relationships, cut costs and deliver value in every program, work with new U. S. Congress to address security challenges, and develop leadership culture necessary for flawless performance.

They pursue a corporate growth strategy of horizontal (concentric) diversification by making acquisitions and finding alternate uses for their technology in adjacent markets (Lockheed Martin, 2009). They are also a horizontally integrated company, with a footprint in nearly every area of the A&D industry. The risk they run by pursuing these growth strategies is that they would lose focus of their core business and be unable to manage such a broad portfolio. Recent divestitures of poorly-aligned business demonstrate that they recognize this risk. As for cash generation, they have a goal of generating $4. billion by the end of 2011 (Lockheed Martin, 2010). They are on track to meet this goal. With such uncertainty in the industry with pending Government budget cuts, it is wise for them to maintain flexibility. In light of this, revenue diversification is important. International sales accounted for only 15% of revenues in 2010 (Lockheed Martin, 2010). They hope to increase this to 20% over the next several years (Lockheed Martin, 2010). This objective is not time bound, and thus provides no basis for measurement. This goal could be achieved in the next five years.

Also, a goal for increases in commercial sales is needed to sufficiently supplement their top line. A 10% increase in commercial sales over the next year gives them about $820 million in 2012. This is still below their 2009 level of $907 million, but is a needed step. They have not been as successful in their third factor; cost cutting. Cost overruns have plagued the high profile F-22 and F-35 programs. Employing a Lean Six Sigma strategy in their operations has not prevented significant deviations from cost targets. If this continues, their strong relationship with the DOD will be jeopardized.

They experienced some cost reductions by outsourcing their factory maintenance, but will need to find new ways to stay on budget (Industry Week, 2009). Goals for waste and water usage reduction are a part of their “green” operations initiative, which will be discussed further in operations analysis. They state their desire to work with the new Congress to address evolving security challenges. Astute observation of political movements and high political visibility are key factors for Lockheed. As their single greatest customer and stakeholder, the U. S. Government wields significant power over Lockheed.

Diversification of revenue streams is advisable in these uncertain political times. Excellence and innovation must be promoted at every level of leadership. They place a high emphasis on what they call “Full Spectrum Leadership,” which will be discussed in detail in the management analysis. Success in attracting and retaining key talent will dictate whether they maintain their competitive advantage. Management Analysis Lockheed Martin seeks to propagate a unifying culture throughout their organization based on the values of integrity, respect, and opportunity.

Many of their operations involve cross-functional teams. Thus, continuity in culture is essential for employee mobility between departments and projects. A large component of their culture is their “Full Spectrum Leadership” standards (Lockheed Martin, 2009). These are standards that apply to leaders at every level of the organization. They are: shape the future, build effective relationships, energize the team, deliver results, and model personal excellence, integrity and accountability. This shows that they are not only looking for technical competence, but well-rounded leaders.

Positive team dynamics and ethical behavior are crucial for a company with this much pressure to perform and public visibility. The Full Spectrum leadership successfully transformed the culture at Lockheed from a traditional command-and-control culture into one that favors relationships and integrity (Figlar, 2010). Another factor in their culture comes from the composition of their workforce. Of their approximately 126,000 employees, 52% are scientists and 18% are IT specialists (Lockheed Martin, 2011). The talent pool for skilled engineers and scientists is low in the U. S. so they work with people from various countries. Also, because the U. S. military constitutes both their largest customer and one of their greatest sources for employees, this military culture permeates their organization. This provides a strong emphasis on firm leadership, teamwork, and discipline. Hiring, firing, and assessment activities are all filtered through the rubric of Full Spectrum Leadership. Leaders at every level of the organization undergo a 360 degree assessment, which involves assessment by peers, superiors, and subordinates (Bruno, 2008). Top executives are not exempt from this assessment.

Leaders are also encouraged to do self-assessment. Project managers on the F-35 project go through self-evaluations where they assess themselves as if they were being replaced. They call this “going through the revolving door (Bruno, 2008). ” These assessment practices are appropriate considering the fact that flawless performance is expected out of their products. Any organization with this standard must have a management system in place that allows for continual reevaluation. They demonstrate such a structure for assessment and personnel policies by their consistent application of Full Spectrum Leadership policies.

Lockheed laid off close to 4,000 employees this last year (Ratnam, 2011). They also will phase out two plants by 2013 (Ratnam, 2011). These cuts are based on projected decreases in U. S. defense spending. In 2010, 26% of top executives elected to participate in Lockheed’s voluntary executive separation program (Lockheed Martin, 2010). They state no plans on replacing them, instead citing the benefits of a “leaner” management structure (Lockheed Martin, 2010). This could pose some problems as fewer managers are now expected to do more. To make large cuts based on anticipated defense budget decreases is imprudent.

The political situation is very fluid. Thus, any projections could change quickly, especially with upcoming elections. New revenue streams or other cost reductions should be pursued instead of a headcount reduction. Lockheed’s structure is divided according to strategic business units. Their four operating units are: Electronic Systems, Aeronautics, Information Systems and Global Solutions, and Space. Most of Lockheed’s business is built around fulfilling contracts for specific products or services. Thus, their operations rely heavily on cross-functional project teams which oversee the project from conception to completion.

A consistent corporate culture is essential for smooth mobility between projects and departments. Also, collaboration and clear communication is paramount. They use a “digital thread” produced by Siemens to facilitate the communication of the more than 30 product teams worldwide that are collaborating on the F-35 project (Bruno, 2008). Compensation Lockheed is competing for an increasingly small pool of skilled software, mechanical, and aerospace engineers. Not only are they competing against industry competitors, but adjacent companies that utilize the same skillsets such as Google and General Motors.

Top salaries for software and mechanical engineers at Lockheed lag significantly behind competitors (PayScale, 2011). They have an agreement with the International Association of Machinists and Aerospace Workers (IAM) union until April 2012 (Lockheed Martin, 2009). Wages, benefits, and other provisions are included in this agreement. If Lockheed is going to maintain any advantage, it will be through its employees. A 2009 Aviation Week study found that the voluntary attrition rate for employees with five or fewer years’ experience in the A&D industry was 16% (Unnikrishnan & Hedden, 2009).

The industry’s image is not what it was in the days of the space race. Younger workers are leaning toward tech companies and academia instead of aerospace (Unnikrishnan & Hedden, 2009). In order to change this trend, they must consider increasing compensation for their skilled employees, and make efforts to tailor their image to younger workers. Marketing Lockheed Martin maintains a large and diverse range of products (see appendix 8). Products are categorized into four areas: aeronautics (29% of revenue), electronic systems (31% of revenue), information systems and global solutions (22% of revenue), and space systems (18% of revenue). See appendix 7 for chart) Lockheed Martin has several products that are their star products (see appendix 23 for full illustration). Terminal High Altitude Area Defense (THAAD) is a star due its wide range of applications. THAAD is an interoperable system with other Ballistic Missile Defense System elements. THAAD, with its 100 percent mission success in flight testing, is sure to drive revenue growth within the future (Lockheed 2011). The Aegis Weapon system is a primary component of the sea-based element of the United States’ Ballistic Missile Defense System.

There is room to grow and integrate the systems into other U. S allies’ defense programs. Several products are considered question marks The U. S Navy awarded the Lockheed Martin-led industry team one of two contracts to construct up to 10 Littoral Combat Ships. The Littoral Combat Ship design is available in multiple configurations therefore it could become a star within the future due to its adaptability. The company’s knowledge could have multiple uses for private companies. There are many lucrative opportunities within this market, and the company is more than capable of capitalizing them.

The products considered dogs include the HULC which is an exoskeleton that provides users with the ability to carry loads of up to 200 lbs for extended periods of time and over all terrains. However, it is still in development, and is still impractical for field use. The U. S. Government is significantly cutting space program funding. As the government supported space transportation decreases it is very likely that the company will have to focus on other aspects of its space systems segment such as satellites and strategic and defensive missile systems. F22 Raptor

This program experienced significant cost overruns, and funding was cut by the U. S. government recently. The Cash Cows of the company starts withThe F-16 program has been very successful for a number of years for the U. S. , and is now finding new markets among U. S. allies and more developing nations. It has lasted longer than most programs, and they are still making new sales of these reliable aircraft. The F-35 is a significant source of Lockheed’s revenues. While they are facing production cuts due to cost overruns, this program is still a major vested interest of several countries, including the U.

S. , Great Britain, Italy, and France. Lockheed’s pricing strategy comes down to the contracts they bid on. Some contracts take priority in price while others take priority in quality. Because of this Lockheed has a bit of a mix strategy between competitive and prestige pricing. While prestige pricing is good for gross margin, revenues are dependent on acquiring contracts, which is Lockheed’s most important objective. Therefore, this pricing strategy is appropriate for the company because of its unique business.

Lockheed Martin bids to obtain contracts, and the most effective way for them to market their products is through product demonstration. In this way, Lockheed uses a push strategy by showcasing their product for the consumer. This allows them to showcase product quality, which is a critical factor in the industry. While Lockheed has no specifically stated marketing goals, it can be implied that the main goal of the marketing function is securing revenue through contracts. Lockheed contracted an estimated $36 billion in 2010. It is very important to set a goal in this function; not having a goal could result in fluctuations of future revenues.

I would suggest a target to increase contracted revenue by 1% each year for the next 3 years. This would be challenging due to impending budget cuts, but it is attainable due to Lockheed’s diverse portfolio and the fact that demand for defense products remains stable. Lockheed’s marketing strategy focuses on product development but still holds importance in market development. Both strategies are seen in different products. Product development is seen in product such as the F-35 which is constantly being re-engineered to keep up with consumer demands.

However the F-16 has found a niche as a lower cost fighter due to its inferior technology. While it is very important for Lockheed to emphasize product development, market development is something that should be seen more. Finding markets for existing, lower cost products could help Lockheed save on operational expenses due to the lower costs involved with older technology. They are not taking full advantage of this opportunity. Operations Lockheed Martin currently operates in 572 facilities in 500 cities in 46 states throughout the United States; internationally in 75 nations. The usiness areas for operations are in four divisions; aeronautics, electronic systems, information systems and global solutions, and space systems. Their operating cycle is long-term and involves many types of design, development, and production (DD&P) contracts with varying production delivery schedules (Lockheed Martin, 2010). The company is comprised of about 126,000 includes some 65,000 scientists and engineers and 23,000 professionals in information technology careers. But in 2010, almost 600 executives elected to participate in a Voluntary Executive Separation Program.

This 26% reduction in the top level management ranks contributes to a leaner operations (Lockheed Martin, 2010). This reduction was necessary for the future of the company; the government is cutting cost in the defense department by $1 trillion. (See appendix 9) Lockheed operations strategies are unique to every product that they manufacture. They use Lean Six Sigma training and benchmarking approach as a functional strategy for their operations and it reduced cost and achieved 30% gains in performance and productivity (Lockheed Martin, 2011).

Their quality strategy involves measuring quality on a regular basis for the products that are made by the corporation and the suppliers and vendors. Quality ratings for suppliers and venders are measured with the same equation to ensure quality for Lockheed’s customers; this is also related to the Six Sigma strategy through quality management (See Appendix 10). A “going green” strategy implemented in 2007; the plan reduced absolute carbon emissions by 15%, water usage by 22%, and waste to landfill by 26% which was reached in 2010 (Glassdoor. com, 2011) (See Appendix #11).

Lockheed’s functional strategies are strong, the Lean Six Sigma has reduced cost and increased performance and productivity, the “green” strategy also has increased efficiency by reducing some of their inputs, and maximizing the use of all their raw materials. Many of their contracts involve subcontracts or teaming arrangements and joint ventures with other companies upon which Lockheed must rely on outsourcing to perform a portion of the services that must be provided to the customers. These risks taken to outsource operations and production have created disputes with contracted members regarding quality and timeliness of ork. F-35 project is the largest U. S. weapons program and has seen costs rise sharply. The F-35 is a prime target for future cuts as defense budget up to $1 trillion in defense spending cuts over ten years. The Pentagon’s F-35 program office said that four airplanes will be cut from the proposed purchase to cover some of the defense cutsInvalid source specified.. Lockheed has four batches of F-35’s in the contract with the government, batches one through three, will have cuts, but the fourth will remain “as contracted. ” Lockheed has several locations and every plant has a different capacity and capabilities.

For example, the aeronautics plant, Pinellas is 200,000 sq. ft. and is designed for 350-400 employees. The equipment is new and refurbished, and has an efficient workflow design, currently employing 240+. Capacity utilization equals 35% equipment and 75% of the floor is being utilized with raw materials. This facility uses JIT inventory for raw materials, perishable tools, and parts. With 572 facilities, every plant has different sizes and capabilities. Lockheed only buys top quality raw materials, (from aluminum, steel, copper, etc. ) certified retailers, inspected by Lockheed before inputs become outputs.

Lockheed’s output includes several airplanes, information systems and global solutions products. To see the entire list of outputs please see (Appendix 8). Lockheed Martin is very organized corporation, qualities of their products have to be perfect, and the government will not accept anything less than perfect. Engineers build their work around processes, Lockheed has many engineers working to find more efficient ways to conduct manufacturing. Their constant focus on quality, from raw materials through the production process, is smart strategy. Using Six Sigma benchmarking, has also given them a strategic fit to their corporate strategies.

The strategic fit in quality of their entire process, and remain efficient through their evaluations. The effect of their process and key talent has given them a competitive advantage by hiring innovative brilliant minds and producing products that are unmatched by the rest of the competition. Financial Analysis In 2010 Lockheed Martin reported revenues of $45. 8 billion completing a 5 year trend of increasing revenue (See Appendix 12 for income statement). Lockheed has made changes to its organizational structure through divestitures and downsizing; however net income has fluctuated despite the steady growth in revenues.

Lockheed Martin’s primary areas of focus are shareholder wealth creation along with a cash deployment strategy, that emphasizes share repurchases and small niche acquisitions in private transactions (Forbes, 2011). Lockheed has consistently reported positive operating cash flow and has continued to increase the dividends paid to shareholders. Lockheed Martin has paid dividends of $737, $908, and $969 million in 2008, 2009, and 2010 respectively. This focus on shareholder wealth makes Lockheed’s stock very profitable. However the decrease in defense spending by the Government poses a serious threat to the company’s profitability.

In 2010 84 percent of revenue was generated from U. S government contracts therefore the decrease in spending is expected to have a material effect on the company’s earnings. Lockheed Martin seems to be the most vulnerable with around 40% of total operating profit for the first six months of the year ($731 million), deriving from the F-35 program (Sanati, 2011). Based on the entire industrials sector the company’s profit margin is 6 percent in comparison to an industry average of 8 percent (See appendix 21). However within the aerospace and defense industry Lockheed’s net profit margin is 6. 32 percent with an industry average of 4. 6 percent in 2010 (Hoovers, 2011). The company has four main contract types: cost reimbursable, fixed price, time-and-materials, and service contracts. The majority of Lockheed’s revenue generated in 2010 came from cost reimbursable and fixed price contracts. The fixed price contracts pose the most risk of jeopardizing earnings in that cost overruns are not covered by the customers. The company uses the percentage of completion accounting model (POC) for the majority of long term contracts. POC requires that estimates be taken to determine the costs to complete projects thereby increasing the risks of loss due to overruns.

The company mitigates some of the risks involved with its long term contracts by negotiating future contracts. In 2010 negotiated backlog was $78. 2 billion of which 56 percent is not expected to be filled within a year (Annual Report 2010). Lockheed’s negotiated backlog provides the company with recurring revenues which helps mitigate the risk of doing business within the industry. The company had a debt to equity ratio of 1. 35 in comparison to an industry average of 0. 47 (See appendix 19). The company’s debt is mainly in the form of notes payables which it manages through its access to credit facilities from banks.

In order to qualify for the credit facilities Lockheed must maintain a satisfactory leverage ratio. The company has done a great job managing its debt through strategic debt exchanges and issuances and its debt to equity ratio is considerably lower than Boeing’s 4. 49. Through analyzing Lockheed Martin’s current and quick ratio we determined that the company is fairly liquid thus it can meet short term obligations efficiently (See Appendix 18). Lockheed’s operating cycle was 67 days in 2010 compared to an industry average of 114 days therefore revealing that the company’s business operations are very efficient.

Lockheed Martin converts its inventory to cash faster than the rest of the industry which means that it is less likely to default on making short term debt obligations. In this capital intensive industry Lockheed must efficiently manage its property plant and equipment assets by ensuring that the money invested into these assets effectively generate revenues. Lockheed Martin’s net fixed asset turnover ratio has been extremely stable throughout 2006 to 2010. For example for the last 5 years on average Lockheed’s net fixed asset turnover is 9. 95 while Boeing has a net fixed asset turnover of 7. 9. Both these figures exceed the industry 5 year average of 4. 23 (See appendix 20). Therefore in relation to the industry Lockheed manages the costs of its property plant and equipment assets very efficiently to generate revenues. In 2011 the company aims to return 50 percent of free cash flow to investors either through stock repurchases or dividends (Annual report 2010). However this will be difficult due to the excessive size of the company’s pension and other benefits liability which consisted of 33. 71 percent of the company’s total liabilities and shareholder equity in 2010. See Appendix 15 for common size balance sheet). Despite the company’s initiatives to strengthen the value of its stock there are some in the investment community that view these exorbitant cash outlays as too risky. The company’s projected pension and post-retirement benefit obligations stood at $38,819 million as compared to the plan assets of $27,178 million, resulting into an unfunded status of approximately $11. 5 billion (Datamonitor, 2011). The company in recent years has discontinued offering a defined benefit pension plan to new, non-represented employees and making cash contributions to the existing plan.

In 2010 the company made a $2. 2 billion contribution to the defined benefit plan however due to the strong operating cash flow of the company it was also able to repurchase over 1. 9 billion shares of common stock for $140 million(Lockheed Annual Report 2010). Lockheed’s new share repurchase program finalized in October 2010 permits Lockheed to purchase up to 3 billion dollars in shares making its Lockheed shares very profitable. This is a very intelligent strategy in that investors will be encouraged to invest in Lockheed stock however the liability does limit the flexibility that the company has to spend cash.

Nevertheless the company is financially stable and is well positioned to survive the decrease in government spending and the issues relating to its postretirement benefits obligation. Alternatives 1. More Private Initiatives: Expanding business focus outside of U. S. government opens the door to new profits and would dictate better contract management due to lower consumer tolerance and attract key talent through increased revenue. 2. Re-tool Human Resource management: focus on addressing key issues of employee pay and contract mismanagement.

Improvement in these areas helps suppress the risk of government over-reliance by increasing performance and increase government contract trust. 3. Acquire foreign suppliers/vertical integration: becoming more vertically integrated would help lower costs and therefore increase funds to attract key talent and protect itself against impending government defense cuts. Recommendation Expanding private initiatives is the recommended course of action. This fits with their related diversification strategy and takes advantage of their expertise in government information security.

Because they already have most of the resources needed, implementation will be quick and inexpensive. This will provide a quick increase in commercial revenues and diversifies their revenue streams. Implementation Expanding into private initiatives is a long term process. One course of action is entering the surveillance, investigation, and security consulting industry. They can easily adapt their information technology for commercial purposes. Cyber security is a growing industry, and Lockheed could capitalize on their strong brand image in this market.

This would be accomplished by creating a branch of operations under the Information Systems and Global Solutions business that would have a staff that is dedicated to adapting Lockheed’s government software for private businesses. This branch would employ one program manager, five software engineers, five software developers, and two account representatives. Account representatives are responsible for business to business marketing and managing client accounts and contracts. There are minimal startup expenses because they already possess the resources and capabilities for this type of product, thus making this an ideal adjacent market.

Startup expenses would be financed through a three year loan. Lockheed’s financial strategy is to maintain high cash balances and shareholder value. Thus, financing by cash or stock is not advisable. The surveillance, investigation, and security consulting industry had revenues of $4 billion in 2010. If they offer a cyber-security consulting package based on their strong brand image, gaining a 1% market share in the first year is attainable. This only serves as a platform for increased products geared toward private information systems solutions and consulting.

For a breakdown of costs and revenues associated with this program (see Appendix 22). An extensive private marketing campaign would help them gain visibility for their new services, much the way IBM has repositioned itself as a consulting services company. Bibliography Bruno, M. (2008, December 1). Managing Concern. Aviation Week & Space Technology, 169(21), pp. 62-62. Captain, T. (n. d. ). Retrieved 2011, from http://www. deloitte. com/assets/Dcom-UnitedStates/Local%20Assets/Documents/AD/us_ad_GlobalAD_2010_PerformanceWrapup_07062011. pdf Datamonitor. (2011, August 19). Lockheed Martin SWOT.

Retrieved November 13, 2011, from Datamonitor 360: http://0-360. datamonitor. com. library. acaweb. org/Product? pid=2640761E-E6A0-4777-8F90-C232BBE4C541&view=SWOTAnalysis Figlar, M. (2010, February 17). Lockheed Martin: Changing the Culture of Leadership. BusinessWeek. com, pp. 2-2. Forbes. (2011). Buy/Hold or Sel Analysis. Retrieved November 5, 2011, from www. forbes. com. Hoovers. (2011, November 14). Lockheed Martin Company Overview. Retrieved November 14, 2011, from Hoovers a D&B Company: http://0-subscriber. hoovers. com. library. acaweb. org/H/company360/overview. html? companyId=10903000000000 Hoovers. 2011, November 14). Lockheed Martin Corporation. Retrieved November 14, 2011, from Hoovers. Industry Week. (2009, May). Maintenance Outsourcing As a Global Strategy. Industry Week, 258(5), pp. 22-22. Lockheed Martin. (2009, December). Ares I Experimental Flight a Success. Retrieved November 14, 2011, from http://www. lockheedmartin. com/data/assets/ssc/NewHorizons/NH122009. pdf Lockheed Martin. (2009, April 19). Lockheed Martin IAM Members Approve Three-Year Contract. Retrieved November 14, 2011, from Lockheed Martin: http://www. lockheedmartin. com/news/press_releases/2009/090419ae_machinists-union-approves-contract. tml Lockheed Martin. (2009, June). Our Culture. Retrieved November 9, 2011, from Lockheed Martin: http://www. lockheedmartin. com/aboutus/culture/index. html Lockheed Martin. (2010). 2010 Annual Report. Lockheed Martin. (2010, March 12). 2010 Proxy. Retrieved November 9, 2011, from http://www. lockheedmartin. com/data/assets/corporate/documents/ir/2010/2010-Proxy. pdf Lockheed Martin. (2011, November 14). About Us. Retrieved November 14, 2011, from Lockheed Martin: http://www. lockheedmartin. com/aboutus/index. html Lockheed Martin. (2011, November 9). Total Value. Retrieved November 9, 2011, from Lockheed Martin: http://www. ockheedmartinjobs. com/totalvalue. asp PayScale. (2011, November 14). Salary for Software Engineer Jobs. Retrieved November 14, 2011, from PayScale: http://www. payscale. com/research/US/Job=Software_Engineer/Salary Ratnam, G. (2011, July 26). Lockheed Profit Rises 3. 9% on F-35; 2011 Outlook Raised. Retrieved November 14, 2011, from http://www. bloomberg. com/news/2011-07-26/lockheed-profit-rises-3-9-on-f-35-orders. html Sanati, C. (2011, September 12). Harsh new realities for the military industrial complex. Retrieved November 5, 2011, from www. fortune. com. Thompson, S. (n. d. ). PWC. Retrieved from http://www. wc. com/en_US/us/industrial-products/assets/aerospace-defense-year -in-review-and-2011-forecast. pdf United States Patent and Trademark Office. (2011, November 14). US Patent Collection for Lockheed Martin. Retrieved November 14, 2011, from http://patft. uspto. gov/netacgi/nph-Parser? Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2Fsearch-adv. htm&r=0&p=1&f=S&l=50&Query=an%2F%22Lockheed+Martin%22&d=ptxt United States Patent and Trademark Office. (2011, November 14). US Patent Collection for The Boeing Company. Retrieved November 14, 2011, from http://patft. uspto. gov/netacgi/nph-Parser?

Sect1=PTO2&Sect2=HITOFF&u=%2Fnetahtml%2FPTO%2Fsearch-adv. htm&r=0&f=S&l=50&d=PTXT&RS=AN%2F%22Lockheed+Martin%22&Refine=Refine+Search&Refine=Refine+Search&Query=an%2F%22The+Boeing+Company%22 Unnikrishnan, M. , & Hedden, C. (2009, August 24). The Young and the Restless. Aviation Week & Space Technology, pp. 51-53. Appendix 1 Appendix 2 Key Success Factors| Weight| Boeing | Weighted Score| EADS| weighted Score| innovation| 0. 23| 3| 0. 69| 4| 0. 92| quality of product| 0. 2| 4| 0. 8| 4| 0. 8| contract management| 0. 22| 4| 0. 88| 4| 0. 88| attracting and retaining key workers| 0. 5| 4| 0. 6| 4| 0. 6| program performance| 0. 2| 5| 1| 4| 0. 8| | 1| | 3. 97| | 4| Appendix 3 SWOT Analysis: Lockheed Martin Strengths * Solid product portfolio (aeronautics, electronic & space systems, integrated solutions, others) * Strong relationship with the US government * Strong financial performance * Strong market position * Advanced technology R&D| Weaknesses * Close to 84% of revenues come from one source: US government * Unfunded employee pension plans * Revenue per employee significantly lower compared to Boeing, Rolls Royce * Development and design flaws for F-35 program *

Long lead times for new products| Opportunities * Growth into adjacent industries * Rise in defense needs globally * Inelastic demand for commercial/private aircraft * Diversify international * Rising demand for security systems| Threats * Rising commodity prices * Government contracts & future regulation * Decrease in Government spending * Employee retention & availability * High level of competition and competitive pricing pressures| Appendix 4 IFAS/EFAS Internal Factor Analysis| | | | | | | |

Strengths| weight| rating| weighted score| Solid product portfolio(aeronautics, electronic,etc)| 0. 1| 4| 0. 4| Strong relationship with US gov’t| 0. 1| 5| 0. 5| Strong financial performance| 0. 1| 5| 0. 5| Advanced technology and R;D| 0. 07| 4| 0. 28| Strong market position| 0. 06| 4| 0. 24| Weaknesses|  |  |  | Approximately 84% of revenues come from US gov’t| 0. 22| 2| 0. 44| Unfunded employee pension plan| 0. 09| 3| 0. 27| Revenue per Employee lower to Boeing, Rolls Royce| 0. 09| 2| 0. 18| Long lead times for new products| 0. 09| 3| 0. 27|

Development and design flaws for F-35 program| 0. 08| 2| 0. 16| Totals| 1|  | 3. 24| Appendix 5 External Factor Analysis| | | | | | | | Opportunities| weight| rating| weighted score| Growth into adjacent industries| 0. 15| 4| 0. 6| Inelastic demand for commercial/private aircraft | 0. 05| 1| 0. 05| Rise in defense needs globally| 0. 15| 3| 0. 45| Diversify internationally | 0. 05| 3| 0. 15| Rising demand for security systems| 0. 05| 3| 0. 15| Threats|  |  |  | Rising commodity prices| 0. 05| 3| 0. 15| Government contracts & future regulations| 0. | 4| 0. 4| Decrease in US gov’t spending | 0. 2| 3| 0. 6| Employee retention ; availability of key talent| 0. 1| 3| 0. 3| High levels of competition and competitive pricing pressures| 0. 1| 3| 0. 3| Total| 1|  | 3. 15| Appendix 6 SFAS Strategic Factors Analysis Summary| weight| rating| weighted score| Short| Intermediate| Long| | | | | | | | | | | | | | | Solid product portfolio(aeronautics, electronic,etc) (S)| 0. 08| 4| 0. 32|  |  | x| Strong relationship with US Gov’t (S)| 0. 1| 5| 0. 5|  |  | x| Strong market position (S)| 0. 08| 4| 0. 2|  | x|  | Approximately 84% of revenues come from US Gov’t (W)| 0. 15| 2| 0. 3|  | x|  | Revenue per employee lower to Boeing, Rolls Royce (W)| 0. 05| 2| 0. 1|  | x|  | Development and design flaws for F-35 program (W)| 0. 09| 2| 0. 18|  | x|  | Diversify internationally (O)| 0. 1| 3| 0. 3|  |  | x| Rise in defense spending globally(O)| 0. 08| 3| 0. 24| x| |  | Rising demand for security systems(O)| 0. 05| 3| 0. 15|  | x|  | Decrease in US Gov’t spending (T)| 0. 08| 3| 0. 24| x|  |  | High levels of competition and competitive pricing pressures (T)| 0. 8| 3| 0. 24|  |  | x| Government contracts & future regulations (T)| 0. 06| 4| 0. 24|  | | x| Totals| 1|  | 3. 13|  |  |  | Appendix 7 Appendix 8. Products and Services at Lockheed Martin as of December 2010. Electronic Systems * Advanced aviation management * Air and theater missile defense systems * Anti-submarine and undersea warfare systems * Avionics and ground combat vehicle integration * Homeland security systems * Missiles and fire control systems * Platform integration systems * Postal utomation systems * Radars * Security and information technology solutions * Simulation and training systems * Surface ship and submarine combat systems * Surveillance and reconnaissance systems| * Aeronautics * C-5 (strategic airlift aircraft) * C-130J (tactical airlift aircraft) * F-2 (Japanese combat aircraft) * F-16 (multi-role fighter) * F-22 (air-superiority fighter) * F-35 Joint Strike Fighter (next-generation multi-role fighter) * Special mission and reconnaissance aircraft (S-3 Viking, U-2, P-3 Orion) * T-50 (Korean advanced trainer)| Information Systems & Global Services Aircraft and engine maintenance and modification services Application development Command, control, and communication systems Computer system design and service Engineering, science, and information services for NASA Engineering, science, and technology services Enterprise solutions Government technology services Information technology integration and management * Intelligence Launch, mission, and analysis services for military, classified, and commercial satellites Nuclear operations and materials management (Oak Ridge, Tennessee, and other locations) Operation, maintenance, training, and logistics support for military, homeland security, and civilian systems Surveillance| * Space Systems * Airborne defense systems * Defensive missiles * Missile launch vehicles * Satellites (for commercial and government use) * Satellite launch services * Strategic missiles| Appendix 9 .

Production and Operations Sales from 2010 Products and Operations for 2010 2010 Sales| | $ In millions. | % of total| US| 38,703| 85%| Other countries| 7,100| 15%| Total| 45,803| 100%| 2010 Sales| | $ Mil. | % of total| Products| 36,448| 80%| Services| 9,355| 20%| Total| 45,803| 100%| 2010 Sales by Segment| | $ Mil. | % of total| Electronic Systems| 14,363| 31%| Aeronautics| 13,235| 29%| Information Systems & Global Services| 9,959| 22%| Space Systems| 8,246| 18%| Total| 45,803| 100%| 2010 Sales by Customer| | $ Mil. | % of total| US government| 38,394| 84%| Foreign governments| 6,664| 14%| Commercial & other| 745| 2%| Total| 45,803| 100%| Appendix 10

Lockheed Martin-Supplier Quality Management Appendix 11 Operational Trend – Lockheed’s “Going Green” campaign Appendix 12 Income Statement (in millions)| 2006| 2007| 2008| 2009| 2010| | Revenue| 39,620| 41,862| 42,731| 45,189| 45,803| | Cost of revenue| 36,186| 37,628| 38,082| 40,965| 41,967| | Gross profit| 3,434| 4,234| 4,649| 4,224| 3,836| | Operating expenses| | | | | | | Restructuring, merger and acquisition| -23| | | | | | Other operating expenses| -496| -293| -482| | | | Total operating expenses| -519| -293| -482| | | | Operating income| 3,953| 4,527| 5,131| 4,224| 3,836| | Interest Expense| 361| 352| 429| 305| 345| | Other income (expense)| | 193| | 365| 335| |

Income before taxes| 3,592| 4,368| 4,702| 4,284| 3,826| | Provision for income taxes| 1,063| 1,335| 1,485| 1,260| 1,181| | Net income from continuing operations| 2,529| 3,033| 3,217| 3,024| 2,645| | Net income from discontinuing ops| | | | | 281| | Net income| 2,529| 3,033| 3,217| 3,024| 2,926| | Net income available to common shareholders| 2,529| 3,033| 3,217| 3,024| 2,926| | Earnings per share| | | | | | | Basic| 5. 91| 7. 29| 8. 05| 7. 86| 8. 03| | Diluted| 5. 8| 7. 1| 7. 86| 7. 78| 7. 94| | Weighted average shares outstanding| | | | | | | Basic| 428| 416| 400| 385| 364| | Diluted| 436| 427| 410| 389| 36| | Appendix 13 Vertical analysis Income Statement| 2006-12| 2007-12| 2008-12| 2009-12| 2010-12| Revenue| 100. 00%| 100. 00%| 100. 00%| 100. 00%| 100. 00%| Cost of revenue| 91. 33%| 89. 89%| 89. 2%| 90. 65%| 91. 63%| Gross profit| 8. 67%| 10. 11%| 10. 88%| 9. 35%| 8. 37%| Operating expenses| | | | | | Restructuring, merger and acquisition| 0. 06%| | | | | Other operating expenses| 1. 25%| 0. 70%| 1. 13%| | | Total operating expenses| 1. 31%| 0. 70%| 1. 13%| | | Operating income| 9. 98%| 10. 81%| 12. 01%| 9. 35%| 8. 37%| Interest Expense| 0. 91%| 0. 84%| 1. 00%| 0. 67%| 0. 75%| Other income (expense)| | 0. 46%| | 0. 81%| 0. 73%| Income before taxes| 9. 07%| 10. 43%| 11. 00%| 9. 48%| 8. 35%| Provision for income taxes| 2. 68%| 3. 19%| 3. 48%| 2. 79%| 2. 58%| Net income from continuing operations| 6. 38%| 7. 25%| 7. 53%| 6. 69%| 5. 7%| Net income from discontinuing ops| | | | | 0. 61%| Net income| 6. 38%| 7. 25%| 7. 53%| 6. 69%| 6. 39%| Net income available to common shareholders| 6. 38%| 7. 25%| 7. 53%| 6. 69%| 6. 39%| Earnings per share| | | | | | Basic| 5. 91| 7. 29| 8. 05| 7. 86| 8. 03| Diluted| 5. 8| 7. 1| 7. 86| 7. 78| 7. 94| Weighted average shares outstanding| | | | | | Basic| 428| 416| 400| 385| 364| Diluted| 436| 427| 410| 389| 368| Appendix 14 Balance Sheet ( in millions)| 2006-12| 2007-12| 2008-12| 2009-12| 2010-12| Current assets|  |  |  |  |  | Cash|  |  |  |  |  | Cash and cash equivalents| 1,912| 2,648| 2,168| 2,391| 2,261| Short-term investments| 381| 333| 61|  | 516|

Total cash| 2,293| 2,981| 2,229| 2,391| 2,777| Receivables| 4,595| 4,925| 5,296| 6,061| 5,757| Inventories| 1,657| 1,718| 1,902| 2,183| 2,378| Deferred income taxes| 900| 756| 755| 815| 1,038| Other current assets| 719| 560| 501| 1,027| 901| Total current assets| 10,164| 10,940| 10,683| 12,477| 12,851| Non-current assets|  |  |  |  |  | Property, plant and equipment|  |  |  |  |  | Gross property, plant and equipment| 9,629| 10,305| 10,899| 11,405| 11,958| Accumulated Depreciation| -5,573| -5,985| -6,411| -6,885| -7,404| Net property, plant and equipment| 4,056| 4,320| 4,488| 4,520| 4,554| Goodwill| 9,250| 9,387| 9,526| 9,948| 9,605| Intangible assets| 605| 463| 355| 311|  |

Deferred income taxes| 1,487| 760| 4,651| 3,779| 3,482| Other long-term assets| 2,669| 3,056| 3,736| 4,076| 4,575| Total non-current assets| 18,067| 17,986| 22,756| 22,634| 22,216| Total assets| 28,231| 28,926| 33,439| 35,111| 35,067| Current liabilities|  |  |  |  |  | Short-term debt| 34| 104| 242|  |  | Accounts payable| 2,221| 2,163| 2,030| 2,030| 1,627| Accrued liabilities|  |  |  | 1,648| 1,870| Other current liabilities| 7,298| 7,604| 8,270| 7,025| 7,660| Total current liabilities| 9,553| 9,871| 10,542| 10,703| 11,157| Non-current liabilities|  |  |  |  |  | Long-term debt| 4,405| 4,303| 3,563| 5,052| 5,019| Accrued liabilities|  |  |  | 10,823|  |

Pensions and other benefits|  |  |  | 1,308| 11,820| Other long-term liabilities| 7,389| 4,947| 16,469| 3,096| 3,363| Total non-current liabilities| 11,794| 9,250| 20,032| 20,279| 20,202| Total liabilities| 21,347| 19,121| 30,574| 30,982| 31,359| Stockholders’ equity|  |  |  |  |  | Common stock| 421| 409| 393| 373| 346| Additional paid-in capital| 755|  |  |  |  | Retained earnings| 9,269| 11,247| 11,621| 12,351| 12,372| Accumulated other comprehensive income| -3,561| -1,851| -9,149| -8,595| -9,010| Total stockholders’ equity| 6,884| 9,805| 2,865| 4,129| 3,708| Total liabilities and stockholders’ equity| 28,231| 28,926| 33,439| 35,111| 35,067| Appendix 15 Common Size Balance Sheet| 2006| 2007| 2008| 2009| 2010| Current assets|  |  |  |  |  | Cash and cash equivalents| 6. 77%| 9. 15%| 6. 48%| 6. 81%| 6. 45%| Short-term investments| 1. 35%| 1. 15%| 0. 18%|  | 1. 47%| Total cash| 8. 12%| 10. 31%| 6. 7%| 6. 81%| 7. 92%| Receivables| 16. 28%| 17. 03%| 15. 84%| 17. 26%| 16. 42%| Inventories| 5. 87%| 5. 94%| 5. 69%| 6. 22%| 6. 78%| Deferred income taxes| 3. 19%| 2. 61%| 2. 26%| 2. 32%| 2. 96%| Other current assets| 2. 55%| 1. 94%| 1. 50%| 2. 93%| 2. 57%| Total current assets| 36. 00%| 37. 82%| 31. 95%| 35. 54%| 36. 65%| Non-current assets|  |  |  |  |  | Gross property, plant and equipment| 34. 11%| 35. 63%| 32. 59%| 32. 48%| 34. 10%| Accumulated Depreciation| 19. 74%| 20. 69%| 19. 17%| 19. 61%| 21. 11%| Net property, plant and equipment| 14. 37%| 14. 93%| 13. 42%| 12. 87%| 12. 99%| Goodwill| 32. 77%| 32. 45%| 28. 49%| 28. 33%| 27. 39%|

Intangible assets| 2. 14%| 1. 60%| 1. 06%| 0. 89%|  | Deferred income taxes| 5. 27%| 2. 63%| 13. 91%| 10. 76%| 9. 93%| Other long-term assets| 9. 45%| 10. 56%| 11. 17%| 11. 61%| 13. 05%| Total non-current assets| 64. 00%| 62. 18%| 68. 05%| 64. 46%| 63. 35%| Total assets| 100. 00%| 100. 00%| 100. 00%| 100. 00%| 100. 00%| Current liabilities|  |  |  |  |  | Short-term debt| 0. 12%| 0. 36%| 0. 72%|  |  | Accounts payable| 7. 87%| 7. 48%| 6. 07%| 5. 78%| 4. 64%| Accrued liabilities|  |  |  | 4. 69%| 5. 33%| Other current liabilities| 25. 85%| 26. 29%| 24. 73%| 20. 01%| 21. 84%| Total current liabilities| 33. 84%| 34. 13%| 31. 53%| 30. 48%| 31. 2%| Non-current liabilities|  |  |  |  |  | Long-term debt| 15. 60%| 14. 88%| 10. 66%| 14. 39%| 14. 31%| Accrued liabilities|  |  |  | 30. 83%|  | Pensions and other benefits|  |  |  | 3. 73%| 33. 71%| Other long-term liabilities| 26. 17%| 17. 10%| 49. 25%| 8. 82%| 9. 59%| Total non-current liabilities| 41. 78%| 31. 98%| 59. 91%| 57. 76%| 57. 61%| Total liabilities| 75. 62%| 66. 10%| 91. 43%| 88. 24%| 89. 43%| Stockholders’ equity|  |  |  |  |  | Common stock| 1. 49%| 1. 41%| 1. 18%| 1. 06%| 0. 99%| Additional paid-in capital| 2. 67%|  |  |  |  | Retained earnings| 32. 83%| 38. 88%| 34. 75%| 35. 18%| 35. 28%| Accumulated other comprehensive income| 12. 61%| 6. 40%| 27. 6%| 24. 48%| 25. 69%| Total stockholders’ equity| 24. 38%| 33. 90%| 8. 57%| 11. 76%| 10. 57%| Total liabilities and stockholders’ equity| 100. 00%| 100. 00%| 100. 00%| 100. 00%| 100. 00%| Appendix 16 Cash Flow Statement ( in USD millions)| 2006| 2007| 2008| 2009| 2010| Cash Flows From Operating Activities| | | | | | Net income| 2529| 3033| 3217| 3024| 2926| Depreciation & amortization| 764| 819| 845| 854| 841| Deferred income taxes| 75| 110| 72| 542| 576| Stock based compensation| | | | 154| 168| Accounts receivable| | | | | -15| Inventory| -530| -57| -183| -233| -227| Accounts payable| | | | -21| -364| Income taxes payable| | | | | 60|

Other working capital| 786| 4| -161| -237| -381| Other non-cash items| 159| 332| 631| -910| -37| Net cash provided by operating activities| 3783| 4241| 4421| 3173| 3547| Cash Flows From Investing Activities| | | | | | Investments in property, plant, and equipment| -893| -940| -926| -852| -820| Acquisitions, net| -942| -311| -233| -435| 650| Purchases of investments| | | | -279| | Sales/Maturities of investments| 48| 48| 272| | | Other investing activities| 132| -2| -20| 48| -149| Net cash used for investing activities| -1655| -1205| -907| -1518| -319| Cash Flows From Financing Activities| | | | | | Debt issued| | | | 1464| | Debt repayment| | | | -242| |

Common stock issued| 756| 350| 250| 40| | Common stock repurchased| -2115| -2127| -2931| -1851| -2420| Excess tax benefit from stock based compensation| | | | 21| | Dividend paid| -538| -615| -737| -908| -969| Other financing activities| -563| 92| -520| | 26| Net cash provided by (used for) financing activities| -2460| -2300| -3938| -1476| -3363| Effect of exchange rate changes| | | -56| 44| 5| Net change in cash| -332| 736| -480| 223| -130| Cash at beginning of period| 2244| 1912| 2648| 2168| 2391| Cash at end of period| 1912| 2648| 2168| 2391| 2261| Free Cash Flow| | | | | | Operating cash flow| 3783| 4241| 4421| 3173| 3547| Capital expenditure| -893| -940| -926| -852| -820|

Free cash flow| 2890| 3301| 3495| 2321| 2727| Appendix 17 LIQUIDITY RATIOS| 2010| 2009| 2008| 2007| 2006| Current Ratio|  |  |  |  |  | Industry| 1. 3| 1. 21| 1. 07| 1. 08| 1. 08| Lockheed| 1. 15| 1. 17| 1. 01| 1. 11| 1. 06| Boeing| 1. 15| 1. 07| 0. 84| 0. 86| 0. 77| Quick Ratio|  |  |  |  |  | Industry| 0. 81| 0. 75| 0. 64| 0. 61| 0. 64| Lockheed| 0. 76| 0. 79| 0. 71| 0. 8| 0. 72| Boeing| 0. 46| 0. 53| 0. 3| 0. 49| 0. 41| Cash Ratio| | | | |  | Industry| 0. 37| 0. 32| 0. 21| 0. 19| 0. 20| Lockheed | 0. 25| 0. 22| 0. 21| 0. 30| 0. 24| Boeing| 0. 30| 0. 34| 0. 11| 0. 30| 0. 22| Appendix 18 OPERATING RATIOS| 2010| 2009| 2008| 2007| 2006| Receivable Turnover|  |  |  |  |  |

Industry | 6. 59| 6. 96| 6. 59| 6. 36| 6. 26| Lockheed | 7. 75| 7. 96| 8. 36| 8. 79| 8. 64| Boeing| 11. 86| 11. 8| 10. 87| 11. 57| 11. 64| Days Sales Outstanding| | | | |  | Industry | 55| 52| 55| 57| 58| Lockheed | 47| 46| 44| 42| 42| Boeing| 31| 31| 34| 32| 31| Payables Turnover| | | | |  | Industry | 9. 59| 10. 82| 10. 63| 10. 23| 9. 84| Lockheed | 22. 96| 20. 18| 18. 17| 17. 17| 17. 15| Boeing | 8. 34| 9. 62| 10. 37| 11. 62| 10. 90| Average Payables Period| | | | |  | Industry | 38| 34| 34| 36| 37| Lockheed | 16| 18| 20| 21| 21| Boeing | 44| 38| 35| 31| 33| Inventory Turnover| | | | |  | Industry| 6. 16| 6. 99| 7. 10| 7. 73| 8. 04| Lockheed | 18. 0| 20. 06| 21. 04| 22. 30| 20. 23| Boeing | 2. 64| 4. 03| 3. 90| 6. 94| 7. 59| Average Inventory Processing Period | | | | |  | Industry| 59| 52| 51| 47| 45| Lockheed | 20| 18| 17| 16| 18| Boeing| 138| 91| 94| 53| 48| Cash Conversion Cycle| | | | |  | Industry | 77. 00| 71. 00| 72. 00| 69. 00| 67. 00| Lockheed | 51. 02| 45. 98| 40. 91| 36. 61| 39. 03| Boeing | 125. 00| 54. 00| 92. 00| 53. 00| 46. 00| Operating Cycle|  |  |  |  |  | Industry | 114| 104| 106| 104| 103| Lockheed | 67| 64| 61| 58| 60| Boeing| 169| 121| 127| 84| 79| Appendix 19 DEBT AND SOLVENCY RATIOS| 2010| 2009| 2008| 2007| 2006| Debt to equity|  |  |  |  |  | Industry| 0. 47| 0. 3| 0. 58| 0. 46| 0. 43| Lockheed| 1. 35| 1. 22| 1. 24| 0. 44| 0. 64| Boeing| 4. 49| 6. 07| -| 0. 91| 2. 01| Interest Coverage|  |  |  |  |  | Industry| 9. 04| 6. 89| 9. 37| 9. 69| 10. 54| Lockheed| 11. 12| 13. 85| 11. 96| 12. 86| 10. 95| Boeing| 9. 73| 6. 04| 20. 86| 32. 34| 14. 35| Debt to capital|  |  |  |  |  | Industry | 0. 32| 0. 35| 0. 37| 0. 31| 0. 30| Lockheed | 0. 89| 0. 88| 0. 91| 0. 66| 0. 75| Boeing| 0. 82| 0. 86| 1. 21| 0. 48| 0. 07| Appendix 20 LONG TERM INVESTMENTS | 2010| 2009| 2008| 2007| 2006| Fixed Asset turnover|  |  |  |  |  | Industry| 4. 13| 4. 06| 4. 45| 4. 41| 4. 11| Lockheed | 10. 1| 10. 03| 9. 7| 10| 9. 93| Boeing | 7. | 7. 77| 6. 95| 8. 03| 8. 02| Appendix 21 PROFITABILITY RATIOS| 2010| 2009| 2008| 2007| 2006| Net Profit Margin%|  |  |  |  |  | Industry| 0. 08| 0. 06| 0. 09| 0. 10| 0. 10| Lockheed| 0. 06| 0. 07| 0. 08| 0. 07| 0. 06| Boeing| 0. 05| 0. 02| 0. 04| 0. 06| 0. 04| Operating Profit Margin%|  |  |  |  |  | Industry| 0. 117| 0. 1001| 0. 1052| 0. 107| 0. 1085| Lockheed| 0. 0894| 0. 0988| 0. 1201| 0. 1081| 0. 0998| Boeing| 0. 0773| 0. 0307| 0. 0649| 0. 0878| 0. 049| Return on Assets| | | | |  | Industry| 0. 0591| 0. 048| 0. 0768| 0. 077| 0. 0788| Lockheed| 0. 0834| 0. 0882| 0. 1032| 0. 1061| 0. 0904| Boeing| 0. 0482| 0. 0211| 0. 0497| 0. 0691| 0. 0428|

Return on Equity| | | | | | Industry| 0. 1651| 0. 1348| 0. 2404| 0. 2043| 0. 2067| Lockheed| 0. 7467| 0. 8647| 0. 5078| 0. 3635| 0. 3429| Boeing| 0. 1196| 0. 6165| -| 0. 4525| 0. 4674| Appendix 22Start-Up Expenses| | Requirements| | | | | Business Planning| $ 200,000. 00 | | Legal Fees| $ 40,000. 00 | | Insurance | $ 15,000. 00 | | Training| $ 10,000. 00 | | Supplies| $ 30,000. 00 | | Website| $ 35,000. 00 | | Office Space Rent| $ 14,000. 00 | | Brochure| $ 3,000. 00 | | Total Start-Up Expenses| $ 347,000. 00 | | | | | Start-Up Assets| | | Cash Required| $ 150,000. 00 | | Other Current Assets| $ – | | Long-Term Assets | $ 6,000. 00 | |

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