Analysis of Financial Condition and Operating Results
Martin Marietta continued in excellent overall financial
condition during 1994, maintaining adequate capital resources
to operate, compete and grow in anincreasingly challenging and
competitive marketplace. The Corporation had record
earnings from operations of $978 million, a 24% increase over
1993 on sales of $9.87 billion. The Corporation's 1994 after-tax
earnings before cumulative effect of accounting changes increased
41% from 1993. Fully diluted earnings pershare for the year were
$5.05, up from the $3.80 reported for 1993 (before accounting
changes). These increases in earnings and earnings per share
were achieved despite an increase in the Corporation's effective
income tax rate in 1994. The 1994 results include the effect of
two significant nonrecurring transactions: a $118 million gain
from the February 1994 initial public offering of Martin Marietta
Materials, Inc. common stock; and the receipt of a $50 million
termination fee pursuant to a proposed acquisition of Grumman
Corporation. The Corporation's results include the operations of
the former Space Systems Division of General Dynamics Corporation
since its acquisition in May 1994, and the operations of the
former aerospace and certain other businesses of General Electric
Company since its combination with the Corporation in April 1993.
The Corporation's backlog of undelivered orders was $16.6 billion
at year-end.
The Corporation's debt-to-capitalization ratio was reduced
from 39% at December 31, 1993 to 29% at December 31, 1994, with
total shareowners' equity reaching a record $3.4 billion. In
July, the Board of Directors increased the annual dividend on
common stock by six cents, or 6.7%, effective in the third
quarter of 1994. Martin Marietta's return on average shareowners'
equity for 1994 was 20%.
In February 1994, Martin Marietta Materials, Inc.
("Materials") sold through an underwritten initial public
offering approximately 8.8 million shares of its common stock.
After the public sale, the Corporation, through its wholly owned
subsidiary, Martin Marietta Technologies, Inc. ("Technologies"),
owns approximately 81% of the outstanding common stock. A
portion of the proceeds was used to defease in substance $125
million of long-term debt. The Corporation recognized
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a gain of $118 million from the IPO. Additional information
regarding these transactions is presented in Note N to the
consolidated financial statements.
In keeping with the Corporation's key strategy of pursuing of
acquisition and consolidation opportunities in the changing
aerospace and defense marketplace, the Corporation entered into
an Agreement and Plan of Merger with Grumman Corporation
("Grumman") in March 1994, and made an offer to purchase for
cash all outstanding shares of its common stock. Grumman
subsequently accepted a competing offer, and the Corporation
received $50 million, plus reimbursement of expenses, from
Grumman pursuant to the termination provisions of the Agreement
and Plan of Merger.
In December 1993, the Corporation signed an agreement to
purchase the Space Systems Division of General Dynamics
Corporation ("General Dynamics") for approximately $160 million
in cash. This acquisition, which was effective May 1, 1994,
allowed the Corporation to enter the intermediate-lift space
launch vehicle market with the Atlas series of launch vehicles.
The acquisition was accounted for under the purchase method of
accounting, with operating results included with those of the
Corporation beginning on the closing date.
On August 29, 1994, the Corporation, Lockheed Corporation
("Lockheed"), and Lockheed Martin Corporation ("Lockheed Martin")
entered into an Agreement and Plan of Reorganization whereby the
Companies would merge through an exchange of stock (the
"Combination"). On January 11, 1995, the Federal Trade
Commission ("FTC") announced it would not challenge the
Combination based upon a provisionally accepted Consent Order
that is subject to final review at the expiration of a public
comment period on March 28, 1995. The Combination is subject to, among
other things, the approvals of the shareholders of both Martin Marietta
and Lockheed and is expected to close in the first quarter of 1995.
Additional information regarding the proposed transaction is contained
in "Pending Combination with Lockheed Corporation".
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Business Environment
Martin Marietta's major business units principally serve
government and commercial customers in the aerospace and defense
markets. These markets are increasingly affected by global and
regional economic and political conditions, in addition to the
unique characteristics of the defense and aerospace industries.
The Corporation's defense and aerospace businesses are
intensely competitive and are subject to uncertainties, including
those resulting from changes in federal budget priorities,
particularly the size and scope of the national defense
and space budgets. Since 1985, the Federal defense budget for
research, development, test and evaluation, and procurement
activities has been reduced by almost two-thirds in real terms.
This has caused the participants in these industries
to examine opportunities to consolidate in order to maintain or
improve operating efficiencies. In recent years, Martin Marietta
has been an active participant in the consolidation of these
industries, resulting in the combination with the
former aerospace businesses of General Electric Company in 1993
(the "GE Transaction") and the acquisition of the Space Systems
Division of General Dynamics in 1994. These transactions have
helped to more broadly diversify the Corporation's programs and
to emphasize high-priority programs and systems which lessen the
exposure to continued defense- and space-related spending
reductions.
A new phase in the consolidation of the aerospace and
defense industries is now underway whereby successful
companies are seeking to position themselves to be competitive
over several key industry segments and expand in complementary
markets. In that regard, in August 1994, Martin Marietta agreed
to combine its operations with those of Lockheed as a "merger of
equals" through a tax-free exchange of stock. As described
above, this combination will result in the formation of a new
company, Lockheed Martin.
Despite these actions, uncertainty continues to exist regarding
the size and scope of future defense and space budgets and
the resulting impact on specific programs. Some of the
Corporation's products and programs have been subject to
stretch-out, curtailment or termination. Ultimate spending
reductions and funding limitations could result in cancellations,
deferrals or delays in existing or emerging programs. Aerospace
and defense businesses also have been adversely affected by
3 of 15
department of Defense procurement methods requiring greater
investments in certain new programs, the recoverability of which
is sometimes dependent upon future orders or the exercise of
negotiated production options. The Corporation's consolidated
financial statements reflect the resulting increased
demand on working capital. Changes in federal income tax laws in
recent years have also increased tax rates and accelerated cash
payments for taxes relating to long-term contracts.
In September 1993, the Corporation announced a facilities
consolidation plan that is expected to reduce operating costs by
$1.5 billion over five years. Under the plan, approximately five
million square feet of capacity is being eliminated at facilities
in various locations. The consolidation plan, which focused on
facilities, was concurrent with ongoing actions addressing
employment levels. The estimated cost of restructuring and
integrating the former GE Aerospace operations into the
Corporation was recognized as part of the purchase
price allocation.
Certain of Martin Marietta's U.S. Air Force launch
vehicle contracts contain mission success incentive provisions
that could significantly impact the future profitability of these
programs. The provisions enable the Corporation to earn fees for
successful flights, but also significantly reduce fee
availability in the event of unsuccessful missions. Martin
Marietta's commercial launch vehicle business contains marketing,
pricing and other associated risks. Also, the terms of certain
of the Corporation's Department of Energy ("DOE") contracts
provide the opportunity to increase significantly the fee earned
by the Corporation based upon its performance while assuming a
higher level of accountability for its activities in managing DOE
facilities.
As a U.S. Government contractor, the Corporation's government
contracts and operations are subject to government
investigations. The government may investigate and make inquiries
of the Corporation's business practices and conduct audits
of contract performance and cost classification. These
investigations may lead to claims which have been or may be
asserted against the Corporation. Under U.S. Government
procurement regulations and practice, an indictment of a
government contractor could result in the contractor being fined,
suspended for a period of time from eligibility for bidding
4 of 15
on, or for award of, new government contracts; a conviction could
result in debarment for a specified term from government
contracts. Although the outcome of such investigations and
inquiries cannot be predicted, in the opinion of management there
are no claims, audits or investigations pending against the
Corporation that are likely to have a material adverse effect on
either the Corporation's business or its consolidated financial
position or results of operations.
In addition to its core aerospace and defense businesses,
Martin Marietta also serves military and civil government and
commercial customers in the information, communications and
launch service businesses. The Corporation also participates
in the construction aggregates and specialty chemical businesses
through its 81% ownership of Materials. The Corporation has in
recent years expanded its participation in civil and commercial
markets to mitigate slow economic growth and to respond to
pressures to reduce public sector spending levels. The
construction aggregates business of Materials is sensitive to
regional economic conditions and to cyclical swings in
construction spending and changes in levels of federal and
state governments' infrastructure-related spending. Materials'
aggregates markets are concentrated principally in the Southeast
and Midwest and therefore are dependent upon the economic
conditions in those regions. Materials continues to
take advantage of strategic acquisition opportunities that may
arise in the construction aggregates industry. On January 3,
1995, Materials acquired substantially all of the assets of the
construction aggregates business of Dravo Corporation for
approximately $122 million. The transaction has not been
reflected in the Corporation's 1994 consolidated financial
statements, but will be accounted for under the purchase method
of accounting in 1995.
Environmental Matters
The Corporation is a party to various proceedings related to
environmental clean-up issues, including matters at various sites
where it has been designated a Potentially Responsible Party
(PRP) by the U.S. Environmental Protection Agency. In the event
the Corporation is ultimately found to have liability at those
5 of 15
sites where it has been designated a PRP, the Corporation
anticipates that the actual burden for the costs of remediation
will be shared with other liable PRP's. Generally, PRP's that
are ultimately determined to be responsible parties are strictly
liable for site clean-ups and usually agree among themselves
to share, on an allocated basis, the costs and expenses for
investigation and remediation of hazardous materials. Under
existing environmental laws, however, responsible parties are
jointly and severally liable and, therefore, the Corporation is
potentially liable for the full cost of funding such remediation.
In the unlikely event that the Corporation were required to
fund the entire cost of such remediation, the statutory
framework provides that the Corporation may pursue rights of
contribution from the other PRPs. Among the variables
management must assess in evaluating costs associated
with these sites are changing cost estimates, continually
evolving government environmental standards and cost allowability
issues. Therefore, the nature of these environmental matters
makes it extremely difficult to estimate the timing and amount of
any future costs that may be necessary for remedial measures.
The Corporation currently is unable to predict the outcome of
these matters, inasmuch as the actual costs of remedial actions
have not been determined and the allocation of liabilities among
parties that ultimately may be found liable remains uncertain.
The Corporation records appropriate financial statement accruals
for environmental issues in the period in which liability is
established and the amounts can reasonably be estimated. The
Corporation's accrued liability was approximately $50 million at
December 31, 1994. Management believes, however, that it is
unlikely that any additional liability it may incur for known
environmental issues would have a material adverse effect on its
consolidated financial position or results of operations.
The Audited Consolidated Financial Statements and related
information should be read in conjunction with the following review.
Pending Combination with Lockheed Corporation
On August 29, 1994, Martin Marietta, Lockheed and Lockheed
Martin (collectively, the "Companies") entered into an Agreement
and Plan of Reorganization whereby the Companies would merge
through an exchange of stock (the "Combination"). On January
11, 1995, the FTC announced it would not challenge the Combination
based upon a provisionally accepted Consent Order that is
subject to final review at the expiration of a public comment
period on March 28, 1995. The Consent Order prohibits the
the Companies from enforcing the exclusivity provisions
of certain teaming arrangements with other parties, from
sharing proprietary information about competitors between
certain components of the Companies, and from modifying any
of the Companies' products in a discriminatory manner.
The Combination is subject to, among other things, the approvals
of the shareholders of both Martin Marietta and Lockheed.
6 of 15
The Combination, which is expected to close in the first quarter
of 1995, will constitute a tax-free reorganization and qualify
for the pooling of interests method of accounting. Under this
accounting method, the assets and liabilities of Martin Marietta
and Lockheed will be carried forward to Lockheed Martin at their
historical recorded bases. Results of operations of Lockheed
Martin for 1995 will include the results of both Martin Marietta
and Lockheed for the entire fiscal year. When consummated, the
reported balance sheet amounts and results of operations of the
separate corporations for prior periods will be combined,
reclassified and conformed, as appropriate, to reflect the
combined balance sheets and results of operations for Lockheed
Martin. The managements of Martin Marietta and Lockheed
currently estimate that costs and expenses which are expected to
be incurred in connection with consummating the Combination and
integrating the operations of the two Corporations could total
approximately $850 million. See Note B to the consolidated
financial statements. It is anticipated that a significant part
of these costs and expenses will result in charges to the
earnings of Lockheed Martin. The exact timing of these charges
cannot be determined this time; however, it is anticipated that
plans and decisions will be completed and a substantial portion
of the related charges recorded in 1995.
Both Martin Marietta and Lockheed are parties to certain class
action lawsuits filed on behalf of the stockholders of each
corporation. On January 30, 1995, the parties reached an oral
agreement in principle with respect to the terms of a
proposed settlement of such claims, subject to the execution and
delivery of a mutually-satisfactory stipulation of settlement.
Among other things, the proposed settlement contemplates that Lockheed
Martin will pay a regular quarterly dividend on its common stock
of $0.40 (rather than $0.35, as otherwise contemplated) per
share for each of the first three quarters after consummation of
the Combination and approval of the settlement in which the
post-combination earnings (excluding nonrecurring restructure
costs and extraordinary charges and transaction expenses) is
sufficient to pay such a dividend.
7 of 15
Liquidity and Capital
Net working capital increased by $311 million over the
previous year to $949 - million at December 31, 1994.
Shareowners' equity reached a record $3.4 billion
at December 31, 1994, an increase of $494 million over the prior
year-end. Long-term debt was $1.35 billion at year-end, and the
ratio of long-term debt to total capitalization was 29% at
December 31, 1994, compared with 39% a year earlier.
The debt-to-capitalization ratio reduction reflects the repayment
of $300 million of payment obligations in December 1994 as well
as the defeasance in substance of the $125 million 9.5% Notes in
February 1994.
Net cash flow provided by operating activities was $753
million in 1994, $640 million in 1993 and $678 million in 1992.
The 1994 cash flow was principally from operating earnings before
deducting non-cash charges for depreciation, deferred taxes and
intangibles amortization, net of working capital increases. The
1993 cash flow was principally from earnings before deducting
non-cash charges for depreciation, depletion and amortization and
accounting changes, net of income tax payments of $261 million
made during the year. The cash flow from operating activities in
1992 was principally from earnings, depreciation and decreases in
receivables and inventories, net of changes in deferred revenue
and $183 million in income tax payments made during the year.
Net capital expenditures were $269 million in 1994, $215
million in 1993 and $171 million in 1992. In December 1994, the
Board of Directors approved new capital authorizations of $345
million. Net proceeds of $189 million were generated from the
initial public offering of common stock of Materials.
Acquisition activities during 1994 (acquisition of General
Dynamics' Space Systems Division and receipt of the Grumman
termination fee) resulted in a net use of funds of
$125 million. Approximately $136 million of the IPO cash
proceeds was used to defease in substance $125 million of 9.5%
Notes due in 1995, and the Corporation also repaid $300 million
of payment obligations assumed in connection with the GE
Transaction. In 1993, net cash consideration of $883 million was
paid to GE in connection with the GE Transaction. Cash flow of
$109 million was generated in 1993 primarily from the sale of the
majority of the Corporation's portfolio of marketable investment
securities. In December 1993, the Corporation defeased in
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defeased in substance $103 million of payment obligations assumed
in connection with the GE Transaction.
Capital Structure and Resources
Martin Marietta's internal cash flows and access to capital
markets are expected to continue to be sufficient to provide the
capital resources necessary to support operating needs and cover
debt service requirements. The Corporation's senior debt (which
is issued through Technologies and guaranteed by Martin
Marietta) is rated A by Standard & Poor's, A3 by Moody's and A by
Duff & Phelps. Martin Marietta's commercial paper is rated A-1
by Standard & Poor's, P-2 by Moody's and Duff-1 by Duff & Phelps.
Technologies has an $800-million revolving credit facility
guaranteed by Martin Marietta which expires on March 31, 1996.
This borrowing facility may be used for general corporate
purposes. At December 31, 1994, no amounts were outstanding
under the credit facility. If the proposed combination with
Lockheed is consummated, it is anticipated that this credit
facility will be terminated prior to consummation of the
combination and that Lockheed Martin will obtain its own credit
facility. Technologies also has a shelf registration on file
with the Securities and Exchange Commission for the offering of
up to $300 million of debt securities, which may be issued from
time to time. Such debt securities, if issued, would be
obligations of Technologies that would be fully and
unconditionally guaranteed by Martin Marietta. The
Corporation's ability to issue such debt securities at any time
is dependent, among other things, upon market conditions.
In 1994, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 119, "Disclosure
about Derivative Financial Instruments and Fair Value of
Financial Instruments." This Statement prescribes various
types of disclosures based on the purpose for which derivatives
are used. Martin Marietta occasionally purchases foreign
currency forward contracts to protect the value of a
foreign-denominated bid or contract. These financial
9 of 15
instruments are not used for speculative purposes. The financial
exposure related to these instruments at December 31, 1994 is
insignificant.
Under a 1993 authorization from the Board of Directors, the
Corporation may repurchase approximately 32.4 million shares of
its common stock, for use in connection with the Corporation's
Amended Omnibus Securities Award Plan, Performance Sharing Plan
and for general corporate purposes. No shares were repurchased
by the Corporation during 1994 or 1993.
As more fully described in Note H to the consolidated
financial statements, the Corporation adopted a Stockholder
Rights Plan during 1994 pursuant to which the Corporation
distributed one Common Stock Purchase Right with respect to each
share of its Common Stock outstanding as of the close of business
on September 9, 1994, and to each additional share issued
thereafter.
Backlog
The Corporation's firm backlog of undelivered orders was $16.6
billion at December 31, 1994, compared with $16.7 billion at
December 31, 1993 and $8.9 billion at December 31, 1992.
Approximately $9.9 billion, or 59%, of the undelivered orders at
December 31, 1994, are not expected to be filled within one year.
Reported backlog at December 31, 1994, does not include
approximately $4.5 billion of negotiated and priced, but
unexercised, production options for certain of the Corporation's
major aerostructure and satellite contracts and for various
electronics, space, information and services programs. The
exercise of these options is at the discretion of the customer
and, in the case of U.S. Government contracts, dependent on
future government funding.
Reported backlog also does not include approximately $9
billion in equivalent sales under the Corporation's DOE
management and operations contracts, since the management
fee earned is the only item reflected in the consolidated
financial statements. The underlying incurred costs associated
with operating these DOE facilities are not reflected in any way
in the Corporation's reported sales. Martin Marietta has
contracts to manage DOE facilities in Tennessee, Kentucky,
10 of 15
Ohio, Florida, New Mexico, California and New York. Management
fees earned with respect to DOE management and operations
contracts are reflected with the Corporation's Energy and Other
activities for segment reporting purposes.
11 of 15
Results of Operations
Net Sales and Operating Profit by Industry Segment
(millions)
Net Sales Operating Profit
1994 1993 1992* 1994 1993 1992*
Electronics $3,869 $3,931 $1,906 $386 $341 $156
Space 3,496 3,442 3,054 339 254 310
Information 1,523 1,213 395 126 115 19
Services 480 458 80 29 28 2
Materials 502 453 408 97 77 59
Energy and Other 143 117 122 80 43 45
--- --- --- -- -- --
10,013 9,614 5,965 1,057 858 591
Intersegment sales (139) (178) (11)
---- ---- ---
Total operating segments $9,874 $9,436 $5,954
====== ====== ======
Corporate 134** (31) (26)
Investments (4) 8 5
Interest expense (115) (110) (58)
--- --- ---
Earnings before Taxes on Income and Cumulative Effect
of Accounting Changes $1,072 $725 $512
====== ==== ====
<FN>
* Certain amounts for the prior periods have been reclassified to conform
with the 1994 presentation.
** Includes $118 million net pretax gain from the Materials' initial public
offering and $50 million acquisition termination fee received from
Grumman Corporation.
Net sales were approximately $9.9 billion in 1994 and $9.4 billion in 1993. Net
sales increased $438 million, or 5%, in 1994 and $3.48 billion, or 58%, in 1993.
Results of the former aerospace and other businesses of GE have been included
with those of the Corporation since completion of the combination in April 1993.
The Electronics Group, with 1994 sales of $3.9 billion, had a sales decrease
of $62 million, or 2%, in 1994. Sales in 1993 were $3.9 billion, or 106%
higher, than in the previous year. In 1994, sales gains from the performance of
Government Electronic Systems were offset by sales declines at Electronics and
Missiles, Ocean, Radar & Sensor Systems and Postal Systems. The 1993 gains
12 of 15
reflect the inclusion of the former GE Aerospace units,
particularly the Ocean, Radar & Sensor Systems,
Government Electronic Systems and Defense Systems units. The
increased sales from those units was reduced by 1993 sales
declines from Postal Systems and the Group's LANTIRN targeting
and navigation system.
The Space Group had 1994 sales of $3.5 billion, which were $54
million, or 2% higher than in 1993. Sales in 1993 were $3.4
billion, which were $388 million, or 13%, greater than in 1992.
The Air Force Titan IV program, which had a sales decline of 21%
in 1994 after a 7% increase in 1993, was the principal
contributor to the Group's total sales and earnings in both
years. The $11.2-billion Titan IV fixed-price-incentive program
is the Corporation's largest and contributed 1994 sales of $1.22
billion. Sales from the Group's Astro Space unit was the
principal reason for the 1994 sales gain. In 1993, sales from
the Astro Space unit more than offset anticipated revenue
declines on the External Tank program, the completed Commercial
Titan program and several other space launch programs.
The Group's 1994 results include the operations of the former
Space Systems Division of General Dynamics Corporation, which was
acquired by the Corporation on May 1, 1994.
The Information Group, with 1994 sales of $1.5 billion, had a
sales increase of $310 million, or 26%, from 1993. Sales in 1993
were $1.2 billion, or 207% higher than in 1992. The sales
performance of the Group's Management & Data Systems and
Automated Systems units was the principal reason for the increase
in 1994. The 1993 increase reflects the inclusion of these
former GE units.
Services Group sales increased $22 million in 1994 and $378
million in 1993. The increase in 1993 is primarily attributable
to sales from Martin Marietta Services, Inc., included in the
Group's results since April 1993.
Materials sales increased by 11% in both 1994 and 1993, mainly
from sales of construction aggregates, which grew 14% in 1994 and
16% in 1993. Aggregates' sales performance reflects increased
shipments and higher average sales prices, resulting from
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improvements in construction markets and increased production
capacity from acquisitions and new production facilities.
Electronics Group operating profits increased 13% in 1994 and
119% in 1993. The Group's 1994 operating profits were adversely
affected by a loss provision of $83 million to cover additional
costs anticipated on Aero & Naval Systems' Pratt & Whitney jet
engine thrust reverser program. The additional costs are
associated with initial production start-up problems and certain
redesign efforts. The Group's overall operating profit gains in
1994 reflect the performance of the Electronics & Missiles,
Government Electronics Systems and Armament Systems
units, which more than offset the impact of the charge taken on
the Pratt & Whitney program. The gains in 1993 reflect
principally the performance of Ocean, Radar & Sensor Systems,
Government Electronic Systems and Defense Systems.
Operating profits for the Space Group increased 33% in 1994
after decreasing 18% from 1993 to 1992. The Group's 1994 gains
are attributable to increases in operating profits from all of
the Group's business units. In 1993, lower Titan IV and External
Tank program profits were partially offset by Astro Space
earnings. During 1993, Martin Marietta's Space Group suffered
the failure of three satellites and a Titan IV launch vehicle.
The Space Group established a formal Mission Assurance program,
which resulted in strengthened systems engineering, establishment
of formal Mission Success offices within all of its operating
units, expansion of its product integrity engineering system and
increased employee training. The failures did not result in a
material adverse impact on the Corporation's consolidated
financial position or results of operations.
Information Group operating profits increased 10% in 1994 and
505% in 1993. Earnings from Management & Data Systems and
Automated Systems were the primary reasons for the gains in both
years. Services Group operating profits rose $1 million in 1994
and $26 million in 1993.
Materials operating profits increased 26% in 1994 excluding
the effect of the minority interest position resulting from the
initial public offering. Operating profits increased 32%
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in 1993. The 1994 gain is attributable to increases at the
aggregates and magnesia specialties units, while the 1993 gain is
attributable principally to the aggregates operations.
Aggregates profits rose 14% in 1994 and 50% in 1993. These gains
were due to improvements in construction markets and
increased output from acquisitions and new production facilities.
Other income and expenses, net (see Note N to the consolidated
financial statements) increased $162 million in 1994 and $26
million in 1993. The increase in 1994 was principally due to the
pre-tax gain of $118 million which resulted from the Materials
initial public offering and the $50 million fee received from
Grumman pursuant to the termination provisions of the March 6,
1994 Agreement and Plan of Merger. The increase in 1993
was principally attributable to higher royalty income earned in
1993 versus 1992.
Interest expense on debt increased $5 million, or 5%, in 1994
and increased $52 million, or 90%, in 1993. The increase in 1993
was due to the $1.4-billion increase in long-term debt during the
second quarter of 1993, when the Corporation issued $700 million
in long-term debt and assumed $750 million of GE payment
obligations in connection with the GE Transaction.
The effective income tax rate for 1994 was 40.7%, compared
with 37.9% in 1993 and 32.6% in 1992. The Corporation's
effective income tax rates for both 1994 and 1993 are higher than
the current corporate federal income tax rate of 35% due
to differences between book and tax accounting arising from the
amortization of goodwill and state income taxes.
The impact of inflation has become less significant with lower
inflation rates in recent years. When the Corporation incurs
higher costs to replace productive facilities, increased
depreciation generally is countered by increased productivity,
increased selling prices and other offsetting factors.
15 of 15