lockheed martin 1. name: 2. naics code - ttu 2015/a sample of... · lockheed martin . 1. name:...

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Lockheed Martin 1. Name: Lockheed Martin Headquarters: Bethesda, MD 2. Industry: Guided Missile & Space Vehicle Manufacturing NAICS Code: 336414 History of Development: Glen Martin and the Lockheed brothers began building their own planes in California from 1910-1913. Lockheed brothers form the Lockheed Aircraft company and Martin later forms Martin Marietta. Both build bombers for the U.S. throughout both World Wars. John Lindbergh and Amelia Earnhart both flew Lockheed planes. Lockheed and Martin continued producing fighter planes separately for U.S. forces until their merger in 1995. Lockheed Martin is currently one of the world’s largest defense contractors, supplying militaries around the world. 3. Firm Customers: Customers include foreign governments and militaries worldwide. Majority of sales to the U.S. government. Only a small portion is sold to the private sector. In 2013, 82% of the $45.4 billion in net sales were to the U.S. Government, either as a prime contractor or as a subcontractor (including 61% from the Department of Defense (DoD)), 17% 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. 4. Determinants of Demand: “No portion of Lockheed Martin is considered to be seasonal. Various factors can affect the distribution of our sales between accounting periods, including the timing of government awards, the availability of government funding, product deliveries, and customer acceptance.” Internationally, sales are subject numerous political and economic factors, regulatory requirements, significant competition, and other risks associated with doing business in foreign countries. These variables were the best indicators of when Lockheed Martin will make a sale. 5. Elasticity: As Lockheed Martin (LHM) is a major national defense contract for the United States (some 85% of its sales) it is difficult to summarize its price elasticity of demand into one category. But after our analysis of the conventional determinants of demand, it appears as though Lockheed Martin, in most cases, faces an inelastic price elasticity of demand. The company exists in a fairly oligopolistic market structure for which there are few close substitutes for the products and services they render, especially as it pertains to the US government. The lack of close available substitutes within the market increases the inelasticity of their demand. The necessity of the services they supply also helps to produce their inelastic demand. As the

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Page 1: Lockheed Martin 1. Name: 2. NAICS Code - TTU 2015/A sample of... · Lockheed Martin . 1. Name: Lockheed Martin . Headquarters: Bethesda, MD . 2. Industry: Guided Missile & Space Vehicle

Lockheed Martin 1. Name: Lockheed Martin Headquarters: Bethesda, MD 2. Industry: Guided Missile & Space Vehicle Manufacturing

NAICS Code: 336414

History of Development: Glen Martin and the Lockheed brothers began building their own planes in California from 1910-1913. Lockheed brothers form the Lockheed Aircraft company and Martin later forms Martin Marietta. Both build bombers for the U.S. throughout both World Wars. John Lindbergh and Amelia Earnhart both flew Lockheed planes. Lockheed and Martin continued producing fighter planes separately for U.S. forces until their merger in 1995. Lockheed Martin is currently one of the world’s largest defense contractors, supplying militaries around the world.

3. Firm Customers: Customers include foreign governments and militaries worldwide. Majority of sales to the U.S. government. Only a small portion is sold to the private sector. In 2013, 82% of the $45.4 billion in net sales were to the U.S. Government, either as a prime contractor or as a subcontractor (including 61% from the Department of Defense (DoD)), 17% 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.

4. Determinants of Demand: “No portion of Lockheed Martin is considered to be seasonal. Various factors can affect the distribution of our sales between accounting periods, including the timing of government awards, the availability of government funding, product deliveries, and customer acceptance.” Internationally, sales are subject numerous political and economic factors, regulatory requirements, significant competition, and other risks associated with doing business in foreign countries. These variables were the best indicators of when Lockheed Martin will make a sale.

5. Elasticity: As Lockheed Martin (LHM) is a major national defense contract for the United States (some 85% of its sales) it is difficult to summarize its price elasticity of demand into one category. But after our analysis of the conventional determinants of demand, it appears as though Lockheed Martin, in most cases, faces an inelastic price elasticity of demand. The company exists in a fairly oligopolistic market structure for which there are few close substitutes for the products and services they render, especially as it pertains to the US government. The lack of close available substitutes within the market increases the inelasticity of their demand. The necessity of the services they supply also helps to produce their inelastic demand. As the

Page 2: Lockheed Martin 1. Name: 2. NAICS Code - TTU 2015/A sample of... · Lockheed Martin . 1. Name: Lockheed Martin . Headquarters: Bethesda, MD . 2. Industry: Guided Missile & Space Vehicle

US has maintained a prolonged and prevalent military presence throughout the world over the previous decade, Lockheed Martin’s products have become necessary for national security and interest. Furthermore, though nearly 85% of all LHM sales are a product of government contracts, LHM comprises a relatively small portion of the massive government budget. Roughly 19% of the national budget is allocated to overall military spending. Only 20% of that overall military budget is allocated to procurement. In other words, LHM products encompass a relatively insignificant share (roughly 4%) of the consumer budget. Also, although LHM does produce fairly durable products, when compared to the quickly evolving technology and weapons industry their products quickly become outdated. Conclusively, the above considered determinants point to an overall inelastic price elasticity of demand. Argument could be made for the consideration of the security atmosphere as a determinant. A period of prolonged peace and military draw back could force the demand to become more elastic in nature. For our analysis, we shall only consider the current military involvement and likelihood of future conflict.

6. Market Structure: Lockheed Martin is a member of the aerospace and defense industry. They have twelve main competitors. These competitors all have similar products, being either weapons or planes. This is an extremely hard industry to enter because it relies on government approval and contracts. To enter this industry the firm needs to be accepted as a primary contractor by beating out other proposals and receiving a government contract. These barriers for entry limit this industry to older established firms that have a good public perception, while also having familiarity with working for the government. The CR4 of this industry is 0.72. This means that the top four firms of this industry, which includes Lockheed Martin, make up 72% of the sales in this industry. The pricing for Lockheed Martin is entirely decided upon contracts that they sign with the government. Some of these are able to be negotiated but most of them are bids between different companies, giving Lockheed Martin no pricing power.

7. Sales and profit growth: According to the growth rate data analysis of gross profit and sales, Lockheed Martin ranks last compared to its competitors in the past year sales growth and second behind Boeing in the past 3 year sales growth. While they also rank second behind Boeing in the past year gross profit growth rate, they rank first in the industry with their 3 year profit growth rate.

Lockheed Martin (LMT) Sales Gross Profit

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($ Billions) ($ Billions)

2013 45.4 4.18 2012 47.2 4.19 2011 46.5 3.74

Growth Rate (%) Sales (%) Gross Profit (%) 1 Year -1.9 -0.11 3 Year -0.28 7.9

Boeing (BA) Sales

($ Billions) Gross Profit ($ Billions)

2013 86.6 13.35 2012 81.7 13.03 2011 68.7 12.84

Growth Rate (%) Sales (%) Gross Profit (%) 1 Year 2.99 1.22 3 Year 14.99 1.81

Northgroup Grumman Corporation (NOC)

Sales ($ Billions)

Gross Profit ($ Billions)

2013 24.6 5.37 2012 25.2 2.58 2011 25.4 5.62

Growth Rate (%) Sales (%) Gross Profit (%) 1 Year -1.19 -1.88 3 Year -3.37 -1.72

Raytheon Company (RTN) Sales

($ Billions) Gross Profit ($ Billions)

2013 23.7 5.17 2012 24.4 5.32 2011 24.8 5.12

Growth Rate (%) Sales (%) Gross Profit (%) 1 Year -1.43 -1.4 3 Year -2.01 1.62

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8. Legal actions: The Department of Justice took action against Lockheed Martin in 2009. They allegedly violated the False Claims Act. To resolve allegations Lockheed Martin paid $2 million due to their fraudulent submission of a government contract.

The United States brought civil claims against Lockheed Martin in 2005 under the False Claims Act. The government was overcharged for seven years by Tools & Metals Inc. A $15.85 million settlement was reached to resolve False Claims Act violations by Lockheed Martin.

The Federal Trade Commission intervened in the merger of Lockheed Martin Corporations and Boeing Corporation. The formation of ULA would reduce competition in the markets. To settle the charges brought on by the Commission, the parties agreed to take certain actions to address possible harms. In the end the FTC agreed to the merger due to the improvement of space reliably and saving the taxpayers as much as $150 million.

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Sources:

http://www.lockheedmartin.com/content/dam/lockheed/data/corporate/documents/2013-Annual-Report.pdf - LHM 2013 Annual Report

http://www.usfederalbudget.us/federal_budget_detail_fy13 - US Federal Budget Analyst

http://finance.yahoo.com/q/is?s=RTN&annual -rtn financial info

http://finance.yahoo.com/q/is?s=LMT&annual -lmt financial info

http://finance.yahoo.com/q/is?s=BA&annual - BA financial info

http://finance.yahoo.com/q/is?s=NOC&annual - noc financial info

http://finance.yahoo.com/q/co?s=LMT+Competitors - Competitors of lmt info

http://www.lockheedmartin.com/content/dam/lockheed/data/corporate/documents/2013-Annual-Report.pdf

http://www.lockheedmartin.com/us/100years/timeline.html

http://www.manta.com/c/mm0ytq0/lockheed-martin-corporation?ftoggle-frontend-prod-on=abTests.revenue.test_10312014_control&utm_expid=82789632-25.oHnsZFf0S6aL6ZTTV65kcg.1&utm_referrer=http%3A%2F%2Fwww.google.com%2Furl%3Fsa%3Dt%26rct%3Dj%26q%3D%26esrc%3Ds%26source%3Dweb%26cd%3D2%26ved%3D0CCcQFjAB%26url%3Dhttp%253A%252F%252Fwww.manta.com%252Fc%252Fmm0ytq0%252Flockheed-martin corporation%26ei%3Ditl0VLHxMO71igK3xYGgDw%26usg%3DAFQjCNEq2bIvHTCBSXQcrJFl_1waSLN4qg%26sig2%3DPFBxYfJ0ZLN_C3wgaAhKgQ%26bvm%3Dbv.80185997%2Cd.cGE

http://www.justice.gov/opa/pr/lockheed-martin-pay-2-million-resolve-allegations-resulting-fraudulent-submission-government

http://www.justice.gov/opa/pr/lockheed-martin-corporation-reaches-1585-million-settlement-us-resolve-false-claims-act

http://www.law360.com/articles/11205/ftc-to-allow-boeing-and-lockheed-merger

http://www.ftc.gov/enforcement/cases-proceedings/0510165/lockheed-martin-corporation-boeing-company-united-launch