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 JUNE 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 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 July 31, 1995
Common Stock, $1 par value 200,289,477
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LOCKHEED MARTIN CORPORATION AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For the Quarter Ended June 30, 1995
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Statement of Earnings-
Three Months and Six Months Ended June 30, 1995 and 1994. . . . 3
Condensed Consolidated Statement of Cash Flows-
Six Months Ended June 30, 1995 and 1994 . . . . . . . . . . . . 4
Condensed Consolidated Balance Sheet-
June 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 . . . . . . . . . . . . . . . . 14
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Exhibit 11. Computation of Earnings Per Common Share . . . . . . . . . 24
Exhibit 12. Computation of Ratio of Earnings to Fixed Charges . . . . . 26
Exhibit 27. Financial Data Schedule . . . . . . . . . . . . . . . . . 27
2 of 27
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
Thee Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In millions, except per share data)
Net sales $ 5,606 $ 5,562 $ 11,251 $ 10,598
Costs and expenses:
Cost of sales 5,136 5,109 10,326 9,743
Merger related and consolidation expenses 525 - 690 -
------- ------- ------- -------
Earnings (loss) from operations (55) 453 235 855
Other income and expenses, net 42 51 64 174
------- ------- ------- -------
(13) 504 299 1,029
Interest expense 73 78 152 155
------- ------- ------- -------
Earnings (loss) before income taxes and cumulative
effect of change in accounting (86) 426 147 874
Income tax expense (benefit) (33) 167 63 343
------- ------- ------- -------
Earnings (loss) before cumulative effect of change
in accounting (53) 259 84 531
Cumulative effect of change in accounting - - - (37)
------- ------- ------- -------
Net earnings (loss) $ (53) $ 259 $ 84 $ 494
======= ======= ======= =======
Earnings (loss) per common share:
Assuming no dilution:
Before cumulative effect of change
in accounting $ (.36) $ 1.31 $ .28 $ 2.69
Cumulative effect of change in
accounting - - - (.20)
------- ------- ------- -------
$ (.36) $ 1.31 $ .28 $ 2.49
======= ======= ======= =======
Assuming full dilution:
Before cumulative effect of change
in accounting $ * $ 1.19 $ * $ 2.44
Cumulative effect of change in
accounting - - - (.17)
------- ------- ------- -------
$ * $ 1.19 $ * $ 2.27
======= ======= ======= =======
Cash dividends declared per common share $ .35 $ .29 $ .64 $ .56
======= ======= ======= =======
* Antidilutive
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
1995 1994
(In millions)
CASH FLOWS FROM OPERATING ACTIVITIES:
Earnings before cumulative effect of change
in accounting $ 84 $ 531
Adjustments to reconcile earnings to net cash
provided by operating activities:
Merger related and consolidation expenses- provision 690 -
- payments (92) -
Gain from Materials public offering - (118)
Acquisition termination fee - (50)
Depreciation and amortization 465 492
Changes in operating assets and liabilities (888) (371)
------- -------
Net cash provided by operating activities 259 484
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties, net of purchased
operations (269) (228)
Net proceeds - Materials public offering - 189
Acquisition termination fee - 50
Acquisitions (148) (163)
------- -------
Net cash used for investing activities (417) (152)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowing repayments (105) (157)
Issuances of common shares 26 11
Common stock dividends (125) (112)
Preferred stock dividends (30) (30)
------- -------
Net cash used for financing activities (234) (288)
------- -------
Net (decrease) increase in cash and cash equivalents (392) 44
Cash and cash equivalents at beginning of period 639 366
------- -------
Cash and cash equivalents at end of period $ 247 $ 410
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
4 of 27
LOCKHEED MARTIN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
June 30, December 31,
1995 1994
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 247 $ 639
Receivables 3,583 3,473
Inventories 3,099 3,159
Deferred income taxes 583 597
Other current assets 349 275
------- -------
Total current assets 7,861 8,143
Property, plant and equipment 3,459 3,455
Intangible assets related to contracts
and programs acquired 1,897 1,971
Cost in excess of net assets acquired 2,813 2,831
Other assets 2,245 1,649
------- -------
$ 18,275 $18,049
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 161 $ 14
Accounts payable 1,042 1,292
Customer advances 1,337 1,544
Salaries, benefits and payroll taxes 822 767
Income taxes 77 111
Current maturities of long-term debt 731 285
Other current liabilities 1,833 1,622
------- -------
Total current liabilities 6,003 5,635
Long-term debt 2,894 3,594
Post-retirement benefit liabilities 1,762 1,756
Other liabilities 1,557 978
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 766 734
Retained earnings 4,399 4,470
Unearned ESOP shares (306) (317)
------- -------
6,059 6,086
------- -------
$ 18,275 $18,049
======= =======
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
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LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 six months ended June 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 six months ended
June 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
6 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
forward to Lockheed Martin at their historical recorded bases. The
accompanying condensed consolidated financial statements for the three months
and six months ended June 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 six months ended June 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 June 30, 1994
Net sales $3,096 $2,491 $ (25) $ 5,562
Earnings before cumulative effect of
change in accounting 104 163 (8) 259
Earnings per share before cumulative
effect of change in accounting,
assuming full dilution 1.01 * 1.29 - 1.19
Six Months Ended June 30, 1994
Net sales $6,121 $4,525 $ (48) $ 10,598
Earnings before cumulative effect of
change in accounting 196 347 (12) 531
Earnings per share before cumulative
effect of change in accounting,
assuming full dilution 1.90 * 2.76 - 2.44
* Amounts for Lockheed have been adjusted for the 1.63 exchange ratio
related to the Business Combination.
7 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
For the first and second 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 second quarter of 1995 and 1994, the weighted average
Unallocated ESOP Shares excluded in calculating earnings per share totaled
approximately 10.5 million and 11.7 million equivalent shares of Lockheed
Martin common stock, respectively. For the six months ended June 30, 1995
and 1994, the weighted average Unallocated ESOP Shares excluded totaled
approximately 10.7 million and 11.8 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
8 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
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 subs-
tantial 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 of 1995 for merger related
expenses.
The assumed conversion of the Corporation's Series A preferred stock for
purposes of calculating earnings per share on a fully diluted basis has an anti-
dilutive effect for both the three months and six months ended June 30, 1995.
Accordingly, conversion of the preferred stock has not been assumed in the
accompanying fully diluted earnings per share presentations for those periods.
It is anticipated that assumed conversion will not have an anti-dilutive effect
in calculating earnings per share on a fully diluted basis for the full year
ending December 31, 1995.
Note 3 - Inventories
June 30, December 31,
1995 1994
(In millions)
Work in process, primarily on long-term
contracts and programs in progress $ 4,226 $4,678
Less customer advances and progress payments (1,774) (2,172)
-------- -------
2,452 2,506
Other inventories 647 653
-------- -------
$ 3,099 $ 3,159
======== =======
9 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
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.
Commercial paper borrowings of $150 million were outstanding at June 30,
1995. The Corporation's total interest payments were approximately $138
million and $136 million for the six months ended June 30, 1995 and 1994,
respectively.
Note 5 - Other Income and Expenses
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In millions)
Gain - Materials public offering $ - $ - $ - $ 118
Acquisition termination fee - 50 - 50
Royalty income 22 25 40 28
Interest income 4 6 14 9
Other 16 (30) 10 (31)
------ ------ ------ -------
$ 42 $ 51 $ 64 $ 174
====== ====== ====== =======
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 and first six months of
1994.
10 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
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, for the first quarter and first six months 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 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
11 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
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.
12 of 27
LOCKHEED MARTIN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (CONTINUED)
(UNAUDITED)
Note 7 - Other
The Corporation's total income tax payments were approximately $154 million
and $59 million for the six months ended June 30, 1995 and 1994,
respectively.
On July 27, 1995, the Corporation's Board of Directors authorized the
repurchase of up to six million shares of common stock under a systematic
repurchase plan which is intended to counter the future dilutive effect of
common stock issued by the Corporation under its 1995 Omnibus Performance
Award Plan. The Board of Directors also authorized the repurchase of up to
nine million shares of common stock 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.
13 of 27
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 second quarter of 1995 were $5.6
billion, which represents a one percent increase over the amount recorded for
the same period in 1994. Consolidated sales for the six months ended June 30,
1995 were $11.3 billion, a six percent increase over the $10.6 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 the Electronics segment.
For the quarter ended June 30, 1995, the Corporation recorded a loss from
operations of $55 million, resulting from a $525 million pretax charge taken in
the second quarter in conjunction with a corporate-wide consolidation plan
announced in June (see Note 2). This charge was in addition to 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. 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 $42 million in the second quarter of
1995 compared to $51 million in 1994. The 1995 result reflects a combination
of higher miscellaneous income and lower miscellaneous expenses, while
1994's result was primarily due to the receipt of a $50 million fee pursuant to
termination of the proposed acquisition of Grumman Corporation. Other
income and expenses, net, for the first six months of 1995 were $64 million as
compared to $174 million for the same period in 1994. The net decrease was
primarily due to the Grumman fee discussed above and 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).
14 of 27
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
(CONTINUED)
The Corporation recorded an income tax benefit for the second quarter of
1995 as a result of the charge taken for the Corporation's consolidation
plan discussed previously. Income tax expense decreased for the first six
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 tax rate of 43.2 percent in
1995 compared to 39.2 percent in the first six 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 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 second quarter and year to date net sales and
earnings before interest and taxes and 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.
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Net Sales:
Space and Strategic Missiles $ 1,895 $ 1,693 $ 3,747 $ 3,148
Aeronautics 1,474 1,591 3,242 3,169
Information and Technology Services 1,160 1,037 2,195 1,981
Electronics 834 1,027 1,650 1,944
Energy, Materials and Other 243 214 417 356
-------- -------- -------- --------
Total $ 5,606 $ 5,562 $11,251 $10,598
======== ======== ======== ========
Earnings Before Interest and Taxes Excluding
Merger Related and Consolidation Expenses:
Space and Strategic Missiles $ 166 $ 128 $ 347 $ 264
Aeronautics 134 101 274 194
Information and Technology Services 61 62 108 94
Electronics 85 105 173 233
Energy, Materials and Other 66 108 87 244
-------- -------- -------- --------
Total $ 512 $ 504 $ 989 $ 1,029
======== ======== ======== ========
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LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
(CONTINUED)
Second quarter and year to date Space and Strategic Missiles sales increased
12 percent and 19 percent, respectively, 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 on May 1, 1994. Earnings from
operations increased 30 percent for the second quarter of 1995 and 19 percent
for the year to date compared to the same periods of 1994 due to the inclusion
of the Atlas launch services program, improved cost performance on Titan IV
and fleet ballistic missiles, and the nonrecurrence of charges recorded on
certain fixed-price programs in 1994.
The second quarter 1995 Aeronautics sales decreased seven percent in 1995
compared with the same period in 1994 due to fewer deliveries of F-16
aircraft. This decrease was partially offset by delivery of one P-3 aircraft in
the second quarter of 1995 and from an increased level of F-16 fighter support
activities at Tactical Aircraft Systems. Sales for the first six months of 1995
were two percent higher than for 1994, with F-16 aircraft sales decreases from
fewer deliveries offset by higher F-16 fighter support and F-22 fighter
activities and the delivery of three P-3 maritime patrol aircraft (there were no
P-3 deliveries in 1994). Earnings from operations were 34 percent higher in
the second quarter of 1995 and 42 percent higher for the year to date from the
comparable periods in 1994 resulting from nonrecurrence of charges taken in
1994 in connection with the Pratt & Whitney fan reverser program, higher
C-130 airlifter margins and lower costs related to the development of the
upgraded C-130J model.
Information and Technology Services sales for the second quarter of 1995
were 12 percent greater than the comparable 1994 sales primarily in
commercial products businesses. Sales for the first six months of 1995 were 11
percent greater than for the first six months of 1994, reflecting increases in
commercial products businesses, and growth in fabrication support related to
the Space Shuttle external tank contract. Earnings from operations for the
quarter were essentially flat for the second quarter of 1995 but 15 percent
higher for the year to date compared to the corresponding period in 1994. The
year-to-date increase reflects the sales growth as well as improved margins in
commercial products businesses.
16 of 27
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
(CONTINUED)
Second quarter and 1995 year to date Electronics sales were 19 percent and 15
percent lower than the corresponding 1994 periods primarily because of
volume decreases in various programs, particularly in Ocean, Radar and
Sensor Systems. Earnings from operations for the second quarter of 1995 and
for the year to date were 20 percent and 26 percent lower, respectively, than
1994 due to the impact from investments in new business in 1995, substantial
completion in 1994 of Patriot subcontract activities, and the sales decreases
described above.
Sales and earnings from operations in both Energy and Materials grew in the
second 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. The remaining decrease in earnings in
this segment reflects the one-time $118 million gain associated with the
Materials IPO and the $50 million termination fee from Grumman Corporation
recorded in the first quarter and second quarter of 1994, respectively.
The following table displays the pretax impact of the merger related and
consolidation expenses as identified to each segment.
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
Space and Strategic Missiles $ 263 $ 263
Aeronautics 138 138
Information and Technology Services 24 24
Electronics 93 93
Energy, Materials and Other 7 172
-------- --------
Total $ 525 $ 690
======== ========
17 of 27
LOCKHEED MARTIN CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1995, approximately $259 million in cash flow was
provided by operating activities, compared with $484 million for the same period
in 1994, with the decrease mostly due to higher tax payments and 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 in 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 $247 million at June
30, 1995 and $639 million at December 31, 1994. During the second quarter of
1995, the Corporation issued short-term commercial paper; the amount of these
borrowings outstanding at June 30, 1995 was $150 million. 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 June 30, 1995, stockholders' equity was approximately $6.1 billion, a
decrease of $27 million from the balance at December 31, 1994. The decrease is
principally due to the excess of dividends over year-to-date earnings. On July
27, 1995, the Corporation's Board of Directors authorized the repurchase of up
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.
18 of 27
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 reimburse-
ments, 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 on Form 10-K dated May 10, 1995, these
descriptions are incorporated herein by reference.
Lockheed Martin has previously disclosed ongoing negotiations of an
Administrative Settlement Agreement with the United States Air Force Office
of Contractor Integrity arising out of Lockheed's entry into a plea agreement
with the United States Government relating to violations of certain provisions
of the Foreign Corrupt Practices Act. On June 30, 1995, a settlement was
reached. Compliance with the terms of the settlement will not have a material
adverse effect on Lockheed Martin.
19 of 27
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION
(CONTINUED)
Reference is made to prior disclosures of proceedings relating to a contract
with the Navy for the full-scale development of the Supersonic Low Altitude
Target (SLAT). On June 30, 1995, Lockheed Martin filed an Answer and
Counterclaim and discovery is proceeding.
Reference is made to prior disclosures of stockholder litigation filed in
connection with the Business Combination. At a hearing on the matter, the
Court stated its intention to approve the settlement discussed in the earlier
disclosures, however, the Court has not yet issued a signed judgement
approving the settlement.
Reference is made to prior disclosure of a subpoena received by the
Corporation on May 4, 1995 compelling the production of records relating to
the Advanced Concept Center and the Information Systems and Technologies
businesses which are parts of the Lockheed Martin Management & Data
Systems company. Lockheed Martin has produced the documents requested.
Reference is made to prior disclosure of a subpoena received by the
Corporation on May 9, 1995 compelling the production of records before a
federal grand jury sitting in Boise, Idaho. During the second quarter of 1995,
several current and former employees of the Idaho National Engineering
Laboratories (INEL) testified before the grand jury. Lockheed Martin has not
been informed of the focus of the investigation, but it appears to relate to
alleged violations of environmental laws pertaining to handling hazardous
waste.
Reference is made to prior disclosure of subpoena received on December 22,
1994 by the Corporation's Ordnance Systems facility in Milan, Tennessee
compelling the production of documents related to health and safety matters.
The Corporation has been provided minimal information as the focus of the
investigation, but it appears to relate to an investigation of the accuracy with
which certain accident statistics used in the computation of the Corporation's
award fee were reported.
Reference is made to prior disclosure of subpoenas received by the
Corporation's Ordnance Systems facility at Milan, Tennessee on January 6,
1994 and January 20, 1994 compelling the production of certain purchase
order files. The Corporation has been provided minimal information as the
focus of the investigation, but it appears to relate to allegations of
procurement irregularities and on May 26, 1995, two former employees of the
Corporation pled guilty to violation of the Anti-kickback Act and conspiracy
to defraud the United States.
20 of 27
LOCKHEED MARTIN CORPORATION
PART II - OTHER INFORMATION
(CONTINUED)
Reference is made to prior disclosure of a subpoena received on June 27, 1994
compelling the production of documents related to Lockheed Martin's Compu-
Scene IV image generator product. Lockheed Martin has produced the
documents requested.
Reference is made to prior disclosures of proceedings relating to a government
investigation of alleged defective pricing and labor mischarging in the Pershing
II program. In January, 1994, the Corporation was informed that criminal
prosecution had been declined but that the Civil Division of the Justice
Department intended to further investigate the matter. The Corporation has
now been informed that civil prosecution has also been declined.
Reference is made to prior disclosures relating to a civil suit brought against
Martin Marietta Energy Systems, Inc., (MMES) and the Department of
Energy (DOE) relating to the shipment of hazardous waste from facilities
managed for the DOE by MMES into the State of Arkansas. On July 21,
1995, the Court sustained Motions to Dismiss filed by MMES and the DOE.
A thirty-day period in which this decision may be appealed has not yet run.
On May 26, 1995, Lockheed Sanders, Inc. received a federal grand jury
subpoena issued by the United States District Court for the Central District of
California compelling the production of documents relating to a consultant
used by the Corporation in Taiwan. The Corporation is in the process of
producing the documents requested.
On June 12, 1995, Lockheed Martin received a federal grand jury subpoena issued
by the United States District Court for the Central District of California
compelling the production of documents relating to the Corporation's business
in Korea. The Corporation is in the process of producing the documents
requested.
On July 3, 1995, Lockheed Martin received a subpoena directed to the
Lockheed Fort Worth Company requiring the production of records before a
federal grand jury sitting in the Northern District of Texas relating to the
Corporation's use of foreign consultants and commission representatives. The
Corporation is in the process of producing the documents requested.
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.
21 of 27
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 and six months ended
June 30, 1995 and 1994.
2. Exhibit 12. Lockheed Martin Corporation Computation of Ratio of
Earnings to Fixed Charges for the six months ended June 30, 1995.
3. Exhibit 27. Financial Data Schedule for the six months ended June 30,
1995.
(b) Reports on Form 8-K
1. 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.
2. Current report on Form 8-K filed on May 24, 1995
Item 5 - Other Events
The registrant filed unaudited results of operations for the month ended April
30, 1995 to satisfy the requirement, with respect to affiliate trading
restrictions set forth in Accounting Series Release No. 130, that financial
results covering at least 30 days of post-merger combined operations be
published.
22 of 27
LOCKHEED MARTIN CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
resigtrant has duly caused this report to be signed on its behalf by the
by undersigned thereunto duly authorized.
LOCKHEED MARTIN CORPORATION
(Registrant)
Date: August 10, 1995 by: /s/Robert E. Rulon
Robert E. Rulon
Vice President and Controller
(Chief Accounting Officer)
23 of 27
Exhibit 11
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In millions, except per share data)
ASSUMING NO DILUTION:
Average number of common shares outstanding 189.3 186.6 188.9 186.4
======= ======= ====== =======
Earnings (loss) before cumulative effect of
change in accounting $ (53) $ 259 $ 84 $ 531
Less: Preferred stock dividends (15) (15) (30) (30)
------- ------- ------ -------
Earnings (loss) before cumulative effect of change
in accounting applicable to common stock (68) 244 54 501
Cumulative effect of change in accounting - - - (37)
------- ------- ------ -------
Net earnings (loss) applicable to common stock $ (68) $ 244 $ 54 $ 464
======= ======= ====== =======
Earnings (loss) per common share:
Before cumulative effect of change in accounting $ (.36) $ 1.31 $ .28 $ 2.69
Cumulative effect of change in accounting - - - (.20)
------- ------- ------ -------
$ (.36) $ 1.31 $ .28 $ 2.49
======= ======= ====== =======
24 of 27
Exhibit 11 - Continued
LOCKHEED MARTIN CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
(In millions, except per share data)
ASSUMING FULL DILUTION:
Average number of common shares outstanding 189.3 186.6 188.9 186.4
Dilutive stock options-based on the treasury stock
method using the June 30 market prices, if
higher than average market price 28.9 2.3 4.4 2.2
Assumed conversion of the Convertible Series A
Preferred Stock 4.2 28.9 28.9 28.9
-------- -------- ------- -------
222.4 217.8 222.2 217.5
======== ======== ======= =======
Earnings (loss) before cumulative effect of change
in accounting $ (53) $ 259 $ 84 $ 531
Cumulative effect of change in accounting - - - (37)
-------- -------- ------- -------
Net earnings (loss) $ (53) $ 259 $ 84 $ 494
======== ======== ======= =======
Earnings (loss) per common share:
Before cumulative effect of change
in accounting $ (.24) $ 1.19 $ .38 $ 2.44
Cumulative effect of change in accounting - - - (.17)
-------- -------- ------- -------
$ (.24)* $ 1.19 $ .38* $ 2.27
======== ======== ======= =======
* The assumed conversion of the Corporation's Series A preferred stock for
purposes of calculating earnings per share on a fully diluted basis has an anti-dilutive
effect for both the three months and six months ended June 30, 1995. Accordingly,
conversion of the preferred stock has not been assumed in the fully diluted
earnings per share presentations.
25 of 27
Exhibit 12
LOCKHEED MARTIN CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
FOR THE SIX MONTHS ENDED JUNE 30, 1995
(IN MILLIONS OF DOLLARS, EXCEPT RATIO)
EARNINGS:
Net earnings $ 84
Taxes on income 63
Interest expense 152
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 27
Losses of less than 50% owned associated companies 1
---------
Adjusted earnings before taxes and fixed charges $ 323
=========
FIXED CHARGES:
Interest expense $ 152
Amortization of debt premium and discount, net (4)
Portion of rents representative of an interest factor 27
Capitalized interest 1
---------
Total fixed charges $ 176
=========
RATIO OF EARNINGS TO FIXED CHARGES 1.8
The above ratio computation reflects the impact of merger related and
consolidation expenses recorded during 1995.
26 of 27
[ARTICLE] 5
[LEGEND]
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and condensed consolidated statement
of earnings and is qualified in its entirety by reference to such
financial statements.
[MULTIPLIER] 1,000,000
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-START] JAN-01-1995
[PERIOD-END] JUN-30-1995
[CASH] 247
[SECURITIES] 0
[RECEIVABLES] 3,583
[ALLOWANCES] 0
[INVENTORY] 3,099
[CURRENT-ASSETS] 7,861
[PP&E] 8,220
[DEPRECIATION] 4,761
[TOTAL-ASSETS] 18,275
[CURRENT-LIABILITIES] 6,003
[BONDS] 2,894
[PREFERRED-MANDATORY] 0
[PREFERRED] 1,000
[COMMON] 200
[OTHER-SE] 4,859
[TOTAL-LIABILITY-AND-EQUITY] 18,275
[SALES] 11,251
[TOTAL-REVENUES] 11,251
[CGS] 10,326
[TOTAL-COSTS] 11,016
[OTHER-EXPENSES] 64
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 152
[INCOME-PRETAX] 147
[INCOME-TAX] 63
[INCOME-CONTINUING] 84
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 84
[EPS-PRIMARY] 0.28
[EPS-DILUTED] 0
