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 MARCH 31, 1995 COMMISSION FILE NUMBER 1-11437
---------------- -------
LOCKHEED MARTIN CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 52-1893632
------------------------------- ---------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
INCORPORATION OR ORGANIZATION)
6801 ROCKLEDGE DRIVE, BETHESDA, MD 20817
- ---------------------------------------- --------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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 APRIL 30, 1995
- ------------------------------------ --------------------------------
COMMON STOCK, $1 PAR VALUE 199,747,452
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LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS -
THREE MONTHS ENDED MARCH 31, 1995 AND 1994 . . . . . . . . . . . 3
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS -
THREE MONTHS ENDED MARCH 31, 1995 AND 1994 . . . . . . . . . . . 4
CONDENSED CONSOLIDATED BALANCE SHEET -
MARCH 31, 1995 AND DECEMBER 31, 1994 . . . . . . . . . . . . . . 5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . 11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . . . . . 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . .16
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
EXHIBIT 11. COMPUTATION OF EARNINGS PER COMMON SHARE. . . . . . . . . . 19
EXHIBIT 12. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES . . . . . 21
EXHIBIT 27. FINANCIAL DATA SCHEDULE . . . . . . . . . . . . . . . . . . 22
2 OF 22
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1995 1994
------ ------
(In millions, except per share data)
Net sales $5,644 $5,036
Costs and expenses:
Cost of sales 5,189 4,634
Merger related expenses 165 -
------ ------
Earnings from operations 290 402
Other income and expenses, net 22 123
------ ------
312 525
Interest expense 79 77
------ ------
Earnings before income taxes and cumulative
effect of change in accounting 233 448
Income tax expense 96 176
------ ------
Earnings before cumulative effect of change
in accounting 137 272
Cumulative effect of change in accounting - (37)
------ ------
Net earnings $ 137 $ 235
====== ======
Earnings per common share:
Assuming no dilution:
Before cumulative effect of change
in accounting $ .65 $ 1.38
Cumulative effect of change in
accounting - (.20)
------ ------
$ .65 $ 1.18
====== ======
Assuming full dilution:
Before cumulative effect of change
in accounting $ .62 $ 1.25
Cumulative effect of change in
accounting - (.17)
------ ------
$ .62 $ 1.08
====== ======
Cash dividends declared per
common share $ .29 $ .27
====== ======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3 of 22
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1995 1994
---- ----
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings before cumulative effect of change
in accounting $ 137 $ 272
Adjustments to reconcile earnings to net cash
provided by operating activities:
Merger related expenses - provision 165 -
- payments (11) -
Gain from Materials public offering - (118)
Depreciation and amortization 222 226
Changes in operating assets and liabilities (327) (80)
----- -----
Net cash provided by operating activities 186 300
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds - Materials public offering - 189
Additions to properties, net of purchased
operations (127) (111)
Acquisitions (141) (5)
----- -----
Net cash (used for) provided by
investing activities (268) 73
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing proceeds (repayments) 7 (136)
Issuances of common shares 19 9
Common stock dividends (55) (51)
Preferred stock dividends (15) (15)
----- -----
Net cash used for financing activities (44) (193)
----- -----
Net (decrease) increase in cash and cash equivalents (126) 180
Cash and cash equivalents at beginning of period 639 366
----- -----
Cash and cash equivalents at end of period $ 513 $ 546
===== =====
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4 of 22
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1995 1994
--------- ------------
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 513 $ 639
Receivables 3,529 3,473
Inventories 2,975 3,159
Deferred income taxes 610 597
Other current assets 395 275
------- -------
Total current assets 8,022 8,143
Property, plant and equipment 3,482 3,455
Intangible assets related to contracts and
programs acquired 2,000 1,971
Cost in excess of net assets acquired 2,827 2,831
Other assets 1,627 1,649
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$17,958 $18,049
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,001 $ 1,306
Customer advances 1,488 1,544
Salaries, benefits and payroll taxes 872 767
Income taxes 306 111
Current maturities of long-term debt 281 285
Other current liabilities 1,628 1,622
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Total current liabilities 5,576 5,635
Long-term debt 3,596 3,594
Post-retirement benefit liabilities 1,771 1,756
Other liabilities 837 978
Stockholders' equity:
Series A preferred stock, $50 liquidation
preference per share 1,000 1,000
Common stock, $1 par value per share 200 199
Additional paid-in capital 750 734
Retained earnings 4,537 4,470
Unearned ESOP shares (309) (317)
------- -------
6,178 6,086
------- -------
$17,958 $18,049
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5 of 22
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 quarter ended March 31, 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 for
the interim periods. The results of operations for the quarter ended March 31,
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 quarter ended March 31, 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 quarter ended March 31, 1994 were as follows:
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LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
As Previously Reported
--------------------------
Lockheed
Martin Combining Martin
Lockheed Marietta Adjustments Combined
-------- -------- ----------- --------
(In millions, except per share data)
Net sales $3,025 $2,034 $(23) $5,036
Earnings before cumulative effect of
change in accounting 92 184 (4) 272
Earnings per share before cumulative
effect of change in accounting,
assuming full dilution .89* 1.47 - 1.25
* Amounts for Lockheed have been adjusted for the 1.63 exchange ratio related
to the Business Combination.
For the first quarter 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 first quarter of
1995 and 1994, the weighted average Unallocated ESOP Shares excluded in
calculating earnings per share totaled approximately 10.8 million and 12.0
million equivalent shares of Lockheed Martin common stock, respectively.
7 of 22
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
The Corporation currently estimates that costs and expenses to be incurred in
connection with consummating the Business Combination and integrating the
operations of Lockheed and Martin Marietta could total approximately $850
million, and that a significant portion of these costs and expenses will result
in charges to earnings. During the first quarter of 1995, the Corporation
recorded a pretax charge of $165 million for merger related expenses, which
reduced net earnings by $110 million, or $.50 per common share assuming full
dilution.
NOTE 3 - INVENTORIES
March 31, December 31,
1995 1994
---- ----
(In millions)
Work in process, primarily on long-term
contracts and programs in progress $ 3,837 $4,678
Less customer advances and progress payments (1,560) (2,172)
------ ------
2,277 2,506
Other inventories 698 653
------ ------
$ 2,975 $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 have been no borrowings
under the Credit Agreement.
Prior to the Business Combination, Lockheed had a $1 billion credit facility and
Technologies had an $800 million credit facility, both with substantially the
same terms and conditions as the Credit Agreement. The existing credit
facilities of Lockheed and Technologies were terminated immediately prior to the
consummation of the Business Combination.
8 of 22
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
(UNAUDITED)
The Corporation's total interest payments were approximately $68 million and
$74 million for the quarter ended March 31, 1995 and 1994, respectively.
NOTE 5 - OTHER INCOME AND EXPENSES
Three Months Ended
March 31,
1995 1994
----- -----
(In millions)
Gain - Materials public offering $ - $ 118
Royalty income 18 3
Interest income 10 3
Other (6) (1)
----- -----
$ 22 $ 123
===== =====
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, for the first quarter of 1994.
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 previously 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
9 of 22
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
NOTE 7 - OTHER
The Corporation's total income tax payments were approximately $7 million
and $10 million for the quarter ended March 31, 1995 and 1994, respectively.
10 OF 22
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
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.
RESULTS OF OPERATIONS
Consolidated sales for the first quarter were $5.6 billion in 1995, a 12 percent
increase over the $5.0 billion recorded for the same period in 1994. Most of
the 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. Sales also increased in the Aeronautics segment,
primarily at Tactical Aircraft Systems (formerly Lockheed Fort Worth Company).
Earnings from operations declined to $290 million in 1995 compared to $402
million in 1994, primarily due to the recognition of merger related expenses of
$165 million in 1995. The merger related expenses included fees and other
payments resulting from the business combination (the Business Combination) of
Lockheed Corporation (Lockheed), Martin Marietta Corporation (Martin Marietta)
and Lockheed Martin Corporation (Lockheed Martin or the Corporation), as well as
relocation and severance costs associated with Lockheed Martin headquarters and
sector staffing. The cash payments related to these expenses will primarily
occur in the second quarter of 1995. Aside from this item, increases in earnings
before interest and taxes were attained in Space and Strategic Missiles and in
Aeronautics, offset in part by declines in the Electronics segment.
Other income and expenses, net, declined to $22 million in the first quarter of
1995 compared to $123 million in 1994 primarily due to a one-time gain of $118
million in 1994 resulting from the initial public offering (IPO) of shares of
common stock of Martin Marietta Materials, Inc. (Materials) (see Note 5).
Income tax expense decreased in the first quarter of 1995 compared to 1994
principally due to the lower income resulting from 1995 merger related expenses
and the absence of 1994's IPO, offset in part by a higher tax rate of 41.2
percent in 1995 compared to 39.3 percent in the first quarter of 1994. This
increased rate is caused by the nondeductibility of certain merger related
expenses that will be capitalized for federal income tax purposes.
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 (SOP)
No. 93-6 (see Note 2).
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LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS (CONTINUED)
The following table displays first quarter sales and earnings before interest
and taxes for the Lockheed Martin business segments.
Three Months Ended
March 31,
1995 1994
---- ----
(In millions)
Sales:
Space and Strategic Missiles $1,852 $1,455
Aeronautics 1,768 1,578
Information and Technology Services 1,035 943
Electronics 810 913
Energy, Materials and Other 179 147
------ ------
Total $5,644 $5,036
====== ======
Earnings Before Interest and Taxes:
Space and Strategic Missiles $ 181 $ 136
Aeronautics 140 93
Information and Technology Services 47 32
Electronics 89 128
Energy, Materials and Other* (145) 136
------ ------
Total $ 312 $ 525
====== ======
*Amounts displayed for Energy, Materials and Other include $165 million of
merger related expenses for the first quarter, 1995, and $118 million gain
related to the Materials IPO for the first quarter, 1994.
- --------------
First quarter Space and Strategic Missiles sales increased approximately 27
percent in 1995 compared to 1994. Most of the increase was the result of the
acquisition of the former Space Systems division of General Dynamics
Corporation, and the subsequent performance of its Atlas launch services
program. Earnings from operations also increased, corresponding to the increase
in Atlas sales, but also reflecting an earnings rate adjustment due to improved
performance on the Titan launch vehicle program.
Aeronautics sales in the first three months of 1995 were 12 percent higher than
in 1994, reflecting higher F-16 fighter support and F-22 fighter activities at
Tactical Aircraft Systems and the delivery of two P-3 maritime patrol aircraft,
offset in part by lower C-130 airlifter deliveries. Earnings from operations
were 50 percent higher in 1995 compared to 1994, resulting from increases
corresponding to the sales growth, nonrecurrence of a first quarter 1994 charge
against earnings in connection with the Pratt & Whitney fan reverser program,
and higher C-130 margins as well as lower development costs related to
the upgraded C-130 J model.
12 OF 22
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS (CONTINUED)
In the Information and Technology Services segment, sales were 10 percent higher
for the first quarter of 1995 compared to 1994. This growth was primarily in
the Commercial Products group. Earnings from operations were higher by 46
percent, reflecting improved performance in most activities, particularly at
Manned Space Systems.
Electronics segment sales were down by 11 percent compared to the first three
months of 1994, mostly at Ocean, Radar and Sensor Systems, and at Sanders due to
program delays. Earnings from operations were lower by 30 percent, mostly due
to investments in new business and substantial completion of the Patriot
subcontract activities at Electronics and Missiles as well as lower earnings
corresponding to the sales declines.
Sales in both Energy and Materials grew in the first quarter of 1995, 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 other operations resulted in a
$145 million loss in the first quarter of 1995 compared to $136 of income in the
same period in 1994, due to the 1995 recognition of $165 million of merger
related expenses and the 1994 one-time $118 million gain associated with the
Materials IPO.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1995, $186 million in cash flow was provided by
operating activities, compared with $300 million in the first quarter of 1994,
mostly due to changes in operating assets and liabilities other than the
liabilities for accrued merger related expenses. Capital expenditures for
property, plant and equipment also increased, primarily due to fixed asset
requirements for new programs in the Astronautics division of Space and
Strategic Missiles. Other cash flow requirements in the first quarter of 1995
related to acquisitions, principally Dravo, while the first quarter of 1994
benefited from proceeds from the Materials IPO offset in part by payments to
defease in substance $125 million of 9.5% Notes in February 1994.
The Corporation held cash and cash equivalent balances of $513 million and $639
million at March 31, 1995 and December 31, 1994, respectively. Cash on hand and
temporarily invested, internally generated funds, and available financing
resources are expected to be sufficient to meet anticipated operating and debt
service requirements and discretionary investment needs. At the end of the
first quarter, the Corporation had no borrowings outstanding under a credit
agreement with a group of domestic and foreign banks (see Note 4).
In May 1995, the Corporation issued short-term commercial paper primarily to
fund the repayment of $200 million of medium term notes which matured on May 11,
1995. During 1995, the Corporation will retire an additional $85 million of its
maturing long-term debt.
During the second quarter of 1995, the Corporation anticipates filing a shelf
registration statement registering debt securities of the Corporation. The
registration statement would replace previously existing registration statements
of Lockheed and Martin Marietta Technologies, Inc., a wholly-owned subsidiary of
Martin Marietta.
Stockholders' equity at the end of March 1995 was approximately $6.2 billion, an
increase of $92 million over the balance at the end of 1994. The increase was
due to the retention of first quarter earnings in excess of dividends paid and
the issuance of new shares upon exercise of employee stock options.
The Corporation has announced that decisions related to consolidations of its
operations are expected to be reached by the end of the second quarter of 1995.
13 OF 22
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). 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 31, 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 on Form 10-K dated May 9, 1995, these descriptions are incorporated
herein by reference.
Reference is made to the June 22, 1994 indictment by a federal grand jury
sitting in Atlanta, Georgia, of Lockheed and two of its employees charging that
Lockheed and the two employees violated the Foreign Corrupt Practices Act
(FCPA), conspired to violate the FCPA, conspired to commit wire fraud, and
impaired and impeded agencies of the United States Department of Defense and to
the resulting plea agreement between Lockheed and the United States of America
pursuant to which Lockheed agreed to plead guilty to one count of conspiring to
violate the bribery provisions of the FCPA and conspiring to falsify its books,
records and accounts. As a result of this plea agreement, Lockheed Martin is in
the process of negotiating an Administrative Settlement Agreement with the
United States Air Force Office of Contractor Integrity. If an Administrative
Settlement Agreement cannot be reached, Lockheed Martin could be subject to
suspension or debarment.
Reference is made to the description of proceedings pertaining to a
contract with the Navy for the full-scale development of the Supersonic Low
Altitude Target (SLAT). The Court granted in part and denied in part Martin
Marietta's Motion to Dismiss and Martin Marietta is proceeding with the
preparation of an Answer to the Complaint. The Answer is expected to be filed
in the next several weeks.
Reference is made to the suit filed by AT&T against Martin Marietta. The
parties have settled this proceeding on terms that will not have a material
adverse effect on Lockheed Martin.
Reference is made to the description of the stockholder litigation filed in
connection with the Combination. As previously reported, these proceedings were
settled, subject to the approval of the Court. A hearing with respect to final
approval has been set for June 20, 1995.
On May 4, 1995, Lockheed Martin was served with a subpoena by the
Department of Defense Inspector General compelling the production of records
relating to the Advanced Concept Center and Information Systems and Technologies
business which are parts of the Lockheed Martin Management & Data Systems
company (formerly Martin Marietta Management & Data Systems Co.). Lockheed
Martin is in the process of reviewing the subpoena and considering its response
thereto.
Lockheed Martin Aeronautical Systems (formerly Lockheed Aeronautical
Systems Co.) received a demand letter, dated April 5, 1995, from the
Environmental Protection Division of the Georgia Department of Natural Resources
(EPD) for civil penalties totalling $480,000 in connection with a number of
alleged violations of federal regulations under the Resource Conservation and
Recovery Act. The allegations all generally relate to the storage and handling
of hazardous wastes. Lockheed Martin intends to contest the matter.
Lockheed Martin Space Operations Company (formerly Lockheed Space
Operations Co.) is informed that the Florida Department of Environmental
Protection (FDEP) is considering an enforcement action against the company and
the National Aeronautics & Space Administration (NASA) for alleged violations of
federal regulations under the Resource Conservation and Recovery Act in
connection with the handling of contaminated process water at the Kennedy Space
Center in connection with the company's performance of services for NASA.
Lockheed Martin expects that the FDEP's demand could exceed $100,000 and intends
to contest the matter.
During the first quarter of 1995, Lockheed Martin received a subpoena
requiring the production of documents before a federal grand jury sitting in
Boise, Idaho. Lockheed Martin has complied with the subpoena. Lockheed Martin
has not been informed of the specific focus of the investigation.
Lockheed Missiles & Space Company, Inc. is a defendant in a civil suit in
the United States District Court for the Northern District of California brought
under the qui tam provisions of the Civil False Claims Act which permit
individuals to bring suit in the name of the government and share in any
recovery received. The suit, captioned United States ex rel. Margaret A.
---------------------------------
Newsham and Martin Overbeek Bloom v. Lockheed Missiles and Space Company, Inc.,
- ------------------------------------------------------------------------------
was filed in January 1988. The complaint sets forth numerous allegations of
improper conduct by Lockheed and seeks unspecified damages. The Department of
Justice conducted a thorough investigation of the matter after the Complaint was
filed and has declined to intervene in the case. Lockheed Martin believes the
litigation to be without merit and intends to defend the matter. Discovery is
proceeding and trial is currently scheduled for January 1996.
The United States Environmental Protection Agency and the U.S. Army CID are
conducting a criminal investigation to determine whether Lockheed improperly
disposed of hazardous wastes at a U.S. Government test site in Nevada. The
investigation is in its early stages and its course cannot be predicted.
Lockheed Martin Tactical Aircraft Systems (formerly Lockheed Fort Worth
Co.) (LMTAS) was notified on April 2, 1993 of an investigation being conducted
by the U.S. Attorney's Office in Fort Worth, Texas. Although the investigation
focuses on alleged improper activities by the party from whom Lockheed purchased
these operations, it has affected progress billings by LMTAS. The investigation
is in its early stages and its course cannot be predicted, but, if it adversely
affects LMTAS, Lockheed Martin intends to seek indemnification from the
responsible party under the terms of the purchase agreement.
The U.S. Air Force Office of Special Investigations, in consultation with
the U.S. Attorney's Office in Montgomery, Alabama is conducting a criminal
investigation to determine whether Lockheed Martin Missiles & Space (formerly
Lockheed Missiles & Space Co.) (LMM&S) made false statements to the government
in connection with LMM&S's Integrated Computer-Aided Software Engineering (I-
CASE) proposal.
On March 31, 1995, Lockheed Sanders, Inc. (Sanders) was served with a
subpoena by the Department of Defense Inspector General's Office requiring the
production of various documents generally relating to cost and pricing data
pertaining to a contract with the U.S. Navy for the production of computer chip
kits (EEPROM Kits) used in on-board radio frequency jammer systems for aircraft
missile self-protection (AN/ALQ 126B). Sanders is in the process of responding
to the subpoena.
On June 8, 1993, a federal grand jury sitting in Washington, D.C. issued a
subpoena to Sanders requiring the production of documents related to the use of
and payments related to in-country support services related to the sales of
Trackstar radar units in Egypt. Sanders believes that it is not a subject or
target of the investigation.
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 OF 22
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
No matters were submitted to a vote of the security holders of Lockheed
Martin during the period covered by this report, however, at Special Meetings of
the stockholders of Lockheed and Martin Marietta held on March 15, 1995, holders
of the common stock of Lockheed and Martin Marietta, among other things,
approved the adoption of the Lockheed Martin Corporation 1995 Omnibus
Performance Award Plan and the Lockheed Martin Corporation Directors Deferred
Stock Plan. Common stockholders of Lockheed and Martin Marietta constituted all
of the common stockholders of Lockheed Martin immediately following the Business
Combination.
15 OF 22
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
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 ended March 31, 1995 and 1994.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the three months ended March 31, 1995.
3. Exhibit 27. Financial Data Schedule for the three months ended March 31,
1995.
(b) Reports on Form 8-K
1. Current report on Form 8-K filed on March 15, 1995
Item 5. - Other Events
The registrant filed information regarding the approval by the stockholders of
Lockheed Corporation and Martin Marietta Corporation of the combination of the
business of the two corporations at the respective special meetings of these
corporations called for this purpose.
Item 7. - Financial Statements and Exhibits
Unaudited Pro Forma Combined Condensed Financial Statements as of December 31,
1994 and for the fiscal year then ended.
Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
2. Current report on Form 8-K filed on March 23, 1995
Item 2. - Acquisition or Disposition of Assets
16 OF 22
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION (CONTINUED)
The registrant filed information regarding the consummation of the combination
of the businesses of Lockheed and Martin Marietta pursuant to an Agreement and
Plan of Reorganization, dated August 29, 1994, among Lockheed, Martin Marietta
and Lockheed Martin.
3. Current report on Form 8-K filed on May 4, 1995
Item 5. - Other Events
The registrant filed on behalf of Lockheed Corporation, its wholly-owned
subsidiary, a copy of Lockheed Martin Corporation Procedure No. INT-01, which
pertains to consultants to Lockheed Martin Corporation.
17 OF 22
LOCKHEED MARTIN CORPORATION
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)
Date: May 15, 1995 by: /s/Robert E. Rulon
------------ ----------------------------
Robert E. Rulon
Vice President and Controller
(Chief Accounting Officer)
18 OF 22
EXHIBIT 11
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
March 31,
-------------------
1995 1994
----- ----
(In millions, except per share data)
ASSUMING NO DILUTION:
- ---------------------
Average number of common shares outstanding 188.5 186.1
====== ======
Earnings before cumulative effect of
change in accounting $ 137 $ 272
Less: Preferred stock dividends (15) (15)
------ ------
Earnings before cumulative effect of change
in accounting applicable to common stock 122 257
Cumulative effect of change in accounting - (37)
------ ------
Net earnings applicable to common stock $ 122 $ 220
====== ======
Earnings per common share:
Before cumulative effect of change in accounting $ .65 $ 1.38
Cumulative effect of change in accounting - (.20)
------ ------
$ .65 $ 1.18
====== ======
19 OF 22
EXHIBIT 11 - CONTINUED
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
March 31,
------------------------------
1995 1994
------ ------
(In millions, except per share data)
ASSUMING FULL DILUTION:
- -----------------------
Average number of common shares outstanding 188.5 186.1
Dilutive stock options-based on the treasury stock
method using the March 31 market prices, if
higher than average market price 3.1 2.5
Assumed conversion of the Convertible Series A
Preferred Stock from the date of issuance 28.9 28.9
------ ------
220.5 217.5
====== ======
Earnings before cumulative effect of change
in accounting $ 137 $ 272
Cumulative effect of change in accounting - (37)
------ ------
Net earnings $ 137 $ 235
====== ======
Earnings per common share:
Before cumulative effect of change in accounting $ .62 $ 1.25
Cumulative effect of change in accounting - (.17)
------ ------
$ .62 $ 1.08
====== ======
20 OF 22
EXHIBIT 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE QUARTER ENDED MARCH 31, 1995
(IN MILLIONS OF DOLLARS, EXCEPT RATIO)
EARNINGS:
Net earnings $ 137
Taxes on income 96
Interest expense 79
Amortization of debt premium and discount, net (2)
Portion of rents representative of an interest factor 14
Losses of less than 50% owned associated companies 1
-----
Adjusted earnings before taxes and fixed charges $ 325
=====
FIXED CHARGES:
Interest expense $ 79
Amortization of debt premium and discount, net (2)
Portion of rents representative of an interest factor 14
Capitalized interest 1
-----
Total fixed charges $ 92
=====
RATIO OF EARNINGS TO FIXED CHARGES 3.5
=====
21 OF 22
5
1,000,000
3-MOS
DEC-31-1995
JAN-01-1995
MAR-31-1995
513
0
3,529
0
2,975
8,022
8,179
4,697
17,958
5,576
3,596
0
1,000
200
4,978
17,958
5,644
5,644
5,189
5,354
22
0
79
233
96
137
0
0
0
137
0.65
0.62
