- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED SEPTEMBER 30, 1995 COMMISSION FILE NUMBER 1-11437
LOCKHEED MARTIN CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1893632
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) NUMBER)
6801 ROCKLEDGE DRIVE, BETHESDA, MD 20817
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (301) 897-6000
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [_]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AS OF OCTOBER 31, 1995
COMMON STOCK, $1 PAR VALUE 199,152,482
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
PAGE NO.
--------
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Earnings--Three Months and Nine
Months Ended September 30, 1995 and 1994........................... 3
Condensed Consolidated Statement of Cash Flows--Nine Months Ended
September 30, 1995 and 1994........................................ 4
Condensed Consolidated Balance Sheet--September 30, 1995 and
December 31, 1994.................................................. 5
Notes to Condensed Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Operating Results............................................... 11
Part II. Other Information
Item 1. Legal Proceedings............................................ 14
Item 6. Exhibits and Reports on Form 8-K............................. 15
Signatures............................................................ 16
Exhibit 11. Computation of Earnings Per Common Share.................. 17
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges......... 18
Exhibit 27. Financial Data Schedule................................... 19
2
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1995 1994 1995 1994
--------- --------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
Net sales.............................. $5,551 $5,704 $16,801 $16,302
Costs and expenses:
Cost of sales........................ 5,041 5,261 15,367 15,004
Merger related and consolidation
expenses............................ -- -- 690 --
--------- --------- -------- --------
Earnings from operations............... 510 443 744 1,298
Other income and expenses, net......... 24 9 89 183
--------- --------- -------- --------
534 452 833 1,481
Interest expense....................... 70 76 222 231
--------- --------- -------- --------
Earnings before income taxes and
cumulative effect of change in
accounting............................ 464 376 611 1,250
Income tax expense..................... 177 122 240 465
--------- --------- -------- --------
Earnings before cumulative effect of
change in accounting.................. 287 254 371 785
Cumulative effect of change in
accounting............................ -- -- -- (37)
--------- --------- -------- --------
Net earnings........................... $ 287 $ 254 $ 371 $ 748
========= ========= ======== ========
Earnings per common share:
Assuming no dilution:
Before cumulative effect of change
in accounting..................... $ 1.43 $ 1.28 $ 1.72 $ 3.97
Cumulative effect of change in
accounting........................ -- -- -- (.20)
--------- --------- -------- --------
$ 1.43 $ 1.28 $ 1.72 $ 3.77
========= ========= ======== ========
Assuming full dilution:
Before cumulative effect of change
in accounting..................... $ 1.29 $ 1.16 $ 1.67 $ 3.60
Cumulative effect of change in
accounting........................ -- -- -- (.17)
--------- --------- -------- --------
$ 1.29 $ 1.16 $ 1.67 $ 3.43
========= ========= ======== ========
Cash dividends declared per common
share................................. $ .35 $ .29 $ .99 $ .85
========= ========= ======== ========
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
3
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1995 1994
-------- ---------
(IN MILLIONS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings before cumulative effect of change in
accounting.............................................. $ 371 $ 785
Adjustments to reconcile earnings to net cash provided by
operating activities:
Merger related and consolidation expenses--provision... 690 --
--payments.... (135) --
Gain from Materials public offering.................... -- (118)
Acquisition termination fee............................ -- (50)
Depreciation and amortization.......................... 665 676
Changes in operating assets and liabilities............ (972) (16)
-------- ---------
Net cash provided by operating activities............ 619 1,277
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties, net of purchased operations..... (394) (339)
Net proceeds--Materials public offering.................. -- 189
Acquisition termination fee.............................. -- 50
Acquisitions and investments............................. (211) (160)
-------- ---------
Net cash used for investing activities............... (605) (260)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing repayments................................. (286) (172)
(Repurchases) issuances of common shares................. (17) 31
Common stock dividends................................... (183) (171)
Preferred stock dividends................................ (45) (45)
-------- ---------
Net cash used for financing activities............... (531) (357)
-------- ---------
Net (decrease) increase in cash and cash equivalents..... (517) 660
Cash and cash equivalents at beginning of period......... 639 366
-------- ---------
Cash and cash equivalents at end of period............... $ 122 $ 1,026
======== =========
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN MILLIONS)
ASSETS
Current assets:
Cash and cash equivalents......................... $ 122 $ 639
Receivables....................................... 3,820 3,473
Inventories....................................... 3,183 3,159
Deferred income taxes............................. 582 597
Other current assets.............................. 306 275
------- -------
Total current assets............................ 8,013 8,143
Property, plant and equipment....................... 3,431 3,455
Intangible assets related to contracts and programs
acquired........................................... 1,861 1,971
Cost in excess of net assets acquired............... 2,794 2,831
Other assets........................................ 2,267 1,649
------- -------
$18,366 $18,049
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 1,023 $ 1,306
Customer advances................................. 1,380 1,544
Salaries, benefits and payroll taxes.............. 818 767
Income taxes...................................... 286 111
Current maturities of long-term debt.............. 715 285
Other current liabilities......................... 1,747 1,622
------- -------
Total current liabilities....................... 5,969 5,635
Long-term debt...................................... 2,892 3,594
Post-retirement benefit liabilities................. 1,770 1,756
Other liabilities................................... 1,480 978
Stockholders' equity:
Series A preferred stock, $50 liquidation
preference per share............................. 1,000 1,000
Common stock, $1 par value per share.............. 199 199
Additional paid-in capital........................ 741 734
Retained earnings................................. 4,608 4,470
Unearned ESOP shares.............................. (293) (317)
------- -------
6,255 6,086
------- -------
$18,366 $18,049
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial
Statements.
5
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. The results of operations for the three months
and nine months ended September 30, 1994 reflect certain conforming
adjustments and reclassifications which are discussed in Note 2 below. The
Corporation has continued to follow the accounting policies set forth in the
consolidated financial statements filed with the Securities and Exchange
Commission (SEC) on May 10, 1995 under cover of Form 10-K. In the opinion of
management, the interim financial information provided herein reflects all
adjustments (consisting of normal recurring accruals, except for those
described in Note 2) necessary for a fair presentation of the results of
operations for the interim periods. The results of operations for the three
months and nine months ended September 30, 1995 are not necessarily indicative
of the results to be expected for the full year.
NOTE 2--FORMATION OF LOCKHEED MARTIN CORPORATION
On March 15, 1995, following the approval of the stockholders of each
corporation, Lockheed Corporation (Lockheed) and Martin Marietta Corporation
(Martin Marietta) consummated a transaction (the Business Combination)
pursuant to which Lockheed and Martin Marietta became wholly-owned
subsidiaries of a newly created holding corporation, Lockheed Martin
Corporation (Lockheed Martin or the Corporation). A detailed description of
the Business Combination is contained within the Joint Proxy
Statement/Prospectus which forms a part of Lockheed Martin's Form S-4
Registration Statement (No. 33-57645) filed with the SEC on February 9, 1995.
Under the terms of the Agreement and Plan of Reorganization, dated August
29, 1994, each outstanding share of Lockheed common stock was exchanged for
1.63 shares of Lockheed Martin common stock, each outstanding share of Martin
Marietta common stock was exchanged for one share of Lockheed Martin common
stock and each outstanding share of Martin Marietta's Series A preferred
stock, all of which was held by General Electric Company (GE) subject to a
Standstill Agreement, was exchanged for one share of Lockheed Martin Series A
preferred stock.
The Business Combination constituted a tax-free reorganization and qualified
for the pooling of interests method of accounting. Under this accounting
method, the assets and liabilities of Lockheed and Martin Marietta were
carried forward to Lockheed Martin at their historical recorded bases. The
accompanying condensed consolidated financial statements for the three months
and nine months ended September 30, 1994, which reflect the combined balance
sheets, results of operations and cash flows for Lockheed Martin, have been
derived from the balance sheets, results of operations and cash flows of the
separate corporations for periods before the Business Combination, combined,
reclassified and conformed, as appropriate, to reflect amounts for the
combined entity. Sales and earnings of the individual entities for the three
months and nine months ended September 30, 1994 were as follows:
AS PREVIOUSLY REPORTED
-------------------------
LOCKHEED
MARTIN COMBINING MARTIN
LOCKHEED MARIETTA ADJUSTMENTS COMBINED
----------- ----------- ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SEPTEMBER
30, 1994
Net sales...................... $ 3,165 $ 2,563 $(24) $ 5,704
Earnings before cumulative
effect of change in
accounting.................... 112 149 (7) 254
Earnings per share before
cumulative effect of change in
accounting, assuming full
dilution...................... 1.08* 1.18 -- 1.16
6
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS PREVIOUSLY REPORTED
-------------------------
LOCKHEED
MARTIN COMBINING MARTIN
LOCKHEED MARIETTA ADJUSTMENTS COMBINED
----------- ----------- ----------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30,
1994
Net sales...................... $ 9,286 $ 7,088 $(72) $16,302
Earnings before cumulative
effect of change in
accounting.................... 308 496 (19) 785
Earnings per share before
cumulative effect of change in
accounting, assuming full
dilution...................... 2.98* 3.94 -- 3.60
- --------
* Amounts for Lockheed have been adjusted for the 1.63 exchange ratio related
to the Business Combination.
For the first, second and third quarters of 1994, combining adjustments were
recorded to eliminate intercompany sales and cost of sales. No adjustments
were made to eliminate the related intercompany profit in ending inventories
as such amounts were not material. Adjustments were also made to conform
Lockheed's method of accounting for timing differences in cost recognition
between Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions," and applicable government contract accounting
principles to be consistent with Martin Marietta's method, and to conform
Lockheed's provisions for state income taxes to Martin Marietta's methodology.
Further adjustments were recorded to reflect the tax impact of these
adjustments.
The Corporation elected to adopt, effective January 1, 1994, the American
Institute of Certified Public Accountants (AICPA) Statement of Position (SOP)
No. 93-6, "Employers' Accounting for Employee Stock Ownership Plans," to
account for the Employee Stock Ownership Plan (ESOP) feature of the Lockheed
Salaried Savings Plan. Adoption of this accounting method resulted in a
cumulative effect adjustment which reduced net earnings for the first quarter
of 1994 by $37 million, or $.17 per common share assuming full dilution. In
accordance with the provisions of the SOP, the unallocated common shares held
by the ESOP trust (Unallocated ESOP Shares) have been excluded from weighted
average outstanding shares in calculating earnings per share. For the third
quarter of 1995 and 1994, the weighted average Unallocated ESOP Shares
excluded in calculating earnings per share totaled approximately 10.1 million
and 11.4 million equivalent shares of Lockheed Martin common stock,
respectively. For the nine months ended September 30, 1995 and 1994, the
weighted average Unallocated ESOP Shares excluded totaled approximately 10.4
million and 11.7 million equivalent shares, respectively.
On June 26, 1995, the Corporation announced a corporate-wide consolidation
plan which, once fully implemented, is expected to yield annual savings of
approximately $1.8 billion. Under the consolidation plan, the Corporation will
close 12 facilities and laboratories as well as 26 duplicative field offices
in the U.S. and abroad, eliminating approximately 12,000 positions and 7.7
million square feet of unneeded capacity over the next five years. The total
cost to implement the plan, which will be largely completed over the next two
years, is approximately $1.7 billion. These costs will be funded by cash
generated from operations supplemented, as necessary, by borrowings. Under
existing U.S. government regulations, certain expenses incurred for
consolidation actions that can be demonstrated to result in savings in excess
of the expense can be amortized and recovered in future pricing of the
Corporation's products and services. The Corporation anticipates that a
substantial portion of the total cost of this plan will therefore be reflected
in future sales and cost of sales, along with an effect from the anticipated
savings. The Corporation recorded a pretax charge of $525 million in the
second quarter of 1995 in connection with the consolidation plan representing
the portion not expected to be recovered under future pricing of U.S.
government contracts. In addition, the Corporation recorded a $165 million
pretax charge in the first quarter for merger related expenses. The after-tax
effect of these charges was $436 million, or $1.96 per share assuming full
dilution.
7
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INVENTORIES
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(IN MILLIONS)
Work in process, primarily on long-term contracts
and programs in progress.......................... $ 4,023 $ 4,678
Less customer advances and progress payments....... (1,615) (2,172)
------- -------
2,408 2,506
Other inventories.................................. 775 653
------- -------
$ 3,183 $ 3,159
======= =======
NOTE 4--DEBT
On March 15, 1995, the Corporation entered into a revolving credit agreement
(the Credit Agreement) with a group of domestic and foreign banks. The Credit
Agreement makes available $1.5 billion for commercial paper backup and general
corporate purposes through March 14, 2000. Borrowings under the Credit
Agreement would be unsecured and bear interest, at the Corporation's option,
at rates including the Eurodollar rate and a bank base rate (as defined). The
Credit Agreement contains certain restrictive covenants including a financial
covenant relating to leverage, and provisions which relate to certain changes
in control. Borrowings under the Credit Agreement would be unconditionally
guaranteed by Lockheed, Martin Marietta and Martin Marietta Technologies, Inc.
(Technologies), a wholly-owned subsidiary of Martin Marietta. There were no
borrowings outstanding under the Credit Agreement.
The Corporation's total interest payments were approximately $206 million
and $210 million for the nine months ended September 30, 1995 and 1994,
respectively.
NOTE 5--OTHER INCOME AND EXPENSES
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(IN MILLIONS)
Royalty income...................... $ 11 $ 12 $ 51 $ 40
Interest income..................... 18 4 32 13
Gain--Materials public offering..... -- -- -- 118
Acquisition termination fee......... -- -- -- 50
Other............................... (5) (7) 6 (38)
--------- --------- --------- ---------
$ 24 $ 9 $ 89 $ 183
========= ========= ========= =========
In February 1994, Martin Marietta Materials, Inc. (Materials) sold through
an initial public offering (IPO) approximately 19% of the outstanding stock of
Materials. A portion of the proceeds from the IPO was used to defease in
substance $125 million of 9.5% Notes. Technologies recognized a pretax gain,
net of a loss on debt defeasance, of $118 million from Materials' IPO. The net
after-tax gain from these transactions was $70 million, or $.32 per share
assuming full dilution.
During March 1994, Martin Marietta entered into an Agreement and Plan of
Merger with Grumman Corporation (Grumman) and made an offer to purchase for
cash all outstanding shares of common stock of Grumman. Subsequently, Grumman
reached agreement with and accepted Northrop Corporation's competing offer to
purchase its outstanding common shares. In April 1994, the Corporation
received $50 million plus reimbursement of expenses from Grumman pursuant to
the termination provisions of the Agreement and Plan of Merger. The
Corporation recorded an after-tax gain of $30 million, or $.14 per share
assuming full dilution.
8
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CONTINGENCIES
The Corporation or its subsidiaries are parties to or have property subject
to litigation and other proceedings, including matters arising under
provisions relating to the protection of the environment, that have the
potential to affect the results of the Corporation's operations or its
financial position. These matters include the following items which were
disclosed in the Corporation's filing on May 10, 1995 of its consolidated
financial statements under cover of Form 10-K.
In March 1991, Lockheed entered into a consent decree with the U.S.
Environmental Protection Agency (EPA) relating to certain property in Burbank,
California, which obligates the Corporation to design and construct facilities
to monitor, extract, and treat groundwater and operate and maintain such
facilities for approximately eight years. The Corporation estimates that
expenditures required to comply with the terms of the consent decree over the
remaining term of the project will be approximately $90 million.
Lockheed has also been operating under a cleanup and abatement order from
the California Regional Water Quality Control Board affecting its facilities
in Burbank, California. This order requires site assessment and action to
abate groundwater contamination by a combination of groundwater and soil
cleanup and treatment. Based on experience derived from initial remediation
activities, the Corporation estimates the anticipated cost of these actions in
excess of the requirements under the EPA consent decree to approximate $155
million over the remaining term of the project; however, this estimate is
likely to change as work progresses and additional experience is gained.
In addition, the Corporation is involved in several other proceedings and
potential proceedings relating to environmental matters, including disposal of
hazardous wastes and soil and water contamination. The Corporation has not
incurred any material costs relating to these environmental matters. The
extent of the Corporation's financial exposure cannot in all cases be
reasonably estimated at this time. A liability of approximately $250 million
for those cases in which an estimate of financial exposure can be determined
has been recorded.
Under an agreement with the U.S. government, the Burbank groundwater
treatment and soil remediation expenditures referenced above are being
allocated to the Corporation's operations as general and administrative costs
and, under existing government regulations, these and other environmental
expenditures related to U.S. government business, after deducting any
recoveries from insurance or other responsible parties, are allowable in
establishing the prices of the Corporation's products and services. As a
result, a substantial portion of the expenditures will be reflected in the
Corporation's sales and cost of sales pursuant to U.S. Government agreement or
regulation. The Corporation has recorded an asset for probable future recovery
of the portion of these costs in pricing of the Corporation's products and
services for U.S. government business. The portion that is expected to be
allocated to commercial business has been reflected in cost of sales. The
recorded amounts do not reflect the possible recovery of portions of the
environmental costs through insurance policy coverage or from other
potentially responsible parties to the contamination, which the Corporation is
pursuing as required by agreement and U.S. government regulation. Any such
recoveries, when received, would reduce the Corporation's liability as well as
the allocated amounts to be included in the Corporation's U.S. government
sales and cost of sales.
The Corporation or its subsidiaries are parties to or have property subject
to litigation and other proceedings, including matters arising under
provisions relating to the protection of the environment, in addition to those
described above. In the opinion of management and counsel, the probability is
remote that the outcome of litigation and proceedings will have a material
adverse effect on the results of the Corporation's operations or its financial
position.
9
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--OTHER
The Corporation's total income tax payments were approximately $160 million
and $207 million for the nine months ended September 30, 1995 and 1994,
respectively.
On July 27, 1995, the Corporation's Board of Directors authorized the
repurchase of up to six million common shares under a systematic repurchase
plan to counter the future dilutive effect of common stock issued by the
Corporation under its 1995 Omnibus Performance Award Plan. Additionally, the
Board authorized the repurchase of up to nine million common shares to counter
the dilutive effect of common stock issued under the Corporation's other
benefit and compensation programs and for other purposes related to such
plans. Approximately one million common shares were repurchased by the
Corporation in the third quarter of 1995.
10
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
RESULTS OF OPERATIONS
Lockheed Martin Corporation's operating cycle is long-term and involves
various types of production contracts and varying production delivery
schedules. Accordingly, results of a particular quarter, or quarter-to-quarter
comparisons of recorded sales and profits, may not be indicative of future
operating results. The following comparative analysis should be viewed in this
context.
The Corporation's consolidated sales for the third quarter of 1995 were $5.6
billion, which represents a three percent decrease over the amount reported
for the same period in 1994. Consolidated sales for the nine months ended
September 30, 1995 were $16.8 billion, a three percent increase over the $16.3
billion reported for the same period in 1994. Most of the year-to-date
increase occurred in the Space and Strategic Missiles segment, principally due
to the acquisition of the former Space Systems Division of General Dynamics
Corporation on May 1, 1994, offset in part by declines in sales for the third
quarter and year to date in the Electronics segment.
For the quarter ended September 30, 1995, the Corporation recorded earnings
from operations of $510 million, which represents a 15 percent increase over
the amount recorded in the same period of 1994. For the nine months ended
September 30, 1995, earnings from operations were $744 million, a decrease of
$554 million from the amount recorded for the same period of 1994. Earnings
from operations in 1995 includes the effects of a $525 million pretax charge
taken in the second quarter in conjunction with a corporate-wide consolidation
plan announced in June (see Note 2) and a pretax charge of $165 million taken
in the first quarter of 1995 for merger related fees, other payments, and
relocation and severance costs associated with Lockheed Martin headquarters
and sector staffing. Without these two charges, year-to-date earnings from
operations for 1995 were approximately ten percent greater than the 1994
amount. Earnings growth excluding these charges resulted from improvements in
the Aeronautics segment and in Space and Strategic Missiles, offset in part by
declines in Electronics.
Other income and expenses, net, were $24 million in the third quarter of
1995 compared to $9 million in 1994. Other income and expenses, net, for the
first nine months of 1995 were $89 million compared to $183 million for the
same period in 1994. The net decrease was primarily due to a one-time pretax
gain of $118 million in 1994 resulting from the initial public offering (IPO)
of shares of common stock of Martin Marietta Materials, Inc. (Materials), and
the receipt of a $50 million fee pursuant to termination of the proposed
acquisition of Grumman Corporation (see Note 5).
Income tax expense decreased for the first nine months of 1995 compared to
1994 principally due to the lower income resulting from the 1995 merger
related and consolidation expenses and the absence of the 1994 Materials IPO
gain, offset in part by a higher effective tax rate of 39.3 percent in 1995
compared to 37.2 percent in the first nine months of 1994. This rate increase
was primarily caused by the nondeductibility of certain merger related
expenses that will be capitalized for federal income tax purposes. The
effective rates in both years are higher than the statutory corporate federal
income tax rate principally due to the nondeductibility for tax purposes of
cost in excess of net assets acquired associated with acquisition activities.
The first quarter of 1994 included an after-tax charge of approximately $37
million due to adoption of a change in accounting for the ESOP under the
American Institute of Certified Public Accountants Statement of Position No.
93-6 (see Note 2).
The following table displays third quarter and year-to-date net sales and
earnings before interest and taxes, excluding merger related and consolidation
expenses for the Lockheed Martin business segments. The subsequent discussion
of significant operating results of each segment also excludes the impact of
the merger related and consolidation expenses.
11
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1995 1994 1995 1994
--------- --------- -------- --------
(IN MILLIONS)
Net Sales:
Space and Strategic Missiles.......... $ 1,798 $ 1,675 $ 5,545 $ 4,823
Aeronautics........................... 1,640 1,729 4,882 4,898
Information and Technology Services... 1,081 1,009 3,276 2,990
Electronics........................... 805 1,095 2,455 3,040
Energy, Materials and Other........... 227 196 643 551
--------- --------- -------- --------
Total............................... $ 5,551 $ 5,704 $ 16,801 $ 16,302
========= ========= ======== ========
Earnings Before Interest and Taxes,
Excluding Merger Related and
Consolidation Expenses:
Space and Strategic Missiles.......... $ 184 $ 124 $ 531 $ 388
Aeronautics........................... 131 157 406 351
Information and Technology Services... 71 32 180 126
Electronics........................... 85 98 258 331
Energy, Materials and Other........... 63 41 148 285
--------- --------- -------- --------
Total............................... $ 534 $ 452 $ 1,523 $ 1,481
========= ========= ======== ========
Third quarter Space and Strategic Missiles sales increased seven percent in
1995 compared to 1994. Most of the increase was attributable to the successful
launch of two Atlas space launch vehicles in 1995 versus one successful launch
in the comparable prior year period. Year-to-date 1995 sales increased 15
percent over 1994 primarily as a result of the inclusion of the former Space
Systems Division of General Dynamics Corporation for the full year. Earnings
from operations increased 48 percent for the third quarter of 1995 and 37
percent for the year to date as compared to the same periods of 1994 because
of the inclusion of the Atlas launch services program, the receipt of a
favorable settlement resulting from the prior termination of the Advanced
Solid Rocket Motor program and the nonrecurrence of 1994 write-downs on
certain fixed price programs.
The third quarter 1995 Aeronautics sales decreased five percent in 1995
compared with the same period in 1994 due to fewer deliveries of F-16 aircraft
than a year ago. This decrease was partially offset by delivery of two P-3
aircraft in 1995 (versus none in the comparable prior year period). Sales for
the first nine months of 1995 were essentially level with nine month 1994
sales. Deliveries of five P-3 aircraft in 1995 (versus none in 1994) were
offset by fewer deliveries of F-16 fighter aircraft and C-130 cargo aircraft.
Earnings from operations were 17 percent lower in the third quarter of 1995
due to fewer F-16 deliveries and reduced profits on non-aircraft activities.
However, year-to-date 1995 earnings from operations were 16 percent greater
than the comparable period in 1994 due to a nonrecurrence of charges against
earnings taken in 1994 in connection with the Pratt & Whitney fan reverser
program as well as lower costs related to the development of the upgraded
C-130J model.
Information and Technology Services sales for the third quarter of 1995 were
seven percent greater than the comparable 1994 sales, with the increases
occurring primarily in commercial products, information management and space
activities. Sales for the first nine months of 1995 were ten percent greater
than for the first nine months of 1994, reflecting increases in those same
activities. Earnings from operations for the quarter were 122 percent higher
for the third quarter of 1995 and 43 percent higher for the year to date,
reflecting timing of award fee recognition, sales volume increases and
improved margin performance throughout the segment.
Third quarter and 1995 year-to-date Electronics sales were 26 percent and 19
percent lower than the respective 1994 periods primarily because of volume
decreases in various programs, particularly in the AEGIS and BSY-2 programs.
Additionally, the current year-to-date sales performance reflects a transition
between mature production programs and new development programs. Earnings from
operations for the third quarter of 1995 and for the year to date were 13
percent and 22 percent lower, respectively, than the corresponding periods
12
in 1994 due to the impact of the volume decreases described above as well as
from investments in new businesses and substantial completion of subcontract
activities on the Patriot and other mature production programs.
Sales in both Energy and Materials grew in the third quarter of 1995, as well
as for the year to date, reflecting the January 1995 Materials acquisition of
the construction aggregates business of Dravo Corporation (Dravo) and the
commencement of activities under the Idaho National Engineering Laboratories
Management and Operations and Pit 9 contracts in the fourth quarter of 1994.
Earnings from operations for the third quarter of 1995 reflect the favorable
earnings impact of these activities, while the decrease in earnings in this
segment for the first nine months of 1995 reflects the one-time $118 million
gain associated with the Materials IPO and the $50 million termination fee from
Grumman Corporation recorded in 1994.
The following table displays the pretax impact of the merger related and
consolidation expenses as identified to each segment.
NINE MONTHS ENDED
SEPTEMBER 30, 1995
------------------
(IN MILLIONS)
Space and Strategic Missiles.............................. $263
Aeronautics............................................... 138
Information and Technology Services....................... 24
Electronics............................................... 93
Energy, Materials and Other............................... 172
----
Total................................................... $690
====
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1995, approximately $620 million in cash flow
was provided by operating activities, compared with $1,289 million for the same
period in 1994, with the decrease mostly due to lower earnings in 1995 as well
as cash outlays in connection with merger related and consolidation expenses.
Capital expenditures for property, plant and equipment increased principally
due to fixed asset requirements for new programs within the Space and Strategic
Missiles segment. Other cash flow requirements in 1995 related to acquisitions,
principally Dravo, while the 1994 cash flows benefitted from proceeds from the
Materials IPO and receipt of the Grumman termination fee, which offset cash
used for the acquisition of the former Space Systems Division of General
Dynamics Corporation and the defeasance in substance of $125 million of 9.5%
Notes in February 1994.
The Corporation held cash and cash equivalent balances of $122 million at
September 30, 1995 and $639 million at December 31, 1994. Cash on hand and
temporarily invested, internally generated funds, and available financing
resources are expected to be sufficient to meet anticipated operating,
consolidation and debt service requirements and discretionary investment needs.
During the second quarter of 1995, the Corporation repaid approximately $240
million of medium term notes which matured during the quarter. The Corporation
has no additional material maturing long-term debt that is scheduled to be
retired during the remainder of 1995.
At September 30, 1995, stockholders' equity was approximately $6.3 billion,
an increase of $179 million from the balance at December 31, 1994. The increase
is principally due to the excess of year-to-date earnings over dividends and
common stock repurchases. On July 27, 1995, the Corporation's Board of
Directors authorized the repurchase of up to six million common shares under a
systematic repurchase plan to counter the future dilutive effect of common
stock issued by the Corporation under its 1995 Omnibus Performance Award Plan.
Additionally, the Board authorized the repurchase of up to nine million common
shares to counter the dilutive effect of common stock issued under the
Corporation's other benefit and compensation programs and for other purposes
related to such plans. Approximately one million common shares were repurchased
by the Corporation in the third quarter of 1995.
13
LOCKHEED MARTIN CORPORATION
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 15, 1995, Lockheed Corporation (Lockheed) and Martin Marietta
Corporation (Martin Marietta) consummated a transaction (the Business
Combination) pursuant to which Lockheed and Martin Marietta became wholly-
owned subsidiaries of a newly created holding corporation, Lockheed Martin
Corporation (collectively with its subsidiaries, Lockheed Martin or the
Corporation). A detailed description of the Business Combination is contained
within the Joint Proxy Statement/Prospectus which forms a part of Lockheed
Martin's Form S-4 Registration Statement (No. 33-57645) filed with the
Securities and Exchange Commission (the Commission) on February 9, 1995.
Lockheed Martin is primarily engaged in providing products and services
under contracts with the United States Government and, to a lesser degree,
under foreign government contracts, some of which are funded by the United
States Government. All such contracts are subject to extensive legal and
regulatory requirements and, from time to time, agencies of the United States
Government investigate whether Lockheed Martin's operations are being
conducted in accordance with these requirements. Such investigations could
result in administrative, civil or criminal liabilities, including
reimbursements, fines or penalties being imposed upon Lockheed Martin, or
could lead to suspension or debarment from future government contracting by
Lockheed Martin. Lockheed Martin is also a party to or has its property
subject to various other litigation and proceedings, including matters arising
under provisions relating to the protection of the environment (collectively,
proceedings).
As a consequence of the Business Combination, proceedings involving either
Lockheed or Martin Marietta have the potential to affect Lockheed Martin.
Certain of these proceedings are described in "Item 3. Legal Proceedings" on
page 7 of Lockheed's Annual Report on Form 10-K for the fiscal year ended
December 25, 1994 (the Lockheed Form 10-K), in Note 10 to Lockheed's
Consolidated Financial Statements included in Part II of the Lockheed Form 10-
K and in "Item 3. Legal Proceedings" on pages 28 through 39 of Martin
Marietta's Annual Report on Form 10-K for the fiscal year ended December 31,
1994 and, except to the extent superseded by the discussion below or by
Lockheed Martin's filing under cover of Form 10-K dated May 10, 1995, these
descriptions are incorporated herein by reference.
Reference is made to prior disclosure of a civil suit captioned United
States of America ex rel. Margaret A. Newsham and Martin Overbeek Bloom v.
Lockheed Missiles and Space Company, Inc. The trial date, which has been
rescheduled several times previously, has again been rescheduled. The current
date is September 9, 1996 and further delays are possible.
On September 6, 1995, Lockheed Aeromed Centers, Inc. was served with a civil
complaint filed by Pima County, Arizona. The Complaint alleges (i) that on two
dates in 1991 and three dates in 1992 the Company exceeded certain discharge
parameters set forth in the Company's wastewater discharge permit, (ii) that
the Company was late in notifying the County with respect to two of these
instances and (iii) that the Company did not fully test its wastewater
discharge on two occasions in 1992. As a result, the County alleges that it is
entitled to up to $2.5 million in civil penalties.
Lockheed Martin is involved in various other legal and environmental
proceedings arising in the ordinary course of its business but, in the opinion
of management and counsel, the probability is remote that the outcome of any
such litigation or proceedings, whether or not specifically described above or
referred to generally in this paragraph, will have a material adverse effect
on the results of Lockheed Martin's operations or its financial position.
14
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
1. Exhibit 11. Lockheed Martin Corporation Computation of Earnings per
Common Share for the three months and nine months ended September 30,
1995.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the nine months ended September 30, 1995.
3. Exhibit 27. Financial Data Schedule for the nine months ended
September 30, 1995.
(b) Reports on Form 8-K
1. Current report on Form 8-K filed on October 2, 1995
Item 5.--Other Events
The registrant filed its Management's Discussion and Analysis of
Financial Condition and Results of Operations for the year ended
December 31, 1994.
15
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1995
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
Lockheed Martin Corporation
(Registrant)
/s/ Robert E. Rulon
by: _________________________________
ROBERT E. RULON
Vice President and Controller
(Chief Accounting Officer)
Date: November 13, 1995
16
EXHIBIT 11
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------- --------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(IN MILLIONS, EXCEPT PER SHARE DATA)
ASSUMING NO DILUTION:
Average number of common shares
outstanding....................... 190.0 187.2 189.4 186.3
========= ========= ========= =========
Earnings before cumulative effect
of change in accounting........... $ 287 $ 254 $ 371 $ 785
Less: Preferred stock dividends.. (15) (15) (45) (45)
--------- --------- --------- ---------
Earnings before cumulative effect
of change in accounting applicable
to common stock................... 272 239 326 740
Cumulative effect of change in
accounting........................ -- -- -- (37)
--------- --------- --------- ---------
Net earnings applicable to common
stock............................. $ 272 $ 239 $ 326 $ 703
========= ========= ========= =========
Earnings per common share:
Before cumulative effect of
change in accounting............ $ 1.43 $ 1.28 $ 1.72 $ 3.97
Cumulative effect of change in
accounting...................... -- -- -- (.20)
--------- --------- --------- ---------
$ 1.43 $ 1.28 $ 1.72 $ 3.77
========= ========= ========= =========
ASSUMING FULL DILUTION:
Average number of common shares
outstanding....................... 190.0 187.2 189.4 186.3
Dilutive stock options-based on the
treasury stock method using the
September 30 market prices, if
higher than average market price.. 4.2 2.4 4.3 2.8
Assumed conversion of the
Convertible Series A Preferred
Stock............................. 28.9 28.9 28.9 28.9
--------- --------- --------- ---------
223.1 218.5 222.6 218.0
========= ========= ========= =========
Earnings before cumulative effect
of change in accounting........... $ 287 $ 254 $ 371 $ 785
Cumulative effect of change in
accounting........................ -- -- -- (37)
--------- --------- --------- ---------
Net earnings....................... $ 287 $ 254 $ 371 $ 748
========= ========= ========= =========
Earnings per common share:
Before cumulative effect of
change in accounting............ $ 1.29 $ 1.16 $ 1.67 $ 3.60
Cumulative effect of change in
accounting...................... -- -- -- (.17)
--------- --------- --------- ---------
$ 1.29 $ 1.16 $ 1.67 $ 3.43
========= ========= ========= =========
17
EXHIBIT 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN MILLIONS, EXCEPT RATIO)
EARNINGS:
Net earnings............................................................ $371
Income tax expense...................................................... 240
Interest expense........................................................ 222
Amortization of debt premium and discount, net.......................... (4)
Portion of rents representative of an interest factor................... 40
Losses of less than 50% owned associated companies...................... 6
----
Adjusted earnings before taxes and fixed charges........................ $875
====
FIXED CHARGES:
Interest expense........................................................ $222
Amortization of debt premium and discount, net.......................... (4)
Portion of rents representative of an interest factor................... 40
Capitalized interest.................................................... 2
----
Total fixed charges..................................................... $260
====
RATIO OF EARNINGS TO FIXED CHARGES........................................ 3.4
====
The above ratio computation reflects the impact of merger related and other
consolidation expenses recorded during 1995.
18
5
1,000,000
9-MOS
DEC-31-1995
JUL-01-1995
SEP-30-1995
122
0
3,820
0
3,183
8,013
8,214
4,783
18,366
5,969
2,892
0
1,000
199
5,056
18,366
16,801
16,801
15,367
16,057
89
0
222
611
240
371
0
0
0
371
1.72
1.67
