FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED MARCH 31, 1997 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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
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) HAD 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, 1997
- ----------------------------- ---------------------------------
COMMON STOCK, $1 PAR VALUE 193,128,187 SHARES
1
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1997
INDEX
Page No.
Part I. Financial Information
Item I. Financial Statements
Condensed Consolidated Statement of Earnings -
Three Months Ended March 31, 1997 and 1996.......... 3
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1997 and 1996.......... 4
Condensed Consolidated Balance Sheet-
March 31, 1997 and December 31, 1996................ 5
Notes to Condensed Consolidated Financial Statements.. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations... 12
Part II. Other Information
Item 1. Legal Proceedings............................... 16
Item 6. Exhibits and Reports on Form 8-K................ 16
Signatures....................................................... 17
Exhibit 11. Computation of Earnings Per Common Share............. 18
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges.... 19
Exhibit 27. Financial Data Schedule
2
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
------ ------
(In millions, except per share data)
Net sales $6,674 $5,109
Cost of sales 6,018 4,637
------ ------
Earnings from operations 656 472
Other income and expenses, net 21 30
------ ------
677 502
Interest expense 201 71
------ ------
Earnings before income taxes 476 431
Income tax expense 186 159
------ ------
Net earnings $ 290 $ 272
====== ======
Earnings per common share:
Assuming no dilution $ 1.49 $ 1.35
====== ======
Assuming full dilution $ 1.34 $ 1.22
====== ======
Cash dividends declared per common share $ .40 $ .40
====== ======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
3
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1997 1996
---- ----
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 290 $ 272
Adjustments to reconcile earnings to net cash provided
by operating activities:
Merger related and consolidation payments (35) (51)
Depreciation and amortization 311 214
Changes in operating assets and liabilities (459) (574)
----- -----
Net cash provided by (used for) operating activities 107 (139)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties, net of purchased operations (180) (123)
Acquisitions, investments and divestitures 383 (33)
----- -----
Net cash provided by (used for) investing activities 203 (156)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments related to debt (230) (131)
Issuance of common stock 12 14
Common stock dividends (77) (70)
Preferred stock dividends (15) (15)
----- -----
Net cash used for financing activities (310) (202)
----- -----
Net decrease in cash and cash equivalents -- (497)
Cash and cash equivalents at beginning of period -- 653
----- -----
Cash and cash equivalents at end of period $ -- $ 156
===== =====
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31, December 31,
1997 1996
--------- ------------
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ -- $ --
Receivables 5,242 4,999
Inventories 3,411 3,053
Deferred income taxes 1,074 1,088
Other current assets 328 800
------- -------
Total current assets 10,055 9,940
Property, plant and equipment 3,703 3,721
Intangible assets related to contracts and
programs acquired 1,720 1,767
Cost in excess of net assets acquired 10,325 10,394
Other assets 3,564 3,435
------- -------
$29,367 $29,257
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,331 $ 1,294
Customer advances and amounts in excess of
costs incurred 2,790 2,600
Salaries, benefits and payroll taxes 1,094 991
Income taxes 856 925
Short-term borrowings 891 1,110
Current maturities of long-term debt 468 180
Other current liabilities 1,711 1,604
------- -------
Total current liabilities 9,141 8,704
Long-term debt 9,889 10,188
Post-retirement benefit liabilities 2,115 2,077
Other liabilities 1,130 1,432
Stockholders' equity:
Series A preferred stock, $50 liquidation
preference per share 1,000 1,000
Common stock, $1 par value per share 193 193
Additional paid-in capital 117 92
Retained earnings 6,021 5,823
Unearned ESOP shares (239) (252)
------- -------
Total stockholders' equity 7,092 6,856
------- -------
$29,367 $29,257
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
5
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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. Lockheed Martin Corporation (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
March 14, 1997 in its 1996 Annual Report on Form 10-K. In the opinion of
management, the interim financial information provided herein reflects all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the results of operations for the interim periods. The results
of operations for the three months ended March 31, 1997 are not necessarily
indicative of the results to be expected for the full year.
NOTE 2 - BUSINESS COMBINATION WITH LORAL CORPORATION
In April, 1996, the Corporation purchased all of the issued and outstanding
shares of common stock of Loral Corporation (Loral) for an aggregate
consideration of $38 per share in cash. The purchase involved a series of
transactions that resulted in (i) the distribution to stockholders of Loral,
immediately prior to the consummation of the purchase, of shares of capital
stock in Loral Space & Communications, Ltd. (Loral SpaceCom), a newly-formed
company, which now owns and manages substantially all of Loral's former space
and satellite telecommunications interests, and in which the Corporation
acquired shares of preferred stock that were convertible into 20 percent of
Loral SpaceCom's common stock on a fully diluted basis at the date of
acquisition, and (ii) the acquisition by the Corporation of Loral's defense
electronics and systems integration businesses (collectively, the Loral
Transaction). In connection with the Loral Transaction, Loral changed its name
to Lockheed Martin Tactical Systems, Inc. (Tactical Systems), which became a
wholly-owned subsidiary of the Corporation. The operations of Tactical Systems
have been included in the results of operations of the Corporation from April 1,
1996.
The total purchase price paid for Tactical Systems, including acquisition
costs, was approximately $7.6 billion. The Loral Transaction was accounted for
using the purchase method of accounting. Purchase accounting adjustments were
recorded to allocate the purchase price to assets acquired and liabilities
assumed based on fair values at the date of acquisition.
NOTE 3 - INVENTORIES
March 31, December 31,
1997 1996
--------- ------------
(In millions)
Work in process, primarily on long-term
contracts and programs in progress $ 4,968 $ 4,456
Less customer advances and progress payments (2,532) (2,446)
------- -------
2,436 2,010
Other inventories 975 1,043
------- -------
$ 3,411 $ 3,053
======= =======
6
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 4 - 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. In the opinion of management and
counsel, the probability is remote that the outcome of these matters will have a
material adverse effect on the results of the Corporation's operations or its
financial position. These matters include the following items:
Environmental matters -- In 1991, the Corporation entered into a consent
decree with the U.S. Environmental Protection Agency (EPA) relating to certain
property in Burbank, California, which obligated the Corporation to design and
construct facilities to monitor, extract, and treat groundwater, and to operate
and maintain such facilities for approximately eight years. A second consent
decree is being finalized which will obligate the Corporation to fund the
continued operation and maintenance of these facilities through the year 2018.
The Corporation estimates that expenditures required to comply with the consent
decrees over their remaining terms will be approximately $110 million.
The Corporation 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 costs of these actions in
excess of the requirements under the EPA consent decree to approximate $90
million over the remaining term of the project.
In addition, the Corporation is involved in other proceedings and potential
proceedings relating to environmental matters, including disposal of hazardous
wastes and soil and water contamination. The extent of the Corporation's
financial exposure cannot in all cases be reasonably estimated at this time. A
liability of approximately $340 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 the portion of these costs that are probable of future
recovery 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 future recovery of portions of the environmental costs
through insurance policy coverage or from other potentially responsible parties,
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.
Waste remediation contract -- In 1994, the Corporation was awarded a $180
million fixed price contract by the U.S. Department of Energy (DOE) for the
Phase II design, construction and limited test of remediation facilities, and
the Phase III full remediation of waste found in Pit 9, located on the Idaho
National Engineering and Environmental Laboratory reservation. The Corporation
has incurred and continues to incur significant unanticipated costs and
scheduling issues due to complex technical and contractual matters which
threaten the viability of the overall Pit 9 program. Management has completed
its investigation to identify and quantify the overall effects of these matters,
and has summarized its findings in a request for equitable adjustment (REA)
which was delivered to the DOE on March 31, 1997. The provisions of the REA,
which include, but are not limited to, the recovery of a portion of
unanticipated costs incurred by the Corporation and the restructuring of the
contract to provide for a more equitable sharing of the risks associated with
the Pit 9 project, are currently being discussed with representatives of the
DOE.
7
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 5 - OTHER
In March, 1997, the Corporation executed a definitive agreement valued at
approximately $525 million to reposition 10 non-core business units as a new
independent company, L-3 Communications Corporation, in which the Corporation
would retain a 34.9% ownership. These business units, primarily composed of
high-technology, product-oriented companies, contributed approximately 2% of the
Corporation's net sales during the three month period ended March 31, 1997. The
transaction, which closed on April 30, 1997 with an effective date of March 30,
1997, did not have a material impact on the Corporation's earnings. Concurrent
with the announcement of this transaction in February, 1997, the Corporation
announced a new organizational structure which reassigned management
responsibility for certain business units. As a result, the Corporation's
operations were divided into five business segments. The operations of Tactical
Systems are reflected in the Electronics, Information & Services, and Energy and
Other segments.
Commercial paper borrowings of approximately $2.1 billion were outstanding at
March 31, 1997. Approximately $1.25 billion of these borrowings were classified
as long-term debt in the Corporation's condensed consolidated balance sheet,
based on management's ability and intention to maintain this debt outstanding
for at least one year. During the third quarter of 1996, the Corporation entered
into interest rate swap agreements to fix the interest rates on $875 million of
its commercial paper borrowings. These agreements will mature during 1997. The
effects of these interest rate swap agreements are recorded periodically as an
adjustment to interest expense related to commercial paper borrowings. The
Corporation is exposed to the risk of nonperformance by the intermediaries to
these agreements, though such nonperformance is not anticipated.
The Corporation's total interest payments were $101 million and $63 million
for the three months ended March 31, 1997 and 1996, respectively.
The Corporation's federal and foreign income tax payments were $264 million
and $229 million for the three months ended March 31, 1997 and 1996,
respectively.
In February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share", which
establishes new standards for computing and disclosing earnings per share. The
Statement requires dual presentation of "basic" and "diluted" earnings per
share, each as defined therein, which replace primary and fully diluted earnings
per share, respectively, required under current guidance. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption is not permitted; however, after the
effective date, all prior period earnings per share data presented will be
required to be restated to conform to the provisions of the new standard.
Management does not currently anticipate that earnings per share computed under
the new standard will differ materially from earnings per share computed and
disclosed under current guidance.
Effective January 1, 1997, the Corporation adopted the American Institute of
Certified Public Accountants' Statement of Position (SOP) No. 96-1,
"Environmental Remediation Liabilities." In addition to providing a
nonauthoritative discussion of major federal legislation dealing with
environmental matters, SOP No. 96-1 also provides authoritative guidance on
certain accounting issues relative to the recognition, measurement, display and
disclosure of environmental remediation liabilities. The impact of the adoption
of this SOP was not material to the Corporation's consolidated results of
operations, financial position or disclosures.
8
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
NOTE 6 - SUMMARIZED CONSOLIDATING FINANCIAL INFORMATION
In connection with the Loral Transaction, the Corporation issued $5 billion of
long-term fixed rate debt obligations in the second quarter of 1996 which are
fully and unconditionally guaranteed by Tactical Systems. Pursuant to SEC
disclosure requirements, summarized consolidating financial information follows:
Non-
Lockheed Tactical Guarantor
Martin/(a)/ Systems/(b)/ Entities Eliminations Consolidated
----------- ------------ --------- ------------ ------------
(In millions)
EARNINGS DATA
- -------------
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
Net sales $4,548 $110 $2,457 $(441) $6,674
Earnings from operations 486 14 178 (22) 656
Net earnings 290 144 157 (301) 290
FOR THE THREE MONTHS ENDED
MARCH 31, 1996
Net sales $4,316 $ -- $1,009 $(216) $5,109
Earnings from operations 369 -- 122 (19) 472
Net earnings 272 -- 72 (72) 272
CASH FLOWS DATA
- ---------------
FOR THE THREE MONTHS ENDED
MARCH 31, 1997
Net cash provided by (used for):
Operating activities $ 76 $ 27 $ 4 $ -- $ 107
Investing activities 250 (4) (43) -- 203
Financing activities (310) -- -- -- (310)
------ ---- ------ ----- ------
Net increase (decrease) in cash and
cash equivalents 16 23 (39) -- --
Cash and cash equivalents:
Beginning of period (65) 6 59 -- --
------ ---- ------ ----- ------
End of period $ (49) $ 29 $ 20 $ -- $ --
====== ==== ====== ===== ======
9
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
Non-
Lockheed Tactical Guarantor
Martin /(a)/ Systems /(b)/ Entities Eliminations Consolidated
------------ ------------- --------- ------------ ------------
(In millions)
CASH FLOWS DATA
- --------------------------
FOR THE THREE MONTHS ENDED
MARCH 31, 1996
Net cash (used for) provided by:
Operating activities $ (203) $ -- $ 64 $ -- $ (139)
Investing activities (210) -- 54 -- (156)
Financing activities (115) -- (87) -- (202)
---------- ------------- ---------- ------------- -------------
Net (decrease) increase in cash
and cash equivalents (528) -- 31 -- (497)
Cash and cash equivalents:
Beginning of period 640 -- 13 -- 653
---------- ------------- ---------- ------------- -------------
End of period $ 112 $ -- $ 44 $ -- $ 156
========== ============= ========== ============= =============
BALANCE SHEET DATA
- --------------------
AS OF MARCH 31, 1997
Current assets - Public $ 6,832 $ 552 $ 2,671 $ -- $10,055
- Affiliated (c) 293 32 325 (650) --
Noncurrent assets - Public 9,278 1,234 8,800 -- 19,312
- Affiliated (c) 8,210 9,515 4,634 (22,359) --
Current liabilities - Public 6,425 191 2,525 -- 9,141
- Affiliated (c) 223 282 145 (650) --
Long-term debt 8,673 1,204 12 -- 9,889
Other noncurrent liabilities 2,200 556 489 -- 3,245
Equity 7,092 9,100 13,259 (22,359) 7,092
AS OF DECEMBER 31, 1996
Current assets - Public $ 6,754 $ 603 $ 2,583 $ -- $ 9,940
- Affiliated (c) 79 28 270 (377) --
Noncurrent assets - Public 10,198 1,347 7,772 -- 19,317
- Affiliated (c) 7,873 8,806 4,599 (21,278) --
Current liabilities - Public 5,962 135 2,607 -- 8,704
- Affiliated (c) 333 28 16 (377) --
Long-term debt 8,972 1,204 12 -- 10,188
Other noncurrent liabilities 2,781 857 (129) -- 3,509
Equity 6,856 8,560 12,718 (21,278) 6,856
10
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(UNAUDITED)
(a) Data is related to the parent company only.
(b) Data is related to Tactical Systems, Inc. only and pertains to operations
from April 1, 1996.
(c) Amounts represent activity with Lockheed Martin affiliated companies.
11
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
BUSINESS COMBINATION WITH LORAL CORPORATION
In April, 1996, the Corporation purchased all of the issued and outstanding
shares of common stock of Loral Corporation (Loral) for an aggregate
consideration of $38 per share in cash. The purchase involved a series of
transactions that resulted in (i) the distribution to stockholders of Loral,
immediately prior to the consummation of the purchase, of shares of capital
stock in Loral Space & Communications, Ltd. (Loral SpaceCom), a newly-formed
company, which now owns and manages substantially all of Loral's former space
and satellite telecommunications interests, and in which the Corporation
acquired shares of preferred stock that were convertible into 20 percent of
Loral SpaceCom's common stock on a fully diluted basis at the date of
acquisition, and (ii) the acquisition by the Corporation of Loral's defense
electronics and systems integration businesses (collectively, the Loral
Transaction). In connection with the Loral Transaction, Loral changed its name
to Lockheed Martin Tactical Systems, Inc. (Tactical Systems), which became a
wholly-owned subsidiary of the Corporation. The operations of Tactical Systems
have been included in the results of operations of the Corporation from April 1,
1996.
The total purchase price paid for Tactical Systems, including acquisition
costs, was approximately $7.6 billion. At the effective date of the Loral
Transaction, the Corporation assumed approximately $1.9 billion of debt
obligations of the former Loral Corporation. The Loral Transaction was accounted
for using the purchase method of accounting. Purchase accounting adjustments
were recorded to allocate the purchase price to assets acquired and liabilities
assumed based on fair values at the date of acquisition.
The funds for the consummation of the Loral Transaction were provided through
the issuance of approximately $6.6 billion of commercial paper and an
approximate $1 billion borrowing under a 5-year unsecured revolving credit
facility (the 5-Year Facility). During the second quarter of 1996, the
Corporation issued $5 billion of long-term fixed rate debt securities. The net
proceeds from the sale of the debt securities were used to repay the $1 billion
borrowed under the 5-Year Facility and to reduce the amount of commercial paper
outstanding.
REPOSITIONING OF NON-CORE BUSINESSES AND NEW ORGANIZATIONAL STRUCTURE
In March, 1997, the Corporation executed a definitive agreement valued at
approximately $525 million to reposition 10 non-core business units as a new
independent company, L-3 Communications Corporation (L-3), in which the
Corporation would retain a 34.9% ownership. These business units, primarily
composed of high-technology, product-oriented companies, have approximately
4,900 employees and contributed approximately 2% of the Corporation's net sales
during the three month period ended March 31, 1997. The transaction, which
closed on April 30, 1997 with an effective date of March 30, 1997, did not have
a material impact on the Corporation's earnings. Concurrent with the
announcement of this transaction in February, 1997, the Corporation announced a
new organizational structure which reassigned management responsibility for
certain business units. As a result, the Corporation's operations were divided
into five business segments. Prior year data has been reclassified to conform to
the new presentation.
RESULTS OF OPERATIONS
The 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.
Consolidated net sales for the first quarter were $6.7 billion in 1997, a 31
percent increase from the $5.1 billion recorded for the comparable period in
1996. The Corporation's operating profit (earnings before interest and taxes)
for the first quarter of 1997 was $677 million versus $502 million for the
comparable 1996 period. As stated previously,
12
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
the operations of Tactical Systems have been included in the results of
operations of the Corporation from April 1, 1996. The operations of Tactical
Systems are reflected in the Electronics, Information & Services, and Energy and
Other segments.
Net earnings for the first quarter of 1997 were $290 million, or $1.34 per
common share assuming full dilution. Both amounts represent increases from the
reported first quarter 1996 net earnings of $272 million, or $1.22 per common
share. The effective income tax rate for the first quarter of 1997 was 39
percent as compared to 37 percent for the first quarter of 1996. The effective
rates for both periods were higher than the statutory corporate federal income
tax rate principally due to the nondeductibility for tax purposes of certain
cost in excess of net assets acquired associated with previous acquisition
activities.
The Corporation's backlog of undelivered orders was approximately $49.6
billion at March 31, 1997, slightly lower than the $50.4 billion reported at
December 31, 1996. The lower backlog at March 31, 1997 reflects the divestiture
of the Corporation's Armament Systems and Defense Systems businesses to General
Dynamics Corporation (General Dynamics) which concluded with the Corporation's
receipt of $450 million in cash on January 2, 1997. The Corporation received
orders for approximately $7 billion in new and follow-on business during the
first quarter of 1997.
The following table displays first quarter net sales and operating profit for
the Corporation's business segments.
Three Months Ended
March 31,
1997 1996
------ ------
(In millions)
Net Sales:
Space & Strategic Missiles $1,898 $1,755
Electronics 1,738 891
Information & Services 1,647 983
Aeronautics 1,359 1,299
Energy and Other 32 181
------ ------
$6,674 $5,109
====== ======
Operating Profit:
Space & Strategic Missiles $ 309 $ 250
Electronics 135 86
Information & Services 88 35
Aeronautics 127 108
Energy and Other 18 23
------ ------
$ 677 $ 502
====== ======
Net sales of the Space & Strategic Missiles segment increased by eight percent
in the first quarter of 1997 from the comparable 1996 first quarter period.
This increase resulted from the timing of Atlas launches (two in the first
quarter of 1997 versus one in the first quarter of 1996) and from increased
activity in various classified programs. Operating profit was 24 percent higher
in 1997 as compared to 1996, principally because of the increased number of
Atlas launches, improved performance on the Corporation's Titan launch vehicle
program and Trident fleet ballistic missile program, and the recognition of
award fees on certain space programs.
13
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
First quarter 1997 Electronics segment net sales and operating profit
increased significantly from the comparable 1996 amounts due to the inclusion of
the operations of certain Tactical Systems companies in 1997, partially offset
by the exclusion of the Armament Systems and Defense Systems companies which
were sold to General Dynamics. Excluding the 1997 results of operations of the
Tactical Systems companies and the 1996 results of operations of the companies
sold to General Dynamics, first quarter 1997 net sales and operating profit
decreased by approximately four percent and 26 percent, respectively, compared
to the first quarter of 1996 amounts. The decrease in net sales was principally
the result of reductions in sales volume for the segment's BSY-2, AEGIS,
Hellfire and LANTIRN programs. The decrease in operating profit resulted from
increased investment in new programs and changes in estimates related to certain
avionics and surveillance programs.
First quarter 1997 net sales of the Information & Services segment increased
by 68 percent from the comparable 1996 amount primarily due to the inclusion of
the operations of certain Tactical Systems companies. This increase was somewhat
offset by the effect of the transfer during 1996 of the Corporation's contracts
for Space Shuttle processing operations to United Space Alliance, LLC, an
unconsolidated joint venture. Excluding the 1997 net sales of the Tactical
Systems companies and the 1996 net sales from Space Shuttle processing
operations, net sales increased by approximately 19 percent. This increase
resulted primarily from an increase in sales volume related to commercial
products, information systems and information management systems. First quarter
1997 operating profit increased by 151 percent from the comparable 1996 amount
primarily due to the inclusion in 1997 of the operations of certain Tactical
Systems companies. If the operations of these Tactical Systems companies are
excluded, first quarter 1997 operating profit increased by 54 percent from the
comparable 1996 amount. This increase primarily resulted from sales volume
increases and operating margin improvements.
Net sales of the Aeronautics segment increased by five percent in the first
quarter of 1997 from the comparable 1996 first quarter period. This increase
resulted from the timing of deliveries of F-16 fighter aircraft (33 in the first
quarter of 1997 versus 12 in the first quarter of 1996), offset somewhat by
reduced deliveries of C-130 airlift aircraft (two deliveries in 1997 versus four
deliveries in the comparable 1996 period). Operating profit was 18 percent
higher in 1997 as compared to 1996, principally because of the increased F-16
deliveries noted above as well as operating margin improvements at certain of
the segment's aircraft and logistics centers.
Net sales and operating profit of the Energy and Other segment for the first
quarter of 1997 decreased significantly from the comparable 1996 period
primarily due to the divestiture of Martin Marietta Materials, Inc. during the
fourth quarter of 1996. In 1994, the Corporation was awarded a $180 million
fixed price contract by the U.S. Department of Energy (DOE) for the Phase II
design, construction and limited test of remediation facilities, and the Phase
III full remediation of waste found in Pit 9, located on the Idaho National
Engineering and Environmental Laboratory reservation. The Corporation has
incurred and continues to incur significant unanticipated costs and scheduling
issues due to complex technical and contractual matters which threaten the
viability of the overall Pit 9 program. Management has completed its
investigation to identify and quantify the overall effects of these matters, and
has summarized its findings in a request for equitable adjustment (REA) which
was delivered to the DOE on March 31, 1997. The provisions of the REA, which
include, but are not limited to, the recovery of a portion of unanticipated
costs incurred by the Corporation and the restructuring of the contract to
provide for a more equitable sharing of the risks associated with the Pit 9
project, are currently being discussed with representatives of the DOE.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997, $107 million of cash was provided by
operating activities, compared to $139 million used for operating activities
during the first quarter of 1996. This fluctuation resulted principally from
increased cash flows on several aircraft programs. Net cash provided by
investing activities during the first quarter of 1997 was $203 million, compared
to $156 million used for investing activities during the first quarter of 1996.
This variance was caused principally by the receipt of $450 million from General
Dynamics during 1997 for the sale of the Corporation's Armament Systems and
Defense Systems operations. Net cash used for financing activities was $310
million in 1997 versus $202 million in 1996, primarily due to a $99 million
increase in net repayments of debt. Approximately $200 million of short-term
borrowings incurred to finance the Loral Transaction were repaid in the first
quarter of 1997.
14
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Commercial paper borrowings of approximately $2.1 billion were outstanding at
March 31, 1997. Of this amount, $1.25 billion has been classified as long-term
debt in the Corporation's condensed consolidated balance sheet based on
management's ability and intention to maintain this debt outstanding for at
least one year. Total debt, including short-term borrowings, amounted to
approximately 61 percent of total capitalization at March 31, 1997, a reduction
from the 63 percent reported at December 31, 1996. This reduction is the result
of the repayment during the first quarter of 1997 of approximately $200 million
of commercial paper borrowings combined with a $236 million increase in
stockholders' equity during the same period. The increase in stockholders'
equity resulted primarily from net earnings for the period of $290 million,
offset by dividends totaling $92 million.
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.
Consistent with the Corporation's desire to generate cash to reduce debt,
management anticipates that, subject to prevailing financial, market and
economic conditions, the Corporation may divest other non-core businesses or
surplus properties. The transaction with L-3, which closed on April 30, 1997,
generated cash in excess of $400 million during the second quarter of 1997, net
of the Corporation's 34.9% investment in L-3 and other costs related to the
transaction.
FORWARD LOOKING STATEMENTS
This Form 10-Q contains statements which, to the extent that they are not
recitations of historical fact, constitute "forward looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
Securities Act) and Section 21E of the Securities Exchange Act of 1934 (the
Exchange Act). All forward looking statements involve risks and uncertainties.
The forward looking statements in this document are intended to be subject to
the safe harbor protection provided by Sections 27A of the Securities Act and
21E of the Exchange Act. For a discussion identifying some important factors
that could cause actual results to vary materially from those anticipated in the
forward looking statements, see the Corporation's Securities and Exchange
Commission filings, including, but not limited to, the discussion of
"Competition and Risk" and the discussion of "Government Contracts and
Regulations" on pages 11 through 14 and pages 14 through 15, respectively, of
the Corporation's Annual Report on Form 10-K for the year ended December 31,
1996 (Form 10-K); "Management's Discussion and Analysis of Financial Condition
and Results of Operations" on pages 51 through 63 of the 1996 Annual Report and
"Note 1 - Summary of Significant Accounting Policies", "Note 3 - Repositioning
of Non-Core Businesses and New Organizational Structure", and "Note 14 -
Commitments and Contingencies" of the Notes to Consolidated Financial Statements
on pages 70 through 71, pages 72 through 73, and pages 80 through 81,
respectively, of the Audited Consolidated Financial Statements included in the
1996 Annual Report and incorporated by reference into the Form 10-K; and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 12 through 15 of this Form 10-Q, and "Note 4 -
Contingencies" and "Note 5 - Other" of the Notes to Unaudited Condensed
Consolidated Financial Statements on page 7 and page 8, respectively, of the
Unaudited Condensed Consolidated Financial Statements included in this
Form 10-Q.
15
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
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, 1997
and 1996.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the quarter ended
March 31, 1997.
3. Exhibit 27. Financial Data Schedule for the quarter ended
March 31, 1997.
(b) Reports on Form 8-K filed in the first quarter of 1997.
1. Current report on Form 8-K filed on January 21, 1997.
Item 5. Other Events
The registrant filed information contained in its press release
dated January 21, 1997 concerning its results of operations for the
year ended December 31, 1996.
Item 7. Financial Statements and Exhibits
- Lockheed Martin Corporation Press Release dated January 21, 1997.
16
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 9, 1997 by: /s/Robert E. Rulon
----------- -----------------------------
Robert E. Rulon
Vice President and Controller
(Chief Accounting Officer)
17
Exhibit 11
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended
March 31,
1997 1996
------ ------
(In millions, except per
share data)
ASSUMING NO DILUTION:
- --------------------
Average number of common shares outstanding 184.5 189.3
------ ------
Net earnings $ 290 $ 272
Less: Preferred stock dividends (15) (15)
------ ------
Net earnings applicable to common stock $ 275 $ 257
====== ======
Earning per common share $ 1.49 $ 1.35
====== ======
ASSUMING FULL DILUTION:
- ----------------------
Average number of common shares outstanding 184.5 189.3
Dilutive stock options-based on the treasury stock
method using the March 31 market prices, if
higher than average market price 3.8 4.5
Assumed conversion of the Convertible Series A
Preferred Stock 28.9 28.9
------ ------
217.2 222.7
====== ======
Net earnings $ 290 $ 272
====== ======
Earnings per common share $ 1.34 $ 1.22
====== ======
18
Exhibit 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE QUARTER ENDED MARCH 31, 1997
(In millions, except ratio)
EARNINGS:
Net earnings $290
Income tax expense 186
Interest expense 201
Amortization of debt premium and discount, net (1)
Portion of rents representative of an interest factor 31
----
Adjusted earnings before taxes and fixed charges $707
====
FIXED CHARGES:
Interest expense $201
Amortization of debt premium and discount, net (1)
Portion of rents representative of an interest factor 31
Capitalized interest 1
----
Total fixed charges $232
====
RATIO OF EARNINGS TO FIXED CHARGES 3.0
====
19
5
1,000,000
3-MOS
DEC-31-1997
MAR-31-1997
0
0
5,242
0
3,411
10,055
8,538
4,835
29,367
9,141
9,889
0
1,000
193
5,899
29,367
6,674
6,674
6,018
6,018
21
0
201
476
186
290
0
0
0
290
1.49
1.34
